<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________
FORM 10-Q
X Quarterly Report Pursuant to Section 13 or 15(d)
--- of the Securities Exchange Act of 1934
For the quarter ended March 31, 1999
or
Transition Report Pursuant to Section 13 or 15(d)
--- of the Securities Exchange Act of 1934
For the period from to
Commission File Number: 1934 Act File Number: 0-25968
CHARLES E. SMITH RESIDENTIAL REALTY L.P.
(Exact name of registrant as specified in its charter)
Delaware 54-1681657
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2345 Crystal Drive
Crystal City, VA 22202
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number including area code: (703) 920-8500
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Class A Units of Limited Partnership Interest
(Title of Class)
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
___ ___
As of April 30, 1999, there were 32,136,012 Common Units of Limited
Partnership issued and outstanding.
<PAGE>
CHARLES E. SMITH RESIDENTIAL REALTY L.P.
FORM 10-Q
INDEX
Pages
-----
PART I: FINANCIAL INFORMATION
Item 1: Financial Statements
Charles E. Smith Residential Realty L.P. Financial
Statements as of March 31, 1999 and December 31, 1998,
Filed as a Part of This Report
Consolidated Balance Sheets 3
Consolidated Statements of Operations 4
Consolidated Statements of Partner's Equity and Other
Limited Partners' Interest 5
Condensed Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 7
Item 2: Management's Discussion and Analysis of
Financial Condition and Results of Operations 13
PART II: OTHER INFORMATION 25
SIGNATURES 26
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CHARLES E. SMITH RESIDENTIAL REALTY L.P.
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands, Except Per Unit Data)
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
-------------- -----------------
(Unaudited)
<S> <C> <C>
ASSETS
Rental property, net $1,017,521 $ 926,749
Rental property under construction 204,404 167,214
Escrow funds 7,459 23,819
Investment in and advances to Property Service Businesses 35,254 28,633
Investment in Joint Venture 4,356 -
Deferred charges, net 17,622 18,081
Security deposits 2,412 2,408
Other assets 16,912 18,495
---------- ----------
$1,305,940 $1,185,399
========== ==========
LIABILITIES AND EQUITY
Liabilities
Mortgage loans and notes payable:
Mortgage loans 681,796 622,386
Construction loans 82,190 63,193
Lines of credit 123,000 105,000
---------- ----------
Total mortgage loans and notes payable 886,986 790,579
Accounts payable and accrued expenses 31,732 22,830
Security deposits 2,412 2,408
---------- ----------
Total liabilities 921,130 815,817
---------- ----------
Commitments and contingencies
Other Limited Partners' Interest
13,418,142 and 13,268,740 common units issued and
outstanding at March 31, 1999 and December 31, 1998, respectively,
at redemption value 413,453 426,258
---------- ----------
Partner's Equity
General Partner's General and Limited Partnership Interest
Preferred units - Series A Cumulative Convertible
Redeemable Preferred Units, 2,640,325 units issued and
outstanding at March 31, 1999 and December 31, 1998 71,500 71,500
Preferred units - Series B Cumulative Convertible
Redeemable Preferred Units, 589,261 and 714,628 units
issued and outstanding at March 31, 1999 and December 31,
1998, respectively. 16,794 20,367
Preferred Units - Series C Cumulative Redeemable Preferred
Units, 500 units issued and outstanding 50,000 50,000
Common units - 18,878,991 and 18,212,600 units issued
and outstanding at March 31, 1999 and December 31, 1998.
respectively (166,937) (198,543)
----------- ----------
Total partner's equity (28,643) (56,676)
----------- ----------
$ 1,305,940 $ 1,185,399
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
CHARLES E. SMITH RESIDENTIAL REALTY L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands, Except Per Unit Data)
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
-------------------------------------------------------
1999 1998
------------------------ -----------------------
<S> <C> <C>
Rental Properties:
Revenues $ 69,033 $ 55,670
Expenses
Operating costs (22,154) (18,641)
Real estate taxes (5,404) (3,657)
Depreciation and amortization (8,228) (6,387)
-------- --------
Total expenses (35,786) (28,685)
Equity in income of Property Service Businesses and other 28 664
Corporate general and administrative expenses (2,209) (2,025)
Interest income 134 161
Interest expense (13,148) (10,888)
-------- --------
Income before gain on sale and extraordinary item 18,052 14,897
Gain on sale of property 1,858 3,120
-------- --------
Income before extraordinary item 19,910 18,017
Extraordinary item - loss on extinguishment of debt (359) (4,702)
-------- ---------
Net income 19,551 13,315
Less: Income attributable to preferred units (2,354) (1,490)
-------- --------
Net income attributable to common units $ 17,197 $ 11,852
======== ========
Earnings per common unit - basic
Income before extraordinary item $ 0.55 $ 0.56
Extraordinary item (0.01) (0.16)
-------- --------
Net income $ 0.54 $ 0.40
======== ========
Earnings per common unit - diluted
Income before extraordinary item $ 0.55 $ 0.56
Extraordinary item (0.01) (0.16)
-------- --------
Net income $ 0.54 $ 0.40
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
CHARLES E. SMITH RESIDENTIAL REALTY L.P.
CONSOLIDATED STATEMENTS OF PARTNER'S EQUITY AND OTHER LIMITED PARTNERS' INTEREST
(Dollars in Thousands)
<TABLE>
<CAPTION>
Other
General Partner's General and Limited Partners'
Limited Interest Interest
------------------------------------------------------------------------
Series A Series B Series C
Preferred Preferred Preferred Common Common
Units Units Units Units Units
----------- ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1997 $ 45,000 $ 34,675 $ - $ (344,044) $ 502,719
Units exchanged for acquisitions - - - - 11,820
Adjustment for unit grants - - - - 521
Net income - - - 41,129 28,741
Contribution by Charles E. Smith Residential Realty,
Inc. 26,500 - 50,000 45,454 -
Conversion of Preferred units to Common units - (14,308) - 14,308 -
Offering costs - - - (1,874) -
Repurchase and cancellation of Operating Partnership
units - - - - (594)
Distributions - - - (44,498) (28,966)
Other - - - 121 2,878
Adjustments to reflect Other Limited Partners' interest
at redemption value - - - 90,861 (90,861)
---------- ----------- ----------- ---------- -----------
Balance, December 31, 1998 71,500 20,367 50,000 (198,543) 426,258
Units exchanged for acquisitions - - - - 15,084
Adjustment for Unit grants - - - - 89
Net income - - - 12,109 7,442
Conversion of Preferred units to Common units - (3,573) - 3,573 -
Distributions - - - (12,631) (7,011)
Other - - - 120 26
Adjustment to reflect Other Limited Partners' interest
at redemption value - - - 28,435 (28,455)
---------- ---------- ----------- ---------- -----------
Balance, March 31, 1999 (unaudited) $ 71,500 $ 16,794 $ 50,000 $ (166,937) $ 413,453
========== ========== =========== ========== ===========
Units issued and outstanding at March 31, 1999 2,640,325 589,261 500 18,878,991 13,418,142
========== ========== =========== ========== ===========
Units issued and outstanding at December 31, 1998 2,640,325 714,628 500 18,212,600 13,268,740
========== ========== =========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
CHARLES E. SMITH RESIDENTIAL REALTY L.P.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
--------------------
1999 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES: $ 33,035 $ 26,974
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions and development of rental property (92,883) (22,234)
Additions to rental property (3,642) (3,647)
Disposition of rental property 22,597 -
Increase in investment in and advances to Property Service Businesses (6,621) (10,769)
Increase in investment in Joint Venture (3,677) -
Acquisition deposits and other 1,758 (2,516)
-------- --------
Net cash used by investing activities (82,468) (39,166)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Additions to deferred charges 1,049 -
Capital contributions by Charles E. Smith Residential Realty, Inc.:
Preferred Units - 48,996
Mortgage loans, net 31,921 (99,713)
Lines of credit, net 18,000 80,000
Construction loans, net 18,997 5,998
Prepayment penalties (1,038) (3,025)
Distributions (19,642) (16,956)
Other, net 146 (346)
-------- --------
Net cash provided by financing activities 49,433 14,954
-------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS - 2,762
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD - -
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD - $ 2,762
======== ========
SUPPLEMENTAL INFORMATION:
Capitalized interest 2,130 967
Purchase of property in exchange for Operating Partnership units 14,405 8,820
Purchase of property in exchange for assumption of debt 28,169 -
Proceeds from sale of rental property held in 1031 escrow 17,712 4,308
Purchase of property with 1031 escrow proceeds 17,712 -
Purchase of joint venture interest in exchange for Operating Partnership units 679 -
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE>
CHARLES E. SMITH RESIDENTIAL REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying interim financial statements include all of the accounts of
Charles E. Smith Residential Realty L.P. (the "Operating Partnership") and its
subsidiary financing partnerships. (As used herein, the term "Company" may also
be used to mean Charles E. Smith Residential Realty L.P., Charles E. Smith
Residential Realty, Inc., or both, unless the context indicates otherwise.) All
significant intercompany balances and transactions have been eliminated. The
financial information furnished is unaudited, and in management's opinion,
includes all adjustments (consisting only of normal, recurring adjustments),
that are necessary for a fair presentation of financial position as of March 31,
1999 and the results of operations for the interim periods ended March 31, 1999
and 1998. Such interim results are not necessarily indicative of the operating
results for a full year. The accompanying financial statements should be read in
conjunction with the audited financial statements and related footnotes
appearing in the Company's Annual Report on Form 10-K.
The Operating Partnership is engaged in the ownership, operation, management,
leasing, acquisition, and development of real estate properties, primarily
residential multifamily properties. As of March 31, 1999, the Operating
Partnership owned 50 operating multifamily properties containing 19,852
apartment units and two retail shopping centers aggregating 436,000 square feet.
The Operating Partnership also had approximately 3,400 units under construction
at eight additional sites. The Operating Partnership also owns substantially all
of the economic interest in entities which provide multifamily and retail
property management and leasing, construction and construction management
services and engineering and technical services (collectively the "Property
Service Businesses"). The Operating Partnership uses the equity method of
accounting for its 99% non-voting interest in the Property Service Businesses.
Certain amounts have been reclassified to conform with current presentation.
2. ACQUISITIONS AND DISPOSITIONS
In January 1999, the Company acquired a 442-unit multifamily property in
Crystal City, Virginia ("Buchanan House") for a capitalized cost of $66.0
million which includes assumed debt of $7.4 million, a fair value adjustment to
debt of $0.5 million, initial capital improvement costs of $5.0 million and $0.4
million in acquisition related costs. The balance was funded by proceeds from
the 1998 sale of Marbury Plaza and a draw on the Company's bank line of credit.
7
<PAGE>
In January 1999, the Company acquired a 139-unit multifamily property in
Chicago, Illinois ("Parkwest") for a capitalized cost of approximately $13.6
million, consisting of 138,111 net Operating Partnership Units valued at $4.3
million, assumed debt of $6.0 million, a fair value adjustment to debt of $0.4
million, initial capital improvement costs of $0.8 million, and $2.1 million of
cash. The assumed loan has an effective interest rate of 6.5% with principal
amortized using a 25-year amortization schedule and a final payment due April 1,
2007.
In January 1999, the Company acquired a 427-unit multifamily property in
Chicago, Illinois ("Terrace") for a capitalized cost of approximately $25.7
million, consisting of 291,551 net Operating Partnership Units valued at $9.1
million, assumed debt of $13.7 million, a fair value adjustment to debt of $0.2
million, initial capital improvement costs of $1.2 million, and $1.5 million of
cash.
In February 1999, the Company sold The Manor, a 435-unit multifamily property
located in suburban Maryland for $22.6 million. The Company recognized a gain
on the sale of $1.9 million.
In February 1999, the Company acquired a parcel of land for development in
Chicago, Illinois for $8.6 million.
In March 1999, the Company acquired the land beneath its Crystal Square
property and the 5.1% net profits interest in its Crystal Plaza property. The
purchase price of $10.0 million consisted of 32,258 Operating Partnership Units
valued at $1.0 million and the assumption of debt which was repaid with $9.0
million cash drawn upon the line of credit. This transaction was completed
concurrently with the purchase by Charles E. Smith Commercial Realty L.P.
("CESCR") of commercial land and partnership interests. The transaction was
reviewed and approved by the Company's independent Directors.
In March 1999, the Company and J.P. Morgan Strategic Property Fund ("J.P.
Morgan") formed a joint venture which acquired the Renaissance, a 330-unit
multifamily property in Tysons Corner, Virginia for approximately $37 million.
The joint venture plans to invest an additional $2.0 million in initial capital
improvements and has placed debt of $19.0 million on the property. The debt
carries an interest rate of 6.48% and matures in February 2006. Ownership
interests in the joint venture are held 75% by J.P. Morgan and 25% by the
Company. The Company's initial equity contribution totaled $4.4 million
consisting of 21,903 Operating Partnership units valued at $0.7 million and cash
of $3.7 million. The transaction was reviewed and approved by the Company's
independent Directors since Messrs. Smith and Kogod held a general partnership
interest in the selling entity.
3. MORTGAGE LOANS
In February 1999, the Company repaid the $7.4 million Buchanan mortgage
through a draw on its line of credit. The Company paid a prepayment penalty of
$0.9 million. In March 1999, the Company obtained a $38.0 million mortgage on
Buchanan House with an effective fixed interest rate of 6.67%. The loan is
interest only through March 2009, at which time principal amortization begins
using a 30-year amortization schedule with a balloon payment due February 1,
2011.
8
<PAGE>
In March 1999, the Company repaid the $13.7 million mortgage on Terrace.
The company paid a prepayment penalty of $0.2 million. The Company obtained a
new, interest-only mortgage of $15.6 million at an effective interest rate of
6.64% with principal due April 1, 2007.
4. PARTNERS' EQUITY
In March 1999, 125,367 Series B Cumulative Convertible Redeemable Preferred
Units were converted to common units on a one-for-one basis.
5. PER UNIT DATA
Earnings per common unit of the Company for the three months ended March
31, 1999 and 1998 is computed based on weighted average common units outstanding
during the period as follows (in millions):
<TABLE>
<CAPTION>
Three months ended March 31,
----------------------------
1999 1998
---- ----
Basic Diluted Basic Diluted
---------- ---------- ---------- --------
<S> <C> <C> <C> <C>
Weighted Average Common Operating
Partnership Units/1/ 31.9 32.0 29.4 29.6
</TABLE>
Options to purchase 877,917 million shares of the Company's common stock
were not included in the computation of diluted earnings per unit because the
options' exercise price was higher than the average price of the common stock.
All convertible preferred units were also excluded from the calculation of
diluted earnings per unit since the preferred distributions paid per unit
exceeded basic earnings per unit.
9
<PAGE>
6. SEGMENT REPORTING
Property Segments
The Company's primary business is the ownership and operation of multifamily
residential real estate. As such, the residential rental properties have been
divided into three primary operating segments -- the Core, Acquisition and
Development portfolios. The Core Portfolio consists of all multifamily
properties which have been owned more than one full calendar year. Therefore,
the 1999 Core represents properties owned as of December 31, 1997. The
Acquisition Portfolio consists of purchased properties which have not yet
reflected one full calendar year of operations. The Development Portfolio
consists of properties which the Company has constructed or is in the process of
constructing which have not yet had a full calendar year of stabilized operating
results. On the first of January each year, Acquisition and Development
properties that have been stabilized or held by the Company for one year are
transferred to the Core Portfolio.
The Company's fourth property segment is the Retail Portfolio which consists
of two freestanding retail properties.
The Company evaluates performance for the Property Segments based on Net
Operating Income ("NOI") calculated as the difference between Rental Revenue and
Operating Expenses (which excludes interest expense, general and administrative
costs and depreciation.)
Property Service Business Segment
The Company also separately evaluates the financial information of its equity
investment in the Property Service Businesses. These businesses provide
professional services such as property management, furnished corporate apartment
rentals, engineering and technical consulting, and construction management to
both Company-owned properties and properties owned by third parties. Previously,
the Company reported the Property Service Businesses as three separate operating
segments, however, given the similarities in the nature of services, customers
and distribution methods, as well as the overall profit contribution, the
Company considers the Property Service Businesses to be one segment. The Company
evaluates performance for the Property Service Business segment based on Funds
from Operations ("FFO") which is defined using the revised definition adopted by
the National Association of Real Estate Investment Trusts ("NAREIT") as net
income (loss) (computed in accordance with generally accepted accounting
principles), excluding gains (or losses) from debt restructuring and sale of
property, plus depreciation/amortization of assets unique to the real estate
industry. Depreciation/amortization of assets not unique to the industry, such
as amortization of deferred financing costs and non-real estate assets, is not
added back.
10
<PAGE>
The accounting policies for all segments are the same as those described in
the summary of significant accounting policies in the Company's Annual Report on
Form 10-K.
Information concerning operations by segment for the three months ended
March 31, 1999 and 1998 was as follows (in thousands):
Property Segments
<TABLE>
<CAPTION>
Three months Ended
March 31,
1999 1998
---- ----
<S> <C> <C>
Net Operating Income
--------------------
Core Portfolio $ 32,903 $ 30,268
Acquisition Portfolio 6,174 1,549
Development Portfolio 686 (124)
Retail Portfolio 1,712 1,679
---------- ----------
Consolidated total 41,475 33,372
Depreciation and amortization (8,228) (6,387)
Equity in income of Property Service Businesses and other 28 664
Corporate general and administrative expenses (2,209) (2,025)
Net interest expense (13,014) (10,727)
---------- ----------
Income before gain on sale and
extraordinary item $ 18,052 $ 14,897
========== ==========
Revenues
--------
Core Portfolio $ 53,574 $ 49,860
Acquisition Portfolio 11,338 3,346
Development Portfolio 1,567 1
Retail Portfolio 2,554 2,463
---------- ----------
Consolidated total $ 69,033 $ 55,670
========== ==========
Real Estate Assets, gross
-------------------------
Core Portfolio $ 893,970 $ 868,860
Acquisition Portfolio 298,058 46,663
Development Portfolio 204,859 70,283
Retail Portfolio 60,043 59,900
---------- ----------
Sub-total 1,456,930 1,045,706
Accumulated Depreciation (235,005) (214,213)
---------- ----------
Consolidated total, net $1,221,925 $ 831,493
========== ==========
</TABLE>
11
<PAGE>
Property Service Business Segment
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Funds from Operations $ 109 $ 664
Revenues $27,394 $19,352
Depreciation $ 436 $ 368
</TABLE>
7. SUBSEQUENT EVENTS
In May 1999, the Company formed two additional joint ventures with J.P.
Morgan. The first venture ("University Center JV") will develop a new 630-unit
multifamily property in Loudoun County, Virginia at the western end of the
Dulles Technology corridor. Ownership interests are held 60% by J.P. Morgan
and 40% by the Company. The joint venture intends to place debt financing for
50% of the project's estimated $60 million development cost. Construction is
expected to commence during the third quarter of 1999 with final completion in
2001. The Company's initial equity contribution consisted of land acquired in
1998 for $5.4 million, less cash received of $3.0 million. A Company affiliate
will provide development, property management and marketing services to the
venture for a market rate fee. This affiliate will provide a construction
completion guarantee to the venture.
The second venture ("Springfield Station JV") was formed to own and operate
the Company's recently developed 631-unit Springfield Station property. The
Company sold a 52% interest in Springfield Station JV to J.P. Morgan and
received proceeds of approximately $50 million from the transaction. The joint
venture placed $37 million in debt financing on the property at 6.85% fixed
interest which matures on June 1, 2001. The Company provided a construction
completion guarantee on the project as well as a payment guarantee of $14.1
million of the debt. The construction completion guarantee expires on October 1,
1999. The debt guarantee will expire on or before the achievement of 92%
occupancy for 45 consecutive days. The Company will defer recognition of a $5.2
million gain on the sale until the guarantees have expired.
In May 1999, the Company finalized the settlement of financing services
provided to commercial office partnerships now owned and managed by CESCR, an
affiliate of Messrs. Smith and Kogod. This settlement was initiated by the
formation of CESCR in 1997, at which time the Company entered into an agreement
to provide financing services to CESCR only through December 31, 1998. On May 1,
1999, the Company received 79,905 Operating Partnership units valued at $2.5
million as final settlement from an affiliate of Messrs. Smith and Kogod and
immediately canceled the units.
12
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The following discussion should be read in conjunction with the
accompanying financial statements and notes thereto. The results of operations
for the three months ended March 31, 1999 and 1998 presented in the Consolidated
Statements of Operations and discussed below represent the operations of Charles
E. Smith Residential Realty L.P. (the "Operating Partnership") and its
subsidiary financing partnerships. (As used herein, the term "Company" may also
be used to mean Charles E. Smith Residential Realty L.P., Charles E. Smith
Residential Realty, Inc, or both, unless the context indicates otherwise.)
FORWARD-LOOKING STATEMENTS
When used throughout this report, the words "believes", "anticipates", and
"expects" and similar expressions are intended to identify forward-looking
statements. Such statements indicate that assumptions have been used that are
subject to a number of risks and uncertainties which could cause actual
financial results or management plans and objectives to differ materially from
those projected or expressed herein, including: the effect of national and
regional economic conditions, particularly with regard to the levels of
multifamily property occupancy and rental growth in the Washington, D.C.
metropolitan area; the registrant's ability to identify and secure additional
properties and sites that meet its criteria for acquisition or development; the
acceptance of the registrant's financing plans by the capital markets, and the
effect of prevailing market interest rates and the pricing of the Company's
stock; and other risks described from time to time in the registrant's filings
with the Securities and Exchange Commission. Given these uncertainties, readers
are cautioned not to place undue reliance on such statements. The registrant
undertakes no obligation to publicly release the result of any revisions to
these forward-looking statements that may be made to reflect any future events
or circumstances.
Rental Revenue
Average revenue per apartment unit for the Company's core multifamily
properties increased approximately 7.4% in the first quarter of 1999 as compared
with 1998.
A schedule of portfolio statistics follows:
13
<PAGE>
CHARLES E. SMITH RESIDENTIAL REALTY L.P.
Residential Portfolio Statistics
<TABLE>
<CAPTION>
Gross Average
Average Operating Revenue % Change Economic Change
Property Apartment Sq. Ft. Income Per Unit from Occupancy From
Property Type/Property Name Type Units Per Unit Q1-99 Q1-99 Q1-98 Q1-99 Q1-98
- --------------------------- -------- --------- -------- --------- -------- -------- --------- ------
(in 000's)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Core Residential Portfolio
NW Washington, D.C.
1841 Columbia Road High-rise 115 634 $ 350 $1,014 11.4% 98.7% -.2%
2501 Porter Street High-rise 202 760 963 1,588 14.6% 99.7% 5.9%
Albemarle High-rise 235 1,097 867 1,230 1.8% 96.1% -3.9%
Calvert-Woodley High-rise 136 1,001 505 1,239 9.8% 99.4% 1.5%
Cleveland House High-rise 216 894 762 1,176 8.0% 98.7% .2%
Connecticut Heights High-rise 519 536 1,391 893 4.5% 94.9% .3%
Corcoran House High-rise 138 464 369 890 9.5% 99.8% .4%
Statesman High-rise 281 593 715 849 10.3% 99.6% 3.2%
Van Ness South High-rise 625 956 2,162 1,153 7.4% 99.4% 1.9%
The Kenmore High-rise 376 725 879 779 6.2% 97.7% .0%
------ ----- ------- ------ ---- ---- ----
2,843 771 8,963 1,051 7.6% 98.1% 1.1%
Northern Virginia
Crystal City
------------
The Bennington High-rise 348 804 1,120 1,073 7.2% 96.1% 3.7%
Crystal House I High-rise 426 917 1,352 1,058 8.8% 98.6% 3.9%
Crystal House II High-rise 402 938 1,224 1,015 7.7% 98.7% 5.7%
Crystal Square High-rise 378 1,121 1,369 1,207 5.1% 99.0% .6%
Crystal Place High-rise 180 894 718 1,330 4.1% 96.0% -.8%
Gateway Place High-rise 162 826 808 1,662 -5.9% 87.7% -4.7%
Water Park Towers High-rise 360 881 1,572 1,456 13.9% 94.7% 8.8%
Crystal Plaza High-rise 540 1,129 2,114 1,305 7.7% 99.8% 2.3%
Crystal Towers High-rise 912 1,107 3,268 1,194 8.6% 98.9% 2.7%
------ ----- ------- ------ ---- ---- ----
3,708 998 13,543 1,217 7.3% 97.6% 3.1%
Rosslyn/Ballston
----------------
Courthouse Plaza High-rise 396 772 1,536 1,293 3.9% 94.6% -.6%
Lincoln Towers High-rise 714 879 2,843 1,327 12.0% 93.7% 2.8%
------ ----- ------- ------ ---- ---- ----
1,110 841 4,379 1,315 9.0% 94.0% 1.6%
Tyson/Dulles
------------
Charter Oak Garden 262 1,097 774 985 8.3% 97.2% 2.4%
Oaks of Tyson Garden 218 968 712 1,089 11.1% 98.2% 3.2%
Potomac View Garden 192 965 457 794 4.0% 95.2% -2.3%
Bedford Village Garden 752 1,070 2,160 957 9.2% 96.9% 4.2%
Patriot Village Garden 1,065 1,162 2,995 937 6.6% 97.3% 2.8%
Westerly at Worldgate Garden 320 921 1,060 1,105 1.4% 96.0% 2.3%
------ ----- ------- ------ ---- ---- ----
2,809 1,075 8,158 968 7.0% 97.0% 2.8%
Other
-----
Arlington Overlook Mid-rise 711 877 1,745 818 11.5% 96.8% 4.6%
Berkeley Mid-rise 138 891 314 758 2.6% 98.0% .7%
Boulevard of Old Town Garden 159 603 430 901 8.3% 98.8% 1.6%
Columbia Crossing Garden 247 976 865 1,167 10.0% 97.4% 5.5%
Columbian Stratford Mid-rise 227 942 516 758 1.4% 96.1% .1%
Concord Village Garden 531 1,025 1,342 843 6.7% 95.9% 3.5%
Newport Village Garden 937 1,115 2,613 930 5.1% 97.6% 1.4%
Orleans Village Garden 851 1,061 2,200 862 8.6% 96.3% 4.5%
Skyline Towers High-rise 940 1,221 2,834 1,005 3.4% 96.3% .2%
Windsor Towers Mid-rise 280 1,025 686 816 2.5% 96.2% -.9%
------ ----- ------- ------ ---- ---- ----
5,021 1,040 13,545 899 6.3% 96.7% 2.3%
Boston/Chicago
2000 Commonwealth High-rise 188 878 988 1,753 10.8% 98.7% .1%
One East Delaware High-rise 306 704 1,889 2,058 15.2% 97.6% -.3%
------ ----- ------- ------ ---- ---- ----
494 770 2,877 1,942 13.7% 98.1% -.1%
Other
Car Barn Garden 196 1,311 551 937 11.9% 98.2% 2.1%
Fort Chaplin Garden 549 983 1,123 682 4.6% 97.6% .3%
Suburban Tower High-rise 172 677 435 842 3.7% 97.9% .6%
------ ----- ------- ------ ---- ---- ----
917 996 2,109 766 6.2% 97.8% .8%
------ ----- ------- ------ ---- ---- ----
16,902 968 53,574 1,057 7.4% 97.1% 2.2%
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
Gross Average
Average Operating Revenue % Change Economic Change
Property Apartment Sq. Ft. Income Per Unit from Occupancy From
Property Type/Property Name Type Units Per Unit Q1-99 Q1-99 Q1-98 Q1-99 Q1-98
- --------------------------- -------- --------- -------- --------- -------- -------- --------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Acquisition Portfolio
1998
----
Tunlaw Gardens (NW Washington, D.C.) Garden 167 850 412 822 17.5% 98.5% 5.0%
Tunlaw Park (NW Washington, D.C.) Mid-rise 120 856 401 1,115 5.6% 96.0% -.9%
Parc Vista (Crystal City, VA.) High-rise 299 770 1,400 1,560 N/A 97.4% N/A
McClurg Court (Chicago, IL.) High-rise 1,075 688 4,124 1,279 N/A 93.5% N/A
Cronin's Landing (Waltham, MA) Mid-rise 281 1,129 1,554 1,843 N/A 93.3% N/A
1999
----
Buchanan House (Crystal City, VA.) High-rise 442 1,173 1,665 N/A N/A N/A N/A
Parkwest (Chicago, IL.) Garden 139 580 402 N/A N/A N/A N/A
Terrace (Chicago, IL.) Garden 427 839 844 N/A N/A N/A N/A
----- --- ------ ----- ---- ---- ---
Subtotal/Average 2,950 844 10,801 N/A N/A N/A N/A
Development Portfolio
Springfield Station (Other Northern VA.) Mid-rise/Garden 631
Courthouse Place (Rosslyn/Ballston, Va.) High-rise 564
One Superior Place (Chicago, IL.) High-rise 809
Park Connecticut (NW Washington, D.C.) High-rise 142
Subtotal/Average -----
2,146
All Residential Properties 21,998
======
</TABLE>
15
<PAGE>
RENTAL PROPERTIES
Revenues, expenses and income from the multifamily and retail properties for
the three months ended March 31, 1999 and 1998 were as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended
------------------
March 31,
---------
1999 1998/(2)/
-------- ---------
<S> <C> <C>
Multifamily Properties - Core/(1)/
Revenues $ 53,574 $ 49,860
Expenses (20,671) (19,592)
-------- --------
Income before depreciation $ 32,903 $ 30,268
======== ========
Multifamily Properties-
Acquisitions and Dispositions
Revenues $ 11,338 $ 3,346
Expenses (5,164) (1,797)
-------- --------
Income before depreciation $ 6,174 $ 1,549
======== ========
Multifamily Properties-
Development
Revenues $ 1,567 $ 1
Expenses (881) (125)
-------- --------
Income before depreciation $ 686 $ (124)
======== ========
Retail Properties
Revenues $ 2,554 $ 2,463
Expenses (842) (784)
-------- --------
Income before depreciation $ 1,712 $ 1,679
======== ========
Total Rental Properties
Revenues $ 69,033 $ 55,670
Expenses (27,558) (22,298)
Depreciation (8,228) (6,387)
-------- --------
Income from Rental Properties $ 33,247 $ 26,985
======== ========
</TABLE>
/(1)/Represents properties owned as of December 31, 1997.
/(2)/Certain prior period balances have been reclassified to conform with
current period presentation.
16
<PAGE>
PROPERTY SERVICE BUSINESSES
Revenues, expenses and income from the Property Service Businesses for the
three months ended March 31, 1999 and 1998 were as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended
------------------
March 31,
---------
1999 1998
---- ----
<S> <C> <C>
Total Property Service Businesses
Revenues
Expenses $ 27,394 $ 19,352
Depreciation (26,956) (18,320)
(436) (368)
-------- --------
Income from Property Service Businesses $ 2 $ 664
======== ========
</TABLE>
17
<PAGE>
RESULTS OF OPERATIONS
Comparison of Three Months Ended March 31, 1999 to Three Months Ended March 31,
1998.
Summary. Net income of the Operating Partnership increased $6.3 million, or
46.8%, from $13.3 million for the three months ended March 31, 1998 to $19.6
million for the three months ended March 31, 1999. Funds from Operations ("FFO")
of the Operating Partnership increased $4.7 million, or 22.9%, from $20.7
million to $25.4 million during the same period primarily due to revenue growth
of 7.4% on the core portfolio and the performance of acquired and developed
properties.
Rental Properties. Revenue from all rental properties increased $13.3
million, or 24.0%, from $55.7 million for the three months ended March 31, 1998
to $69.0 million for the three months ended March 31, 1999. Operating expenses
from all rental operations increased $5.3 million, or 23.6% from $22.3 million
during the first quarter of 1998 to $27.6 million during the current quarter.
Core Portfolio. Revenue from the core portfolio increased $3.7 million, or
7.4%, over the prior year period resulting in average monthly revenue per
apartment unit of $1,057. This was primarily due to continued strong demand in
all submarkets, particularly northwest Washington, D.C. Management successfully
increased rents during the quarter and improved occupancy levels. Average
economic occupancy for the core portfolio was 97.1% for the three months ended
March 31, 1999 compared to 94.9% for the comparable prior year. Expenses for
the core portfolio increased $1.1 million, or 5.5%, due primarily to expected
increases in real estate taxes, higher wages due to additional staffing at the
properties and higher utilities due to a mild winter in 1998.
Acquisition Portfolio. The eight acquisition properties (defined as
properties acquired subsequent to December 31, 1997) and three disposition
properties contributed approximately 60%, or $8.0 million, of the total rental
revenue increase and approximately $3.4 million of the total rental expense.
Five of the acquisition properties (comprising 1,942 apartment units) were
acquired during 1998 and three (comprising 1,008 units) were acquired during the
first quarter of 1999.
Development Portfolio. Springfield Station delivered 120 units during the
quarter for a total of 400 units delivered as of March 31, 1999. The project
provided net operating income of $0.5 million for the quarter.
Courthouse Place delivered 175 units during the quarter for a total of 278
units delivered as of March 31, 1999. The project provided net operating income
of $0.2 million for the quarter.
Property Service Businesses. The Company uses the equity method of
accounting for its 99% non-voting interest in the Property Service Businesses.
18
<PAGE>
The decrease in income from Property Service Businesses of $0.7 million in
the first quarter of 1999 compared to the prior year quarter is primarily due to
decreases of $0.3 million and $0.5 million, respectively, for Property
Management Services and Interior Construction Services. The former is
primarily due to seasonality of the corporate furnished apartment business which
was acquired in mid-1998. The latter is due to a decrease in general
contracting projects for affiliated commercial office partnerships.
Other. Corporate general and administrative expenses increased 9.1% compared
to the prior year quarter due primarily to costs related to the Company's
acquisition and development efforts. Interest expense increased $2.3 million
during the quarter, or 20.8%, primarily due to additional debt related to
acquisitions and development partially offset by lower interest rates on the
line of credit and refinanced debt.
LIQUIDITY AND CAPITAL RESOURCES
Summary. Net cash flow provided by operating activities increased $6.0
million from $27.0 million for the three months ended March 31, 1998 to $33.0
million for the three months ended March 31, 1999. The increase is primarily a
result of higher cash flow contributed by the core and acquisition portfolios
and higher accrued costs related primarily to acquisition properties.
Net cash flow of $82.5 million was used by investment activities during the
first quarter of 1999 compared to $39.2 million during the comparable prior year
period due primarily to the acquisition of three properties and one joint
venture interest in 1999 as well as further investments during the quarter in
the four projects under construction. Partially offsetting such outflows was
the $22.6 million in cash proceeds from the sale of The Manor.
Net cash flows provided by financing activities was $49.4 million for the
three months ended March 31, 1999 , primarily comprised of $68.9 million of net
cash inflow from borrowings aginst the properties, the line of credit and
construction loans less $19.6 million of distributions. Net cash flows provided
by financing activities of $15.0 million in the comparable prior year period
primarily consisted of $49.0 of inflow from the sale of preferred units less
$16.7 million of net debt repayments and $17.0 million of distributions.
Funds from Operations. Funds from Operations is defined under the revised
definition adopted by the National Association of Real Estate Investment Trusts
("NAREIT") as net income (loss) (computed in accordance with generally accepted
accounting principles) excluding gains (or losses) from debt restructuring and
sale of property plus depreciation/amortization of assets unique to the real
estate industry. Depreciation/amortization of assets not unique to the
industry, such as amortization of deferred financing costs and non-real estate
assets, is not added back. FFO does not represent cash flow from operating
activities in accordance with generally accepted accounting principles (which,
unlike Funds from Operations, generally reflects all cash effects of
transactions and other events in the determination of net income) and should not
be considered an alternative to net income as an indication of the Company's
performance or to cash flow as a measure of liquidity or ability to make
distributions. The Company considers FFO a meaningful, additional measure of
19
<PAGE>
operating performance because it primarily excludes the assumption that the
value of real estate assets diminishes predictably over time, and because
industry analysts have accepted it as a performance measure. Comparison of the
Company's presentation of FFO, using the NAREIT definition, to similarly titled
measures for other REITs may not necessarily be meaningful due to possible
differences in the application of the NAREIT definition used by such REITs.
Funds from Operations for the three months ended March 31, 1999 and 1998 are
computed as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended
--------------------------
March 31,
--------------------------
1999 1998
---------- ----------
<S> <C> <C>
Net Income of the Operating Partnership $19,551 $13,315
Perpetual preferred dividends (989) (626)
Depreciation of real property 8,228 6,387
Amortization of goodwill 107 --
Gain on sale of property (1,858) (3,120)
Extraordinary item - loss on debt
extinguishment 359 4,702
------- -------
Funds from Operations of the Operating
Partnership 25,398 20,658
======= =======
</TABLE>
Acquisitions
In January 1999, the Company acquired a 442-unit multifamily property in
Crystal City, Virginia ("Buchanan House") for a capitalized cost of $66.0
million which includes assumed debt of $7.4 million, a fair value adjustment to
debt of $0.5 million, initial capital improvement costs of $5.0 million and $0.4
million in acquisition related costs. Funding of $17.7 million was provided from
the 1998 sale of Marbury Plaza with the balance drawn on the Company's bank line
of credit.
In January 1999, the Company acquired a 139-unit multifamily property in
Chicago, Illinois ("Parkwest") for a capitalized cost of approximately $13.6
million, consisting of 138,111 net Operating Partnership Units valued at $4.3
million, assumed debt of $6.0 million, a fair value adjustment to debt of $0.4
million, initial capital improvement costs of $0.8 million, and $2.1 million of
cash. The assumed mortgage has an effective interest rate of 6.5% with
principal amortized using a 25-year amortization schedule and a final payment
due April 1, 2007.
In January 1999, the Company acquired a 427-unit multifamily property in
Chicago, Illinois ("Terrace") for a capitalized cost of approximately $25.7
million, consisting of 291,551 net Operating Partnership Units valued at $9.1
million, assumed debt of $13.7 million, a fair value
20
<PAGE>
adjustment to debt of $0.2 million, initial capital improvement costs of $1.2
million, and $1.5 million of cash.
Development
As of March 31, 1999, the Company had the following properties under
construction:
<TABLE>
<CAPTION>
Number Units Initial Estimated Estimated Estimated
of Units Delivered Delivery Completion Stabilization Cost
-------- --------- -------- ---------- ------------- ---------
(in millions)
<S> <C> <C> <C> <C> <C> <C>
Springfield Station 631 400 May, '98 Q3, 1999 Q4, 1999 $ 62
(Northern Virginia)
Courthouse Place 564 278 December, '98 Q3, 1999 Q4, 2000 69
(Rosslyn/Ballston)
One Superior Place 809 N/A Q3, 1999 Q2, 2000 Q4, 2000 115
(Chicago)
Park Connecticut 142 N/A Q1, 2000 Q2, 2000 Q3, 2000 27
(Washington, D.C.) ----- --- ----
2,146 678 $273
===== === ====
</TABLE>
In February 1999, the Company acquired for $8.6 million a parcel of land for
development in Chicago, Illinois.
Commitments
As of March 31, 1999, the Company had executed contracts to purchase
multifamily properties under construction as follows:
<TABLE>
<CAPTION>
Number Units Estimated Purchase Estimated
of Units Delivered Completion Date Purchase Price
-------- --------- ---------- -------- --------------
(in millions)
<S> <C> <C> <C> <C> <C>
New River Village 240 N/A Q2, 2000 Q4, 2000 $ 33
(Ft. Lauderdale, FL.)
Wilson Boulevard 220 N/A Q3, 2000 Q4, 2000 28
(Rosslyn/Ballston)
Ballston Place 383 N/A Q4, 2000 Q2, 2001 50
(Rosslyn/Ballston)
Reston Landing 400 N/A Q4, 1999 Q3, 2000 44
(Reston, VA.) ----- ----
1,243 $155
===== ====
</TABLE>
These contracts are contingent upon satisfactory completion of construction
and attainment of final certificates of occupancy by the owners. At March 31,
1999, the Company had posted three letters-of-credit totaling $7.7 million in
accordance with three of the contracts each to be drawn only in the event the
Company defaults on its contractual obligation to purchase the completed asset.
21
<PAGE>
Joint Ventures
In March 1999, the Company and J.P. Morgan formed a joint venture which
acquired the Renaissance, a 330-unit multifamily property in Tysons Corner,
Virginia for approximately $37 million. The joint venture plans to invest an
additional $2.0 million in initial capital improvements and has placed debt of
$19.0 million on the property. The debt carries an interest rate of 6.48% and
matures in February 2006. Ownership interests in the joint venture are held 75%
by J.P. Morgan and 25% by the Company. The Company's initial equity
contribution totaled $4.4 million consisting of 21,903 Operating Partnership
units valued at $0.7 million and cash of $3.7 million.
In May 1999, the Company formed two additional joint ventures with J.P.
Morgan. The first venture ("University Center JV") will develop a new 630-unit
multifamily property in Loudoun County, Virginia at the western end of the
Dulles Technology corridor. Ownership interests are held 60% by J.P. Morgan
and 40% by the Company. The joint venture intends to place debt financing for
50% of the project's estimated $60 million development cost. Construction is
expected to commence during the third quarter of 1999 with final completion in
2001. The Company's initial equity contribution consisted of land acquired in
1998 for $5.4 million less cash received of $3.0 million. A Company affiliate
will provide development, property management and marketing services to the
venture for a market rate fee. The affiliate will provide a construction
completion guarantee to the venture.
The second venture ("Springfield Station JV") was formed to own and operate
the Company's recently developed 631-unit Springfield Station property. The
Company sold a 52% interest in Springfield Station JV to J.P. Morgan and
received proceeds of approximately $50 million from the transaction. The joint
venture placed $37 million in debt financing on the property at 6.85% fixed
interest which matures on June 1, 2001. The Company provided a construction
completion guarantee on the project as well as a payment guarantee of $14.1
million of the debt. The construction completion guarantee expires on October 1,
1999. The debt guarantee will expire on or before the achievement of 92%
occupancy for 45 consecutive days. The Company will defer recognition of a $5.2
million gain on the sale until the guarantees have expired.
Debt
In February 1999, the Company repaid the $7.4 million mortgage on Buchanan
House through a draw on its line of credit and paid a prepayment penalty of $0.9
million.
In March 1999, the Company obtained a $38.0 million mortgage on Buchanan
House with an effective fixed interest rate of 6.67%. The loan is interest only
through March 2009, at which time principal amortization begins using a 30-year
amortization schedule with a balloon payment due February 1, 2011.
In March 1999, the Company repaid the mortgage on Terrace and obtained a new,
interest-only mortgage of $15.6 million at an effective rate of 6.64% with
principal due April 1, 2007. The Company paid a prepayment penalty of $0.2
million.
22
<PAGE>
As of March 31, 1999, the Company had mortgage indebtedness and other
borrowings, which carried a weighted average interest rate of 6.86%, as follows:
<TABLE>
<CAPTION>
Dollars in % of
Thousands Total
----------- -----------
<S> <C> <C>
Fixed rate debt:
Mortgages $681,796 76.9%
Variable rate debt:
$100M line of credit 52,000 5.9%
$185M line of credit 71,000 8.0%
Construction Loans 82,190 9.2%
-------- -----
$886,986 100.0%
======== =====
</TABLE>
As of March 31, 1999, the Company had $216.1 million of unused borrowing
capacity on lines of credit and construction loans. Amounts outstanding under
lines of credit averaged $112.3 million for the three months ended March 31,
1999 compared to $110.7 million for the three months ended March 31, 1998.
As of March 31, 1999, the Company's Debt to Total Market Capitalization Ratio
was 43.8% (based on 3.2 million convertible preferred units and 32.1 million
common units outstanding at a common stock price of $30.813 and $50 million of
perpetual preferred units) versus 40.3% as of December 31, 1998 and 34.7% as of
March 31, 1998.
The Company's Interest Coverage Ratio for the three months ended March 31,
1999 was 3.24 to 1 compared to 3.01 for the comparable prior year period.
Capital Expenditures
For the three months ended March 31, 1999, total capital improvements were
$3.6 million, of which $3.1 million were for the core portfolio ($186 per unit).
Approximately 42% of the capital expenditures on the core portfolio in 1999 are
considered by management to generate net operating income ("NOI") by increasing
revenue or decreasing expenses ("NOI generating"). The remaining capital
expenditures on the core portfolio indirectly influence the Company's ability to
generate NOI ("non-NOI generating"). A summary of core capital expenditures
follows:
<TABLE>
<CAPTION>
Total $ Average $
Spent Per
Expenditure Type (In Thousands) Core Unit
---------------- -------------- --------------
<S> <C> <C>
Installations $ 345 $ 20
Water saving devices 90 5
Renovations 429 25
Redevelopment 349 21
Other 94 6
------ ----
Total NOI generating
improvements 1,307 77
Non-NOI generating
improvements 1,837 109
------ ----
Total capital
expenditures - core
portfolio $3,144 $186
====== ====
</TABLE>
23
<PAGE>
Year 2000
In 1997, the Company began a comprehensive review of its year 2000 compliance
issues utilizing an overlapping, three-phased approach. Phase I involves
assessments of building infrastructure and internal computer systems including
both hardware and software to identify possible compliance failures. Phase II
involves vendor compliance and actual testing of hardware and software
applications including significant electronic interfaces. Phase III involves
identifying remaining company-wide risks and development of contingency plans.
The Company expects to complete Phases I and II of its Year 2000 review in mid-
1999. Phase III is expected to run from March 1999 through December 1999.
Based on the review plan as well as the expected success of remediation efforts
currently underway, management believes the Company has no material risks
related to the ability of its hardware and software to recognize the year 2000
and beyond as valid dates.
The Company's primary financial and operational software programs were
purchased from outside vendors who have already resolved year 2000 issues. The
Company has received letters from these vendors indicating that their software
is Year 2000 compliant. The Company replaced one computer system which was not
year 2000 compliant at an estimated cost of approximately $1.6 million. The new
system will be depreciated over its estimated useful life of five years.
As part of Phase II, the Company has taken steps to identify and contact key
vendors whose inability to provide service in the year 2000 could have a
material adverse effect on the Company's business operations. With the
exception of utility services, the Company believes that there are no other
critical suppliers whose inability to provide service would materially affect
business operations. This is due primarily to the physical nature of the
Company's product as well as the availability of multiple suppliers of property
services. The Company does not have a contingency plan to address the
possibility that utility services may not be available, however, management
believes that this is a very unlikely scenario. Readers are cautioned that
these conclusions involve numerous subjective assumptions and there can be no
assurances that management has adequately identified or addressed all possible
contingencies. Phase III was initiated in March 1999.
Excluding the replacement system, the Company's Year 2000 compliance efforts
have been primarily conducted with internal staff. Accordingly, the costs have
been immaterial and are expensed as incurred.
24
<PAGE>
PART II
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
On January 15, 1999, the Registrant issued 429,662 Operating
Partnership Units valued at $13.4 million for the purpose of acquiring
all or a part of an ownership interest in two real estate properties
during the first quarter of 1999. These Units are redeemable for cash
or shares of the Company's Common Stock after one year.
On March 3, 1999, the Registrant issued 32,258 Operating Partnership
Units valued at $1.0 million for the purpose of acquiring the land
underlying one of its properties and a net profits interest of another
party in a second property. These Units are redeemable for cash or
shares of the Company's Common Stock after one year.
On March 23, 1999, the Registrant issued 21,903 Operating Partnership
units valued at $0.7 million for the purpose of acquiring an interest
in a joint venture with J.P. Morgan Strategic Property Fund. These
Units are redeemable for cash or shares of the Company's Common Stock
after one year.
The recipients of the above were the owners of property or partners
of partnerships owning such property, who swapped their ownership
interest for Units, cash, the assumption of debt, or some combination
thereof or entities which used the Units to purchase a property in a
similar manner. These Units were offered on a private placement basis,
and the offerings were completed without an underwriter or the payment
of sales commissions or discounts. The Registrant believes that such
offerings and sales were exempt from registration under the Securities
Act of 1933, as amended (the "Securities Act") by virtue of Section
4(2) of the Securities Act and the provisions of Rule 506 of Regulation
D promulgated thereunder, the conclusion of the Registrant, after
diligent investigation, that fewer than 35 offerees were not either
"accredited investors" as defined in Rule 501 or within the other
requirements of Registration D, the delivery to each prospective
Unitholder of appropriate written materials, and the execution by each
person receiving Units of a qualifying subscription agreement.
Item 3. Defaults on Senior Securities.
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information.
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
None
(b) Reports on Form 8-K:
None
25
<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.
CHARLES E. SMITH RESIDENTIAL REALTY, L.P.
By: Charles E. Smith Residential Realty, Inc.,
Its General Partner
May 17, 1999 By: /s/ W. D. Minami
----------------------------------------------
W. D. Minami
Senior Vice President and Chief Financial Officer
of Charles E. Smith Residential Realty, Inc.
(on behalf of the Registrant and as Principal
Financial Officer)
By: /s/ Steven E. Gulley
---------------------------------------------
Steven E. Gulley
Vice President and Chief Accounting Officer
of Charles E. Smith Residential Realty, Inc.
26
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 9,871
<PP&E> 1,456,930
<DEPRECIATION> (235,005)
<TOTAL-ASSETS> 1,305,940
<CURRENT-LIABILITIES> 34,144
<BONDS> 886,986
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1,305,940
<SALES> 0
<TOTAL-REVENUES> 69,033
<CGS> 0
<TOTAL-COSTS> 35,786
<OTHER-EXPENSES> 2,209
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,014
<INCOME-PRETAX> 19,910
<INCOME-TAX> 0
<INCOME-CONTINUING> 19,910
<DISCONTINUED> 0
<EXTRAORDINARY> 359
<CHANGES> 0
<NET-INCOME> 17,197
<EPS-PRIMARY> 0.54
<EPS-DILUTED> 0.54
</TABLE>
