<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, 2000
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, 2000, there were 34,755,718 Common Units of Limited
Partnership of the Registrant 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, 2000 and December 31, 1999,
Filed as a Part of This Report
Consolidated Balance Sheets 3
Consolidated Statements of Operations 4
Consolidated Statements of Partner's Equity and 5
Other Limited Partners' Interest
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 23
SIGNATURES 24
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CHARLES E. SMITH RESIDENTIAL REALTY L.P.
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
<TABLE>
<CAPTION>
March 31, 2000 December 31, 1999
----------------- -----------------------
(Unaudited)
<S> <C> <C>
ASSETS
Rental property, net $ 1,472,567 $ 1,369,416
Rental property under development 177,156 169,626
Cash - 10,557
Escrow funds 11,402 18,309
Investment in and advances to Property Service Businesses 79,715 70,282
Investment in unconsolidated properties 24,751 22,338
Deferred charges, net 16,476 16,727
Security deposits 8,048 4,058
Other assets 19,405 23,465
----------------- ------------------
$ 1,809,520 $ 1,704,778
================= ==================
LIABILITIES AND EQUITY
Liabilities
Mortgage loans and notes payable:
Mortgage loans $ 865,365 $ 817,278
Construction loans 82,731 80,045
Line of credit 123,000 72,000
----------------- ------------------
Total mortgage loans and notes payable 1,071,096 969,323
Accounts payable and accrued expenses 42,005 44,480
Security deposits 8,048 4,058
----------------- ------------------
Total liabilities 1,121,149 1,017,861
----------------- ------------------
Commitments and contingencies
Other Limited Partners' Interest
Preferred units - Series H Cumulative Convertible Redeemable Preferred
Units, 1,800,000 units issued and outstanding at March 31, 2000
and December 31, 1999 45,000 45,000
Common units - 13,689,013 and 13,855,404 units issued and
outstanding at March 31, 2000 and December 31, 1999, respectively,
at redemption value 494,516 490,135
----------------- ------------------
539,516 535,135
----------------- ------------------
Partner's Equity
Preferred units 251,500 251,500
Common units - 20,991,711 and 20,673,039 units issued and outstanding at
at March 31, 2000 and December 31, 1999, respectively (102,645) (99,718)
----------------- ------------------
Total partner's equity 148,855 151,782
----------------- ------------------
$ 1,809,520 $ 1,704,778
================= ==================
</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,
------------------------------------------
2000 1999
------------------- -------------------
<S> <C> <C>
Rental Properties:
Revenues $ 88,854 $ 69,033
Expenses
Operating costs (27,933) (22,154)
Real estate taxes (7,566) (5,404)
Depreciation and amortization (10,567) (8,228)
------------------- -------------------
Total expenses (46,066) (35,786)
Equity in income of unconsolidated properties 783 116
Equity in income of Property Service Businesses 519 2
Corporate general and administrative expenses (2,695) (2,209)
Interest income 63 44
Interest expense (17,856) (13,148)
------------------- -------------------
Income before gain on sales and extraordinary item 23,602 18,052
Gain on sales - 1,858
------------------- -------------------
Income before extraordinary item 23,602 19,910
Extraordinary item - loss on extinguishment of debt - (359)
------------------- -------------------
Net income 23,602 19,551
Less: Income attributable to preferred units (5,925) (2,354)
------------------- -------------------
Net income attributable to common units $ 17,677 $ 17,197
=================== ===================
Earnings per common unit - basic
Income before extraordinary item $ 0.51 $ 0.55
Extraordinary item - (0.01)
------------------- -------------------
Net income $ 0.51 $ 0.54
=================== ===================
Earnings per common unit - diluted
Income before extraordinary item $ 0.51 $ 0.55
Extraordinary item - (0.01)
------------------- -------------------
Net income $ 0.51 $ 0.54
=================== ===================
</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>
General Partner's General and Other Limited
Limited Interest Partners' Interest
------------------------------------ ----------------------------------
Series H
Preferred Common Common Preferred
Units Units Units Units
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Balance, December 31, 1998 141,867 (198,543) 426,258 -
Units exchanged for acquisitions - - 42,426 -
Adjustment for grants - - 762 -
Net income - 95,278 58,536 -
Contribution by Charles E. Smith Residential
Realty, Inc. 130,000 30,625 - -
Proceeds from issuance of Preferred units - - - 45,000
Conversion of Preferred units to Common units (20,367) 20,367 - -
Offering costs - (4,837) - -
Distributions - (56,247) (28,637) -
Other - 3,596 833 -
Adjustment to reflect Other Limited Partners'
Interest at redemption value - 10,043 (10,043) -
---------------- ---------------- ---------------- ----------------
Balance, December 31, 1999 $ 251,500 $ (99,718) $ 490,135 $ 45,000
Adjustment for grants - - 215 -
Net income - 15,625 7,977 -
Distributions - (17,364) (7,613) -
Other - - 2,614 -
Adjustment to reflect Other Limited Partners'
Interest at redemption value - (1,188) 1,188 -
---------------- ---------------- ---------------- ----------------
Balance, March 31, 2000 (Unaudited) $ 251,500 $ (102,645) $ 494,516 $ 45,000
================ ================ ================ ================
Units issued and outstanding at March 31, 2000 6,833,449 20,991,711 13,689,013 1,800,000
================ ================ ================ ================
Units issued and outstanding at December 31, 1999 6,833,449 20,673,039 13,855,404 1,800,000
================ ================ ================ ================
</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,
----------------------------------
2000 1999
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES: $ 24,750 $ 33,035
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions and development of rental property (103,193) (92,883)
Additions to rental property (9,780) (3,642)
Disposition of rental property - 22,597
Increase in investment in and advances to Property Service Businesses (9,433) (6,621)
Increase in investment in unconsolidated properties (2,443) (3,677)
Acquisition deposits and other 10,614 1,758
------------ ------------
Net cash used in investing activities (114,235) (82,468)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
(Increase) decrease in deferred charges (472) 1,049
Mortgage loans, net 48,086 31,921
Lines of credit, net 51,000 18,000
Construction loans, net 2,687 18,997
Prepayment penalties - (1,038)
Dividends and distributions - Common (19,052) (16,858)
Dividends and distributions - Preferred (5,925) (2,784)
Other, net 2,604 146
------------- ------------
Net cash provided by financing activities 78,928 49,433
------------- ------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (10,557) -
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 10,557 -
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ - $ -
============ ============
SUPPLEMENTAL INFORMATION:
Capitalized interest 1,499 2,130
Purchase of property in exchange for Operating Partnership units - 14,405
Purchase of property in exchange for assumption of debt - 28,169
Proceeds from sale of rental property held in escrow - 17,712
Purchase of property with escrow proceeds 8,127 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., or its sole
general partner, 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, 2000 and the results of
operations for the interim periods ended March 31, 2000 and 1999. 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, 2000, the
Operating Partnership owned 52 operating multifamily properties containing
25,151 apartment units (the "Properties"), had 951 units under construction at
two owned sites, had 226 units under construction at one site for which the
Company owned substantially all of the economic interest, and had agreements to
purchase 1,243 units at four additional sites. The Operating Partnership also
had interests in three operating multifamily properties totaling 1,267 apartment
units and in one property under construction totaling 630 units. In addition,
the Operating Partnership owned two freestanding community retail shopping
centers aggregating 436,000 square feet. The Operating Partnership also owns
substantially all of the economic interest in entities that provide multifamily
property management and leasing, furnished corporate apartments, interior
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 non-voting interest in
the Property Service Businesses.
Certain prior year amounts have been reclassified to conform with the
current year presentation.
2. ACQUISITIONS
In January 2000, the Company acquired two properties in southeast Florida,
Ocean View at Sunset Pointe-North and Ocean View at Sunset Pointe-South, adding
1,470 units to the Acquisition Portfolio. The total capitalized cost of $102.9
million consisted of $8.1 million in proceeds from the December 1999 sale of one
multifamily property, with the balance drawn on the Company's line of credit.
3. DEBT
7
<PAGE>
In February 2000, the Company drew $49.4 million on its Fannie Mae credit
facility at 8.00% for ten years. The Company used $37 million of the proceeds to
repay a portion of its line of credit with the balance used for working capital
needs. Ocean View at Aventura was added to the collateral pool in connection
with this draw.
4. PREFERRED UNITS
The following table sets forth the Company's issued and outstanding
preferred units:
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
-------- ------------
(in thousands)
<S> <C> <C>
Series A Cumulative Convertible Redeemable Preferred Units,
$0.01 par value; 2,640,325 units authorized; liquidation
preference of $27.08; 2,640,325 units issued and
outstanding at March 31, 2000 and December 31, 1999,
respectively $ 71,500 $ 71,500
Series C Cumulative Redeemable Preferred Units, $0.01 par value;
500 units authorized; liquidation preference of $100,000;
500 units issued and outstanding at March 31, 2000 and
December 31, 1999, respectively 50,000 50,000
Series E Cumulative Convertible Redeemable Preferred Units,
$0.01 par value; 684,931 units authorized; liquidation
preference of $36.50; 684,931 units issued and outstanding
at March 31, 2000 and December 31, 1999, respectively 25,000 25,000
Series F Cumulative Convertible Redeemable Preferred Units,
$0.01 par value; 666,667 units authorized; liquidation
preference of $37.50; 666,667 units issued and outstanding
at March 31, 2000 and December 31, 1999, respectively 25,000 25,000
Series G Cumulative Convertible Redeemable Preferred Units,
$0.01 par value; 641,026 units authorized; liquidation
preference of $39.00; 641,026 units issued and outstanding
at March 31, 2000 and December 31, 1999, respectively 25,000 25,000
Series H Cumulative Convertible Redeemable Preferred Units,
$0.01 par value; 4,040,404 units authorized; liquidation
preference of $25.00; 4,000,000 units issued and outstanding
at March 31, 2000 and December 31, 1999, respectively 100,000 100,000
-------- ------------
$296,500 $296,500
======== ============
</TABLE>
8
<PAGE>
5. PER UNIT DATA
Earnings per common unit of the Company for the three months ended March
31, 2000 and 1999 is computed based on weighted average common units outstanding
during the period as follows (in millions):
<TABLE>
<CAPTION>
Three Months Ended March 31,
--------------------------------------------------------
2000 1999
-------------------------- ------------------------
Basic Diluted Basic Diluted
----- ------- ----- -------
<S> <C> <C> <C> <C>
Weighted Average Common Operating
Partnership Units 34.6 34.9 31.9 32.0
</TABLE>
Options to purchase 702,621 shares of 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 units. Series E, Series F, Series G,
and Series H Preferred Units were excluded from the calculation of diluted
earnings per unit since the conversion price was higher than the average price
of the common units. Series A Preferred Units were also excluded since dividends
per unit exceeded basic earnings per unit.
6. SEGMENT REPORTING
Operating segments are defined as components of an enterprise about which
separate financial information is available that is evaluated regularly by
senior management in deciding how to allocate resources and in assessing
performance.
Property Segments
The Company's primary business is the ownership and operation of
multifamily residential real estate. As such, the residential rental properties
constitute the three primary operating segments -- Core, Acquisition/Disposition
and Development portfolios -- depending upon the maturity of each property. Core
consists of all multifamily properties which have been owned more than one full
calendar year. Therefore, the 2000 Core represents properties owned as of
December 31, 1998. Acquisition/Disposition consists of purchased properties
which have not yet reflected one full calendar year of operations and disposed
properties. Development 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 meet the one-year requirement are transferred to
the Core portfolio.
The Company's fourth property segment is the Retail portfolio which
consists of the two freestanding retail properties.
The Company evaluates performance for the Property Segments based on Net
Operating Income ("NOI") which is the difference between Rental Revenue and
Operating Expenses (which primarily excludes interest expense, general and
administrative costs and depreciation).
9
<PAGE>
Property Service Business Segment
The Company also evaluates the separate 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. Given the
similarities in the nature of services, customers and distribution methods, 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, goodwill and non-real estate
assets, is not added back.
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, 2000 and 1999 was as follows (in thousands):
10
<PAGE>
<TABLE>
<CAPTION>
Property Segments
Three Months Ended
March 31,
-----------------------
2000 1999/(1)/
---------- ----------
<S> <C> <C>
Net Operating Income
- --------------------
Core Portfolio $ 38,092 $ 35,343
Acquisition/Disposition Portfolio 10,344 3,734
Development Portfolio 3,282 686
Retail Portfolio 1,637 1,712
---------- ----------
Consolidated total 53,355 41,475
Depreciation and amortization (10,567) (8,228)
Equity in income of unconsolidated properties 783 116
Equity in income of Property Service Businesses 519 2
Corporate general and administrative expenses (2,695) (2,209)
Net interest expense (17,793) (13,104)
---------- ----------
Income before gain on sale and
extraordinary item $ 23,602 $ 18,052
========== ==========
Revenues
- --------
Core Portfolio $ 61,587 $ 58,186
Acquisition/Disposition Portfolio 19,130 6,726
Development Portfolio 5,690 1,567
Retail Portfolio 2,447 2,554
---------- ----------
Consolidated total $ 88,854 $ 69,033
========== ==========
Real Estate Assets, gross
- -------------------------
Core Portfolio $1,079,499 $1,049,929
Acquisition/Disposition Portfolio 516,083 142,099
Development Portfolio 247,188 204,859
Retail Portfolio 59,992 60,043
---------- ----------
Sub-total 1,902,762 1,456,930
Accumulated depreciation (253,039) (235,005)
---------- ----------
Consolidated total, net $1,649,723 $1,221,925
========== ==========
</TABLE>
/(1)/ Certain prior period balances have been reclassified to conform with the
current period's presentation.
11
<PAGE>
Property Service Business Segment
Three Months Ended
March 31,
----------------------
2000 1999
-------- --------
Funds from Operations $ 626 $ 109
Revenues 49,901 27,394
Depreciation 1,396 436
7. SUBSEQUENT EVENTS
In April 2000, the Company acquired Dearborn Place, a 185-unit, 27-story
property, built in 1987 and located in downtown Chicago, one block from the
Company's One East Delaware property and three blocks from One Superior Place.
The $25.4 million transaction was funded through a combination of approximately
36,000 Operating Partnership units valued at $1.3 million, $13.9 million in
cash, and $10.2 million in assumed debt bearing an interest rate of 9.25%. The
assumed debt was paid off with funds drawn on the Company's line of credit.
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, 2000 and 1999 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., or its sole general
partner, 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,"
"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.,
southeast Florida, Chicago, and Boston metropolitan areas; the Company's ability
to identify and secure additional properties and sites that meet its criteria
for acquisition or development; the acceptance of the Company'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 Company'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 5.8% in the first quarter of 2000 as compared
with 1999.
A schedule of portfolio statistics follows:
13
<PAGE>
CHARLES E. SMITH RESIDENTIAL REALTY L.P.
- --------------------------------------------------------------------------------
Residential Portfolio Statistics
For the Quarter Ended March 31, 2000
<TABLE>
<CAPTION>
Monthly % %
Average GOI Change Change
Property Apartment Sq. Ft. GOI Per Unit From Occupancy From
Property Type/Property Name Type Units Per Unit QTD 00 QTD 00 QTD 99 QTD 00 QTD 99
- ---------------------------- ------ ----- -------- ------ -------- -------- ---------- --------
(in 000's)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CORE RESIDENTIAL PORTFOLIO
Washington, D.C.
1841 Columbia Road Mid-rise 115 634 $ 372 $1,079 6.5% 99.2% 0.5%
2501 Porter Street High-rise 202 760 963 1,589 0.3% 94.0% -5.7%
Albemarle High-rise 235 1,097 974 1,381 12.3% 98.0% 1.9%
Calvert-Woodley High-rise 136 1,001 547 1,341 8.2% 99.2% -0.2%
Car Barn Garden 196 1,311 580 986 5.3% 97.8% -0.4%
Cleveland House High-rise 216 894 859 1,325 12.7% 98.0% -0.7%
Connecticut Heights High-rise 519 536 1,602 1,029 15.2% 98.1% 3.2%
Corcoran House High-rise 138 464 374 903 1.6% 94.4% -5.4%
Statesman High-rise 281 593 740 878 3.5% 96.9% -2.7%
Van Ness South High-rise 625 956 2,330 1,242 7.7% 98.6% -0.8%
The Kenmore High-rise 376 725 984 873 12.0% 97.8% 0.1%
Tunlaw Gardens Garden 167 850 458 915 11.3% 97.3% -1.2%
Tunlaw Park Mid-rise 120 856 451 1,251 12.2% 98.9% 2.9%
------ ------ ------- ------ ----- ------ ------
3,326 810 $11,234 $1,126 8.8% 97.7% -0.4%
Northern Virginia
Crystal City
------------
The Bennington High-rise 348 804 1,152 1,104 3.1% 95.8% -0.3%
Crystal House I High-rise 426 917 1,457 1,140 7.8% 99.1% 0.5%
Crystal House II High-rise 402 938 1,312 1,088 7.3% 99.2% 0.5%
Crystal Square High-rise 378 1,121 1,444 1,273 5.5% 98.6% -0.4%
Crystal Place High-rise 180 894 752 1,392 4.6% 96.6% 0.6%
Gateway Place High-rise 162 826 678 1,396 -14.8% 76.3% -11.5%
Water Park Towers High-rise 360 881 1,672 1,548 6.9% 96.2% 1.5%
Crystal Plaza High-rise 540 1,129 2,217 1,369 4.9% 99.0% -0.8%
Crystal Towers High-rise 912 1,107 3,433 1,255 5.1% 98.7% -0.2%
Parc Vista High-rise 299 770 1,189 1,324 -14.8% 89.1% -8.3%
------ ------ ------- ------ ----- ------ ------
4,007 981 $15,306 $1,273 2.6% 96.4% -1.1%
Rosslyn/Ballston
----------------
Courthouse Plaza High-rise 396 772 1,637 1,378 6.9% 97.3% 2.7%
Lincoln Towers High-rise 714 879 3,003 1,402 6.1% 96.5% 2.8%
------ ------ ------- ------ ----- ------ ------
1,110 841 $ 4,640 $1,393 6.4% 96.8% 2.8%
Tysons/Dulles
-------------
Charter Oak Garden 262 1,097 815 1,036 5.4% 98.1% 0.9%
Oaks of Tysons Garden 218 968 685 1,047 -3.3% 93.2% -5.0%
Bedford Village Garden 752 1,070 2,344 1,039 8.5% 97.4% 0.5%
Patriot Village Garden 1,065 1,162 3,229 1,011 7.8% 98.6% 1.3%
Westerly at Worldgate Garden 320 921 1,157 1,205 10.2% 97.0% 1.0%
------ ------ ------- ------ ----- ------ ------
2,617 1,083 $ 8,230 $1,048 7.1% 97.5% 0.4%
Other
-----
Arlington Overlook Mid-rise 711 877 1,916 899 9.9% 97.6% 0.8%
Berkeley Mid-rise 138 891 329 795 4.8% 98.8% 0.8%
Boulevard of Old Town Garden 159 603 437 915 1.5% 97.2% -1.6%
Columbia Crossing Garden 247 976 936 1,263 8.4% 99.8% 2.4%
Concord Village Garden 531 1,025 1,442 905 7.4% 97.2% 1.3%
Newport Village Garden 937 1,115 2,795 994 7.0% 98.9% 1.3%
Orleans Village Garden 851 1,061 2,331 913 6.0% 98.4% 2.1%
Skyline Towers High-rise 940 1,221 3,051 1,082 7.7% 97.6% 1.3%
------ ------ ------- ------ ----- ------ ------
4,514 1,046 $13,237 $ 978 7.3% 98.1% 1.3%
Boston/Chicago
2000 Commonwealth High-rise 188 878 1,053 1,866 6.5% 99.9% 1.2%
One East Delaware High-rise 306 704 1,923 2,095 1.8% 98.1% 0.5%
McClurg Court High-rise 1,075 688 4,193 1,300 1.7% 95.2% 1.7%
Cronin's Landing Mid-rise 281 1,129 1,771 2,100 14.1% 99.1% 5.8%
------ ------ ------- ------ ----- ------ ------
1,850 777 $ 8,940 $1,611 4.5% 97.0% 2.3%
------ ------ ------- ------ ----- ------ ------
17,424 950 $61,587 $1,178 5.8% 97.3% 0.5%
------ ------ ------- ------ ----- ------ ------
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
Monthly % %
Average GOI Change Change
Property Apartment Sq. Ft. GOI Per Unit From Occupancy From
Property Type/Property Name Type Units Per Unit QTD 00 QTD 00 QTD 99 QTD 00 QTD 99
- --------------------------- ----------- --------- -------- ---------- -------- ------ --------- -------
(in 000's)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ACQUISITION PORTFOLIO
1999
----
Buchanan House (Crystal City, VA) High-rise 442 1,173 $ 2,019 $1,523 N/A 98.3% N/A
Park Lincoln (Chicago, IL) High-rise 139 580 490 1,175 N/A 95.0% N/A
Terrace (Chicago, IL) Garden 427 839 1,089 850 N/A 97.2% N/A
The Consulate (Washington, DC) High-rise 269 827 978 1,211 N/A 92.8% N/A
Countryside (Chicago, IL) Garden 720 864 1,962 908 N/A 93.7% N/A
Somerset (Chicago, IL) Garden 1,158 575 2,350 676 N/A 89.2% N/A
Forte Towers (S.E. Florida) High-rise 1,339 742 3,209 799 N/A 97.4% N/A
Ocean View at Aventura (S.E. Florida) High-rise 1,199 1,111 3,429 953 N/A 97.1% N/A
2000
----
Ocean View at Sunset Pointe-North
(S.E. Florida) High-rise 527 987 1,251 N/A N/A N/A N/A
Ocean View at Sunset Pointe-South
(S.E. Florida) High-rise 943 990 2,310 N/A N/A N/A N/A
----- ----- -------
7,163 872 $19,087
DEVELOPMENT PORTFOLIO
Courthouse Place (Rosslyn/Ballston, VA) High-rise 564 849 $ 2,394 N/A N/A N/A N/A
One Superior Place (Chicago, IL)/(1)/ High-rise 809 N/A 3,296 N/A N/A N/A N/A
Park Connecticut (Washington, DC)/(1)/ High-rise 142 N/A N/A N/A N/A N/A N/A
Alban Towers (Washington, DC)/(1)/ Mid-rise 226 N/A N/A N/A N/A N/A N/A
------ -------
1,741 $ 5,690
ALL RESIDENTIAL PROPERTIES 26,328 $86,364 N/A N/A N/A N/A
====== =======
PARTIALLY-OWNED PORTFOLIO
- -------------------------
Renaissance (25% owned) High-rise 330 984 $ 1,252 N/A N/A N/A N/A
Springfield Station (48% owned) Garden/Mid-rise 631 909 2,055 N/A N/A N/A N/A
Brandywine (25% owned) High-rise 306 1,005 1,196 N/A N/A N/A N/A
Stoneridge at University Center
(40% owned)/(1)/ Garden 630 N/A N/A N/A N/A N/A N/A
------ -------
1,897 $ 4,503
====== =======
</TABLE>
/(1)/ Property is currently under construction.
15
<PAGE>
RENTAL PROPERTIES
Revenues, expenses and income from the multifamily and retail properties
for the three months ended March 31, 2000 and 1999 were as follows (in
thousands):
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------
2000 1999/(2)/
-------- ---------
<S> <C> <C>
Core Portfolio/(1)/
Revenues $ 61,587 $ 58,186
Expenses (23,495) (22,843)
-------- --------
Income before depreciation $ 38,092 $ 35,343
======== ========
Acquisition/Disposition Portfolio
Revenues $ 19,130 $ 6,726
Expenses (8,786) (2,992)
-------- --------
Income before depreciation $ 10,344 $ 3,734
======== ========
Development Portfolio
Revenues $ 5,690 $ 1,567
Expenses (2,408) (881)
-------- --------
Income before depreciation $ 3,282 $ 686
======== ========
Retail Portfolio
Revenues $ 2,447 $ 2,554
Expenses (810) (842)
-------- --------
Income before depreciation $ 1,637 $ 1,712
======== ========
Total Rental Properties
Revenues $ 88,854 $ 69,033
Expenses (35,499) (27,558)
Depreciation (10,567) (8,228)
-------- --------
Income from Rental Properties $ 42,788 $ 33,247
======== ========
</TABLE>
/(1)/ Represents properties owned as of December 31, 1998.
/(2)/ Certain prior period amounts have been reclassified to conform with the
current period's presentation.
16
<PAGE>
PROPERTY SERVICE BUSINESSES
Revenues, expenses and income from the Property Service Businesses for the
three months ended March 31, 2000 and 1999 were as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------
2000 1999
-------- --------
<S> <C> <C>
Total Property Service Businesses
Revenues $ 49,901 $ 27,394
Expenses (47,986) (26,956)
Depreciation (1,396) (436)
-------- --------
Income from Property Service Businesses $ 519 $ 2
======== ========
</TABLE>
RESULTS OF OPERATIONS
Comparison of Three Months Ended March 31, 2000 to Three Months Ended March 31,
1999.
Summary. Net income of the Operating Partnership increased $4.0 million,
or 20.7%, from $19.6 million for the three months ended March 31, 1999 to $23.6
million for the three months ended March 31, 2000. Funds from Operations
("FFO") of the Operating Partnership increased $4.6 million, or 18.3%, from
$25.4 million to $30.0 million during the same period. The increases in FFO and
net income are primarily attributable to net operating income growth of 7.8% on
the core portfolio and contributions from acquired and developed properties.
The decrease in the Company's net income per common unit compared to the prior
year is due primarily to gains on property sales during 1999.
Rental Properties. Revenue from all rental properties increased $19.9
million, or 28.7%, from $69.0 million for the three months ended March 31, 1999
to $88.9 million for the three months ended March 31, 2000. Operating expenses
from all rental operations increased $7.9 million, or 28.8%, from $27.6 million
during the first quarter of 1999 to $35.5 million during the current quarter.
Core Portfolio. Revenue from the core portfolio increased $3.4 million, or
5.8%, over the prior year period resulting in average monthly revenue per
apartment unit of $1,178. This was primarily due to continued strong demand in
all submarkets. Management successfully increased rents during the quarter and
improved occupancy levels. Average economic occupancy for the core portfolio
was 97.3% for the three months ended March 31, 2000 compared to 96.8% for the
comparable prior year. Expenses for the core portfolio increased $0.7 million,
or 2.9%, due primarily to higher real estate taxes and personnel costs.
Acquisition/Disposition Portfolio. The acquisition properties (defined as
properties acquired subsequent to December 31, 1998) and the disposition
properties contributed approximately 62%, or $12.4 million, of the total rental
revenue increase and approximately $5.8 million of the total rental expense
increase. Results for the first quarter of 1999 reflect three acquisition and
six
17
<PAGE>
disposition properties totaling 2,863 apartment units. Results for the first
quarter of 2000 reflect ten acquisition properties and no dispositions totaling
7,163 apartment units.
Development Portfolio. In June 1999, Courthouse Place completed delivery
of its 564 units. The project provided net operating income of $1.8 million for
the quarter.
One Superior Place delivered initial units in July 1999 and had a total of
686 units delivered as of March 31, 2000. Estimated completion and
stabilization is expected in 2000. The project provided a net operating income
of $1.7 million for the period. As of March 31, 2000, the property was 96%
leased and 85% occupied.
In March 2000, the Company delivered the first 48 units of the 142-unit
Park Connecticut property. Stabilization is expected by the third quarter of
2000. As of March 31, 2000, the property was 25% leased and 15% occupied.
Property Service Businesses. The Company uses the equity method of
accounting for its non-voting interest in the Property Service Businesses.
Income from Property Service Businesses increased $0.5 million in the first
quarter of 2000 compared to the prior year quarter. Consolidated Engineering
Services, Inc. and affiliates contributed an increase of $0.6 million in income
during the quarter, which was due to both internal growth and the acquisition of
four businesses during the second half of 1999. Smith Management Construction
contributed $0.5 million to the increase, which was offset by a $0.6 million
decrease in Smith Realty Company income. The former is due primarily to slower
than expected timing on affiliated commercial office projects in early 1999.
The latter is due primarily to higher vacancies in the corporate furnished
apartment business.
Other. Net interest expense increased $4.7 million during the quarter, or
35.8%, due to additional debt related to acquisitions as well as slightly higher
borrowing rates.
LIQUIDITY AND CAPITAL RESOURCES
Summary. Net cash flow provided by operating activities decreased $8.2
million from $33.0 million for the three months ended March 31, 1999 to $24.8
million for the three months ended March 31, 2000. An increase of $8.1 million
in property operating income was offset by an unusually large increase in 1999
in accrued costs and other assets related to first quarter 1999 acquisitions.
Net cash flow of $114.2 million was used by investment activities during
the three months ended March 31, 2000 compared to $82.5 million during the
comparable prior year period due primarily to increased acquisition and
development activity. In addition, no properties were disposed of in the first
quarter of 2000, while dispositions contributed $22.6 million in net cash flows
over the same period in 1999.
Net cash flows provided by financing activities were $78.9 million for the
three months ended March 31, 2000, primarily comprised of $101.8 million of net
borrowings against the
18
<PAGE>
properties, lines of credit, and construction loans, offset by a $25.0 million
cash outflow for dividends and distributions. Net cash flows provided by
financing activities of $49.4 million in the comparable prior year period
primarily consisted of $68.9 million of net cash inflow from borrowings less
$19.6 million of dividends/distributions.
Funds from Operations
FFO is defined by the National Association of Real Estate Investment Trusts
("NAREIT") as net income (loss), computed in accordance with Generally Accepted
Accounting Principles ("GAAP"), excluding gains (or losses) from debt
restructuring and property sales, plus depreciation/amortization of assets
unique to the real estate industry. FFO does not represent cash flow from
operating activities in accordance with GAAP (which, unlike FFO, 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 operating performance primarily because it
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, 2000 and 1999
are computed as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------
2000 1999
------- -------
<S> <C> <C>
Net income of the Operating Partnership $23,602 $19,551
Preferred dividends (4,473) (989)
Depreciation of rental property 10,567 8,228
Depreciation of unconsolidated properties 239 --
Amortization of goodwill 107 107
Gain on sales -- (1,858)
Extraordinary item - loss on extinguishment of debt -- 359
------- -------
Funds from Operations of the Operating
Partnership $30,042 $25,398
======= =======
</TABLE>
Property Acquisitions
In January 2000, the Company acquired two properties in southeast Florida,
Ocean View at Sunset Pointe-North, and Ocean View at Sunset Pointe-South, adding
1,470 units to the Acquisition
19
<PAGE>
Portfolio. The total capitalized cost of $102.9 million consisted of $8.1
million in proceeds from the December 1999 sale of one multifamily property,
with the balance drawn on the Company's line of credit.
Development
As of March 31, 2000, 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>
One Superior Place 809 686 July, 1999 Q2, 2000 Q2, 2000 $120
(Chicago, IL)
Park Connecticut 142 48 March, 2000 Q2, 2000 Q3, 2000 29
(Washington, DC)
Stoneridge at
University Center 630 N/A Q2, 2000 Q3, 2001 Q1, 2002 66
(Tysons/Dulles)/(1)/
Alban Towers 226 N/A Q2, 2001 Q3, 2001 Q4, 2001 53
(Washington, DC)/(2)/
----- ---- ----
1,807 734 $268
===== ==== ====
</TABLE>
/(1)/ The Company has a 40% ownership interest.
/(2)/ The Company owns substantially all of the economic interest.
Commitments
As of March 31, 2000, the Company had executed contracts to purchase
multifamily properties under construction as follows:
<TABLE>
<CAPTION>
Number Estimated Purchase Estimated
of Units Completion Date Cost
-------- ---------- -------- ---------
(in millions)
<S> <C> <C> <C> <C>
Reston Landing 400 Q1, 2000 Q3, 2000 $ 44
(Reston, VA)
New River Village 240 Q3, 2000 Q4, 2000 34
(Ft. Lauderdale, FL)
Wilson Boulevard 220 Q4, 2000 Q4, 2000 29
(Rosslyn/Ballston)
Ballston Place 383 Q2, 2001 Q3, 2001 51
(Rosslyn/Ballston)
----- ----
1,243 $158
===== ====
</TABLE>
These contracts are contingent upon satisfactory completion of construction
and attainment of final certificates of occupancy by the owners. As of March
31, 2000, 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.
Several other acquisition and development projects are being pursued by the
Company. The Company anticipates meeting the related funding requirements
through draws on its lines of credit,
20
<PAGE>
long-term borrowings, asset sales and public or private issuances of equity,
including Operating Partnership unit exchanges.
Debt
In February 2000, the Company drew $49.4 million on its Fannie Mae credit
facility at 8.00% for ten years. The Company used $37 million of the proceeds
to repay a portion of its line of credit with the balance used for working
capital needs. Ocean View at Aventura was added to the collateral pool in
connection with this draw.
As of March 31, 2000, the Company had mortgage indebtedness and other
borrowings, which carried a weighted average interest rate of 7.22%, as follows:
<TABLE>
<CAPTION>
Dollars in % of
Thousands Total
---------- ------
<S> <C> <C>
Fixed Rate Debt:
Mortgages $ 865,365 80.8%
Variable Rate Debt:
$100M Line of Credit 25,000 2.3%
$185M Line of Credit 98,000 9.2%
Construction Loans 82,731 7.7%
---------- -----
$1,071,096 100.0%
========== =====
</TABLE>
As of March 31, 2000, the Company had $201.8 million of unused borrowing
capacity on lines of credit and construction loans. Amounts outstanding under
lines of credit averaged $104.5 million for the three months ended March 31,
2000 compared to $112.3 million for the three months ended March 31, 1999.
As of March 31, 2000, the Company's Debt to Total Market Capitalization
Ratio was 40.5% (based on 21.0 million common shares, 2.6 million preferred
shares, and 13.7 million partnership units outstanding at a common stock price
of $36.125, $50 million of perpetual preferred stock, $130 million of
convertible preferred shares, and $45 million of convertible preferred
partnership units) versus 38.6% as of December 31, 1999 and 43.8% as of March
31, 1999.
The Company's Interest Coverage Ratio excluding gains on sales and
extraordinary items for the three months ended March 31, 2000 was 3.09 to 1
compared to 3.13 to 1 for the comparable prior year period.
Capital Expenditures
For the three months ended March 31, 2000, total capital improvements were
$9.8 million, of which $6.5 million were for the core portfolio ($368 per unit).
Approximately 75% of the capital expenditures on the core portfolio in 2000 are
considered by management to be non-recurring, repositioning improvements which
directly result in higher revenues. The remaining capital expenditures on the
core portfolio indirectly influence the Company's ability to generate revenues
21
<PAGE>
and are considered more recurring in nature and non-discretionary. A summary of
core capital expenditures for the period follows:
<TABLE>
<CAPTION>
Total $ Average $
Spent Per
(In Thousands) Core Unit
-------------- ----------
<S> <C> <C>
Expenditure Type
----------------
Kitchen/Bath $4,738 $272
Washer/Dryer 138 8
------ ----
Core Repositioning 4,876 280
Recurring Improvements 1,589 88
------ ----
Total Capital Expenditures
-Core Portfolio $6,465 $368
====== ====
</TABLE>
Year 2000
The Company did not experience any malfunctions or errors in its operating
or business systems when the date changed from 1999 to 2000. Based on
operations since January 1, 2000, the Company does not expect any significant
impact on its on-going business as a result of the "Year 2000 Issue". However,
it is possible that the full impact of the date change has not been fully
recognized. The Company believes that any problems are likely to be minor and
correctable. In addition, the Company could still be negatively impacted if its
customers or suppliers are adversely affected by the Year 2000 or similar
issues. The Company currently is not aware of any significant Year 2000 or
similar problems that have arisen for its customers or suppliers.
The Company expended approximately $2.0 million in 1999 on a new computer
system, to replace one which was not Year 2000 compliant. The new system is
being depreciated over its useful life of five years. Excluding this
replacement system, the Company's Year 2000 compliance efforts have been
primarily conducted with internal staff. Accordingly, the costs have been
immaterial and have been expensed as incurred.
22
<PAGE>
PART II
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
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
None
23
<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.
May 12, 2000 By: Charles E. Smith Residential Realty, Inc.,
its General Partner
By: /s/ W. D. Minami
----------------------------------------------
W. D. Minami
Executive Vice President and Chief Financial Officer
Charles E. Smith Residential Realty, Inc.
(on behalf of the Registrant and as Principal
Financial Officer)
By: /s/ Steven E. Gulley
---------------------------------------------
Steven E. Gulley
Chief Accounting Officer
Charles E. Smith Residential Realty, Inc.
24
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 19,450
<PP&E> 1,902,762
<DEPRECIATION> (253,039)
<TOTAL-ASSETS> 1,809,520
<CURRENT-LIABILITIES> 50,053
<BONDS> 1,071,096
0
251,500
<COMMON> (102,645)
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1,809,520
<SALES> 0
<TOTAL-REVENUES> 88,854
<CGS> 0
<TOTAL-COSTS> 46,066
<OTHER-EXPENSES> 2,695
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 17,793
<INCOME-PRETAX> 23,602
<INCOME-TAX> 0
<INCOME-CONTINUING> 23,602
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17,677
<EPS-BASIC> 0.51
<EPS-DILUTED> 0.51
</TABLE>
