<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the Period Ended SEPTEMBER 30, 1997.
or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from to .
Commission File Number: 1-12478 (Irvine Apartment Communities, Inc.)
0-22569 (Irvine Apartment Communities, L.P.)
IRVINE APARTMENT COMMUNITIES, INC.
IRVINE APARTMENT COMMUNITIES, L.P.
(Exact Name of Registrants as Specified in Their Charters)
Maryland 33-0698698
Delaware 33-0587829
(State of Incorporation) (I.R.S. Employer Identification Number)
550 Newport Center Drive, Suite 300, Newport Beach, California 92660
(Address of principal executive offices)
(714) 720-5500
(Registrants' telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrants (1) have 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 time as required), and
(2) have been subject to such filing requirements for the past 90 days.
Irvine Apartment Communities, Inc.: Yes [X] No [ ]
Irvine Apartment Communities, L.P.: Yes [X] No [ ]
(Irvine Apartment Communities, L.P. only subject to such filing requirements
since July 3, 1997)
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practical date. Irvine Apartment Communities,
Inc.: common stock, $0.01 Par Value - 19,878,643 shares as of October 14, 1997;
Irvine Apartment Communities, L.P.: units of partnership interest - 43,972,813
units as of October 14, 1997.
<PAGE> 2
IRVINE APARTMENT COMMUNITIES, INC.
IRVINE APARTMENT COMMUNITIES, L.P.
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements - Irvine Apartment Communities, Inc.
- Consolidated Balance Sheets as of September 30, 1997
and December 31, 1996 1
- Consolidated Statements of Operations for the three and nine months
ended September 30, 1997 and 1996 2
- Consolidated Statements of Changes in Shareholders' Equity for
the nine months ended September 30, 1997 and 1996 3
- Consolidated Statements of Cash Flows for the nine months ended
September 30, 1997 and 1996 4
Financial Statements - Irvine Apartment Communities, L.P.
- Consolidated Balance Sheets as of September 30, 1997
and December 31, 1996 5
- Consolidated Statements of Operations for the three and nine months
ended September 30, 1997 and 1996 6
- Consolidated Statements of Changes in Partners' Capital for the
nine months ended September 30, 1997 and 1996 7
- Consolidated Statements of Cash Flows for the nine months
ended September 30, 1997 and 1996 8
Notes to Consolidated Financial Statements 9
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 15
Item 3. Quantitative and Qualitative Disclosures About Market Risk 26
PART II OTHER INFORMATION
Item 1. Legal Proceedings 26
Item 2. Changes in Securities and Use of Proceeds 26
Item 3. Defaults Upon Senior Securities 26
Item 4. Submission of Matters to a Vote of Shareholders 26
Item 5. Other Information 27
Item 6. Exhibits and Reports on Form 8-K 27
SIGNATURES 29
</TABLE>
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1.
Irvine Apartment Communities, Inc.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
(in thousands, except per share amounts) 1997 1996
------------ -----------
(unaudited)
<S> <C> <C>
ASSETS
Real estate assets, at cost
Land $ 205,595 $ 176,070
Buildings and improvements 994,117 849,924
----------- -----------
1,199,712 1,025,994
Accumulated depreciation (240,718) (219,193)
----------- -----------
958,994 806,801
Under development, including land 105,265 58,241
----------- -----------
1,064,259 865,042
Cash and cash equivalents 2,373 3,205
Restricted cash 1,434 1,376
Deferred financing costs, net 18,722 20,187
Other assets 15,038 11,188
----------- -----------
$ 1,101,826 $ 900,998
============ ===========
LIABILITIES
Mortgages and notes payable
Line of credit $ 135,000 $ 16,000
Tax-exempt mortgage bond financings 326,569 329,248
Conventional mortgage financings 132,902 134,761
Mortgage notes payable to The Irvine Company 50,608 51,227
Tax-exempt assessment district debt 21,747 21,828
----------- -----------
666,826 553,064
Accounts payable and accrued liabilities 31,762 21,496
Security deposits 7,485 6,094
----------- -----------
706,073 580,654
MINORITY INTEREST 185,068 140,327
SHAREHOLDERS' EQUITY
Preferred stock, par value $1.00 per share; 10,000 shares authorized;
no shares issued or outstanding
Common stock, par value $0.01 per share; 150,000 shares authorized;
19,879 shares and 18,556 shares issued and outstanding, respectively 198 186
Excess stock, par value $0.01 per share; 160,000 shares authorized;
no shares issued or outstanding
Additional paid-in capital 234,802 202,116
Retained earnings (deficit) (24,315) (22,285)
----------- -----------
210,685 180,017
----------- -----------
$ 1,101,826 $ 900,998
=========== ===========
</TABLE>
Note: The balance sheet at December 31, 1996 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See accompanying notes.
Page 1
<PAGE> 4
Irvine Apartment Communities, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Nine Months Ended September 30, Three Months Ended September 30,
(unaudited, in thousands, except per unit amounts) 1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
REVENUES
Rental income $133,114 $114,000 $ 47,673 $ 39,570
Other income 3,093 2,317 1,152 877
Interest income 659 419 88 233
-------- -------- -------- --------
136,866 116,736 48,913 40,680
======== ======== ======== ========
EXPENSES
Property expenses 28,790 24,903 10,254 8,691
Real estate taxes 10,959 10,023 4,029 3,328
Property management fees 3,809 3,316 1,338 1,148
Interest expense, net 21,949 22,378 8,560 7,286
Amortization of deferred financing costs 1,882 1,975 586 655
Depreciation and amortization 21,700 20,346 7,966 6,789
General and administrative 4,822 4,890 1,834 1,722
-------- -------- -------- --------
93,911 87,831 34,567 29,619
======== ======== ======== ========
INCOME BEFORE MINORITY INTEREST IN INCOME 42,955 28,905 14,346 11,061
Minority interest in income 23,556 15,757 7,867 6,018
-------- -------- -------- --------
NET INCOME $ 19,399 $ 13,148 $ 6,479 $ 5,043
======== ======== ======== ========
SHARE DATA:
Weighted average number of shares outstanding 19,578 17,474 19,831 18,447
Net income per share $ 0.99 $ 0.75 $ 0.33 $ 0.27
Cash distributions declared and paid per share $ 1.105 $ 1.075 $ 0.375 $ 0.365
======== ======== ======== ========
</TABLE>
See accompanying notes.
Page 2
<PAGE> 5
Irvine Apartment Communities, Inc.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Nine Months Ended September 30,
(unaudited, in thousands) 1997 1996
--------- ---------
<S> <C> <C>
COMMON STOCK, PAR VALUE $0.01 PER SHARE
Balance at beginning of period $ 186 $ 170
Common stock offering 11 15
Stock options exercised 1
--------- ---------
Balance at end of period $ 198 $ 185
========== =========
ADDITIONAL PAID-IN CAPITAL
Balance at beginning of period $ 202,116 $ 170,747
Net proceeds from dividend reinvestment and additional cash investment plan 450 126
Net proceeds from stock options exercised 2,406
Stock awards issued 241 200
Net proceeds from common stock offering 29,589 29,810
--------- ---------
Balance at end of period $ 234,802 $ 200,883
========= =========
RETAINED EARNINGS (DEFICIT)
Balance at beginning of period $ (22,285) $ (15,484)
Net income 19,399 13,148
Distributions to shareholders (21,429) (18,800)
--------- ---------
Balance at end of period $ (24,315) $ (21,136)
========= =========
SHAREHOLDERS' EQUITY $ 210,685 $ 179,932
========= =========
SHARES OF COMMON STOCK OUTSTANDING
Balance at beginning of period 18,556 16,975
Additional shares issued under the dividend reinvestment and additional
cash investment plan 17 9
Stock options exercised 147
Stock awards issued 9 10
Additional shares issued under common stock offering 1,150 1,490
--------- ---------
Balance at end of period $ 19,879 $ 18,484
========= =========
</TABLE>
See accompanying notes.
Page 3
<PAGE> 6
Irvine Apartment Communities, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended September 30,
(unaudited, in thousands) 1997 1996
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 19,399 $ 13,148
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of deferred financing costs 1,882 1,975
Depreciation and amortization 21,700 20,346
Minority interest in income 23,556 15,757
Increase (decrease) in cash attributable to changes in assets and liabilities:
Restricted cash (58) (169)
Other assets (4,050) (1,283)
Accounts payable and accrued liabilities 5,612 5,050
Security deposits 1,391 924
--------- ---------
Net Cash Provided by Operating Activities 69,432 55,748
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital improvements to operating real estate assets (3,199) (2,914)
Investment in real estate assets, net of construction payables (202,608) (41,306)
--------- ---------
Net Cash Used in Investing Activities (205,807) (44,220)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings under lines of credit 153,000 55,900
Payments on lines of credit (34,000) (77,900)
Payments on tax-exempt mortgage bond financings (2,679) (2,493)
Principal payments (2,559) (2,916)
Deferred financing costs (417)
Proceeds from dividend reinvestment and additional cash investment plan 1,020 387
Proceeds from stock options exercised 2,406
Contributions from The Irvine Company 36,333 30,000
Proceeds from common stock offerings 29,969 30,000
Distributions to limited partner (83)
Distributions to The Irvine Company (26,018) (22,534)
Distributions to shareholders (21,429) (18,800)
--------- ---------
Net Cash Provided by (Used in) Financing Activities 135,543 (8,356)
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (832) 3,172
Cash and Cash Equivalents at Beginning of Period 3,205 4,392
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,373 $ 7,564
========= =========
Supplemental Disclosure of Cash Flow Information
Interest paid, net of amounts capitalized $ 21,348 $ 22,605
Tax-exempt assessment district debt assumed $ 0 $ 2,771
========= =========
</TABLE>
See accompanying notes.
Page 4
<PAGE> 7
Irvine Apartment Communities, L.P.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
(in thousands, except per unit amounts) 1997 1996
------------ -----------
(unaudited)
<S> <C> <C>
ASSETS
Real estate assets, at cost
Land $ 205,595 $ 176,070
Buildings and improvements 994,117 849,924
----------- -----------
1,199,712 1,025,994
Accumulated depreciation (240,718) (219,193)
----------- -----------
958,994 806,801
Under development, including land 105,265 58,241
----------- -----------
1,064,259 865,042
Cash and cash equivalents 2,373 3,205
Restricted cash 1,434 1,376
Deferred financing costs, net 18,722 20,187
Other assets 15,038 11,188
----------- -----------
$ 1,101,826 $ 900,998
=========== ===========
LIABILITIES
Mortgages and notes payable
Line of credit $ 135,000 $ 16,000
Tax-exempt mortgage bond financings 326,569 329,248
Conventional mortgage financings 132,902 134,761
Mortgage notes payable to The Irvine Company 50,608 51,227
Tax-exempt assessment district debt 21,747 21,828
----------- -----------
666,826 553,064
Accounts payable and accrued liabilities 31,762 21,496
Security deposits 7,485 6,094
----------- -----------
706,073 580,654
PARTNERS' CAPITAL
General partner, 19,879 partnership units at September 30, 1997 and 18,556 at December 31, 1996 210,685 180,017
Limited partners, 24,094 partnership units at September 30, 1997 and 22,292 at December 31, 1996 185,068 140,327
----------- -----------
395,753 320,344
----------- -----------
$ 1,101,826 $ 900,998
=========== ===========
</TABLE>
Note: The balance sheet at December 31, 1996 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See accompanying notes.
Page 5
<PAGE> 8
Irvine Apartment Communities, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Nine Months Ended September 30, Three Months Ended September 30,
(unaudited, in thousands, except per share amounts) 1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
REVENUES
Rental income $133,114 $114,000 $ 47,673 $ 39,570
Other income 3,093 2,317 1,152 877
Interest income 659 419 88 233
-------- -------- -------- --------
136,866 116,736 48,913 40,680
======== ======== ======== ========
EXPENSES
Property expenses 28,790 24,903 10,254 8,691
Real estate taxes 10,959 10,023 4,029 3,328
Property management fees 3,809 3,316 1,338 1,148
Interest expense, net 21,949 22,378 8,560 7,286
Amortization of deferred financing costs 1,882 1,975 586 655
Depreciation and amortization 21,700 20,346 7,966 6,789
General and administrative 4,822 4,890 1,834 1,722
-------- -------- -------- --------
93,911 87,831 34,567 29,619
-------- -------- -------- --------
NET INCOME $ 42,955 $ 28,905 $ 14,346 $ 11,061
======== ======== ======== ========
ALLOCATION OF NET INCOME:
General Partner $ 19,399 $ 13,148 $ 6,479 $ 5,043
Limited Partners $ 23,556 $ 15,757 $ 7,867 $ 6,018
======== ======== ======== ========
PARTNERSHIP UNIT DATA:
Weighted average number of partnership units outstanding 43,350 38,410 43,920 40,415
Net income per unit $ 0.99 $ 0.75 $ 0.33 $ 0.27
Cash distributions declared and paid per unit $ 1.105 $ 1.075 $ 0.375 $ 0.365
======== ======== ======== ========
</TABLE>
See accompanying notes.
Page 6
<PAGE> 9
Irvine Apartment Communities, L.P.
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
<TABLE>
<CAPTION>
Irvine Apartment
(unaudited, in thousands) Communities, Inc Limited Partners Total
---------------- ---------------- ---------
<S> <C> <C> <C>
PARTNERS' CAPITAL
Balance at January 1, 1996 $ 155,433 $ 109,133 $ 264,566
Net income 13,148 15,757 28,905
Contributions 30,151 33,185 63,336
Distributions (18,800) (22,534) (41,334)
--------- --------- ---------
Balance at September 30, 1996 $ 179,932 $ 135,541 $ 315,473
--------- --------- ---------
Balance at January 1, 1997 $ 180,017 $ 140,327 $ 320,344
Net income 19,399 23,556 42,955
Contributions 32,698 47,286 79,984
Distributions (21,429) (26,101) (47,530)
--------- --------- ---------
Balance at September 30, 1997 $ 210,685 $ 185,068 $ 395,753
========= ========= =========
PARTNERSHIP UNITS OUTSTANDING
Balance at January 1, 1996 16,975 20,397 37,372
Additional partnership units issued 1,509 1,644 3,153
--------- --------- ---------
Balance at September 30, 1996 18,484 22,041 40,525
--------- --------- ---------
Balance at January 1, 1997 18,556 22,292 40,848
Additional partnership units issued 1,323 1,802 3,125
--------- --------- ---------
Balance at September 30, 1997 19,879 24,094 43,973
========= ========= =========
</TABLE>
See accompanying notes.
Page 7
<PAGE> 10
Irvine Apartment Communities, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended September 30,
(unaudited, in thousands) 1997 1996
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 42,955 $ 28,905
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of deferred financing costs 1,882 1,975
Depreciation and amortization 21,700 20,346
Increase (decrease) in cash attributable to changes in assets and liabilities:
Restricted cash (58) (169)
Other assets (4,050) (1,283)
Accounts payable and accrued liabilities 5,612 5,050
Security deposits 1,391 924
--------- ---------
Net Cash Provided by Operating Activities 69,432 55,748
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital improvements to operating real estate assets (3,199) (2,914)
Investment in real estate assets, net of construction payables (202,608) (41,306)
--------- ---------
Net Cash Used in Investing Activities (205,807) (44,220)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings under lines of credit 153,000 55,900
Payments on lines of credit (34,000) (77,900)
Payments on tax-exempt mortgage bond financings (2,679) (2,493)
Principal payments (2,559) (2,916)
Deferred financing costs (417)
Contributions from partners 69,728 60,387
Distributions to partners (47,530) (41,334)
--------- ---------
Net Cash Provided by (Used in) Financing Activities 135,543 (8,356)
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (832) 3,172
Cash and Cash Equivalents at Beginning of Period 3,205 4,392
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,373 $ 7,564
========= =========
Supplemental Disclosure of Cash Flow Information
Interest paid, net of amounts capitalized $ 21,348 $ 22,605
Tax-exempt assessment district debt assumed $ 0 $ 2,771
========= =========
</TABLE>
See accompanying notes.
Page 8
<PAGE> 11
IRVINE APARTMENT COMMUNITIES, INC.
IRVINE APARTMENT COMMUNITIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - ORGANIZATION
Irvine Apartment Communities, Inc., a Maryland corporation (the "Company"),
operates as a real estate investment trust ("REIT") under the Internal Revenue
Code of 1986, as amended. In connection with the Company's initial public
offering of common stock (the "Offering"), the Company obtained a general
partnership interest in and became the sole managing general partner of Irvine
Apartment Communities, L.P., a Delaware limited partnership (the "Operating
Partnership"). The Operating Partnership was formed on November 15, 1993 and
began operations as of December 8, 1993, the date of the Offering. In connection
with the Offering, The Irvine Company transferred 42 apartment communities and a
99% interest in a limited partnership which owns one apartment community to the
Operating Partnership. At September 30, 1997 the Company had a 45.2% general
partnership interest in and was the sole managing general partner of the
Operating Partnership. At September 30, 1997, The Irvine Company had a 54.6%
limited partnership interest in the Operating Partnership. On February 4, 1997,
the Operating Partnership acquired the assets of Thompson Residential Company,
Inc. (see Note 5). The purchase price was paid by the issuance of 74,523 limited
partnership units in the Operating Partnership. At September 30, 1997, Thompson
Residential Company, Inc. had a 0.2% limited partnership interest in the
Operating Partnership. The Operating Partnership's management and operating
decisions are under the unilateral control of the Company. The Company was
incorporated in Delaware on September 10, 1993. On May 2, 1996, the Company
changed its state of incorporation from Delaware to Maryland.
The Company is a self-administered equity REIT engaged in the operation and
development (through the Operating Partnership) of apartment communities in
Orange County, California and, beginning in 1997, other locations in California.
The Company utilizes independent third party property management and
construction management firms. As of September 30, 1997 the Operating
Partnership owned 55 apartment communities representing 14,991
apartment units and 1,110 units under construction (collectively, the
"Properties"). The Operating Partnership broke ground on its first "off-Ranch"
apartment community, located in Northern California's Silicon Valley, in May
1997. On June 30, 1997, the Operating Partnership acquired a 923-unit apartment
community in the La Jolla region of north San Diego County (see Note 6). Until
July 31, 2020, the Operating Partnership has the exclusive right, but not the
obligation, to acquire land from The Irvine Company for development of
additional apartment communities on the Irvine Ranch.
Certain amounts in the 1996 financial statements have been reclassified to
conform with financial statement presentations in 1997.
NOTE 2 - BASIS OF PRESENTATION
The accompanying financial statements of the Company include the consolidated
accounts of the Operating Partnership and its financially controlled subsidiary.
All intercompany accounts and transactions have been eliminated in
consolidation.
Page 9
<PAGE> 12
Profits and losses are generally allocated to the Company and to the limited
partners based upon their respective ownership interests in the Operating
Partnership. Under the terms of the partnership agreement, all costs incurred by
the Company relating to the ownership of its interest in and operation of the
Operating Partnership, including the compensation of its officers and employees,
stock incentive plans, director fees and the costs and expenses of being a
public company, are paid by the Operating Partnership. In addition, The Irvine
Company generally has the right, but not the obligation, to match on the same
terms and conditions any capital contributions made by the Company and the
Operating Partnership based on the pro rata ownership interest at the time of
such contribution.
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities as of
September 30, 1997 and December 31, 1996 and the revenues and expenses for the
three months and nine months ended September 30, 1997 and 1996. Actual results
could differ from those estimates.
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments considered
necessary for a fair presentation have been included. All such adjustments are
of a normal, recurring nature. Operating results for the nine months ended
September 30, 1997 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1997. These financial statements
should be read in conjunction with the Consolidated Financial Statements and
Notes thereto included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1996 and the Operating Partnership's Registration Statement
on Form 10 filed on May 15, 1997.
NOTE 3 - MORTGAGES AND NOTES PAYABLE
Line of Credit: In June 1997, the Operating Partnership renewed its $250 million
unsecured revolving credit facility. The line of credit facility has a term of
three years and currently bears interest at LIBOR plus 0.70% or prime. The
credit facility provides for the borrowing interest rates to be adjusted up or
down reflecting credit ratings on the Operating Partnership's senior unsecured
long-term indebtedness. Under the credit facility, the Operating Partnership is
able to borrow funds from the participating banks through a competitive bid
process to obtain a lower interest rate. At September 30, 1997, outstanding
borrowings under the credit facility priced on a competitive bid basis were $70
million at an average interest spread of 0.46% over LIBOR. This revolving credit
facility, which is guaranteed by the Company, is available to finance the
Operating Partnership's ongoing rental property development program and for
general working capital needs. The Company and the Operating Partnership must
comply with certain affirmative and negative covenants, including limitations on
distributions, and the maintenance of certain net worth, cash flow and financial
ratios. At September 30, 1997 the Company and the Operating Partnership were in
compliance with all of these covenants. As of September 30, 1997, $135 million
was outstanding and $115 million was available under the line of credit.
Shelf Registration Statements: On May 14, 1997 the Company filed a shelf
registration statement with the Securities and Exchange Commission providing for
the issuance from time to time of up to $350 million of common stock, preferred
stock, debt securities, and warrants to purchase common stock, preferred stock
and debt securities. This registration statement replaced the Company's previous
registration statement. The Company plans to use the proceeds raised from any
securities issued under its shelf registration statement for general corporate
purposes, including the development of new apartment communities, acquisitions
and the repayment of existing debt. Availability under the Company's shelf
registration statement was $350 million at September 30, 1997. Concurrently, the
Operating Partnership filed a shelf registration statement with the Securities
and Exchange Commission providing for the issuance from time to time of up to
$350 million of debt securities. The Operating Partnership plans to use the
proceeds raised from any securities issued under its shelf registration
Page 10
<PAGE> 13
statement for general corporate purposes, including the development of new
apartment communities, acquisitions and the repayment of existing debt.
Availability under the Operating Partnership's shelf registration statement was
$350 million at September 30, 1997.
Subsequent Event: On October 1, 1997 the Operating Partnership issued $100
million aggregate principal amount of 7% senior unsecured notes (the "Notes")
pursuant to its shelf registration statement. The Notes are due on October 1,
2007 and were priced at 99.21% to yield 7.10%, or 99 basis points over the rate
on U.S. Treasury securities with comparable maturity on the date such rate was
set. Net proceeds from the offering of $98.3 million were used to repay
indebtedness under the Operating Partnership's revolving credit facility, which
had been used to finance The Villas of Renaissance acquisition (see Note 6).
NOTE 4 - MINORITY INTEREST; SHAREHOLDERS' EQUITY; AND PARTNERS' CAPITAL
On February 20, 1997 the Company sold, in a public offering, 1.15 million shares
of common stock at $27.50 per share. Concurrently, The Irvine Company (see Note
7), pursuant to its rights under the partnership agreement, purchased 1.39
million additional limited partnership units at $26.06 per unit (which is equal
to the public offering price of the common stock less an amount equivalent to
the underwriting discount) which are exchangeable for common stock on a one for
one basis, subject to adjustment and certain limitations. The proceeds from the
two transactions totaled $66 million and were used to repay all indebtedness
then outstanding under the revolving line of credit, and for general corporate
purposes, including ongoing development activities on and off the Irvine Ranch.
The Company and the Operating Partnership paid cash distributions of $0.365 per
share (or partnership unit) on February 28 and May 30, 1997 and $0.375 per share
(or partnership unit) on August 29, 1997. On October 23, 1997 the Company and
the Operating Partnership each declared a cash dividend of $0.375 per share (or
partnership unit) that is payable on November 26, 1997. During the first and
second quarters of 1996, the Company and the Operating Partnership each paid a
cash dividend of $0.355 per share (or partnership unit) and $0.365 per share (or
partnership unit) during the third quarter of 1996.
As of September 30, 1997 the Company had $350 million of availability under its
shelf registration statement, which provides for the issuance from time to time
of common stock, preferred stock, debt securities, and warrants to purchase
common stock, preferred stock and debt securities (see Note 3).
The computation of primary earnings per share for the Company is based on a
weighted average of 19,830,844 and 19,577,568 shares of common stock outstanding
during the three and nine months ended September 30, 1997, respectively. The
weighted average number of shares excludes the effect of the conversion of
partnership units into shares. Such a conversion would increase the weighted
average number of shares outstanding to 43,920,321 and 43,349,958 for the three
and nine months ended September 30, 1997, respectively.
The computation of primary earnings per partnership unit for the Operating
Partnership is based on a weighted average of 43,920,321 and 43,349,958
partnership units outstanding during the three and nine months ended September
30, 1997, respectively.
Page 11
<PAGE> 14
RECONCILIATION OF PARTNERSHIP UNITS OUTSTANDING
<TABLE>
<CAPTION>
(in thousands) Nine Months Ended September 30, 1997 Nine Months Ended September 30, 1996
- -----------------------------------------------------------------------------------------------------------------------
The Irvine The Irvine
Company Company Other Total Company Company Total
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at beginning of period 18,556 22,292 40,848 16,975 20,397 37,372
Stock awards issued and options 156 156 10 10
exercised
Dividend reinvestment plan 17 20 37 9 9 18
Common stock offering and related
cash contribution from The 1,150 1,394 2,544 1,490 1,491 2,981
Irvine Company
Acquisition of Thompson 75 75
Residential assets
Contributions of property by
The Irvine Company 313 313 144 144
- -----------------------------------------------------------------------------------------------------------------------
Balance at end of period 19,879 24,019 75 43,973 18,484 22,041 40,525
=======================================================================================================================
Ownership interest at end of period 45.2% 54.6% 0.2% 100% 45.6% 54.4% 100%
=======================================================================================================================
</TABLE>
The following tables represent a reconciliation of the minority interest
balances and the computation of the minority interest in income.
RECONCILIATION OF MINORITY INTEREST
<TABLE>
<CAPTION>
Nine Months Ended September 30,
(in thousands) 1997 1996
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Balance at beginning of period $140,327 $109,133
Minority interest in income 23,556 15,757
Distributions (26,101) (22,534)
Cash contributions 36,333 30,000
Contributions of property 8,408 2,974
Acquisition of Thompson Residential assets 2,000
Contributions under dividend reinvestment plan 545 211
- --------------------------------------------------------------------------------------------
Balance at end of period $185,068 $135,541
============================================================================================
</TABLE>
COMPUTATION OF MINORITY INTEREST IN INCOME
<TABLE>
<CAPTION>
Nine Months Ended September 30, Three Months Ended September 30,
(in thousands) 1997 1996 1997 1996
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Income before minority interest $ 42,955 $ 28,905 $ 14,346 $ 11,061
Income allocated to the Company based
on its ownership interest (19,399) (13,148) (6,479) (5,043)
- ------------------------------------------------------------------------------------------------------------------
Minority interest in income $ 23,556 $ 15,757 $ 7,867 $ 6,018
==================================================================================================================
</TABLE>
Page 12
<PAGE> 15
NOTE 5 - ACQUISITION OF THOMPSON RESIDENTIAL ASSETS
On February 4, 1997, the Operating Partnership acquired for $2 million the
assets of Thompson Residential Company, Inc. ("TRC"), a privately held, Northern
California-based multi-family development company. Included in the purchase were
options to purchase three development sites located in Northern California's
Silicon Valley. The purchase price was paid by the issuance of 74,523 limited
partnership units in the Operating Partnership, exchangeable for common stock of
the Company, with the price per unit of $26.838 which was based on the average
closing price of the Company's common stock for the 10 trading days preceding
the acquisition's closing date. In addition, TRC may be paid up to an additional
$2 million in cash or limited partnership units if the apartment community (The
Hamptons) achieves certain performance targets. The three senior real estate
executives at TRC have also joined the Company with primary responsibility for
the Company's operations outside of the Irvine Ranch.
NOTE 6 - ACQUISITION OF THE VILLAS OF RENAISSANCE
On June 30, 1997 the Operating Partnership acquired a 923-unit apartment
community located in the La Jolla region of north San Diego County from an
unrelated third party for $127.0 million. $118.0 million of the purchase price
was funded by borrowings under the Operating Partnership's $250 million
unsecured line of credit (see Note 3) and $9.0 million was funded from cash on
hand. A more detailed description of the transaction is described in the
Company's and the Operating Partnership's Current Report on Form 8-K filed with
the Securities Exchange Commission on July 15, 1997, as amended on July 23,
1997.
NOTE 7 - CERTAIN TRANSACTIONS WITH RELATED PARTIES
Substantially all costs incurred by the Company are borne by the Operating
Partnership. Included in general and administrative expenses are charges from
The Irvine Company pursuant to an administrative services agreement covering
services for risk management, income taxes and other services of $95,000 and
$80,000 for the nine months ended September 30, 1997 and 1996, respectively, and
$28,000 and $27,000 for the three months ended September 30, 1997 and 1996,
respectively. The Irvine Company and the Company jointly purchase employee
health care insurance and property and casualty insurance. In addition, the
Company incurred rent totaling $264,000 and $233,000 for the nine months ended
September 30, 1997 and 1996, respectively, and $92,000 and $78,000 for the three
months ended September 30, 1997 and 1996, respectively, related to leases with
The Irvine Company that expire at the end of 1997 and 1998. For the nine months
ended September 30, 1997 The Irvine Company contributed $568,000 in connection
with partnership unit and stock issuances under the dividend reinvestment and
additional cash investment plan.
On February 10, 1997, the Operating Partnership acquired a land site for $8.4
million from The Irvine Company for the development of 316 rental units pursuant
to the Land Rights Agreement between the Operating Partnership and The Irvine
Company. The Company's board committee of independent directors approved the
purchase in accordance with the Land Rights Agreement. The purchase price was
paid through the issuance of 313,439 additional limited partnership units in the
Operating Partnership to The Irvine Company. Pursuant to the terms of the
acquisition, a portion of the limited partnership units in the Operating
Partnership are subject to fofeiture if the apartment community developed on the
site does not achieve a 10% unleveraged return on costs for the first twelve
months following stabilized occupancy.
Page 13
<PAGE> 16
On October 21, 1997, the Operating Partnership acquired a land site for $5.7
million from The Irvine Company for the development of 196 rental units pursuant
to the Land Rights Agreement. The Company's board committee of independent
directors approved the purchase in accordance with the Land Rights Agreement.
The purchase price was paid through the issuance of 179,433 additional limited
partnership units in the Operating Partnership to The Irvine Company. Pursuant
to the terms of the acquisition, a portion of the limited partnership units in
the Operating Partnership are subject to forfeiture if the apartment community
developed on the site does not achieve a 10% unleveraged return on costs for the
first twelve months following stabilized occupancy.
Concurrent with the Company's common stock offering on February 20, 1997 (see
Note 4), The Irvine Company, pursuant to its rights under the partnership
agreement, purchased 1.39 million limited partnership units at a price equal to
the public offering price of $26.06 per unit (which is equal to the public
offering price of the common stock less an amount equivalent to the underwriting
discount) which are exchangeable for common stock on a one for one basis,
subject to adjustment and certain limitations.
One of the Company's directors is chairman of a bank which participates in the
Company's line of credit. Based on the bank's percentage participation in the
credit facility, the Company estimates that the amount of interest and fees paid
to the bank totaled $271,000 and $195,000 in the first nine months of 1997 and
the three months ended September 30, 1997, respectively. Interest and fees for
the corresponding periods in 1996 were $231,000 and $61,000, respectively.
Page 14
<PAGE> 17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion compares the activities of the Company for the three
month and nine month periods ended September 30, 1997 (unaudited) with the
activities of the Company for the three month and nine month periods ended
September 30, 1996 (unaudited). As used herein, unless the context otherwise
requires, the term "Company" includes Irvine Apartment Communities, Inc. and the
Operating Partnership (Irvine Apartment Communities, L.P.).
The following discussion should be read in conjunction with all the financial
statements appearing elsewhere in this report, as well as the information
presented in the Company's Annual Report on Form 10-K for the year ended
December 31, 1996 and the Operating Partnership's Registration Statement on
Form 10.
Certain information set forth below is forward looking and involves various
risks and uncertainties. Such information is based upon a number of estimates
and assumptions that inherently are subject to business, economic and
competitive uncertainties and contingencies, many of which are beyond the
Company's control.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1996.
The Company's income before minority interest in income (and the Operating
Partnership's net income) was $14.3 million for the three months ended September
30, 1997, up from $11.1 million for the same period of 1996. The improvement was
due to the contribution of new rental units from the Company's acquisition and
development program, as well as an increase in revenues within its stabilized
portfolio achieved through higher rental rates, slightly offset by lower
occupancy and higher operating expenses (see Selected Operating Data on
page 25).
Page 15
<PAGE> 18
REVENUE AND EXPENSE DATA
<TABLE>
<CAPTION>
Three Months Ended September 30,
(dollars in thousands) 1997 1996
--------------------------------------------------------------------------------------------
<S> <C> <C>
COMMUNITIES OWNED AND STABILIZED MORE THAN TWO YEARS(a)
Number of communities 43 43
Number of units at end of period 11,334 11,334
Operating revenues $35,177 $33,407
Property expenses $7,925 $7,409
Real estate taxes $2,694 $2,648
Property management fees $1,019 $964
Depreciation and amortization of real estate assets $5,134 $5,139
COMMUNITIES STABILIZED LESS THAN TWO YEARS(b)
Number of communities 5 5
Number of units at end of period 2,207 2,207
Operating revenues $8,195 $7,040
Property expenses $1,263 $1,282
Real estate taxes $779 $680
Property management fees $210 $184
Depreciation and amortization of real estate assets $1,435 $1,606
LEASE-UP AND NEWLY ACQUIRED COMMUNITIES(c)
Number of communities 3
Number of units at end of period 1,450
Operating revenues $5,453
Property expenses $1,066
Real estate taxes $556
Property management fees $109
Depreciation and amortization of real estate assets $1,334
--------------------------------------------------------------------------------------------
</TABLE>
(a) Represents "same store" communities.
(b) Represents five communities that began leasing in 1995 and reached
stabilized occupancy (95%) at various dates in 1996.
(c) Represents Baypointe and Santa Maria communities that began leasing in
1996, completed deliveries in June 1997, and reached stabilized occupancy
(95%) in July 1997 and The Villas of Renaissance (see Note 6), an
apartment community acquired by the Operating Partnership on June 30,
1997.
OPERATING REVENUES (rental and other income) increased to $48.8 million in the
third quarter of 1997, up from $40.4 million in the same period of 1996.
Operating revenues rose as a result of higher rental rates and the contribution
of newly delivered rental units from five properties that achieved stabilization
during 1996, a newly acquired community and two new lease-up communities. In
total, new units added $13.6 million to operating revenues in the third quarter
of 1997 compared to $7.0 million in the third quarter of 1996. Within
communities owned and stabilized more than two years, operating revenues
increased 5.3% from the third quarter of 1996, as a result of improvement in
average monthly rental rates and higher non-rental income, slightly offset by a
decrease in physical occupancy to 93.6% from 95.0%. Average monthly rental rates
increased to $1,090 in the third quarter of 1997 from $1,019 in the year-earlier
quarter. Healthy job growth in the Company's marketplace has been a key factor
in the upward trend in rental rates.
Page 16
<PAGE> 19
PROPERTY EXPENSES increased to $10.3 million in the third quarter of 1997 from
$8.7 million in the third quarter of 1996. This increase reflects the added
expenses of newly delivered rental units from five properties that achieved
stabilization during 1996, a newly acquired community and two new lease-up
communities. Property expenses within communities owned and stabilized more than
two years increased by $0.5 million to $7.9 million in the third quarter of 1997
from $7.4 million a year ago. In the third quarter of 1997, average monthly
property expenses increased to $233 per unit from $218 in the third quarter of
1996, primarily as a result of higher unit turnover and related expenses, in
addition to preventative maintenance scheduled in preparation for a potentially
unseasonably wet winter. Properties stabilized less than two years added $1.3
million to property expenses in the third quarters of 1997 and 1996. Lease-up
and newly acquired properties added $1.1 million to 1997 third quarter property
expenses.
REAL ESTATE TAXES totaled $4.0 million in the third quarter of 1997 compared to
$3.3 million in the third quarter of 1996. Taxes increased in the third quarter
of 1997 due to the addition of rental units from lease-up properties and an
acquisition.
PROPERTY MANAGEMENT FEES increased to $1.3 million in the third quarter of 1997
from $1.1 million a year ago. Management fees increased in the third quarter of
1997 due to the addition of rental units from development, an acquisition and an
increase in revenue from communities owned and stabilized more than two years.
NET INTEREST EXPENSE increased to $8.6 million in the third quarter of 1997 from
$7.3 million in the third quarter of 1996. The increase was largely due to a
greater level of borrowings under the revolving line of credit, which was used
to finance an acquisition in June 1997. The Company capitalizes interest on
projects actively under development using average qualifying asset balances and
applicable weighted average interest rates. The average monthly qualifying asset
balances for projects under development in the third quarter of 1997 and 1996
were approximately $77.8 million and $33.0 million, respectively. Interest
capitalized totaled $1.2 million in the third quarter of 1997 compared to $0.7
million in the third quarter of 1996. Interest incurred was $9.8 million in the
third quarter of 1997 compared to $8.0 million in the third quarter of 1996.
AMORTIZATION OF DEFERRED FINANCING COSTS was comparable in the third quarters of
1997 and 1996.
DEPRECIATION AND AMORTIZATION EXPENSE of $8.0 million in the third quarter of
1997 compared to $6.8 million in the third quarter of 1996. This increase is
attributable to lease-up properties and an acquisition placed in service
during the quarter.
GENERAL AND ADMINISTRATIVE EXPENSE of $1.8 million was comparable to that of the
third quarter of 1996.
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1996.
The Company's income before minority interest in income (and the Operating
Partnership's net income) was $43.0 million for the nine months ended September
30, 1997, up from $28.9 million for the same period of 1996. The improvement was
due to the contribution of new rental units from the Company's acquisition and
development program, as well as an increase in revenues within its stabilized
portfolio achieved through higher rental rates, slightly offset by lower
occupancy and higher operating expenses (see Selected Operating Data on page
25).
Page 17
<PAGE> 20
REVENUE AND EXPENSE DATA
<TABLE>
<CAPTION>
Nine Months Ended September 30,
(dollars in thousands) 1997 1996
--------------------------------------------------------------------------------------------
<S> <C> <C>
COMMUNITIES OWNED AND STABILIZED MORE THAN TWO YEARS(a)
Number of communities 43 43
Number of units at end of period 11,334 11,334
Operating revenues $104,486 $99,112
Property expenses $23,520 $21,819
Real estate taxes $8,058 $8,120
Property management fees $3,018 $2,864
Depreciation and amortization of real estate assets $15,438 $15,525
COMMUNITIES STABILIZED LESS THAN TWO YEARS(b)
Number of communities 5 5
Number of units at end of period 2,207 2,207
Operating revenues $23,679 $17,205
Property expenses $3,693 $3,084
Real estate taxes $2,166 $1,902
Property management fees $614 $453
Depreciation and amortization of real estate assets $4,303 $4,715
LEASE-UP AND NEWLY ACQUIRED COMMUNITIES(c)
Number of communities 3
Number of units at end of period 1,450
Operating revenues $8,042
Property expenses $1,577
Real estate taxes $735
Property management fees $177
Depreciation and amortization of real estate assets $1,784
--------------------------------------------------------------------------------------------
</TABLE>
(a) Represents "same store" communities.
(b) Represents five communities that began leasing in 1995 and reached
stabilized occupancy (95%) at various dates in 1996.
(c) Represents Baypointe and Santa Maria communities that began leasing in 1996,
completed deliveries in June 1997, and reached stabilized occupancy (95%) in
July 1997 and The Villas of Renaissance (see Note 6), an apartment community
acquired by the Operating Partnership on June 30, 1997.
OPERATING REVENUES (rental and other income) increased to $136.2 million in the
first nine months of 1997, up from $116.3 million in the same period of 1996.
Operating revenues rose as a result of higher occupancy and rental rates, as
well as the contribution of newly delivered rental units from five properties
which achieved stabilization during 1996, a newly acquired community and two new
lease-up communities. In total, these new units added $31.7 million to operating
revenues in the first nine months of 1997 compared to $17.2 million in the first
nine months of 1996. Within communities owned and stabilized more than two
years, operating revenues increased 5.4% from the first nine months of 1996, as
a result of improvement in average monthly rental rates and higher non-rental
income, slightly offset by a decreased in physical occupancy to 94.5% from
94.8%. Average monthly rental rates increased to $1,068 in the first nine months
of 1997 from $1,007 in the year-earlier period. Healthy job growth in the
Company's marketplace has been a key factor in the upward trend in rental rates.
Page 18
<PAGE> 21
PROPERTY EXPENSES increased to $28.8 million in the first nine months of 1997
from $24.9 million in the first nine months of 1996. This increase reflects the
added expenses of newly delivered rental units from five properties that
achieved stabilization during 1996, a newly acquired community and two new
lease-up communities. Property expenses within communities owned and stabilized
more than two years increased by $1.7 million to $23.5 million in the first nine
months of 1997 from $21.8 million a year ago. In the first nine months of 1997,
average monthly property expenses within these properties increased to $231 per
unit from $214 per unit in the first nine months of 1996, primarily as a result
of higher unit turnover and related expenses, in addition to preventative
maintenance scheduled in preparation for a potentially unseasonably wet winter.
Properties stabilized less than two years added $3.7 million to property
expenses in the first nine months of 1997 and $3.1 million in the first nine
months of 1996. Lease-up and newly acquired properties added $1.6 million to
property expenses in the first nine months of 1997.
REAL ESTATE TAXES totaled $11.0 million in the first nine months of 1997
compared to $10.0 million in the first nine months of 1996. Taxes increased in
the first nine months of 1997 due to the addition of rental units from lease-up
properties and an acquisition.
PROPERTY MANAGEMENT FEES increased to $3.8 million in the first nine months of
1997 from $3.3 million in the first nine months of 1996. Management fees
increased in the first nine months of 1997 due to the addition of rental units
from development, an acquisition and an increase in revenue from communities
owned and stabilized more than two years.
NET INTEREST EXPENSE decreased to $21.9 million in the first nine months of 1997
from $22.4 million for the same period of 1996. The decrease was largely due to
a greater amount of capitalized interest during the 1997 period partially offset
by a higher level of borrowings under the revolving line of credit. The Company
capitalizes interest on projects actively under development using average
qualifying asset balances and applicable weighted average interest rates. The
average monthly qualifying asset balances for projects under development in the
first nine months of 1997 and 1996 were approximately $66.0 million and $39.7
million, respectively. Interest capitalized totaled $3.7 million in the first
nine months of 1997 compared to $2.3 million in the same period of 1996.
Interest incurred was $25.6 million and $24.7 million for the first nine months
of 1997 and 1996, respectively.
AMORTIZATION OF DEFERRED FINANCING COSTS was comparable in the first nine months
of 1997 and 1996.
DEPRECIATION AND AMORTIZATION EXPENSE increased to $21.7 million in the first
nine months of 1997, up from $20.3 million in the first nine months of 1996.
This increase reflects the completion and delivery of newly developed rental
units from the Company's lease-up properties and an acquisition.
GENERAL AND ADMINISTRATIVE EXPENSE of $4.8 million was comparable to the same
nine month period of the prior year.
LIQUIDITY AND CAPITAL RESOURCES
The Company believes that cash provided by operations will be adequate to meet
both operating requirements and payment of distributions by the Company in
accordance with REIT requirements in both the short and long term.
LIQUIDITY: The Company expects to meet its long-term liquidity requirements,
such as construction, scheduled debt maturities and potential future property
acquisitions, through the issuance or refinancing of long-term debt, borrowings
from financial institutions, or the issuance of additional equity securities of
the Company and/or
Page 19
<PAGE> 22
partnership units. On June 27, 1997, the Operating Partnership renewed its $250
million unsecured credit facility for a three-year term. The new credit facility
currently bears interest at LIBOR plus 0.70% or prime. The credit facility
provides for the borrowing interest rates to be adjusted up or down reflecting
the credit ratings on the Operating Partnership's senior unsecured long-term
indebtedness. Availability under the credit facility was $115 million at
September 30, 1997.
ADDITIONAL EQUITY: On February 20, 1997 the Company sold, in a public offering,
1.15 million shares of common stock at $27.50 per share. Concurrently, The
Irvine Company, pursuant to its rights under the Operating Partnership
Agreement, purchased 1.39 million additional limited partnership units at $26.06
per unit (which is equal to the public offering price of the common stock less
an amount equivalent to the underwriting discount) which are exchangeable for
common stock on a one for one basis, subject to adjustment and certain
limitations. The proceeds from the two transactions totaled $66 million and were
used to repay all then outstanding indebtedness under the revolving line of
credit, and for general corporate purposes, including development of new
apartment communities.
SHELF REGISTRATION STATEMENTS: On May 14, 1997 the Company filed a shelf
registration statement with the Securities and Exchange Commission providing for
the issuance from time to time of up to $350 million of common stock, preferred
stock, debt securities, and warrants to purchase common stock, preferred stock
and debt securities. The Company plans to use the proceeds raised from any
securities issued under its shelf registration statement for general corporate
purposes, including the development of new apartment communities, acquisitions
and the repayment of existing debt. Concurrently, the Operating Partnership
filed a shelf registration statement with the Securities and Exchange Commission
providing for the issuance from time to time of up to $350 million of debt
securities. The Operating Partnership plans to use the proceeds raised from any
securities issued under its shelf registration statement for general corporate
purposes, including the development of new apartment communities, acquisitions
and the repayment of existing debt. On October 1, 1997 the Operating Partnership
issued $100 million aggregate principal amount of 7.0% unsecured notes due 2007
(see Note 3). Net proceeds of $98.3 million were used to repay indebtedness
under the Operating Partnership's revolving credit facility that had been
incurred to finance The Villas of Renaissance acquisition (see Note 6).
DEBT: The Company's conventional and tax-exempt mortgage debt bears interest at
fixed interest rates, or variable rates that have been effectively fixed through
interest rate swap agreements. Interest rates on conventional mortgage debt were
reduced to then-current market rates at the time of the Company's December 1993
initial public offering through interest rate buy-down agreements that are
scheduled to expire at various dates prior to loan maturity. A buy-down
agreement relating to $35.8 million of conventional debt expired in September
1997, and as a result, the interest rate on that loan increased from 5.82% to
8.30%. The weighted average effective interest rate on the Company's debt,
including the non-cash charges of amortization of deferred financing costs, was
6.44% at September 30, 1997. The Company uses interest rate swap agreements to
effectively convert its floating rate tax-exempt mortgage bond financings to a
fixed-rate basis, thus reducing the impact of fluctuations in interest rates on
future income.
Page 20
<PAGE> 23
DEBT STRUCTURE AT SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
Debt Weighted Average
(dollars in millions) Balance Interest Rate
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Fixed rate debt
Conventional mortgage financings $132.9 6.45%
Mortgage notes payable to The Irvine Company 50.6 5.75%
Tax-exempt mortgage bond financings 326.6 5.94%
Tax-exempt assessment district debt 5.6 6.27%
- --------------------------------------------------------------------------------------------
Total fixed rate debt 515.7 6.06%
- --------------------------------------------------------------------------------------------
Variable rate debt
Revolver line of credit 135.0 6.42%
Tax-exempt assessment district debt 16.1 3.53%
- --------------------------------------------------------------------------------------------
Total variable rate debt 151.1 6.11%
============================================================================================
Total debt $666.8 6.07%
============================================================================================
</TABLE>
DEFERRED FINANCING COSTS
<TABLE>
<CAPTION>
Balance at Weighted Average
(dollars in millions) September 30, 1997 Remaining Term
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Interest rate buy-downs on
conventional mortgage financings $8.6 9.0 yrs
Loan origination costs and other 10.1 24.9 yrs
- -------------------------------------------------------------------------------------------
Total $18.7 17.6 yrs
============================================================================================
</TABLE>
OPERATING ACTIVITIES: Cash flow provided by operating activities was $69.4
million and $55.7 million in the first nine months of 1997 and 1996,
respectively. Cash provided by operating activities increased in 1997 primarily
due to higher revenues from newly developed and acquired apartment units, as
well as an increase in revenues within the Company's stabilized portfolio
achieved through higher rental rates.
INVESTING ACTIVITIES: Cash flow used in investing activities was $205.8 million
and $44.2 million in the first nine months of 1997 and 1996, respectively. This
increase resulted from increased development activity in the first nine months
of 1997 (see Capital Expenditures below), and the acquisition of The Villas of
Renaissance (see Note 6).
FINANCING ACTIVITIES: Cash flow provided by (used in) financing activities was
$135.5 million and ($8.4) million in the first nine months of 1997 and 1996,
respectively. The Company and the Operating Partnership received $66 million
from the issuance of common stock and partnership units in the first quarter of
1997. These proceeds were used to pay down borrowings from the line of credit.
In June 1997, the Operating Partnership borrowed $118 million under the
revolving credit facility to fund the acquisition of The Villas of Renaissance.
Additionally, the Company paid $47.5 million in distributions in the first nine
months of 1997 compared to $41.3 million in the first nine months of 1996.
Page 21
<PAGE> 24
CAPITAL EXPENDITURES
CAPITAL EXPENDITURES ON NEW DEVELOPMENT: The Company's major cash requirements
in the next twelve months are expected to be for the construction of new
apartment communities and possibly for acquisitions of apartment communities.
Currently, the Company has four apartment communities under development (The
Colony, Santa Rosa II, Rancho Santa Fe and The Hamptons) that will require total
expenditures of approximately $162.1 million, of which $102.3 million had been
incurred at September 30, 1997. Funding for these developments is expected to
come from the Operating Partnership's $250 million unsecured revolving credit
facility. In addition, the Company or the Operating Partnership may issue other
debt or equity securities as discussed in the Liquidity section.
CONSTRUCTION INFORMATION
<TABLE>
<CAPTION>
Estimated Total
Commencement Initial Estimated
Commencement of Leasing Stabilized Costs
Apartment Community Village, City Units of Construction Activity Occupancy (in million)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
The Colony Newport Center, Newport Beach 245 7/96 4Q '97 1Q '99 $ 44.0
Santa Rosa II Westpark II, Irvine 207 12/96 4Q '97 3Q '98 27.2
Rancho Santa Fe Tustin Ranch, Tustin 316 2/97 4Q '97 1Q '99 39.0
The Hamptons Cupertino 342 5/97 2Q '98 1Q '99 51.9
- ------------------------------------------------------------------------------------------------------------------------------------
Total 1,110 $ 162.1
====================================================================================================================================
</TABLE>
The timing of future commencement of construction and initial stabilized
occupancy and estimated costs of apartment communities that are in development
are only estimates. Actual results will depend on numerous factors, many of
which are beyond the control of the Company. These include the extent and timing
of economic growth in the Company's rental markets; future trends in the pricing
of construction materials and labor; entitlement decisions by local government
authorities; weather patterns; changes in interest rate levels; and other
changes in capital markets. No assurance can be given that the timing, or
estimates set forth in the foregoing table will not vary substantially from
actual results.
CAPITAL REPLACEMENTS ON STABILIZED PROPERTIES: Expenditures for capital
replacements totaled $3.2 million and $2.9 million in the first nine months of
1997 and 1996, respectively. Average capital replacements per unit for
communities owned and stabilized more than two years increased to $275 from $254
in the first nine months of 1997 and 1996, respectively, due to the nature and
timing of scheduled capital programs. Expenditures for capital replacements in
1997 are expected to be similar to 1996 levels. The Company has a policy of
capitalizing expenditures related to asset acquisitions, costs which increase
the value of an existing asset, or costs which substantially extend an existing
asset's useful life. Capital replacements for communities owned and stabilized
more than two years were as follows:
<TABLE>
<CAPTION>
Nine Months Ended September 30, 1997
(in thousands, except per unit amounts) Total Per unit
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Carpet replacements $1,188 $105
Exterior painting, siding and stucco 669 59
Upgrades, renovations and major building items 466 41
Appliances, water heaters and air conditioning 170 15
Roofing, concrete and pavement 270 24
Equipment and other 357 31
- --------------------------------------------------------------------------------------------
Total $3,120 $275
============================================================================================
</TABLE>
Page 22
<PAGE> 25
The Company also plans to incur approximately $5.2 million in capital
expenditures over the next two years at one of its existing apartment
communities, Promontory Point. Management believes that these capital
expenditures will generate additional revenue by enhancing the community's
appeal within the luxury segment of the marketplace. In addition, the Company
plans to incur approximately $5.0 million in capital expenditures, of which $0.4
million had been incurred through September 30, 1997 at The Villas of
Renaissance which was acquired on June 30, 1997 (see Note 6). The Company
believes these capital expenditures will generate additional revenue by
enhancing the community's appeal within the luxury segment of the marketplace. A
more detailed description of the capital expenditures planned at The Villas of
Renaissance is included in the Company's and the Operating Partnership's Current
Report on Form 8-K filed with the Securities and Exchange Commission on July 15,
1997, as amended on July 23, 1997. Funding for these expenditures is expected to
come from the Operating Partnership's revolving credit facility.
IRVINE RANCH MASTER PLAN
The Irvine Company is a real estate investment and community development firm
engaged in the long-term development of the Irvine Ranch. The urbanization of
the Irvine Ranch began in the 1960s with the adoption of a comprehensive Master
Plan for future community development which originally constituted a large map
of the Irvine Ranch and a series of supporting maps detailing land uses.
Subsequently, The Irvine Company worked closely with the various local
jurisdictions which govern the Irvine Ranch to adopt general plans for the
future development of their jurisdictions. The Irvine Company's overall Master
Plan was refined to accord with the approved general plans and the residential,
commercial, industrial, environmental and aesthetic balance desired by each
jurisdiction. As a result, today the Master Plan is a compilation of the various
interlocking general plans described above. The Irvine Company continuously
engages in planning activities and the Master Plan refinement process is
ongoing. The Irvine Company works closely with local government representatives,
community residents, the Company and other civic and environmental groups to
obtain the necessary local support and entitlement for its developments. The
goal of the Master Plan was and remains to create innovative urban and suburban
environments through the well-planned, coordinated development of residential
communities and employment centers (which include major business and retail
centers, and research and development and industrial parks) as well as civic,
cultural, recreational, educational and other supportive facilities, all with an
emphasis on improving the quality of life and achieving long-term balanced
regional economic growth.
The Irvine Company's land use planning emphasizes market segmentation in order
to ensure adequate and appropriate allocation of land uses which support
sustained growth for the long term. Through careful planning, design and
marketing, The Irvine Company also promotes compatibility and synergy among
properties of the same type in order to maximize the likelihood of success of
new projects, to preserve and build value for existing projects and to build
sustainable long-term market value for homeowners, local merchants and
employers. In accordance with the Master Plan, The Irvine Company has created
numerous villages which are used as micro-planning areas in an effort to
facilitate the desired segmentation of products.
Each village on the Irvine Ranch has a thematic identity which characterizes the
primary features and attributes of the village and helps to identify the target
market for the village's residential product lines. For example, Tustin Ranch,
in the City of Tustin, is a family-oriented village featuring an 18-hole
championship golf course, athletic fields, jogging, hiking and equestrian
trails. Along the ocean is the village of Newport Coast, an upscale community
featuring ocean views and million-dollar custom built homes. The village of
Westpark, in Irvine, caters to young professionals with growing families and
offers the highly renowned public school system and recreational facilities of
the City of Irvine.
Page 23
<PAGE> 26
IMPACT OF INFLATION
The Company's business is affected by general economic conditions, including the
impact of inflation and interest rates. Substantially all of the Company's
leases allow, at time of renewal, for adjustments in the rent payable
thereunder, and thus may enable the Company to seek increases in rents.
Substantially all leases are for a period of one year or less. The short-term
nature of these leases generally serves to minimize the risk to the Company of
the adverse effects of inflation. For construction, the Company has entered into
various contracts for the development and construction of new apartment
communities. These are fixed-fee contracts and thus partially insulate the
Company from inflationary risk.
FUNDS FROM OPERATIONS
The Company generally considers funds from operations ("FFO") a useful measure
of performance for an equity REIT. The Company computes FFO in accordance with
standards established by the National Association of Real Estate Investment
Trusts ("NAREIT"). FFO is defined as net income (computed in accordance with
generally accepted accounting principles), excluding gains or losses from debt
restructuring and sales of property, plus depreciation and amortization of real
estate assets, and after adjustments for unconsolidated partnerships and joint
ventures. Other REITs may not consistently use this definition of FFO. FFO
should be considered in conjunction with net income as presented in the
Company's Consolidated Financial Statements and Notes thereto. FFO should not be
considered an alternative to net income as an indication of the Company's
performance and is not indicative of cash available to fund all cash flow needs.
FFO does not represent cash flows from operating, investing or financing
activities as defined by generally accepted accounting principles.
CALCULATION OF FFO
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
(in thousands, unaudited) 1997 1996 1997 1996
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income $19,399 $13,148 $ 6,479 $ 5,043
Add:
Depreciation and amortization of real estate assets 21,525 20,240 7,903 6,745
Minority interest in income 23,556 15,757 7,867 6,018
- --------------------------------------------------------------------------------------------------------------------------
Funds from operations $64,480 $49,145 $22,249 $17,806
==========================================================================================================================
Weighted average equivalent number of shares
outstanding assuming conversion of
Operating Partnership units (see Note 4) 43,350 38,410 43,920 40,415
==========================================================================================================================
</TABLE>
SUPPLEMENTAL INFORMATION
The following section provides supplemental operating information. The
information is unaudited and is provided as a supplement to the accompanying
financial statements and management's discussion and analysis. It should be read
in conjunction with the Consolidated Financial Statements and Notes thereto
included herein and in the Company's Annual Report on Form 10-K for the year
ended December 31, 1996 and the Operating Partnership's Registration Statement
on Form 10. Operating results for the three or nine months ended September 30,
1997 are not necessarily indicative of the results that may be expected for the
year ending December 31, 1997.
Page 24
<PAGE> 27
Irvine Apartment Communities, Inc.
Irvine Apartment Communities, L.P.
SELECTED OPERATING DATA
<TABLE>
<CAPTION>
Nine Months Ended September 30, Three Months Ended September 30,
(unaudited) 1997 1996 Variance 1997 1996 Variance
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
UNIT DATA
- ---------------------------------------------------------------------------------------------------------------------------
Average rentable units during the period 14,250 13,288 962 14,991 13,512 1,479
Rentable units at the end of the period 14,991 13,541 1,450 14,991 13,541 1,450
- ---------------------------------------------------------------------------------------------------------------------------
COMMUNITIES STABILIZED MORE THAN TWO YEARS(a)
- ---------------------------------------------------------------------------------------------------------------------------
Average physical occupancy 94.5% 94.8% (0.3)% 93.6% 95.0% (1.4)%
Average economic occupancy(b) 92.8% 93.9% (1.1)% 91.6% 93.5% (1.9)%
Average monthly gross scheduled rent per unit(c) $1,068 $1,007 $61 $1,090 $1,019 $71
Average monthly rental income per occupied unit $1,057 $1,003 $54 $1,079 $1,009 $70
- ---------------------------------------------------------------------------------------------------------------------------
COMMUNITIES STABILIZED LESS THAN TWO YEARS(d)
- ---------------------------------------------------------------------------------------------------------------------------
Average physical occupancy 94.5% 74.8% 94.8% 90.5%
Average economic occupancy(b) 93.0% 71.5% 93.5% 87.3%
Average monthly gross scheduled rent per unit $1,248 $1,191 $1,269 $1,198
Average monthly rental income per occupied unit $1,242 $1,144 $1,271 $1,163
- ---------------------------------------------------------------------------------------------------------------------------
LEASE-UP AND NEWLY ACQUIRED COMMUNITIES(e)
- ---------------------------------------------------------------------------------------------------------------------------
Operating revenues (rental income and other income) -
in thousands 8,042 $5,453
Units acquired in the period 923 0
Units delivered in the period 412 0
Cumulative units delivered at the end of the period 527 527
Units occupied at the end of the period 514 514
Average units occupied during the period 344 505
- -------------------------------------------------------------------------------------------------------------------------
OTHER FINANCIAL DATA (IRVINE APARTMENT COMMUNITIES, INC.)
- -------------------------------------------------------------------------------------------------------------------------
Dividends paid per share $1.105 $1.075 $0.375 $0.365
Funds from operations (FFO) payout ratio 74.2% 84.0% 73.5% 83.0%
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
Footnotes:
(a) Financial results are for 43 properties totaling 11,334 units for
comparable periods of 1997 and 1996.
(b) Rental income divided by rental income plus vacant units at market rent.
(c) Rental income plus vacant units at market rent.
(d) Financial results are for five properties totaling 2,207 units that
achieved stabilized occupancy during 1996.
(e) Financial results are for two properties that were in the lease-up phase
in 1997 and the 923-unit Villas of Renaissance apartment community
purchased on June 30, 1997.
Page 25
<PAGE> 28
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Not applicable.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
During the third quarter of 1997 the Operating Partnership sold to
affiliates of The Irvine Company the following units of limited
partnership interest ("L.P. units") in the Operating Partnership
pursuant to Section 4(2) of the Securities Act of 1933:
An aggregate of 7,317 L.P. units were sold in August 1997 for
$206,025 in cash at prices ranging from $28.08 to $28.66 per
L.P. unit, in connection with The Irvine Company's exercise of
its proportional purchase rights under the Amended and Restated
Agreement of Limited Partnership of the Operating Partnership
with respect to sales of the Company's common stock pursuant to
its Dividend Reinvestment and Additional Cash Investment Plan.
Each of the foregoing L.P. units is exchangeable for common stock of the
Company on a one-for-one basis, subject to adjustment and certain
limitations set forth in the Amended and Restated Agreement of Limited
Partnership of the Operating Partnership.
In addition, in August 1997 the Company sold to The Irvine
Company pursuant to Section 4(2) of the Securities Act of 1933,
858 shares of Common Stock for $24,185 in cash at prices ranging
from $28.08 to $28.66 in connection with The Irvine Company's
exercise of its proportional purchase rights under the
Miscellaneous Rights Agreement with respect to sales of the
Company's Common Stock pursuant to the Dividend Reinvestment and
Additional Cash Investment Plan.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS.
The following occurred during the second quarter of 1997:
On April 25, 1997 at the Annual Meeting of Shareholders, two directors
were re-elected to the Board of Directors for a three-year term to
expire at the 2000 Annual Meeting of Shareholders and one director was
re-elected to the Board of Directors for a one-year term to expire at
the 1998 Annual Meeting of Shareholders.
Page 26
<PAGE> 29
Total Vote For Total Vote Withheld
Each Director From Each Director
------------- ------------------
Michael D. McKee 18,351,271 98,737
Jack W. Peltason 18,352,201 97,807
William H. McFarland 18,350,021 99,987
Also at the 1997 Annual Meeting of Shareholders, shareholders approved
the issuance of up to an aggregate of 3,950,000 shares of the Company's
common stock or Operating Partnership units in Irvine Apartment
Communities, L.P. that are exchangeable for Common Stock to The Irvine
Company in consideration for the purchase of land sites for future
apartment community development. In addition, shareholders approved the
right of The Irvine Company to exchange 405,456 Operating Partnership
units in Irvine Apartment Communities, L.P. issued over the past two
years in connection with three land transactions under the Land Rights
Agreement for shares of Common Stock of the Company.
ITEM 5. OTHER INFORMATION.
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
Exhibit No. 3.1.8: Amendment No. 8 to the Operating Partnership
Agreement
Exhibit No. 10.4.1: Amendment No. 1 to the Miscellaneous Rights
Agreement
Exhibit No. 10.6.4: Amendment No. 4 to the Exclusive Land Rights and
Non-Competition Agreement
Exhibit No. 27.1: Financial Data Schedule for Irvine Apartment
Communities, Inc. (only included in
electronically-filed document)
Exhibit No. 27.2: Financial Data Schedule for Irvine Apartment
Communities, L.P. (only included in
electronically-filed document)
(b) During the third quarter of 1997, the Company and the Operating
Partnership filed the following Current Reports on Form 8-K:
1. On July 15, 1997, the Company and the Operating
Partnership filed a Current Report on Form 8-K relating
to the announcement of the Villas of Renaissance
Acquisition.
2. On July 16, 1997, the Company and the Operating
Partnership filed a Current Report on Form 8-K relating
to the appointment of William H. McFarland as the
Company's President and Chief Executive Officer.
3. On July 23, 1997, the Company and the Operating
Partnership filed a Current Report on Form 8-K/A
relating to the Villas of Renaissance Acquisition and
which included historical financial statements relating
to the Villas of Renaissance and pro forma financial
statements relating to the Company and the Operating
Partnership.
Page 27
<PAGE> 30
4. On August 6, 1997, the Operating Partnership filed a
Current Report on Form 8-K to file the Purchase and Sale
Agreement and Joint Escrow Instructions relating to the
Villas of Renaissance Acquisition.
5. On October 1, 1997, the Operating Partnership filed a
Current Report on Form 8-K to file the Underwriting
Agreement and the Indenture relating to its offering of
its 7% Notes.
Page 28
<PAGE> 31
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrants have duly caused this report to be signed on their behalf by the
undersigned thereunto duly authorized.
IRVINE APARTMENT COMMUNITIES, INC.
Date: November 3, 1997 By: /s/ James E. Mead
---------------------------------------
James E. Mead
Senior Vice President,
Chief Financial Officer and Secretary
By: /s/ Shawn Howie
---------------------------------------
Shawn Howie
Vice President, Corporate Finance
and Controller
(Principal Accounting Officer)
IRVINE APARTMENT COMMUNITIES, L.P.
By: Irvine Apartment Communities, Inc.,
its sole general partner
Date: November 3, 1997 By: /s/ James E. Mead
---------------------------------------
James E. Mead
Senior Vice President,
Chief Financial Officer and Secretary
By: /s/ Shawn Howie
---------------------------------------
Shawn Howie
Vice President, Corporate Finance and
Controller (Principal Accounting Officer)
<PAGE> 1
EXECUTION COPY
Amendment to the Operating Partnership Agreement relating to proportional
purchase rights and certain other matters. THIS AMENDMENT WAS APPROVED BY THE
BOARD OF DIRECTORS AND INDEPENDENT DIRECTORS COMMITTEE OF IAC ON JULY 25, 1997
AS AMENDMENT NO. 9. HOWEVER, AMENDMENT NO. 8 PREVIOUSLY APPROVED BY THE BOARD OF
DIRECTORS HAD NOT YET BEEN EXECUTED AND, ACCORDINGLY, THIS AMENDMENT WAS
RENUMBERED AS AMENDMENT NO. 8.
AMENDMENT No. 8 dated as of July 25, 1997 to the Amended and
Restated Agreement of Limited Partnership of Irvine Apartment Communities, L.P.
dated as of December 1, 1993, as amended (the "Existing Agreement") by and among
Irvine Apartment Communities, Inc., a Maryland corporation, as General Partner,
and the Persons whose names are set forth on Exhibit A thereto, as Limited
Partners, together with any other Persons who become Partners in the Partnership
as provided therein.
W I T N E S S E T H:
WHEREAS, in accordance with Section 14.1 of the Existing Agreement
the General Partner is hereby proposing to amend the Existing Agreement as set
forth below;
WHEREAS, concurrently with the execution and delivery hereof
Amendment No. 1 to the Miscellaneous Rights Agreement (the "Miscellaneous Rights
Agreement Amendment") is being executed and delivered by the partners thereto
which Miscellaneous Rights Agreement Amendment is required as a result of
certain of the amendments to be effected hereby;
WHEREAS, the parties hereto agree that the execution of this
Amendment No. 8 by a Limited Partner and the delivery thereof to the General
Partner shall constitute the Consent and affirmative vote of such Limited
Partner to the amendments proposed hereby as required by Article 14 of the
Existing Agreement; and
WHEREAS, the execution and delivery of this Amendment No. 8 by the
General Partner has been approved by resolutions duly adopted by the Board of
Directors of the General Partner, and by the Independent Directors Committee of
such Board.
<PAGE> 2
NOW, THEREFORE, the parties hereto agree as follows:
Section 1. All terms used in this Amendment No. 8 shall have the meanings
set forth in the Existing Agreement.
Section 2. (a) The definitions of Capital Contribution, ACP Investment
Amount, DRIP Investment Amount and Maximum Limited Partner Investment Amount in
Article 1 of the Existing Agreement are hereby amended to read in their entirety
as follows:
"Capital Contribution" means, with respect to any Partner, any cash or the
Gross Asset Value of any Contributed Property which such Partner contributes to
the Partnership pursuant to Sections 4.1, 4.2, 4.3 or 4.5 hereof or is deemed to
contribute pursuant to Sections 4.5.G(1), 4.6 and 4.8 hereof, as such Gross
Asset Value may be determined from time to time.
"ACP Investment Amount" means with respect to a DRIP/ACP Investment Date
the aggregate amount of additional cash to be invested in newly issued REIT
Shares on such DRIP/ACP Investment Date pursuant to the DRIP/ACP Plan minus the
aggregate amount of additional cash to be so invested by all Irvine Persons and
the Original Limited Partners in newly issued REIT Shares on such DRIP/ACP
Investment Date pursuant to the DRIP/ACP Plan.
"DRIP Investment Amount" means with respect to a DRIP/ACP Investment Date
the aggregate amount of dividends paid on REIT Shares to be reinvested in newly
issued REIT Shares on such DRIP/ACP Investment Date pursuant to the DRIP/ACP
Plan minus the aggregate amount of dividends paid on REIT Shares beneficially
owned (whether under the DRIP/ACP Plan or otherwise) by all Irvine Persons and
the Original Limited Partners to be so reinvested in newly issued REIT Shares on
such DRIP/ACP Investment Date pursuant to the DRIP/ACP Plan.
"Maximum Limited Partner Investment Amount" means with respect to each
DRIP/ACP Investment Date a dollar amount equal to (A) the DRIP/ACP Investment
Amount for such DRIP/ACP Investment Date divided by 1 minus the aggregate of the
Percentage Interests of the Original Limited Partners in the Partnership in
effect as of the close of business on the third business day immediately
preceding such DRIP/ACP Investment Date, minus (B) such DRIP/ACP Investment
Amount.
(b) The definition of Combined Cash and Property Amount in Article 1 of
the Existing Agreement is hereby deleted in its entirety.
(c) the definition of Value in Article 1 of the Existing Agreement is
hereby
2
<PAGE> 3
amended (i) by deleting the proviso beginning with the words "provided, further"
and ending with the words "in the case of clause (y) above." and (ii) by
changing the semi-colon (;) immediately prior to such proviso to a period (.).
(d) The definition of Second Offering in the Existing Agreement is
hereby amended to read in its entirety as follows:
"Second Offering" means the underwritten public offering of up to
5,750,000 REIT Shares referred to in the Funding Notice dated July 18, 1995."
Section 3. Sections 4.3.A and 4.3.B of the Existing Agreement are hereby
amended by deleting the words "and not pursuant to Section 4.5.G hereof".
Section 4. Section 4.5.E of the Existing Agreement is hereby amended by
adding the following immediately before the words "and (ii):"
"provided that with respect any issuance of preferred stock of the General
Partner or New Securities, the General Partner at its option may, in lieu
of making a Capital Contribution, loan the proceeds from the issuance of
such shares of preferred stock or New Securities to the Partnership on a
subordinated basis, such loan to be on terms and conditions no less
favorable to the Partnership than would be available to the Partnership
from a third party."
Section 5. Section 4.5.F of the Existing Agreement is hereby amended by
deleting the last sentence thereof.
Section 6. Section 4.5.G of the Existing Agreement is hereby amended to
read in its entirety as follows:
"(1) Upon the acceptance of additional cash Capital Contributions pursuant
to this Section 4.5 (other than Section 4.5.H), the Percentage Interests of the
Partners shall be adjusted based upon the number of Partnership Units issued in
connection with such Capital Contribution, provided that in connection with a
Capital Contribution by any Limited Partner pursuant to an Election Notice under
Section 4.5.F in response to (i) a Funding Notice relating to the Second
Offering, such Limited Partner shall be deemed to have contributed to the
Partnership an amount equal to the cash actually contributed by such Limited
Partner on the Adjustment Date, minus an amount equal to the aggregate
underwriting discounts and commissions that would have been applicable to REIT
Shares if the cash contributed by such Limited Partner on the Adjustment Date
had been used to acquire REIT Shares in the Second Offering, and (ii) a Funding
Notice relating to any offering of REIT Shares subsequent to the Second Offering
in which the amount of cash actually contributed by such Limited Partner per
Limited Partner
3
<PAGE> 4
Unit (the "L.P. Per Unit Contribution") is greater than the amount of cash per
General Partner Unit actually contributed by the General Partner in respect of
the REIT Shares sold in such offering (the "G.P. Per Unit Contribution"), such
Limited Partner shall be deemed to have contributed to the Partnership an amount
equal to the cash actually contributed by such Limited Partners on the
Adjustment Date minus an amount equal to the product of (A) the L.P. Per Unit
Contribution minus the G.P. Per Unit Contribution and (B) the number of Limited
Partner Units purchased by such Limited Partner pursuant to such Election
Notice."
"(2) Upon the acceptance of additional Capital Contributions pursuant to
this Section 4.5 in the form of Property other than cash, the amount of the
Capital Contribution shall be equal to the Gross Asset Value of the Property
contributed as of the Adjustment Date, net of any liabilities assumed by the
Partnership in connection with such assets or Nonrecourse Liabilities to which
such Property is subject, and the Percentage Interests of the Partners shall be
adjusted based upon the number of Partnership Units issued in connection with
such Capital Contribution; provided that with respect to the Capital
Contribution made by TRC pursuant to that certain Contribution Agreement (the
"Contribution Agreement") by and between the Partnership and TRC, dated as of
December 20, 1996, the Percentage Interest of TRC and all other Partners shall
be adjusted based on the number of Partnership Units issued from time to time to
TRC pursuant to such Contribution Agreement."
"(3) Upon the acceptance of additional Capital Contributions pursuant to
this Section 4.5 in the form of cash and other Property, the amount of the
Capital Contribution shall be equal to the sum of (A) the amount of cash
contributed on the Adjustment Date and (B) the Gross Asset Value of the Property
contributed as of the Adjustment Date, net of any liabilities assumed by the
Partnership in connection with such assets or Nonrecourse Liabilities to which
the Property is subject, and the Percentage Interests of the Partners shall be
adjusted based on the number of Partnership Units issued in connection with such
Capital Contribution."
Section 7. Section 4.8.A of the Existing Agreement is hereby amended as
follows:
(a) Clause (1) is hereby amended by adding the words "but subject to
having received the notice referred to in clause (5) below" immediately
following the words "DRIP/ACP Investment Date" the first time such words appear
in said clause (1).
(b) The words "and not pursuant to section 4.5.G hereof" in the last
sentence of clause (3) and in the second sentence of clause (4) are hereby
deleted in their entirety.
4
<PAGE> 5
(c) Clause (5) is hereby deleted in its entirety and replaced with the
following:
"(5) Promptly following the close of business on the third business day
preceding each DRIP/ACP Investment Date, the Original Limited Partners
shall give written notice to the General Partner of (i) the number of REIT
Shares beneficially owned by the Original Limited Partners and Irvine
Persons as of such close of business (whether under the DRIP/ACP Plan or
otherwise), (ii) the aggregate amount of dividends to be paid with respect
to such number of REIT Shares, if any, which such Persons have elected to
be reinvested in newly issued REIT Shares on such DRIP/ACP Investment Date
pursuant to the DRIP/ACP Plan and (iii) the aggregate amount of additional
cash, if any, to be invested by all such Persons in newly issued REIT
Shares on such DRIP/ACP Investment Date pursuant to the DRIP/ACP Plan.
Such notice shall be provided by The Irvine Company on behalf of all such
Persons so long as The Irvine Company or any of its Affiliates is the
holder of a Limited Partner Interest (and thereafter by the Original
Limited Partner holding the largest Percentage Interest in the
Partnership) and such information shall be used by the General Partner in
determining the DRIP/ACP Investment Amount for purposes of the notice
given by it pursuant to Section 4.8.A(1). In the event the notice required
by this clause (5) is not given by the close of business on the second
business day preceding a DRIP/ACP Investment Date, the General Partner
shall determine the DRIP/ACP Investment Amount based on the following
assumptions: (i) that the Original Limited Partners and Irvine Persons
beneficially own the number of REIT Shares set forth in the most recent
Form 3 or Form 4 or Schedule 13G filed by such Persons pursuant to the
Securities Exchange Act of 1934, as amended, (ii) that such Persons will
reinvest pursuant to the DRIP/ACP Plan all the dividends to be paid on
such number of REIT Shares on the applicable DRIP/ACP Investment Date and
(iii) that each such Person will make on the applicable DRIP/ACP
Investment Date the maximum additional cash investment permitted by the
DRIP/ACP Plan to be made by such Person on such DRIP/ACP Investment Date.
Section 8. Section 4.8.B(3) is hereby amended by deleting the words "and
not pursuant to Section 4.5.G. hereof".
Section 9. Except as amended by this Amendment No. 8, the provisions of
the Existing Agreement are ratified, approved and confirmed and shall remain in
full force and effect in accordance with its terms.
Section 10. This Amendment No. 8 shall become effective when signed by
5
<PAGE> 6
the General Partner and a Majority-In-Interest of the Limited Partners and the
Miscellaneous Rights Agreement Amendment has become effective in accordance with
its terms.
Section 11. This Amendment No. 8 shall be construed and enforced in
accordance with and governed by the laws of the State of Delaware, without
regard to the principles of conflicts of law.
Section 12. This Amendment No. 8 may be executed in counterparts, all of
which shall constitute one agreement binding on all parties hereto,
notwithstanding that all such parties are not signatories to the original or
same counterpart.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment No. 8
as of the date and year first written above.
GENERAL PARTNER:
IRVINE APARTMENT COMMUNITIES, INC.,
a Maryland Corporation
By:_________________________________
Name: James E. Mead
Title: Senior Vice President and
Chief Financial Officer
By:_________________________________
Name: Shawn Howie
Title: Vice President, Corporate Finance
and Controller
LIMITED PARTNERS:
THE IRVINE COMPANY,
a Michigan corporation
By:_________________________________
Name:
6
<PAGE> 7
Title:
By:_________________________________
Name:
Title:
R.S.J. ASSOCIATES,
a California limited partnership
By: The Irvine Company, its general partner
By:_________________________________
Name:
Title:
By:_________________________________
Name:
Title:
7
<PAGE> 8
WOODBRIDGE WILLOWS ASSOCIATES,
a California limited partnership
By: The Irvine Company, its general partner
By:_________________________________
Name:
Title:
By:_________________________________
Name:
Title:
TIC INVESTMENT COMPANY A,
a California general partnership
By: The Irvine Company, a general partner
By:_________________________________
Name:
Title:
By:_________________________________
Name:
Title:
8
<PAGE> 9
TIC INVESTMENT COMPANY B,
a California general partnership
By: The Irvine Company, a general partner
By:_________________________________
Name:
Title:
By:_________________________________
Name:
Title:
TIC INVESTMENT COMPANY C,
a California general partnership
By: The Irvine Company, a general partner
By:_________________________________
Name:
Title:
By:_________________________________
Name:
Title:
9
<PAGE> 10
TIC INVESTMENT COMPANY D,
a California general partnership
By: The Irvine Company, a general partner
By:_________________________________
Name:
Title:
By:_________________________________
Name:
Title:
THOMPSON RESIDENTIAL COMPANY, INC.,
a California corporation
By:_________________________________
Name:
Title:
10
<PAGE> 1
EXECUTION COPY
AMENDMENT TO THE MISCELLANEOUS RIGHTS AGREEMENT TO RELATING TO PROPORTIONAL
PURCHASE RIGHTS AND CERTAIN OTHER MATTERS.
AMENDMENT No. 1 dated as of July 25, 1997 to the Miscellaneous
Rights Agreement dated as of March 20, 1996 (the "Existing Agreement") by and
among Irvine Apartment Communities, Inc. (the "Company"), Irvine Apartment
Communities, L.P. (the "Operating Partnership") and The Irvine Company ("The
Irvine Company").
W I T N E S S E T H:
WHEREAS, in accordance with Section 5.3 of the Existing Agreement
the parties hereto are hereby proposing to amend the Existing Agreement as set
forth below;
WHEREAS, concurrently with the execution and delivery hereof
Amendment No. 8 to the Partnership Agreement (the "Partnership Agreement
Amendment") is being executed and delivered by the parties thereto which
Partnership Agreement Amendment sets forth certain amendments to the Partnership
Agreement which are required as a result of the amendments to be effected
hereby; and
WHEREAS, the execution and delivery of this Amendment No. 1 by the
Company and the Operating Partnership has been approved by resolutions duly
adopted by the Board of Directors of the Company and by the Independent
Directors Committee of such Board.
NOW, THEREFORE, the parties hereto agree as follows:
Section 1. All terms used in this Amendment No. 1 shall have the meanings
set forth in the Existing Agreement.
Section 2. The definitions of ACP Investment Amount, DRIP Investment
Amount and Maximum Investment Amount in Section 1.1 of the Existing Agreement
are hereby amended to read in their entirety as follows:
"ACP Investment Amount" means with respect to a DRIP/ACP Investment Date
the aggregate amount of additional cash to be invested in newly issued shares of
Common Stock on such DRIP/ACP Investment Date pursuant to the DRIP/ACP Plan
minus the aggregate amount of additional cash to be so invested
<PAGE> 2
by all Irvine Persons (which for the avoidance of doubt includes all Original
Limited Partners as defined in the Partnership Agreement) in newly issued shares
of Common Stock on such DRIP/ACP Investment Date pursuant to the DRIP/ACP Plan.
"DRIP Investment Amount" means with respect to a DRIP/ACP Investment Date
the aggregate amount of dividends paid on shares of Common Stock to be
reinvested in newly issued shares of Common Stock on such DRIP/ACP Investment
Date pursuant to the DRIP/ACP Plan minus the aggregate amount of dividends on
shares of Common Stock beneficially owned (whether pursuant to the DRIP/ACP Plan
or otherwise) by all Irvine Persons (which for the avoidance of doubt includes
this purpose all Original Limited Partners as defined in the Partnership
Agreement) to be so reinvested in newly issued shares of Common Stock on such
DRIP/ACP Investment Date pursuant to the DRIP/ACP Plan.
"Maximum Investment Amount" means with respect to each DRIP/ACP Investment
Date a dollar amount (subject to reduction as provided in Section 4.2(e) hereof)
equal to (A) the DRIP/ACP Investment Amount for such DRIP/ACP Investment Date
divided by a percentage (rounded to the seventh decimal place) equal to 1 minus
the Purchase Percentage in effect as of the close of business on the third
business day immediately preceding such DRIP/ACP Investment Date, minus (B) such
DRIP/ACP Investment Amount.
Section 3. Section 4.1 of the Existing Agreement is hereby amended by
adding the following sentence as the third to last sentence of such Section:
"Notwithstanding the foregoing provisions of this Section 4.1, the
right to purchase Common Stock or Convertible Securities pursuant to
this Section 4.1 shall be reduced to the extent that Irvine Persons
(which for the avoidance of doubt includes all Original Limited
Partners as defined in the Partnership Agreement) have exercised
rights under Section 4.5.F of the Partnership Agreement to purchase
L.P. Units as a result of the issuance of Common Stock or
Convertible Securities that has given rise to rights under this
Section 4.1.
Section 4. Section 4.2 of the Existing Agreement is hereby amended by
adding in paragraph (a) thereof the words "but subject to having received the
notice referred to in paragraph (f) below" immediately following the words
"DRIP/ACP Investment Date" the first time such words appear in Section 4.2(a).
Section 5. Section 4.2 of the Existing Agreement is hereby further
2
<PAGE> 3
amended by adding the following as new paragraphs (e) and (f) thereto:
"(e) Notwithstanding anything in this Section 4.2 to the
contrary, the Maximum Investment Amount shall be reduced to the
extent Irvine Persons (which for the avoidance of doubt includes all
Original Limited Partners as defined in the Partnership Agreement)
have exercised rights under Section 4.8.A of the Partnership
Agreement to purchase L.P. Units as a result of the issuance of
newly issued shares of Common Stock pursuant to the DRIP/ACP Plan
that has given rise to rights under this Section 4.2."
"(f) Promptly following the close of business on the third
business day preceding each DRIP/ACP Investment Date, the Irvine
Persons shall give written notice to the Company of (i) the number
of shares of Common Stock beneficially owned by Irvine Persons
(which for the avoidance of doubt includes all Original Limited
Partners as defined in the Partnership Agreement) as of such close
of business (whether under the DRIP/ACP Plan or otherwise), (ii) the
aggregate amount of dividends to be paid with respect to such
shares, if any, which such Persons have elected to be reinvested in
newly issued shares of Common Stock on such DRIP/ACP Investment Date
pursuant to the DRIP/ACP Plan and (iii) the aggregate amount of
additional cash, if any, to be invested by all such Persons in newly
issued shares of Common Stock on such DRIP/ACP Investment Date
pursuant to the DRIP/ACP Plan. Such notice shall be provided by The
Irvine Company on behalf of all Irvine Persons so long as The Irvine
Company or any of its Affiliates beneficially owns L.P. Units in the
Operating Partnership (and thereafter by the Original Limited
Partner (as defined in the Partnership Agreement) holding the
largest Percentage Interest (as so defined) in the Operating
Partnership) and such information shall be used by the Company in
determining DRIP/ACP Investment Amount for purposes of the notice
given by it pursuant to Section 4.2(a). In the event the notice
required by this paragraph (f) is not given by the close of business
in the second business day preceding a DRIP/ACP Investment Date, the
Company shall determine the DRIP/ACP Investment Amount based on the
following assumptions: (i) that the Irvine Persons beneficially own
the number of shares of Common Stock set forth in the most recent
Form 3 or 4 or Schedule 13G filed by such Persons pursuant to the
Securities Exchange Act of 1934, as amended, (ii) that such Persons
will reinvest pursuant to the DRIP/ACP Plan all the
3
<PAGE> 4
dividends to be paid on such number of shares of Common Stock on the
applicable DRIP/ACP Investment Date and (iii) that each such Person
will make on the applicable DRIP/ACP Investment Date the maximum
additional cash investment permitted by the DRIP/ACP Plan to be made
by such Person on such DRIP/ACP Investment Date.
Section 6. Except as amended by this Amendment No. 1, the provisions of
the Existing Agreement are ratified, approved and confirmed and shall remain in
full force and effect in accordance with its terms.
Section 7. This Amendment No. 1 shall become effective when signed by the
parties to the Existing Agreement and the Partnership Agreement Amendment shall
have become effective in accordance with the terms thereof and the Partnership
Agreement.
Section 8. This Amendment No. 1 shall be construed and enforced in
accordance with and governed by the laws of the State of Maryland, without
regard to the choice of law provisions thereof.
Section 9. This Amendment No. 1 may be executed in counterparts, all of
which shall constitute one agreement binding on all parties hereto,
notwithstanding that all such parties are not signatories to the original or
same counterpart.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment No. 1
as of the date and year first written above. IRVINE APARTMENT COMMUNITIES, INC.
By:_____________________________________
Name: James E. Mead
Title: Senior Vice President and
Chief Financial Officer
4
<PAGE> 5
IRVINE APARTMENT COMMUNITIES, L.P.
By: Irvine Apartment Communities, Inc.,
General Partner
By:____________________________________
Name: James E. Mead
Title: Senior Vice President and
Chief Financial Officer
THE IRVINE COMPANY
By:____________________________________
Name:
Title:
By:____________________________________
Name:
Title:
5
<PAGE> 1
EXECUTION COPY
AMENDMENT TO LAND RIGHTS AGREEMENT TO CORRECT MISTAKE IN ORIGINAL AGREEMENT
AMENDMENT No. 4 dated as of July 25, 1997 to the Exclusive Land Rights and
Non-Competition Agreement dated as of November 21, 1993 (the "Original
Agreement") as amended by Amendment No. 1 thereto dated April 20, 1995,
Amendment No. 2 thereto dated July 18, 1995 and Amendment No. 3 thereto dated as
of May 2, 1996 (as so amended, the "Existing Agreement").
W I T N E S S E T H:
WHEREAS, The Irvine Company, a Michigan corporation, Irvine Apartment
Communities, L.P., a Delaware limited partnership ("Partnership"), Irvine
Apartment Communities, Inc., a Maryland corporation (the "Corporation"), and Mr.
Donald Bren, an individual, have entered into the Existing Agreement;
WHEREAS, the Prospectus dated December 1, 1993 relating to the
Corporation's 1993 initial public offering specifically stated on pages 23 and
72 thereof that the various land purchase and non-competition arrangements of
the Original Agreement would be subject to early termination upon the occurrence
of certain events, including if, during the period that The Irvine Company has
the right to nominate three persons to the Board of Directors of the
Corporation, the provisions of the Corporation's Certificate of Incorporation
and Bylaws requiring approval of the Required Directors (defined in the
Corporation's Certificate of Incorporation as directors representing more than
75% of the entire Board of Directors) to take certain actions are repealed,
modified, or amended without the prior written consent of The Irvine Company;
WHEREAS, the parties hereto agree that the early termination provision set
forth in the foregoing WHEREAS clause accurately reflects the parties intent at
the time the Original Agreement was entered into;
WHEREAS, Section 4.3 of the Original Agreement contains a mistake in that
it does not correctly reflect the foregoing early termination provision;
WHEREAS, the parties hereto desire to amend the Existing Agreement as set
forth below in order to correct Section 4.3 so that it accurately reflects the
parties original intent; and
<PAGE> 2
WHEREAS, the execution and delivery of this Amendment by the Partnership
and the Corporation have been approved by resolutions duly adopted by the
Independent Directors Committee of the Board of Directors of the Corporation.
NOW, THEREFORE, the parties hereto agree as follows:
Section 1. Section 4.3 of the Existing Agreement is hereby amended to read
in its entirety as follows:
"4.3 CHANGES WITHOUT CONSENT. During the period that Irvine has the
right to nominate 3 persons to REIT's Board of Directors as set
forth in the REIT's Bylaws, any provision of the REIT's Certificate
of Incorporation or Bylaws which requires that the affirmative vote
of the Required Directors (as defined in the Certificate of
Incorporation and Bylaws) be obtained in connection with certain
actions is, without Irvine's prior written consent, repealed,
modified or amended to require less than an affirmative vote of
Required Directors for approval thereof."
Section 2. Except as amended hereby, the provisions of the Existing
Agreement are ratified, approved and confirmed and shall remain in full force
and effect in accordance with its terms.
Section 3. The validly, construction and enforceability of this Amendment
shall be governed in all respects by the internal laws of the State of
California without regard to its conflict of laws rules.
Section 4. This Amendment may be executed in two or more counterparts, all
of which taken together with signature pages from each party hereto shall be
considered the same agreement, binding against all parties hereto.
2
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