<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 SEPTEMBER 30, 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)
<TABLE>
<S> <C>
MARYLAND 13-3675988
(State or Other Jurisdiction of Incorporation or Organization) (I.R.S. Employer Identification No.)
TWO NORTH RIVERSIDE PLAZA, CHICAGO, ILLINOIS 60606
(Address of Principal Executive Offices) (Zip Code)
</TABLE>
(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 NOVEMBER 8, 1999, 126,415,291 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>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------------ -----------------
<S> <C> <C>
ASSETS
Investment in real estate
Land $ 1,457,213 $ 1,326,148
Depreciable property 9,951,666 9,519,579
Construction in progress 32,563 96,336
------------------ -----------------
11,441,442 10,942,063
Accumulated depreciation (989,049) (718,491)
------------------ -----------------
Investment in real estate, net of accumulated depreciation 10,452,393 10,223,572
Real estate held for disposition 13,457 29,886
Cash and cash equivalents 62,805 3,965
Investment in mortgage notes, net 85,295 88,041
Rents receivable 1,602 4,758
Deposits - restricted 128,808 69,339
Escrow deposits - mortgage 73,236 68,725
Deferred financing costs, net 34,549 27,569
Other assets 196,965 184,405
------------------ -----------------
TOTAL ASSETS $ 11,049,110 $ 10,700,260
------------------ -----------------
------------------ -----------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Mortgage notes payable $ 2,456,349 $ 2,341,011
Notes, net 2,299,197 2,049,516
Lines of credit 90,000 290,000
Accounts payable and accrued expenses 129,600 100,926
Accrued interest payable 62,615 46,176
Rents received in advance and other liabilities 59,795 54,616
Security deposits 35,715 37,439
Distributions payable 121,145 18,755
------------------ -----------------
TOTAL LIABILITIES 5,254,416 4,938,439
------------------ -----------------
COMMITMENTS AND CONTINGENCIES
Minority Interests 460,463 431,374
------------------ -----------------
Shareholders' equity:
Preferred Shares of beneficial interest, $.01 par value;
100,000,000 shares authorized; 26,106,652 shares issued
and outstanding as of September 30, 1999 and 29,097,951
shares issued and outstanding as of December 31, 1998 1,335,791 1,410,574
Common Shares of beneficial interest, $.01 par value;
350,000,000 shares authorized; 122,387,184 shares issued
and outstanding as of September 30, 1999 and 118,230,009
shares issued and outstanding as of December 31, 1998 1,224 1,182
Paid in capital 4,310,913 4,169,102
Employee notes (4,729) (4,873)
Distributions in excess of accumulated earnings (308,968) (245,538)
------------------ -----------------
Total shareholders' equity 5,334,231 5,330,447
------------------ -----------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 11,049,110 $ 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>
NINE MONTHS ENDED QUARTER ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------------- --------------------------
1999 1998 1999 1998
------------- -------------- ------------- ------------
<S> <C> <C> <C> <C>
REVENUES
Rental income $ 1,243,958 $ 901,087 $ 424,780 $ 329,717
Fee and asset management 3,432 4,204 1,018 1,414
Interest income - investment in mortgage notes 8,502 14,405 2,858 4,184
Interest and other income 17,655 12,803 6,532 3,934
------------- -------------- ------------- ------------
Total revenues 1,273,547 932,499 435,188 339,249
EXPENSES
Property and maintenance 300,798 225,053 103,933 86,750
Real estate taxes and insurance 126,304 88,552 41,789 32,068
Property management 42,817 38,546 14,844 13,539
Fee and asset management 2,301 3,344 677 1,097
Depreciation 297,505 208,394 100,371 76,484
Interest:
Expense incurred 241,516 170,143 83,017 64,492
Amortization of deferred financing costs 2,773 1,962 1,112 687
General and administrative 15,736 14,488 5,022 4,655
------------- -------------- ------------- ------------
Total expenses 1,029,750 750,482 350,765 279,772
Income before gain on disposition of properties, net,
extraordinary item and allocation to
Minority Interests 243,797 182,017 84,423 59,477
Gain on disposition of properties, net 64,315 12,717 18,508 1,625
------------- -------------- ------------- ------------
Income before extraordinary item and allocation to
Minority Interests 308,112 194,734 102,931 61,102
Loss on early extinguishment of debt (451) - - -
------------- -------------- ------------- ------------
Income before allocation to Minority Interests 307,661 194,734 102,931 61,102
Income allocated to Minority Interests (21,554) (12,840) (7,040) (4,530)
------------- -------------- ------------- ------------
Net income 286,107 181,894 95,891 56,572
Preferred distributions (85,118) (65,075) (28,007) (21,691)
------------- -------------- ------------- ------------
Net income available to Common Shares $ 200,989 $ 116,819 $ 67,884 $ 34,881
------------- -------------- ------------- ------------
------------- -------------- ------------- ------------
Weighted average Common Shares outstanding 120,621 95,965 122,312 97,089
------------- -------------- ------------- ------------
------------- -------------- ------------- ------------
Distributions declared per Common
Share outstanding $ 2.18 $ 2.01 $ 0.76 $ 0.67
------------- -------------- ------------- ------------
------------- -------------- ------------- ------------
Net income per weighted average Common Share
outstanding $ 1.67 $ 1.22 $ 0.56 $ 0.36
------------- -------------- ------------- ------------
Net income per weighted average Common Share
outstanding - assuming dilution $ 1.66 $ 1.21 $ 0.55 $ 0.36
------------- -------------- ------------- ------------
------------- -------------- ------------- ------------
</TABLE>
SEE ACCOMPANYING NOTES
3
<PAGE>
EQUITY RESIDENTIAL PROPERTIES TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------------------
1999 1998
---------------- ----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 286,107 $ 181,894
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING
ACTIVITIES:
Income allocated to Minority Interests 21,554 12,840
Depreciation 297,505 208,394
Amortization of deferred financing costs 2,773 1,962
Amortization of discounts and premiums on debt (1,746) (1,505)
Amortization of treasury locks and options on debt 768 1,543
Amortization of discount on investment in mortgage notes - (1,900)
Gain on disposition of properties, net (64,315) (12,717)
CHANGES IN ASSETS AND LIABILITIES:
Decrease (increase) in rents receivable 2,480 (676)
(Increase) in deposits - restricted (4,344) (7,033)
Decrease (increase) in other assets 41,030 (24)
Increase in accounts payable and accrued expenses 32,010 29,626
Increase in accrued interest payable 16,439 20,436
Increase in rents received in advance and other liabilities 7,727 8,334
(Decrease) increase in security deposits (1,735) 8,365
---------------- ----------------
Net cash provided by operating activities 636,253 449,539
---------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in real estate, net (469,585) (945,960)
Improvements to real estate (93,456) (60,614)
Additions to non-real estate property (5,922) (7,928)
Interest capitalized to real estate developments (1,157) (1,058)
Proceeds from disposition of real estate, net 197,125 75,976
Decrease in investment in mortgage notes 2,746 1,842
Increase in deposits on real estate acquisitions, net (55,201) (7,433)
Increase in mortgage deposits (4,750) (19,014)
Investment in limited partnerships (26,673) (21,708)
Decrease in mortgage receivables 7,150 -
Purchase of management contract rights (285) (119)
Costs related to Mergers (4,598) (4,528)
Other investing activities (15,075) (18,975)
---------------- ----------------
Net cash used by investing activities (469,681) (1,009,519)
---------------- ----------------
</TABLE>
SEE ACCOMPANYING NOTES
4
<PAGE>
EQUITY RESIDENTIAL PROPERTIES TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------------------
1999 1998
----------------- ----------------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Loan and bond acquisition costs (8,423) (3,428)
MORTGAGE NOTES PAYABLE:
Proceeds 188,569 -
Lump sum payoffs (54,231) (46,901)
Monthly principal payments (13,041) (8,810)
NOTES, NET:
Proceeds 298,014 550,357
Payoffs (125,000) -
LINES OF CREDIT:
Proceeds 959,000 445,000
Payments (1,159,000) (370,000)
Proceeds from sale of Common Shares 7,099 423,796
Proceeds from Sale of Preferred Shares/Units, net 39,000 -
Proceeds from exercise of options 27,542 5,172
Common Shares repurchased - (94,705)
Payment of offering costs, net (426) (10,379)
DISTRIBUTIONS:
Common Shares (171,488) (129,798)
Preferred Shares/Units (84,979) (66,576)
Minority Interests (18,443) (13,264)
Principal receipts on employee notes 144 234
Principal receipts on pledged notes receivable 7,931 -
----------------- ----------------
Net cash (used by) provided by financing activities (107,732) 680,698
----------------- ----------------
Net increase in cash and cash equivalents 58,840 120,718
Cash and cash equivalents, beginning of period 3,965 33,295
----------------- ----------------
Cash and cash equivalents, end of period $ 62,805 $ 154,013
----------------- ----------------
----------------- ----------------
SUPPLEMENTAL INFORMATION:
Cash paid during the period for interest $ 226,234 $ 149,707
----------------- ----------------
----------------- ----------------
Mortgage loans assumed and/or entered into through
acquisitions of real estate $ 69,885 $ 433,492
----------------- ----------------
----------------- ----------------
Net real estate contributed in exchange for OP Units
or Preference Units $ 28,232 $ 164,149
----------------- ----------------
----------------- ----------------
Transfers to real estate held for disposition $ 13,457 $ -
----------------- ----------------
----------------- ----------------
Refinancing of mortgage notes payable in favor of notes, net $ 75,790 $ -
----------------- ----------------
----------------- ----------------
</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 September 30, 1999, the Company controlled a portfolio of 652
multifamily 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 as of September 30, 1999, the statements of
operations for the nine months and quarter ended September 30, 1999 and cash
flows for the nine months ended September 30, 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, Merry Land DownREIT I LP and
EQR-Mosaic, LLC, 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
The following table presents the changes in the Company's issued and
outstanding Common Shares for the nine months ended September 30, 1999:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------
<S> <C>
Common Shares outstanding at January 1, 1999 118,230,009
Common Shares Issued:
---------------------
Conversion of Series E Preferred Shares 1,669
Conversion of Series H Preferred Shares 5,856
Conversion of Series I Preferred Shares 1,912,263
Conversion of Series J Preferred Shares 122
Employee Share Purchase Plan 120,831
Dividend Reinvestment - DRIP Plan 18,815
Share Purchase - DRIP Plan 17,784
Exercise of options 807,458
Restricted share grants, net 294,341
Conversion of OP Units 946,743
Profit-sharing contribution/401(k) Plan 30,260
Common Shares other, net 1,033
-----------------------------------------------------------------------------------
Common Shares outstanding at September 30, 1999 122,387,184
-----------------------------------------------------------------------------------
</TABLE>
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 September 30, 1999, the Minority Interests held 12,754,820
OP Units. As a result, the Minority Interests had a 9.44% interest in the
Operating Partnership at September 30, 1999.
Assuming conversion of all OP Units into Common Shares, total Common
Shares outstanding at September 30, 1999 would have been 135,142,004.
In connection with certain acquisitions during the nine months ended
September 30, 1999, the Operating Partnership issued 28,795 Series A Junior
Convertible Preference Units and 7,367 Series B Junior Convertible Preference
Units having a combined value of approximately $3.0 million. These units
ultimately will convert to OP Units in accordance with the respective term
sheet agreements. The value of these preference units is included in Minority
Interests in the Consolidated Balance Sheets and the distributions incurred
are included in preferred distributions in the Consolidated Statements of
Operations.
On September 27, 1999, the Operating Partnership, through a
wholly-owned entity called EQR-Mosaic LLC, issued 800,000 units of 8.00%
Series A Cumulative Convertible Redeemable Preference Interests with an
equity value of $40 million. EQR-Mosaic LLC received $39 million in net
proceeds from this transaction. The liquidation value of these units is $50
per unit. The 800,000 units are convertible into 800,000 shares of 8.00%
Series M Cumulative Redeemable Preferred Shares of Beneficial Interest of the
Company. The Series M Preferred Shares are not
7
<PAGE>
EQUITY RESIDENTIAL PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
convertible to EQR Common Shares. Dividends for the Series A Preference
Interests or the Series M Preferred Shares are payable quarterly at the rate
of $4.00 per unit per year. The value of these preference interests is
included in Minority Interests in the Consolidated Balance Sheets and the
distributions incurred are included in preferred distributions in the
Consolidated Statements of Operations.
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 following table presents the Company's issued and outstanding
Preferred Shares as of September 30, 1999 and December 31, 1998 (amounts are
in thousands):
8
<PAGE>
EQUITY RESIDENTIAL PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------
SEPTEMBER 30, 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; liquidation $ 153,000 $ 153,000
value $25 per share; 6,120,000 shares issued and outstanding
at September 30, 1999 and December 31, 1998
9 1/8% Series B Cumulative Redeemable Preferred; liquidation 125,000 125,000
value $250 per share; 500,000 shares issued and outstanding
at September 30, 1999 and December 31, 1998
9 1/8% Series C Cumulative Redeemable Preferred; liquidation 115,000 115,000
value $250 per share; 460,000 shares issued and outstanding
at September 30, 1999 and December 31, 1998
8.60% Series D Cumulative Redeemable Preferred; liquidation 175,000 175,000
value $250 per share; 700,000 shares issued and outstanding
at September 30, 1999 and December 31, 1998
Series E Cumulative Convertible Preferred; liquidation value 99,850 99,925
$25 per share; 3,994,000 and 3,997,000 shares issued and
outstanding at September 30, 1999 and December 31, 1998,
respectively
9.65% Series F Cumulative Redeemable Preferred; liquidation 57,500 57,500
value $25 per share; 2,300,000 shares issued and outstanding
at September 30, 1999 and December 31, 1998
7 1/4% Series G Convertible Cumulative Preferred; liquidation 316,250 316,250
value $250 per share; 1,265,000 shares issued and outstanding
at September 30, 1999 and December 31, 1998
7.00% Series H Cumulative Convertible Preferred; liquidation 3,711 3,914
value $25 per share; 148,452 and 156,551 shares issued and
outstanding at September 30, 1999 and December 31, 1998,
respectively
8.82% Series I Cumulative Convertible Preferred; liquidation 25,500 100,000
value $25 per share; 1,020,000 and 4,000,000 shares issued and
outstanding at September 30, 1999 and December 31, 1998,
1998, respectively
8.60% Series J Cumulative Convertible Preferred; liquidation 114,980 114,985
value $25 per share; 4,599,200 and 4,599,400 shares issued and
outstanding at September 30, 1999 and December 31, 1998,
respectively
8.29% Series K Cumulative Redeemable Preferred; liquidation 50,000 50,000
value $50 per share; 1,000,000 shares issued and outstanding
at September 30, 1999 and December 31, 1998
7.625% Series L Cumulative Redeemable Preferred; liquidation 100,000 100,000
value $25 per share; 4,000,000 shares issued and outstanding
at September 30, 1999 and December 31, 1998
--------------------------------------------------------------------------------------------------------------
$ 1,335,791 $ 1,410,574
--------------------------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE>
EQUITY RESIDENTIAL PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
The following table summarizes the distributions paid to Preferred and
Depositary Shareholders and Common Shareholders related to the nine months ended
September 30, 1999:
<TABLE>
<CAPTION>
FOR THE
QUARTER OR
DIVIDEND AMOUNT DATE PAID PERIOD ENDED RECORD DATE
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Series A Preferred Share holders $0.5859380 04/15/99 03/31/99 03/19/99
$0.5859370 07/15/99 06/30/99 06/18/99
$0.5859380 10/15/99 09/30/99 09/20/99
Series B Depositary Share holders $0.5703130 04/15/99 03/31/99 03/19/99
$0.5703120 07/15/99 06/30/99 06/18/99
$0.5703130 10/15/99 09/30/99 09/20/99
Series C Depositary Share holders $0.5703130 04/15/99 03/31/99 03/19/99
$0.5703120 07/15/99 06/30/99 06/18/99
$0.5703130 10/15/99 09/30/99 09/20/99
Series D Depositary Share holders $0.5375000 04/15/99 03/31/99 03/19/99
$0.5375000 07/15/99 06/30/99 06/18/99
$0.5375000 10/15/99 09/30/99 09/20/99
Series E Preferred Share holders $0.4375000 04/01/99 03/31/99 03/19/99
$0.4375000 07/01/99 06/30/99 06/18/99
$0.4375000 10/01/99 09/30/99 09/20/99
Series F Preferred Share holders $0.6031250 04/15/99 03/31/99 03/19/99
$0.6031250 07/15/99 06/30/99 06/18/99
$0.6031250 10/15/99 09/30/99 09/20/99
Series G Depositary Share holders $0.4531250 04/15/99 03/31/99 03/19/99
$0.4531250 07/15/99 06/30/99 06/18/99
$0.4531250 10/15/99 09/30/99 09/20/99
Series H Preferred Share holders $0.4375000 03/31/99 03/31/99 03/19/99
$0.4375000 06/30/99 06/30/99 06/18/99
$0.4375000 09/30/99 09/30/99 09/20/99
Series I Preferred Share holders $0.5512500 03/31/99 03/31/99 03/19/99
$0.5512500 06/30/99 06/30/99 06/18/99
$0.5512500 09/30/99 09/30/99 09/20/99
Series J Preferred Share holders $0.5375000 03/31/99 03/31/99 03/19/99
$0.5375000 06/30/99 06/30/99 06/18/99
$0.5375000 09/30/99 09/30/99 09/20/99
Series K Preferred Share holders $1.0362500 03/31/99 03/31/99 03/19/99
$1.0362500 06/30/99 06/30/99 06/18/99
$1.0362500 09/30/99 09/30/99 09/20/99
Series L Preferred Share holders $0.4765625 03/31/99 03/31/99 03/19/99
$0.4765625 06/30/99 06/30/99 06/18/99
$0.4765625 09/30/99 09/30/99 09/20/99
Common Shareholders $ 0.71 04/09/99 03/31/99 03/19/99
$ 0.71 07/09/99 06/30/99 06/18/99
$ 0.76 10/08/99 09/30/99 09/20/99
</TABLE>
10
<PAGE>
EQUITY RESIDENTIAL PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
4. REAL ESTATE ACQUISITIONS
During the nine months ended September 30, 1999, the Company acquired
the nineteen Properties listed below, of which eleven were acquired from
unaffiliated third parties and eight were acquired from an affiliated party. In
connection with certain of the acquisitions listed below, the Company assumed
and/or entered into new mortgage indebtedness of approximately $196.3 million,
issued OP Units having a value of approximately $25.2 million and issued Junior
Convertible Preference Units having a value of approximately $3.0 million. The
cash portion of these transactions was funded primarily from proceeds received
from the disposition of certain properties and working capital.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
PURCHASE
PRICE
DATE NUMBER (IN
ACQUIRED PROPERTY LOCATION OF UNITS 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
04/28/99 Pine Tree Club Wildwood, MO 150 7,988
04/28/99 Westbrooke Village I & II Manchester, MO 252 12,642
04/29/99 Brookside Frederick, MD 228 10,809
04/30/99 Skyview Rancho Santa Margarita, CA 260 21,800
05/20/99 Lincoln at Defoors Atlanta, GA 300 25,500
05/25/99 Rosecliff Quincy, MA 156 18,263
05/25/99 Canyon Crest Santa Clarita, CA 158 12,500
06/29/99 Greentree I Glen Burnie, MD 350 15,625
06/29/99 Greentree III Glen Burnie, MD 207 9,598
07/14/99 Brookdale Village Naperville, IL 252 19,600
07/29/99 Longfellow Place* Boston, MA 710 237,000
07/30/99 Greentree II Glen Burnie, MD 239 10,907
- -------------------------------------------------------------------------------------------------------------
5,126 $526,772
- -------------------------------------------------------------------------------------------------------------
</TABLE>
* This acquisition also included approximately 264,000 square feet of office
and retail space and two parking garages.
5. REAL ESTATE DISPOSITIONS
During the nine months ended September 30, 1999, the Company disposed
of the twenty-one Properties listed below to unaffiliated third parties. The
Company recognized a net gain for financial reporting purposes of approximately
$64.3 million.
11
<PAGE>
EQUITY RESIDENTIAL PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
<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
05/06/99 Sandstone at Bear Creek Euless, TX 40 2,075
05/12/99 La Costa Brava/Cedar Cove Jacksonville, FL 464 17,650
05/18/99 Lands End Pacifica , CA 260 30,100
07/01/99 The Willows Knoxville, TN 250 11,950
07/26/99 Tivoli Lakes Club Deerfield Beach, FL 278 17,000
07/29/99 The Seasons Boise, ID 120 6,026
08/19/99 Kingswood Manor San Antonio, TX 129 3,800
08/19/99 Hampton Green San Antonio, TX 293 8,000
08/19/99 Trails End San Antonio, TX 308 9,100
08/19/99 Waterford San Antonio, TX 133 4,500
09/23/99 Southbank Mesa, AZ 113 4,550
09/30/99 Governor's Place Augusta, GA 190 5,500
09/30/99 Maxwell House Augusta, GA 216 3,500
----------------------------------------------------------------------------------------------------------
4,535 $200,276
----------------------------------------------------------------------------------------------------------
</TABLE>
6. COMMITMENTS TO ACQUIRE/DISPOSE OF REAL ESTATE
As of September 30, 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 an agreement to acquire one
multifamily property containing 288 units from an unaffiliated third party. The
expected purchase price is approximately $15.5 million.
As of September 30, 1999, in addition to the Properties that were
subsequently disposed of as discussed in Note 14 of the Notes to Consolidated
Financial Statements, the Company entered into separate agreements to dispose of
sixteen multifamily properties containing 4,992 units to unaffiliated third
parties. The expected combined disposition price is approximately $253.6
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 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.
12
<PAGE>
EQUITY RESIDENTIAL PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED QUARTER ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------------- ---------------------------------
1999 1998 1999 1998
--------------------------------- ---------------------------------
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
NUMERATOR:
Income before gain on disposition of properties, net,
extraordinary item, allocation of income to
Minority Interests and preferred distributions $ 243,797 $ 182,017 $ 84,423 $ 59,477
Allocation of income to Minority Interests (21,554) (12,840) (7,040) (4,530)
Distributions to preferred shareholders (85,118) (65,075) (28,007) (21,691)
--------------------------------- ---------------------------------
Income before gain on disposition of properties, net 137,125 104,102 49,376 33,256
and extraordinary item
Gain on disposition of properties, net 64,315 12,717 18,508 1,625
Loss on early extinguishment of debt (451) - - -
--------------------------------- ---------------------------------
Numerator for net income per weighted average 200,989 116,819 67,884 34,881
Common Share outstanding
Effect of dilutive securities:
Allocation of income to Minority Interests 21,554 12,840 7,040 4,530
--------------------------------- ---------------------------------
Numerator for net income per weighted average
Common Share outstanding - assuming dilution $ 222,543 $ 129,659 $ 74,924 $ 39,411
--------------------------------- ---------------------------------
--------------------------------- ---------------------------------
DENOMINATOR:
Denominator for net income per weighted
average Common Share outstanding 120,621 95,965 122,312 97,089
Effect of dilutive securities:
Contingent incremental employee share options 714 922 660 628
OP Units 12,869 10,665 12,681 12,599
--------------------------------- ---------------------------------
Denominator for net income per weighted average
Common Share outstanding - assuming dilution 134,204 107,552 135,653 110,316
--------------------------------- ---------------------------------
--------------------------------- ---------------------------------
Net income per weighted average Common
Share outstanding $ 1.67 $ 1.22 $ 0.56 $ 0.36
--------------------------------- ---------------------------------
--------------------------------- ---------------------------------
Net income per weighted average Common
Share outstanding - assuming dilution $ 1.66 $ 1.21 $ 0.55 $ 0.36
--------------------------------- ---------------------------------
--------------------------------- ---------------------------------
</TABLE>
13
<PAGE>
EQUITY RESIDENTIAL PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended Quarter Ended
September 30, September 30,
--------------------------------- ---------------------------------
1999 1998 1999 1998
--------------------------------- ---------------------------------
(Amounts in thousands except per share amounts)
<S> <C> <C> <C> <C>
NET INCOME PER WEIGHTED AVERAGE COMMON SHARE OUTSTANDING:
Income before gain on disposition of properties, net
and extraordinary item per weighted average
Common Share outstanding $ 1.19 $ 1.10 $ 0.42 $ 0.34
Gain on disposition of properties, net 0.48 0.12 0.14 0.02
Loss on early extinguishment of debt - - - -
---------------- --------------- -------------- ---------------
Net income per weighted average Common
Share outstanding $ 1.67 $ 1.22 $ 0.56 $ 0.36
---------------- --------------- -------------- ---------------
---------------- --------------- -------------- ---------------
NET INCOME PER WEIGHTED AVERAGE COMMON SHARE
OUTSTANDING - ASSUMING DILUTION:
Income before gain on disposition of properties, net
and extraordinary item per weighted average
Common Share outstanding - assuming dilution $ 1.18 $ 1.09 $ 0.42 $ 0.34
Gain on disposition of properties, net 0.48 0.12 0.13 0.02
Loss on early extinguishment of debt - - - -
---------------- --------------- -------------- ---------------
Net income per weighted average Common
Share outstanding - assuming dilution $ 1.66 $ 1.21 $ 0.55 $ 0.36
---------------- --------------- -------------- ---------------
---------------- --------------- -------------- ---------------
</TABLE>
CONVERTIBLE PREFERRED SHARES AND JUNIOR CONVERTIBLE PREFERENCE UNITS THAT COULD
BE CONVERTED INTO 12,357,124 AND 7,623,525 WEIGHTED COMMON SHARES FOR THE NINE
MONTHS ENDED SEPTEMBER 30, 1999 AND 1998, RESPECTIVELY, AND 11,365,744 AND
7,623,326 WEIGHTED COMMON SHARES FOR THE QUARTER ENDED SEPTEMBER 30, 1999 AND
1998, RESPECTIVELY, WERE OUTSTANDING BUT WERE NOT INCLUDED IN THE COMPUTATION OF
DILUTED EARNINGS PER SHARE BECAUSE THE EFFECTS WOULD BE ANTI-DILUTIVE.
14
<PAGE>
EQUITY RESIDENTIAL PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
8. MORTGAGE NOTES PAYABLE
On June 1, 1999, the Company refinanced the debt on four existing
properties with a net increase in mortgage indebtedness of approximately $18.0
million.
On July 29, 1999, the Company obtained new mortgage financing on eleven
previously unencumbered properties in the amount of $126.5 million.
On August 31, 1999, the Company refinanced the debt totaling $120.8
million on ten existing properties. In addition, five previously unencumbered
properties cross-collateralize each of the new mortgage notes.
During the nine months ended September 30, 1999, the Company repaid the
outstanding mortgage balances on two Properties in the aggregate amount of $9.3
million. In connection with the above transactions, the Company incurred
prepayment penalties of $0.5 million, which have been classified as losses on
early extinguishment of debt.
As of September 30, 1999, the Company had outstanding mortgage
indebtedness of approximately $2.5 billion encumbering 234 of the Properties.
The carrying value of such Properties (net of accumulated depreciation of $376
million) was approximately $4.0 billion. The mortgage notes payables are
generally due in monthly installments of principal and interest. In connection
with the Properties acquired during the nine months ended September 30, 1999,
the Company assumed the outstanding mortgage balances on eight Properties in the
aggregate amount of $69.9 million.
As of September 30, 1999, scheduled maturities for the Company's
outstanding mortgage indebtedness are at various dates through October 1, 2030.
During the nine months ended September 30, 1999, the effective interest cost on
all of the Company's debt was 7.0%.
9. NOTES
On May 15, 1999, the Company repaid the 1999 Notes.
On June 17, 1999, the Company refinanced the bond indebtedness
collateralized by four existing properties. The bond indebtedness on all four
properties totaling $75.8 million is now unsecured.
In June 1999, the Operating Partnership issued $300 million of
redeemable unsecured fixed rate notes (the "June 2004 Notes") in connection with
the Debt Shelf Registration in a public debt offering (the "Seventh Public Debt
Offering"). The June 2004 Notes were issued at a discount, which is being
amortized over the life of the June 2004 Notes on a straight-line basis. The
June 2004 Notes are due June 23, 2004. The annual interest rate on the June 2004
Notes is 7.10%, which is payable semiannually in arrears on December 23 and June
23, commencing December 23, 1999. The Operating Partnership received net
proceeds of approximately $298 million in connection with this issuance.
15
<PAGE>
EQUITY RESIDENTIAL PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
As of September 30, 1999, the Company had outstanding unsecured notes
of approximately $2.3 billion, net of a $4.8 million discount and including a
$7.6 million premium.
10. LINES OF CREDIT
On August 12, 1999 the Company obtained a new three year $700 million
unsecured revolving credit facility, with Bank of America Securities LLC and
Chase Securities Inc. acting as joint lead arrangers, maturing August 11, 2002.
The new line of credit replaced the Company's $500 million unsecured revolving
credit facility, as well as the $120 million unsecured revolving credit
facility, which the Company assumed in the MRY Merger. The prior existing
revolving credit facilities were repaid in full and terminated upon the closing
of the new facility. As of September 30, 1999, $90 million was outstanding under
this new facility, bearing interest at a weighted average rate of 5.86%.
11. DEPOSITS - RESTRICTED
Deposits-restricted as of September 30, 1999 primarily included a
deposit in the amount of $25 million held in a third party escrow account to
provide collateral for third party construction financing in connection with two
separate joint venture agreements. Also, approximately $78.5 million was held in
third party escrow accounts, representing proceeds received in connection with
the Company's disposition of thirteen properties and earnest money deposits made
for one additional acquisition. In addition, approximately $25.3 million was for
tenant security, utility deposits, and other deposits for certain of the
Company's Properties.
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 regard to the joint venture agreements with two multifamily
residential real estate developers during the nine months ended September 30,
1999, the Company funded a total of $81 million and during the fourth quarter of
1999 the Company expects to fund approximately $24.6 million in connection with
these agreements. Also in connection with these two agreements, the Company has
an obligation to fund up to an additional $55 million to guarantee third party
construction financing.
16
<PAGE>
EQUITY RESIDENTIAL PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
In regard to certain other properties that were under development
and/or expansion during the nine months ended September 30, 1999, the Company
funded $32.2 million. During the fourth quarter of 1999, the Company expects to
fund $19.8 million related to the continued development and/or expansion of as
many as five Properties.
In regard to certain properties that were under earnout/development
agreements, during the nine months ended September 30, 1999, the Company funded
the following:
- - $17.2 million relating to the acquisition of Copper Canyon Apartments, which
included a $1.0 million earnout payment to the developer;
- - $24.9 million relating to the acquisition of Skyview Apartments, which
included a $3.1 million earnout payment to the developer; and
- - $18.3 million relating to the acquisition of Rosecliff Apartments.
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 September 30, 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. On June 24, 1999,
MRYP Spinco repaid the Senior Note outstanding balance of $18.3 million and
there is no further obligation by either party in connection with this
agreement.
Also, in connection with the MRY Merger, 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. On August
23, 1999, the Company sold its interest in these six properties to MRYP Spinco
and there is no further obligation by either party in connection with these
agreements.
13. REPORTABLE SEGMENTS
The following tables set forth the reconciliation of net income and
total assets for the Company's reportable segments for the nine months and
quarter ended September 30, 1999 and net income for the nine months and quarter
ended September 30, 1998.
17
<PAGE>
EQUITY RESIDENTIAL PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1999 RENTAL REAL CORPORATE/
(AMOUNTS IN THOUSANDS) ESTATE (1) OTHER (2) CONSOLIDATED
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Rental income $ 1,243,958 $ - $ 1,243,958
Property and maintenance expense (300,798) - (300,798)
Real estate tax and insurance expense (126,304) - (126,304)
Property management expense (42,817) - (42,817)
-----------------------------------------------------
Net operating income 774,039 - 774,039
Fee and asset management income - 3,432 3,432
Interest income - investment in mortgage notes - 8,502 8,502
Interest and other income - 17,655 17,655
Fee and asset management expense - (2,301) (2,301)
- (5,125) (5,125)
Interest expense:
Expense incurred - (241,516) (241,516)
Amortization of deferred financing costs (2,773)
- (2,773)
General and administrative expense - (15,736) (15,736)
Preferred distributions - (85,118) (85,118)
Adjustment for depreciation expense related
to equity in unconsolidated joint ventures - 710 710
-----------------------------------------------------
Funds from operations available to Common Shares
and OP Units 774,039 (322,270) 451,769
Depreciation expense on real estate assets (292,380) (292,380)
Gain on disposition of properties, net 64,315 64,315
Loss on early extinguishment of debt (451) (451)
Income allocated to Minority Interests (21,554) (21,554)
Adjustment for depreciation expense related
to equity in unconsolidated joint ventures - (710) (710)
-----------------------------------------------------
Net income available to Common Shares $ 545,974 $ (344,985) $ 200,989
-----------------------------------------------------
-----------------------------------------------------
Investment in real estate, net of accumulated depreciation
as of September 30, 1999 $ 10,434,274 $ 18,119 $ 10,452,393
-----------------------------------------------------
-----------------------------------------------------
Total assets as of September 30, 1999 $ 10,447,731 $ 601,379 $ 11,049,110
-----------------------------------------------------
-----------------------------------------------------
</TABLE>
18
<PAGE>
EQUITY RESIDENTIAL PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1998 RENTAL REAL CORPORATE/
(AMOUNTS IN THOUSANDS) ESTATE (1) OTHER (2) CONSOLIDATED
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Rental income $ 901,087 $ - $ 901,087
Property and maintenance expense (225,053) - (225,053)
Real estate tax and insurance expense (88,552) - (88,552)
Property management expense (38,546) - (38,546)
-----------------------------------------------------
Net operating income 548,936 - 548,936
Fee and asset management income 4,204 4,204
Interest income - investment in mortgage notes 14,405 14,405
Interest and other income 12,803 12,803
Fee and asset management expense (3,344) (3,344)
Depreciation expense on non-real estate assets - (3,993) (3,993)
Interest expense:
Expense incurred - (170,143) (170,143)
Amortization of deferred financing costs - (1,962) (1,962)
General and administrative expense - (14,488) (14,488)
Preferred distributions - (65,075) (65,075)
Adjustment for amortization of deferred financing costs
related to predecessor business - 35 35
----------------------------------------------------
Funds from operations available to Common Shares
and OP Units 548,936 (227,558) 321,378
Depreciation expense on real estate assets (204,401) - (204,401)
Gain on disposition of properties, net 12,717 - 12,717
Income allocated to Minority Interests - (12,840) (12,840)
Adjustment for amortization of deferred financing costs
related to predecessor business - (35) (35)
----------------------------------------------------
Net income available to Common Shares $ 357,252 $ (240,433) $ 116,819
-----------------------------------------------------
-----------------------------------------------------
</TABLE>
19
<PAGE>
EQUITY RESIDENTIAL PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED SEPTEMBER 30, 1999 RENTAL REAL CORPORATE/
(AMOUNTS IN THOUSANDS) ESTATE (1) OTHER (2) CONSOLIDATED
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Rental income $ 424,780 $ - $ 424,780
Property and maintenance expense (103,933) - (103,933)
Real estate tax and insurance expense (41,789) - (41,789)
Property management expense (14,844) - (14,844)
---------------------------------------------------
Net operating income 264,214 - 264,214
Fee and asset management income - 1,018 1,018
Interest income - investment in mortgage notes - 2,858 2,858
Interest and other income - 6,532 6,532
Fee and asset management expense- - (677) (677)
Depreciation expense on non-real estate assets- - (1,702) (1,702)
Interest expense:
Expense incurred - (83,017) (83,017)
Amortization of deferred financing costs- - (1,112) (1,112)
General and administrative expense- - (5,022) (5,022)
Preferred distributions - (28,007) (28,007)
Adjustment for depreciation expense related
to equity in unconsolidated joint ventures - 159 159
---------------------------------------------------
Funds from operations available to Common Shares
and OP Units 264,214 155,244 (108,970)
Depreciation expense on real estate assets (98,669) - (98,669)
Gain on disposition of properties, net 18,508 - 18,508
Income allocated to Minority Interests - (7,040) (7,040)
Adjustment for depreciation expense related
to equity in unconsolidated joint ventures - (159) (159)
---------------------------------------------------
Net income available to Common Shares $ 184,053 $ (116,169) $ 67,884
---------------------------------------------------
---------------------------------------------------
Investment in real estate, net of accumulated depreciation
as of September 30, 1999 $ 10,434,274 $ 18,119 $ 10,452,393
---------------------------------------------------
---------------------------------------------------
Total assets as of September 30, 1999 $ 10,447,731 $ 601,379 $ 11,049,110
---------------------------------------------------
---------------------------------------------------
</TABLE>
20
<PAGE>
EQUITY RESIDENTIAL PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED SEPTEMBER 30, 1998 RENTAL REAL CORPORATE/
(AMOUNTS IN THOUSANDS) ESTATE (1) OTHER (2) CONSOLIDATED
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Rental income $ 329,717 $ - $ 329,717
Property and maintenance expense (86,750) - (86,750)
Real estate tax and insurance expense (32,068) - (32,068)
Property management expense (13,539) - (13,539)
----------------------------------------------------
Net operating income 197,360 - 197,360
Fee and asset management income - 1,414 1,414
Interest income - investment in mortgage notes - 4,184 4,184
Interest and other income - 3,934 3,934
Fee and asset management expense - (1,097) (1,097)
Depreciation expense on non-real estate assets - (1,470) (1,470)
Interest expense:
Expense incurred - (64,492) (64,492)
Amortization of deferred financing costs - (687) (687)
General and administrative expense - (4,655) (4,655)
Preferred distributions - (21,691) (21,691)
----------------------------------------------------
Funds from operations available to Common Shares
and OP Units 197,360 (84,560) 112,800
Depreciation expense on real estate assets (75,014) - (75,014)
Gain on disposition of properties, net 1,625 - 1,625
Income allocated to Minority Interests - (4,530) (4,530)
----------------------------------------------------
Net income available to Common Shares $ 123,971 $ (89,090) $ 34,881
----------------------------------------------------
----------------------------------------------------
</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.
21
<PAGE>
EQUITY RESIDENTIAL PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
14. SUBSEQUENT EVENTS
On October 1, 1999, the Company merged with Lexford Residential
Trust ("Lexford"). The Lexford portfolio of 402 properties consists of 36,609
units in sixteen states. In the merger, each outstanding common share of
beneficial interest of Lexford was converted into .463 of a Common Share of
the Company. Pursuant to the tax-free merger, the Company issued
approximately 3.9 million new Common Shares with a value of $181 million and
assumed approximately $530 million of debt. As of November 11, 1999,
Lexford's line of credit totaling $26.5 million, a term loan totaling $2.3
million and 22 separate Lexford mortgages totaling $22.8 million have been
fully repaid.
On October 1, 1999, the Company filed a Form S-8 with the SEC in
connection with the Lexford merger to register 84,946 EQR common shares.
On October 14, 1999, the Company disposed of Burn Brae Apartments, a
282-unit multifamily property located in Irving, TX, from an unaffiliated
third party for a total sales price of $10.8 million.
On October 15, 1999, the Company disposed of Casa Cordoba
Apartments, a 168-unit multifamily property, and Casa Cortez, a 66-unit
multifamily property, both located in Tallahassee, FL, to an unaffiliated
third party for a total sales price of $7.9 million.
On October 15, 1999, the Company announced that it will redeem all
of its issued and outstanding Series I Cumulative Convertible Preferred
Shares of Beneficial Interest on November 15, 1999. At that time, the
preferred shares will be redeemed for such number of common shares as are
issuable at a conversion rate of 0.6417 of a common share of EQR for each
Series I Preferred Share.
On October 28, 1999, the Company acquired Granada Highlands
Apartments, a 919-unit multifamily property located in Malden, MA, from an
unaffiliated third party for a purchase price of approximately $128 million.
22
<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, 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 nine months ended September 30, 1999, the Company acquired
nineteen properties containing 5,126 units (the "1999 Acquired Properties").
The Company also disposed of twenty properties containing 4,719
units during 1998 (the "1998 Disposed Properties"); and twenty-one properties
containing 4,535 units during the nine months ended September 30, 1999 (the
"1999 Disposed Properties"). Also, the Company sold its interest in the six
MRY joint venture properties containing 1,297 units.
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's overall results of operations for the nine months
ended September 30, 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, partially offset by the
disposition of the 1998 Disposed Properties and the 1999 Disposed Properties.
The impact of the 1998 Acquired Properties, the 1999 Acquired Properties, the
1998 Disposed Properties and the 1999 Disposed Properties is discussed in
greater detail in the following paragraphs.
Properties that the Company owned for all of both nine month periods
ended September 30, 1999 and September 30, 1998 (the "Nine-Month 1999 Same
Store Properties"), which represented 125,165 units, impacted the Company's
results of operations. Properties that the Company owned for all of both the
quarters ended September 30, 1999 and September 30, 1998 (the "Third-Quarter
1999 Same Store Properties"), which represented 135,753 units, also impacted
the Company's results of operations. Both the Nine-Month 1999 Same Store
Properties and Third-Quarter 1999 Same Store Properties are discussed in the
following paragraphs.
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 1999 TO NINE MONTHS ENDED
SEPTEMBER 30, 1998
For the nine months ended September 30, 1999, income before gain on
disposition of properties, net, extraordinary item and allocation to Minority
Interests increased by $61.8 million when compared to the nine months ended
September 30, 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 Nine-Month 1999 Same Store Properties, total
revenues increased by approximately $27.8 million to $812.5 million or 3.54%
primarily as a result of higher rental rates charged to new tenants and
tenant renewals and an increase in income from billing tenants for their
share of utility costs as well as other ancillary services provided to
tenants. Overall, property operating expenses, which include property and
maintenance, real estate taxes and insurance and an allocation of property
management expenses, decreased approximately $0.8 million or 0.28%. This
decrease was primarily the result of lower expenses for leasing and
advertising, administrative and maintenance costs, but was partially offset
by higher on-site compensation costs and an increase in real estate taxes on
certain properties.
Property management represents expenses associated with the
self-management of the Company's Properties. These expenses increased by
approximately $4.3 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
24
<PAGE>
EQUITY RESIDENTIAL PROPERTIES TRUST
PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
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 $72.2 million. This increase was primarily
the result of an increase in the Company's average indebtedness outstanding
which increased by $1.5 billion. However, the Company's effective interest
costs decreased from 7.17% for the nine months ended September 30, 1998 to
7.00% for the nine months ended September 30, 1999.
General and administrative expenses, which include corporate
operating expenses, increased approximately $1.2 million between the periods
under comparison. This increase was primarily due to the addition of
corporate personnel. However, by gaining certain economies of scale with a
much larger operation these expenses as a percentage of total revenues were
1.24% for the nine months ended September 30, 1999 compared to 1.55% of total
revenues for the nine months ended September 30, 1998.
COMPARISON OF QUARTER ENDED SEPTEMBER 30, 1999 TO QUARTER ENDED
SEPTEMBER 30, 1998
For the quarter ended September 30, 1999, income before gain on
disposition of properties, net, extraordinary item and allocation to Minority
Interests increased by approximately $24.9 million when compared to the
quarter ended September 30, 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, and interest expense.
In regard to the Third Quarter 1999 Same Store Properties, total
revenues increased by approximately $9.6 million or 3.27% primarily as a
result of higher rental rates charged to new tenants and tenant renewals and
an increase in income from billing tenants for their share of utility costs
as well as other ancillary services provided to tenants. Overall, property
operating expenses, which include property and maintenance, real estate taxes
and insurance and an allocation of property management expenses, decreased
approximately $0.7 million or 0.58%. This decrease was primarily the result
of lower expenses for leasing and advertising, administrative and
maintenance, but was partially offset by higher on-site compensation costs
and an increase in real estate taxes on certain properties.
Property management represents expenses associated with the
self-management of the Company's Properties. These expenses increased by
approximately $1.3 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
25
<PAGE>
EQUITY RESIDENTIAL PROPERTIES TRUST
PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
that were formerly only fee-managed.
Interest expense, including amortization of deferred financing
costs, increased by approximately $18.9 million. This increase was primarily
the result of an increase in the Company's average indebtedness outstanding
which increased by $1.1 billion. However, the Company's effective interest
costs decreased from 6.99% for the quarter ended September 30, 1998 to 6.97%
for the quarter ended September 30, 1999.
General and administrative expenses, which include corporate
operating expenses, increased approximately $0.4 million between the periods
under comparison. These expenses as a percentage of total revenues were 1.15%
for the quarter ended September 30, 1999 compared to 1.37% of total revenues
for the quarter ended September 30, 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 lines 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 September 30, 1999 was approximately $62.8
million and the amount available on the Company's line of credit was $610
million, of which $41.3 million was restricted. The following discussion also
explains the changes in net cash provided by operating activities, net cash
used by investing activities and net cash provided by (used by) financing
activities, all of which are presented in the Company's Statements of Cash
Flows.
Part of the Company's strategy in funding the purchase of
multifamily properties, funding its Properties in the development stage and
the funding of the Company's investment in two joint ventures with
multifamily real estate developers is to utilize its lines of credit and to
subsequently repay the lines of credit from the issuance of additional equity
or debt securities or the disposition of Properties. Utilizing this strategy
during the first nine months of 1999, the Company:
- - issued the June 2004 Notes and received net proceeds of $298 million;
- - refinanced four Properties and received additional net proceeds of $18
million;
- - obtained new mortgage financing on eleven previously unencumbered properties
and received net proceeds of $126.5 million;
- - disposed of twenty-seven properties (including the sale of the Company's
interest in six MRY joint venture properties) and received net proceeds of
$197.1 million;
- - issued approximately 1.0 million Common Shares and received net proceeds of
$34.2 million; and
- - issued the 8.00% Series A Cumulative Convertible Redeemable Preference
Interests and received net proceeds of $39 million.
26
<PAGE>
EQUITY RESIDENTIAL PROPERTIES TRUST
PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
All of these proceeds were utilized to either:
- - purchase additional properties;
- - provide funding for properties in the development stage; and/or
- - repay the lines of credit and mortgage indebtedness on certain Properties.
With respect to the 1999 Acquired Properties, the Company assumed
and/or entered into new mortgage indebtedness of approximately $196.3
million, issued OP Units with a value of $25.2 million and issued Junior
Convertible Preference Units with a value of $3.0 million. The total purchase
price of the 1999 Acquired Properties was approximately $526.8 million.
Subsequent to September 30, 1999, the Company closed its merger with
Lexford and through this merger acquired 402 multifamily properties
containing 36,609 units. In the merger, each outstanding common share of
beneficial interest of Lexford was converted into .463 of a Common Share of
the Company. Pursuant to the merger, the Company issued approximately 3.9
million new Common Shares with a value of $181 million and assumed
approximately $530 million of debt. As of November 11, 1999, Lexford's line
of credit totaling $26.5 million, a term loan totaling $2.3 million and 22
separate Lexford mortgages totaling $22.8 million have been fully repaid.
Subsequent to September 30, 1999 and through November 11, 1999, the
Company acquired one additional property containing 919 units for a total
purchase price of approximately $128 million.
Subsequent to September 30, 1999 and through November 11, 1999, the
Company disposed of three properties for a total sales price of $18.7
million. These proceeds will be utilized to purchase additional properties.
The Company anticipates that it will continue to sell certain Properties in
the portfolio.
In regard to the joint venture agreements with two multifamily
residential real estate developers during the nine months ended September 30,
1999, the Company funded a total of $81 million and during the remainder of
1999 the Company expects to fund approximately $24.6 million in connection
with these agreements. Also in connection with these two agreements, the
Company has an obligation to fund up to an additional $55 million to
guarantee third party construction financing.
In regard to certain other properties that were under development
and/or expansion during the nine months ended September 30, 1999, the Company
funded $32.2 million. During the remainder of 1999, the Company expects to
fund $18.1 million related to the continued development and/or expansion of
as many as five Properties.
27
<PAGE>
EQUITY RESIDENTIAL PROPERTIES TRUST
PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
In regard to certain properties that were under earnout/development
agreements, during the nine months ended September 30, 1999, the Company
funded the following:
- - $17.2 million relating to the acquisition of Copper Canyon Apartments, which
included a $1.0 million earnout payment to the developer;
- - $24.9 million relating to the acquisition of Skyview Apartments, which
included a $3.1 million earnout payment to the developer; and
- - $18.3 million relating to the acquisition of Rosecliff Apartments.
In May 1999, the Company repaid its 1999 Notes that matured on May
15, 1999. The $125 million repayment was funded from borrowings under the
Company's lines of credit. In addition, during the first nine months of 1999,
the Company repaid $9.3 million of mortgage indebtedness on two of its
Properties. These repayments were funded from the Company's lines of credit
and/or from disposition proceeds.
In November 1999, the Company expects to repay the 1999-A Notes that
mature on November 24, 1999. The $25 million repayment will be initially
funded from borrowings under the Company's line of credit. In addition,
during the remainder of 1999, the Company anticipates repaying approximately
$30 million of mortgage notes assumed in connection with the Lexford merger.
In April 2000, the Company anticipates repaying mortgage indebtedness of
approximately $85 million assumed in connection with the Lexford merger.
These repayments will also be primarily funded from additional borrowings
under the line of credit.
As of September 30, 1999, the Company had total indebtedness of
approximately $4.8 billion, which included mortgage indebtedness of $2.5
billion (including premiums of $3.7 million), of which $851.6 million
represented tax-exempt bond indebtedness, and unsecured debt of $2.3 billion
(including net discounts and premiums in the amount of $2.8 million), of
which $111.4 million represented tax-exempt bond indebtedness.
Subsequent to September 30, 1999, the Company settled on a $50
million interest rate protection agreement and received approximately $1.4
million in connection therewith.
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 three years of ownership to fully improve and enhance
these properties to meet the Company's
28
<PAGE>
EQUITY RESIDENTIAL PROPERTIES TRUST
PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
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 nine months ended September 30, 1999, total capital
expenditures for the Company approximated $99.4 million. Of this amount,
approximately $36 million, or $298 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
$19.7 million, or $308 per unit. Capital spent for replacement-type items
approximated $37.8 million, or $204 per unit. Also included in total capital
expenditures was approximately $5.9 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 estimated to be approximately $20 million.
Minority Interests as of September 30, 1999 increased by $29.1
million when compared to December 31, 1998. The primary factors that impacted
this account during the nine-month period were:
- - distributions declared to Minority Interests, which amounted to $27.8
million for the nine- month period;
- - the allocation of income from operations in the amount of $21.6 million;
- - the conversion of OP Units into Common Shares; and
- - the issuance of Common Shares, OP Units, Preference Units and Preference
Interests during the nine months ended September 30, 1999.
Total distributions paid in October 1999 amounted to approximately
$124.4 million, which included distributions declared for the quarter ended
September 30, 1999.
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 lines 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.
29
<PAGE>
EQUITY RESIDENTIAL PROPERTIES TRUST
PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
On August 12, 1999 the Company obtained a new three year $700
million unsecured revolving credit facility, with Bank of America Securities
LLC and Chase Securities Inc. acting as joint lead arrangers. The new line of
credit replaced the Company's $500 million unsecured revolving credit
facility, as well as the $120 million unsecured revolving credit facility,
which the Company assumed in the MRY Merger. The prior existing revolving
credit facilities were repaid in full and terminated upon the closing of the
new facility. This new credit facility matures in August 2002 and will be
used to fund property acquisitions, costs for certain Properties under
development and short term liquidity requirements. As of November 11, 1999,
$147 million was outstanding under this new 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 November 11, 1999, no shares
of WRP Newco Series A Preferred had been acquired by the Company.
In conjunction with the MRY Merger in October 1998, 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 with an initial
value of $18.3 million. On June 24, 1999, the Subordinated Note receivable,
the preferred stock investment and the Senior Note receivable were all repaid
by MRYP Spinco for a total amount of $41 million, which represented a
discount of $2.3 million on the combined outstanding balance of these
instruments. There is no further obligation by either party in connection
therewith.
Also, in connection with the MRY Merger, 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. On
August 23, 1999, the Company sold its interest in these six properties to
MRYP Spinco and there is no further obligation by either party in connection
with these agreements.
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.
30
<PAGE>
EQUITY RESIDENTIAL PROPERTIES TRUST
PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
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 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 has completed testing and is currently in the process of implementing
the remaining Year 2000 IT and non-IT system projects with completion
anticipated during the fourth quarter of 1999. The Company has estimated that
the total Year 2000 project cost will approximate $1 million, of which
approximately 90% has been incurred as of September 30, 1999. During the
first nine months 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 $100,000 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 $50,000 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, the Company cannot assure you 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.
31
<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 Funds From Operations ("FFO") to be
one measure of the performance of real estate companies. The resolution
adopted by 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 a real estate company 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 and gains/losses
on early extinguishment of 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 real
estate companies and, accordingly, may not be comparable to such other real
estate companies.
For the nine months ended September 30, 1999, FFO increased by
$130.4 million representing a 40.6% increase when compared to the nine months
ended September 30, 1998. For the quarter ended September 30, 1999, FFO
increased by $42.4 million representing a 37.6% increase when compared to the
quarter ended September 30, 1998.
32
<PAGE>
EQUITY RESIDENTIAL PROPERTIES TRUST
PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
The following is a reconciliation of net income available to Common
Shares to FFO available to Common Shares and OP Units for the nine months and
quarters ended September 30, 1999 and 1998 (amounts are in thousands):
<TABLE>
- ----------------------------------------------------------------------------------------------------------------------
Nine Nine
Months Months Quarter Quarter
Ended Ended Ended Ended
9/30/99 9/30/98 9/30/99 9/30/98
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income available to Common Shares $ 200,989 $ 116,819 $ 67,884 $ 34,881
Adjustments:
Income allocated to Minority Interests 21,554 12,840 7,040 4,530
Depreciation on real estate assets* 293,090 204,401 98,828 75,014
Amortization of deferred financing
costs related to predecessor business - 35 - -
Loss on early extinguishment of debt 451 - - -
Gain on disposition of properties, net (64,315) (12,717) (18,508) (1,625)
- ----------------------------------------------------------------------------------------------------------------------
FFO available to Common Shares and
OP Units $ 451,769 $ 321,378 $ 155,244 $ 112,800
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
* Includes $710 and $159 related to the Company's share of depreciation from
unconsolidated joint ventures for the nine months and quarter ended September
30, 1999, respectively.
33
<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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On September 30, 1999, a special meeting of shareholders was held
whereby the shareholders were asked to approve the Lexford Merger. Of the votes
that were collected, there were 88,791,212 votes for the Lexford Merger, 392,728
votes against the Lexford Merger and 407,942 abstentions; and, therefore, the
Lexford Merger was approved by the shareholders.
At this special meeting, the shareholders were asked to approve a
separate proposal amending EQR's Declaration of Trust to provide that
shareholder approval of mergers or consolidations would only be required when
required under Maryland law. Of the votes that were collected, there were
70,547,757 votes for the amendment, 18,472,338 votes against the amendment and
571,787 abstentions; and, therefore, the amendment was approved by the
shareholders and is now effective.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits:
12 Computation of Ratio of Earnings to Fixed Charges
27 Financial Data Schedule Worksheet
(B) Reports on Form 8-K:
A Report on Form 8-K dated June 30, 1999 and filed on July 2, 1999, announcing
the merger of EQR and Lexford.
A Report on Form 8-K dated June 30, 1999 and filed on July 14, 1999, disclosing
certain historical financial information of Lexford.
34
<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: November 11, 1999 By: /s/ Bruce C. Strohm
----------------- --------------------------------------------
Bruce C. Strohm
Executive Vice President, General Counsel
and Secretary
Date: November 11, 1999 By: /s/ Michael J. McHugh
----------------- --------------------------------------------
Michael J. McHugh
Executive Vice President, Chief Accounting
Officer and Treasurer
35
<PAGE>
EQUITY RESIDENTIAL PROPERTIES TRUST
CONSOLIDATED HISTORICAL
EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED DISTRIBUTIONS RATIO
<TABLE>
<CAPTION>
HISTORICAL
---------------------------------------------------------------------
9/30/99 9/30/98 12/31/98 12/31/97
---------------------------------------------------------------------
(Amounts in thousands)
<S> <C> <C> <C> <C>
REVENUES
Rental income $ 1,243,958 $ 901,087 $ 1,293,560 $ 707,733
Fee income - outside managed 3,432 4,204 5,622 5,697
Interest income - investment in mortgage notes 8,502 14,405 18,564 20,366
Interest and other income 17,655 12,803 19,703 13,525
------------------ ---------------- --------------- -------------
Total revenues 1,273,547 932,499 1,337,449 747,321
------------------ ---------------- --------------- -------------
EXPENSES
Property and maintenance 300,798 225,053 326,567 176,075
Real estate taxes and insurance 126,304 88,552 126,009 69,520
Property management 42,817 38,546 52,705 26,793
Property management - non-recurring - - - -
Fee and asset management 2,301 3,344 4,207 3,364
Depreciation 297,505 208,394 301,869 156,644
Interest:
Expense incurred 241,516 170,143 246,585 121,324
Amortization of deferred financing costs 2,773 1,962 2,757 2,523
General and administrative 15,736 14,488 21,718 15,064
------------------ ---------------- --------------- -------------
Total expenses 1,029,750 750,482 1,082,417 571,307
------------------ ---------------- --------------- -------------
Income (loss) before extraordinary items $ 243,797 $ 182,017 $ 255,032 $ 176,014
------------------ ---------------- --------------- -------------
------------------ ---------------- --------------- -------------
Combined Fixed Charges and Preferred Distributions:
Interest and other financing costs $ 241,516 $ 170,143 $ 246,585 $ 121,324
Amortization of deferred financing costs 2,773 1,962 2,757 2,523
Preferred distributions 85,118 65,075 92,917 59,012
------------------ ---------------- --------------- -------------
TOTAL COMBINED FIXED CHARGES
AND PREFERRED DISTRIBUTIONS $ 329,407 $ 237,180 $ 342,259 $ 182,859
------------------ ---------------- --------------- -------------
------------------ ---------------- --------------- -------------
EARNINGS BEFORE COMBINED FIXED CHARGES
AND PREFERRED DISTRIBUTIONS $ 488,086 $ 354,122 $ 504,374 $ 299,861
------------------ ---------------- --------------- -------------
------------------ ---------------- --------------- -------------
FUNDS FROM OPERATIONS BEFORE COMBINED FIXED
CHARGES AND PREFERRED DISTRIBUTIONS $ 785,591 $ 562,516 $ 806,243 $ 456,505
------------------ ---------------- --------------- -------------
------------------ ---------------- --------------- -------------
RATIO OF EARNINGS BEFORE COMBINED FIXED CHARGES
AND PREFERRED DISTRIBUTIONS TO COMBINED FIXED CHARGES
AND PREFERRED DISTRIBUTIONS 1.48 1.49 1.47 1.64
------------------ ---------------- --------------- -------------
------------------ ---------------- --------------- -------------
RATIO OF FUNDS FROM OPERATIONS BEFORE COMBINED FIXED
CHARGES AND PREFERRED DISTRIBUTIONS TO COMBINED FIXED
CHARGES AND PREFERRED DISTRIBUTIONS 2.38 2.37 2.36 2.50
------------------ ---------------- --------------- -------------
------------------ ---------------- --------------- -------------
</TABLE>
<TABLE>
<CAPTION>
HISTORICAL
----------------------------------------------
12/31/96 12/31/95 12/31/94
----------------------------------------------
(Amounts in thousands)
<S> <C> <C> <C>
REVENUES
Rental income $ 454,412 $ 373,919 $ 220,727
Fee income - outside managed 6,749 7,030 4,739
Interest income - investment in mortgage notes 12,819 4,862 -
Interest and other income 4,405 4,573 5,568
------------- ------------- -------------
Total revenues 478,385 390,384 231,034
------------- ------------- -------------
EXPENSES
Property and maintenance 127,172 112,186 66,534
Real estate taxes and insurance 44,128 37,002 23,028
Property management 17,512 15,213 10,249
Property management - non-recurring - - 879
Fee and asset management 3,837 3,887 2,056
Depreciation 93,253 72,410 37,273
Interest:
Expense incurred 81,351 78,375 37,044
Amortization of deferred financing costs 4,242 3,444 1,930
General and administrative 9,857 8,129 6,053
------------- ------------- -------------
Total expenses 381,352 330,646 185,046
------------- ------------- -------------
Income (loss) before extraordinary items $ 97,033 $ 59,738 $ 45,988
------------- ------------- -------------
------------- ------------- -------------
Combined Fixed Charges and Preferred Distributions:
Interest and other financing costs $ 81,351 $ 78,375 $ 37,044
Amortization of deferred financing costs 4,242 3,444 1,930
Preferred distributions 29,015 10,109 -
------------- ------------- -------------
TOTAL COMBINED FIXED CHARGES
AND PREFERRED DISTRIBUTIONS $ 114,608 $ 91,928 $ 38,974
------------- ------------- -------------
------------- ------------- -------------
EARNINGS BEFORE COMBINED FIXED CHARGES
AND PREFERRED DISTRIBUTIONS $ 182,626 $ 141,557 $ 84,962
------------- ------------- -------------
------------- ------------- -------------
FUNDS FROM OPERATIONS BEFORE COMBINED FIXED
CHARGES AND PREFERRED DISTRIBUTIONS $ 275,879 $ 213,967 $ 123,114
------------- ------------- -------------
------------- ------------- -------------
RATIO OF EARNINGS BEFORE COMBINED FIXED CHARGES
AND PREFERRED DISTRIBUTIONS TO COMBINED FIXED CHARGES
AND PREFERRED DISTRIBUTIONS 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 2.41 2.33 3.16
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 62,805
<SECURITIES> 0
<RECEIVABLES> 1,602
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 369,157
<PP&E> 11,441,442
<DEPRECIATION> 989,049
<TOTAL-ASSETS> 11,049,110
<CURRENT-LIABILITIES> 408,870
<BONDS> 4,845,546
0
1,335,791
<COMMON> 1,224
<OTHER-SE> 3,997,216
<TOTAL-LIABILITY-AND-EQUITY> 11,049,110
<SALES> 1,255,892
<TOTAL-REVENUES> 1,273,547
<CGS> 0
<TOTAL-COSTS> 472,220
<OTHER-EXPENSES> 15,736
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 244,289
<INCOME-PRETAX> 243,797
<INCOME-TAX> 0
<INCOME-CONTINUING> 243,797
<DISCONTINUED> 64,315
<EXTRAORDINARY> (451)
<CHANGES> 0
<NET-INCOME> 222,543
<EPS-BASIC> 1.67
<EPS-DILUTED> 1.66
</TABLE>
