<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 JUNE 30, 1998.
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.)
1-13721 (IAC Capital Trust)
IRVINE APARTMENT COMMUNITIES, INC.
IRVINE APARTMENT COMMUNITIES, L.P.
IAC CAPITAL TRUST
----------------------------------------------------------
(Exact Name of Registrants as Specified in Their Charters)
Maryland 33-0698698
Delaware 33-0587829
Delaware 91-6452946
(State of Incorporation) (I.R.S. Employer Identification Number)
550 Newport Center Drive, Suite 300, Newport Beach, California 92660
--------------------------------------------------------------------
(Address of principal executive offices)
(949) 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 [ ]
IAC Capital Trust: Yes [X] No [ ]
(IAC Capital Trust only subject to such filing requirements
since January 14, 1998)
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 - 20,051,968 shares as of July 31, 1998;
Irvine Apartment Communities, L.P.: units of common partnership interest -
45,039,727 units as of July 31, 1998.
================================================================================
<PAGE> 2
IRVINE APARTMENT COMMUNITIES, INC.,
IRVINE APARTMENT COMMUNITIES, L.P. AND
IAC CAPITAL TRUST
INDEX
<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements - Irvine Apartment Communities, Inc.
- Consolidated Balance Sheets as of June 30, 1998 and December 31, 1997 1
- Consolidated Statements of Operations for the three and six months ended
June 30, 1998 and 1997 2
- Consolidated Statements of Changes in Shareholders' Equity for
the six months ended June 30, 1998 and 1997 3
- Consolidated Statements of Cash Flows for the six months ended
June 30, 1998 and 1997 4
Financial Statements - Irvine Apartment Communities, L.P.
- Consolidated Balance Sheets as of June 30, 1998 and December 31, 1997 5
- Consolidated Statements of Operations for the three and six months ended
June 30, 1998 and 1997 6
- Consolidated Statements of Changes in Partners' Capital for the
six months ended June 30, 1998 and 1997 7
- Consolidated Statements of Cash Flows for the six months ended
June 30, 1998 and 1997 8
Financial Statements - IAC Capital Trust
- Balance Sheet as of June 30, 1998 9
- Statements of Operations and Equity for the three months ended
June 30, 1998 and for the period January 20, 1998 (commencement of
operations) to June 30, 1998 10
- Statement of Cash Flows for the period January 20, 1998 (commencement
of operations) to June 30, 1998 11
Notes to Consolidated Financial Statements 12 to 17
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 18 to 29
Item 3. Quantitative and Qualitative Disclosures About Market Risk 30
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
PART II OTHER INFORMATION
Item 1. Legal Proceedings 30
Item 2. Changes in Securities and Use of Proceeds 30
Item 3. Defaults Upon Senior Securities 30
Item 4. Submission of Matters to a Vote of Security Holders 30
Item 5. Other Information 31
Item 6. Exhibits and Reports on Form 8-K 31
SIGNATURES 33
</TABLE>
<PAGE> 4
ITEM 1.
Irvine Apartment Communities, Inc.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
(in thousands, except per share amounts) 1998 1997
=================================================================================================================
<S> <C> <C>
ASSETS (unaudited)
Real estate assets, at cost
Land $ 225,730 $ 208,687
Buildings and improvements 1,088,719 1,015,696
- -----------------------------------------------------------------------------------------------------------------
1,314,449 1,224,383
Accumulated depreciation (264,274) (248,245)
- -----------------------------------------------------------------------------------------------------------------
1,050,175 976,138
Under development, including land 166,318 148,424
- -----------------------------------------------------------------------------------------------------------------
1,216,493 1,124,562
Cash and cash equivalents 5,160 4,624
Restricted cash 1,552 1,464
Deferred financing costs, net 12,701 19,079
Other assets 8,555 13,948
- -----------------------------------------------------------------------------------------------------------------
$ 1,244,461 $ 1,163,677
=================================================================================================================
LIABILITIES
Mortgages and notes payable
Tax-exempt mortgage bond financings $ 325,644
Conventional mortgage financings $ 130,924 132,256
Mortgage notes payable to The Irvine Company 49,963 50,397
Tax-exempt assessment district debt 21,468 21,544
Unsecured tax-exempt bond financings 334,190
Unsecured notes payable 99,250 99,222
Unsecured line of credit 36,000 75,000
- -----------------------------------------------------------------------------------------------------------------
671,795 704,063
Accounts payable and accrued liabilities 36,410 30,689
Security deposits 8,794 7,698
- -----------------------------------------------------------------------------------------------------------------
716,999 742,450
MINORITY INTEREST - REDEEMABLE PREFERRED INTEREST OF SUBSIDIARY 144,016
MINORITY INTEREST 188,022 210,307
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;
20,047 shares and 19,901 shares issued and outstanding, respectively 200 199
Excess stock, par value $0.01 per share; 160,000 shares authorized;
no shares issued or outstanding
Additional paid-in capital 239,493 235,487
Accumulated deficit (44,269) (24,766)
- -----------------------------------------------------------------------------------------------------------------
195,424 210,920
- -----------------------------------------------------------------------------------------------------------------
$ 1,244,461 $ 1,163,677
=================================================================================================================
</TABLE>
Note: The balance sheet at December 31, 1997 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> 5
Irvine Apartment Communities, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Six Months Ended June 30, Three Months Ended June 30,
(unaudited, in thousands, except per share amounts) 1998 1997 1998 1997
===========================================================================================================================
<S> <C> <C> <C> <C>
REVENUES
Rental income $ 101,115 $ 85,441 $ 51,528 $ 43,349
Other income 2,648 1,941 1,437 1,001
Interest income 1,113 571 344 323
- ---------------------------------------------------------------------------------------------------------------------------
104,876 87,953 53,309 44,673
- ---------------------------------------------------------------------------------------------------------------------------
EXPENSES
Property expenses 23,913 21,007 11,930 10,606
Real estate taxes 8,158 6,930 4,154 3,465
Interest expense, net 13,412 13,389 6,300 6,528
Amortization of deferred financing costs 956 1,296 465 647
Depreciation and amortization 16,301 13,734 8,260 6,983
General and administrative 4,327 2,988 2,169 1,354
- ---------------------------------------------------------------------------------------------------------------------------
67,067 59,344 33,278 29,583
- ---------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE EXTRAORDINARY ITEM, REDEEMABLE PREFERRED
INTEREST AND MINORITY INTEREST IN (LOSS) INCOME 37,809 28,609 20,031 15,090
Extraordinary item related to debt extinguishment (42,451) (42,451)
- ---------------------------------------------------------------------------------------------------------------------------
(LOSS) INCOME BEFORE REDEEMABLE PREFERRED INTEREST AND
MINORITY INTEREST IN (LOSS) INCOME (4,642) 28,609 (22,420) 15,090
Redeemable preferred interest 5,534 3,093
Minority interest in (loss) income (5,632) 15,689 (14,154) 8,281
- ---------------------------------------------------------------------------------------------------------------------------
NET (LOSS) INCOME ($4,544) $12,920 ($11,359) $6,809
===========================================================================================================================
EARNINGS PER SHARE:
Basic ($0.23) $0.66 ($0.57) $0.34
Diluted ($0.23) $0.66 ($0.57) $0.34
===========================================================================================================================
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:
Basic 19,968 19,449 20,005 19,798
Diluted 19,968 19,580 20,005 19,912
===========================================================================================================================
</TABLE>
See accompanying notes.
Page 2
<PAGE> 6
Irvine Apartment Communities, Inc.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Six Months Ended June 30,
(unaudited, in thousands, except per share amounts) 1998 1997
===========================================================================================================================
<S> <C> <C>
COMMON STOCK, PAR VALUE $0.01 PER SHARE
Balance at beginning of period $ 199 $ 186
Common stock offering 11
Stock options exercised 1 1
- ---------------------------------------------------------------------------------------------------------------------------
Balance at end of period $200 $198
===========================================================================================================================
ADDITIONAL PAID-IN CAPITAL
Balance at beginning of period $ 235,487 $ 202,116
Net proceeds from dividend reinvestment and additional cash investment plan 3,357 255
Proceeds from stock options exercised 409 1,452
Stock awards issued 240 241
Net proceeds from common stock offering 29,559
- ---------------------------------------------------------------------------------------------------------------------------
Balance at end of period $ 239,493 $ 233,623
===========================================================================================================================
ACCUMULATED DEFICIT
Balance at beginning of period ($24,766) ($22,285)
Net (loss) income (4,544) 12,920
Distributions to shareholders (14,959) (13,999)
- ---------------------------------------------------------------------------------------------------------------------------
Balance at end of period ($44,269) ($23,364)
===========================================================================================================================
===========================================================================================================================
TOTAL SHAREHOLDERS' EQUITY $ 195,424 $ 210,457
===========================================================================================================================
SHARES OF COMMON STOCK OUTSTANDING
Balance at beginning of period 19,901 18,556
Additional shares issued under the dividend reinvestment and additional cash
investment plan 114 10
Stock options exercised 24 90
Stock awards issued 8 9
Additional shares issued under common stock offering 1,150
- ---------------------------------------------------------------------------------------------------------------------------
Balance at end of period 20,047 19,815
===========================================================================================================================
</TABLE>
See accompanying notes.
Page 3
<PAGE> 7
Irvine Apartment Communities, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended June 30,
(unaudited, in thousands) 1998 1997
========================================================================================================================
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income ($4,544) $ 12,920
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Write-off of deferred financing costs 8,314
Amortization of deferred financing costs 956 1,296
Depreciation and amortization 16,301 13,734
Minority interest in (loss) income (5,632) 15,689
Redeemable preferred interest 5,534
Increase (decrease) in cash attributable to changes in assets and
liabilities:
Restricted cash (88) (76)
Other assets 5,152 (2,084)
Accounts payable and accrued liabilities 3,130 (548)
Security deposits 1,097 1,153
- ------------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 30,220 42,084
- ------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital improvements to operating real estate assets (1,944) (1,687)
Capital investments in real estate assets (103,157) (174,152)
- ------------------------------------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities (105,101) (175,839)
- ------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings under unsecured line of credit 44,000 123,000
Payments on unsecured line of credit (83,000) (21,000)
Proceeds from unsecured tax-exempt bond financings 334,190
Payments on tax-exempt mortgage bond financings (325,644) (1,769)
Principal payments (1,841) (1,708)
Additions to deferred financing costs (2,893)
Net proceeds from issuance of redeemable preferred interest 143,985
Net proceeds from dividend reinvestment and additional cash investment plan 5,406 618
Proceeds from stock options exercised 409 1,452
Contributions from The Irvine Company 36,333
Net proceeds from common stock offering 29,969
Distributions to redeemable preferred interest holders (5,534)
Distributions to The Irvine Company and certain of its affiliates (18,417) (17,013)
Distributions to other common limited partners (285) (55)
Distributions to shareholders (14,959) (13,999)
- ------------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Financing Activities 75,417 135,828
- ------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 536 2,073
Cash and Cash Equivalents at Beginning of Period 4,624 3,205
- ------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 5,160 $ 5,278
========================================================================================================================
Supplemental Disclosure of Cash Flow Information
Interest paid, net of amounts capitalized $ 14,662 $ 13,468
========================================================================================================================
</TABLE>
See accompanying notes.
Page 4
<PAGE> 8
Irvine Apartment Communities, L.P.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
(in thousands) 1998 1997
==================================================================================================================
<S> <C> <C>
ASSETS (unaudited)
Real estate assets, at cost
Land $ 225,730 $ 208,687
Buildings and improvements 1,088,719 1,015,696
- -------------------------------------------------------------------------------------------------------------------
1,314,449 1,224,383
Accumulated depreciation (264,274) (248,245)
- -------------------------------------------------------------------------------------------------------------------
1,050,175 976,138
Under development, including land 166,318 148,424
- -------------------------------------------------------------------------------------------------------------------
1,216,493 1,124,562
Cash and cash equivalents 5,160 4,624
Restricted cash 1,552 1,464
Deferred financing costs, net 12,701 19,079
Other assets 8,555 13,948
- -------------------------------------------------------------------------------------------------------------------
$ 1,244,461 $ 1,163,677
==================================================================================================================
LIABILITIES
Mortgages and notes payable
Tax-exempt mortgage bond financings $ 325,644
Conventional mortgage financings $ 130,924 132,256
Mortgage notes payable to The Irvine Company 49,963 50,397
Tax-exempt assessment district debt 21,468 21,544
Unsecured tax-exempt bond financings 334,190
Unsecured notes payable 99,250 99,222
Unsecured line of credit 36,000 75,000
- -------------------------------------------------------------------------------------------------------------------
671,795 704,063
Accounts payable and accrued liabilities 36,410 30,689
Security deposits 8,794 7,698
- -------------------------------------------------------------------------------------------------------------------
716,999 742,450
REDEEMABLE PREFERRED LIMITED PARTNER UNITS
Redeemable series A preferred limited partner units, 6,000 partnership
units outstanding at June 30, 1998 144,016
PARTNERS' CAPITAL
General partner, 20,047 common partnership units at June 30, 1998
and 19,901 at December 31, 1997 195,424 210,920
Common limited partners, 24,987 common partnership units at June 30, 1998
and 24,919 at December 31, 1997 188,022 210,307
- -------------------------------------------------------------------------------------------------------------------
383,446 421,227
- -------------------------------------------------------------------------------------------------------------------
$ 1,244,461 $ 1,163,677
==================================================================================================================
</TABLE>
Note: The balance sheet at December 31, 1997 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> 9
Irvine Apartment Communities, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Six Months Ended June 30, Three Months Ended June 30,
(unaudited, in thousands, except per unit amounts) 1998 1997 1998 1997
===========================================================================================================================
<S> <C> <C> <C> <C>
REVENUES
Rental income $ 101,115 $ 85,441 $ 51,528 $ 43,349
Other income 2,648 1,941 1,437 1,001
Interest income 1,113 571 344 323
- ---------------------------------------------------------------------------------------------------------------------------
104,876 87,953 53,309 44,673
- ---------------------------------------------------------------------------------------------------------------------------
EXPENSES
Property expenses 23,913 21,007 11,930 10,606
Real estate taxes 8,158 6,930 4,154 3,465
Interest expense, net 13,412 13,389 6,300 6,528
Amortization of deferred financing costs 956 1,296 465 647
Depreciation and amortization 16,301 13,734 8,260 6,983
General and administrative 4,327 2,988 2,169 1,354
- ---------------------------------------------------------------------------------------------------------------------------
67,067 59,344 33,278 29,583
- ---------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE EXTRAORDINARY ITEM AND REDEEMABLE
PREFERRED INTEREST 37,809 28,609 20,031 15,090
Extraordinary item related to debt extinguishment (42,451) (42,451)
- ---------------------------------------------------------------------------------------------------------------------------
(LOSS) INCOME BEFORE REDEEMABLE PREFERRED INTEREST (4,642) 28,609 (22,420) 15,090
Redeemable preferred interest 5,534 3,093
- ---------------------------------------------------------------------------------------------------------------------------
NET (LOSS) INCOME ($10,176) $28,609 ($25,513) $15,090
===========================================================================================================================
ALLOCATION OF NET (LOSS) INCOME:
General Partner ($4,544) $12,920 ($11,359) $6,809
Common Limited Partners ($5,632) $15,689 ($14,154) $8,281
===========================================================================================================================
EARNINGS PER COMMON UNIT:
Basic ($0.23) $0.66 ($0.57) $0.34
Diluted ($0.23) $0.66 ($0.57) $0.34
===========================================================================================================================
WEIGHTED AVERAGE NUMBER OF COMMON UNITS OUTSTANDING:
Basic 44,917 43,060 44,971 43,881
Diluted 44,917 43,191 44,971 43,995
===========================================================================================================================
</TABLE>
See accompanying notes.
Page 6
<PAGE> 10
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, 1997 $ 180,017 $ 140,327 $ 320,344
Net income 12,920 15,689 28,609
Contributions 31,519 47,080 78,599
Distributions (13,999) (17,068) (31,067)
- ----------------------------------------------------------------------------------------------------------------
Balance at June 30, 1997 $ 210,457 $ 186,028 $ 396,485
================================================================================================================
Balance at January 1, 1998 $ 210,920 $ 210,307 $ 421,227
Net loss (4,544) (5,632) (10,176)
Contributions 4,007 2,049 6,056
Distributions (14,959) (18,702) (33,661)
- ----------------------------------------------------------------------------------------------------------------
Balance at June 30, 1998 $ 195,424 $ 188,022 $ 383,446
================================================================================================================
COMMON PARTNERSHIP UNITS OUTSTANDING
Balance at January 1, 1997 18,556 22,292 40,848
Additional common partnership units issued 1,259 1,795 3,054
- ----------------------------------------------------------------------------------------------------------------
Balance at June 30, 1997 19,815 24,087 43,902
================================================================================================================
Balance at January 1, 1998 19,901 24,919 44,820
Additional common partnership units issued 146 68 214
- ----------------------------------------------------------------------------------------------------------------
Balance at June 30, 1998 20,047 24,987 45,034
================================================================================================================
</TABLE>
See accompanying notes.
Page 7
<PAGE> 11
Irvine Apartment Communities, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended June 30,
(unaudited, in thousands) 1998 1997
===============================================================================================================
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income ($10,176) $ 28,609
Adjustments to reconcile net (loss) income to net cash provided by operating
activities:
Write-off of deferred financing costs 8,314
Amortization of deferred financing costs 956 1,296
Depreciation and amortization 16,301 13,734
Redeemable preferred interest 5,534
Increase (decrease) in cash attributable to changes in assets and
liabilities:
Restricted cash (88) (76)
Other assets 5,152 (2,084)
Accounts payable and accrued liabilities 3,130 (548)
Security deposits 1,097 1,153
- ----------------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 30,220 42,084
- ----------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital improvements to operating real estate assets (1,944) (1,687)
Capital investments in real estate assets (103,157) (174,152)
- ----------------------------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities (105,101) (175,839)
- ----------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings under unsecured line of credit 44,000 123,000
Payments on unsecured line of credit (83,000) (21,000)
Proceeds from unsecured tax-exempt bond financings 334,190
Payments on tax-exempt mortgage bond financings (325,644) (1,769)
Principal payments (1,841) (1,708)
Additions to deferred financing costs (2,893)
Net proceeds from issuance of redeemable preferred limited partner units 143,985
Distributions to redeemable preferred limited partner unit holders (5,534)
Contributions from partners 5,815 68,372
Distributions to partners (33,661) (31,067)
- ----------------------------------------------------------------------------------------------------------------
Net Cash Provided by Financing Activities 75,417 135,828
- ----------------------------------------------------------------------------------------------------------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 536 2,073
Cash and Cash Equivalents at Beginning of Period 4,624 3,205
- ----------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 5,160 $ 5,278
===============================================================================================================
Supplemental Disclosure of Cash Flow Information
Interest paid, net of amounts capitalized $ 14,662 $ 13,468
===============================================================================================================
</TABLE>
See accompanying notes.
Page 8
<PAGE> 12
IAC Capital Trust
BALANCE SHEET
June 30, 1998
<TABLE>
<CAPTION>
(unaudited, dollars in thousands)
============================================================================================================
<S> <C>
ASSETS
Cash $ 5
Investment in Subsidiary 150,000
- ------------------------------------------------------------------------------------------------------------
$ 150,005
============================================================================================================
LIABILITIES AND EQUITY
Redeemable Preferred Securities, 25,000,000 securities authorized
Redeemable Series A Preferred Securities, 6,900,000 securities authorized,
6,000,000 securities issued and outstanding $ 150,000
Equity
Common Securities, 20,000 securities authorized, 200 securities issued and outstanding 5
- ------------------------------------------------------------------------------------------------------------
$ 150,005
============================================================================================================
</TABLE>
See accompanying notes.
Page 9
<PAGE> 13
IAC Capital Trust
STATEMENTS OF OPERATIONS AND EQUITY
<TABLE>
<CAPTION>
For the Period
January 20, 1998
(commencement of
operations) Three Months Ended
(unaudited, in thousands, except per security amounts) to June 30, 1998 June 30, 1998
==========================================================================================================================
<S> <C> <C>
REVENUE
Income from investment in subsidiary $ 5,534 $ 3,093
- --------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE REDEEMABLE PREFERRED INTEREST 5,534 3,093
Redeemable preferred interest 5,534 3,093
- --------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 0 $ 0
==========================================================================================================================
EARNINGS PER SECURITY:
Basic and diluted $ 0.00 $ 0.00
==========================================================================================================================
Equity - beginning of period $ 5
Issuance of common securities $ 5
Net income 0 0
- --------------------------------------------------------------------------------------------------------------------------
EQUITY - END OF PERIOD $ 5 $ 5
==========================================================================================================================
</TABLE>
See accompanying notes.
Page 10
<PAGE> 14
IAC Capital Trust
STATEMENT OF CASH FLOWS
For the Period January 20, 1998 (commencement of operations) to June 30, 1998
<TABLE>
<CAPTION>
(unaudited, in thousands)
=====================================================================================
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 0
Adjustments to reconcile net income to net cash provided by
operating activities:
Redeemable preferred interest 5,534
- -------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 5,534
- -------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in subsidiary (150,000)
- -------------------------------------------------------------------------------------
Net Cash Used in Investing Activities (150,000)
- -------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common securities 5
Proceeds from issuance of redeemable preferred securities 150,000
Distributions to preferred securities holders (5,534)
- -------------------------------------------------------------------------------------
Net Cash Provided by Financing Activities 144,471
- -------------------------------------------------------------------------------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 5
Cash and Cash Equivalents at Inception 0
- -------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 5
=====================================================================================
</TABLE>
See accompanying notes.
Page 11
<PAGE> 15
IRVINE APARTMENT COMMUNITIES, INC.,
IRVINE APARTMENT COMMUNITIES, L.P. AND
IAC CAPITAL TRUST
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 June 30, 1998, the Company had a 44.5% general
partnership interest in and was the sole managing general partner of the
Operating Partnership. At June 30, 1998, the common limited partners had a 55.5%
common limited partnership interest in the Operating Partnership, with The
Irvine Company and certain of its affiliates owning a 55.3% common limited
partnership interest in the Operating Partnership. On February 4, 1997, the
Operating Partnership acquired the assets of Thompson Residential Company, Inc.
The purchase price was paid by the issuance of 74,523 common limited partnership
units in the Operating Partnership. At June 30, 1998, Thompson Residential
Company, Inc. had a 0.2% common 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.
As of June 30, 1998, the Operating Partnership owned 61 apartment communities
representing 15,729 apartment units and 1,803 units under development
(collectively, the "Properties"). The Operating Partnership broke ground on its
first apartment community outside of the Irvine Ranch, 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. In March 1998, the Operating Partnership and Western
National Property Management announced the formation of a strategic alliance
that, in April 1998, assumed all property management responsibilities for the
Operating Partnership's Southern California portfolio. The new entity, Irvine
Apartment Management Company ("IAMC"), is owned 51% by the Operating Partnership
and 49% by Western National Property Management. 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.
IAC Capital Trust, a Delaware business trust (the "Trust"), was formed on
October 31, 1997. The Trust is a limited purpose financing vehicle established
by the Company and the Operating Partnership. The Trust exists for the sole
purpose of issuing preferred securities and investing the proceeds thereof in
preferred limited partner units of the Operating Partnership.
Page 12
<PAGE> 16
Certain amounts in the 1997 financial statements have been reclassified to
conform with financial statement presentations in 1998.
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. The Trust's investment in subsidiary relates to the redeemable
series A preferred limited partner units in the Operating Partnership. The Trust
has less than a controlling interest and accounts for its investment in
subsidiary using the equity method.
Profits and losses of the Operating Partnership are generally allocated to the
Company and to the common limited partners based upon their respective ownership
interests in the Operating Partnership. The holders of the redeemable preferred
limited partner units and redeemable preferred securities are entitled to
dividends at an annual rate of 8 1/4% of the stated value per unit/security. The
stated value of each unit/security is $25. 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
June 30, 1998 and December 31, 1997, and the revenues and expenses for the three
and six months ended June 30, 1998 and 1997. 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 three and six months
ended June 30, 1998 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1998. These financial statements
should be read in conjunction with the Consolidated Financial Statements and
Notes thereto included in the Company's and the Operating Partnership's Annual
Report on Form 10-K for the year ended December 31, 1997.
NOTE 3 - MORTGAGES AND NOTES PAYABLE
Unsecured Tax-Exempt Bond Financings: In June 1998, the Operating Partnership
completed a $334 million offering of unsecured tax-exempt debt at an average
interest rate of 4.93% in three tranches ranging from 10 to 15 years. Proceeds
from the offering were used to repay the Operating Partnership's existing
tax-exempt mortgage debt and to pay costs associated with prepayment penalties
and the unwinding of certain swap agreements. The extraordinary item related to
debt extinguishment totaled $42.5 million or a loss to earnings of $0.45 per
share and $0.44 per share for the six months ended June 30, 1998 and the three
months ended June 30, 1998, respectively.
Page 13
<PAGE> 17
Unsecured Line of Credit: The Operating Partnership has a $250 million unsecured
revolving credit facility that was amended in July 1998. The amended credit
facility currently bears interest at LIBOR plus 0.65% or prime and matures in
June 2001. The interest rates under the credit facility are adjusted up or down
based on 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. Borrowings under the credit facility,
which are guaranteed by the Company, are available to finance the Operating
Partnership's ongoing rental property development, possible acquisitions 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 June 30, 1998, the Company and the Operating Partnership were in
compliance with all of these covenants. As of June 30, 1998, $36.0 million was
outstanding and $214.0 million was available under the credit facility.
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, and warrants to purchase common stock and preferred stock. 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 June 30, 1998. 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% senior unsecured notes (the
"Notes") pursuant to its shelf registration statement. Availability under the
Operating Partnership's shelf registration statement was $250 million at June
30, 1998.
$250 Million Medium-Term Notes: The Operating Partnership, pursuant to a
Prospectus Supplement dated April 9, 1998, may issue from time to time up to
$250 million aggregate initial offering price of its Medium-Term Notes, Series A
due nine months or more from the date of issue. Issuances of Medium-Term Notes
will reduce availability under the Operating Partnership's Registration
Statement by the amount of Medium-Term Notes issued. Similarly, issuances of
other debt securities under the Operating Partnership's Registration Statement
will reduce the amount of Medium-Term Notes that may be issued. As of June 30,
1998, there have been no issuances of Medium-Term Notes.
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 6), pursuant to its rights under the partnership agreement, purchased
1.39 million additional common 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 credit facility, and for general
corporate purposes, including ongoing development activities on and off the
Irvine Ranch.
The Company and the Operating Partnership each paid cash distributions of $0.375
per share (or common partnership unit) on February 28 and May 28, 1998. The
Operating Partnership and the Trust paid cash distributions of $0.42 and $0.52
per preferred limited partner unit (or preferred security) on March 31, 1998 and
June 30, 1998,
Page 14
<PAGE> 18
respectively. During each of the first and second quarters of 1997, the Company
and the Operating Partnership each paid a cash dividend of $0.365 per share (or
common partnership unit).
RECONCILIATION OF COMMON PARTNERSHIP UNITS OUTSTANDING
<TABLE>
<CAPTION>
(in thousands, except percentages) Six Months Ended June 30, 1998 Six Months Ended June 30, 1997
- -------------------------------------------------------------------------------------------------------------------------
The Irvine The Irvine
Company Company
and and
certain certain
of its of its
Company affiliates Other Total Company affiliates Other Total
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at beginning of period 19,901 24,844 75 44,820 18,556 22,292 40,848
Stock awards issued and options exercised 32 32 99 99
Dividend reinvestment and additional cash
investment plan 114 68 182 10 13 23
Common stock offering and related cash
contribution from The Irvine Company 1,150 1,394 2,544
Acquisition of Thompson Residential
assets 75 75
Contributions of property by The Irvine
Company and certain of its affiliates 313 313
- -------------------------------------------------------------------------------------------------------------------------
Balance at end of period 20,047 24,912 75 45,034 19,815 24,012 75 43,902
- -------------------------------------------------------------------------------------------------------------------------
Ownership interest at end of period 44.5% 55.3% 0.2% 100% 45.1% 54.7% 0.2% 100%
=========================================================================================================================
</TABLE>
The following tables represent a reconciliation of the minority interest
balances and the computation of the minority interest in (loss) income.
RECONCILIATION OF MINORITY INTEREST
<TABLE>
<CAPTION>
Six Months Ended June 30,
(in thousands) 1998 1997
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Balance at beginning of period $ 210,307 $ 140,327
Minority interest in (loss) income (5,632) 15,689
Distributions (18,702) (17,068)
Cash contributions from The Irvine Company 36,333
Contributions of property by The Irvine Company and
certain of its affiliates 8,408
Acquisition of Thompson Residential assets 2,000
Contributions under dividend reinvestment and additional
cash investment plan 2,049 339
- --------------------------------------------------------------------------------------------------------------------
Balance at end of period $ 188,022 $ 186,028
====================================================================================================================
</TABLE>
COMPUTATION OF MINORITY INTEREST IN (LOSS) INCOME
<TABLE>
<CAPTION>
Six Months Ended June 30, Three Months Ended June 30,
(in thousands) 1998 1997 1998 1997
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
(Loss) income before minority interest $(10,176) $28,609 $(25,513) $15,090
Loss (income) allocated to the Company based
on its ownership interest 4,544 (12,920) 11,359 (6,809)
- ---------------------------------------------------------------------------------------------------------------------
Minority interest in (loss) income $(5,632) $15,689 $(14,154) $8,281
=====================================================================================================================
</TABLE>
Page 15
<PAGE> 19
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 common
limited partnership units in the Operating Partnership, exchangeable for common
stock of the Company, with a 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 common limited partnership units if the
apartment community currently under development (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 credit facility (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 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, human resources and other services
of $100,000 and $66,000 for the six months ended June 30, 1998 and 1997,
respectively, and $33,000 and $37,000 for the three months ended June 30, 1998
and 1997, respectively. The Irvine Company and the Company jointly purchase
employee health care insurance and property and casualty insurance. The Company
incurred rent totaling $243,000 and $172,000 for the six months ended June 30,
1998 and 1997, respectively, and $114,000 and $85,000 for the three months ended
June 30, 1998 and 1997, respectively, related to a lease with The Irvine Company
that expires at the end of 2003. IAMC incurred rent totaling $52,000 for the
three months ended June 30, 1998, related to a lease with The Irvine Company.
For the six months ended June 30, 1998 and 1997, The Irvine Company contributed
$2,470,000 and $339,000, respectively, in connection with common limited
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 common limited partnership units
in the Operating Partnership to The Irvine Company. Pursuant to the terms of the
acquisition, a portion of the common 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.
Page 16
<PAGE> 20
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 common 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 president and chief executive officer of a
bank which participates in the Company's credit facility and acts as trustee for
the Notes. 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 $101,000 and $14,000 in the first half of 1998 and three months ended
June 30, 1998, respectively. Interest and fees for the corresponding periods in
1997 were $76,000 and $30,000, respectively.
Page 17
<PAGE> 21
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
and six month periods ended June 30, 1998 (unaudited) with the activities of the
Company for the three and six month periods ended June 30, 1997 (unaudited). As
used in this Item 2, unless the context otherwise requires, the term "Company"
includes Irvine Apartment Communities, Inc. and the Operating Partnership
(Irvine Apartment Communities, L.P.). IAC Capital Trust (the "Trust") is a
limited purpose financing vehicle established by the Company and exists for the
sole purpose of issuing preferred securities and investing the proceeds thereof
in preferred limited partnership units of the Operating Partnership.
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, 1997.
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 JUNE 30, 1998 COMPARED TO THREE MONTHS ENDED JUNE 30, 1997.
The Company's income after payment of redeemable preferred interest but before
extraordinary item and minority interest in (loss) income was $16.9 million for
the three months ended June 30, 1998, up from $15.1 million for the same period
of 1997. The Company's financial results improved in 1998 due to the
contribution of newly delivered rental units from its development program, an
acquisition, properties that stabilized during 1997, and an increase in rental
rates within its stabilized portfolio, partially offset by a decrease in
physical occupancy and an increase in redeemable preferred interest due to the
issuance of preferred securities by the Trust in January 1998.
Page 18
<PAGE> 22
REVENUE AND EXPENSE DATA
<TABLE>
<CAPTION>
Three Months Ended June 30,
(dollars in thousands) 1998 1997
- -----------------------------------------------------------------------------------------
<S> <C> <C>
COMMUNITIES STABILIZED BEFORE 1997 (a)
Number of communities 48 48
Number of units at end of period 13,541 13,541
Operating revenues $44,634 $42,575
Property expenses $10,327 $10,236
Real estate taxes $ 3,432 $ 3,331
Depreciation and amortization of real estate assets $ 6,531 $ 6,592
COMMUNITIES STABILIZED IN 1997 (b)
Number of communities 2
Number of units at end of period 527
Operating revenues $ 2,235
Property expenses $ 351
Real estate taxes $ 116
Depreciation and amortization of real estate assets $ 431
LEASE-UP AND NEWLY ACQUIRED COMMUNITIES (c)
Number of communities 5
Number of units at end of period 1,661
Operating revenues $ 6,096
Property expenses $ 1,252
Real estate taxes $ 606
Depreciation and amortization of real estate assets $ 1,162
=========================================================================================
</TABLE>
(a) Represents "same store" communities.
(b) Represents two communities (Baypointe and Santa Maria) that reached
stabilized occupancy (95%) at different dates in 1997.
(c) Represents an apartment community acquired on June 30, 1997, one
community that became stabilized in June 1998, and three communities in
lease-up at June 30, 1998.
OPERATING REVENUES (rental and other income) increased by 19.4% to $53.0 million
in the second quarter of 1998, up from $44.4 million in the same period of 1997.
Operating revenues rose in 1998 because of higher rental rates and a larger
average number of rental units in service as a result of both new development
and an acquisition in June 1997. Newly delivered and acquired units and
communities stabilized in 1997 added $8.3 million to operating revenues from
seven properties in the second quarter of 1998, compared to $1.7 million from
two properties in the same period of 1997. Operating revenues generated by
communities stabilized before 1997 increased 4.8% in the second quarter of 1998
due to an improvement in the average monthly rental rate, partially offset by a
decrease in average physical occupancy to 94.1% from 95.0%. The average monthly
rental rate for these communities increased 5.2% to $1,150 in the second quarter
of 1998, from $1,093 in the second quarter of 1997.
PROPERTY EXPENSES increased by 12.5% to $11.9 million in the second quarter of
1998, up from $10.6 million in the same period of 1997. The 1998 increase
primarily reflects incremental expenses from the newly delivered and acquired
rental units and communities stabilized in 1997. Property expenses for
communities stabilized before 1997 increased by $0.1 million to $10.3 million in
the second quarter of 1998. Average monthly property expenses generated by these
communities increased to $254 per unit in the second quarter of 1998 from $252
per unit in the second quarter of 1997. Newly delivered and acquired units and
communities stabilized in 1997 added $1.6 million to property expenses from
seven properties in the second quarter of 1998 compared to $0.3 million from two
properties in the same period of 1997. In order to reduce operating costs, the
Company formed a 51% owned subsidiary in April 1998, Irvine Apartment Management
Company (IAMC), to manage the Company's properties.
Page 19
<PAGE> 23
Accordingly, the personnel and office costs of IAMC are included in property
expenses. For comparative purposes, prior period management fees have been
included in property expenses.
REAL ESTATE TAXES totaled $4.2 million in the second quarter of 1998 and $3.5
million in the same period of 1997. Real estate taxes increased in the second
quarter of 1998 due primarily to the addition of new rental units.
NET INTEREST EXPENSE decreased to $6.3 million in the second quarter of 1998
compared to $6.5 million in the same period of 1997. Total interest incurred was
$9.4 million in the second quarter of 1998 and $7.9 million in the same period
of 1997. Total interest incurred increased due to the impact of the Company's
unsecured notes payable which were outstanding for the entire quarter. Net
interest expense declined because the Company's increased level of development
resulted in a higher level of capitalized interest. The Company capitalizes
interest on projects actively under development using qualifying asset balances
and applicable weighted average interest rates. Capitalized interest totaled
$3.1 million in the second quarter of 1998 and $1.4 million in the same period
of 1997.
AMORTIZATION OF DEFERRED FINANCING COSTS decreased to $0.5 million in the second
quarter of 1998 compared to $0.6 million in the same period of 1997. The
$182,000 decrease in the second quarter of 1998 was due to the full amortization
of certain loan costs during the prior year.
DEPRECIATION AND AMORTIZATION EXPENSE increased 18.3% to $8.3 million in the
second quarter of 1998, up from $7.0 million in the same period of 1997. The
increase reflects the completion and delivery of newly developed rental units.
The 1998 amount also reflects three months of depreciation associated with the
newly acquired property.
GENERAL AND ADMINISTRATIVE EXPENSE increased to $2.2 million in the second
quarter of 1998, up from $1.4 million in the same period of 1997. The increase
was largely the result of increased staff levels necessitated by the Company's
growth.
EXTRAORDINARY ITEM of $42.5 million in the second quarter of 1998 represents
charges associated with the Operating Partnership's May 1998 debt refinancing
transaction. The charges consisted of the write-off of deferred financing costs,
prepayment costs and costs relating to the unwinding of certain swap agreements.
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997
The Company's income after payment of redeemable preferred interest but before
extraordinary item and minority interest in (loss) income was $32.3 million for
the six months ended June 30, 1998, up from $28.6 million for the same period of
1997. The Company's financial results improved in 1998 due to the contribution
of newly delivered rental units from its development program, an acquisition,
properties that stabilized during 1997, and an increase in rental rates within
its stabilized portfolio, partially offset by a decrease in physical occupancy
and an increase in redeemable preferred interest due to the issuance of
preferred securities by the Trust in January 1998.
Page 20
<PAGE> 24
REVENUE AND EXPENSE DATA
<TABLE>
<CAPTION>
Six Months Ended June 30,
(dollars in thousands) 1998 1997
- --------------------------------------------------------------------------------------
<S> <C> <C>
COMMUNITIES STABILIZED BEFORE 1997 (a)
Number of communities 48 48
Number of units at end of period 13,541 13,541
Operating revenues $88,673 $84,743
Property expenses $20,675 $20,428
Real estate taxes $ 6,861 $ 6,751
Depreciation and amortization of real estate assets $13,085 $13,172
COMMUNITIES STABILIZED IN 1997 (b)
Number of communities 2
Number of units at end of period 527
Operating revenues $ 4,447
Property expenses $ 728
Real estate taxes $ 286
Depreciation and amortization of real estate assets $ 862
LEASE-UP AND NEWLY ACQUIRED COMMUNITIES (c)
Number of communities 5
Number of units at end of period 1,661
Operating revenues $10,643
Property expenses $ 2,510
Real estate taxes $ 1,011
Depreciation and amortization of real estate assets $ 2,086
- --------------------------------------------------------------------------------------
</TABLE>
(a) Represents "same store" communities.
(b) Represents two communities (Baypointe and Santa Maria) that reached
stabilized occupancy (95%) at different dates in 1997.
(c) Represents an apartment community acquired on June 30, 1997, one
community that became stabilized in June 1998, and three communities in
lease-up at June 30, 1998.
OPERATING REVENUES (rental and other income) increased by 18.7% to $103.8
million in the first half of 1998, up from $87.4 million in the same period of
1997. Operating revenues rose in 1998 because of higher rental rates and a
larger average number of rental units in service as a result of both new
development and an acquisition in June 1997. Newly delivered and acquired units
and communities stabilized in 1997 added $15.1 million to operating revenues
from seven properties in the first half of 1998, compared to $2.6 million from
two properties in the same period of 1997. Operating revenues generated by
communities stabilized before 1997 increased 4.6% in the first half of 1998 due
to an improvement in the average monthly rental rate, partially offset by a
decrease in average physical occupancy to 94.1% from 94.9%. The average monthly
rental rate for these communities increased 5.5% to $1,147 in the first half of
1998, from $1,087 in the first half of 1997.
PROPERTY EXPENSES increased by 13.8% to $23.9 million in the first half of 1998,
up from $21.0 million in the same period of 1997. The 1998 increase primarily
reflects incremental expenses from the newly delivered and acquired rental units
and communities stabilized in 1997. Property expenses for communities stabilized
before 1997 increased by $0.2 million to $20.7 million in the first half of
1998. Average monthly property expenses generated by these communities increased
to $254 per unit in the first half of 1998 from $251 per unit in the first half
of 1997. Newly delivered and acquired units and communities stabilized in 1997
added $3.2 million to property expenses from seven properties in the first half
of 1998 compared to $0.6 million from two properties in the same period of 1997.
In order to reduce operating costs, the Company formed a 51% owned subsidiary in
April 1998, IAMC, to manage the Company's properties. Accordingly, the personnel
and office costs of IAMC are included in property expenses. For comparative
purposes, prior period management fees have been included in property expenses.
Page 21
<PAGE> 25
REAL ESTATE TAXES totaled $8.2 million in the first half of 1998 and $6.9
million in the same period of 1997. Real estate taxes increased in the first
half of 1998 due primarily to the addition of new rental units.
NET INTEREST EXPENSE was $13.4 million in the first half of 1998 and 1997. Total
interest incurred was $19.2 million in the first half of 1998 and $15.8 million
in the same period of 1997. The increase in interest incurred in the first half
of 1998 was primarily due to the unsecured notes payable which were outstanding
for the entire period. The Company capitalizes interest on projects actively
under development using qualifying asset balances and applicable weighted
average interest rates. Capitalized interest totaled $5.8 million in the first
half of 1998 and $2.5 million in the same period of 1997.
AMORTIZATION OF DEFERRED FINANCING COSTS decreased to $1.0 million in the first
half of 1998 compared to $1.3 million in the same period of 1997. The $0.3
decrease in the first quarter of 1998 was due to the full amortization of
certain loan costs during the prior year.
DEPRECIATION AND AMORTIZATION EXPENSE increased 18.7% to $16.3 million in the
first half of 1998, up from $13.7 million in the same period of 1997. The
increase reflects the completion and delivery of newly developed rental units.
The 1998 amount also reflects six months of depreciation associated with the
newly acquired property.
GENERAL AND ADMINISTRATIVE EXPENSE increased to $4.3 million in the first half
of 1998, up from $3.0 million in the same period of 1997. The increase was
largely the result of increased staff levels necessitated by the Company's
growth.
EXTRAORDINARY ITEM of $42.5 million in the first half of 1998 represents charges
associated with the Operating Partnership's May 1998 debt refinancing
transaction. The charges consisted of the write-off of deferred financing costs,
prepayment costs and costs relating to the unwinding of certain swap agreements.
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 costs, 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, partnership units by the Operating Partnership or
preferred securities by the Trust. The Operating Partnership has a $250 million
unsecured revolving credit facility that was amended in July 1998. The amended
credit facility currently bears interest at LIBOR plus 0.65% or prime and
matures in June 2001. The interest rates under the credit facility are adjusted
up or down based on the credit ratings on the Operating Partnership's senior
unsecured long-term indebtedness. In January 1998, all outstanding borrowings
under the credit facility were repaid from the proceeds of the offering by the
Trust of its 8 1/4% Series A REIT Trust Originated Preferred Securities (the "8
1/4% Series A Preferred Securities"). Availability under the credit facility was
$214.0 million at June 30, 1998.
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, and warrants to purchase common stock and preferred stock. 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
Page 22
<PAGE> 26
\
Company's shelf registration statement was $350 million at June 30, 1998.
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% senior unsecured notes pursuant to its shelf registration
statement. Availability under the Operating Partnership's shelf registration
statement was $250 million at June 30, 1998. The Operating Partnership, pursuant
to a Prospectus Supplement dated April 9, 1998, may issue from time to time up
to $250 million aggregate initial offering price of its Medium-Term Notes,
Series A due nine months or more from the date of issue. Issuances of
Medium-Term Notes will reduce availability under the Operating Partnership's
Registration Statement by the amount of Medium-Term Notes issued. Similarly,
issuances of other debt securities under the Operating Partnership's
Registration Statement will reduce the amount of Medium-Term Notes that may be
issued. As of June 30, 1998, there have been no issuances of Medium-Term Notes.
IAC CAPITAL TRUST: In January 1998, the Trust issued 6.0 million 8 1/4% Series A
Preferred Securities. The proceeds of $150 million were used to purchase an
equivalent amount of 8 1/4% Series A Preferred Limited Partner Units in the
Operating Partnership. The Operating Partnership used the $150 million of
proceeds, net of costs and expenses, all of which where paid by the Operating
Partnership, to repay all outstanding borrowings under the credit facility and
to fund development and an acquisition.
DEBT: The Company's conventional and tax-exempt debt bears interest at fixed
interest rates. 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 that range from 2000 to 2008. The
weighted average effective interest rate on the Company's debt, including the
non-cash charges of amortization of deferred financing costs, was 6.09% at June
30, 1998. In June 1998, the Company completed a $334 million offering of
unsecured tax-exempt debt at an average interest rate of 4.93% in three tranches
ranging from 10 to 15 years. Proceeds from the offering were used to repay the
Company's existing tax-exempt mortgage debt and to pay costs associated with
prepayment penalties and the unwinding of certain swap agreements.
DEBT STRUCTURE AT JUNE 30, 1998
<TABLE>
<CAPTION>
Debt Weighted Average
(dollars in millions) Balance Interest Rate
- --------------------------------------------------------------------------------------
<S> <C> <C>
Fixed rate debt
Conventional mortgage financings $ 130.9 7.12%
Mortgage notes payable to The Irvine Company 50.0 5.75%
Tax-exempt assessment district debt 5.4 6.27%
Unsecured tax-exempt bond financings 334.2 4.93%
Unsecured notes payable 99.2 7.10%
- --------------------------------------------------------------------------------------
Total fixed rate debt 619.7 5.82%
- --------------------------------------------------------------------------------------
Variable rate debt
Unsecured line of credit 36.0 6.23%
Tax-exempt assessment district debt 16.1 4.32%
- --------------------------------------------------------------------------------------
Total variable rate debt 52.1 5.64%
- --------------------------------------------------------------------------------------
Total debt $ 671.8 5.80%
======================================================================================
</TABLE>
Page 23
<PAGE> 27
DEFERRED FINANCING COSTS
<TABLE>
<CAPTION>
Weighted Average
Balance at Remaining Term
(dollars in millions) June 30, 1998 (in years)
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Interest rate buy-downs on
conventional mortgage financings $ 7.6 8.5
Loan origination costs and other 5.1 10.9
- --------------------------------------------------------------------------------------------
Total $ 12.7 9.5
============================================================================================
</TABLE>
OPERATING ACTIVITIES: Cash provided by operating activities was $30.2 million
and $42.1 million in the first half of 1998 and 1997, respectively. Cash
provided by operating activities decreased in the first half of 1998 compared to
the same period in 1997 due to an extraordinary item related to debt
extinguishment, partially offset by 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 used in investing activities was $105.1 million and
$175.8 million in the first half of 1998 and 1997, respectively. This decrease
reflects the purchase of The Villas of Renaissance in 1997, partially offset by
increased development activity in the first half of 1998.
FINANCING ACTIVITIES: Cash provided by financing activities was $75.4 million
and $135.8 million in the first half of 1998 and 1997, respectively. The
Operating Partnership received net proceeds of $144 million from the issuance of
8 1/4% Series A Preferred Limited Partner Units in the first quarter of 1998.
These proceeds were used to pay all outstanding borrowings under the credit
facility and for development. The Operating Partnership received proceeds of
$334.2 million from the issuance of tax-exempt bonds in June 1998. These
proceeds were used to repay existing tax-exempt mortgage bonds and to pay costs
associated with the offering. Additionally, the Company paid $33.7 million in
distributions in the first six months of 1998 compared to $31.1 million in the
first six months of 1997.
CAPITAL EXPENDITURES
Capital expenditures consist of capital improvements and investments in real
estate assets. Capital improvements to operating real estate assets totaled $1.9
million and $1.7 million in the first half of 1998 and 1997, respectively.
Capital investments in real estate assets totaled $103.2 million and $174.2
million in the first half of 1998 and 1997, respectively. These investments
consisted of new development, nonrecurring capital replacements, land purchases
on and off the Irvine Ranch, and the acquisition of an apartment community off
the Irvine Ranch.
The Company has entered into agreements giving it the right, but not the
obligation, to acquire land sites for the development of apartment units,
subject to the receipt of necessary entitlements and due diligence. As of June
30, 1998, the Company had approximately 4,000 units under option and/or
contract. Prior to buying land, the Company incurs preliminary costs for site
planning and entitlement. If a potential site is abandoned, the associated costs
are written off. While the Company seeks to mitigate such risk and has not
written off significant amounts to date, no assurance can be given that it will
not be required to do so in the future.
RECURRING CAPITAL REPLACEMENTS WITHIN ALL STABILIZED COMMUNITIES: The following
table details expenditures for recurring capital replacements for all
communities for the first half of 1998.
Page 24
<PAGE> 28
<TABLE>
<CAPTION>
Six Months Ended
(dollars in thousands) June 30, 1998
- ----------------------------------------------------------------------------
<S> <C>
Carpet replacements $ 671
Exterior painting, siding and stucco 125
Upgrades, renovations and major building items 10
Appliances, water heaters and air conditioning 71
Roofing, concrete and pavement 310
Equipment and other 757
- ----------------------------------------------------------------------------
Total $ 1,944
============================================================================
</TABLE>
RECURRING CAPITAL REPLACEMENTS WITHIN COMMUNITIES STABILIZED BEFORE 1997:
Expenditures for recurring capital replacements within communities stabilized
before 1997 totaled $1.9 million and $1.7 million in the first half of 1998 and
1997, respectively. Average recurring capital replacements per unit were $142
and $125 in the first half of 1998 and 1997, respectively. Expenditures for
recurring capital replacements for the full year 1998 are expected to be similar
to the full year 1997 levels. The Company has a policy of capitalizing
expenditures related to new assets, acquisitions, the material enhancement of
the value of an existing asset, or the substantial extension of an existing
asset's useful life.
CAPITAL INVESTMENTS IN NEW DEVELOPMENT: On April 30, 1998, the Company purchased
from an unrelated third party a 119-unit, high-rise apartment building under
renovation located in West Los Angeles (Champagne Towers) for $44.1 million. In
June 1998, the Company purchased an apartment development site known as Bair
Island from an unrelated third party for $4.5 million. Currently, the Company
has nine apartment communities under development that will require total
expenditures of approximately $405 million, of which $235.2 million had been
incurred at June 30, 1998. Funding for these developments is expected to come
from the Operating Partnership's $250 million unsecured revolving credit
facility (of which $214 million was available as of June 30, 1998), debt
offerings of the Operating Partnership, preferred securities offerings of the
Trust and cash on hand. In addition, the Company may issue other equity
securities as discussed in the Liquidity section.
CONSTRUCTION INFORMATION
<TABLE>
<CAPTION>
Total
Commencement Estimated
Commencement of Leasing Costs
Apartment Community Location Units of Construction Activity (in millions)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
On Ranch:
The Colony(1) Newport Center, Newport Beach 245 7/96 11/97 $46
Rancho Santa Fe(1) Tustin Ranch, Tustin 316 2/97 11/97 39
Sonoma Oak Creek, Irvine 196 11/97 25
Brittany Oak Creek, Irvine 393 12/97 45
Off Ranch:
The Hamptons(1) Cupertino 342 5/97 4/98 52
Stonecrest San Diego County 336 4/98 42
The Colony at Aventine San Diego County 232 5/98 44
Bair Island Redwood City 155 6/98 37
Champagne Towers West Los Angeles 119 8/98 75
- ------------------------------------------------------------------------------------------------------------------------
Total 2,541 $405
========================================================================================================================
</TABLE>
(1) These three properties were in lease-up at June 30, 1998, with 531 units
delivered and 449 units occupied.
Page 25
<PAGE> 29
The timing of future commencement and completion of construction, the
commencement of leasing activity 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; product design changes; 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.
NONRECURRING CAPITAL REPLACEMENTS: Nonrecurring capital expenditures consist of
special programs to upgrade and enhance a community to achieve higher rental
rates. Expenditures for nonrecurring capital replacements totaled $6.0 million
in the first half of 1998. These expenditures were made at two properties
(Promontory Point and The Villas of Renaissance). There were no such
expenditures made in the first half of 1997. Expenditures for nonrecurring
capital expenditures at Promontory Point and The Villas of Renaissance are
expected to total approximately $8.5 million in 1998.
SUBSEQUENT CAPITAL INVESTMENT IN NEW DEVELOPMENT: On August 10, 1998, the
Company purchased from an unrelated third party vacant land for the development
of approximately 1,200 apartment units, in Irvine, for $40 million in cash. On
the same date, the Company also acquired, for $10 million in cash, an assignment
of a contract to purchase an existing 216-unit apartment community adjacent to
this development parcel, for the assumption of $18 million in debt. Although
there can be no assurance, this transaction is expected to close in September
1998.
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 the pioneering
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 Irvine Ranch 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 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 success of the Irvine Ranch as a master-planned development is in the large
part attributable to the early creation of a broad employment base. The Irvine
Company has emphasized the promotion of job creation on the Irvine Ranch and has
been involved in creating four major employment centers on the Irvine Ranch,
each easily accessible by apartment residents and the surrounding area. The
Irvine Company has been the sole developer of the Irvine Spectrum, a 5,000-acre
research, technology and employment center which houses more than 2,200
companies and approximately 44,000 employees and includes 25 million square feet
of research and development and office space. The Irvine Business Complex, which
surrounds the John Wayne airport, houses over 100,000 employees and includes
more than 24 million square feet of office and other commercial space and over
14 million square feet of industrial space. Newport Center contains over 4.4
million square feet of office space, a 1.3 million square-foot regional mall
Page 26
<PAGE> 30
(Fashion Island), a tennis club and two country clubs. In addition, The Irvine
Company donated land to the University of California at Irvine, a 1,489-acre
campus which currently has more than 17,000 students and 6,000 employees. The
proximity of properties located on the Irvine Ranch to these employment centers
makes them attractive residential locations.
YEAR 2000
Management has examined the Year 2000 issues and believes that they will not
have a material effect on the business, results of operations or financial
condition of the Company. The Company's planned expenditures in relation to Year
2000 issues are not material.
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 enters 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 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 included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1997. 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>
Six Months Ended Three Months Ended
June 30, June 30,
(in thousands, unaudited) 1998 1997 1998 1997
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net (loss) income $(4,544) $12,920 $(11,359) $6,809
Add:
Depreciation and amortization of real estate assets 16,033 13,622 8,124 6,925
Minority interest in (loss) income (5,632) 15,689 (14,154) 8,281
One-time charge related to transition of IAMC 345 345
Extraordinary item related to debt extinguishment 42,451 42,451
- ------------------------------------------------------------------------------------------------------------------
Funds from operations $48,653 $42,231 $25,407 $22,015
==================================================================================================================
</TABLE>
Page 27
<PAGE> 31
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, 1997. Operating results for the three or six months ended
June 30, 1998 are not necessarily indicative of the results that may be expected
for the year ending December 31, 1998.
Page 28
<PAGE> 32
Irvine Apartment Communities, Inc.
Irvine Apartment Communities, L.P.
IAC Capital Trust
SELECTED OPERATING DATA
<TABLE>
<CAPTION>
Six Months Ended June 30,
(unaudited) 1998 1997 Difference
===================================================================================================================
UNIT DATA
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Average rentable units during the period 15,428 13,879 1,549
Rentable units at the end of the period 15,729 14,991 738
- -------------------------------------------------------------------------------------------------------------------
COMMUNITIES STABILIZED BEFORE 1997 (a)
- -------------------------------------------------------------------------------------------------------------------
Average physical occupancy 94.1% 94.9% -0.8%
Average economic occupancy (b) 92.4% 93.3% -0.9%
Average monthly gross scheduled rent per unit (c) $1,147 $1,087 5.5%
Average monthly rental income per occupied unit $1,131 $1,075 5.2%
- -------------------------------------------------------------------------------------------------------------------
COMMUNITIES STABILIZED IN 1997 (d)
- -------------------------------------------------------------------------------------------------------------------
Average physical occupancy 93.9%
Average economic occupancy (b) 93.2%
Average monthly gross scheduled rent per unit $1,465
Average monthly rental income per occupied unit $1,472
- -------------------------------------------------------------------------------------------------------------------
LEASE-UP AND ACQUISITION COMMUNITIES (e)
- -------------------------------------------------------------------------------------------------------------------
Operating revenues (rental income and other income) - in thousands $10,643
Units in acquired community 923
Units delivered in the period 593
Cumulative units delivered at the end of the period 738
Units occupied in lease-up communities at the end of the period 648
Average units occupied in lease-up communities during the period 345
- -------------------------------------------------------------------------------------------------------------------
OTHER FINANCIAL DATA (IRVINE APARTMENT COMMUNITIES, INC.)
- -------------------------------------------------------------------------------------------------------------------
Dividends paid per share $0.750 $0.730
Funds from operations (FFO) payout ratio 69.2% 74.5%
===================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended June 30,
(unaudited) 1998 1997 Difference
=====================================================================================================================
UNIT DATA
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Average rentable units during the period 15,593 13,986 1,607
Rentable units at the end of the period 15,729 14,991 738
- ---------------------------------------------------------------------------------------------------------------------
COMMUNITIES STABILIZED BEFORE 1997 (a)
- ---------------------------------------------------------------------------------------------------------------------
Average physical occupancy 94.1% 95.0% -0.9%
Average economic occupancy (b) 92.7% 93.1% -0.4%
Average monthly gross scheduled rent per unit (c) $1,150 $1,093 5.2%
Average monthly rental income per occupied unit $1,137 $1,080 5.3%
- ---------------------------------------------------------------------------------------------------------------------
COMMUNITIES STABILIZED IN 1997 (d)
- ---------------------------------------------------------------------------------------------------------------------
Average physical occupancy 93.7%
Average economic occupancy (b) 92.9%
Average monthly gross scheduled rent per unit $1,474
Average monthly rental income per occupied unit $1,480
- ---------------------------------------------------------------------------------------------------------------------
LEASE-UP AND ACQUISITION COMMUNITIES (e)
- ---------------------------------------------------------------------------------------------------------------------
Operating revenues (rental income and other income) - in thousands $6,096
Units in acquired community 923
Units delivered in the period 404
Cumulative units delivered at the end of the period 738
Units occupied in lease-up communities at the end of the period 648
Average units occupied in lease-up communities during the period 481
- ---------------------------------------------------------------------------------------------------------------------
OTHER FINANCIAL DATA (IRVINE APARTMENT COMMUNITIES, INC.)
- ---------------------------------------------------------------------------------------------------------------------
Dividends paid per share $0.375 $0.365
Funds from operations (FFO) payout ratio 66.5% 73.0%
=====================================================================================================================
</TABLE>
Footnotes:
(a) Financial results are for 48 properties totaling 13,541 units for
comparable periods of 1998 and 1997.
(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 two properties totaling 527 units that
achieved stabilized occupancy during 1997. No year over year comparison
is provided since the properties were not all stabilized for comparable
periods of 1997.
(e) Financial results are for four properties that started lease-up at
various dates in late 1997 and 2nd quarter 1998 and the 923-unit Villas
of Renaissance apartment community purchased on June 30, 1997.
Page 29
<PAGE> 33
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not required.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Not applicable.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
During the second quarter of 1998, the Operating Partnership
sold to affiliates of The Irvine Company the following units of
common limited partnership interest ("common L.P. units") in the
Operating Partnership pursuant to Section 4(2) of the Securities
Act of 1933:
An aggregate of 34,572 common L.P. units were sold in
May 1998 for $1.0 million in cash at prices ranging
from $29.5625 to $29.9375 per common L.P. unit, in
connection with The Irvine Company's exercise of its
proportional purchase rights under the Second 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 common 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 Second
Amended and Restated Agreement of Limited Partnership of the
Operating Partnership.
In addition, in May 1998, the Company sold to The
Irvine Company pursuant to Section 4(2) of the
Securities Act of 1933, 8,360 shares of Common Stock
for $0.2 million in cash at prices ranging from
$29.5625 to $29.9375 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 SECURITY HOLDERS.
The following occurred during the second quarter of 1998:
On May 7, 1998 at the Company's Annual Meeting of Shareholders,
three directors were re-elected to the Company's Board of
Directors for a three-year term to expire at the 2001 Annual
Meeting of Shareholders and one director was re-elected to the
Company's Board of Directors for a two-year term to expire at
the 2000 Annual Meeting of Shareholders.
Page 30
<PAGE> 34
<TABLE>
<CAPTION>
TOTAL VOTE FOR TOTAL VOTE WITHHELD
EACH DIRECTOR FROM EACH DIRECTOR
------------- -------------------
<S> <C> <C>
Anthony Frank 17,480,772 96,092
John F. Seymour, Jr. 17,478,833 98,031
Raymond L. Watson 17,474,501 102,363
William F. McFarland 17,481,458 95,406
</TABLE>
Also at the 1998 Annual Meeting of Shareholders, shareholders
approved (i) the amendment and restatement of the Irvine
Apartment Communities, Inc. 1993 Stock Option Plan for Directors
and (ii) the adoption of the Irvine Apartment Communities, Inc.
1998 Deferred Compensation Plan for Outside Directors.
ITEM 5. OTHER INFORMATION.
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
Exhibit No. 4.6: Officer's Certificate dated April
9, 1998 setting forth certain terms and
provisions applicable to the Operating
Partnership's Medium-Term Notes, Series A
(incorporated by reference to Exhibit 4.1
of the Current Report on Form 8-K of the
Company and the Operating Partnership filed
on April 10, 1998 (the "MTN 8-K")).
Exhibit No. 4.7: Form of the Operating Partnership's Fixed
Rate Medium-Term Note, Series A
(incorporated by reference to Exhibit 4.2
of the MTN 8-K).
Exhibit No. 4.8: Form of the Operating Partnership's
Floating Rate Medium-Term Note, Series A
(incorporated by reference to Exhibit 4.3
of the MTN 8-K).
Exhibit No. 4.9: Supplemental Indenture No. 2 dated as of
April 9, 1998 to the Indenture dated as of
October 1, 1997 between the Operating
Partnership and U.S. Bank Trust National
Association, Trustee (incorporated by
reference to Exhibit 4.4 of the MTN 8-K).
Exhibit No. 10.5.4: Amendment No. 4 to the Administrative
Services Agreement.
Exhibit No. 10.8.1: Irvine Apartment Communities, Inc. Amended
and Restated 1993 Stock Option Plan for
Directors.
Exhibit No. 10.20: Irvine Apartment Communities, Inc. Deferred
Compensation Plan for Outside Directors.
Exhibit No. 27.1: Financial Data Schedule for Irvine
Apartment Communities, Inc.
Page 31
<PAGE> 35
Exhibit No. 27.2: Financial Data Schedule for Irvine
Apartment Communities, L.P.
Exhibit No. 27.3: Financial Data Schedule for IAC Capital
Trust.
(b) During the second quarter of 1998, the Company, the
Operating Partnership and the Trust filed the following
current reports on Form 8-K:
1. On April 9, 1998, the Company and the Operating
Partnership filed a Current Report on Form 8-K
which included pro forma information for the
year ended December 31, 1997 relating to The
Villas of Renaissance.
2. On April 10, 1998, the Company and the Operating
Partnership filed a Current Report on Form 8-K
for the purpose of filing copies of the
Distribution Agreement, Officer's Certificate,
Form of Fixed Rate Medium-Term Note, Series A,
Form of Floating Rate Medium-Term Note, Series A
and Supplemental Indenture No. 2, relating to
the Operating Partnership's Medium-Term Notes.
3. On April 23, 1998, the Company and the Operating
Partnership filed a Current Report on Form 8-K
relating to the announcement of a strategic
alliance with Western National Property
Management on management of the Company's
Southern California portfolio.
Page 32
<PAGE> 36
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: August 10, 1998 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: August 10, 1998 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)
IAC CAPITAL TRUST
Date: August 10, 1998 By: /s/ James E. Mead
--------------------------------------
James E. Mead
Regular Trustee
Page 33
<PAGE> 37
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
4.6: Officer's Certificate dated April
9, 1998 setting forth certain terms and
provisions applicable to the Operating
Partnership's Medium-Term Notes, Series A
(incorporated by reference to Exhibit 4.1
of the Current Report on Form 8-K of the
Company and the Operating Partnership filed
on April 10, 1998 (the "MTN 8-K")).
4.7: Form of the Operating Partnership's Fixed
Rate Medium-Term Note, Series A
(incorporated by reference to Exhibit 4.2
of the MTN 8-K).
4.8: Form of the Operating Partnership's
Floating Rate Medium-Term Note, Series A
(incorporated by reference to Exhibit 4.3
of the MTN 8-K).
4.9: Supplemental Indenture No. 2 dated as of
April 9, 1998 to the Indenture dated as of
October 1, 1997 between the Operating
Partnership and U.S. Bank Trust National
Association, Trustee (incorporated by
reference to Exhibit 4.4 of the MTN 8-K).
10.5.4: Amendment No. 4 to the Administrative
Services Agreement.
10.8.1: Irvine Apartment Communities, Inc. Amended
and Restated 1993 Stock Option Plan for
Directors.
10.20: Irvine Apartment Communities, Inc. Deferred
Compensation Plan for Outside Directors.
27.1: Financial Data Schedule for Irvine
Apartment Communities, Inc.
27.2: Financial Data Schedule for Irvine
Apartment Communities, L.P.
27.3: Financial Data Schedule for IAC Capital
Trust.
</TABLE>
<PAGE> 1
EXHIBIT 10.5.4
AMENDMENT #4 TO ADMINISTRATIVE SERVICES AGREEMENT TO EXTEND TERM TO
DECEMBER 31, 2002.
AMENDMENT dated as of January 1, 1998 to the Administrative Services
Agreement dated as of December 1, 1993 as amended by (i) the Amendment and
Extension Agreement dated as of January 1, 1995, (ii) the Amendment dated as of
May 2, 1996 and (iii) Amendment #3 dated as of February 2, 1998 (collectively,
the "EXISTING AGREEMENT") by and between Irvine Apartment Communities, Inc., a
Maryland corporation (the "COMPANY"), and The Irvine Company, a Delaware
corporation.
WHEREAS, the Company and The Irvine Company agree to extend the Existing
Agreement until December 31, 2002 and to amend the Existing Agreement as
provided below; and
WHEREAS, the execution and delivery of this Agreement by the Company has
been approved by the Independent Directors Committee of the Company's Board of
Directors.
NOW, THEREFORE, the parties hereto agree as follows:
Section 1. The references to December 31, 1997 in Section 3(a) of the
Existing Agreement are hereby amended to December 31, 2002.
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. This Amendment shall be governed by and construed in
accordance with the laws of the State of Maryland (without regard to laws
regarding conflicts of law).
<PAGE> 2
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed and delivered as of the date first above written.
IRVINE APARTMENT COMMUNITIES, INC.
By: /s/ Shawn Howe
----------------------------------------
Name: Shawn Howe
Title: Vice President, Corporate Finance
and Controller
THE IRVINE COMPANY
By: /s/ Michael D. McKee
----------------------------------------
Name: Michael D. McKee
Title: Executive Vice President and
Chief Financial Officer
By: /s/ Daniel C. Hedigan
----------------------------------------
Name: Daniel C. Hedigan
Title: Assistant Secretary
2
<PAGE> 1
EXHIBIT 10.8.1
IRVINE APARTMENT COMMUNITIES, INC.
1993 STOCK OPTION PLAN FOR DIRECTORS
AMENDED AND RESTATED MAY 7, 1998
1. PURPOSE
The purpose of the Irvine Apartment Communities, Inc. 1993 Stock Option
Plan for Directors (the "PLAN") is to promote the interests of the Irvine
Apartment Communities Inc. (the "COMPANY") and its shareholders by increasing
the proprietary and vested interest of non-employee directors in the growth and
performance of the Company by granting such directors options to purchase shares
of Common Stock, par value $.01 per share (the "SHARES"), of the Company.
2. ADMINISTRATION
The Plan shall be administered by the Company's Board of Directors (the
"BOARD"). Subject to the provisions of the Plan, the Board shall be authorized
to interpret the Plan, to establish, amend, and rescind any rules and
regulations relating to the Plan and to make all other determinations necessary
or advisable for the administration of the Plan; provided, however, that the
Board shall have no discretion with respect to the selection of directors to
receive options, the number of Shares subject to any such options, the purchase
price thereunder or the timing of grants of options under the Plan. The
determinations of the Board in the administration of the Plan, as described
herein, shall be final and conclusive. The Secretary of the Company shall be
authorized to implement the Plan in accordance with its terms and to take such
actions of a ministerial nature as shall be necessary to effectuate the intent
and purposes thereof. The validity, construction and effect of the Plan and any
rules and regulations relating to the Plan shall be determined in accordance
with the laws of the State of Delaware.
3. ELIGIBILITY
The class of individuals eligible to receive grants of options under the
Plan shall be directors of the Company who (i) are not employees of the Company
or its affiliates and (ii) are unaffiliated with The Irvine Company and Donald
L. Bren and have not, within five years immediately preceding the determination
of such director's eligibility, been employed by The Irvine Company ("ELIGIBLE
DIRECTORS"). Any holder of an option granted hereunder shall hereinafter be
referred to as a "PARTICIPANT."
4. SHARES SUBJECT TO THE PLAN
Subject to adjustment as provided in Section 6, an aggregate of 250,000
Shares shall be available for issuance upon the exercise of options granted
under the Plan. The Shares deliverable upon the exercise of options may be made
available from authorized but unissued Shares or treasury Shares. If any option
granted under the Plan shall terminate for any reason without having been
exercised, the Shares subject to, but not delivered under, such option shall be
available for other options. If any option granted under the Plan is exercised
through the delivery of Shares, the number of Shares available for issuance upon
the exercise of options shall be increased by the number of Shares surrendered.
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<PAGE> 2
5. GRANT, TERMS AND CONDITIONS OF OPTIONS
(a) Upon first election or appointment to the Board, each newly elected
Eligible Director will be granted an option to purchase 5,000 Shares.
(b) Immediately following each Annual Shareholders Meeting, commencing with
the meeting following the close of fiscal year 1997, each Eligible Director,
other than an Eligible Director first elected to the Board within the 12 months
immediately preceding and including such meeting, will be granted an option to
purchase 2,500 Shares as of the date of such meeting.
(c) The options granted will be nonstatutory stock options not intended to
qualify under Section 422 of the Internal Revenue Code of 1986, as amended (the
"CODE") and shall have the following terms and conditions:
(i) PRICE. The purchase price per Share deliverable upon the exercise
of each option shall be 100% of the Fair Market Value per Share on the date
the option is granted. For purposes of this Plan, Fair Market Value shall
be the average of the highest and lowest per Share sales prices as reported
in the principal consolidated transaction reporting system for the date in
question for the securities exchange or NASDAQ National Market System on
which the Shares are then listed or admitted to trading, or, if the Shares
shall not have traded on such date, the average of the highest and lowest
per Share sales prices on the first date prior thereto on which the Shares
were so traded.
(ii) PAYMENT. Options may be exercised only upon payment of the
purchase price thereof in full. Such payment shall be made in cash or,
unless otherwise determined by the Board, in Shares, which shall have a
Fair Market Value (determined in accordance with the rules of paragraph (i)
above) at least equal to the aggregate exercise price of the Shares being
purchased, or a combination of cash and Shares.
(iii) EXERCISABILITY AND TERM OF OPTIONS. Options shall be exercisable
in whole or in part at all times during the period beginning on the date of
grant until the earlier of ten years from the date of grant and the
expiration of the one year period provided in paragraph (iv) below.
(iv) TERMINATION OF SERVICE AS ELIGIBLE DIRECTOR. Upon termination of
a Participant's service as a Director for any reason, all outstanding
options shall be exercisable in whole or in part for a period of one year
from the date upon which the Participant ceases to be a Director, provided
that in no event shall the options be exercisable beyond the period
provided for in paragraph (iii) above.
(v) NONTRANSFERABILITY OF OPTIONS. No option may be assigned,
alienated, pledged, attached, sold or otherwise transferred or encumbered
by a Participant otherwise than by will or the laws of descent and
distribution, and during the lifetime of the Participant to whom an option
is granted it may be exercised only by the Participant or by the
Participant's guardian or legal representative. Notwithstanding the
foregoing, options may be transferred pursuant to a qualified domestic
relations order.
(vi) LISTING AND REGISTRATION. Each option shall be subject to the
requirement that if at any time the Board shall determine, in its
discretion, that the listing, registration or qualification of the Shares
subject to such option upon any securities exchange or under any state or
federal law, or the consent or approval of any governmental regulatory
body, is necessary or desirable as a condition of, or in connection with,
the granting of such option or the issue or purchase of Shares thereunder,
no such option may be exercised in whole or in part unless such listing,
registration, qualification, consent or approval shall have been effected
or obtained free of any condition not acceptable to the Board.
(vii) OPTION AGREEMENT. Each option granted hereunder shall be
evidenced by an agreement with the Company which shall contain the terms
and provisions set forth herein and shall otherwise be consistent with the
provisions of the Plan.
A-2
<PAGE> 3
6. ADJUSTMENT OF AND CHANGES IN SHARES
In the event of a stock split, stock dividend, subdivision or combination
of the Shares or other change in corporate structure affecting the Shares, the
number of Shares authorized by the Plan shall be increased or decreased
proportionately, as the case may be, and the number of Shares subject to any
outstanding option shall be increased or decreased proportionately, as the case
may be, with appropriate corresponding adjustment in the purchase price per
Share thereunder.
7. NO RIGHTS OF SHAREHOLDERS
Neither a Participant nor a Participant's legal representative shall be, or
have any of the rights and privileges of, a shareholder of the Company in
respect of any Shares purchasable upon the exercise of any option, in whole or
in part, unless and until certificates for such Shares shall have been issued.
8. PLAN AMENDMENTS
The Plan may be amended by the Board, as it shall deem advisable or to
conform to any change in any law or regulation applicable thereto; provided,
that the Board may not, without the authorization and approval of shareholders
of the Company: (i) increase the number of Shares which may be purchased
pursuant to options hereunder, either individually or in the aggregate, except
as permitted by Section 6, (ii) change the requirement of Section 5(d) that
option grants be priced at Fair Market Value, except as permitted by Section 6
or (iii) modify in any respect the class of individuals who constitute Eligible
Directors.
9. EFFECTIVE DATE AND DURATION OF PLAN
The Plan shall become effective on the day of the Company's Annual
Shareholders Meeting at which the Plan is approved by Shareholders. The Plan
shall terminate the day following the Annual Shareholders Meeting at which
Directors are elected in 2008, unless the Plan is extended or terminated at an
earlier date by Shareholders or is terminated by exhaustion of the Shares
available for issuance hereunder.
A-3
<PAGE> 1
EXHIBIT 10.20
IRVINE APARTMENT COMMUNITIES, INC.
1998 DEFERRED COMPENSATION PLAN FOR OUTSIDE DIRECTORS
1. Purpose. The purpose of this Plan is to provide the Company's outside
directors with an opportunity to defer receipt of annual retainer fees.
Capitalized terms used herein shall have the meanings set forth in Section 3.
2. Effective Date. The effective date of this Plan is May 7, 1998.
3. Definitions. For purposes of this Plan, certain items shall be defined
as follows:
"BOARD" shall mean the Board of Directors of the Company.
"CASH ACCOUNT" shall mean a deferred compensation account established under
Section 7, denominated in dollars and credited with interest as provided in
Section 7.
"COMMON STOCK" shall mean the common stock ($.01 par value) of the Company.
"COMPANY" shall mean Irvine Apartment Communities, Inc.
"COMPENSATION" shall mean the annual retainer paid to outside directors of
the Company, as established from time to time, exclusive of meeting, committee
and other fees.
"ELIGIBLE DIRECTOR" shall mean any director of the Company who is not an
employee of the Company or its affiliates.
"FAIR MARKET VALUE" shall mean the most recent per share closing price of
Common Stock on the principal trading exchange or market for such stock, or if
such price cannot reasonably be ascertained, the fair market value of the Common
Stock as determined in accordance with policies established by the Board.
"PLAN" shall mean this Deferred Compensation Plan for Directors' Fees of
the Company.
"PLAN YEAR" shall mean each period beginning with the election of directors
at an annual meeting of the Company's shareholders, and ending on the day before
the next subsequent such meeting at which directors are to be elected.
"STOCK ACCOUNT" shall mean a deferred compensation account established
under Section 7, denominated in Units and credited with dividend equivalents as
provided in Section 7.
"TERMINATION DATE" shall mean the date on which an Eligible Director ceases
to serve as a director of the Company.
"UNIT" shall mean the right to receive one share of Common Stock, or the
Fair Market Value thereof, in accordance with the terms of this Plan.
4. Elective Deferrals. (a) Any Eligible Director may elect to defer his or
her Compensation under the terms of this Plan. Such election shall be made with
respect to Compensation for the Plan Year beginning on the Effective Date,
within 30 days after the Effective Date and with respect to Compensation for
each subsequent Plan Year, on or
B-1
<PAGE> 2
before the first day of such Plan Year. Any such election shall be irrevocable
with respect to Compensation for the applicable Plan Year, subject to Sections 6
and 10 hereof.
(b) A deferral election shall be made by delivering a written notice
of election to the Secretary of the Company, shall specify whether the
Compensation so deferred shall be credited to a Cash Account or a Stock
Account (or a combination of both, in even multiples of 10%), and the date
or dates on which payment of such amounts shall be made, in accordance with
Section 8.
5. New Directors. Any person who becomes an Eligible Director during any
Plan Year may elect, within 30 days after becoming an Eligible Director but
effective on the date such person becomes an Eligible Director, to defer all
Compensation during the balance of the Plan Year. Any such election shall be
made by delivering a written notice of election to the Secretary of the Company
in accordance with Section 4.
6. Change of Election. An Eligible Director's election to defer
Compensation, as well as the election to maintain deferred Compensation in a
Cash Account and/or a Stock Account, as the case may be, shall continue until
such director's Termination Date or until such director withdraws or changes the
appropriate election by written notice delivered to the Secretary of the
Company. Any such notice withdrawing an election to defer Compensation shall
become effective as of the beginning of the next subsequent Plan Year. Any such
notice to change the type of Account to which deferred Compensation is credited
shall become effective with respect to Compensation paid after the date of such
election.
7. Accounts. (a) The Company shall maintain separate memorandum accounts of
the Compensation deferred by each Eligible Director for each Plan Year. Cash
Accounts shall be credited monthly with interest on the balance in such account,
from the date such amount would otherwise have been paid to the director to such
crediting date, such interest to be credited at 7% per annum.
(b) Stock Accounts shall be credited with Units with respect to such
deferred Compensation and dividend equivalents, as hereinafter provided.
Units will be computed as of the date any deferred Compensation would
otherwise have been payable to the deferring Eligible Director by dividing
the aggregate amount of such Compensation deferred by the Fair Market Value
of Common Stock on such date. Units will also be credited with respect to
dividend equivalents as soon as practicable after the record date of any
dividend paid on Common Stock by dividing the amount of dividends to which
each Unit attributable to the balance in the Account as of such record date
would have been entitled if such Unit had been a share of Common Stock
outstanding on such date by the Fair Market Value of Common Stock on such
record date. In the event of any merger, reorganization, consolidation,
recapitalization, stock dividend or subdivision, combination or
reclassification of shares of Common Stock, such adjustments shall be made
to the Stock Accounts of each Eligible Director as may be deemed
appropriate by the Company.
8. Payment. (a) Upon making a deferral election under Section 4, the
Eligible Director may elect to defer receipt of Compensation until either (i) a
specified future year or (ii) such director's Termination Date. If alternative
(i) is selected, payment of the applicable account(s) will be made or will
commence within 90 days after the beginning of the specified year. If
alternative (ii) is elected, payment will be made or will commence within 90
days after the Eligible Director's Termination Date.
(b) Payments may be made in lump sum or a number of annual
installments, as specified by the Eligible Director at the time of
deferral. Payments of balances in Cash Accounts will be made in Cash.
Payments of balances in Stock Accounts may be made in cash or shares of
Common Stock at the Company's election.
9. Death of Eligible Director. Notwithstanding the provisions of Section 8,
if any Eligible Director dies in office, or thereafter, before receiving all
amounts to which such director is entitled under this Plan, the entire unpaid
amount, together with interest or dividend equivalents thereon, as the case may
be, to the date of payment shall be paid in one lump sum to any beneficiary or
beneficiaries designated by such director by written notice delivered to the
Secretary of the Company or, if no beneficiary has been so designated, to such
director's estate, as promptly as practicable after such director's death.
B-2
<PAGE> 3
10. Hardship. At any time after an Eligible Director's Termination Date, an
Eligible Director who has an unpaid balance in a Cash Account and/or a Stock
Account may, in the event of financial emergency which is beyond the control of
such director, request that the Company approve payment of all or part of such
balance to such director prior to the time such payment would otherwise be made.
The amount of such accelerated payment shall be limited to the amount necessary
to satisfy the financial emergency and may only be allowed by the Company if
disallowance of the accelerated payment would result in financial hardship to
such director. In addition to hardship distributions described above, the
Company may also make accelerated payment of the unpaid balance of an Eligible
Director's accounts if such payment is incident to a director's termination of
service and is necessary or advisable to comply with applicable Federal, state
or local rules and regulations.
11. Interests of Eligible Directors. The Company's liability to pay
deferred compensation and other amounts to Eligible Directors pursuant to this
Plan shall not be funded in any way but shall merely be reflected as a liability
on the Company's books in separate memorandum accounts of each eligible director
electing deferral. The Eligible Directors' claims to payment hereunder shall be
general unsecured obligations of the Company.
12. Administration. The Board shall have the authority to construe,
interpret and administer this Plan on behalf of the Company. The Chairman of the
Board, or any officer designated by such Chairman, is hereby authorized to
execute such documents and take such other action as such Chairman or officer,
as the case may be, considers necessary or appropriate to carry out the purposes
of this Plan. Any decision made or action taken by the Board arising out of or
in connection with the construction, administration, interpretation and effect
of the Plan shall lie within the absolute discretion of said Board and shall be
conclusive and binding upon all persons.
B-3
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE ACCOMPANYING FINANCIAL STATEMENTS OF IRVINE APARTMENT COMMUNITIES, INC. FOR
THE SIX MONTHS ENDED JUNE 30, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
<CIK> 0000912084
<NAME> IRVINE APARTMENT COMMUNITIES, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 5,160
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,160
<PP&E> 1,314,449
<DEPRECIATION> 264,274
<TOTAL-ASSETS> 1,244,461
<CURRENT-LIABILITIES> 36,410
<BONDS> 671,795
0
144,016
<COMMON> 200
<OTHER-SE> 195,224
<TOTAL-LIABILITY-AND-EQUITY> 1,244,461
<SALES> 0
<TOTAL-REVENUES> 104,876
<CGS> 0
<TOTAL-COSTS> 48,372
<OTHER-EXPENSES> 4,327
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,368
<INCOME-PRETAX> 37,809
<INCOME-TAX> 0
<INCOME-CONTINUING> 37,809
<DISCONTINUED> 0
<EXTRAORDINARY> (42,451)
<CHANGES> 0
<NET-INCOME> (4,544)
<EPS-PRIMARY> (0.23)
<EPS-DILUTED> (0.23)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE ACCOMPANYING FINANCIAL STATEMENTS OF IRVINE APARTMENT COMMUNITIES, L.P. FOR
THE SIX MONTHS ENDED JUNE 30, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
<CIK> 0001038358
<NAME> IRVINE APARTMENT COMMUNITIES, L.P.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
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<SECURITIES> 0
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<CURRENT-ASSETS> 5,160
<PP&E> 1,314,449
<DEPRECIATION> 264,274
<TOTAL-ASSETS> 1,244,461
<CURRENT-LIABILITIES> 36,410
<BONDS> 671,795
0
144,016
<COMMON> 0
<OTHER-SE> 383,446
<TOTAL-LIABILITY-AND-EQUITY> 1,244,461
<SALES> 0
<TOTAL-REVENUES> 104,876
<CGS> 0
<TOTAL-COSTS> 48,372
<OTHER-EXPENSES> 4,327
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE ACCOMPANYING FINANCIAL STATEMENTS OF IAC CAPITAL TRUST FOR THE PERIOD
JANUARY 20, 1998 (COMMENCEMENT OF OPERATIONS) TO JUNE 30, 1998, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
<CIK> 0001048922
<NAME> IAC CAPITAL TRUST
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 5
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 150,005
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
150,000
<COMMON> 5
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 150,005
<SALES> 0
<TOTAL-REVENUES> 5,534
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
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<INCOME-PRETAX> 5,534
<INCOME-TAX> 0
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</TABLE>
