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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
Commission file number 1-12428
OASIS RESIDENTIAL, INC.
- -------------------------------------------------------------------------------
(Exact name of Registrant as specified in its Charter)
NEVADA 88-0297457
- --------------------------------- ---------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number
4041 East Sunset Road, Henderson, Nevada 89014
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(Address of Principal Executive Offices)
(702) 435-9800
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(Registrant's Telephone Number, Including Area Code)
Indicate by a check mark whether the registrant: (1) has filed all reports 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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Class Shares Outstanding Date
- ------------------------------- ------------------ -----------------
Common Stock, $0. 01 par value 16,239,207 November 13, 1997
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OASIS RESIDENTIAL, INC.
QUARTERLY REPORT ON FORM 10-Q
CONTENTS
<TABLE>
<CAPTION>
Page No.
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<S> <C>
PART I - FINANCIAL INFORMATION:
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets as of September 30, 1997
and December 31, 1996 3
Consolidated Statements of Operations for the Three and
Nine Months Ended September 30, 1997 and 1996 4
Consolidated Statements of Cash Flows for the Nine
Months Ended September 30, 1997 and 1996 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-12
PART II - OTHER INFORMATION 14
Signatures 15
</TABLE>
2
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PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements:
- -------------------------------------------
OASIS RESIDENTIAL, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
ASSETS
September 30, December 31,
1997 1996
------------- ------------
(Unaudited)
<S> <C> <C>
Real estate assets:
Land $102,753 $ 93,484
Buildings and improvements 635,792 552,500
Furniture and fixtures 45,123 39,515
-------- --------
783,668 685,499
Less accumulated depreciation 66,715 53,049
-------- --------
716,953 632,450
Land held for development 3,997 3,766
Construction in progress 57,347 109,202
-------- --------
Net real estate assets 778,297 745,418
Cash and cash equivalents 9,216 3,397
Restricted cash 2,615 2,976
Investment in and advances to joint venture 8,579 9,574
Deposit/acquisition costs on real estate assets 2,840 2,000
Deferred costs and other assets (net of accumulated
amortization of $2,614 and $1,802 at September 30, 1997
and December 31, 1996, respectively) 12,025 11,408
-------- --------
Total assets $813,572 $774,773
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Debt $439,477 $394,274
Resident deposits and prepaid rent 2,782 2,066
Accounts payable and accrued expenses 7,749 6,221
-------- --------
Total liabilities 450,008 402,561
-------- --------
Commitments (Note 2)
Stockholders' equity:
Preferred stock, $2.25 Series A Cumulative Convertible,
$.01 par value, liquidation preference $25 per share,
15,000,000 shares authorized, 4,165,000 shares issued
and outstanding at September 30, 1997 and December 31, 1996 42 42
Common stock, $.01 par value, 100,000,000 shares authorized,
16,239,207 and 16,237,646 shares issued and outstanding
at September 30, 1997 and December 31, 1996, respectively 162 162
Paid-in capital 386,947 386,910
Distributions in excess of net income (23,587) (14,902)
-------- --------
Total stockholders' equity 363,564 372,212
-------- --------
Total liabilities and stockholders' equity $813,572 $774,773
======== ========
</TABLE>
See notes to consolidated financial statements
3
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OASIS RESIDENTIAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
--------------------------- ---------------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenue:
Rental income $ 28,476 $ 24,043 $ 81,399 $ 67,526
Other income 1,143 832 3,115 2,308
---------- ---------- ---------- ---------
Total revenue 29,619 24,875 84,514 69,834
---------- ---------- ---------- ---------
Expenses:
Property operating and maintenance 8,893 7,333 23,926 20,109
General and administrative 888 881 2,743 2,514
Real estate taxes 1,613 1,363 4,488 3,748
Interest 7,130 3,954 18,422 10,276
Interest, non-cash (loan fees and costs) 268 276 803 846
Depreciation and amortization 4,664 3,964 13,745 11,225
---------- ---------- ---------- ---------
Total expenses 23,456 17,771 64,127 48,718
---------- ---------- ---------- ---------
Net income 6,163 7,104 20,387 21,116
Less preferred dividend requirement 2,343 2,343 7,029 7,029
---------- ---------- ---------- ---------
Earnings available for common stockholders $ 3,820 $ 4,761 $ 13,358 $ 14,087
========== ========== ========== =========
Per share amounts:
Earnings available for common stockholders $ 0.24 $ 0.29 $ 0.82 $ 0.87
========== ========== ========== =========
Dividends declared per common share $ 0.4525 $ 0.4350 $ 1.3575 $ 1.31
========== ========== ========== =========
Weighted average number of common
shares outstanding 16,238,556 16,237,646 16,238,035 16,237,646
========== ========== ========== ==========
</TABLE>
See notes to consolidated financial statements
4
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OASIS RESIDENTIAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended
September 30,
-------------------------
1997 1996
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<S> <C> <C>
Cash flows from operating activities:
Net income $ 20,387 $ 21,116
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 13,745 11,225
Amortization of discount on notes payable 16 --
Interest, non-cash (loan fees and costs) 803 846
Changes in assets and liabilities:
Deferred costs and other assets (1,271) 452
Resident deposits and prepaid rent 716 487
Accounts payable and accrued expenses 1,528 (676)
--------- ---------
Net cash provided by operating activities 35,924 33,450
--------- ---------
Cash flows from investing activities:
Purchase of real estate assets (10,955) --
Improvements to real estate assets (5,479) (12,224)
Construction of real estate assets (36,447) (109,669)
Investment in and advances to joint venture 995 --
Deposits on real estate assets (840) --
Net proceeds from the sale of real estate assets 6,108 --
--------- ---------
Net cash used in investing activities (46,618) (121,893)
--------- ---------
Cash flows from financing activities:
Proceeds from debt 46,500 116,500
Principal payments on debt (1,313) (1,460)
Increase (decrease) in restricted cash 361 (723)
Proceeds from issuance of common stock in connection
with the dividend reinvestment program 37 --
Cash dividends paid - preferred stock (7,029) (7,029)
Cash dividends paid - common stock (22,043) (21,189)
-------- ---------
Net cash provided by financing activities 16,513 86,099
-------- ---------
Net decrease in cash and cash equivalents 5,819 (2,344)
Cash and cash equivalents, beginning 3,397 5,970
-------- ---------
Cash and cash equivalents, ending $ 9,216 $ 3,626
======== =========
Supplemental information:
Cash paid for interest $ 19,847 $ 17,528
======== =========
</TABLE>
See notes to consolidated financial statements
5
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OASIS RESIDENTIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles applicable to
interim financial information and pursuant to the rules and regulations of
the Securities and Exchange Commission. Accordingly, certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed
or omitted pursuant to such rules and regulations. However, in the opinion of
management, all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation have been included. The Company presumes
that users of the interim financial information herein have read or have
access to the audited financial statements for the preceding fiscal year and
that the adequacy of additional disclosure needed for a fair presentation may
be determined in that context. Accordingly, footnote disclosure which would
substantially duplicate the disclosure contained in the Company's 1996 Annual
Report on Form 10-K has been omitted.
The Company capitalizes all direct costs of developing its properties.
Interest is capitalized during development and construction until a property
is completed and ready for occupancy. In computing the amount of interest to
be capitalized for each period, the Company computes the average amount of
development and construction costs incurred on each project and then,
allocates interest costs associated with loans incurred for the purpose of
financing the Company's development and construction activities. To the
extent that the total development and construction costs exceed the amount of
the construction-related loans, the Company applies its average borrowing
rate on other than construction-related loans to such excess development and
construction costs to derive the amount of additional capitalized interest.
General and administrative costs are expensed, except for the costs incurred
in support of the Company's construction-focused executives which are
capitalized.
2. COMMITMENTS
As of September 30, 1997, the Company was in the development stage or under
construction on four additional multifamily apartment communities (Oasis
Bluffs 2, Oasis Harbor 2, Oasis Interlocken and Oasis Lakeway) totaling 1,453
units in three markets: Las Vegas, Reno and Denver. The Company anticipates
completing 451 of these apartment units (Oasis Lakeway) in 1997. The
estimated total investment upon completion of Oasis Lakeway is $38,800. As of
September 30, 1997, the Company had expended approximately $36,733 in land
acquisition and development costs on Oasis Lakeway. The estimated total
investment for the remaining 1,002 units will be finalized prior to the
commencement of construction. As of September 30, 1997, the Company had
expended approximately $20,614 in land acquisition and development costs on
these 1,002 units.
The Company has entered into a contract with an unaffiliated third party to
sell three of its Las Vegas communities consisting of 976 units for a price
of $53,700. The transaction which includes Oasis Orchid, Oasis Trails and
Oasis Terrace, is slated to close this year. The transaction will result in a
gain to the Company of approximately $7,000 and the proceeds will be used to
paydown the balance on its credit facility. The closing of this transaction
is subject to certain contingencies and conditions, and therefore, there can
be no assurance that this transaction will be consummated or that the final
terms thereof will not differ materially respects from those summarized
above.
In October 1997, the Company entered into a contract to purchase a 421 unit
apartment community in Fullerton, California for approximately $29,000,
subject to the satisfaction of certain conditions. In accordance with the
terms of the agreement, the Company made a deposit in the amount of $300 in
an escrow account.
3. REAL ESTATE DISPOSITION
On August 18, 1997, the Company completed the sale of the 84 unit Oasis
Villas community for approximately $6,300, with no material gain or loss
resulting from the transaction. Net proceeds from this sale were applied
to repay borrowings under the Company's bank credit facility.
4. CREDIT FACILITY
On September 25, 1997, the interest rate on the Company's bank credit
facility was reduced to LIBOR plus 1.15% from LIBOR plus 1.25%. Additionally,
the Company has exercised its option to extend the maturity of the credit
facility for one additional year. The new maturity date of the credit
facility is September 1998.
5. SUBSEQUENT EVENTS
On October 23, 1997, the Company completed the acquisition of a managing
member interest in a limited liability company ("LLC") that owns the 714 unit
Villa Martinique apartment community in Costa Mesa, California.
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In connection with the acquisition, the LLC issued operating LLC units,
convertible on a 1 for 1 basis into 886,022 shares of the Company's common
stock. The Company assumed existing tax exempt bond debt of $51,400 issued by
Orange County, California. The "low floater" bonds mature in 2009 and have an
interest rate subject to weekly repricing based upon a spread of 125 basis
points over the seven day tax exempt bond floating rate index. The Company
also contributed approximately $1,500 in cash for transaction and LLC
formation costs, thus resulting in a total initial investment by the Company
of approximately $73,500.
The Company plans to increase its investment in the community, which has been
renamed Oasis Martinique, by approximately $2,500 in order to fund a capital
refurbishment program designed to increase net operating income at the
community.
The accounts of the LLC will be included in the consolidated financial
statements of the Company.
On October 24, 1997, the Company declared a quarterly dividend for its common
stock of $0.4525 per share. The dividend is to be paid on November 18, 1997 to
stockholders of record on November 7, 1997. The Company announced on October
21, 1997, the declaration of its quarterly dividend of $0.5625 per share on
its Series A Cumulative Convertible Preferred Stock. This preferred stock
dividend is to be paid on November 17, 1997 to stockholders of record on
November 3, 1997.
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. Statements contained or
incorporated by reference in this document that are not based on historical
fact are "forward looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Forward-looking statements may be
identified by the use of the forward-looking terminology such as "may",
"will", "expect", "estimate", "anticipate", "continue" or similar terms,
variations of those terms or the negative of those terms. The "Risk Factors"
set forth in the Company's Annual Report on Form 10-K constitute cautionary
statements identifying important factors that could cause actual results to
differ materially from those in the forward-looking statements.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the consolidated
financial statements and notes thereto appearing elsewhere in this Form 10-Q.
RESULTS OF OPERATIONS
Increases in the operating results for the periods discussed below are
primarily the result of increases from period to period in the number of
properties owned and operated. Where applicable, comparisons have been made on
a weighted average per unit basis in order to adjust for such changes in the
number of units owned and operated. In computing the weighted average per unit
amounts, income and expenses of the commercial properties have been
eliminated.
Comparison of the three and nine months ended September 30, 1997 to the three
and nine months ended September 30, 1996.
The weighted average number of apartment units increased by 1,660 and 1,568
units for the three and nine months ended September 30, 1997, respectively, as
compared to the same periods in 1996. These increases were the result of
acquiring 138 apartment units in June 1997, the sale of 104 and 84 apartment
units in December 1996 and August 1997, respectively, and the development of
1,617 units since the end of September 1996. The total number of apartment
units operated as of September 30, 1997 and 1996 were 14,607 and 13,040,
respectively. The weighted average number of apartment units for each of the
periods is as follows:
Three months ended September 30, 1997............... 14,649
Three months ended September 30, 1996............... 12,989
Nine months ended September 30, 1997................ 13,986
Nine months ended September 30, 1996................ 12,418
For the three months ended September 30, 1997, net income decreased by
$941,000 over the three months ended September 30, 1996. This decrease was due
to increases in property operating and maintenance expenses of $1,560,000,
general and administrative expenses of $7,000, real estate taxes of $250,000,
interest expense of $3,176,000, and depreciation and amortization of $700,000.
Offsetting these factors were increased rental and other income of $4,744,000,
as well as a decrease in interest expense (non-cash), which represents
amortization of loan fees and costs, of $8,000. The increase in rental and
other income was primarily due to operating a greater number of apartment
units during the three months ended September 30, 1997 as compared to the same
period in 1996, partially offset by an increase in rental concessions. The
increase in operating expenses was primarily due to operating a greater number
of apartment units during the three months ended September 30, 1997 as
compared to the same period in 1996, as well as increases in utility rates,
property taxes and marketing costs. Turnover costs also increased during the
quarter as a result of higher turnover due to increased market competition.
Interest expense has increased due to the completion of several development
communities since September 30, 1996, resulting in interest costs associated
with these communities being expensed rather than capitalized. In addition to
these factors, operating deficits associated with two Las Vegas development
communities in lease-up, Oasis Gateway and Oasis Pines, negatively impacted
net income for the third quarter of 1997.
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For the nine months ended September 30, 1997, net income decreased by $729,000
over the nine months ended September 30, 1996. This decrease was due to
increases in property operating and maintenance expenses of $3,817,000,
general and administrative expenses of $229,000, real estate taxes of
$740,000, interest expense of $8,146,000, and depreciation and amortization of
$2,520,000. Offsetting these factors were increased rental and other income of
$14,680,000, as well as a decrease in interest expense (non-cash), which
represents amortization of loan fees and costs, of $43,000. The increase in
rental and other income was primarily due to operating a greater number of
apartment units during the nine months ended September 30, 1997 as compared to
the same period in 1996, which was partially offset by an increase in rental
concessions. The increase in operating expenses was primarily due to operating
a greater number of apartment units during the nine months ended September 30,
1997 as compared to the same period in 1996, as well as increases in utility
rates, property taxes and marketing costs. Interest expense has increased due
to the completion of several development communities since September 30, 1996,
resulting in interest costs associated with these communities being expensed
rather than capitalized.
PROPERTY OPERATIONS: The following table presents the Company's results of
operations for its multifamily apartment communities (excluding commercial
properties and corporate general and administrative expenses) for the three
and nine months ended September 30, 1997 and 1996:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------------- --------------------------------
1997 1996 % CHANGE 1997 1996 % CHANGE
------- ------ -------- ------- ------- --------
(In thousands) (In thousands)
<S> <C> <C> <C> <C> <C> <C>
Rental income $28,311 $23,871 19% $80,905 $67,039 21%
Other income 995 781 27% 2,768 2,129 30%
------- ------- ------ ------- ------- ------
Total income 29,306 24,652 19% 83,673 69,168 21%
------- ------- ------ ------- ------- ------
Property operating and maintenance 8,853 7,303 21% 23,801 19,995 19%
Real estate taxes 1,600 1,352 18% 4,454 3,716 20%
------- ------- ------ ------- ------- ------
Total property operating expenses 10,453 8,655 21% 28,255 23,711 19%
------- ------- ------ ------- ------- ------
Property net operating income,
before interest expense,
depreciation and amortization $18,853 $15,997 18% $55,418 $45,457 22%
======= ======= ====== ======= ======= ======
</TABLE>
Rental income for the three and nine months ended September 30, 1997 increased
over the same periods in 1996 by $4,440,000 and $13,866,000, respectively,
primarily due to the acquisition and development of additional apartment
communities. The weighted average monthly rental income per apartment unit was
approximately $644 and $643 for the three and nine months ended September 30,
1997, respectively, as compared to $613 and $600 for the same periods in 1996,
respectively.
Other income (consisting primarily of nonrefundable security deposits,
application and cleaning fees, laundry and vending income) increased by
$214,000 and $639,000, respectively, for the three and nine months ended
September 30, 1997, as compared to the same periods in 1996. These increases
are primarily due to the operation of additional apartment communities in 1997
as compared to 1996.
Property operating and maintenance expenses for the three and nine months
ended September 30, 1997, increased over the same periods in 1996 by
$1,550,000 and $3,806,000, respectively. On a weighted average per unit, per
month basis, property operating and maintenance expenses were $201 and $187
for the three months ended September 30, 1997 and 1996, respectively, and $189
and $179 for the nine months ended September 30, 1997 and 1996, respectively.
These increases are primarily attributable to a higher resident turnover rate
resulting in an increase in turnover costs (painting, cleaning, etc.),
increases in utility rates, and an increase in marketing costs.
Real estate taxes increased primarily due to the acquisition and development
of additional apartment communities since September 1996. On a weighted
average per unit, per month basis, real estate taxes were $36 and $35 for the
three months ended September 30, 1997 and 1996, respectively, and $35 and $33
for the nine months ended September 30, 1997 and 1996, respectively. These
increases are primarily due to increases in property taxes at certain
properties for the tax year commencing July 1, 1997. In Nevada, properties are
assessed at their value as of July 1 of each year and, therefore, properties
that are under development as of that date are not assessed on their full
value until July 1 of the following year.
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"SAME STORE" PORTFOLIO: The following table presents a comparison of the
operating results for the three and nine months ended September 30, 1997 as
compared to the three and nine months ended September 30, 1996 for the
properties that the Company owned as of December 31, 1995, consisting of 40
apartment communities, containing 10,959 apartment units:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------------------- ------------------------------------
1997 1996 % CHANGE 1997 1996 % CHANGE
------- -------- -------- ------- ------- --------
(Dollars in thousands) (Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Rental income $19,876 $19,426 2% $59,578 $57,603 3%
Other income 760 648 17% 2,122 1,764 20%
------- ------- ------ ------- ------- ------
Total income 20,636 20,074 3% 61,700 59,367 4%
------- ------- ------ ------- ------- ------
Property operating and maintenance 6,342 5,945 7% 17,698 17,055 4%
Real estate taxes 1,218 1,156 5% 3,516 3,377 4%
------- ------- ------ ------- ------- ------
Total property operating expense 7,560 7,101 6% 21,214 20,432 4%
------- ------- ------ ------- ------- ------
Property net operating income,
before interest expense,
depreciation and
amortization $13,076 $12,973 1% $40,486 $38,935 4%
======= ======= ====== ======= ======= ======
</TABLE>
Rental income for the three and nine months ended September 30, 1997 increased
over the same periods in 1996 by $450,000 and $1,975,000, respectively. These
increases are primarily due to an increase in average rental rates. The
weighted average monthly rental income per apartment unit was approximately
$605 and $604 for the three and nine months ended September 30, 1997, as
compared to $591 and $584 for the same periods in 1996, respectively.
Other income increased by $112,000 and $358,000 for the three and nine months
ended September 30, 1997, respectively, as compared to the same periods in
1996. These increases are a result of an increase in fees unrelated to rent
such as nonrefundable security deposits, application and cleaning fees and
late fees.
Property operating and maintenance expenses increased by $397,000 and $643,000
for the three and nine months ended September 30, 1997, respectively. These
increases are primarily attributable to a higher resident turnover rate
resulting in an increase in turnover costs (painting, cleaning, etc.),
increases in utility rates, and an increase in marketing costs.
Real estate taxes increased by $62,000 and $139,000 for the three and nine
months ended September 30, 1997, respectively, as compared to the same periods
in 1996, primarily due to the reassessment of certain apartment communities by
the taxing authorities.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities increased by $2,474,000 from
$33,450,000 in the nine months ended September 30, 1996 to $35,924,000 in the
nine months ended September 30, 1997, primarily due to an increase in net
operating income (defined as net income plus an addback for depreciation
expense and interest expense, non cash), an increase in accounts payable and
accrued expenses, and an increase in resident deposits and prepaid rents,
partially offset by an increase in deferred costs and other assets.
Net cash used in investing activities decreased by $75,275,000 from
$121,893,000 in the nine months ended September 30, 1996 to $46,618,000 in the
nine months ended September 30, 1997. During the nine months ended September
30, 1996, the Company had 13 properties under construction, containing 3,786
apartment units, of which 1,197 units were completed during the period. During
the nine months ended September 30, 1997, the Company had seven communities
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under construction (excluding Oasis Denver West, a 321 unit apartment
community, developed as part of a joint venture agreement), comprising 2,578
units in three markets (Las Vegas, Reno and Denver), of which 1,125 units were
completed during the period. The Company anticipates completing an additional
451 of these apartment units in 1997. The estimated total investment upon
completion of the 451 units is $38,800,000. The estimated total investment for
the remaining 1,002 apartment units will be finalized prior to the
commencement of construction.
The Company funds its development activities through a combination of working
capital and credit facility debt. At September 30, 1997, the Company had
available borrowing capacity under the credit facility of $67,764,000.
Net cash provided by financing activities decreased by $69,586,000 from
$86,099,000 in the nine months ended September 30, 1996 to $16,513,000 in the
nine months ended September 30, 1997, primarily as a result of lower proceeds
from the issuance of debt in 1997 as compared to 1996.
The Company anticipates meeting its short-term liquidity requirements through
a combination of cash flow retained for investment purposes, cash available
from its credit facility plus additional long-term borrowings. The Company
believes that its net cash provided by operations will be adequate to meet its
operating requirements and to pay dividends in accordance with real estate
investment trust ("REIT") requirements.
The Company expects to meet its long-term liquidity requirements, such as
funds for property acquisition and development activity and the repayment of
debt, through new long-term borrowings, the issuance of additional debt
securities or equity securities and net proceeds from asset sales. In
addition, the Company has a shelf registration statement with the Securities
and Exchange Commission which covers up to an aggregate of $250,000,000 of
debt securities, preferred stock, depositary stock, common stock and warrants
to purchase common stock and preferred stock which the Company may issue from
time to time.
CAPITAL EXPENDITURES
The Company capitalizes the direct and indirect cost of expenditures for the
acquisition or development of apartment communities and replacements and
improvements. Non-revenue generating capital expenditures are those
replacements which recur on a regular basis, but which have estimated useful
lives of more than one year, such as roofing, heating, ventilation and air
conditioning and exterior repainting. Revenue-generating expenditures are
those improvements which enhance the communities net operating income
generating capabilities either through increased rental rates or reduced
operating expenses.
At newly acquired communities, the Company often finds it necessary to upgrade
the physical appearance of the properties and to complete maintenance and
repair work which had been deferred by prior owners. These activities often
result in heavier capital expenditures in the early years of Company
ownership. Some of these expenditures which would normally be considered
non-revenue generating capital expenditures or expensed items are classified
as revenue-generating expenditures until the community is substantially
upgraded to meet the image and quality standards represented by the Oasis
brand name. Upon completion of the rehabilitation process, which takes place
as units turn over, normal recurring capital expenditures such as those made
for carpet and appliances are expensed as incurred.
Interest, real estate taxes, and other carrying costs incurred during the
development period of communities under construction are capitalized and, upon
completion of the project, depreciated over the lives of the related assets.
INFLATION
The Company leases apartments to its residents under lease terms generally
ranging from six to twelve months. Management believes that the short-term
lease contracts lessen the impact of inflation by giving the Company the
ability to adjust rental rates to market levels as leases expire. The impact
of recent low rates of inflation have not been significant to the Company's
operations, except for the positive effects that low inflation has had on
reducing the Company's interest cost. Inflation, inflationary expectations and
their effects on interest rates may affect the Company in the future by
changing the underlying value of the Company's real estate assets or by
affecting the Company's costs of financing operations.
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IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In 1997, the Financial Accounting Standards Board (FASB) issued Statements of
Financial Accounting Standards (SFAS) No. 128 "Earnings Per Share" and No. 129
"Disclosure of Information about Capital Structure." These statements are
effective for fiscal years ending after December 15, 1997. The FASB also
issued SFAS No. 130 "Reporting Comprehensive Income" and No. 131 "Disclosures
about Segments of an Enterprise and Related Information." These statements are
effective for fiscal years beginning after December 15, 1997. Management
believes that the adoption of SFAS Nos. 128, 129, 130 and 131 will not have a
material effect on its earnings per share amounts, financial position or
results of operations.
11
<PAGE> 12
The following table sets forth certain information with respect to debt at
September 30, 1997. As of September 30, 1997, the Company had 9,811 apartment
units or 67% of the total apartment units plus its headquarters in the
commercial center that were unencumbered:
<TABLE>
<CAPTION>
ENCUMBERED NUMBER INTEREST BALANCE
LENDER COMMUNITIES OF UNITS MATURITY RATE SEPTEMBER 30, 1997
----------------- ----------- -------- -------- --------------- ------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CREDIT FACILITY DEBT
- --------------------
Wells Fargo Bank Unsecured 09/98 LIBOR + 1.15%(1) $ 132,236
----------
NOTES PAYABLE
- -------------
5 year notes payable Unsecured 11/01 6.75% 50,000
7 year notes payable Unsecured 11/03 7.00% 50,000
10 year notes payable Unsecured 11/06 7.25% 50,000
----------
150,000 (2)
----------
MORTGAGE NOTES PAYABLE
- ----------------------
Lutheran Brotherhood Oasis Club 320 10/98 6.90% 8,974
Teachers Insurance Oasis Del Mar 560 12/02 8.46% 21,532
FNMA-MBS Oasis Greens 432 08/01 8.63% 12,000
FNMA Oasis Hills 184 10/03 7.50% 2,608
FNMA Oasis Landing 144 10/03 7.50% 3,934
Allstate Oasis Paradise I 368 04/08 7.10% 15,643
FNMA-MBS Oasis Plaza 300 08/01 8.63% 6,000
FNMA Oasis Rainbow 232 10/03 7.50% 6,331
FNMA Oasis Topaz 270 12/01 9.50% 6,477
FNMA Oasis Vintage I 336 10/03 7.50% 10,855
Teachers Insurance Various (3) 1,068 12/05 8.13% 39,590
-------- ----------
4,214 133,944
-------- ----------
TAX-EXEMPT BONDS
- ----------------
Bonds Oasis Park 224 01/26 7.29% 7,613 (4)
Bonds Oasis Wexford 358 11/25 6.45% 15,882
-------- ----------
582 23,495
-------- ----------
Subtotal 4,796 439,675
-------- ----------
Unamortized discount on
notes payable (198)
-------- ----------
Total 4,796 $ 439,477
======== ==========
</TABLE>
- ----------------
(1) Beginning September 25, 1997, the rate on the credit facility debt was
reduced to LIBOR + 1.15% from LIBOR +1.25%.
(2) $149,802 net after discount.
(3) Communities collateralized are Oasis Bel Air, Oasis Canyon,
Oasis Rose, and Oasis Trails.
(4) $1,090 of the outstanding balance is taxable.
12
<PAGE> 13
CALCULATION OF FUNDS FROM OPERATIONS AND FUNDS AVAILABLE FOR DISTRIBUTION:
The Company considers Funds from Operations ("FFO") to be an appropriate
measure of performance of an equity REIT. FFO, as defined by the National
Association of Real Estate Investment Trusts ("NAREIT"), consists of income
before gains (losses) on investments and extraordinary items (computed in
accordance with generally accepted accounting principles) plus real estate
depreciation and after adjustments for significant non-recurring items, if
any. Funds Available for Distribution ("FAD") is defined as FFO less
non-revenue generating capital expenditures and includes an "addback" to net
income for the amortization of deferred financing costs and depreciation of
non-real estate assets and other amortization. The Company believes that to
facilitate a clear understanding of the Company's operating results, FFO and
FAD should be examined in conjunction with net income and should not be
considered as alternatives to net income as an indication of the Company's
operating performance or as alternatives to cash flow as a measure of
liquidity.
The following table presents the calculation of FFO and FAD:
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, 1997 SEPTEMBER 30, 1997
------------------ ------------------
(Dollars in thousands)
<S> <C> <C>
Calculation of Funds from Operations
Net income $ 6,163 $20,387
Depreciation on real estate assets
4,581 13,504
------- -------
FUNDS FROM OPERATIONS $10,744 $33,891
======= =======
Computation of Funds Available for Distribution
Funds from Operations $10,744 $33,891
Add:
Amortization of deferred financing costs 268 803
Depreciation of non-real estate assets 80 232
Other amortization 3 9
Less:
Non-revenue generating capital expenditures 828 2,410
------- -------
FUNDS AVAILABLE FOR DISTRIBUTION $10,267 $32,525
======= =======
</TABLE>
NOTES TO CALCULATION OF FUNDS FROM OPERATIONS AND FUNDS AVAILABLE FOR
DISTRIBUTION
(1) The Company generally expenses most recurring non-revenue generating
property expenditures, including carpet and appliance replacements, except
for certain expenditures on acquisition properties where major improvements
are required to bring the property up to the operating standards of the
Oasis portfolio.
(2) Non-revenue generating capital expenditures at the communities consist of
replacements and equipment additions with estimated useful lives greater
than one year that do not enhance the revenue generating capabilities of
the communities.
(3) Non-revenue generating capital expenditures at the corporate office consist
primarily of computer and office equipment additions.
13
<PAGE> 14
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults upon 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
Exhibit
No.
-------
10.88 Fifth Modification Agreement to the Amended and Restated
Credit Agreement among the Company, The Lenders, named
therein, Wells Fargo Bank as Administrative Agent, and Morgan
Guaranty Trust Company of New York and Bank One, Arizona,
N.A., dated as of September 25, 1997.
27 Financial Data Schedule.
14
<PAGE> 15
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.
OASIS RESIDENTIAL, INC.
/s/ SCOTT S. INGRAHAM
-------------------------------------- 11-13-97
Scott S. Ingraham
President and Chief Operating Officer
/s/ JOHN M. CLAYTON
-------------------------------------- 11-13-97
John M. Clayton
Senior Vice President and Chief
Financial Officer
(Principal Financial Officer)
/s/ MARIANNE K. AGUIAR
-------------------------------------- 11-13-97
Marianne K. Aguiar
Vice President and Controller
(Principal Accounting Officer)
15
<PAGE> 16
Index to Exhibits
Exhibit
No. Description
------- -----------
10.88 Fifth Modification Agreement to the Amended and Restated
Credit Agreement among the Company, The Lenders, named
therein, Wells Fargo Bank as Administrative Agent, and Morgan
Guaranty Trust Company of New York and Bank One, Arizona,
N.A., dated as of September 25, 1997.
27 Financial Data Schedule.
<PAGE> 1
EXHIBIT 10.88
FIFTH MODIFICATION AGREEMENT
Unsecured Loan
THIS MODIFICATION AGREEMENT ("Agreement") is dated as of September 25, 1997,
entered by and among OASIS RESIDENTIAL, INC., a Nevada corporation ("Company"),
the financial institutions listed on the signature pages hereof ("Lenders") and
Wells Fargo Bank, National Association, as agent for Lenders (in such capacity,
"Administrative Agent"), and Morgan Guaranty Trust Company of New York and Bank
One, Arizona NA, as co-agents for the Lenders (in such capacity, collectively,
"Co-Agents").
R E C I T A L S
---------------
A. Pursuant to the terms of an Amended and Restated Credit Agreement between
Company and Lenders dated September 25, 1995 ("Credit Agreement") as
amended from time to time, Lenders made a loan to Company in the principal
amount of TWO HUNDRED MILLION AND NO/100THS DOLLARS ($200,000,000.00)
("Loan"). The Loan is evidenced by promissory notes dated as of the date of
the Credit Agreement and additional notes dated as of September 24, 1996,
executed by Company in favor of Lenders, in the following principal amounts
of the Loan:
Morgan Guaranty Trust Company of New York $35,000,000.00 and
$12,500,000.00;
Bank One, Arizona $35,000,000.00 and $12,500,000.00;
Union Bank $20,000,000.00 and $5,000,000.00;
Dresdner Bank AG $20,000,000.00 and $5,000,000.00;
Wells Fargo Bank, National Association $40,000,000.00 and
$15,000,000.00 (collectively, the "Note").
B. The Note and Credit Agreement have been previously amended and modified by
modification agreements dated: February 27, 1996 (the "First
Modification"); July 25, 1996 (the "Second Modification"); September 24,
1996 (the "Third Modification"); and December 18, 1996 (the "Fourth
Modification").
C. The Note, Credit Agreement, this Agreement, the other documents described
in the Credit Agreement as "Loan Documents" together with all modifications
and amendments thereto and any document required hereunder, are
collectively referred to herein as the "Loan Documents".
D. By this Agreement, Company and Lenders intend to modify and amend certain
terms and provisions of the Loan Documents.
NOW, THEREFORE, Company and Lenders agree as follows:
1. CONDITIONS PRECEDENT. The following are conditions precedent to Lenders'
obligations under this Agreement:
1.1 Receipt and approval by Administrative Agent of the executed originals
of this Agreement, and any and all other documents and agreements
which are required pursuant to this Agreement or which Administrative
Agent has requested pursuant to the Loan Documents, in form and
content acceptable to Administrative Agent;
Page 1 of 4
<PAGE> 2
1.2 Reimbursement to Administrative Agent by Company of Administrative
Agent's costs and expenses incurred in connection with this Agreement
and the transactions contemplated hereby, including, without
limitation, attorneys' fees, and documentation costs and charges,
whether such services are furnished by Administrative Agent's
employees or agents or by independent contractors;
1.3 Receipt of an extension fee in the amount of $500,000.00;
1.4 Receipt of annual Administrative Agent's fee in the amount of
$75,000.00; and
1.5 The representations and warranties contained herein are true and
correct.
2. REPRESENTATIONS AND WARRANTIES. Company hereby represents and warrants
that no breach or failure of condition has occurred, or would exist with
notice or the lapse of time or both, under any of the Loan Documents, as
modified by this Agreement, and all representations and warranties herein
and in the other Loan Documents are true and correct, which representations
and warranties shall survive execution of this Agreement.
3. MODIFICATION OF LOAN DOCUMENTS. The Loan Documents are hereby supplemented
and modified to incorporate the following, which shall supersede and
prevail over any conflicting provisions of the Loan Documents:
3.1 Extension of the Maturity Date. Pursuant to the provisions of section
2.9 of the Credit Agreement, the Maturity Date is hereby extended from
September 25, 1997 to September 25, 1998.
3.2 Unused Facility Fee. Section 2.3 A. of the Credit Agreement is hereby
amended and restated to read in its entirety as follows:
Company agrees to pay to Administrative Agent on the last date of
each calendar quarter, in arrears, for distribution to each Lender
in proportion to that Lender's Pro Rata Share (subject to Section
8.8), an unused facility fee in an amount equal to (i) .125%
(annualized) (if the Company maintains more than 50% average
outstanding during the quarter) or (ii) .25% (annualized) (if the
Company maintains less than 50% average outstanding during the
quarter), such average outstanding being the difference between (a)
the average daily aggregate Commitments during such calendar quarter
and (b) the average daily aggregate principal balance of Loans
outstanding during such calendar quarter.
3.3 Amendment to Definition of "Applicable LIBO Rate Margin". For all new
LIBO Rate Loans, the definition of "Applicable LIBO Rate Margin" set
forth in Section 1.1 of the Credit Agreement, as amended by Fourth
Modification, is hereby amended and restated to read in its entirety
as follows:
"Applicable LIBO Rate Margin" means as of any date of determination:
(i) 1.15%, if Company's senior unsecured long term debt obligations
are rated at least BBB-/Baa3 by the Rating Agencies, or (ii) 1.50%,
if Company's senior unsecured long term debt obligations does not
satisfy clause (i) of this definition.
The assigned rating of the Company's senior unsecured long term debt
obligations given by at least two of three Rating Agencies will be
used for purposes of determining the Applicable LIBO Rate Margin.
3.4 Amendment to Definition of "Consolidated Gross Asset Value".
Effective June 30, 1997 the defined term "Consolidated Gross Asset
Value" as recited in the Credit Agreement is hereby amended and
restated in its entirety to read: "Consolidated Gross Asset Value"
means; as of any date of
Page 2 of 4
<PAGE> 3
determination, the sum (without duplication of any item) of (i)
Cash, cash reserves, refundable deposits, accounts receivable at
book value, owned by Company or any of its Subsidiaries as of such
date, (ii) Cash equivalents owned by Company or any of its
Subsidiaries as of such date, (iii) the book value of joint venture
investments, (iv) the book value of Undeveloped Land owned by
Company or any of its Subsidiaries as of such date, (v) the book
value, as contained in Company's or its Subsidiaries' books and
records as maintained in accordance with GAAP, of Construction in
Process as of such date and (vi) and amount equal to (a)
Consolidated EBITDA for the most recently ended Fiscal Quarter (as
adjusted by Administrative Agent in its reasonable discretion to
take into account any acquisitions or dispositions of Properties by
Company or any of its Subsidiaries), excluding, however, any
Consolidated EBITDA resulting from Construction in Progress, times
(b) 4, divided by (c) 10%; or 9.5% (for those properties located in
Las Vegas, Nevada; Reno, Nevada; Denver, Colorado); or 8.5% (for
those properties located in Orange County, California).
4. FORMATION AND ORGANIZATIONAL DOCUMENTS. Company has previously delivered
to Administrative Agent all of the relevant formation and organizational
documents of Company, of the partners or joint venturers of Company (if
any), and of all guarantors of the Loan (if any), and all such formation
documents remain in full force and effect and have not been amended or
modified since they were delivered to Administrative Agent. Company hereby
certifies that: (i) the above documents are all of the relevant formation
and organizational documents of Company; (ii) they remain in full force and
effect; and (iii) they have not been amended or modified since they were
previously delivered to Administrative Agent.
5. NON-IMPAIRMENT. Except as expressly provided herein, nothing in this
Agreement shall alter or affect any provision, condition, or covenant
contained in the Loan Documents or affect or impair any rights, powers, or
remedies thereunder, it being the intent of the parties hereto that the
provisions of the Loan Documents shall continue in full force and effect
except as expressly modified hereby.
6. MISCELLANEOUS. This Agreement and the other Loan Documents shall be
governed by and interpreted in accordance with the laws of the State of
Nevada, except if preempted by Federal law. In any action brought or
arising out of this Agreement or the Loan Documents, Company, and the
general partners and joint venturers of Company, hereby consent to the
jurisdiction of any Federal or State Court having proper venue within the
State of Nevada and also consent to the service of process by any means
authorized by Nevada or federal law. The headings used in this Agreement
are for convenience only and shall be disregarded in interpreting the
substantive provisions of this Agreement. Except as expressly provided
otherwise herein, all terms used herein shall have the meaning given to
them in the other Loan Documents. Time is of the essence of each term of
the Loan Documents, including this Agreement. If any provision of this
Agreement or any of the other Loan Documents shall be determined by a court
of competent jurisdiction to be invalid, illegal or unenforceable, that
portion shall be deemed severed therefrom and the remaining parts shall
remain in full force as though the invalid, illegal, or unenforceable
portion had never been a part thereof.
7. INTEGRATION; INTERPRETATION. The Loan Documents, including this Agreement,
contain or expressly incorporate by reference the entire agreement of the
parties with respect to the matters contemplated herein and supersede all
prior negotiations. The Loan Documents shall not be modified except by
written instrument executed by all parties. Any reference to the Loan
Documents in any of the Loan Documents includes any amendments, renewals or
extensions approved by Lender.
8. EXECUTION IN COUNTERPART. This Agreement, and other Loan Documents which
expressly so provide, may be executed in any number of counterparts, each
of which when executed and delivered will be deemed to be an original and
all of which, taken together, will be deemed to be one and the same
instrument.
IN WITNESS WHEREOF, Company, Administrative Agent, Co-Agents and Lenders have
caused this Agreement to be duly executed as of the date first above written.
page 3 of 4
<PAGE> 4
<TABLE>
<CAPTION>
"LENDERS" "COMPANY"
<S> <C>
WELLS FARGO BANK,
NATIONAL ASSOCIATION, individually and as OASIS RESIDENTIAL, INC.,
Administrative Agent a Nevada corporation
By: /s/ MARK D. OSGOOD By: /s/ [SIG]
------------------------------------ --------------------------------
Mark D. Osgood
Its: Vice President Its: CFO
---------------------
MORGAN GUARANTY TRUST COMPANY OF NEW YORK,
individually and as Co-Agent
By:
------------------------------------
Its:
--------------------------
BANK ONE, ARIZONA NA, individually and as
Co-Agent
By:
------------------------------------
Its:
--------------------------
UNION BANK of California, N.A., formerly
known as Union Bank
By:
------------------------------------
Its:
--------------------------
By:
------------------------------------
Its:
--------------------------
DRESDNER BANK AG, NEW YORK BRANCH AND
GRAND CAYMAN BRANCH
By:
------------------------------------
Its:
--------------------------
By:
------------------------------------
Its:
--------------------------
</TABLE>
Page 4 of 4
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 9,216
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 845,012
<DEPRECIATION> 66,715
<TOTAL-ASSETS> 813,572
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
42
<COMMON> 162
<OTHER-SE> 363,360
<TOTAL-LIABILITY-AND-EQUITY> 813,572
<SALES> 81,399
<TOTAL-REVENUES> 84,514
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 44,902
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 19,225
<INCOME-PRETAX> 20,387
<INCOME-TAX> 0
<INCOME-CONTINUING> 20,387
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,387
<EPS-PRIMARY> .82
<EPS-DILUTED> 0
</TABLE>
