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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
X Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
- -- of 1934 for the fiscal year ended December 31, 1998, 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 or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2345 Crystal Drive
Crystal City, Arlington, VA 22202
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (703) 920-8500
Securities registered pursuant to Section 12(b) of the Act:
Class A Units of Limited Partnership Interest
(Title of Class)
Securities registered pursuant to Section 12(g) of the Act: None
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 ___
---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ____
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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.,
Chicago and Boston metropolitan areas; 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.
PART I
Item 1. Business.
Charles E. Smith Residential Realty L.P., a Delaware limited partnership
(the "Operating Partnership"), was formed in 1993 and commenced operations on
June 30, 1994. It is managed by its general partner, Charles E. Smith
Residential Realty, Inc., a Maryland corporation (the "Company"), which is a
self-administered and self-managed equity real estate investment trust("REIT").
The Company was organized in 1993 and also commenced operations on June 30, 1994
upon completion of its initial public offering (the "Initial Public Offering").
The Operating Partnership and the Company are engaged primarily in the
acquisition, development, management and operation of multifamily properties.
The Operating Partnership, together with the Company and their respective
subsidiaries as described below, is a fully integrated real estate organization
with in-house acquisition, development, financing, marketing, leasing and
property management expertise. The Operating Partnership's primary strategy for
growth is to acquire, develop, own and manage high quality multifamily
properties for income generation and long-term value appreciation.
The Company is the sole general partner and holds approximately 62% of the
common and preferred units of limited partnership interest ("Units") in the
Operating Partnership as of March 1, 1999. The other limited partners of the
Operating Partnership (the "Minority Interest") primarily consist of the former
limited and general partners of properties and the former owners of the property
service businesses acquired by the Operating Partnership (see "History of the
Company" below). The Operating Partnership and its subsidiaries own all of the
properties, property interests, and business assets and conduct all operations
on behalf of the Company and
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the Operating Partnership. The Operating Partnership owns 100% of the nonvoting
common stock, which represents 99% of the total economic interest, of three
operating companies (collectively, the "Property Service Businesses") which
provide property services to the properties owned by the Operating Partnership
and to other multifamily, retail, and office properties. The three Property
Service Businesses are: Smith Realty Company, which directly provides
management, leasing, financing, development and insurance services and
indirectly provides furnished corporate apartments through a wholly-owned
subsidiary; Consolidated Engineering Services, Inc., which provides engineering
and technical services; and Smith Management Construction, Inc., which provides
construction and interior renovation services. As the sole general partner of
the Operating Partnership, the Company has the exclusive power to manage and
conduct the business of the Operating Partnership, subject to the consent of the
holders of Units in connection with the sale of all or substantially all of the
assets of the Operating Partnership. Some references made herein to the Company
include the Operating Partnership and the Property Service Businesses, as the
context requires.
As of March 1, 1999, the Operating Partnership, directly or through its
subsidiaries, owned 50 operating multifamily apartment properties containing a
total of 19,852 units (the "Multifamily Properties"), two retail centers
containing approximately 436,000 square feet of retail space (the "Retail
Properties"), and had four properties under construction containing
approximately 2,100 units ("Development Properties"). All properties, excluding
five in Chicago, Illinois and two in Boston, Massachusetts, are located in the
Washington, D.C. metropolitan area (collectively, the "Properties").
The executive offices of the Operating Partnership are located at 2345
Crystal Drive, Crystal City, Arlington, Virginia 22202, and its telephone number
is (703) 920-8500.
History of the Company
The Operating Partnership was formed to succeed to the property assets of
38 partnerships (the "Property Partnerships") and certain asset management and
property service businesses of the Charles E. Smith Companies (the "Smith
Companies"). On June 30, 1994, the Company consummated an initial public
offering (the "Initial Public Offering") of 8,632,800 shares of its common
stock, $.01 par value per share (the "Common Stock"), and a private placement of
416,667 shares of its Common Stock. The Company contributed the net proceeds of
such offerings to the Operating Partnership in return for 9,049,467 Units of
general and limited partnership interest therein. On that same date, (i) the
Operating Partnership acquired, in exchange for 12,131,292 Units, 30 Properties
(reflects the combination of three buildings into one for operational and
statistical purposes), partial interests in two additional properties, all of
the non-voting common stock of the Property Service Businesses (representing 99%
of the economic interest), and notes of the Property Service Businesses in the
aggregate amount of $44.5 million; (ii) the Operating Partnership, through its
partnership subsidiaries, issued $352.4 million of fixed-rate indebtedness
secured by certain of the Properties in private placements to institutional
investors and assumed certain other indebtedness (the "Mortgage Loans"); (iii)
the Operating Partnership applied the proceeds of the Mortgage Loans and the
Company's contribution of offering proceeds to repay approximately $454 million
of mortgage indebtedness,
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$26.2 million in related party indebtedness and $11.1 million in notes payable
to a bank, to pay $13.8 million in prepayment penalties related to the early
extinguishment of debt, to pay $14.7 million in transfer taxes and other costs
associated with the formation of the Company and the Operating Partnership, and
to pay $18.5 million of mortgage recording taxes, origination fees and other
expenses associated with the Mortgage Loans, and to supply $15.4 million of
working capital; and (iv) the Operating Partnership established a $100 million
line of credit to fund development activities and property acquisitions and for
general corporate purposes (collectively, the "Formation Transactions").
Since the Formation Transactions and through March 1, 1999, the Operating
Partnership developed one and acquired 24 operating Multifamily Properties
totaling 9,351 apartment units and sold three properties totaling 1,334 units.
In addition, the Operating Partnership had approximately 2,100 units under
construction in four Development Properties as of March 1, 1999 (see "Recent
Developments" below).
Business Strategy
The Operating Partnership seeks growth in funds from operations (a common
measure of equity real estate investment trust performance, defined as net
income [loss] computed in accordance with generally accepted accounting
principles, excluding gains or losses from debt restructuring and other non-
recurring items, plus depreciation and amortization of assets unique to the real
estate industry) while preserving and enhancing property values by pursuing the
following strategies: (i) maximizing cash flow from operations of the Properties
by seeking to maintain high occupancy levels, obtain rent increases, manage
tenant turnover efficiently, make strategic capital investments, expand the
availability of furnished rental apartments, initiate new tenant fees and
control operating expenses; (ii) acquiring additional multifamily properties for
Common Stock, Units, or cash in situations where, in the judgment of management,
the Operating Partnership's business strengths have the potential to increase
property performance and value; (iii) developing new multifamily properties
consistent with the predecessor Smith Companies' historical policies of
constructing and maintaining high quality properties for long-term income and
value enhancement; and (iv) actively promoting the comprehensive property
services of the Property Service Businesses to unaffiliated property owners. In
addition to its activities in the Washington, D.C. metropolitan area, the
Operating Partnership also seeks to acquire additional properties or portfolios
in Chicago, Boston, southeast Florida and other markets with characteristics
similar to the Operating Partnership's current portfolio that offer
opportunities for profitable investment and long-term growth.
Financing Strategy
To the extent that the Company's board of directors determines to seek
additional capital for acquisitions or otherwise, the Company or the Operating
Partnership may raise such capital through additional equity offerings, debt
financing or retention of cash flow (subject to provisions of the Internal
Revenue Code of 1986, as amended, requiring the distribution by a REIT of a
certain percentage of taxable income and taking into account taxes that would be
imposed on undistributed taxable income), or a combination of these methods.
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Equity
During 1998 and through March 1, 1999, the Company and the Operating
Partnership completed several equity transactions.
In January 1998, the Company sold 500 shares of Series C Cumulative
Redeemable Preferred Stock ("Series C Preferred Shares"), $0.01 par value, to
Cobalt Capital, L.L.C. The Company contributed the net proceeds to the
Operating Partnership in exchange for 500 units of Series C Cumulative
Redeemable Preferred Units ("Series C Preferred Units").
The Operating Partnership amended the Articles of Incorporation to
designate and establish the rights and privileges of the Series C Preferred
Unitholders which include certain voting, distribution and liquidation
preferences over the common unitholders. The Series C Preferred Units have a
liquidation preference of $100,000 per unit and an initial annual distribution
of $7,910 per unit (7.91% of purchase price). If the securities receive an
investment grade rating, the distribution will decrease to $7,660 per unit.
Distributions are cumulative and are payable quarterly. The Operating
Patrnership may redeem Series C Preferred Units after February 1, 2028, at the
liquidation price plus accrued distributions.
In April 1998, the Company sold the remaining 978,581 shares of Series A
Cumulative Convertible Redeemable Preferred Stock ("Series A Preferred Shares")
to Security Capital Preferred Growth Inc. under the May 1997 agreement. The
Company contributed the net proceeds to the Operating Partnership in exchange
for 978,581 units of Series A Cumulative Convertible Redeemable Preferred Units
("Series A Preferred Units").
In July 1998, the Company completed the sale of 1,400,000 shares of common
stock (par value of $0.01 per share) under its existing shelf registration
statement. The net proceeds were contributed to the Operating Partnership in
exchange for 1,400,000 units of common units.
During 1998, 502,038 shares of Series B Cumulative Convertible Redeemable
Preferred Stock ("Series B Preferred Shares") were converted to common shares on
a one-for-one basis. The Operating Partnership converted 502,038 units of
Series B Cumulative Convertible Redeemable Preferred Units ("Series B Preferred
Units") to common units on a one-for-one basis.
The Company currently has on file with the Securities and Exchange
Commission an effective registration statement which allows the sale of up to
$450,000,000 in debt or equity securities, of which approximately $312,000,000
remains available. As long as the Operating Partnership is in existence, the net
proceeds of all equity capital raised by the Company will be contributed to the
Operating Partnership in exchange for limited partnership interests in the
Operating Partnership. The Company and the Operating Partnership also may issue
securities senior to the Common Stock or Units, including additional preferred
stock or debt securities (either of which may be convertible into Common Stock
or Units or may be accompanied by warrants to purchase Common Stock or Units).
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Debt
The Operating Partnership's policy, which is set by the Board of Directors
of the Company, is to incur debt (including debt incurred under its lines of
credit) only if upon such incurrence its ratio of debt to total market
capitalization would be 60% or less. The Operating Partnership may reevaluate or
modify this financing policy from time to time in light of economic conditions,
relative costs of debt and equity capital, market values of properties, growth
and acquisition opportunities and other factors. At December 31, 1998, the
Operating Partnership's debt to total market capitalization ratio was 40.3%.
Property Management
The Operating Partnership and its Property Service Businesses are
experienced in the management and leasing of multifamily and retail properties.
The Operating Partnership believes that the management and leasing of its own
portfolio has resulted in consistent income growth and reduced operating
expenses. The Property Service Businesses have provided the Operating
Partnership both with a source of cash flow and with economies of scale in
conjunction with the management and leasing of its own Properties. These
Property Service Businesses also allow the Operating Partnership and its
subsidiaries to establish additional relationships with tenants that benefit the
Properties.
Property Service Businesses
Multifamily Property Management Services. The residential property
management business of Smith Realty Company ("SRC"), an operating subsidiary of
the Operating Partnership, is a long-established, integrated business with
extensive experience in leasing and managing multifamily properties. This
subsidiary has been managing and leasing multifamily housing in the Washington,
D.C. metropolitan area since 1946 and, as of March 1, 1999, manages 63 apartment
properties of which 50 are owned by the Operating Partnership. It also assists
in the development and acquisition of additional multifamily properties and
carries out a periodic inspection program that addresses all aspects of the
property and property management.
During 1998, Multifamily and Retail Property Management Services expanded
the corporate apartment program as a result of the acquisition by Smith Realty
Company of Noel Enterprises, Inc. ( d.b.a. "Presidential Villas"), a provider of
furnished corporate apartments in Chicago, Illinois. A portion of the total
purchase price of $8.5 million is contingent upon achievement by Presidential
Villas of certain earnings targets over the next two years. The Operating
Partnership lent to Smith Realty Company the initial payment of $6.75 million in
exchange for a five year note.
Retail Property Management Services. The retail management and leasing
business, also conducted through Smith Realty Company, approaches the management
and leasing of its retail portfolio with an integrated program of regular direct
communication with retail tenants,
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proactive assistance with marketing, merchandising and monitoring store
operations, and maintenance. A retail marketing staff works to promote the
shopping centers as a whole and to work with individual tenants to ensure the
effectiveness of store design, marketing, merchandising and sales efforts. The
retail management and leasing group, in addition to providing complete property
management and leasing services for the Operating Partnership's two Retail
Properties totaling approximately 436,000 square feet, also provides such
services for a fee to three retail properties owned by affiliated parties
totaling approximately 293,000 square feet. Smith Realty Company also provides
retail leasing and brokerage services for additional, unaffiliated third parties
on a fee-for-service basis.
Financing Services. Historically, the Operating Partnership
solicited, procured and arranged financing for a fee on behalf of commercial
office properties, the majority of which are affiliated with Robert H. Smith and
Robert P. Kogod, the Co-Chief Executives and Co-Chairmen of the Board of the
Company and the owners of approximately 13% of the Shares and Units of the
Company. During the fourth quarter of 1997, Financing Services personnel
transferred to Charles E. Smith Commercial Realty L.P. ("CESCR"), a commercial
office partnership affiliated with Messrs. Smith and Kogod. In 1998 most of the
remaining commercial office properties were rolled up into CESCR. In connection
with the formation of CESCR, the Operating Partnership entered into a 14-month
agreement to continue to provide financing services for certain of the
properties of CESCR through December 31, 1998. Management does not expect any
significant future income from Financing Services.
Engineering and Technical Services. The engineering and technical services
business is conducted through Consolidated Engineering Services, Inc., an
operating subsidiary of the Operating Partnership, which manages, operates,
maintains and repairs the "physical plant" of office, multifamily, and retail
properties. Through its staff of on-site and off-site engineers, supervisors,
technical specialists and maintenance personnel, this subsidiary provides
various services, including on-site building systems operations and maintenance,
engineering and technical consulting, automated environmental monitoring and
controls, preventive maintenance, management of building environmental systems
and repair and replacement of mechanical/electrical systems. This business
serves the Properties and also provides facilities management services for both
affiliated and unaffiliated third parties, including condominium, bank,
university and government buildings. During 1998, services were provided with
respect to approximately 46 million square feet of facilities.
Interior Construction and Renovation Services. The construction services
business, conducted through Smith Management Construction, Inc., an operating
subsidiary of the Operating Partnership, is a construction management and
general contracting company that provides interior construction and renovation
services to the Properties and various other affiliated and unaffiliated third
party clients. This business focuses primarily on capital improvement projects
and office and retail tenant space construction and alteration, and provides the
expertise necessary to take a project from the initial planning and
preconstruction stage through the completion of construction. In 1998, oversight
was provided to approximately $80 million of construction activity.
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Corporate Services. The corporate services businesses, conducted through
Smith Realty Company, enable a central office to provide supporting services in
the areas of insurance, legal advice, accounting, information systems, human
resources, office administration and marketing to the Operating Partnership and
its subsidiaries, as well as to other affiliated third parties, including CESCR.
Services are provided at cost (including overhead) in accordance with cost and
executive sharing agreements. In management's opinion, the allocation methods
provide reasonable estimates of the costs that would have been incurred by the
Operating Partnership had the services been provided by the Operating
Partnership.
The accounting department is responsible for all accounting, auditing and
controls, procedures and management information systems as they relate to the
Operating Partnership and the Properties, and for certain other partnerships and
corporate entities (including affiliates of Messrs. Smith and Kogod). The legal
department provides real estate and corporate advice to management, performs
legal services and in some cases coordinates representation by outside counsel.
The marketing department develops and implements a variety of marketing programs
for the Operating Partnership and its subsidiaries. The human resources
department administers all personnel functions. The insurance subsidiary
provides property and casualty insurance placement services for both corporate
and individual property requirements.
Employees
As of March 1, 1999, the Operating Partnership and its subsidiaries had
approximately 1,820 full-time and part-time employees, the latter primarily
employed in on-site clerical positions. This total includes 680 employees who
provide on-site property services and, in the Property Service Businesses, 690
persons in its engineering and technical services subsidiary, 120 persons in its
interior construction and renovation subsidiary, and 330 persons in its
residential and retail leasing and management, finance, and corporate services
subsidiary.
Recent Developments
Acquisition Properties. During 1998, the Company, through the Operating
Partnership, acquired five operating multifamily properties containing 1,942
apartment units, as further described below.
Tunlaw Park. In January 1998, this 120-unit mid-rise property in northwest
Washington, D.C. was acquired for $0.8 million in cash and 123,818 Operating
Partnership units valued at $4.4 million. The property was developed and
managed by the Smith Companies and the Operating Partnership previously owned a
20% minority interest.
Tunlaw Gardens. In January 1998, this 167-unit, garden property in
northwest Washington, D.C. was acquired for $6.9 million consisting of $2.5
million cash and 130,371 Operating Partnership units valued at $4.4 million.
The property was previously managed by the Operating Partnership.
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Parc Vista. In April 1998, this 299-unit, 16-story high-rise built in
1990 was acquired for approximately $39 million of cash funded by $4.3 million
in proceeds from the sale of Oxford Manor with the balance drawn on the line of
credit. During the fourth quarter of 1998, the property had an average economic
occupancy of 98.4% and average monthly rental revenue per apartment unit of
approximately $1,430.
McClurg Court. In May 1998, the Operating Partnership acquired a 1,075-
unit multifamily property in Chicago, Illinois. The cost of approximately $70
million cash was funded from the line of credit and proceeds from the sale of
Series A Preferred Shares totaling $26.5 million. Approximately 13% of the
underlying land is included in the purchase, with the balance subject to ground
leases expiring in 2067. The total capitalized cost of approximately $74
million reflects $4 million of planned initial capital improvements. During the
fourth quarter of 1998, the property had an average economic occupancy of 93.4%
and average monthly rental revenue per apartment unit of approximately $1,287.
Cronin's Landing. In July 1998, the Operating Partnership acquired a
newly-constructed 281-unit mid-rise multifamily property in Boston,
Massachusetts. The total capitalized cost of approximately $63.5 million was
comprised of $27.0 million cash, $31.5 million in assumed debt, a fair value
adjustment to debt of $2.0 million, and 92,793 Operating Partnership units
valued at $3.0 million. During the fourth quarter of 1998, the property had an
average economic occupancy of 89.5% and average monthly rental revenue per
apartment unit of approximately $1,733.
In January 1999, the Company, through the Operating Partnership acquired
three additional properties as further described below.
Buchanan House. This 442-unit property in Crystal City, Virginia was
acquired for a total capitalized cost of $65.5 million which includes assumed
debt of $7.4 million, initial capital improvement costs of $5.0 million and $0.4
million in acquisition related costs. Cash of $52.7 million was provided by
$17.7 million in proceeds from the sale of Marbury with the balance drawn on the
line of credit. In February 1999, the Operating Partnership repaid the assumed
debt of $7.4 million through a draw on the line of credit. The Operating
Partnership paid a prepayment penalty of $0.9 million which was recognized as an
extraordinary loss.
Parkwest. This 139-unit property in Chicago, Illinois was acquired for a
total capitalized cost of approximately $14.1 million, consisting of 201,950
Operating Partnership Units valued at $6.3 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 $0.6 million in other related costs.
Terrace. This 427-unit property in Chicago, Illinois was acquired for a
total capitalized cost of approximately $26.1 million, consisting of 320,304
Operating Partnership Units valued at $10.0 million, assumed debt of $13.7
million, a fair value adjustment to debt of $0.7 million, initial capital
improvement costs of $0.4 million, and $1.3 million in other related costs.
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In March 1999, the Operating Partnership acquired the land beneath the
Crystal Square property and the 5.1% net profits interest in the Crystal Plaza
property. The purchase price of $10 million consisted of 32,258 Operating
Partnership Units valued at $1 million and $9 million cash drawn upon the line
of credit.
Disposition Properties. During 1998, the Operating Partnership sold two
properties (Oxford Manor and Marbury Plaza) in southeast Washington, D.C. for a
total of $22.0 million. The Operating Partnership recognized gains on the sales
totaling $18.2 million.
In February 1999, the Operating Partnership sold The Manor, a 435-unit
property located in suburban Maryland for $23.0 million. The Operating
Partnership recognized a gain on the sale of $1.9 million.
Development Properties. During 1998, the Operating Partnership had four
properties totaling 2,146 apartment units under construction.
Springfield Station. The Operating Partnership is nearing completion
on the construction of its 631-unit mid-rise and garden apartment property in
Springfield, Virginia. The project is located adjacent to a new Metrorail and
commuter rail station and a regional shopping mall and offers convenient access
to major transportation routes. Initial delivery was in May 1998, with final
delivery projected in the second quarter of 1999.
Courthouse Place. The Operating Partnership is nearing completion on the
construction of its 564-unit high-rise apartment property in Arlington,
Virginia. The initial delivery of 103 units was in December 1998. Final
delivery is expected in December 1999.
One Superior Place. During 1997, the Operating Partnership began
construction on a 52-story, 809-unit high-rise apartment and commercial center
in downtown Chicago. Initial occupancy is expected in the third quarter of 1999
with final delivery in mid-2000.
Park Connecticut. During 1998, the Operating Partnership began
construction on a 142-unit high- rise apartment property in downtown Washington,
D.C. The project is expected to deliver initial units in the fourth quarter of
1999 with stabilization in the second quarter of 2000.
As of March 1, 1999, the Operating Partnership owned $14.5 million of land for
future development.
Prepurchase Agreements. During 1998, the Operating Partnership entered
into four contracts to purchase to-be-constructed multifamily properties
totaling approximately 1,200 apartment units ("Prepurchase Agreements"). The
maximum aggregate purchase price totals $151 million with projected closing
dates between July 2000 and May 2001. Further details of each project are
reflected below.
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Reston Landing. This 400-unit property is expected to be completed in the
fourth quarter of 1999. The Operating Partnership expects to acquire the
property in the third quarter of 2000 at a cost of $44 million, including earn-
out payments.
New River Village. This 240-unit property is expected to be completed in
the second quarter of 2000. The Operating Partnership expects to acquire the
property in the fourth quarter of 2000 at a cost of $32 million, including earn-
out payments.
Wilson Boulevard. This 220-unit property is expected to be completed in
the second quarter of 2000. The Operating Partnership expects to acquire the
property in the fourth quarter of 2000 at a cost of $28 million, including earn-
out payments.
Pollard Gardens. This 383-unit property is expected to be completed in the
fourth quarter of 2000. The Operating Partnership expects to acquire the
property in the second quarter of 2001 at a cost of $47 million, including earn-
out payments.
These acquisitions are contingent upon satisfactory completion of
construction and attainment of final certificates of occupancy by the owners.
At December 31, 1998, the Operating Partnership had posted three letters-of-
credit totaling $7.7 million in accordance with three of the contracts to be
drawn upon only if the Operating Partnership defaults on its contractual
obligations to purchase the completed assets.
Financial Information
For information relating to the Operating Partnership's operating segments,
please refer to Footnote 14 in the Financial Statements.
Executive Officers of the Company
The following is a biographical summary of the experience of the executive
officers of the Company:
Robert H. Smith. Mr. Smith is Co-Chief Executive Officer and Co-Chairman
of the Board of the Company and Co-Chairman of the Board of each of the Property
Service
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Businesses. Since 1962, Mr. Smith has been the President, Chief Executive
Officer and a director of Charles E. Smith Construction, Inc. and its
predecessor companies, where he oversees and directs all phases of development
and construction of the Smith Companies' office, retail and residential real
estate projects. He is also Co-Chairman of the Board and a director of Charles
E. Smith Commercial Realty, Inc. which together with its subsidiaries and
affiliates is engaged in the ownership, operation, and management of commercial
office buildings. Mr. Smith joined the Smith Companies in 1950. Mr. Smith is 70
years old and the brother-in-law of Robert P. Kogod.
Robert P. Kogod. Mr. Kogod is Co-Chief Executive Officer and Co-Chairman
of the Board of the Company and Co-Chairman of the Board of each of the Property
Service Businesses. From 1964 to 1997, Mr. Kogod was the President, Chief
Executive Officer and a director of Charles E. Smith Management, Inc., where he
oversaw and directed all phases of the leasing and management of the Smith
Companies' commercial real estate portfolio. He is now the Co-Chairman of the
Board and a director of Charles E. Smith Commercial Realty, Inc., a successor to
Charles E. Smith Management, Inc., and the owner, operator, and manager of
commercial office buildings. He is also Secretary/Treasurer and a director of
Charles E. Smith Construction, Inc., an affiliated company that specializes in
the development and construction of office, retail and residential projects.
Mr. Kogod joined the Smith Companies in 1959. Mr. Kogod is 67 years old and the
brother-in-law of Robert H. Smith.
Ernest A. Gerardi, Jr. Mr. Gerardi is President, Chief Operating Officer
and a Director of the Company, and is President, Chief Executive Officer, and a
director of each of the Property Service Businesses. From 1985 until 1994, Mr.
Gerardi was a member of the Executive Committee of Charles E. Smith Management,
Inc., where he had overall responsibility for all day-to-day business operations
and long-range planning. From 1985 through 1993, he served as Executive Vice
President and Senior Executive Vice President of Charles E. Smith Management,
Inc. Prior to joining the Smith Companies in 1985, Mr. Gerardi was with Arthur
Andersen and Co., where he served as senior partner in charge of the firm's
accounting and financial practice for over 250 professionals in Washington, D.C.
During his 27 years with Arthur Andersen, he specialized in management
consultation and strategic planning. He is also a member of the American
Institute of Certified Public Accountants and the D.C. Institute of Certified
Public Accountants. Mr. Gerardi is 63 years old.
Wesley D. Minami. Mr. Minami is Senior Vice President and Chief Financial
Officer of the Company and Smith Realty Company, one of the Property Service
Businesses, and is responsible for the Company's debt portfolio, corporate
financial planning, local acquisitions, and its treasury, accounting, controls
and information systems departments. Prior to joining the Company in 1997, Mr.
Minami was the Chief Financial Officer for Ascent Entertainment Company where he
was responsible for an $86 million initial public offering spin-off of Ascent,
which had been a wholly-owned subsidiary of Comsat Corporation. Formerly, he
had served as the Treasurer of Comsat Corporation. From 1985 to 1993, Mr.
Minami held several positions, including Senior Vice President, Chief Financial
Officer at Oxford Realty Services Corporation which developed and managed a
portfolio of over 45,000 apartment units. Mr. Minami is 42 years old.
Robert D. Zimet. Mr. Zimet is Senior Vice President, General Counsel and
Secretary of the Company and Smith Realty Company, one of the Property Service
Businesses. He was the General Counsel and a Senior Vice President of Charles
E. Smith Management, Inc., since joining the Smith Companies in 1983, and
became a Group Senior Vice President in 1991. He continues in these capacities
for Charles E. Smith Commercial Realty, Inc., a successor to Charles E. Smith
Management, Inc., and the owner, operator, and manager of commercial office
buildings. Mr. Zimet is responsible for the legal affairs of the Company and the
Smith Companies, as well as supervision of the Human Resources and Office
Services departments of Smith Realty Company. Mr. Zimet is 60 years old.
11
<PAGE>
John T. Gray. Mr. Gray is the Senior Vice President-Residential Management
of the Company and Smith Realty Company, one of the Property Service Businesses.
Prior to joining the Smith Companies in November 1998, he was President for two
years of Walter V. Clark Associates, a human resources consulting firm. Prior
to that, Mr. Gray was with Summit Properties, Inc. for ten years. As President
of the Management Company, he was an active participant in Summit's initial
public offering and had total responsibility for the residential portfolio of
over 20,000 apartment units. Mr. Gray is responsible for the overall
management, leasing and operation of Smith's multifamily portfolio. Mr. Gray is
43 years old.
Matthew B. McCormick. Mr. McCormick is the Senior Vice President-
Residential Marketing of the Company and Smith Realty Company, one of the
Property Service Businesses. Prior to January 1998, Mr. McCormick was the Senior
Vice President and Department Head of the Retail Group, where he was responsible
for retail property management and leasing, as well as outside retail brokerage
services. Prior to joining the Smith Companies in 1988, Mr. McCormick was a
retail specialist with the Washington, D.C. office of Coldwell Banker. Mr.
McCormick is 38 years old.
Alfred G. Neely. Mr. Neely is Senior Vice President-Development of the
Company, responsible for the zoning, planning and development of all multifamily
buildings. Since joining Charles E. Smith Construction, Inc., in 1989 as a
Senior Vice President and now as a Group Senior Vice President, Mr. Neely has
been responsible for zoning, planning and development. Prior to joining the
Smith Companies, Mr. Neely was Executive Vice President and Managing General
Partner of the New Height Group, a real estate and development company in
Denver, Colorado. During his nine years with this company, Mr. Neely has been
responsible for development and management of mixed-use properties. Mr. Neely
is 53 years old.
John W. Guinee. Mr. Guinee is Senior Vice President and Chief Investment
Officer of the Company and Smith Realty Company, one of the Property Service
Businesses, and is responsible for the acquisition efforts of the Company,
particularly the acquisition of individual assets and multifamily portfolios in
major metropolitan areas other than Washington, D.C. Prior to joining the
Company in 1997, Mr. Guinee was a Managing Director with LaSalle Advisors, where
he headed an acquisitions group with an annual investment volume of $250-300
million and led the REIT securities private placement effort. Additional
responsibilities during his 12 years with LaSalle Advisors included asset
management and investor relations. From 1982 through 1985, Mr. Guinee was a
development manager with Gerald D. Hines Interests in San Francisco. Mr. Guinee
is 43 years old.
Item 2. Properties
General
The 56 Properties as of March 1, 1999 consist of 50 Multifamily Properties,
four Development Properties and two Retail Properties, as described in more
detail below. Twenty-eight of the Multifamily Properties (reflecting the
combination of three buildings into one for operational and statistical
purposes) and both Retail Properties were acquired in connection with the
Formation Transactions. In addition, the Operating Partnership held a minority
limited partnership interest in one other multifamily property in the
Washington metropolitan area, acquired in the Formation Transactions and
increased in a subsequent transaction.
All of the Operating Partnership's properties are located in developed
areas that include other residential and retail properties. The number of
competitive residential properties in a particular area could have a material
effect on the Operating Partnership's ability to lease apartment units and on
the rents charged. In addition, other forms of single and multifamily
residential properties provide housing alternatives to tenants and potential
tenants of the
12
<PAGE>
Operating Partnership's residential properties. The Operating Partnerships's
retail properties face similar competition with other retail properties with
respect to tenant leases. The Operating Partnership believes that the properties
are well located in their markets and are well constructed and designed. In the
opinion of management, the Operating Partnership's properties are adequately
covered by insurance.
Multifamily Properties
The 48 operating Multifamily Properties owned as of December 31, 1998
contain a total of 19,279 garden, mid-rise, and high-rise apartment units,
ranging in size from 115 to 1,075 apartment units. Two of the properties are
located in Chicago, Illinois, two are located in Boston, Massachusetts with the
balance in the Washington D.C. metropolitan area. All of the Multifamily
Properties are 100% owned by the Operating Partnership and its subsidiaries. In
1998, the average monthly rental revenue per core unit was $970 and the average
economic occupancy was 96.6% for the Core Residential Portfolio (Multifamily
Properties owned as of December 31, 1996.) As of December 31, 1998, the average
age of the operating Multifamily Properties, weighted by 1998 revenues, was 25
years.
Each of the Multifamily Properties is established in its local market and
provides residents with numerous amenities and services, which may include 24-
hour desk service, swimming pools, tennis courts, exercise rooms and/or saunas,
day care centers, party or meeting rooms, tenant newsletters, and laundry
facilities. Nearly all units are wired for cable television, and many units also
offer additional features, such as washer/dryer, microwave, fireplace, and
patio/balcony. The Operating Partnership maintains an ongoing program of regular
maintenance and capital improvements and renovations, including roof replacement
and exterior maintenance, kitchen and bath renovations, balcony repairs, and
replacements of various building systems.
The following table sets forth certain additional information relating to
the Multifamily Properties as of December 31, 1998 (in the following table,
occupancy is based upon economic occupancy, which measures occupancy beginning
on the rent commencement date; monthly revenue per unit is total property
revenue divided by the number of apartment units; and certain data may be
omitted for properties not operated by the Operating Partnership for the entire
year):
13
<PAGE>
CHARLES E. SMITH RESIDENTIAL REALTY L.P.
Residential Portfolio Statistics for the Year Ended December 31, 1998
<TABLE>
<CAPTION>
Number of Average Monthly Average
Property Apartment Sq. Ft. Revenue Economic
Property Type/Property Name Type Units Per Unit Per Unit Occupancy
- --------------------------- -------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Core Residential Portfolio
NW Washington, D.C.
1841 Columbia Road High-rise 115 634 $ 955 99.0%
2501 Porter Street High-rise 202 760 1,472 97.5%
Albemarle High-rise 235 1,097 1,226 98.9%
Calvert-Woodley High-rise 136 1,001 1,169 99.0%
Cleveland House High-rise 216 894 1,138 99.2%
Connecticut Heights High-rise 519 536 889 95.6%
Corcoran House High-rise 138 464 832 99.2%
Statesman High-rise 281 593 798 97.7%
Van Ness South High-rise 625 956 1,109 98.7%
------ ------ ----- -------
2,467 778 1,051 98.0%
Other NE & SE Washington, D.C.
Car Barn Garden 196 1,311 888 96.6%
Fort Chaplin Garden 549 983 673 98.2%
------ ----- ------ ------
745 1,069 729 97.6%
Other Northern Virginia - Inside Beltway
Crystal City
------------
The Bennington High-rise 348 804 1,059 96.0%
Crystal House I High-rise 426 917 1,010 97.2%
Crystal House II High-rise 402 938 987 96.6%
Crystal Square High-rise 378 1,121 1,179 99.0%
Crystal Place High-rise 180 894 1,310 97.7%
Gateway Place High-rise 162 826 1,792 94.7%
Water Park Towers High-rise 360 881 1,436 92.9%
------ ----- ------ ------
2,256 923 1,190 96.2%
Rosslyn/Ballston
------------------
Courthouse Plaza High-rise 396 772 1,299 96.9%
Other
--------
Arlington Overlook Mid-rise 711 877 780 95.6%
Bedford Village Garden 752 1,070 914 95.0%
Berkeley Mid-rise 138 891 744 97.4%
Boulevard of Old Town Garden 159 603 934 98.3%
Columbia Crossing Garden 247 976 1,122 95.8%
Columbian Stratford Mid-rise 227 942 767 97.8%
Concord Village Garden 531 1,025 820 95.4%
Newport Village Garden 937 1,115 911 97.1%
Orleans Village Garden 851 1,061 828 94.6%
Patriot Village Garden 1,065 1,162 915 96.6%
Skyline Towers High-rise 940 1,221 988 95.5%
Windsor Towers Mid-rise 280 1,025 812 98.0%
------ ----- ------ ------
6,838 1,063 887 96.0%
Other Northern Virginia - Outside Beltway
Charter Oak Garden 262 1,097 956 96.8%
Oaks of Tysons Garden 218 968 1,047 97.2%
Potomac View Garden 192 965 791 97.8%
Westerly at Worldgate Garden 320 921 1,120 95.5%
------ ----- ------ ------
992 986 997 96.6%
Suburban Maryland
The Manor Garden 435 999 774 96.9%
Suburban Tower High-rise 172 677 830 98.1%
------ ----- ------ ------
607 908 790 97.2%
------ ----- ------ ------
Subtotal/Average 14,301 972 $ 970 96.6%
------ ----- ------ ------
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
Number of Average Monthly Average
Property Apartment Sq. Ft. Revenue Economic
Property Type/Property Name Type Units Per Unit Per Unit Occupancy
- --------------------------- -------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Acquisition Portfolio
The Kenmore (NW Washington, D.C.) High-rise 376 725 756 97.8%
Crystal Plaza (Crystal City) High-rise 540 1,129 1,254 98.4%
Crystal Towers (Crystal City) High-rise 912 1,107 1,139 97.5%
Lincoln Towers (Rosslyn/Ballston) High-rise 714 879 1,276 93.5%
2000 Commonwealth (Boston) High-rise 188 878 1,649 96.2%
One East Delaware (Chicago) High-rise 306 704 1,886 98.0%
Tunlaw Gardens (NW Washington,
D.C.) Garden 167 850 767 97.0%
Tunlaw Park (NW Washington, D.C.) Mid-rise 120 856 1,105 97.8%
Parc Vista (Crystal City) High-rise 299 770 n/a n/a
McClurg Court (Chicago) High-rise 1,075 688 n/a n/a
Cronin's Landing (Boston) Mid-rise 281 1,129 n/a n/a
------ ----- ----- -----
Sub-Total/Average 4,978 890 n/a n/a
------ ----- ----- -----
Development Portfolio
Springfield Station (Other
Northern Virginia) Mid-rise / Garden 631
Courthouse Place (Rosslyn/
Ballston) High-rise 564
One Superior Place (Chicago) High-rise 809
Park Connecticut (NW Washington,
D.C.) High-rise 142
---------
Sub-Total 2,146
---------
All Residential Properties 21,425
=========
</TABLE>
15
<PAGE>
The following table sets forth the total number of apartment units in the
Core Residential Portfolio, the economic occupancy, and the average monthly
rental revenue per unit as of the end of 1998 and in each of the previous five
years:
<TABLE>
<CAPTION>
Multifamily Properties
Average Monthly
Year Number of Units Percent Occupied* Revenue Per Unit
- ------- --------------- ------------------ ----------------
<S> <C> <C> <C>
1998 14,301 96.6% $970
1997 14,198 96.4% $901
1996 12,462 97.0% $883
1995 11,834 97.2% $862
1994 11,834 97.8% $845
1993 11,834 97.8% $818
</TABLE>
* Based on economic occupancy
Retail Properties
The Operating Partnership's two Retail Properties, Skyline Mall and
Worldgate Centre, are enclosed malls containing a total of approximately 436,000
square feet of retail space. Until December 1997, both Retail Properties
leased health club facilities to entities controlled by Messrs. Smith and Kogod
pursuant to leases expiring on December 31, 2015. In December 1997, the health
clubs were sold by Messrs. Smith and Kogod. In conjunction with that sale, the
Operating Partnership agreed to restructure the two leases, including reduced
base rent on the Worldgate lease, and extended terms on both leases for ten
years, through 2025, in exchange for a $2.3 million cash payment.
Worldgate Centre. Worldgate Centre is a community retail center located in
Herndon, Virginia, at the intersection of two major Northern Virginia traffic
arteries, the Dulles Airport Access Highway and Centreville Road. Developed by
the Smith Companies in 1991, it is a part of a mixed-use development which
includes the 320-unit Multifamily Property which the Operating Partnership
constructed in 1995. The town of Herndon is located in Fairfax County, one of
the highest median income counties in the country. The Property contains the
108,670 square foot Worldgate Athletic Club, a Loew's Cinema, and a mix of
approximately 40 other food service, fashion and specialty retailers and various
business and general service tenants. Worldgate Centre has 230,926 square feet
of leasable area and had an average occupancy rate of 99.5% during 1998.
Approximately 16% of the leases, based on net rentable area, are scheduled to
expire prior to the year 2003.
Skyline Mall. Skyline Mall is a two-level, enclosed community retail
center located on Route 7 in Northern Virginia, at the intersection of Fairfax
County, Arlington County, and the City of Alexandria, Virginia. Originally
developed by the Smith Companies in 1977, it is part of a mixed-use community
which also includes over two million square feet of office space and over 3,300
high-rise condominium and apartment units (including Skyline Towers, a 940-unit
Multifamily Property owned by the Operating Partnership), all within walking
distance. The Property has 204,914 square feet of leasable area and had an
average occupancy rate of 97.2% in 1998. It contains the 79,920
16
<PAGE>
square foot Skyline Racquet and Health Club, an AMC Cinema, and approximately 40
other stores, including restaurants, fashion and specialty retailers, and
various business and general services. Approximately 12% of the leases, based on
net rentable area, are scheduled to expire prior to the year 2003.
The following table sets forth certain additional information relating to
the Retail Properties as of December 31, 1998:
Retail Properties
<TABLE>
<CAPTION>
Gross Average Average
Leasable Number Average Base Rent Gross Rent
Property Year Area of % Leased Per SF Per SF
Name Location Completed (SF) Stores 1998 Leased Leased
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Skyline Mall Fairfax Co., VA 1977 204,914 40 97.2 % $12.13 $16.42
Worldgate
Centre Herndon, VA 1991 230,926 40 99.5% $20.19 $26.92
------- ----- ------ ------
435,840 98.4% $16.40 $21.98
======= ===== ====== ======
</TABLE>
Property Markets
The Operating Partnership believes that economic trends and market
conditions in the locations where the Operating Partnership currently operates -
- - Chicago, Boston, Northern Virginia, and Washington, D.C. -- and locations
where the Operating Partnership will operate -- southeast Florida -- indicate
an excellent potential for continued high occupancy and rental rate growth in
1999 and beyond. These markets have all experienced strong employment growth in
1998, as shown in the table below, and are projected to be among the top U.S.
markets in total employment growth over the period 1993 to 2005, with a
projected average annual increase in each market of 45,000 jobs or more,
according to projections prepared by the U.S. Dept. of Commerce, Bureau of
Economic Analysis and released in mid-1996.
<TABLE>
<CAPTION>
Employment Growth - 1998
1998 Jobs %
Market Increase Increase
- ---------------------------- --------- ----------
<S> <C> <C>
Washington D.C. MSA 53,500 2.2%
- Northern Virginia 41,300 4.1%
Chicago - MSA 61,200 1.5%
Boston - MSA 50,100 2.6%
Southeast Florida 60,000 3.0%
- Ft. Lauderdale/Broward 20,600 3.3%
USA Average --- 2.6%
</TABLE>
17
<PAGE>
In the Washington D.C. metropolitan area, employment and population growth
in recent years, and expected in future years, has been strongest in the
Northern Virginia segment of the metropolitan area, which is the sector where
the majority (68%) of the Operating Partnership's Properties are located. The
growth in Northern Virginia is substantially attributable to continuing strong
growth in the technology sector, particularly the Internet technology and
telecommunications segments. The Operating Partnership believes that this trend
will continue due to the concentration of technology firms in Northern Virginia
and the growth outlook for the Internet technology and telecommunications
industries. The outlook for the District of Columbia economy has improved
significantly due to the return to positive employment growth late in 1998 after
several years of federal government cutbacks and the election of a new mayor.
Demand for multifamily rental apartments continues to be strong in all of
the Operating Partnership's markets as evidenced by high occupancy and rent
growth rates. Surveys of comparable investment grade apartment properties are
conducted in each these markets annually by The REIS Reports, Inc. The results
of these surveys are shown in the following tables:
Apartment Occupancy and Rental Rate Growth for Smith Residential Markets
<TABLE>
<CAPTION>
Metro area market Occupancy % Rental Rate Growth
- -------------------------------- ---------------------- ---------------------
<S> <C> <C> <C> <C>
1997 1998 1997 1998
----- ----- ----- -----
Boston 97.6% 98.0% 5.7% 6.7%
Chicago 97.2% 97.3% 4.7% 3.0%
- - Downtown 97.0% 97.2% 5.5% 7.0%
Washington D.C. area
- - Northern Virginia 96.2% 96.6% 3.5% 3.5%
- - Washington D.C. 96.9% 97.0% 3.4% 4.7%
Southeast Florida
- - Fort Lauderdale 96.1% 96.1% 4.0% 3.6%
</TABLE>
- ----------------------
Source: The REIS Reports, Inc., February, 1999, and Appraisal Research Corp.,
March 1999
The supply of new rental apartment properties in the more urbanized
portions of the Operating Partnership's markets has been extremely limited in
recent years, particularly in the more desirable submarkets where the Operating
Partnership concentrates its focus. In the Washington metro area the supply of
new multifamily properties has been increasing moderately over the past several
years and is likely to continue to do so based on multifamily permits data
compiled by the U.S. Census Bureau. These data show that the number of
multifamily permits issued in the area were, 7,786 in 1996, 6,907 in 1997, and
8,935 in 1998, which includes both for-sale condominium and rental apartment
properties. These levels remain well below the peak of over 13,000 in 1987.
Most of the new supply of rental apartments is occurring in the outer suburban
areas and does not compete directly with the Operating Partnership's properties,
which are predominantly in the vicinity of and within Interstate 495, the
Capital Beltway. Downtown Chicago has actually experienced a
18
<PAGE>
net decrease in higher end rental apartments in recent years due to condo
conversions, and the Company's 809-unit Superior Place property is currently the
only new apartment property under construction in the downtown area.
Overall, the Operating Partnership believes that the anticipated increases
in employment and population projected for the Boston, Chicago, Northern
Virginia, Washington D.C. and southeast Florida markets, together with limited
increases in supply of new rental units in locations competitive with the
Operating Partnership's properties, will result in the Operating Partnership's
multifamily rental submarkets remaining in a strong occupancy position for at
least the next 18-24 months. As a result, the Operating Partnership believes
that these conditions will provide an opportunity to improve apartment rent
levels, and will also allow additional development and acquisition
opportunities.
Mortgage Financing
As of December 31, 1998, 30 of the 54 Properties were subject to Mortgage
Loans aggregating approximately $592,386,000. The Mortgage Loans are
collateralized by first lien mortgages or deeds of trust on Properties organized
into three pools ("Mortgage Pool Three," "FNMA" and "Prudential" as shown in the
chart below) and ten individual loans (the "Individual Mortgages"). The
Mortgage Loans bear interest at a weighted average interest rate of 7.1% at
December 31, 1998. The Properties collateralizing each Mortgage Loan, the
outstanding principal balances as of December 31, 1998, the applicable interest
rates, and the maturity dates for each Mortgage Loan are set forth in the chart
below.
19
<PAGE>
<TABLE>
<CAPTION>
12/31/98
Mortgage Pool/ Outstanding Interest Maturity
Collateral Location Principal Rate Date
- ------------------------------------------------------------------------------------------------------------------------------------
(000's)
<S> <C> <C> <C> <C>
FNMA $ 140,000 6.75% October 30, 2013 (2)
- -----
Bedford Village Fairfax County, Virginia
Car Barn Washington, D.C.
Concord Village Arlington, Virginia
Crystal Place Arlington, Virginia
Crystal Square Arlington, Virginia
Arlington Overlook (1) Arlington, Virginia
Fort Chaplin Washington, D.C.
Newport III (1) Alexandria, Virginia
Orleans Village Fairfax County, Virginia
Mortgage Pool Three 117,000 7.99% June 30, 2009 (3)
- -------------------
Berkeley Arlington, Virginia
Calvert Woodley Washington, D.C.
Cleveland House Washington, D.C.
Columbia Crossing Arlington, Virginia
Courthouse Plaza Arlington, Virginia
Gateway Place Arlington, Virginia
Newport I/II (1) Alexandria, Virginia
Skyline Mall Fairfax County, Virginia
2501 Porter Street Washington, D.C.
Prudential 53,000 6.88% June 5, 2008 (2)
- -----------
Waterpark Arlington, Virginia
Parc Vista Arlington, Virginia
Individual Mortgages
- --------------------------
1841 Columbia Road Washington, D.C. 3,173 9.00% August 1, 1999 (6)
Crystal Towers Arlington, Virginia 44,198 7.16% January 1, 2006 (6)
2000 Commonwealth Boston, Massachusetts 17,100 6.30% December 3, 2006 (2)
Connecticut Heights Washington, D.C. 20,000 7.10% March 18, 2008 (2)
Cronin's Landing Boston, Massachusetts 33,208 6.90% March 1, 2009 (7)
Patriot Village Fairfax County, Virginia 31,095 8.24% August 1, 2009 (4)
Crystal Plaza Arlington, Virginia 33,615 6.86% November 1, 2009 (6)
Crystal House I/II Arlington, Virginia 38,250 6.29% December 30, 2010 (5)
Skyline Towers Fairfax County, Virginia 49,300 6.45% December 10, 2010 (5)
The Bennington Arlington, Virginia 12,447 7.50% October 1, 2020 (7)
------ -----
$592,386 7.10%
======== ======
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Operated as a single property, but divided for collateralization purposes.
(2) Interest only.
(3) Twenty-five year amortization begins June 30, 1999.
(4) Thirty year amortization begins in August 2004.
(5) Thirty year amortization begins in December 2008.
(6) Thirty year amortization.
(7) Twenty-five year amortization.
The loan secured by Mortgage Pool Three is interest only through June 30,
1999, at which time amortization begins using a 25-year amortization schedule
with a balloon payment at maturity. In addition, this loan may not be prepaid
until May 1, 1999, at which time it would be subject to a yield maintenance
premium. The loan is cross-collateralized with the $83 million line of credit
from
20
<PAGE>
the same lender, as described below. Certain predecessor partners executed
guarantees for $42 million of the mortgage loans secured by Mortgage Pool Three.
The Operating Partnership announced a standby credit facility in 1998 of up
to $300 million with Fannie Mae which provides for non-recourse, long-term debt
for up to fifteen years. The initial draw on this facility was $140 million at
6.75% for fifteen years. The bulk of the proceeds were used to retire Mortgage
Pool Two of $125.2 million and the associated prepayment penalty of $9.5
million. Terms and rates of subsequent draws on this facility will be determined
at the time of use. Closing of the facility is expected during the second
quarter of 1999.
During 1998, the Operating Partnership obtained a $53 million, ten year
secured loan from Prudential at a fixed coupon rate of 6.88%. The loan is
secured by two Multifamily Properties. In conjunction with this loan, the
Operating Partnership terminated a $20 million (notional value) treasury lock
contract at a gain of $0.4 million which will be amortized over the term of the
new loan.
The Individual Mortgages relate to debt secured by individual Multifamily
Properties. The loans require monthly payments of interest and, in certain
cases, principal. The loan secured by Patriot Village was refinanced in
September 1996 and was obtained jointly with a ground lessor, with a portion of
the principal allocated to each of them. The ground lessor has been allocated
$9.9 million of the refinanced loan (of the total of $41.0 million outstanding
as of December 31, 1998), for which the Operating Partnership is contingently
liable. The loan requires the payment of interest only through August 2004, at
which time amortization begins using a 30-year amortization schedule with a
balloon payment due in August 2009. The Operating Partnership remits full debt
service to the lender and reduces its ground rent payment by the corresponding
amount of debt service relating to the principal assigned to the ground lessor.
Lines of Credit
The Operating Partnership terminated its $100 million line of credit in 1998
and entered into two new unsecured lines of credit -- a $100 million line and a
$185 million line -- with PNC Bank, NationsBank, and U.S. Bank, as agents,
which mature in March 2001. Draws upon the new lines are subject to certain
unencumbered asset requirements and bear interest at a selected London Interbank
Offer Rate (LIBOR) plus 75 to 120 basis points based on the leverage ratio of
the Operating Partnership. As of December 31, 1998, the weighted average
interest rate on outstanding draws was 6.22%. If the Operating Partnership
receives an investment grade rating on its unsecured debt, the interest rate
will decrease to 60 to 90 basis points over LIBOR based on the rating. The
Operating Partnership pays a fee of 0.20% on the full amount available under the
lines of credit. The line of credit agreements contain certain restrictive
covenants, including maintenance of minimum equity value, debt to equity ratios
and debt service coverage requirements. The maximum amounts outstanding during
1998 and 1997 were $251.5 million and $97.0 million, respectively.
The Operating Partnership also has an $83 million acquisition credit
facility which allows for debt maturities up through July 2004. The line of
credit provides for an interest rate that is fixed at the time of each borrowing
at 150 basis points over 10-year Treasury Bills and is cross-collateralized
21
<PAGE>
with Mortgage Pool Three. Debt outstanding of $30 million at December 31, 1998
bears interest at a weighted-average fixed rate of 7.27% and is collateralized
by two Properties. The agreement contains certain restrictive covenants
including a limit on debt to asset value and maintenance of debt service
coverage ratios. In February 1999, the unused portion, or $53 million, of the
line expired.
Construction Loans
In October 1997, the Operating Partnership obtained a variable rate,
unsecured construction loan of $46.3 million to finance the construction of an
acquired development property. The loan is recourse to the Operating
Partnership, bears interest at LIBOR plus 130 basis point (6.85% at December 31,
1998), and matures in October 2000 with three six-month extension options based
on certain conditions. The loan balance at December 31, 1998 was $31.6 million.
During 1998, the Operating Partnership obtained a $90 million variable rate,
secured construction loan in connection with the development of One Superior
Place in Chicago, Illinois, with interest currently at LIBOR plus 135 basis
points (6.93% at December 31, 1998), payable monthly, due July 1, 2001. At the
Operating Partnership's option, maturity may be extended for two one-year
periods based on certain conditions. The loan is collateralized by the property
and is recourse to the Operating Partnership. The loan balance at December 31,
1998 was $31.6 million.
Item 3. Legal Proceedings.
The Operating Partnership and/or the Property Service Businesses are
presently subject to legal actions or claims for damages that arise in the
ordinary course of business. In the opinion of management and counsel to the
Operating Partnership, the ultimate outcome of such litigation will not have a
material adverse effect on the Operating Partnership's financial position,
results of operations or cash flows.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
22
<PAGE>
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized, on this
30th day of April, 1999.
CHARLES E. SMITH RESIDENTIAL REALTY L.P.
By Charles E. Smith Residential Realty,
Inc., its General Partner
By /s/ Ernest A. Gerardi, Jr.
-------------------------------------
Ernest A. Gerardi, Jr.
President and Chief Operating Officer
(Duly Authorized Representative of the Registrant)
<PAGE>
Exhibit 23.1
------------
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our report included in this Form 10-K/A, into Charles E. Smith
Residential Realty L.P.'s previously filed Registration Statement File No.
33-82382 and Registration Statement File No. 333-67421.
/s/ Arthur Andersen LLP
Washington, D.C.
April 30, 1999
