<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13E-4
ISSUER TENDER OFFER STATEMENT
(Pursuant to Section 13(e)(i) of the Securities Exchange Act of 1934)
WALDEN RESIDENTIAL PROPERTIES, INC.
(Name of Issuer)
WALDEN RESIDENTIAL PROPERTIES, INC.
(Name of Person(s) Filing Statement)
9.16% SERIES A CONVERTIBLE REDEEMABLE PREFERRED STOCK
(Title of Class of Securities)
931210 20 7
(CUSIP Number of Class of Securities)
DON R. DASEKE
WALDEN RESIDENTIAL PROPERTIES, INC.
ONE LINCOLN CENTRE
5400 LBJ FREEWAY, SUITE 400
DALLAS, TEXAS 75240
(214) 788-0510
(Name, Address and Telephone Number of Person Authorized to Receive Notices
and Communications on Behalf of the Person(s) Filing Securities)
JUNE 21, 1996
(Date Tender Offer First Published,
Sent or Given to Security Holders)
Calculation of Filing Fee
- --------------------------------------------------------------------------------
Amount of Filing Fee
$45,000,000* $9,000
- --------------------------------------------------------------------------------
- ---------------
* For purposes of calculating the filing fee pursuant to Rule 0-11 of the
Securities Exchange Unit of 1934, as amended, the market value of the
Preferred Stock proposed to be acquired was established by multiplying the
$25.00, the liquidation preference per share of Preferred Stock, by
1,800,000, the number of shares of Preferred Stock which Walden
Residential Properties, Inc. has offered to acquire.
[ ] Check box if any part of the fee is offset as provided by Rule 0-11(a)(2)
and identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number, or the Form
or Schedule and the date of its filing.
Amount Previously Paid:_________________________________________________________
Form or Registration No.:_______________________________________________________
Filing Party:___________________________________________________________________
Date Filed: ___________________
<PAGE> 2
ITEM 1. SECURITY AND ISSUER.
(a) The name of the issuer is Walden Residential Properties, Inc., a
Maryland corporation (the "Company"), and its principal executive
offices are located at One Lincoln Centre, 5400 LBJ Freeway, Suite
400, Dallas, Texas 75240.
(b) The class of equity shares being sought is the 9.16% Series A
Convertible Redeemable Preferred Stock, par value $.01 per share (the
"Series A Preferred Stock"), of which 1,800,000 shares were
outstanding at May 31, 1996. The Company is seeking to exchange on a
one-for-one basis 1,800,000 shares of its 9.16% Series B Convertible
Redeemable Preferred Stock, par value $.01 per share, for the
outstanding shares of Series A Convertible Preferred Stock (the
"Exchange Offer"). The terms of the Exchange Offer are more
particularly set forth in the copy of the Offering Circular dated
June 21, 1996 (the "Offering Circular"), attached hereto as Exhibit
9(a)(i), and reference is hereby made to the information on the front
cover page of this Schedule and the Offering Circular, which
information is specifically incorporated herein by reference. None of
the shares of the Series A Convertible Redeemable Preferred Stock is
to be purchased from any officer, director or affiliate of the
Company.
(c) There is no currently established trading market for the Series A
Preferred Stock.
(d) Not applicable.
ITEM 2. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
(a) See the cover page of the Offering Circular and "The Exchange
Offer--Terms of the Exchange Offer on page 6 of the Offering
Circular, which information is specifically incorporated herein by
reference.
(b) Not applicable.
ITEM 3. PURPOSE OF THE TENDER OFFER AND PLANS OR PROPOSALS OF THE ISSUER OR
AFFILIATE.
See "The Exchange Offer--Purposes and Effect of the Exchange Offer" on
page 6 of the Offering Circular, which information is specifically incorporated
herein by reference. The purpose of the tender offer is to exchange equity
securities which are listed on the New York Stock Exchange for securities which
cannot be listed on the New York Stock Exchange. The Company will retire and
cancel all shares of Series A Preferred Stock acquired pursuant to the Exchange
Offer.
The Company has no present plans or proposals which would relate to, or
would result in, any transaction, change or other occurrence with respect to
the Company or any class of its equity securities set forth in paragraphs (a)
through (j) of Item 3 of Schedule 13E-4.
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ITEM 4. INTEREST IN SECURITIES OF THE ISSUER.
The Company has not effected, and is not aware of any executive officer or
director of the Company, or person controlling the Company, or associate or
subsidiary of the Company, having effected any transaction in the Series A
Preferred Stock during the past 40 business days.
ITEM 5. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT
TO THE ISSUER'S SECURITIES.
The Company is not aware of any contract, arrangement, understanding or
relationship relating, directly or indirectly, to the Exchange Offer between
the Company, any executive officer or director of the Company or any person
controlling the Company, and any person with respect to any securities of the
Company.
ITEM 6. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
Not Applicable.
ITEM 7. FINANCIAL INFORMATION
(a)(1) The audited consolidated financial statements for the fiscal years
ended December 31, 1994 and 1995 are included in the Company's
Annual Report on Form 10-K and are specifically incorporated herein
by reference.
(a)(2) The unaudited balance sheets and comparative year-to-date income
statements and statements of changes in financial position and
related earnings per share amounts are included in the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1996,
and are specifically incorporated herein by reference.
(a)(3) The ratio of earnings to fixed charges is included in "Selected
Financial Data" on page 5 of the Offering Circular, and is
specifically incorporated herein by reference.
(a)(4) The book value per share as of the most recent fiscal year end and
as of the date of the latest interim balance sheet is included in
"Selected Financial Data" on page 6 of the Offering Circular and is
specifically incorporated herein by reference.
(b) Not applicable.
ITEM 8. ADDITIONAL INFORMATION.
(a) Not applicable.
(b) None.
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(c) Not applicable.
(d) None.
(e) The Offering Circular should be read in its entirety and is
specifically incorporated herein by reference.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
99.(a)(i) Offering Circular, dated June 21, 1996.
99.(a)(ii) Letter of Transmittal.
99.(a)(iii) Guideline for Certification of Taxpayer Identification Number
on Substitute Form W-9.
99.(a)(iv) Notice of Guaranteed Delivery.
(b) Not applicable.
(c) Not applicable.
(d) Not applicable.
(e) Not applicable.
(f) Not applicable.
99.(g) The Company's Annual Report on Form 10-K for year ended
December 31, 1995 (the "Annual Report").
99.(h) Amendment No. 1 to the Annual Report.
99.(i) Amendment No. 2 to the Annual Report.
99.(j) The Company's Quarterly Report on Form 10-Q for quarter ended
March 31, 1996.
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SIGNATURE
After due inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
WALDEN RESIDENTIAL PROPERTIES, INC.
By: /s/ Don R. Daseke
---------------------------------
Don R. Daseke
Chairman of the Board
and Chief Executive Officer
June 20, 1996
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LIST OF EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
- ------ ----------- ------
<S> <C>
99.(a)(i) Offering Circular, dated June 21, 1996..............................
99.(a)(ii) Letter of Transmittal...............................................
99.(a)(iii) Guideline for Certification of Taxpayer Identification Number on
Substitute Form W-9.................................................
99.(a)(iv) Notice of Guaranteed Delivery.......................................
99.(g) The Company's Annual Report on Form 10-K for year ended
December 31, 1995 (the "Annual Report").............................
99.(h) Amendment No. 1 to the Annual Report................................
99.(i) Amendment No. 2 to the Annual Report................................
</TABLE>
<PAGE> 1
EXHBIT 99.(a)(i)
OFFERING CIRCULAR
WALDEN RESIDENTIAL PROPERTIES, INC.
OFFER TO EXCHANGE SHARES OF ITS 9.16% SERIES B
CONVERTIBLE REDEEMABLE PREFERRED STOCK
FOR UP TO 1,800,000 SHARES OF ITS
9.16% SERIES A CONVERTIBLE REDEEMABLE PREFERRED STOCK
- --------------------------------------------------------------------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME ON
MONDAY, JULY 22, 1996, UNLESS EXTENDED.
- --------------------------------------------------------------------------------
Walden Residential Properties, Inc., a Maryland corporation (the
"Company"), hereby offers, upon the terms and subject to the conditions set
forth in this Offering Circular and in the accompanying Letter of Transmittal
(which together constitute the "Exchange Offer"), one share of its 9.16% Series
B Convertible Redeemable Preferred Stock, par value $.01 per share (the "Series
B Preferred Stock"), in exchange for each share of its 9.16% Series A
Convertible Redeemable Preferred Stock par value $.01 per share (the "Series A
Preferred Stock"), of which 1,800,000 shares are currently outstanding. The
form and terms of the Series B Preferred Stock will be identical in all
material respects to the form and terms of the Series A Preferred Stock, except
that the terms of the Series B Preferred Stock will require the holders of
two-thirds of the then outstanding shares of Series B Preferred Stock to
approve any amendment, alteration or repeal of the provisions of the Company's
Articles of Incorporation, as amended, so as to materially and adversely affect
any right, preference, privilege or voting power of the Series B Preferred
Stock or the holders thereof. See "Description of the Series B Preferred
Stock."
The Company will accept for exchange up to 1,800,000 shares of Series A
Preferred Stock which are properly tendered in the Exchange Offer prior to 5:00
P.M., New York City time, on July 22, 1996, unless the Exchange Offer is
extended (as extended, the "Expiration Date"). Tenders of shares of Preferred
Stock may be revoked at any time prior to 5:00 P.M., New York City time, on the
Expiration Date. The shares of Series B Preferred Stock issued pursuant to the
Exchange Offer will be delivered promptly following the Expiration Date,
subject to approval for listing on the New York Stock Exchange. The Company has
applied for such listing.
There is currently no established trading market for the Series A
Preferred Stock.
The Exchange Offer is not conditioned upon any minimum number of shares of
Series A Preferred Stock being tendered for exchange. It is, however, subject
to certain customary conditions described under "The Exchange Offer --
Conditions of the Exchange Offer."
THE DATE OF THIS OFFERING CIRCULAR IS JUNE 21, 1996.
<PAGE> 2
The Exchange Offer is being made by the Company in reliance on the
exemption from the registration requirements of the Securities Act of 1933, as
amended (the "Securities Act"), afforded by Section 3(a)(9) thereof. The
Company, therefore, will not pay any commission or other remuneration to any
broker, dealer, salesman or other person for soliciting tenders of the Series A
Preferred Stock. Regular employees of the Company, who will not receive
additional compensation therefor, may solicit exchanges from holders of the
Series A Preferred Stock.
The Company has no arrangements or understanding with any broker, salesman
or other person to solicit tenders of the Series A Preferred Stock. No person
has been authorized to give any information or to make any representations in
connection with the Exchange Offer other than those contained or incorporated
by reference in this Offering Circular and, if given or made, such other
information or representations should not be relied upon as having been
authorized by the Company. This Offering Circular does not constitute an offer
to any person in any jurisdiction in which that offer would be unlawful, and
the Company will not accept tenders from holders of Series A Preferred Stock in
any jurisdiction in which such acceptance would not be in compliance with the
securities or Blue Sky laws of such jurisdiction. Neither the delivery of this
Offering Circular nor the exchange of Series B Preferred Stock for Series A
Preferred Stock pursuant to the Exchange Offer shall, under any circumstances,
create any implication that there has been no change in the affairs of the
Company since the date hereof.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). The Company has also
filed a Schedule 13E-4 (the "Schedule") with the Commission, which Schedule
also contains information with respect to the Exchange Offer and the Company.
Reports, proxy statements, the Schedule and other information filed with the
Commission by the Company, may be inspected at, and upon payment of the
Commission's customary charges, copies may be obtained from, the Public
Reference Section of the Commission, Room 1204, 450 Fifth Street, N.W.,
Washington, D.C. 20549. Such reports, proxy statements and other information
are also available for inspection and copying at prescribed rates at the
Commission's regional offices in New York, New York (7 World Trade Center, 13th
Floor) and in Chicago, Illinois (500 West Madison Street, Suite 1400); and at
the offices of the New York Stock Exchange, 20 Broad Street, New York, New York
10005.
2
<PAGE> 3
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
This Offering Circular incorporates by reference certain documents which
are not presented herein or delivered herewith. Copies of any such documents,
other than exhibits to such documents, are available upon request, without
charge, from Walden Residential Properties, Inc., One Lincoln Centre, 5400 LBJ
Freeway, Suite 400, Dallas, Texas 75240, Attention: Deborah B. Attner (call
collect at (214) 788-0510).
The following documents, which have been filed by the Company with the
Commission pursuant to the Exchange Act, are incorporated by reference in their
entirety in this Offering Circular:
(i) the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1995;
(ii) Amendment No. 1 to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1995;
(iii) Amendment No. 2 to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1995;
(iv) the Company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1996; and
(v) the Company's Current Report on Form 8-K dated April 23, 1996.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Offering Circular and
prior to the expiration of the Exchange Offer shall be deemed to be
incorporated by reference into this Offering Circular and to be a part hereof
from the respective dates of filing of such documents. Any statement contained
in a document incorporated or deemed to be incorporated by reference herein
shall be deemed to be modified or superseded for purposes of this Offering
Circular to the extent that a statement contained herein, or in any other
subsequently filed document that also is or is deemed to be incorporated by
reference herein, modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Offering Circular.
3
<PAGE> 4
THE COMPANY
The Company is a self-administered, self-managed, fully integrated REIT
focused on middle income multifamily properties located primarily in selected
Southwestern and Southeastern markets. The Company, a Maryland corporation with
headquarters in Dallas, Texas, was formed in September 1993 to continue and
expand the multifamily property ownership, management, acquisition and
marketing operations and related business objectives and strategies of The
Walden Group, Inc. and its subsidiaries and affiliates (collectively,
"Walden"). The Company currently owns and operates 55 multifamily properties
(the "Properties") containing 17,205 apartment units. Approximately 86% of the
Properties are located in the Dallas/Fort Worth, Oklahoma City, Tampa,
Jacksonville, Tulsa, Phoenix, Houston, Austin and Salt Lake City areas, with
the remaining Properties primarily located in other areas in the Southwest and
Southeast regions of the United States. The Properties had a weighted average
occupancy rate of approximately 94.5% at June 16, 1996. Through WDN Management
Company, a corporation formed by the Company to manage multifamily properties
for third parties, the Company manages on a fee basis 10 additional multifamily
properties containing 2,742 apartment units.
Upon completion of its initial public offering in February 1994, the
Company purchased the multifamily operations of Walden, including 18 Properties
containing 5,895 apartment units (of which a 299-unit property was sold in
April 1995 and a 384-unit property was sold in April 1996), and concurrently
purchased the two additional Properties containing 448 apartment units, one of
which was owned by a third party and the other of which was principally owned
by Walden. Since the consummation of its initial public offering, the Company
has acquired 38 Properties (of which one 242-unit property was sold in December
1995), containing an aggregate 11,787 apartment units, for an aggregate
purchase price of approximately $381.5 million. Management believes that these
activities are consistent with its core acquisition strategy of acquiring well
located garden apartment properties at costs less than replacement costs, which
serve middle income residents and can benefit from the Company's comprehensive
management programs.
The Company is operated under the direction of Don R. Daseke, Chairman of
the Board and Chief Executive Officer of the Company, and a management team
substantially all of whom were formerly employed by Walden. The Company's 17
senior executives have an average tenure with the Company and Walden of nine
years and have an average of 17 years experience in the multifamily properties
business. The Company is fully integrated, with operations that include
multifamily property acquisitions, redevelopment services, management,
marketing, finance, leasing and asset management.
The Company's executive offices are located at One Lincoln Centre, 5400
LBJ Freeway, Suite 400, Dallas, Texas 75240. The telephone number is (214)
788-0510. The Company was incorporated in Maryland on September 29, 1993 and
the duration of its existence is perpetual.
4
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RECENT DEVELOPMENTS
On February 8, 1996, the Company entered into a new credit facility (the
"Credit Facility") with The First National Bank of Boston ("Bank of Boston").
This Credit Facility provides financing up to $75 million; however, the
borrowing base is limited to approximately $55 million based upon the available
collateral of 12 Properties and is currently further limited to $30 million
until Bank of Boston obtains other participants to commit to lend under the
Credit Facility. At the Company's election, the interest rate on borrowings is
at a floating rate equal to either (i) 1% over the Bank of Boston's base rate,
or (ii) 1.60% over LIBOR, provided the Company continues to meet certain
financial covenants. As of May 31, 1996, the Company had no outstanding
borrowings under the Credit Facility. On April 24, 1996, the Company sold a
384-unit apartment property located in Wichita, Kansas for $8.3 million. On
June 4, 1996, the Company purchased a 384-unit apartment property located in
Mesa (Phoenix), Arizona for $15.3 million.
5
<PAGE> 6
SELECTED FINANCIAL DATA
The following condensed selected consolidated financial information of the
Company should be read in conjunction with the Company's Consolidated Financial
Statements for the periods ended December 31, 1995 and 1994, included in the
Company's Annual Report in Form 10-K for the fiscal year ended December 31,
1995, as amended, and the Company's Condensed Consolidated Financial Statements
for the three months ended March 31, 1995 and 1996, included the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1996,
incorporated by the reference in this Offering Circular.
<TABLE>
<CAPTION>
Three Months Ended
Year Ended December 31, March 31,
------------------------- ----------------------
1995 1994(1) 1996 1995
--------- --------- --------- ---------
(unaudited)
(In thousands, except per share and share information)
<S> <C> <C> <C> <C>
Operating Data:
Total revenues ......................... $ 82,824 $ 41,993 $ 25,275 $ 16,729
Income before extraordinary
items .............................. $ 10,685 $ 5,356 $ 3,520 $ 1,548
Net income available to
common stockholders ................ $ 8,411 $ 5,356 $ 2,561 $ 1,548
Balance Sheet Data:
Working capital ........................ $ 6,801 $ 4,289 $ 4,725 $ 1,350
Total assets ........................... $ 510,548 $ 334,937 $ 504,276 $ 340,027
Total indebtedness ..................... $ 259,015 $ 165,439 $ 262,442 $ 175,625
Stockholders' equity ................... $ 235,127 $ 160,267 $ 229,850 $ 152,633
Per Share Data:
Income before extraordinary
items .............................. $ .80 $ .62 $ .21 $ .15
Extraordinary loss ..................... $ (.11) -- $ (.03) --
Net income available to
common stockholders ................ $ .69 $ .62 $ .18 $ .15
Book value (at end of period) .......... $ 15.47 $ 15.91 $ 15.16 $ 15.16
Ratio of earnings to fixed charges ..... $ 1.59 $ 1.80 $ 1.69 $ 1.40
</TABLE>
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(1) Does not include the period from January 1, 1995 to February 8, 1995
during which the Company had no operations.
6
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THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Series A Preferred Stock was issued in a public offering that closed
on April 26, 1996. The shares of Series A Preferred Stock are not eligible for
listing on the New York Stock Exchange, Inc. (the "NYSE"). Pursuant to the
Exchange Offer, the Company is issuing the Series B Preferred Stock which,
assuming following the Exchange Offer that there are at least 100 beneficial
holders of the Series B Preferred Stock, will be listed on the NYSE.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Offering
Circular and in the accompanying Letter of Transmittal (the "Letter of
Transmittal"), the Company will accept any and all shares of Series A Preferred
Stock validly tendered and not withdrawn prior to 5:00 p.m., New York City
time, on the Expiration Date. The Company will issue one share of Series B
Preferred Stock in exchange for each share of Series A Preferred Stock accepted
in the Exchange Offer. Holders may tender some or all of their Series A
Preferred Stock pursuant to the Exchange Offer.
The form and terms of the Series B Preferred Stock will be identical in
all material respects to the form and terms of the Series A Preferred Stock,
except that the terms of the Series B Preferred Stock will require the holders
of two-thirds of the then outstanding shares of Series B Preferred Stock to
approve any amendment, alteration or repeal of the provisions of the Company's
Articles of Incorporation, as amended (including the Articles Supplementary (as
defined herein)), so as to materially and adversely affect any right,
preference, privilege or voting power of the Series B Preferred Stock or the
holders thereof. The Exchange Offer is not conditioned upon any minimum number
of shares of Series A Preferred Stock being tendered for exchange. As of May
31, 1996, 1,800,000 shares of Series A Preferred Stock were outstanding. This
Offering Circular, together with the Letter of Transmittal, is being sent to
all such registered holders as of June 21, 1996.
Holders of Series A Preferred Stock do not have any appraisal or
dissenters' rights under the General Corporation Law of the State of Maryland
in connection with the Exchange Offer. The Company intends to conduct the
Exchange Offer in accordance with the applicable requirements of the Exchange
Act and the rules and regulations of the Commission thereunder.
The Company shall be deemed to have accepted validly tendered Series A
Preferred Stock when, as and if the Company has given oral or written notice
thereof to the Exchange Agent. The Exchange Agent will act as agent for the
tendering holders for the purpose of receiving the Series B Preferred Stock
from the Company. If any tendered shares of Series A Preferred Stock are not
accepted for exchange because of an invalid tender, the occurrence of certain
other events set forth herein or otherwise, certificates for any such
unaccepted shares of Series A Preferred
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<PAGE> 8
Stock will be returned, without expense, to the tendering holder thereof as
promptly as practicable after the Expiration Date.
Holders who tender Series A Preferred Stock in the Exchange Offer will not
be required to pay brokerage commissions or fees or, subject to the
instructions in the Letter of Transmittal, transfer taxes with respect to the
exchange of Series A Preferred Stock pursuant to the Exchange Offer. The
Company will pay all charges and expenses, other than certain applicable taxes,
in connection with the Exchange Offer. See "--Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean July 22, 1996, unless the Company,
in its sole discretion, extends the Exchange Offer, in which case the term
"Expiration Date" shall mean the latest date to which the Exchange Offer is
extended. Although the Company has no current intention to extend the Exchange
Offer beyond 5:00 p.m. New York City time on the Expiration Date, the Company
reserves the right to extend the Exchange Offer at any time and from time to
time by giving oral or written notice to the Exchange Agent and by timely
public announcement communicated, unless otherwise required by applicable law
or regulation, by making a release to the Dow Jones News Service. During any
extension of the Exchange Offer, all shares of Series A Preferred Stock
previously tendered pursuant to the Exchange Offer and not withdrawn will
remain subject to the Exchange Offer. The date of the exchange of the Series B
Preferred Stock for Series A Preferred Stock will be the first business day
following the Expiration Date.
The Company expressly reserves the right to (i) terminate the Exchange
Offer and not accept for exchange any Series A Preferred Stock if any of the
events set forth below under "Conditions to the Exchange Offer" shall have
occurred and shall not have been waived by the Company and (ii) amend the terms
of the Exchange Offer in any manner which, in its good faith judgment, is
advantageous to the holders of the Series A Preferred Stock, whether before or
after any tender of the Series A Preferred Stock.
PROCEDURES FOR TENDERING
The tender to the Company of shares of Series A Preferred Stock by a
holder thereof pursuant to one of the procedures set forth below will
constitute an agreement between such holder and the Company in accordance with
the terms and subject to the conditions set forth herein and in the Letter of
Transmittal. A holder of shares of Series A Preferred Stock may tender the same
by (i) properly completing and signing the Letter of Transmittal or a facsimile
thereof (all references in this Offering Circular to the Letter of Transmittal
shall be deemed to include a facsimile thereof) and delivering the same,
together with the certificate or certificates representing the shares of Series
A Preferred Stock being tendered (if in certificated form) and any required
signature guarantees, to the Exchange Agent at its address set forth in the
Letter of Transmittal on or prior to the Expiration Date (or complying with the
procedure for book-entry
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<PAGE> 9
transfer described below) or (ii) complying with the guaranteed delivery
procedures described below.
If tendered shares of Series A Preferred Stock are registered in the name
of the signer of the Letter of Transmittal and the shares of Series B Preferred
Stock to be issued in exchange therefor are to be issued (and any untendered
shares of Series A Preferred Stock are to be reissued) in the name of the
registered holder (which term, for the purposes described herein, shall include
any participant in DTC whose name appears on a security listing as the owner of
Series A Preferred Stock), the signature of such signer need not be guaranteed.
In any other case, the tendered shares of Series A Preferred Stock must be
endorsed or accompanied by written instruments of transfer in form satisfactory
to the Company and duly executed by the registered holder and the signature on
the endorsement or instrument of transfer must be guaranteed by a commercial
bank or trust company located or having an office or correspondent in the
United States, or by a member firm of a registered national securities exchange
or of the National Association of Securities Dealers, Inc. (any of the
foregoing hereinafter referred to as an "Eligible Institution"), which Eligible
Institution must be a member of a qualified signature medallion program. If the
Series B Preferred Stock and/or Series A Preferred Stock not exchanged are to
be delivered to an address other than that of the registered holder appearing
on the register for the Series A Preferred Stock, the signature in the Letter
of Transmittal must be guaranteed by an Eligible Institution.
THE METHOD OF DELIVERY OF SERIES A PREFERRED STOCK AND ALL OTHER DOCUMENTS
IS AT THE ELECTION AND RISK OF THE HOLDER. IF SENT BY MAIL, IT IS RECOMMENDED
THAT REGISTERED MAIL, RETURN RECEIPT REQUESTED, BE USED, PRIOR INSURANCE
OBTAINED AND THE MAILING BE MADE SUFFICIENTLY IN ADVANCE OF THE EXPIRATION DATE
TO PERMIT DELIVERY TO THE EXCHANGE AGENT ON OR BEFORE THE EXPIRATION DATE.
BOOK-ENTRY TRANSFER
The Company understands that the Exchange Agent will make a request
promptly after the date of this Offering Circular to establish an account with
respect to the Series A Preferred Stock at DTC for the purpose of facilitating
the Exchange Offer, and subject to the establishment thereof, any financial
institution that is a participant in DTC's system may make book-entry delivery
of Series A Preferred Stock by causing DTC to transfer such Series A Preferred
Stock into the Exchange Agent's account with respect to the Series A Preferred
Stock in accordance with DTC's procedure for such transfer. Although delivery
of the Series A Preferred Stock may be effected through book-entry transfer
into the Exchange Agent's account at DTC, an appropriate Letter of Transmittal
with any required signature guarantee and all other required documents must in
each case be transmitted to and received or confirmed by the Exchange Agent at
the address set forth in the Letter of Transmittal on or prior to the
Expiration Date, or, if the guaranteed delivery procedures described below are
complied with, within the time period provided under such procedures.
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<PAGE> 10
GUARANTEED DELIVERY PROCEDURES
If any holder of Series A Preferred Stock desires to accept the Exchange
Offer and time will not permit a Letter of Transmittal or shares of Series A
Preferred Stock to reach the Exchange Agent before the Expiration Date or the
procedure for book-entry transfer cannot be completed on a timely basis, a
tender may be effected if the Exchange Agent has received at its office, on or
prior to the Expiration Date, a Notice of Guaranteed Delivery by mail or
facsimile transmission from an Eligible Institution setting forth the name and
address of the tendering holder, the name(s) in which the shares of Series A
Preferred Stock are registered and, if possible, the certificate number(s) of
shares of Series A Preferred Stock to be tendered, and stating that the tender
is being made thereby and guaranteeing that within five NYSE trading days after
the date of execution of the Notice of Guaranteed Delivery by the Eligible
Institution, the shares of Series A Preferred Stock, in proper form for
transfer (or a confirmation of book-entry transfer of such shares of Series A
Preferred Stock into the Exchange Agent's account at DTC), will be delivered by
such Eligible Institution together with a properly completed and duly executed
Letter of Transmittal (and any other required documents). Unless shares of
Series A Preferred Stock being tendered by the above-described method are
deposited with the Exchange Agent within the time period set forth above
(accompanied or preceded by a properly completed Letter of Transmittal and any
other required documents), the Company may, at its option, reject the tender.
Copies of the Notice of Guaranteed Delivery which is to be used by Eligible
Institutions for the purposes described in this paragraph are available from
the Exchange Agent.
A tender will be deemed to have been received as of the date when (i) the
tendered holder's properly completed and duly signed Letter of Transmittal
accompanied by the shares of Series A Preferred Stock (or a confirmation of
book-entry transfer of such shares of Series A Preferred Stock into the
Exchange Agent's account at DTC) is received by the Exchange Agent, or (ii) a
Notice of Guaranteed Delivery from an Eligible Institution is received by mail
or facsimile transmission by the Exchange Agent. Issuances of shares of Series
B Preferred Stock in exchange for shares of Series A Preferred Stock tendered
pursuant to a Notice of Guaranteed Delivery by an Eligible Institution will be
made only against deposit of the Letter of Transmittal (and any other required
documents) and the tendered shares of Series A Preferred Stock.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance for exchange of any tender of shares of Series A
Preferred Stock will be determined by the Company, whose determination will be
final and binding. The Company reserves the absolute right to reject any or all
tenders not in proper form or the acceptance for exchange of which may, in the
opinion of the Company's counsel, be unlawful. The Company also reserves the
absolute right to waive any of the conditions of the Exchange Offer or any
defect or irregularity in the tender of any shares of Series A Preferred Stock.
None of the Company, the Exchange Agent or any other person will be under any
duty to give notification of any defects or irregularities in tenders or incur
any liability for failure to give any such notification.
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<PAGE> 11
In addition, the Company reserves the right in its sole discretion to (i)
purchase or make offers for any shares of Series A Preferred Stock that remain
outstanding subsequent to the Expiration Date and (ii) to the extent permitted
by applicable law, purchase shares of Series A Preferred Stock in privately
negotiated transactions or otherwise. The terms of any such purchases or offers
may differ from the terms of the Exchange Offer.
TERMS AND CONDITIONS OF THE LETTER OF TRANSMITTAL
The Letter of Transmittal contains, among other things, the following
terms and conditions, which are part of the Exchange Offer.
The party tendering shares of Series A Preferred Stock for exchange (the
"Transferor") will exchange, assign and transfer the shares of Series A
Preferred Stock to the Company and irrevocably constitute and appoint the
Exchange Agent as the Transferor's agent and attorney-in-fact to cause the
shares of Series A Preferred Stock to be assigned, transferred and exchanged.
The Transferor will represent and warrant that it has full power and authority
to tender, exchange, assign and transfer the shares of Series A Preferred Stock
and to acquire shares of Series B Preferred Stock issuable upon the exchange of
such tendered shares of Series A Preferred Stock, and that, when the same are
accepted for exchange, the Company will acquire good and unencumbered title to
the tendered shares of Series A Preferred Stock, free and clear of all liens,
restrictions, charges and encumbrances and not subject to any adverse claim.
The Transferor will also covenant that it will, upon request, execute and
deliver any additional documents deemed by the Company to be necessary or
desirable to complete the exchange, assignment and transfer of tendered shares
of Series A Preferred Stock or transfer ownership of such shares of Series A
Preferred Stock on the account books maintained by DTC. All authority conferred
by the Transferor will survive the death, bankruptcy or incapacity of the
Transferor and every obligation of the Transferor shall be binding upon the
heirs, legal representatives, successors, assigns, executors and administrators
of such Transferor.
WITHDRAWAL OF TENDERS
Tenders of shares of Series A Preferred Stock may be withdrawn at any time
prior to 5:00 p.m. New York City time on the Expiration Date.
To be effective, a written notice of withdrawal must be timely received by
the Exchange Agent, either by mail or facsimile transmission, at the address
set forth in the Letter of Transmittal. Any such notice of withdrawal must
specify the holder named in the Letter of Transmittal as having tendered shares
of Series A Preferred Stock to be withdrawn, a statement that such holder is
withdrawing his election to have such shares of Series A Preferred Stock
exchanged and the name of the registered holder of such shares of Series A
Preferred Stock, and must be signed by the holder in the same manner as the
original signature on the Letter of Transmittal (including any required
signature guarantees) or be accompanied by evidence satisfactory to the Company
that the person withdrawing the tender has succeeded to the beneficial
ownership of the shares of Series A Preferred Stock being withdrawn. The
Exchange
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<PAGE> 12
Agent will return the properly withdrawn shares of Series A Preferred Stock
promptly following receipt of notice of withdrawal. If shares of Series A
Preferred Stock have been tendered pursuant to the procedure for book-entry
transfer, any notice of withdrawal must specify the name and number of the
account at DTC to be credited with the withdrawn shares of Series A Preferred
Stock or otherwise comply with DTC procedure. All questions as to the validity
of notices of withdrawal, including time of receipt, will be determined by the
Company, and such determination will be final and binding on all parties.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, or any
extension of the Exchange Offer, the Company will not be required to issue
shares of Series B Preferred Stock in exchange for any properly tendered shares
of Series A Preferred Stock not previously accepted and may terminate the
Exchange Offer (by oral or written notice to the Exchange Agent and by timely
public announcement communicated, unless otherwise required by applicable law
or regulation, by making a release to the Dow Jones News Service), or, at its
option, modify or otherwise amend the Exchange Offer, if either of the
following events occurs:
(i) any statute, rule or regulation shall have been enacted, or any
action shall have been taken by any court or governmental authority which,
in the sole judgment of the Company, would prohibit, restrict or otherwise
render illegal consummation of the Exchange Offer, or
(ii) there shall have occurred (a) any general suspension of or
limitation on prices for, trading in securities on the NYSE or (b) a
declaration of a banking moratorium by the United States, New York, Texas
or Maryland authorities.
The Company expressly reserves the right to terminate the Exchange Offer
and not accept for exchange any shares of Series A Preferred Stock upon the
occurrence of either of the foregoing conditions (which represent all of the
material conditions to the acceptance by the Company of properly tendered
shares of Series A Preferred Stock). In addition, the Company may amend the
Exchange Offer at any time prior to the Expiration Date if either of the
conditions set forth above occurs. Moreover, regardless of whether either of
such conditions has occurred, the Company may amend the Exchange Offer in any
manner which, in its good faith judgment, is advantageous to holders of shares
of Series A Preferred Stock.
In addition, the Company will not issue shares of Series B Preferred Stock
unless and until such shares are approved for listing on the New York Stock
Exchange.
The foregoing conditions are for the sole benefit of the Company and may
be waived by the Company, in whole or in part, in its sole discretion. The
foregoing conditions must be either satisfied or waived prior to termination of
the Exchange Offer. Any determination made by the Company concerning an event,
development or circumstance described or referred to above will be final and
binding on all parties.
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<PAGE> 13
EXCHANGE AGENT
The First National Bank of Boston has been appointed as Exchange Agent for
the Exchange Offer. Questions and requests for assistance, requests for
additional copies of this Offering Circular or of the Letter of Transmittal and
requests for Notices of Guaranteed Delivery should be directed to the Exchange
Agent addressed as follows:
<TABLE>
<CAPTION>
By Mail
(registered or certified mail recommended): By Overnight Courier: By Hand:
<S> <C> <C>
The First National BancBoston Trust The First National
Bank of Boston Company of New York Bank of Boston
150 Royall Street One Exchange Plaza P.O. Box 1889
Mail Stop 45-02-53 55 Broadway, Third Floor Mail Stop 45-02-53
Canton, MA 02021 New York, NY 10006 Boston, MA 02105
Attn.: Corporate Reorganization Attn.: Corporate
Reorganization
By Facsimile: Confirm by Telephone:
617-575-2233 617-575-3120
</TABLE>
FEES AND EXPENSES
The expense of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitations
may be made by telegraph, telephone or in person by officers and regular
employees of the Company and its affiliates. No additional compensation will be
paid to any such officers and employees who engage in soliciting tenders.
The Company has not retained any dealer-manager or other soliciting agent
in connection with the Exchange Offer and will not make any payments to
brokers, dealers or others soliciting acceptances of the Exchange Offer. The
Company, however, will pay the Exchange Agent reasonable and customary fees for
its services and will reimburse it for its reasonable out-of-pocket expenses in
connection therewith.
The Company will pay all transfer taxes, if any, applicable to the
exchange of shares of Series A Preferred Stock pursuant to the Exchange Offer.
If, however, certificates representing shares of Series B Preferred Stock, or
shares of Series A Preferred Stock for shares not tendered or accepted for
exchange, are to be delivered to, or are to be issued in the name of, any
person other than the registered holder of the shares of Series A Preferred
Stock tendered or if a transfer tax is imposed for any reason other than the
exchange of shares of Series A Preferred Stock pursuant to the Exchange Offer,
then the amount of any such transfer taxes (whether imposed on the registered
holder or any other persons) will be payable by the tendering holder. If
satisfactory evidence of payment of such taxes or exemption therefrom is not
submitted with the Letter of Transmittal, the amount of such transfer taxes
will be billed directly to such tendering holder.
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<PAGE> 14
OTHER
Participation in the Exchange Offer is voluntary and holders should
carefully consider whether to accept. Holders of shares of Series A Preferred
Stock are urged to consult their financial and tax advisors in making their own
decisions on what action to take.
No person has been authorized to give any information or to make any
representations in connection with the Exchange Offer other than those
contained in this Offering Circular. If given or made, such information or
representations should not be relied upon as having been authorized by the
Company. Neither the delivery of this Offering Circular nor any exchange made
hereunder shall, under any circumstances, create any implication that there has
been no change in the affairs of the Company since the respective dates as of
which information is given herein. The Exchange Offer is not being made to (nor
will tenders be accepted from or on behalf of) holders of shares of Series A
Preferred Stock in any jurisdiction in which the making of the Exchange Offer
or the acceptance thereof would not be in compliance with the laws of such
jurisdiction. However, the Company may, at its discretion, take such action as
it may deem necessary to make the Exchange Offer in any such jurisdiction and
extend the Exchange Offer to holders of shares of Series A Preferred Stock in
such jurisdiction. In any jurisdiction the securities laws or blue sky laws of
which require the Exchange Offer to be made by a licensed broker or dealer, the
Exchange Offer is being made on behalf of the Company by one or more registered
brokers or dealers which are licensed under the laws of such jurisdiction.
DESCRIPTION OF SERIES B PREFERRED STOCK
DIVIDENDS
Subject to the preferential rights of any other series of preferred stock
of the Company (the "Preferred Stock") ranking senior as to dividends to the
Series B Preferred Stock and to the Company's Amended and Restated Articles of
Incorporation (the "Articles") regarding Excess Stock (as defined in the
Articles), holders of shares of the Series B Preferred Stock will be entitled
to receive, when and as declared by the Board of Directors, out of funds
legally available for the payment of dividends, cumulative preferential cash
dividends in an amount per share of Series B Preferred Stock equal to the
greater of (i) $2.29 per annum or (ii) the dividends (determined on each of the
quarterly Series B Preferred Dividend Payment Dates referred to below) on the
number of shares of Common Stock (or fraction thereof) into which a share of
Series B Preferred Stock is convertible. The amount referred to in clause (ii)
above will equal the number of shares of Common Stock, or fraction thereof,
into which a share of Series B Preferred Stock is then convertible, multiplied
by the quarterly dividend declared or paid with respect to a share of Common
Stock on or most recently prior to the applicable Series B Preferred Dividend
Payment Date.
Dividends with respect to the Series B Preferred Stock will be cumulative
from the date on which the last dividend payment was made on the Series A
Preferred Stock and will be payable
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<PAGE> 15
quarterly in arrears in March, June, September and December (on the same dates
as dividends on shares of Common Stock), beginning with the dividend payment in
September 1996 (each, a "Series B Preferred Dividend Payment Date"). Any
dividend payable on the Series B Preferred Stock for any partial dividend
period after the initial dividend period will be computed on the basis of a
360-day year consisting of twelve 30-day months. Dividends payable on the
Series B Preferred Stock for each full dividend period will be computed by
dividing the annual dividend rate by four. Dividends will be payable to holders
of record as they appear in the stock records of the Company at the close of
business on the applicable record date, which will be the first day of the
calendar month in which the applicable Series B Preferred Dividend Payment Date
falls or such other date designated by the Board of Directors of the Company
for the payment of dividends that is no more than thirty (30) nor less than ten
(10) days prior to such Series B Preferred Dividend Payment Date (each, a
"Series B Preferred Dividend Record Date").
No dividends on shares of Series B Preferred Stock will be declared by the
Board of Directors of the Company or paid or set apart for payment by the
Company at such time as, and to the extent that, the terms and provisions of
any agreement of the Company, including any agreement relating to its
indebtedness, or any provisions of the Articles relating to any series of
Preferred Stock ranking senior to the Series B Preferred Stock as to dividends,
prohibit such declaration, payment or setting apart for payment or provide that
such declaration, payment or setting apart for payment would constitute a
breach thereof or a default thereunder, or if such declaration or payment will
be restricted or prohibited by law. Notwithstanding the foregoing, dividends on
the Series B Preferred Stock will accrue whether or not the Company has
earnings, whether or not there are funds legally available for the payment of
such dividends and whether or not such dividends are declared. Holders of the
Series B Preferred Stock will not be entitled to any dividends in excess of
full cumulative dividends as described above.
If any shares of Series B Preferred Stock are outstanding, no full
dividends will be declared or paid or set apart for payment on the capital
stock of the Company of any other series ranking, as to dividends, on a parity
(including any shares of Series A Preferred Stock which remains outstanding
following the Exchange Offer) with or junior to the Series B Preferred Stock
for any period unless full cumulative dividends have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
set apart for such payment on the Series B Preferred Stock for all past
dividend periods and the then current dividend period. When dividends are not
paid in full (or a sum sufficient for such full payment is not so set apart)
upon the shares of the Series B Preferred Stock and the shares of any other
series of Preferred Stock ranking on a parity as to dividends with the Series B
Preferred Stock, all dividends declared upon shares of Series B Preferred Stock
and any other series of Preferred Stock ranking on a parity as to dividends
with the Series B Preferred Stock will be declared pro rata so that the amount
of dividends declared per share on the Series B Preferred Stock and such other
series of Preferred Stock will in all cases bear to each other the same ratio
that accrued and unpaid dividends per share on the shares of Series B Preferred
Stock and such other series of Preferred Stock bear to each other. No interest,
or sum of money in lieu of interest, will be payable in respect of any dividend
payment or payments on Series B Preferred Stock which may be in arrears.
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<PAGE> 16
Except as provided in the immediately preceding paragraph, unless full
cumulative dividends on the Series B Preferred Stock have been or
contemporaneously are declared and paid or declared and a sum sufficient for
the payment thereof set apart for payment for all past dividend periods and the
then current dividend period, no dividends (other than distributions payable in
Common Stock or other capital stock ranking junior to the Series B Preferred
Stock as to dividends and upon liquidation, dissolution or winding up) will be
declared or paid or set aside for payment, and no other distribution will be
declared or made, upon the Common Stock or any other capital stock of the
Company ranking junior to or on a parity with the Series B Preferred Stock as
to dividends, nor will any Common Stock or any other capital stock of the
Company ranking junior to or on a parity with the Series B Preferred Stock as
to dividends or upon liquidation, dissolution or winding up be redeemed,
purchased or otherwise acquired for any consideration (or any moneys be paid to
or made available for a sinking fund for the redemption of any shares of any
such stock) by the Company (except by conversion into or exchange for other
capital stock of the Company ranking junior to the Series B Preferred Stock as
to dividends and upon liquidation, dissolution and winding up).
Any dividend payment made on shares of Series B Preferred Stock will first
be credited against the earliest accrued but unpaid dividend due with respect
to shares of such Series B Preferred Stock which remains payable.
LIQUIDATION RIGHTS
In the event of any liquidation, dissolution or winding up of the Company,
subject to the prior rights of any series of capital stock ranking senior to
the Series B Preferred Stock, the holders of shares of Series B Preferred Stock
will be entitled to be paid out of the assets of the Company legally available
for distribution to its stockholders a liquidation preference equal to the sum
of $25.00 per share plus an amount equal to any accrued and unpaid dividends
thereon (whether or not earned or declared) to the date of payment (the "Series
B Preferred Liquidation Preference Amount"), before any distribution of assets
is made to holders of Common Stock or any other capital stock that ranks junior
to the Series B Preferred Stock as to liquidation rights. After payment of the
full amount of the liquidating distributions to which they are entitled, the
holders of Series B Preferred Stock will have no right or claim to any of the
remaining assets of the Company.
In the event that, upon any such voluntary or involuntary liquidation,
dissolution or winding up, the legally available assets of the Company are
insufficient to pay the Series B Preferred Liquidation Preference Amount on all
outstanding shares of Series B Preferred Stock and the corresponding amounts
payable on all shares of other classes or series of capital stock of the
Company ranking on a parity with the Series B Preferred Stock in the
distribution of assets upon liquidation, dissolution or winding up, then the
holders of the Series B Preferred Stock and all other such classes or series of
capital stock will share ratably in any such distribution of assets in
proportion to the full liquidating distributions to which they would otherwise
be respectively entitled.
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<PAGE> 17
If liquidating distributions have been made in full to all holders of
shares of Series B Preferred Stock, the remaining assets of the Company will be
distributed among the holders of any other classes or series of capital stock
ranking junior to the Series B Preferred Stock upon liquidation, dissolution or
winding up, according to their respective rights and preferences and in each
case according to their respective number of shares.
The consolidation or merger of the Company with or into any other
corporation, or the sale, lease, transfer or conveyance of all or substantially
all of the property or business of the Company, will not be deemed to
constitute a liquidation, dissolution or winding up of the Company for these
purposes.
REDEMPTION
The Series B Preferred Stock will not be redeemable prior to April 30,
2006, except under certain limited circumstances to preserve the Company's
status as a REIT. See "Restrictions on Transfer." On and after April 30, 2006,
the Company, at its option (to the extent the Company has funds legally
available therefor) upon not less than 30 nor more than 60 days' written
notice, may redeem shares of Series B Preferred Stock, in whole or in part, at
any time or from time to time, for cash at the redemption price per share of
$25.00, plus all accrued and unpaid dividends, if any, thereon (whether or not
earned or declared) to the date fixed for redemption.
Notwithstanding the foregoing, unless full cumulative dividends on all
shares of Series B Preferred Stock have been or contemporaneously are declared
and paid or declared and a sum sufficient for the payment thereof set apart for
payment for all past dividend periods and the then current dividend period, no
shares of Series B Preferred Stock will be redeemed unless all outstanding
shares of Series B Preferred Stock are simultaneously redeemed; provided,
however, that the foregoing will not prevent the purchase or acquisition of
shares of the Series B Preferred Stock pursuant to a purchase or exchange offer
made on the same terms to holders of all outstanding shares of Series B
Preferred Stock, and unless full cumulative dividends on all outstanding shares
of Series B Preferred Stock have been or contemporaneously are declared and
paid or declared and a sum sufficient for the payment thereof set apart for
payment for all past dividend periods and the then current dividend period, the
Company will not purchase or otherwise acquire directly or indirectly through a
subsidiary or otherwise, any shares of Series B Preferred Stock (except by
conversion into or exchange for capital stock of the Company ranking junior to
the Series B Preferred Stock as to dividends and upon liquidation, dissolution
and winding up).
If fewer than all of the outstanding shares of Series B Preferred Stock
are to be redeemed, the number of shares to be redeemed will be determined by
the Company and such shares may be redeemed pro rata from the holders of record
of such shares in proportion to the number of such shares held by such holders
(as nearly as may be practicable without creating fractional shares of Series B
Preferred Stock) or any other equitable method determined by the Company.
17
<PAGE> 18
Notice of redemption will be given by publication in a newspaper of
general circulation in the City of New York, such publication to be made once a
week for two successive weeks commencing not less than 30 nor more than 60
days' prior to the redemption data. A similar notice will be mailed by the
Company, postage prepaid, not less than 30 nor more than 60 days' prior to the
redemption date, addressed to the respective holders of record of Series B
Preferred Stock to be redeemed at their respective addresses as they appear on
the stock transfer records of the Company. No failure to give such notice or
any defect therein or in the mailing thereof will affect the validity of the
proceeding for the redemption of any shares of Series B Preferred Stock except
as to the holder to whom notice was defective or not given. Each notice will
state: (i) the redemption date; (ii) the redemption price; (iii) the number of
shares of Series B Preferred Stock to be redeemed; (iv) the place or places
where the Series B Preferred Stock is to be surrendered for payment of the
redemption price; (v) that dividends on the shares to be redeemed will cease to
accrue on such redemption date; and (vi) that any conversion rights will
terminate at the close of business on the third business day immediately
preceding the redemption date. If fewer than all the shares of Series B
Preferred Stock held by any holder are to be redeemed, the notice mailed to
such holder will also specify the number of shares of Series B Preferred Stock
to be redeemed from such holder. If notice of redemption of any shares of
Series B Preferred Stock has been properly given and if funds necessary for
such redemption have been irrevocably set aside by the Company in trust for the
benefit of the holders of any of the shares of Series B Preferred Stock so
called for redemption, then from and after the redemption date dividends will
cease to accrue on such shares of Series B Preferred Stock, such shares of
Series B Preferred Stock will no longer be deemed to be outstanding and all
rights of the holders of such shares will terminate except for the right to
receive the applicable redemption price and other amounts payable in respect of
such shares.
The holders of Series B Preferred Stock at the close of business on a
Series B Preferred Dividend Record Date will be entitled to receive the
dividend payable with respect to such Series B Preferred Stock on the
corresponding Series B Preferred Dividend Payment Date notwithstanding the
redemption thereof between such Series B Preferred Dividend Record Date and the
corresponding Series B Preferred Dividend Payment Date or the Company's default
in the payment of the dividend due. Except as provided above, the Company will
make no payment or allowance for unpaid dividends, whether or not in arrears,
on shares of Series B Preferred Stock called for redemption.
The Series B Preferred Stock has no stated maturity and will not be
subject to any sinking fund.
VOTING RIGHTS
Holders of the Series B Preferred Stock will not have any voting rights,
except as set forth below or as otherwise from time to time required by law.
Subject to the provisions in the Articles regarding Excess Stock, in any matter
in which the Series B Preferred Stock may vote, including any action by written
consent, each share of Series B Preferred Stock will be entitled
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<PAGE> 19
to one vote. The holders of each share of Series B Preferred Stock may
separately designate a proxy for the vote to which that share of Series B
Preferred Stock is entitled.
Whenever dividends on any shares of Series B Preferred Stock have been in
arrears for six or more quarterly periods, the holders of such shares of Series
B Preferred Stock (voting separately as a class with all other series of
Preferred Stock upon which rights to vote on such matter with the Series B
Preferred Stock have been conferred and are then exercisable) will be entitled
to vote for the election of two additional directors of the Company at a
special meeting called by the holders of record of at least 10% of the Series B
Preferred Stock and such other Preferred Stock, if any (unless such request is
received less than 90 days before the date fixed for the next annual or special
meeting of the stockholders), or at the next annual meeting of stockholders,
and at each subsequent annual meeting until all dividends accumulated on such
shares of Series B Preferred Stock for the past dividend periods and the then
current dividend period have been fully paid or declared and a sum sufficient
for the payment thereof set aside for payment. In such event, the entire Board
of Directors of the Company will be increased by two directors. Each of such
two directors will be elected to serve until the earlier of (i) the election
and qualification of such director's successor or (ii) payment of the dividend
arrearage for the Series B Preferred Stock.
So long as any shares of Series B Preferred Stock remain outstanding, the
Company will not (i) without the affirmative vote or consent of the holders of
at least a majority of the shares of Series B Preferred Stock outstanding at
the time, given in person or by proxy, either in writing or at a meeting (such
series voting separately as a class), authorize or create, or increase the
authorized or issued amount of, any class or series of capital stock ranking
senior to the Series B Preferred Stock with respect to payment of dividends or
the distribution of assets upon liquidation, dissolution or winding up, or
create, authorize or issue any obligation or security convertible into or
evidencing the right to purchase any such shares; or (ii) without the
affirmative vote or consent of the holders of at least two-thirds of the shares
of Series B Preferred Stock outstanding at the time, given in person or by
proxy, either in writing or at a meeting (such series voting separately as a
class), amend, alter or repeal the provisions of the Articles, whether by
merger, consolidation or otherwise, so as to materially and adversely affect
any right, preference, privilege or voting power of the Series B Preferred
Stock or the holders thereof; provided, however, that any increase in the
amount of the authorized Preferred Stock or the creation or issuance of any
other series of Preferred Stock, or any increase in the amount of authorized
shares of Series B Preferred Stock or any other series of Preferred Stock, in
each case ranking on a parity with or junior to the Series B Preferred Stock
with respect to payment of dividends or the distribution of assets upon
liquidation, dissolution or winding up, will not be deemed to materially and
adversely affect such rights, preferences, privileges or voting powers.
The foregoing voting provisions will not apply if, at or prior to the time
when the act with respect to which such vote would otherwise be required is
effected, all outstanding shares of Series B Preferred Stock have been redeemed
or called for redemption upon proper notice and sufficient funds have been
deposited in trust to effect such redemption.
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<PAGE> 20
CONVERSION
Subject to the exceptions described under "Restrictions on Transfer,"
holders of the Series B Preferred Stock will have the right, except in the case
of Series B Preferred Stock called for redemption, to convert all or any of the
Series B Preferred Stock (based upon the Series B Preferred Liquidation
Preference Amount determined immediately following the most recent Series B
Preferred Dividend Payment Date) into shares of Common Stock at the conversion
price of $21.92 per share of Common Stock, subject to adjustment upon the
occurrence of certain events, as described below (the "Conversion Price"). In
the case of Series B Preferred Stock called for redemption, conversion rights
will expire at the close of business on the third business day immediately
preceding the date fixed for redemption.
Shares of Series B Preferred Stock will be deemed to have been converted
immediately prior to the close of business on the date such shares are
surrendered for conversion and notice of election to convert the same is
received by the Company. Upon conversion, no adjustment or prepayment will be
made for dividends, but if any holder surrenders Series B Preferred Stock for
conversion after the close of business on a Series B Preferred Dividend Record
Date and prior to the opening of business on the related Series B Preferred
Dividend Payment Date, then, notwithstanding such conversion, the dividend
payable on such Series B Preferred Dividend Payment Date will be paid on such
Series B Preferred Dividend Payment Date to the registered holder of such
shares on such Series B Preferred Dividend Record Date. Shares of Series B
Preferred Stock surrendered for conversion during the period from the close of
business on a Series B Preferred Dividend Record Date to the Series B Preferred
Dividend Payment Date must also pay the amount of the dividend which is
payable. No fractional shares of Common Stock will be issued upon conversion
and, if the conversion results in a fractional interest, an amount will be paid
in cash equal to the value of such fractional interest based on the market
price of the Common Stock on the last trading day prior to the date of
conversion.
The number of shares of Common Stock or other assets issuable upon
conversion and the Conversion Price are subject to adjustment upon the
occurrence of the following events:
(i) the issuance of Common Stock as a dividend or distribution on
shares of Common Stock;
(ii) the subdivision, combination or reclassification of the
outstanding shares of Common Stock;
(iii) the issuance to all holders of Common Stock of rights or
warrants to subscribe for or purchase Common Stock (or securities
convertible into Common Stock) at a price per share less than the then
current market price per share;
(iv) the distribution to all holders of Common Stock of evidences of
indebtedness or assets (including securities, but excluding Ordinary Cash
Distributions,
20
<PAGE> 21
as defined below, and those dividends, distributions, rights or warrants
referred to above); and
(v) the distribution to all holders of Common Stock of rights or
warrants to subscribe for securities (other than those referred to in
clause (iii) above).
The adjustments to be made in each such event are set forth in the Articles. In
the event of a distribution of evidence of indebtedness or other assets (as
described in clause (iv)) or a dividend to all holders of Common Stock of
rights to subscribe for additional shares of the Company's capital stock (other
than those referred to in clause (iii) above), the Company may, instead of
making an adjustment of the Conversion Price, make proper provision so that
each holder who converts such shares will be entitled to receive upon such
conversion, in addition to shares of Common Stock, an appropriate number of
such rights, warrants, evidences of indebtedness or other assets. No adjustment
will be made for Ordinary Cash Distributions (defined as distributions to
holders of Common Stock in an amount not exceeding the Company's accumulated
funds from operations since its formation, after deducting dividends or other
distributions (i) paid in respect of all classes of capital stock of the
Company or (ii) accrued in respect of the Series B Preferred Stock, and any
other shares of Preferred Stock ranking on a parity with or senior to the
Series B Preferred Stock as to dividends). In addition, no adjustment of the
Conversion Price will be made until cumulative adjustments amount to one
percent or more of the Conversion Price as last adjusted. Any adjustments not
so required to be made will be carried forward and taken into account in
subsequent adjustments.
Whenever the number of shares of Common Stock or other assets issuable
upon conversion and the Conversion Price are adjusted as herein provided, the
Company (i) will promptly make available at the office of the transfer agent a
statement describing in reasonable detail such adjustment, and (ii) will cause
to be mailed by first class mail, postage prepaid, as soon as practicable, to
each holder of record of shares of Series B Preferred Stock, a notice stating
that certain adjustments have been made and stating the adjusted conversion
price.
In the event of any capital reorganization or reclassification of the
capital stock of the Company, or consolidation or merger of the Company with
another corporation, or the sale, transfer or lease of all or substantially all
of its assets to another corporation, is affected in such a way that holders of
Common Stock will be entitled to receive stock, securities or other assets with
respect to or in exchange for Common Stock, then, as a condition of such
reorganization, reclassification, consolidation, merger, sale, transfer or
lease, the holder of each share of Series B Preferred Stock shall have the
right immediately to convert such share into the kind and amount of stock,
securities or other assets which the holders of such shares would have owned or
been entitled to receive immediately after the transaction if such holders had
converted such shares immediately before the effective date of the transaction,
subject to further adjustment upon the occurrence of the events described
above.
21
<PAGE> 22
RANK
The Series B Preferred Stock will, with respect to dividend rights and
distributions upon liquidation, dissolution, and winding up, rank (i) senior to
the Common Stock, all other shares of common stock of the Company of all
classes and series, all classes of Excess Stock (other than Excess Series B
Preferred Stock, as to which the Series B Preferred Stock is senior only as to
dividends) and shares of all other series of capital stock issued by the
Company other than any series of capital stock the terms of which specifically
provide that the capital stock of such series rank senior to or on a parity
with such Series B Preferred Stock with respect to dividend rights or
distributions upon liquidation, dissolution or winding up of the Company; (ii)
on a parity with the Excess Series B Preferred Stock upon liquidation,
dissolution and winding up) and the shares of all other capital stock issued by
the Company the terms of which specifically provide that the shares rank on a
parity with the Series B Preferred Stock with respect to dividends and
distributions upon liquidation, dissolution or winding up of the Company
(including the Series A Preferred Stock) or make no specific provision as to
their ranking; and (iii) junior to all other capital stock issued by the
Company the terms of which specifically provide that the shares rank senior to
the convertible Preferred Stock with respect to dividends and distributions
upon liquidation, dissolution or winding up of the Company (the issuance of
which must have been approved by a vote of at least a majority of the
outstanding shares of Series B Preferred Stock).
RESTRICTIONS ON TRANSFER
The shares of Series B Preferred Stock are generally transferable. The
Articles, however, contain certain restrictions on the number of shares of
Stock, defined to include all classes of capital stock that the Company shall
have authority to issue, including Series B Preferred Stock, other series of
preferred stock and Common Stock, that shareholders may own. For the Company to
qualify as a REIT under the Internal Revenue Code of 1986, as amended (the
"Code"), shares of Stock must be beneficially owned by 100 or more persons
during at least 365 days of a taxable year of twelve months or during a
proportionate part of a shorter taxable year. Further, not more than 50% of the
value of the issued and outstanding shares of Stock (including the Series B
Preferred Stock) may be owned, directly or indirectly, by five or fewer
individuals (as defined in the Code to include, except in limited
circumstances, certain entities such as qualified private pension plans) during
the last half of a taxable year or during a proportionate part of a shorter
taxable year.
Since the Board of Directors of the Company believes it is essential for
the Company to maintain its status as a REIT under the Code, the Articles
provide that no person, except Mr. Don R. Daseke, Chairman of the Board of
Directors and Chief Executive Officer of the Company, may own or be deemed to
own by virtue of the attribution provisions of the Code, more than 9.0% (the
"Ownership Limit") of the aggregate value of all outstanding shares of Stock
(including the Series B Preferred Stock); provided, however, that Mr. Daseke
may not own, directly or indirectly, more than 13.0% of the aggregate value of
all outstanding shares of Stock (the "Existing Holder Limit"). The Board of
Directors, upon receipt of evidence and assurances satisfactory to the Board of
Directors, may also exempt a proposed transferee from the Ownership
22
<PAGE> 23
Limit or Existing Holder Limit. In connection therewith, the Board of Directors
may require opinions of counsel, affidavits, undertakings or agreements as it
may deem necessary or advisable in order to determine or ensure the Company's
status as a REIT. Any acquisition or transfer of shares of Stock that would:
(i) result in the shares of Stock being owned by fewer than 100 persons or (ii)
result in the Company being "closely-held" within the meaning of Section 856(h)
of the Code, shall be null and void, and the intended transferee will acquire
no rights to the shares of Stock (including the Series B Preferred Stock). The
foregoing restrictions on transferability and ownership will not apply if the
Board of Directors determines that it is no longer in the best interests of the
Company to attempt to qualify, or to continue to qualify, as a REIT and the
Articles are amended accordingly.
Any purported transfer of shares of Stock (including the Series B
Preferred Stock) that would result in a person owning shares of Stock in excess
of the Ownership Limit or Existing Holder Limit will result in the shares
subject to such purported transfer being automatically exchanged for an equal
number of shares of Excess Stock. Under the Articles, Excess Stock shall be
deemed to have been transferred to the Company, as trustee of a separate trust
(the "Trust"), for the exclusive benefit of the person or persons to whom the
interest in the Trust can ultimately be transferred.
Excess Stock is not transferable. The purported transferee of any shares
of Stock (including Series B Preferred Stock) that are exchanged for Excess
Stock may designate a transferee of the interest in the Trust if the Excess
Stock held in the Trust and represented by such Trust interest to be
transferred would not be Excess Stock in the hands of the designated transferee
at a price not to exceed the price paid by the purported transferee (or, if no
consideration was paid, the market price at the time of the original attempted
transfer) at which point such Excess Stock will automatically be exchanged for
the shares of Stock (including Series B Preferred Stock) to which the Excess
Stock is attributable. In addition, Excess Stock is subject to purchase by the
Company at a purchase price equal to the lesser of: (i) the price paid for the
shares of Stock (including Series B Preferred Stock) by the intended transferee
(or, if no consideration was paid, the market price of the shares of Stock
(including the Series B Preferred Stock) the attempted transfer of which
resulted in Excess Stock, measured on the date of the transfer); or (ii) the
market price of the shares of Stock (including Series B Preferred Stock) the
attempted transfer of which resulted in Excess Stock measured on the date on
which the Company elects to purchase the Excess Stock. "Market Price" means the
average daily per share closing sales price of a share of Stock (including
Series B Preferred Stock) if shares of Stock (including Series B Preferred
Stock) are listed on a national securities exchange or quoted on Nasdaq
National Market or if not then traded on any exchange or quotation systems, the
mean between the average per share closing bid prices and the average per share
closing bid prices and the average per share closing asked prices, in each
case, during the 30 calendar day period ending on the business day prior to the
redemption date, or if there have been no sales on a national securities
exchange or Nasdaq National Market and no published bid and asked quotations
with respect to shares of such stock during such 30 calendar day period, then
the market price of the shares of Stock (including Series B Preferred Stock) on
the relevant date shall be as determined in good faith by the Board of
Directors.
23
<PAGE> 24
From and after the intended transfer to the purported transferee of the
Excess Stock, the purported transferee shall cease to be entitled to
distributions (except upon liquidation), voting rights and other benefits with
respect to the Excess Stock except the right to payment of the purchase price
for the shares of Stock (including Series B Preferred Stock). Any dividend or
distribution paid to a purported transferee on Excess Stock prior to the
discovery by the Company that the shares have been transferred in violation of
the Articles shall be repaid to the Company upon demand. If the foregoing
transfer restrictions are determined to be void or invalid by virtue of any
legal decision, statute, rule or regulation, then the intended transferee of
any Excess Stock may be deemed, at the option of the Company, to have acted as
an agent on behalf of the Company in acquiring the Excess Stock and to hold the
Excess Stock on behalf of the Company. All certificates representing shares of
Stock (including Series B Preferred Stock) will bear a legend referring to the
restrictions described above.
In addition, each stockholder shall, upon demand, be required to disclose
to the Company in writing, all information regarding the direct and indirect
beneficial ownership of shares of Stock (including Series B Preferred Stock) as
the Board of Directors deems reasonably necessary to comply with the provisions
of the Code applicable to a REIT, to comply with the requirements of any taxing
authority or governmental agency or to determine any such compliance.
These ownership limitations could have the effect of discouraging a
takeover or other transaction in which holders of some, or a majority, of
shares of Stock (including Series B Preferred Stock) might receive a premium
for their shares over the then-prevailing market price or which these holders
might believe to be otherwise in their best interest.
GENERAL
The transfer agent and registrar for the Series B Preferred Stock is The
First National Bank of Boston.
The Series B Preferred Stock will be, when issued, duly authorized, fully
paid and nonassessable and will have no preemptive rights.
TAXATION OF HOLDERS OF SERIES B PREFERRED STOCK
The following is a summary of the material Federal income tax
considerations affecting holders of Series B Preferred Stock. This discussion
is directed principally at investors who are United States citizens or
residents or domestic corporations, and does not address in all material
respects considerations that might adversely affect the treatment of investors
who are subject to special treatment under the tax laws (such as insurance
companies, cooperatives, financial institutions, broker-dealers, tax exempt
organizations or foreign investors). The discussion in this section is based on
existing provisions of the Code, existing and proposed Treasury regulations,
existing court decisions and existing rulings and other administrative
interpretations. There can be no assurance that future Code provisions or other
legal authorities will not alter significantly the tax consequences described
below. No rulings have been obtained from the Internal Revenue
24
<PAGE> 25
Service ("IRS") concerning any of the matters discussed in this section.
Because the following represents only a summary, it is qualified in its
entirety by the applicable provisions of the Code, and regulations, court
decisions and IRS rulings and other IRS pronouncements.
Each prospective purchaser of shares of Series B Preferred Stock is
advised to consult his or her own tax advisor about the Federal, state, local,
foreign and other tax consequences of buying, holding and selling shares of
Series B Preferred Stock.
TAXABLE DISTRIBUTIONS
Distributions made to the holders of Series B Preferred Stock out of
current or accumulated earnings and profits (and not designated as capital gain
dividends) will be taken into account by such holders as ordinary income and
will not be eligible for the dividends received deduction for shareholders that
are corporations. For purposes of determining whether distributions on the
Series B Preferred Stock are out of current or accumulated earnings and
profits, the earnings and profits of the Company will be allocated first to the
Series B Preferred Stock and second to the Common Stock. Distributions not
designated as capital gain dividends which exceed the Company's earnings and
profits will not be taxable to the extent of the basis in such holder's Series
B Preferred Stock (which basis will be reduced by the amount of such
distributions), and will be taxable capital gain to the extent such
distributions exceed such basis. Dividends that are designated as capital gain
dividends will be taxed as long-term capital gains (to the extent that they do
not exceed the Company's actual net capital gain for the taxable year) without
regard to the period for which the holder has held the Series B Preferred
Stock. However, corporate shareholders may be required to treat up to 20% of
certain capital gain dividends as ordinary income. If any portion (the "Capital
Gain Amount") of the Company's distributions are designated by the Company as
capital gain dividends, then the portion of the Capital Gain Amount for the
year so designated that will be allocable to the holders of Series B Preferred
Stock will be the Capital Gain Amount multiplied by a fraction, the numerator
of which will be the total dividends paid or made available to the holders of
the Series B Preferred Stock for the year and the denominator of which will be
the total dividends paid by the Company.
REDEMPTION OF SERIES B PREFERRED STOCK
A redemption of shares of Series B Preferred Stock will be treated under
Section 302 of the Code, as a distribution taxable as a dividend (to the extent
of the Company's current and accumulated earnings and profits) at ordinary
income rates unless the redemption satisfies one of the tests set forth in
Section 302(b) of the Code and is therefore treated as a sale or exchange of
the redeemed shares. The redemption will be treated as a sale or exchange if it
(i) is "substantially disproportionate" with respect to the holder, (ii)
results in a "complete termination" of the holder's stock interest in the
Company, or (iii) is "not essentially equivalent to a dividend" with respect to
the holder, all within the meaning of Section 302(b) of the Code. In
determining whether any of these tests has been met, shares of Stock considered
to be owned by the holder by reason of certain constructive ownership rules set
forth in the Code, as well as shares of Stock actually owned by the holder,
must generally be taken into account. Because the determination
25
<PAGE> 26
as to whether any of the alternative tests of Section 302(b) of the Code will
be satisfied with respect to any particular holder of Series B Preferred Stock
depends upon the facts and circumstances at the time that the determination
must be made, prospective holders of Series B Preferred Stock are advised to
consult their own tax advisors to determine such tax treatment.
If a redemption of shares of Series B Preferred Stock is treated as a
distribution taxable as a dividend, the amount of the distribution will be
measured by the amount of cash and the fair market value of any property
received by the holder. The holder's adjusted basis in the redeemed shares of
Series B Preferred Stock for tax purposes will be transferred to the holder's
remaining shares of Stock, if any. If the holder owns no other shares of Stock,
such basis may, under certain circumstances, be transferred to a related person
or it may be lost entirely.
If a redemption of shares of Series B Preferred Stock is not treated as a
distribution taxable as a dividend to a particular holder, it will be treated,
as to that holder, as a taxable sale or exchange. As a result, such holder will
recognize gain or loss for Federal income tax purposes in an amount equal to
the difference between (i) the amount of cash and the fair market value of any
property received (less any portion thereof attributable to accumulated and
declared but unpaid dividends, which will be taxable as a dividend to the
extent of the Company's current and accumulated earnings and profits) and (ii)
the holder's adjusted basis in the shares of Series B Preferred Stock for tax
purposes. Such gain or loss will be capital gain or loss if the shares of
Series B Preferred Stock have been held as a capital asset and will be
long-term gain or loss if such shares have been held for more than one year.
REDEMPTION PREMIUM
Under Section 305(c) of the Code and applicable Treasury Regulations, if
the redemption price of a Series B Preferred Stock exceeds its issue price by
more than a reasonable redemption premium, the amount of such excess may be
deemed to be a constructive distribution (treated as a dividend to the extent
of the Company's current and accumulated earnings and profits and otherwise
subject to the treatment described above for distributions) taxable to the
holder ratably over the period during which the Series B Preferred Stock cannot
be redeemed.
A redemption premium is considered to be reasonable if it is in the nature
of a penalty for a premature redemption of redeemable preferred stock and if
such premium does not exceed the amount which the issuer would be required to
pay for such redemption right under market conditions existing at the time of
issuance of the stock. Applicable Treasury Regulations currently provide that a
redemption premium not exceeding 10% of the issue price of preferred stock
which is not redeemable for five years from the date of issue will be
considered reasonable. Although the Revenue Reconciliation Act of 1990
substituted a 0.25% de minimis rule for the 10% "safe harbor" set forth in the
Treasury Regulations, the applicable legislative history provides that the
reduced de minimis test will not apply to stock which (like the Series B
Preferred Stock) is neither mandatorily callable by the issuer or puttable by
the holder.
26
<PAGE> 27
The amount, if any, of the redemption premium for the Series B Preferred
Stock will depend upon the issue price of such stock. Although the potential
redemption premiums on the Series B Preferred Stock will not fall within such
"safe harbor" guidelines, the Company believes that any redemption premium on
the Series B Preferred Stock will be considered a reasonable redemption
premium. There can be no assurance, however, that the IRS will regard the
redemption premiums on the Series B Preferred Stock as reasonable. If the
Series B Preferred Stock were deemed to have an unreasonable redemption
premium, holders would be required to accrue the premium over the period of
time during which the Series B Preferred Stock cannot be called for redemption.
CONVERSION OF SERIES B PREFERRED STOCK INTO COMMON STOCK
In general, no gain or loss will be recognized for Federal income tax
purposes upon conversion of the Series B Preferred Stock solely into shares of
Common Stock. The basis that a holder will have for tax purposes in the shares
of Common Stock received upon conversion will be equal to the adjusted basis of
such holder in the shares of Series B Preferred Stock so converted, and,
provided that the shares of Series B Preferred Stock were held as a capital
asset, the holding period for the shares of Common Stock received would include
the holding period for the shares of Series B Preferred Stock converted. A
holder will, however, recognize gain or loss on the receipt of cash in lieu of
fractional shares of Common Stock in an amount equal to the difference between
the amount of cash received and the holder's adjusted basis in such fractional
shares for tax purposes. Furthermore, under certain circumstances, a holder of
shares of Series B Preferred Stock may recognize gain or dividend income to the
extent there are dividends in arrears on such shares at the time of conversion
into Common Stock.
ADJUSTMENTS TO CONVERSION PRICE
Adjustments in the conversion price (or the failure to make such
adjustments) pursuant to the antidilution provisions of the Series B Preferred
Stock or otherwise may result in constructive distributions to the holders of
Series B Preferred Stock that could, under certain circumstances, be taxable to
them as dividends pursuant to Section 305 of the Code. If such constructive
distribution were to occur, a holder of Series B Preferred Stock could be
required to recognize ordinary income for tax purposes without receiving a
corresponding distribution of cash.
27
<PAGE> 1
EXHIBIT 99.(a)(ii)
LETTER OF TRANSMITTAL
- --------------------------------------------------------------------------------
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK
CITY TIME, ON JULY 22, 1996 (AS SUCH DATE AND TIME MAY BE EXTENDED BY THE
COMPANY IN ITS SOLE DISCRETION, THE "EXPIRATION DATE").
- --------------------------------------------------------------------------------
WALDEN RESIDENTIAL PROPERTIES, INC.
9.16% SERIES A CONVERTIBLE REDEEMABLE PREFERRED STOCK
PLEASE READ CAREFULLY THE ATTACHED INSTRUCTIONS
If you desire to accept the Exchange Offer, this Letter of Transmittal
should be completed, signed, and submitted to the Exchange Agent:
<TABLE>
<CAPTION>
By Overnight Carrier: By Hand: By Mail
(registered or certified mail recommended):
<S> <C> <C>
The First National BancBoston Trust Company of The First National
Bank of Boston New York Bank of Boston
150 Royall Street One Exchange Plaza P.O. Box 1889
Mail Stop 45-02-53 55 Broadway, Third Floor Mail Stop 45-02-53
Canton, MA 02021 New York, NY 10006 Boston, MA 02105
Attn.: Corporate Attn.: Corporate Reorganization
Reorganization
</TABLE>
Delivery of this Letter of Transmittal to an address other than as set
forth above will not constitute a valid delivery. For any questions regarding
this Letter of Transmittal or for any additional information, you may contact
the Exchange Agent by telephone at (617) 575-3120.
The undersigned hereby acknowledges receipt of the Offering Circular,
dated June 21, 1996 (the "Offering Circular"), of Walden Residential
Properties, Inc., a Maryland corporation (the "Company"), and this Letter of
Transmittal (the "Letter of Transmittal"), that together constitute the
Company's offer (the "Exchange Offer") to exchange one share of its 9.16%
Series B Convertible Redeemable Preferred Stock (the "Series B Preferred
Stock") for each share of 9.16% Series A Convertible Redeemable Preferred Stock
(the "Series A Preferred Stock"). Capitalized terms used but not defined herein
have the meanings ascribed to them in the Offering Circular.
The undersigned hereby tenders the Series A Preferred Stock described in
Box 1 below (the "Tendered Stock") pursuant to the terms and conditions
described in the Offering Circular and this Letter of Transmittal. The
undersigned represents that it is the registered owner of all the Tendered
Stock and, if the undersigned is not also the beneficial owner thereof, the
undersigned represents that it has received from each beneficial owner of
Tendered Stock ("Beneficial Owners") a duly completed and executed form of
"Instructions to Registered Holder from Beneficial Owner" accompanying this
Letter of Transmittal, instructing the undersigned to take the action described
in this Letter of Transmittal.
<PAGE> 2
Subject to, and effective upon, the acceptance for exchange of the
Tendered Stock, the undersigned hereby exchanges, assigns, and transfers to, or
upon the order of, the Company, all right, title, and interest in, to, and
under the Tendered Stock.
Please issue the shares of Series B Preferred Stock exchanged for Tendered
Stock in the name(s) of the undersigned. Similarly, unless otherwise indicated
under "Special Delivery Instructions" below (Box 3), please send or cause to be
sent the certificates for the shares of Series B Preferred Stock (and
accompanying documents, as appropriate) to the undersigned at the address shown
below in Box 1.
The undersigned hereby constitutes and appoints the Exchange Agent as the
true and lawful agent and attorney in fact of the undersigned with respect to
the Tendered Stock, with full power of substitution, to (i) deliver the
Tendered Stock to the Company or cause ownership of the Tendered Stock to be
transferred to, or upon the order of, the Company, on the books of the
registrar for the Series A Preferred Stock and deliver all accompanying
evidences of transfer and authenticity to, or upon the order of, the Company
upon receipt by the Exchange Agent, as the undersigned's agent, of the shares
of Series B Preferred Stock to which the undersigned is entitled upon
acceptance by the Company of the Tendered Stock pursuant to the Exchange Offer,
and (ii) receive all benefits and otherwise exercise all rights of beneficial
ownership of the Tendered Stock, all in accordance with the terms of the
Exchange Offer.
The undersigned understands that tenders of shares of Series A Preferred
Stock pursuant to the procedures described under the caption "The Exchange
Offer - Procedures for Tendering" in the Offering Circular and in the
instructions hereto will constitute a binding agreement between the undersigned
and the Company upon the terms and subject to the conditions of the Exchange
Offer, subject only to withdrawal of such tenders on the terms set forth in the
Offering Circular under the caption "The Exchange Offer - Withdrawal of
Tenders." All authority herein conferred or agreed to be conferred shall
survive the death or incapacity of the undersigned and any Beneficial Owner(s),
and every obligation of the undersigned or any Beneficial Owners hereunder
shall be binding upon the heirs, representatives, successors, and assigns of
the undersigned and such Beneficial Owner(s).
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, exchange, assign, and transfer the Tendered
Stock and that the Company will acquire good and unencumbered title thereto,
free and clear of all liens, restrictions, charges, encumbrances, and adverse
claims when the Tendered Stock are acquired by the Company as contemplated
herein. The undersigned and each Beneficial Owner will, upon request, execute
and deliver any additional documents reasonably requested by the Company or the
Exchange Agent as necessary or desirable to complete and give effect to the
transactions contemplated hereby.
The undersigned hereby represents and warrants that the information set
forth in Box 2 is true and correct.
[ ] CHECK HERE IF TENDERED STOCK IS BEING DELIVERED HEREWITH.
[ ] CHECK HERE IF TENDERED STOCK IS BEING DELIVERED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY PREVIOUSLY DELIVERED TO THE EXCHANGE AGENT AND
COMPLETE "Use of Guaranteed Delivery" BELOW (Box 4).
[ ] CHECK HERE IF TENDERED STOCK IS BEING DELIVERED BY BOOK-ENTRY TRANSFER
MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE BOOK-ENTRY
TRANSFER FACILITY AND COMPLETE "Use of Book-Entry Transfer" BELOW (Box 5).
[ ] CHECK HERE IF THE UNDERSIGNED OR ANY BENEFICIAL OWNER IS AN AFFILIATE OF
THE COMPANY.
-2-
<PAGE> 3
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL
CAREFULLY BEFORE COMPLETING THE BOXES
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
BOX 1
DESCRIPTION OF TENDERED STOCK
(ATTACH ADDITIONAL SIGNED PAGES, IF NECESSARY)
- -----------------------------------------------------------------------------------------------------------------------------
NAMES AND ADDRESS(S) OF REGISTERED
SERIES A PREFERRED STOCK HOLDER(S), EXACTLY AS CERTIFICATE
NAME APPEAR(S) ON SERIES A PREFERRED STOCK NUMBER(S) NUMBER OF SHARES NUMBER OF
CERTIFICATE(S) (PLEASE FILL IN, IF BLANK) OF SERIES A REPRESENTED SHARES
PREFERRED STOCK* BY CERTIFICATE(S)* TENDERED**
----------------------------------------------------------------------------
<S> <C> <C> <C>
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Total
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Need not be completed by persons tendering by book-entry transfer.
** Unless otherwise indicated in this column, the number of shares of Series
A Preferred Stock identified in this Box 1 or delivered to the Exchange
Agent herewith shall be deemed tendered. See Instruction 4.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
BOX 2
BENEFICIAL OWNER(S)
- -----------------------------------------------------------------------------------------------------------
STATE OF PRINCIPAL RESIDENCE OF EACH BENEFICIAL NUMBER OF SHARES OF TENDERED STOCK HELD FOR
OWNER OF TENDERED STOCK ACCOUNT OF BENEFICIAL OWNER
<S> <C>
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
</TABLE>
-3-
<PAGE> 4
- --------------------------------------------------------------------------------
BOX 3
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 5, 6 AND 7)
TO BE COMPLETED ONLY IF SERIES B PREFERRED STOCK EXCHANGED FOR SERIES A
PREFERRED STOCK AND UNTENDERED SERIES A PREFERRED STOCK IS TO BE SENT TO
SOMEONE OTHER THAN THE UNDERSIGNED, OR TO THE UNDERSIGNED AT AN ADDRESS OTHER
THAN THAT SHOWN ABOVE.
Mail shares of Series B Preferred Stock and any untendered shares of Series A
Preferred Stock to:
Name(s):
________________________________________________________________________________
Address:
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(include Zip Code)
Tax Identification or
Social Security No.:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
BOX 4
USE OF GUARANTEED DELIVERY
(SEE INSTRUCTION 2)
TO BE COMPLETED ONLY IF SERIES A PREFERRED STOCK IS BEING TENDERED BY MEANS OF
A NOTICE OF GUARANTEED DELIVERY.
Name(s) of Registered Holder(s):
________________________________________________________________________________
Date of Execution of Notice of Guaranteed Delivery:_____________________________
Name of Institution which Guaranteed Delivery:__________________________________
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
BOX 5
USE OF BOOK-ENTRY TRANSFER
(SEE INSTRUCTION 1)
TO BE COMPLETED ONLY IF DELIVERY OF TENDERED SERIES A PREFERRED STOCK IS TO BE
MADE BY BOOK-ENTRY TRANSFER.
Name of Tendering Institution:__________________________________________________
Account Number:_________________________________________________________________
Transaction Code Number:________________________________________________________
- --------------------------------------------------------------------------------
-4-
<PAGE> 5
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
BOX 6
TENDERING HOLDER SIGNATURE
(SEE INSTRUCTIONS 1 AND 5)
IN ADDITION, COMPLETE SUBSTITUTE FORM W-9
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C>
Signature Guarantee
X______________________________________________________ (If required by Instruction 5)
X______________________________________________________ Authorized Signature
(Signature of Registered Holder(s)
or Authorized Signatory) X________________________________________________________
Note: The above lines must be signed by the registered Name:____________________________________________________
holder(s) of Series A Preferred Stock as their name(s) (please print)
appear(s) on the Series A Preferred Stock or by person(s)
authorized to become registered holder(s) (evidence of which Title:___________________________________________________
authorization must be transmitted with this Letter of
Transmittal). If signature is by a trustee, executor, Name of Firm:____________________________________________
administrator, guardian, attorney-in-fact, officer, or other (Must be an Eligible Institution as defined
person acting in a fiduciary or representative capacity, such in Instruction 2)
person must set forth his or her full title below. See
Instruction 5. Address:_________________________________________________
Name(s):_______________________________________________ ____________________________________________________
(please print)
____________________________________________________
_______________________________________________ (include Zip Code)
(please print)
Area Code and Telephone Number:
Capacity:______________________________________________
____________________________________________________
_______________________________________________
Dated:___________________________________________________
Street Address:_________________________________________
_______________________________________________
_______________________________________________
(include Zip Code)
Area Code and Telephone Number:
_______________________________________________
Tax Identification or Social Security Number:
_______________________________________________
Dated: _______________________________________________
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
-5-
<PAGE> 6
<TABLE>
=========================================================================================================================
PAYOR'S NAME: WALDEN RESIDENTIAL PROPERTIES, INC.
- -------------------------------------------------------------------------------------------------------------------------
<S> <C>
Name (in joint names, list first and circle the name of the person or entity whose
SUBSTITUTE number you enter in Part 1 below.)
-----------------------------------------------------------------------------------
Name(s): _______________________________________________________________________
FORM W-9 (please print)
________________________________________________________________________________
Department of the Treasury ________________________________________________________________________________
Internal Revenue Service Address:________________________________________________________________________
-----------------------------------------------------------------------------------
City, State and Zip Code:_______________________________________________________
-----------------------------------------------------------------------------------
List account number(s) here (optional)
-----------------------------------------------------------------------------------
PART 1 - PLEASE PROVIDE YOUR TAXPAYER Social Security
IDENTIFICATION NUMBER ("TIN") IN THE BOX number or TIN
AT RIGHT AND CERTIFY BY SIGNING AND
DATING BELOW
-----------------------------------------------------------------------------------
PART 2 - Check the following box if you are NOT subject to backup withholding
under the provisions of section 3406(a)(1)(C) of the Internal Revenue
Code because (1) you have not been notified that you are subject to backup
withholding as a result of failure to report all interest or dividends or (2)
the Internal Revenue Service has notified you that you are no longer
subject to backup withholding. |_|
- --------------------------------------------------------------------------------------------------------------------------
Payor's Request for TIN CERTIFICATION - UNDER THE PENALTIES OF PART 3 -
PERJURY, I CERTIFY THAT THE INFORMATION Check the following box
PROVIDED ON THIS FORM IS TRUE, CORRECT, if you have applied for
AND COMPLETE. or intend to apply for a
TIN. (Backup
Signature _________________________ Date ___________ withholding may be
imposed if you do not
provide a TIN to payor
within 60 days.)
Awaiting TIN |_|
==========================================================================================================================
</TABLE>
Note: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP
WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE EXCHANGE
OFFER OR PURSUANT TO THE SERIES B PREFERRED STOCK. PLEASE REVIEW THE
ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER
ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
-6-
<PAGE> 7
INSTRUCTIONS TO LETTER OF TRANSMITTAL
FORMING PART OF THE TERMS AND CONDITIONS
OF THE EXCHANGE OFFER
1. Delivery of this Letter of Transmittal and Series A Preferred Stock. A
properly completed and duly executed copy of this Letter of Transmittal,
including Substitute Form W-9, and any other documents required by this Letter
of Transmittal must be received by the Exchange Agent at its address set forth
herein, and either certificates for Tendered Stock must accompany this Letter
of Transmittal or such Tendered Stock must be transferred pursuant to the
procedures for book-entry transfer described in the Offering Circular under the
caption "Exchange Offer -- Book-Entry Transfer" (and a confirmation of such
transfer received by the Exchange Agent), in each case prior to 5:00 p.m., New
York City time, on the Expiration Date. The method of delivery of certificates
for Tendered Stock and all other required documents is at the election and risk
of the tendering holder and delivery will be deemed made only when actually
received by the Exchange Agent. If delivery is by mail, registered mail with
return receipt requested, properly insured, is recommended. Instead of delivery
by mail, it is recommended that the holder use an overnight or hand delivery
service. In all cases, sufficient time should be allowed to assure timely
delivery. Neither the Company nor the registrar is under any obligation to
notify any tendering holder of the Company's acceptance of Tendered Stock prior
to the closing of the Exchange Offer.
2. Guaranteed Delivery Procedures. Holders who wish to tender their Series
A Preferred Stock whose shares of Series A Preferred Stock are not immediately
available and who cannot deliver their shares of Series A Preferred Stock,
Letter of Transmittal and any other documents required by the Letter of
Transmittal to the Exchange Agent prior to 5:00 p.m., New York City time, on
the Expiration Date must tender their Series A Preferred Stock according to the
guaranteed delivery procedures set forth below, including completion of Box 4.
Pursuant to such procedures: (i) such tender must be made by or through a firm
that is a member of a registered national securities exchange or of the
National Association of Securities Dealers, Inc., or is a commercial bank or
trust company having an office or correspondent in the United States, or is
otherwise an "eligible guarantor institution" within the meaning of Rule
17Ad-15 under the Securities Exchange Act of 1934, as amended (an "Eligible
Institution"), and the Notice of Guaranteed Delivery must be signed by the
holder; (ii) prior to 5:00 p.m., New York City time, on the Expiration Date,
the Exchange Agent must have received from the holder and the Eligible
Institution a properly completed and duly executed Notice of Guaranteed
Delivery (by mail, hand delivery or facsimile transmission) setting forth the
name and address of the holder, the certificate number or numbers of the
Tendered Stock, and the principal amount of Tendered Stock, stating that the
tender is being made thereby and guaranteeing that, within five trading days
after the Expiration Date, a properly completed and executed Letter of
Transmittal, together with the Tendered Stock and any other required documents
will be deposited by the Eligible Institution with the Exchange Agent; and
(iii) such properly completed and executed documents required by this Letter of
Transmittal and the Tendered Stock in proper form for transfer must be received
by the Exchange Agent within five trading days after the Expiration Date. Any
holder who wishes to tender shares of Series A Preferred Stock pursuant to the
guaranteed delivery procedures described above must ensure that the Exchange
Agent receives the Notice of Guaranteed Delivery relating to such Series A
Preferred Stock prior to 5:00 p.m., New York City time, on the Expiration Date.
Failure to complete the guaranteed delivery procedures outlined above will not,
of itself, affect the validity or effect a revocation of any Letter of
Transmittal form properly completed and executed by an Eligible Holder who
attempted to use the guaranteed delivery process.
3. Beneficial Owner Instructions to Registered Holders. Only a holder in
whose name Tendered Stock is registered on the books of the registrar (or the
legal representative or attorney-in-fact of such registered holder) may execute
and deliver this Letter of Transmittal. Any Beneficial Owner of Tendered Stock
who is not the registered holder must arrange promptly with the registered
holder to execute and deliver this Letter of Transmittal on his, her or its
behalf through the execution and delivery to the registered holder of the
Instructions to Registered Holder from Beneficial Owner form accompanying this
Letter of Transmittal.
4. Partial Tenders. If fewer than the entire number of shares of Series A
Preferred Stock represented by any certificate are being tendered, the
tendering holder should fill in the number of shares tendered in the column
-7-
<PAGE> 8
labeled "Number of Shares Tendered" of the box entitled "Description of
Tendered Shares" (Box 1) above. The entire number of shares of Series A
Preferred Stock represented by any certificate delivered to the Exchange Agent
will be deemed to have been tendered unless otherwise indicated. Excluding
shares of Series A Preferred Stock exchanged pursuant to a book-entry transfer,
if the entire number of shares of Series A Preferred Stock represented by any
certificate is not tendered, certificates representing the number of shares of
Series A Preferred Stock not tendered and certificates representing shares of
Series B Preferred Stock exchanged for any Tendered Stock will be sent to the
registered holder at his, her or its registered address, unless a different
address is provided in the appropriate box on this Letter of Transmittal, as
soon as practicable following the Expiration Date.
5. Signatures on the Letter of Transmittal; Bond Powers and Endorsements;
Guarantee of Signatures. If this Letter of Transmittal is signed by the
registered holder(s) of the Tendered Stock, the signature must correspond with
the name(s) as written on the face of the Tendered Stock without alteration,
enlargement, or any change whatsoever.
If any of the Tendered Stock is owned of record by two or more joint
owners, all such owners must sign this Letter of Transmittal. If any Tendered
Stock is held in different names on several shares of Series A Preferred Stock,
it will be necessary to complete, sign, and submit as many separate copies of
this Letter of Transmittal and related documents as there are names in which
Tendered Stock are held.
If this Letter of Transmittal is signed by the registered holder(s) of any
Tendered Stock and shares of Series B Preferred Stock are to be issued and any
untendered shares of Series A Preferred Stock are to be reissued to the
registered holder(s), the registered holder(s) need not and should not endorse
any Tendered Stock nor provide a separate stock power. In any other case, such
registered holder(s) must either properly endorse the Tendered Stock or
transmit a properly completed separate bond power with this Letter of
Transmittal, with the signature(s) on the endorsement or stock power guaranteed
by an Eligible Institution that is a member of a qualified signature medallion
program.
If this Letter of Transmittal is signed by a person other than the
registered holder(s) of any Tendered Stock, the Tendered Stock must be endorsed
or accompanied by appropriate bond powers, in each case, (i) transferring the
Tendered Stock into the name of the person signing this Letter of Transmittal
and (ii) signed as the name of the registered holder(s) appears on the Tendered
Stock, with the signature on the endorsement or stock power guaranteed by an
Eligible Institution that is a member of a qualified signature medallion
program.
If this Letter of Transmittal or any Tendered Stock or stock powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations, or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing and, unless waived by
the Company, evidence satisfactory to the Company of their authority to so act
must be submitted with this Letter of Transmittal.
Endorsements on Tendered Stock or signatures on stock powers required by
this Instruction 5 must be guaranteed by an Eligible Institution that is a
member of a qualified signature medallion program.
Signatures on this Letter of Transmittal must be guaranteed by an Eligible
Institution that is a member of a qualified signature medallion program unless
the Tendered Stock is tendered (i) by a registered holder who has not completed
the box set forth herein entitled "Special Delivery Instructions" (Box 3) or
(ii) by an Eligible Institution.
6. Special Delivery Instructions. Tendering holders should indicate, in
the applicable box (Box 3), the name and address to which the shares of Series
B Preferred Stock and/or substitute shares of Series A Preferred Stock for
shares of Series A Preferred Stock not tendered or not accepted for exchange
are to be sent, if different from the name and address of the person signing
this Letter of Transmittal.
7. Transfer Taxes. The Company will pay all transfer taxes, if any,
applicable to the sale and transfer of Tendered Stock to it or its order
pursuant to the Exchange Offer. If, however, a transfer tax is imposed for any
reason other than the transfer and sale of Tendered Stock to the Company or its
order pursuant to the Exchange
-8-
<PAGE> 9
Offer, then the amount of any such transfer taxes (whether imposed on the
registered holder or on any other person) will be payable by the tendering
holder. If satisfactory evidence of payment of such taxes or exemption from
taxes therefrom is not submitted with this Letter of Transmittal, the amount of
transfer taxes will be billed directly to such tendering holder.
Except as provided in this Instruction 7, it will not be necessary for
transfer tax stamps to be affixed to the Tendered Stock listed in this Letter
of Transmittal.
8. Tax Identification Number. Federal income tax law requires that the
holder(s) of any Tendered Stock which are accepted for exchange must provide
the Company (as payor) with its correct taxpayer identification number ("TIN"),
which, in the case of a holder who is an individual, is his or her social
security number. If the Company is not provided with the correct TIN, the
holder may be subject to backup withholding of 31% and a $50 penalty imposed by
the Internal Revenue Service. (If withholding results in an over-payment of
taxes, a refund may be obtained.) Certain holders (including, among others, all
corporations and certain foreign individuals) are not subject to these backup
withholding and reporting requirements.
To prevent backup withholding, each holder of Tendered Stock must provide
such holder's correct TIN by completing the Substitute Form W-9 set forth
herein, certifying that the TIN provided is correct (or that such holder is
awaiting a TIN), and that (i) the holder has not been notified by the Internal
Revenue Service that such holder is subject to backup withholding as a result
of failure to report all interest or dividends or (ii) the Internal Revenue
Service has notified the holder that such holder is no longer subject to backup
withholding.
If a holder does not have a TIN, the holder must certify that the TIN has
been or will be applied for immediately (with the Internal Revenue Service or
Social Security Administration). The holder will then have sixty (60) days to
obtain a TIN and provide it to the Company. If the holder does not provide the
TIN to the Company within sixty (60) days, the holder will be subject to backup
withholding.
If a foreign holder is not a citizen or resident of the United States, and
the address to which payments to the foreign holder are to be made is outside
of the United States, then, generally, the foreign holder may prevent backup
withholding by filing a Form W-8 with the Company, certifying to the foregoing
under penalties of perjury.
The Company reserves the right in its sole discretion to take whatever
steps are necessary to comply with the Company's obligation regarding backup
withholding.
9. Validity of Tenders. All questions as to the validity, form,
eligibility (including time of receipt), and acceptance of Tendered Stock will
be determined by the Company in its sole discretion, which determination will
be final and binding. The Company reserves the right to reject any and all
shares of Series A Preferred Stock not validly tendered or any shares of Series
A Preferred Stock the Company's acceptance of which would, in the opinion of
the Company or its counsel, be unlawful. The Company also reserves the right to
waive any conditions of the Exchange Offer or defects or irregularities in
tenders of shares of Series A Preferred Stock as to any ineligibility of any
holder who seeks to tender shares of Series A Preferred Stock in the Exchange
Offer. The interpretation of the terms and conditions of the Exchange Offer
(including this Letter of Transmittal and the instructions hereto) by the
Company shall be final and binding on all parties. Unless waived, any defects
or irregularities in connection with tenders of shares of Series A Preferred
Stock must be cured within such time as the Company shall determine. The
Company will use reasonable efforts to give notification of defects or
irregularities with respect to tenders of shares of Series A Preferred Stock,
but shall not incur any liability for failure to give such notification.
10. Waiver of Conditions. The Company reserves the absolute right to
amend, waive, or modify specified conditions in the Exchange Offer in the case
of any Tendered Stock.
11. No Conditional Tender. No alternative, conditional, irregular, or
contingent tender of shares of Series A Preferred Stock or transmittal of this
Letter of Transmittal will be accepted.
-9-
<PAGE> 10
12. Mutilated, Lost, Stolen, or Destroyed Shares of Series A Preferred
Stock. Any tendering holder whose shares of Series A Preferred Stock have been
mutilated, lost, stolen, or destroyed should contact the Exchange Agent at the
address indicated above for further instruction.
13. Requests for Assistance or Additional Copies. Questions and requests
for assistance and requests for additional copies of the Offering Circular may
be directed to the Exchange Agent at the address and/or telephone numbers
specified in this Letter of Transmittal. Holders may also contact their broker,
dealer, commercial bank, trust company or other nominee for assistance
concerning the Exchange Offer.
14. Acceptance of Tendered Shares of Series A Preferred Stock and Issuance
of Shares of Series B Preferred Stock; Return of Shares of Series A Preferred
Stock. Subject to the terms and conditions of the Exchange Offer, the Company
will accept for exchange all validly tendered shares of Series A Preferred
Stock as soon as practicable after the Expiration Date and will issue shares of
Series B Preferred Stock therefor as soon as practicable thereafter. For
purposes of the Exchange Offer, the Company shall be deemed to have accepted
tendered shares of Series A Preferred Stock when, as and if the Company has
given written or oral notice thereof to the Exchange Agent. If any Tendered
Stock is not exchanged pursuant to the Exchange Offer for any reason, such
unexchanged Stock is will be returned, without expense, to the undersigned at
the address shown in Box 1 or at a different address as may be indicated herein
under "Special Delivery Instructions" (Box 3).
15. Withdrawal. Tenders may be withdrawn only pursuant to the procedures
set forth in the Prospectus under the caption "The Exchange Offer -- Withdrawal
of Tenders."
-10-
<PAGE> 1
EXHIBIT 99.(a)(iii)
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE PAYOR
- -- Social Security numbers have nine digits separated by two hyphens: i.e.,
000-00-000. Employer identification numbers have nine digits separated by only
one hyphen: i.e., 00-0000000. The table below will help determine the number to
give the Payor.
<TABLE>
<CAPTION>
GIVE THE SOCIAL SECURITY
FOR THIS TYPE OF ACCOUNT NUMBER OF --
------------------------ ---------
<S> <C>
1. An individual's account The individual
2. Two or more individuals The actual owner of the account or, if
(joint account) combined funds, any one of the
individuals(1)
3. Husband and wife (joint account) The actual owner of the account or, if joint
funds, either person(1)
4. Custodian account of a minor The minor(2)
(Uniform Gift to Minors Act)
5. Adult and minor (joint account) The adult or, if the minor is the only
contributor, the minor(1)
6. Account in the name of a guardian The ward, minor, or incompetent person(3)
or committee for a designated ward,
minor, or incompetent person
7. a. The usual recoverable savings a. The grantor-trustee(1)
trust account (grantor is also trustee)
b. So-called trust account that is not b. The actual owner(1)
a legal or valid trust under State law
8. Sole proprietorship account The owner(4)
9. A valid trust, estate, or pension trust Legal entity (Do not furnish the identifying
number of the personal representative or
trustee unless the legal entity itself is not
designated in the account title)(5)
10. Corporate account The corporation
11. Religious, charitable or educational The organization
organization account
12. Partnership account held in the name The partnership
of the business
13. Association, club or other tax-exempt The organization
organization
14. A broker or registered nominee The broker or nominee
</TABLE>
<PAGE> 2
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
PAGE 2
15. Account with the Department of The public entity
Agriculture in the name of a public
entity (such as State or local
governmental school district or
prison) that receives agricultural
program payments
- -----------------------------
(1) List first and circle the name of the person whose number you furnish
(2) Circle the minor's name and furnish the minor's social security number
(3) Circle the ward's, minor's or incompetent person's name and furnish such
person's social security number.
(4) Show the name of the owner.
(5) List first and circle the name of the legal trust, estate or pension
trust.
NOTE: If no name is circled when there is more than one name, the number will
be considered to be that of the first name listed.
OBTAINING A NUMBER
If you don't have a taxpayer identification number or you don't know your
number, obtain Form SS-5, Application for a Social Security Number Card, or
Form SS-4 Application for Employer Identification Number, at the local office
of the Social Security Administration or the Internal Revenue Service and apply
for a number.
PAYEES EXEMPT FROM BACKUP WITHHOLDING
Payees specifically exempted from backup withholding on ALL payments include
the following:
o A corporation
o A financial institution
o An organization exempt from tax under section 501(a), or an individual
retirement plan
o The United States or any agency or instrumentality thereof.
o A State, the District of Columbia, a possession of the United States, or
any subdivision or instrumentality thereof.
o A foreign government, a political subdivision of a foreign government, or
any agency or instrumentality thereof.
o An international organization or any agency or instrumentality thereof.
o A registered dealer in securities or commodities registered in the U.S. or
a possession of the U.S.
o A real estate investment trust
o A common trust fund operated by a bank under section 584(a)
o An exempt charitable remainder trust, or a non-exempt trust described in
section 497(a)(1)
o An entity registered at all times under the Investment Company Act of
1940.
<PAGE> 3
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
PAGE 3
o A foreign central bank of issue.
Payments of dividends and patronage dividends not generally subject to backup
withholding include the following:
o Payments to nonresident aliens subject to withholding under Section 1441.
o Payments to Partnerships not engaged in a trade or business in the U.S.
and which have at least one nonresident partner.
o Payments of patronage dividend where the account received is not paid in
money.
o Payments made by certain foreign organizations
o Payments made to a nominee
Payments of interest not generally subject to backup withholding include the
following:
o Payments on interest on obligations issued by individuals. Note: You may
be subject tot backup withholding if this interest is $600 or more and is
paid in the course of the payer's trade or business and you have not
provided your correct taxpayer identification number to the payer.
o Payments of tax-exempt interest (including exempt interest dividends under
Section 852).
o Payments described in Section 6049(b)(5) to nonresident aliens.
o Payments on tax-free covenant bonds under Section 1451.
o Payments made to a nominee.
Exempt payees described above should file Form W-9 to avoid possible erroneous
backup withholding. FILE THIS FORM WITH THE PAYER. FURNISH YOUR TAXPAYER
IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM, AND RETURN IT TO
THE PAYER. IF THE PAYMENTS ARE INTEREST, DIVIDENDS, OR PATRONAGE DIVIDENDS,
ALSO SIGN AND DATE THE FORM.
Certain payments other than interest, dividends, and patronage dividends
that are not subject to information reporting are also not subject to backup
withholding. For details, see the regulations under Sections 6041, 6041(a),
6045 and 6050A.
PRIVACY ACT NOTICE--Section 6019 requires most recipients of dividend interest,
or other payments to give taxpayer identification numbers to payers who must
report the payments to IRS. IRS uses the numbers for identification purposes.
Payers must be given the numbers whether or not recipients are required to file
tax returns. Payers must generally withhold 31(cent) of taxable interest,
dividend, and certain other payments to a payee who does not furnish a taxpayer
identification number to a payer. Certain penalties may also apply.
<PAGE> 4
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
PAGE 4
PENALTIES
(1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER--If you fail
to furnish your taxpayer identification number to a payer, you are subject
to a penalty of $50 for each such failure unless your failure is due to
reasonable cause and not to willful neglect.
(2) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING--If you
make a false statement with no reasonable basis which results in no
imposition of backup withholding, you are subject to a penalty of $500.
(3) CRIMINAL PENALTY FOR FALSIFYING INFORMATION--Falsifying certifications or
affirmations may subject you to criminal penalties including fines and/or
imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT
OR THE INTERNAL REVENUE SERVICE.
<PAGE> 1
EXHIBIT 99.(a)(iv)
NOTICE OF GUARANTEED DELIVERY
WITH RESPECT TO
WALDEN RESIDENTIAL PROPERTIES, INC.
9.16% SERIES A CONVERTIBLE REDEEMABLE PREFERRED STOCK
This form must be used by a holder of shares of 9.16% Series A Convertible
Redeemable Preferred Stock (the "Series A Preferred Stock") of Walden
Residential Properties, Inc., a Maryland corporation (the "Company"), who
wishes to tender shares of Series A Preferred Stock to the Exchange Agent
pursuant to the guaranteed delivery procedures described in "The Exchange Offer
- -- Guaranteed Delivery Procedures" of the Offering Circular dated June 21, 1996
(the "Offering Circular") and in Instruction 2 to the Letter of Transmittal.
Any holder who wishes to tender shares of Series A Preferred Stock pursuant to
such guaranteed delivery procedures must ensure that the Exchange Agent
receives this Notice of Guaranteed Delivery prior to 5:00 p.m., New York City
time, on the Expiration Date of the Exchange Offer. Capitalized terms not
defined herein have the meanings ascribed to them in the Offering Circular or
the Letter of Transmittal.
To: The First National Bank of Boston, Exchange Agent
<TABLE>
<CAPTION>
By Overnight Courier: By Hand: By Mail (registered or
certified mail recommended):
<S> <C> <C>
The First National Bank of BancBoston Trust Company The First National Bank of
Boston of New York Boston
150 Royall Street One Exchange Plaza P. O. Box 1889
Mail Stop 45-02-53 55 Broadway, Third Floor Mail Stop 45-02-53
Canton, MA 02021 New York, NY 10006 Boston, MA 02105
Attn.: Corporate Attention: Corporate
Reorganization Reorganization
</TABLE>
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
The undersigned hereby tenders to the Company, upon the terms and subject
to the conditions set forth in the Offering Circular and the related Letter of
Transmittal, receipt of which is hereby acknowledged, the number of shares of
Series A Preferred Stock specified below pursuant to the guaranteed delivery
procedures set forth in the Offering Circular and in Instruction 2 of the
Letter of Transmittal. The undersigned hereby tenders the number of shares of
Series A Preferred Stock listed below:
- -------------------------------------------------------------------------------
CERTIFICATE NUMBER(S) (IF KNOWN) AGGREGATE NUMBER
OF SERIES A PREFERRED STOCK NUMBER OF SHARES OF SHARES TENDERED
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE> 2
SIGN HERE
Name of Holder:_________________________________________________________________
Signature(s):___________________________________________________________________
Name(s) (please print):_________________________________________________________
Address:________________________________________________________________________
________________________________________________________________________
Telephone Number:_______________________________________________________________
Date:___________________________________________________________________________
<PAGE> 3
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a firm which is a member of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.,
or is a commercial bank or trust company having an office or correspondent in
the United States, or is otherwise an "eligible guarantor institution" within
the meaning of Rule 17Ad-15 under the Securities Exchange Act of 1934, as
amended, guarantees deposit with the Exchange Agent of the Letter of
Transmittal, together with the shares of Series A Preferred Stock tendered
hereby in proper form for transfer and any other required documents, all by
5:00 p.m., New York City time, on or before the fifth business day following
the Expiration Date.
SIGN HERE
Name of Firm:___________________________________
Authorized Signature:___________________________
Name (please print):____________________________
Address:________________________________________
________________________________________
________________________________________
Telephone Number:_______________________________
Date:___________________________________________
DO NOT SEND TENDERED SHARES OF SERIES A PREFERRED STOCK WITH THIS FORM. ACTUAL
DELIVERY OF TENDERED SHARES OF SERIES A PREFERRED STOCK MUST BE MADE IN
ACCORDANCE WITH, AND BE ACCOMPANIED BY, AN EXECUTED LETTER OF TRANSMITTAL.
INSTRUCTIONS FOR NOTICE OF GUARANTEED DELIVERY
1. DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY. A properly completed
and duly executed copy of this Notice of Guaranteed Delivery and any other
documents required by this Notice of Guaranteed Delivery must be received by
the Exchange Agent at its address set forth herein prior to 5:00 p.m. New York
City time, on the Expiration Date. The method of delivery of this Notice of
Guaranteed Delivery and any other required documents to the Exchange Agent is
at the election and risk of the holder, and the delivery will be deemed made
only when actually received by the Exchange Agent. If delivery is by mail,
registered mail with return receipt requested, properly insured, is
recommended. Instead of delivery by mail, it is recommended that the holder use
an overnight or hand delivery service. In all cases sufficient time should be
allowed to assure timely delivery. For a description of the guaranteed delivery
procedure, see Instruction 2 of the Letter of Transmittal.
2. SIGNATURES ON THIS NOTICE OF GUARANTEED DELIVERY. If this Notice of
Guaranteed Delivery is signed by the registered holder(s) of the Tendered Stock
referred to herein, the signature must correspond with the name(s) written on
the face of the Tendered Stock without alteration, enlargement, or any change
whatsoever.
If this Notice of Guaranteed Delivery is signed by a person other than the
registered holder(s) of any Tendered Stock listed, this Notice of Guaranteed
Delivery must be accompanied by appropriate bond powers, signed as the name of
the registered holder(s) appears on the Tendered Stock.
If this Notice of Guaranteed Delivery is signed by a trustee, executor,
administrator, guardian, attorney-in-fact, officer of a corporation, or other
person acting in a fiduciary or representative capacity, such person should so
indicate when signing.
3. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions and requests
for assistance and requests for additional copies of the Offering Circular may
be directed to the Exchange Agent at the address specified in the Offering
Circular and the Letter of Transmittal. Holders may also contact their broker,
dealer, commercial bank, trust company, or other nominee for assistance
concerning the Exchange Offer.
<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1995
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
Commission file number: 1-12592
WALDEN RESIDENTIAL PROPERTIES, INC.
(Exact name of Registrant as specified in its charter)
MARYLAND 75-2506197
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ONE LINCOLN CENTRE, 5400 LBJ FREEWAY,
SUITE 400, LB 45, DALLAS, TEXAS 75240
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (214) 788-0510
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
TITLE OF EACH CLASS: NAME OF EACH EXCHANGE ON WHICH REGISTERED:
--------------------- ------------------------------------------
Common Stock, New York Stock Exchange
$.01 par value
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
Indicate by check mark whether Registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this form 10-K. X
-----
The aggregate market value of the voting stock held by non-affiliates of the
registrant was $285,116,607 at March 4, 1996.
THE NUMBER OF SHARES OF COMMON STOCK OUTSTANDING AT MARCH 4, 1996 WAS
14,248,115.
DOCUMENTS INCORPORATED BY REFERENCE
Certain information in the Registrant's definitive proxy statement to be filed
with the Securities and Exchange Commission related to the Company's 1996
Annual Meeting of Stockholders is incorporated by reference into Part III
hereof.
<PAGE> 2
================================================================================
PART I
ITEM 1. BUSINESS
GENERAL
Walden Residential Properties, Inc. (the "Company") is a self-administered,
self-managed, fully integrated real estate investment trust ("REIT") focused on
middle-income multifamily residential properties located primarily in selected
Southwestern and Southeastern markets. The Company, a Maryland corporation with
headquarters in Dallas, Texas, was formed in September 1993 to continue and
expand the multifamily property ownership, management, acquisition and
marketing operations and related business objectives and strategies of The
Walden Group, Inc. and its subsidiaries and affiliates (collectively,
"Walden"). The Company owned 55 multifamily residential properties (the
"Properties") as of December 31, 1995, containing 17,205 apartment units.
Approximately 84% of the Properties are located in the Dallas/Fort Worth,
Oklahoma City, Tampa, Jacksonville, Tulsa, Phoenix, Houston, Austin and Salt
Lake City areas (the "Primary Markets"), with the remaining Properties
primarily located in other areas in the Southwest and Southeast regions of the
United States. The Properties had a weighted average occupancy rate of
approximately 93.9% at March 4, 1996. Through WDN Management Company ("WDN
Management"), a corporation formed by the Company to manage multifamily
properties for third parties, the Company currently manages on a fee basis 10
additional multifamily residential properties containing 2,814 apartment units.
Upon completion of the Company's initial public offering on February 9,
1994 (the "IPO"), the Company purchased the multifamily operations of Walden,
including 18 properties containing 5,895 apartment units (of which one 299-unit
property was sold in April 1995), and concurrently purchased an additional two
properties containing 448 apartment units, one of which was owned by a third
party and the other of which was principally owned by Walden (collectively, the
"Original Properties"). A substantial majority of the Original Properties had
been owned and/or managed by Walden prior to the completion of the IPO for
periods ranging from six to ten years. Since the consummation of the IPO in
February 1994 through December 31, 1995, the Company acquired 37 properties
(the "Acquisition Properties") (of which one 242-unit property was sold in
December 1995), containing a total of 11,403 apartment units, for an aggregate
purchase price of approximately $366.2 million.
The Company is operated under the direction of Don R. Daseke, Chairman of
the Board and Chief Executive Officer of the Company and a management team
substantially all of whom were formerly employed by Walden. The Company's 17
officers have an average tenure with the Company and Walden of nine years and
have an average of 17 years experience in the multifamily property business.
The Company is fully integrated with operations that include multifamily
property acquisitions, redevelopment services, management, marketing, finance,
leasing and asset management.
The Company's executive offices are located at One Lincoln Centre, 5400 LBJ
Freeway, Suite 400, Dallas, Texas 75240. The telephone number is (214)
788-0510. The Company was incorporated in Maryland on September 29, 1993, and
the duration of its existence is perpetual.
-1-
<PAGE> 3
GROWTH STRATEGIES
The Company's primary business objective is to maximize stockholder value
by maintaining long-term growth in funds from operations for distribution to
its stockholders. Management believes it can achieve this objective by
focusing on the ownership, management and acquisition of garden apartment
properties that have strong cash flow growth potential and by holding such
properties for long-term investment and capital appreciation. The Company has
focused its property ownership in metropolitan areas in the southwestern and
southeastern United States, including Dallas, Fort Worth, Oklahoma City, Tampa,
Jacksonville, Tulsa, Phoenix, Houston, Austin, Salt Lake City, Albuquerque and
Nashville (the "Target Markets"). The Company believes its Target Markets will
experience higher growth rates in population, household formation and
employment than the national averages. Specifically, the Company intends to
continue the implementation of the following growth strategies:
Increased Property Cash Flow. The Company intends to continue to take
advantage of the positive relationship between apartment unit supply and demand
in the Company's markets and to continue raising rents as general rental
conditions permit. Consistent with this strategy, the Company will continue to
implement aggressive and creative marketing programs to increase occupancy and
rental rates. The Company also anticipates increasing its cash flow by
controlling operating expenses, while at the same time maintaining
comprehensive maintenance policies to maintain and improve the competitive
position of the Properties.
Acquisitions. The Company also seeks to increase its funds from operations
by acquiring existing properties that have prospects for long-term growth.
Following its IPO in February 1994, the Company has engaged in an active
acquisition program, acquiring 37 multifamily properties, containing 11,403
apartment units. The Company is currently focusing its acquisition efforts in
the Target Markets due to the attractive demographics of these markets and the
availability of properties for sale.
PROPERTY MANAGEMENT
The Company conducts its property management operations with an experienced
staff of professionals and support personnel, including property directors and
sales directors. The depth of the organization is intended to enable the
Company to deliver quality services on an uninterrupted basis, thereby
promoting resident satisfaction and improving resident retention. Each of the
Company's owned or managed properties is operated by a staff specifically
selected based on the size, location, age, management plan and marketing plan
of the individual property. Personnel are carefully trained in their areas of
expertise, such as property management, marketing and leasing, resident
relations and maintenance.
The Company's standardized policies and procedures specify reporting
requirements and management guidelines to be applied at each property. Such
policies and procedures facilitate management consistency in all markets. The
Company uses customized software programs to provide on-site, regional and
executive management with rapid access to all marketing and
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<PAGE> 4
accounting information. In June 1995, the Company began converting to an
on-site computerized rent roll system. Such conversion is substantially
complete. Weekly marketing reports are prepared by on-site property directors
which track each property's leasing status, occupancy rate, prospective
resident traffic, unit availability, lease renewals, residents moving in and
out of apartments during the week, notices by residents to vacate their
apartments and delinquent rental charges or other fees. Accounting elements
such as receivables, payables, rent roll status and budget compliance are
regularly monitored through this system.
Marketing and leasing activities and procedures are designed to comply with
all established Federal, state and local laws and regulations. The Company
generally offers leases having six-month terms, with individual property
marketing plans structured to respond to local market conditions. Qualifying
standards for prospective residents are established to comply with the
affordable housing restrictions placed on certain of the Properties, the Fair
Housing Amendments Act of 1988 (the "FHA") and the regulations thereunder and
are designed to stabilize service levels and income streams. The Company has
13 properties which are currently subject to restrictions that require that a
specified number of apartments be offered to persons with lower or moderate
incomes. The Company utilizes standard lease contracts promulgated by local
apartment associations to ensure compliance with the most recent legislative
and judicial activities related to multifamily properties, as well as to permit
uniform lease administration relating to rent collections, security deposit
dispositions, evictions, repairs and renewals.
THIRD-PARTY PROPERTY MANAGEMENT
To maintain its status as a REIT, the Company may earn no more than 5% of
its gross revenues from prohibited sources, including third-party management
contracts. As a result, the Company's third-party management contracts are
performed by WDN Management. WDN Management currently manages 10 multifamily
properties containing 2,814 garden apartment units not owned by the Company.
Five of such properties are owned by unaffiliated third parties. The other five
properties are owned by five limited partnerships, each of which has Walden as
the general partner. The management contracts may be terminated on 30 days
notice.
The Company owns 100% of the non-voting common stock and 5% of the voting
common stock of WDN Management. The other 95% of the voting common stock of WDN
Management, representing a 5% net economic interest in such company, is owned
by the four executive officers of the Company. These individuals vote such
shares of common stock in their sole discretion. WDN Management's charter
documents provide that only directors and officers of the Company may be
directors and officers of WDN Management. Additionally, the bylaws of WDN
Management require the board of directors thereof to approve certain
significant transactions, including borrowings, individually or in the
aggregate, in excess of $50,000, the transfer or other disposition of any asset
of WDN Management and the repayment of indebtedness of WDN Management other
than in accordance with its terms.
EMPLOYEES
At March 1, 1996, the Company employed approximately 514 people, approximately
66 of
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<PAGE> 5
whom are located at the Company's headquarters in Dallas, Texas and its
regional offices located in Atlanta, Austin, Dallas, Fort Worth, Houston,
Phoenix and Tulsa. Approximately 448 employees are located at the properties
owned by the Company and fee managed by WDN Management. None of the Company's
employees are currently represented by a union. The Company believes that
relations with its employees are good.
COMPETITION
All of the Properties are located in developed areas that include other
multifamily properties. The number of multifamily properties in a particular
area could have a material effect on the Company's ability to lease units at
its Properties or at any newly acquired properties and on the rents charged.
Additionally, there are other housing alternatives that compete with the
Properties in attracting residents. The Properties compete directly with single
family homes that are available for rent in the markets in which the Properties
are located. The Company also competes for acquisitions with other entities,
such as insurance companies, pension funds, private individuals, investment
companies and other REITs, which may have greater resources than the Company.
REGULATION
General. Apartment community properties are subject to various laws,
ordinances and regulations, including regulations relating to recreational
facilities such as swimming pools, activity centers and other common areas. The
Company believes that it has the necessary permits and approvals under present
laws, ordinances and regulations to operate its business.
Americans with Disabilities Act. The Properties and any newly acquired or
developed multifamily properties must comply with Title III of the Americans
with Disabilities Act of 1990 (the "ADA") to the extent that such properties
are "public accommodations" and/or "commercial facilities" as defined by the
ADA. Compliance with the ADA requirements could require removal of structural
barriers to handicapped access in certain public areas of the Properties where
such removal is readily achievable. The ADA does not, however, consider
residential properties, such as multifamily properties, to be public
accommodations or commercial facilities, except to the extent that portions of
such facilities, such as leasing offices, are open to the public. The Company
obtained structural reports from third-party consultants specifying certain
modifications to certain of the Properties that needed to be made in order to
bring such properties into full compliance with the ADA. The Company has
substantially completed such modifications.
Fair Housing Amendments Act of 1988. The FHA requires multifamily
properties first occupied after March 13, 1990 to be accessible to the
handicapped. Noncompliance with the FHA could result in the imposition of fines
or an award of damages to private litigants. All of the Company's Properties
were occupied prior to March 13, 1990.
Affordable Housing Restrictions. The Company has 13 properties which are
subject to restrictions requiring that a percentage of the apartment units in
such Properties be offered to persons with lower or moderate incomes (currently
71.2% of the total number of apartment units in the 13 affected properties and
19.0% of the total number of the Company's apartment units). Generally,
-4-
<PAGE> 6
these provisions originated from the use of tax exempt financing in those
instances where it was determined that the benefits of the lower interest rate
associated with such financing offset the potential reduction of rental income
resulting from such rental restrictions. In addition, three of these properties
are subject to limits on the amount of rent that can be charged for certain of
the apartment units. The Company believes it is in compliance with these
restrictions. These restrictions have not had a material adverse effect on the
Company's resident profile or ability to rent the units, and management does
not anticipate that such restrictions will have a material adverse effect on
future operations or possible sales of the 13 properties in the future.
Rent Control Legislation. State and local rent control laws in certain
jurisdictions limit a property owner's ability to increase rents and to recover
from residents increases in operating expenses and the costs of capital
improvements. Enactment of such laws has been considered from time to time in
other jurisdictions, although none of the jurisdictions in which the Company
presently operates has adopted such laws. The Company does not presently own,
nor does it intend to acquire, multifamily properties in markets that are
either subject to rent control or in which rent limiting legislation exists.
ENVIRONMENTAL MATTERS
Under various Federal, state and local environmental laws, ordinances and
regulations, a current or previous owner or operator of real estate may be
required to investigate and remediate hazardous or toxic substances or
petroleum product releases at such property and may be held liable to a
government entity or third party for property damage and investigation and
remediation costs incurred by such parties in connection with such
contamination. Such laws typically impose cleanup responsibility and liability
without regard to whether the owner or operator knew of, or caused the presence
of, the contaminants. The costs of investigation, remediation or removal of
such substances may be substantial, and the presence of such substances, or the
failure to properly remediate such substances, may adversely affect the owner's
ability to sell or rent such real estate or to borrow using such real estate as
collateral. In addition, some environmental laws create a lien on the
contaminated site in favor of the government for damages and costs it incurs in
connection with the contamination. Individuals who arrange for the disposal or
treatment of hazardous or toxic substances may be held liable for the costs of
investigation, remediation or removal of such hazardous or toxic substances at
or from the disposal or treatment facility regardless of whether such facility
is owned or operated by such person. Finally, the owner of a site may be
subject to common law claims by third parties based on damages and costs
resulting from environmental contamination emanating from a site.
Certain Federal, state and local laws, ordinances and regulations govern
the removal, encapsulation or disturbance of asbestos-containing materials
("ACMs") when such materials are in poor condition or in the event of building
remodeling, renovation or demolition. Such laws may impose liability for the
release of ACMs and may provide for third parties to seek recovery from owners
or operators of real estate for personal injury associated with ACMs. In
connection with the ownership and operation of its properties, the Company may
be potentially liable for costs in connection with the matters discussed above.
All of the Properties have been the subject of environmental assessments,
which are intended to reveal information regarding, and to evaluate the
environmental condition of, the surveyed properties
-5-
<PAGE> 7
and surrounding properties. The environmental assessments generally include a
historical review, a public records review, a preliminary investigation of the
site and surrounding properties, screening for the presence of asbestos and
equipment containing polychlorinated biphenyls and underground storage tanks
and the preparation and issuance of a written report, but do not include soil
sampling or subsurface investigations.
The environmental assessments on each of the Properties have revealed
elevated lead content in the drinking water at three of the Properties and ACMs
at 24 of the Properties (none of which is friable). The consulting firm that
conducted the environmental studies has prepared an operations and maintenance
program recommending procedures to be followed in dealing with ACMs if they are
moved or otherwise disturbed. The cost to the Company resulting from any future
disturbance of the ACMs will depend upon the magnitude of the disturbance and
the location of the ACMs. The consulting firm advised the Company that it is
not required by Federal law to take any action to address the lead levels in
the water; however, the Company is currently evaluating the remedial actions
and notification options. The Company anticipates any such remedial actions
and notifications will cost between $10,000 and $30,000 in the aggregate.
Environmental assessments performed on the Properties have not revealed any
environmental liability that the Company believes would have a material adverse
effect on the Company's business, assets, or results of operations, nor is the
Company aware of any such environmental liability. Nevertheless, it is possible
that these assessments did not reveal all environmental liabilities or that
there are material environmental liabilities of which the Company is unaware.
Moreover, no assurances can be given that (i) future laws, ordinances or
regulations will not require any material expenditures by or impose any
material liabilities on the Company in connection with environmental conditions
by or on the Company or its properties, (ii) the current environmental
condition of a property will not be adversely affected by residents and
occupants of such property, by the condition of properties in the vicinity of
such property (such as the presence of underground storage tanks) or by third
parties unrelated to the Company, or (iii) prior owners of the Properties did
not create environmental problems of which the Company is not aware.
The Company believes that the Properties are in compliance in all material
respects with all Federal, state and local laws, ordinances and regulations
regarding hazardous or toxic substances or petroleum products. Except as
otherwise described above, the Company has not been notified by any
governmental authority, and is not otherwise aware, of any material
noncompliance, liability or claim relating to hazardous or toxic substances or
petroleum products with respect to any of the Properties.
INSURANCE
The Company carries comprehensive liability, fire, extended coverage and
rental loss insurance with respect to all of the Properties, with policy
specifications, insured limits and deductibles customarily carried for similar
properties. There are, however, certain types of losses (such as losses arising
from earthquakes or wars) that are not generally insured because they are
either uninsurable or not economically insurable. Should an uninsured loss or a
loss in excess of insured limits occur, the Company could lose its capital
invested in the affected property, as well as the anticipated future
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<PAGE> 8
revenues from such property and would continue to be obligated on any mortgage
indebtedness or other obligations related to the property. Any such loss would
adversely affect the Company. Management believes that the Properties are
currently adequately insured in accordance with industry standards.
ITEM 2. PROPERTIES
The Company's portfolio as of December 31, 1995 consisted of 55 multifamily
properties containing 17,205 apartment units located in 11 states. The
Properties are generally comprised of two and three-story buildings in
landscaped settings and generally include such amenities as a clubhouse,
swimming pools, laundry facilities and cable television access. Certain of the
Properties offer additional amenities such as saunas, whirlpools, exercise
facilities, tennis courts and covered parking. The Properties contain an
average of 313 apartment units, with the largest property containing 696
apartment units. The apartment units have an average size of 755 square feet.
The Properties were built between 1978 and 1988 and have a weighted average age
by number of apartment units of approximately 12 years.
The Properties are concentrated in the following markets:
<TABLE>
<CAPTION>
NUMBER NUMBER PERCENT
LOCATION OF PROPERTIES OF UNITS OF TOTAL UNITS
-------- ------------- -------- --------------
<S> <C> <C> <C>
Dallas/Fort Worth 22 6,504 37.8%
Oklahoma City 4 1,196 6.9
Tampa 3 1,080 6.3
Jacksonville 3 1,080 6.3
Tulsa 3 1,008 5.9
Phoenix 2 964 5.6
Houston 3 918 5.3
Austin 3 913 5.3
Salt Lake City 2 768 4.5
---- -------- --------
Subtotal 45 14,431 83.9
Other Markets (a) 10 2,774 16.1
--- ------- -------
Total 55 17,205 100.0%
=== ====== ======
</TABLE>
(a) Represents properties in seven different states.
No single property accounts for greater than 10% of the Company's total
revenues. The Properties had a weighted average occupancy of 94.5% for 1995
and 93.9% at March 4, 1996. Resident leases are generally for six-month terms
and often require security deposits. The Properties are located in mature,
developed neighborhoods. Management believes the Properties are well built and
have been well maintained.
The Company has adopted a policy of expensing all maintenance and
non-major, recurring repair and replacement items. Such expense items include
but are not limited to carpet repair and replacement, interior painting of the
units, floor tile, window blinds, and pool and recreation facility maintenance.
Non-major expense items include but are not limited to roofing, exterior
painting and
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<PAGE> 9
asphalt resurfacing under approximately $10,000. Repair and maintenance
expenses for 1995 were approximately $7.2 million, including $1.1 million for
carpet replacement, or $490 per unit.
The Company capitalizes all major repairs and replacements which are not
considered part of the normal maintenance of the Properties or turnover of an
apartment unit. Such capitalized items include, but are not limited to
appliances, HVAC systems, balconies, stairwells, siding, roofing, exterior
painting, fencing and asphalt resurfacing. The Company also capitalizes
non-recurring items such as new fencing and new carports. The Company
capitalizes all deferred maintenance items of an acquisition property which are
budgeted at the time of acquisition to bring the property to satisfactory
condition. Such renovation of an acquisition property generally takes six to
eight months to complete, depending on the magnitude of the renovations.
For the year ended December 31, 1995, the Company incurred approximately
$6.8 million of capital improvements to its Properties, of which $4.6 million
related to renovation or rehabilitation costs for properties acquired in 1995
and the latter part of 1994. The remaining capital improvements of $2.2
million were for capital improvements to the properties not under renovation
(the "Matured Properties" or "Matured Units") (resulting in an average cost of
$195 per Matured Unit).
The Company has budgeted capital improvements of $6.0 million for 1996;
$2.3 million to complete the necessary renovations to properties acquired in
1995 and $3.7 million for capital improvements on its Matured Properties, of
which $.8 million represents non-recurring costs for new fencing,
reconstruction of balconies and stairwells and adding new carports. The
Company estimates capital improvements each year to average $190 to $225 per
Matured Unit.
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<PAGE> 10
WALDEN RESIDENTIAL PROPERTIES, INC.
APARTMENTS OWNED
<TABLE>
<CAPTION>
TOTAL
NUMBER YEAR RENTABLE UNIT TYPE
METROPOLITAN AREA/ OF CONSTRUCTION Area TOTAL -----------------
PROPERTY LOCATION UNITS COMPLETED (1) (Sq. Ft.) ACREAGE 1 BR 2 BR 3 BR
- -------------------------- ------------------------- ----------- ------------- ----------- ------- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
DALLAS/FORT WORTH
Braden's Walk (2) Bedford, TX 208 1982 151,040 8.3 128 80 --
Cinnamon Park Arlington, TX 272 1985 213,192 13.0 144 112 16
Club at Springlake Haltom City, TX 200 1986 146,328 8.0 128 72 --
Fielder's Glen Arlington, TX 220 1985 165,752 10.0 140 80 --
The Gables McKinney, TX 220 1986 169,880 10.0 160 60 --
Greens Crossing Dallas, TX 364 1984 262,761 10.5 292 72 --
Hilltop (2) North Richland Hills, TX 238 1984 179,256 12.2 150 88 --
Newport Irving, TX 308 1982 238,768 12.4 208 100 --
Pinnacle (2) Lewisville, TX 150 1985 119,774 6.3 86 64 --
Post Oak Place Euless, TX 354 1983 255,798 11.1 270 84 --
Preston Greens Dallas, TX 256 1980 246,340 11.2 164 92 --
Reflections of Highpoint (2) Dallas, TX 372 1986 281,940 11.1 276 96 --
Remington Hill (2) Fort Worth, TX 440 1986 339,008 15.0 300 140 --
Rivercrest Arlington, TX 420 1979 337,056 19.3 320 100 --
Shadow Creek (2) North Richland Hills, TX 240 1986 181,896 12.2 120 120 --
Springfield Mesquite, TX 264 1985 193,212 9.0 192 72 --
Summer Meadows (2) Plano, TX 389 1986 323,434 21.6 236 153 --
Summer Villas (2) Dallas, TX 460 1984 328,020 15.8 380 80 --
Summer's Crossing (2) Plano, TX 293 1986 238,697 15.7 215 78 --
Summer's Landing (2) Fort Worth, TX 196 1985 139,300 7.8 172 24 --
Towne Center Dallas, TX 392 1978 269,348 11.5 256 136 --
Woodridge Fort Worth, TX 248 1984 197,600 10.4 128 104 16
OKLAHOMA CITY
Copperfield Oklahoma City, OK 262 1983 187,080 7.7 196 66 --
Hunter's Ridge Oklahoma City, OK 212 1984 155,587 6.0 148 64 --
Summerfield Place Oklahoma City, OK 224 1981 154,528 9.0 176 48 --
Woodscape Oklahoma City, OK 498 1985 363,073 15.6 348 150 --
TAMPA
Bel Shores Largo, FL 250 1985 189,874 22.3 138 112 --
Northgreen (2) Tampa, FL 438 1986 369,362 34.7 254 184 --
Snug Harbor Tampa, FL 392 1986 281,893 13.0 310 82 --
JACKSONVILLE
Brookwood Club Jacksonville, FL 360 1987 287,480 15.0 200 160 --
Remington at Ponte Vedra (2) Ponte Vedra Beach, FL 344 1986 302,904 28.6 136 208 --
Sandpiper (2) Jacksonville, FL 376 1985 289,112 17.0 200 144 32
<CAPTION>
AVERAGE MONTHLY
OCCUPANCY RENTAL RATE PER UNIT
AVERAGE ------------------ --------------------
METROPOLITAN AREA/ APT. SIZE AS OF AS OF DECEMBER DECEMBER
PROPERTY LOCATION (SQ. FT.) 12/31/94 12/31/95 1994 1995
- -------------------------- ------------------------- --------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
DALLAS/FORT WORTH
Braden's Walk (2) Bedford, TX 726 N / A 92.3% N / A N / A
Cinnamon Park Arlington, TX 784 97.1% 91.9% $484 $523
Club at Springlake Haltom City, TX 732 91.5% 97.5% $427 $457
Fielder's Glen Arlington, TX 753 94.1% 94.5% $455 $489
The Gables McKinney, TX 772 96.4% 95.9% $527 $582
Greens Crossing Dallas, TX 722 91.2% 95.3% $434 $452
Hilltop (2) North Richland Hills, TX 753 N / A 97.9% N / A N / A
Newport Irving, TX 775 95.1% 97.4% $503 $522
Pinnacle (2) Lewisville, TX 798 N / A 96.7% N / A $550
Post Oak Place Euless, TX 723 93.8% 99.2% $474 $499
Preston Greens Dallas, TX 962 94.9% 96.9% $632 $636
Reflections of Highpoint (2) Dallas, TX 758 N / A 96.2% N / A $552
Remington Hill (2) Fort Worth, TX 770 N / A 97.0% N / A $514
Rivercrest Arlington, TX 803 90.0% 94.0% $455 $490
Shadow Creek (2) North Richland Hills, TX 758 N / A 96.3% N / A N / A
Springfield Mesquite, TX 732 93.9% 95.1% $458 $487
Summer Meadows (2) Plano, TX 831 N / A 93.6% N / A $608
Summer Villas (2) Dallas, TX 713 N / A 96.3% N / A $514
Summer's Crossing (2) Plano, TX 815 N / A 95.6% N / A $602
Summer's Landing (2) Fort Worth, TX 711 N / A 97.4% N / A $512
Towne Center Dallas, TX 687 91.8% 93.9% $366 $382
Woodridge Fort Worth, TX 797 87.9% 94.8% $421 $444
OKLAHOMA CITY
Copperfield Oklahoma City, OK 714 94.3% 97.3% $402 $600
Hunter's Ridge Oklahoma City, OK 734 91.5% 92.9% $403 $429
Summerfield Place Oklahoma City, OK 690 85.3% 93.8% $416 $419
Woodscape Oklahoma City, OK 729 91.4% 90.8% $424 $447
TAMPA
Bel Shores Largo, FL 759 96.0% 95.2% $538 $565
Northgreen (2) Tampa, FL 843 N / A 88.6% N / A $572
Snug Harbor Tampa, FL 719 90.6% 93.1% $474 $476
JACKSONVILLE
Brookwood Club Jacksonville, FL 799 86.7% 97.8% $455 $509
Remington at Ponte Vedra (2) Ponte Vedra Beach, FL 881 N / A 93.6% N / A $617
Sandpiper (2) Jacksonville, FL 769 N / A 99.7% N / A $472
</TABLE>
-9-
<PAGE> 11
WALDEN RESIDENTIAL PROPERTIES, INC.
APARTMENTS OWNED
<TABLE>
<CAPTION>
TOTAL
NUMBER YEAR RENTABLE UNIT TYPE
METROPOLITAN AREA/ OF CONSTRUCTION Area TOTAL -----------------
PROPERTY LOCATION UNITS COMPLETED (1) (Sq. Ft.) ACREAGE 1 BR 2 BR 3 BR
- -------------------------- ------------------------- ----------- ------------- ----------- ------- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
TULSA
Burning Tree Tulsa, OK 256 1978 156,848 11.3 208 48 --
Cinnamon Stick Tulsa, OK 424 1978 256,672 14.6 360 64 --
The Lift Tulsa, OK 328 1979 194,168 14.2 280 48 --
PHOENIX
Casa Verde Phoenix, AZ 268 1983 178,140 8.2 184 84 --
Woodstone Phoenix, AZ 696 1986 573,564 19.7 432 240 24
AUSTIN
Harper's Creek Austin, TX 268 1982 201,838 8.0 228 40 --
Pinto Creek (2) Austin, TX 249 1985 199,146 22.6 162 87 --
Trestles of Austin Austin, TX 396 1984 275,904 10.7 252 144 --
HOUSTON
Copper Cove Houston, TX 270 1983 204,240 7.0 192 78 --
Foxboro Houston, TX 220 1982 162,712 6.3 160 60 --
Laurel Creek (2) Houston, TX 428 1985 323,568 15.8 304 100 24
SALT LAKE CITY
James Pointe Murray, UT 312 1985 236,928 11.6 144 168 --
Stillwater Murray, UT 456 1986 343,216 15.3 152 304 --
OTHER MARKETS
Chimney Trace Stone Mountain, GA 144 1985 158,292 14.1 28 68 48
Christiwood Corpus Christi, TX 304 1984 226,388 10.7 184 96 24
Country View San Antonio, TX 272 1981 213,120 11.0 176 96 --
Eagle Pointe Indianapolis, IN 256 1988 202,000 19.8 152 104 --
Fountaingate/Willow Creek Wichita Falls, TX 280 1980 252,040 17.8 160 104 16
Northwest Territory Wichita, KS 384 1980 231,536 16.0 304 80 --
Raintree Nashville, TN 332 1985 216,930 24.9 252 80 --
Settler's Cove Beaumont, TX 182 1982 133,654 6.2 138 44 --
Silverado Albuquerque, NM 256 1985 183,656 8.1 180 76 --
Winridge (2) Aurora, CO (Denver) 364 1986 303,438 15.8 262 102 --
------- ----------- ---- ------ ----- ---
TOTAL/WEIGHTED AVERAGE 17,205 12,987,291 741.1 11,465 5,540 200
======= =========== ==== ====== ===== ===
<CAPTION>
AVERAGE MONTHLY
OCCUPANCY RENTAL RATE PER UNIT
AVERAGE ------------------ --------------------
METROPOLITAN AREA/ APT. SIZE AS OF AS OF DECEMBER DECEMBER
PROPERTY LOCATION (SQ. FT.) 12/31/94 12/31/95 1994 1995
- -------------------------- ------------------------- --------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
TULSA
Burning Tree Tulsa, OK 613 96.5% 98.4% $322 $333
Cinnamon Stick Tulsa, OK 605 92.7% 89.2% $304 $313
The Lift Tulsa, OK 592 95.1% 90.2% $306 $310
PHOENIX
Casa Verde Phoenix, AZ 665 95.1% 91.8% $356 $373
Woodstone Phoenix, AZ 824 96.0% 95.1% $505 $540
AUSTIN
Harper's Creek Austin, TX 753 89.9% 95.5% $557 $574
Pinto Creek (2) Austin, TX 800 N / A 93.2% N / A $627
Trestles of Austin Austin, TX 697 96.2% 96.5% $540 $589
HOUSTON
Copper Cove Houston, TX 756 91.9% 92.6% $467 $472
Foxboro Houston, TX 740 94.5% 94.1% $426 $445
Laurel Creek (2) Houston, TX 756 N / A 95.8% N / A $553
SALT LAKE CITY
James Pointe Murray, UT 759 96.5% 98.7% $506 $543
Stillwater Murray, UT 753 95.2% 98.2% $535 $565
OTHER MARKETS
Chimney Trace Stone Mountain, GA 1,099 97.2% 95.8% $614 $668
Christiwood Corpus Christi, TX 745 91.8% 94.7% $508 $520
Country View San Antonio, TX 784 92.6% 92.6% $461 $487
Eagle Pointe Indianapolis, IN 789 92.2% 94.9% $535 $561
Fountaingate/Willow Creek Wichita Falls, TX 900 94.3% 97.9% $472 $501
Northwest Territory Wichita, KS 603 91.1% 92.7% $357 $355
Raintree Nashville, TN 653 94.0% 97.3% $466 $508
Settler's Cove Beaumont, TX 734 92.3% 94.0% $468 $466
Silverado Albuquerque, NM 717 97.7% 96.5% $518 $562
Winridge (2) Aurora, CO (Denver) 834 N / A 92.6% N / A $578
------ ----- ----- ----- ----
TOTAL/WEIGHTED AVERAGE 755 93.3%(3) 94.9%(3) $458 (3) $506(3)
====== ===== ===== ===== ====
</TABLE>
- ---------
(1) Year construction completed indicates the year in which the final
certificate of occupancy for the property was issued.
(2) Represents a recently acquired property for which certain historical
information is not available.
(3) Represents a weighted average for the properties for which historical
information is available.
-10-
<PAGE> 12
<TABLE>
<CAPTION>
APARTMENT AMENITIES
--------------------------------------------------------------
METROPOLITAN AREA/ PATIO OR LAUNDRY FIRE- MINI- CABLE TV OUTSIDE CEILING
PROPERTY AND LOCATION BALCONY HOOKUPS PLACE BLINDS READY STORAGE FANS
- ------------------------------------------------- -------- ------- ----- ------ -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
DALLAS/FORT WORTH
Braden's Walk Bedford, TX All 77% 19% All All 77% All
Cinnamon Park Arlington, TX All 71% All All All All All
Club at Springlake Haltom City, TX 64% 64% 64% All All 26% All
Fielder's Glen Arlington, TX 66% 66% 66% All All 26% All
The Gables McKinney, TX All 71% All All All All All
Greens Crossing Dallas, TX 70% 52% 23% All All 70% All
Hilltop N. Richland Hills, TX All All 45% All All All ---
Newport Irving, TX 83% 45% 38% All All 83% 27%
The Pinnacle Lewisville, TX All All 50% All All All All
Post Oak Place Euless, TX 90% 68% 33% 80% All 83% 65%
Preston Greens Dallas, TX 44% 81% All All All --- 39%
Reflections of Highpoint Dallas, TX All All All All All All All
Remington Hill Fort Worth, TX All All All All All All All
Rivercrest Arlington, TX All All All All All 11% All
Shadow Creek N. Richland Hills, TX All 90% 50% All All --- 10%
Springfield Mesquite, TX 84% 50% 24% 74% All 84% All
Summer Meadows Plano, TX All All 54% All All All All
Summer Villas Dallas, TX All 69% All All All All All
Summer's Crossing Plano, TX 75% All 97% All All All All
Summer's Landing Fort Worth, TX All 71% 80% All All All All
Towne Center Dallas, TX 56% --- --- All All 56% 94%
Woodridge Fort Worth, TX 29% All 81% All All All ---
OKLAHOMA CITY
Copperfield Oklahoma City, OK 86% 40% 24% 65% All All All
Hunter's Ridge Oklahoma City, OK 74% 41% 30% All All 74% 49%
Summerfield Place Oklahoma City, OK All All --- All All --- 11%
Woodscape Oklahoma City, OK 68% 46% 34% 89% All 68% 77%
TAMPA
Bel Shores Largo, FL All All --- All All All ---
Northgreen Tampa, FL All All 50% All All All All
Snug Harbor Tampa, FL All 50% 8% All All All All
<CAPTION>
APARTMENT AMENITIES RECREATIONAL AMENITIES
------------------------------- --------------------------------------------------
METROPOLITAN AREA/ CLUB- SWIMMING SPA/ SPORTS
PROPERTY AND LOCATION OTHER (1) HOUSE POOLS JACUZZI FACILITIES (2) OTHER
- ----------------------------- --------- ----- -------- ------- -------------- -----
<S> <C> <C> <C> <C>
DALLAS/FORT WORTH
Braden's Walk Frost-free refrigerators Yes 1 Yes Yes BBQ/Picnic area
Cinnamon Park Alarms; Frost-free refrigerators; Yes 1 Yes Yes BBQ/Picnic area
Icemakers
Club at Springlake Alarms; Icemakers Yes 1 --- Yes BBQ/Picnic area; Dry sauna
Fielder's Glen Frost-free refrigerators Yes 2 Yes Yes BBQ/Picnic area; Dry sauna
The Gables Frost-free refrigerators Yes 2 Yes Yes BBQ area; Playground area
Greens Crossing Alarms; Frost-free refrigerators; Yes 2 Yes Yes BBQ/Picnic area
Icemakers - 58 Units
Hilltop Frost-free refrigerators Yes 1 Yes Yes BBQ/Picnic area
Newport Frost-free refrigerators; Yes 2 Yes --- BBQ area; Playground area
Icemakers - 52 Units
The Pinnacle Frost-free refrigerators; Icemake Yes 1 Yes Yes BBQ/Picnic area
Microwaves - 15 Units
Post Oak Place Frost-free refrigerators Yes 2 Yes --- BBQ/Picnic area
Preston Greens Covered parking; Alarms; Yes 3 Yes --- BBQ/Picnic area; Dry sauna
Microwaves
Reflections of Highpoint Frost-free refrigerators; Alarms; Yes 4 Yes Yes BBQ/Picnic area; Dry sauna
Icemakers; Microwaves; Pool Table; Car Wash
Washer/Dryer Provided
Remington Hill Frost-free refrigerators; Microwa Yes 3 Yes Yes BBQ/Picnic area; Dry sauna
Icemakers; Covered Parking;
Washer/Dryer Provided
Rivercrest Frost-free refrigerators - 200 Un Yes 2 Yes Yes BBQ/Picnic area
Icemakers - 20 Units
Shadow Creek Frost-free refrigerators Yes 2 Yes Yes BBQ/Picnic area;
Playground
Springfield Alarms; Frost-free refrigerators; Yes 2 Yes ---
Icemakers - 36 Units
Summer Meadows Frost-free refrigerators; Icemake Yes 2 Yes Yes BBQ/Picnic area; Car Wash;
Covered Parking Playground area; Pool
Table
Summer Villas Frost-free refrigerators; Icemake Yes 3 Yes Yes BBQ/Picnic area
Summer's Crossing Frost-free refrigerators; Icemake Yes 2 Yes Yes BBQ/Picnic area;
Playground area
Summer's Landing Frost-free refrigerators; Icemake Yes 1 Yes --- BBQ/Picnic area
Towne Center Frost-free refrigerators - 127 Un Yes 2 --- Yes BBQ/Picnic area
Alarms - 52 Units
Woodridge Frost-free refrigerators --- 1 --- Yes BBQ/Picnic area; Dry sauna
OKLAHOMA CITY
Copperfield Alarms; Frost-free refrigerators; Yes 1 Yes No
Icemakers - 42 Units
Hunter's Ridge Alarms; Frost-free refrigerators; Yes 1 Yes Yes BBQ/Picnic area
Icemakers - 40 Units
Summerfield Place Frost-free refrigerators; Yes 1 --- Yes BBQ/Picnic area
Icemakers; Microwaves;
Washer/Dryer provided-175 Units
Woodscape Frost-free refrigerators; Yes 2 Yes Yes
Icemakers - 58 Units
TAMPA
Bel Shores Frost-free refrigerators Yes 1 Yes Yes BBQ area; Car wash; Lake
Northgreen Frost-free refrigerators; Icemake Yes 4 Yes Yes BBQ/Picnic area; Dry Sauna
Microwaves; Washer/Dryer Provided Playground area, Car Wash
Snug Harbor Alarms; Frost-free refrigerators; Yes 2 Yes Yes
Icemakers - 98 Units
</TABLE>
-11-
<PAGE> 13
<TABLE>
<CAPTION>
APARTMENT AMENITIES
--------------------------------------------------------------
METROPOLITAN AREA/ PATIO OR LAUNDRY FIRE- MINI- CABLE TV OUTSIDE CEILING
PROPERTY AND LOCATION BALCONY HOOKUPS PLACE BLINDS READY STORAGE FANS
- --------------------------------------------------- -------- ------- ----- ------ -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
JACKSONVILLE
Brookwood Club Jacksonville, FL All All --- All All All All
Remington at Ponte Vedra Ponte Vedra Beach, FL All All --- All All All All
Sandpiper Jacksonville, FL All 85% 85% All All All ---
TULSA
Burning Tree Tulsa, OK All --- --- 79% All --- 53%
Cinnamon Stick Tulsa, OK All --- --- 64% All --- 97%
The Lift Tulsa, OK All --- --- 46% All --- 31%
PHOENIX
Casa Verde Phoenix, AZ All --- --- All All All ---
Woodstone Phoenix, AZ All All 33% All All 84% All
Austin
Harper's Creek Austin, TX 87% 26% 34% All All 64% 29%
Pinto Creek Austin, TX All 69% 38% All All All All
Trestles of Austin Austin, TX All 64% 21% --- All All 42%
Houston
Copper Cove Houston, TX 82% 67% 33% 93% All 82% 41%
Foxboro Houston, TX 81% 41% 27% 75% All 95% 34%
Laurel Creek Houston, TX All All 57% All All 2% All
SALT LAKE CITY
James Pointe Murray, UT All All 33% All All All ---
Stillwater Murray, UT All All 33% All All 17% ---
OTHER MARKETS
Chimney Trace Stone Mountain, GA All All All All All All 24%
(Atlanta)
Christiwood Corpus Christi, TX All 72% 43% All All All ---
Country View San Antonio, TX --- All All All All --- 50%
Eagle Pointe Indianapolis, IN All All 36% All All All ---
Fountaingate/Willowcreek Wichita Falls, TX 25% 19% 83% 33% All --- 11%
Northwest Territory Wichita, KS All 10% 25% All All --- 18%
Raintree Nashville, TN All 42% 16% All All --- ---
Settler's Cove Beaumont, TX All 15% 35% --- All 64% ---
Silverado Albuquerque, NM All 30% 25% All All All All
Winridge Aurora, CO (Denver) 77% All All All All 77% All
<CAPTION>
APARTMENT AMENTIES RECREATIONAL AMENITIES
------------------------------- --------------------------------------------------------------
METROPOLITAN AREA/ CLUB- SWIMMING SPA/ SPORTS
PROPERTY AND LOCATION OTHER (1) HOUSE POOLS JACUZZI FACILITIES (2) OTHER
- ----------------------------- --------- ----- -------- ------- -------------- -----
<S> <C> <C> <C> <C>
JACKSONVILLE
Brookwood Club Alarms; Frost-free refrigerators Yes 10 --- Yes
Remington at Ponte Vedra Frost-free refrigerators; Icemake Yes 2 Yes Yes Playground area, Dry Sauna;
Microwaves; Washer/Dryer Provided Car Wash
Sandpiper Frost-free refrigerators Yes 2 Yes Yes BBQ/Picnic area; Car Wash;
Playground area
TULSA
Burning Tree Frost-free refrigerators - 46 Uni Yes 1 --- Yes Playground area
Cinnamon Stick Icemakers - 72 Units Yes 1 --- Yes BBQ/Picnic area
The Lift Frost-free refrigerators - 43 Uni Yes 1 --- Yes Playground area
PHOENIX
Casa Verde Covered parking 2 Yes --- BBQ/Picnic area
Woodstone Covered parking; Microwaves Yes 4 Yes Yes BBQ/Picnic area
Austin
Harper's Creek Frost-free refrigerators; Yes 2 Yes Yes BBQ/Picnic area
Icemakers - 40 Units;
Microwaves - 62 Units
Pinto Creek Frost-free refrigerators; Icemake Yes 2 --- Yes
Trestles of Austin Washer/Dryer - 253 Units; Yes 2 Yes --- BBQ/Picnic area
Frost-free refrigerators
Houston
Copper Cove Frost-free refrigerators; Yes 1 Yes ---
Icemakers - 54 Units
Foxboro Alarms; Frost-free refrigerators; Yes 1 --- --- BBQ/Picnic area
Icemakers - 24 Units
Laurel Creek Alarms; Frost-free refrigerators; Yes 3 Yes Yes
Icemakers; Washer/Dryer - 94 Units
SALT LAKE CITY
James Pointe Covered parking Yes 1 Yes Yes Tanning bed; Pool table
Stillwater Covered parking Yes 1 Yes Yes Tanning bed; Pool table
OTHER MARKETS
Chimney Trace Icemakers; Frost-free refrigerators 1 --- Yes BBQ/Picnic area
Christiwood Frost-free refrigerators Yes 2 Yes --- BBQ area; Playground area
Country View Icemakers; Microwaves; Alarms Yes 3 --- BBQ/Picnic area
Eagle Pointe Microwaves Yes 1 Yes Yes Two tanning beds
Fountaingate/Willowcreek Covered parking; Microwaves Yes 2 --- Yes Playground area
Northwest Territory Yes 1 --- Yes BBQ/Picnic area
Raintree Frost-free refrigerators Yes 1 --- Yes
Settler's Cove Frost-free refrigerators Yes 1 --- Yes BBQ/Picnic area
Silverado Alarms; Frost-free refrigerators; Yes 2 Yes Yes BBQ/Picnic area
Microwaves
Winridge Frost-free refrigerators; Icemake Yes 1 --- Yes BBQ/Picnic area; Dry Sauna
Microwaves, Washer/Dryer Provided
</TABLE>
(1) Amenities exist in all units except where otherwise indicated.
(2) Consists of one or more of the following: Fitness center, tennis
court(s), water volleyball, racquetball, basketball and/or volleyball
courts.
-12-
<PAGE> 14
ITEM 3. LEGAL PROCEEDINGS
Neither the Company nor the Properties are presently subject to any
material litigation nor, to the Company's knowledge, is any material litigation
threatened against the Company or the Properties. The Company and the
Properties are occasionally subjected to routine litigation arising in the
ordinary course of business, which has been and is expected to be covered by
liability insurance and none of which has had or is expected to have a material
adverse effect on the business, financial condition, results of operations or
cash flows of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the fiscal year covered by this report, no
matter was submitted to a vote of security holders.
-13-
<PAGE> 15
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The common stock of the Company ("Common Stock") has traded on the New York
Stock Exchange ("NYSE") under the symbol "WDN" since February 2, 1994, the date
on which the Common Stock began trading on a when issued basis. The following
table sets forth for the periods indicated the high and low sales prices per
common share as reported on the NYSE and the distributions declared by the
Company per share for each such period in 1995 and 1994:
<TABLE>
<CAPTION>
DISTRIBUTIONS
QUARTER ENDED HIGH LOW PER SHARE
------------- ---- --- ---------
<S> <C> <C> <C>
March 31, 1995 . . . . . . . . . . . . . . . . $20.50 $17.875 $.455
June 30, 1995 . . . . . . . . . . . . . . . . $19.875 $18.00 $.455
September 30, 1995 . . . . . . . . . . . . . . $19.50 $18.125 $.455
December 31, 1995 . . . . . . . . . . . . . . $21.00 $17.375 $.455
March 31, 1994 (since February 2, 1994) . . . $21.75 $19.125 --
June 30, 1994 . . . . . . . . . . . . . . . . $22.625 $19.375 $.24
September 30, 1994 . . . . . . . . . . . . . . $22.50 $19.25 $.425
December 31, 1994 . . . . . . . . . . . . . . $20.375 $16.25 $.425
</TABLE>
As of March 1, 1996, the Common Stock was held by 1,157 stockholders of
record, including shares held in nominee or street name by brokers.
For the year ended December 31, 1995, the Company declared and paid
distributions totaling $1.82 per share of Common Stock. On March 1, 1996, the
Company paid a distribution of $.465 per share to record holders of Common
Stock on February 15, 1996, representing a 2.2% increase in its quarterly
distribution.
Future distributions made by the Company will be at the discretion of its
Board of Directors and will depend upon numerous factors, including the gross
revenues received from its Properties, the operating expenses of the Company,
capital expenditures for the Properties and the interest expense incurred in
borrowing. The Company anticipates that distributions will exceed net income
determined in accordance with generally accepted accounting principles due to
non- cash expenses, primarily depreciation and amortization.
Distributions by the Company to the extent of its current and accumulated
earnings and profits for Federal income tax purposes generally will be taxable
to stockholders as ordinary dividend income. Distributions in excess of such
earnings and profits generally will be treated as a non-taxable reduction of
the stockholder's basis in the shares of Common Stock to the extent thereof
(which may have the effect of deferring taxation until such stockholder's sale
of the shares of Common Stock), and thereafter as taxable gain. Approximately
$.83 (or 45.75%) of the $1.82 of distributions in 1995 represented a return of
capital. In addition, approximately $.07 (or 3.84%) of the $1.82 distributions
in 1995 represented a capital gain from the sale of real estate assets.
-14-
<PAGE> 16
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected consolidated financial data for the
Company and combined financial data for 18 of the Original Properties (one of
which was sold in April 1995) acquired concurrently with the closing of the IPO
and assets, liabilities and operations of Walden's operating companies. These
18 properties and Walden's operating companies are referred to collectively as
the "Walden Predecessors." The historical consolidated operating data for the
Company for the year ended December 31, 1995 and the period from February 9,
1994 (date of commencement of operations) to December 31, 1994 and the balance
sheet data as of December 31, 1995 and 1994 and the combined operating data of
the Walden Predecessors for the period January 1, 1994 to February 8, 1994,
each of the years in the three-year period ended December 31, 1993, and the
balance sheet data as of December 31, 1993, 1992 and 1991 have been derived
from the consolidated financial statements and accounting records of the
Company and the combined financial statements and accounting records of the
Walden Predecessors, respectively, which have been audited by independent
auditors. The consolidated and combined historical operating results of the
Company and the Walden Predecessors may not be indicative of future operating
results of the Company. The following selected financial information should be
read in conjunction with the discussion set forth under "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
all of the financial statements included elsewhere in this report. All amounts
are in thousands except per share and property data.
-15-
<PAGE> 17
<TABLE>
<CAPTION>
THE COMPANY WALDEN PREDECESSORS
------------------------------------ --------------------------------------------
Year Ended February 9 to January 1 to Year Ended December 31,
-----------------------
December 31, 1995 December 31, 1994 February 8, 1994 1993 1992 1991
----------------- ----------------- ---------------- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA
Revenues
Rental income . . . . . . . . . . $ 78,469 $ 39,602 $ 3,047 $ 27,336 $ 25,668 $ 23,952
Other property income . . . . . . 3,090 1,493 134 1,286 1,089 1,077
Interest income . . . . . . . . . 856 365 37 124 182 344
Property management fees . . . . . -- -- 150 1,266 1,167 1,575
Income from WDN Management . . . . 409 533 -- -- -- --
---------- ---------- ----------- -------- -------- -------
- --
- -----
Total revenues . . . . . . . . . . 82,824 41,993 3,368 30,012 28,106 26,948
Expenses
Property operating and maintenance 28,748 15,607 1,242 11,398 10,813 10,405
Real estate taxes . . . . . . . . 7,337 3,275 226 2,159 2,121 2,070
General and administrative . . . . 3,811 2,507 217 2,263 2,014 2,134
Interest expense . . . . . . . . . 17,111 6,288 1,075 11,456 11,751 12,234
Amortization and financing costs . 900 371 20 1,417 418 200
Depreciation . . . . . . . . . . . 15,734 8,589 633 6,114 6,198 6,257
-------- --------- ----------- --------- --------- -------
Total expenses . . . . . . . . . 73,641 36,637 3,413 34,807 33,315 33,300
-------- -------- ----------- -------- -------- -------
Operating income . . . . . . . . . . 9,183 5,356
Net loss of Walden Predecessors (a) -- -- $ (45) $ (4,795) $ (5,209) $(6,352)
=========== ======== ======== =======
(6,352)
======
Gain on disposition of real property 1,502 --
--------- -------------
Income before extraordinary items . 10,685 5,356
Extraordinary loss on debt
extinguishment . . . . . . . . . . (1,352) --
--------- -------------
Net income . . . . . . . . . . . . . 9,333 5,356
Convertible equity securities
preferred distribution . . . . (922) --
--------- -------------
Net income to common stockholders . $ 8,411 $ 5,356
======== ========
Net income per share to common
stockholders . . . . . . . . . . $ .69 $ .62
========== ==========
Distributions per share . . . . . . $ 1.82 $ 1.09
========= =========
Weighted average number of shares
outstanding . . . . . . . . . . . 12,155 8,689
======== =========
PROPERTY DATA
Total properties (at period end) . . 55 40 18 18 18 18
Total units (at period end) . . . . 17,205 12,319 5,895 5,895 5,895 5,895
Total units (weighted average) . . . 14,601 9,140 5,895 5,895 5,895 5,895
Weighted average monthly revenue per
unit (b) . . . . . . . . . . . . $ 465 $ 420 $ 421 $ 405 $ 378$ 354
OTHER DATA
Funds from Operations (c) . . . . . $25,817 $14,316 $ 608 $2,787 $1,497$ 195
<CAPTION>
THE COMPANY WALDEN PREDECESSORS
DECEMBER 31, DECEMBER 31,
----------------------------- -------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Real estate assets . . . . . . . . . $513,341 $329,206 $195,421 $195,421 $195,422
Accumulated depreciation and
impairment allowance . . . . . . . (23,734) (8,589) (83,026) (76,981) (70,852)
Total assets . . . . . . . . . . . . 510,548 334,937 121,889 126,495 132,830
Mortgage notes payable and
Credit Facility . . . . . . . . . 259,015 165,439 147,322 144,801 149,877
Stockholders' equity/partners' deficit 235,127 160,267 (33,610) (29,256) (27,291)
</TABLE>
(a) Net loss of Walden Predecessors is before income tax benefits and
extraordinary gains.
(b) Represents rental income and other property income, divided by total units,
divided by the number of months.
(c) Industry analysts generally consider funds from operations to be an
appropriate measure of the performance of an equity REIT. Funds from
operations is defined as net income (loss) (determined in accordance with
generally accepted accounting principles), excluding gains (or losses) from
debt restructuring and sales of property, plus depreciation and
amortization and other non cash items.
-16-
<PAGE> 18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
The following discussion should be read in conjunction with the "Selected
Financial Data" and all of the financial statements and notes thereto included
elsewhere in this report. Such financial statements and information have been
prepared to reflect the consolidated statements of income of the Company for
the year ended December 31, 1995 and the period from February 9, 1994 (date of
commencement of operations) through December 31, 1994, the balance sheet of the
Company as of December 31, 1995 and 1994 and the historical combined operations
and assets and liabilities of the Walden Predecessors prior to the consummation
of the IPO. (See the Walden Residential Properties, Inc. Consolidated
Financial Statements and related Notes and the Walden Predecessors Combined
Financial Statements and related Notes included elsewhere in this report.)
Changes in revenues and expenses related to the Properties during 1995 and
1994 are primarily the result of property acquisitions. Where appropriate,
comparisons are made on a dollars-per-weighted-average-unit basis in order to
adjust for changes in the number of units owned during each period. The
results of operations of the Company for the period from February 9, 1994 (date
of commencement of operations) to December 31, 1994 and the Walden Predecessors
for the period from January 1, 1994 to February 8, 1994 are combined in this
discussion to reflect the results of operations for the year ended December 31,
1994. Revenues and most expenses related to the properties owned by the Walden
Predecessors are comparable to those of the Company. However, interest,
depreciation and amortization, and general and administrative expenses of the
Company are not necessarily comparable to those same expenses of the Walden
Predecessors due, in large part, to three factors. The Company's reduced debt
level as a result of the application of the proceeds from the IPO, offset by
increased indebtedness related to properties acquired in 1994 and 1995,
resulted in a decrease in interest expense in 1994 and an increase in interest
expense in 1995. Depreciation and amortization of the Company increased
because of property acquisitions and basis adjustments made to reflect purchase
accounting for assets acquired on February 9, 1994. General and administrative
expenses increased due to costs associated with public ownership of the Company
and property acquisitions.
RESULTS OF OPERATIONS
Results of Operations for the Company for the Year Ended December 31, 1995
Compared to the Combined Results of Operations for the Company and the Walden
Predecessors for the Year Ended December 31, 1994.
The weighted average number of units owned increased by 5,807 units in
1995, or 66.0%, from 8,794 units in 1994 to 14,601 units in 1995 as a result of
the acquisition of additional properties. Total units owned at December 31,
1994 and 1995 were 12,319 and 17,205, respectively. The portfolio had a
weighted average occupancy of 94.3% and 94.5% for 1994 and 1995, respectively.
-17-
<PAGE> 19
The Company owned 17 properties with 5,596 apartment units throughout both
calendar years 1995 and 1994. The operating performance of these properties is
summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1995 1994 % CHANGE
---- ---- --------
<S> <C> <C> <C>
Rental and other property revenue (in thousands) . . . . $ 30,474 $ 28,419 7.2%
Property operating expenses (in thousands) (1) . . . . 12,858 12,749 .9%
--------- --------
Property operating income (in thousands) . . . . . . . . $ 17,616 $ 15,670 12.4%
========= ========
Weighted average physical occupancy . . . . . . . . . . 94.7% 94.6% 0.1%
========= ========
Average monthly revenue per unit . . . . . . . . . . . . $ 454 $ 423 7.3%
========= ========
Average annual operating and maintenance expenses per unit $ 1,908 $ 1,894 0.7%
========= ========
Average annual real estate taxes per unit . . . . . . . $ 390 $ 384 1.6%
========= ========
Operating expense ratio . . . . . . . . . . . . . . . . 42.2% 44.9% (6.0%)
========= ========
</TABLE>
(1) Consists of property operating and maintenance and real estate tax
expenses.
The operating performance of properties not owned throughout both calendar
years 1995 and 1994 is summarized as follows:
-18-
<PAGE> 20
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1995 1994 % CHANGE
---- ---- --------
<S> <C> <C> <C>
Rental and other property revenue (in thousands) . . . . $ 51,085 $ 15,857 222.2%
Property operating expenses (in thousands) (1) . . . . 23,227 7,601 205.6%
--------- ---------
Property operating income (in thousands) . . . . . . . . $ 27,858 $ 8,256 237.4%
========= =========
Weighted average number of units . . . . . . . . . . . . 9,005 3,198 181.6%
========= =========
Weighted average physical occupancy . . . . . . . . . . 94.4% 94.1% 0.3%
========= =========
Average monthly revenue per unit . . . . . . . . . . . . $ 473 $ 413 14.5%
========= =========
Average annual operating and maintenance expenses per unit $ 2,007 $ 1,955 2.7%
========= =========
Average annual real estate taxes per unit . . . . . . . $ 572 $ 422 35.5%
========= =========
Operating expense ratio . . . . . . . . . . . . . . . . 45.5% 47.9% (5.0%)
========= =========
</TABLE>
(1) Consists of property operating and maintenance and real estate tax
expenses.
Interest income increased $454,000 in 1995, or 112.9%, from $402,000 in
1994 to $856,000 in 1995 as the result of increased cash balances, higher
short-term interest rates and interest earned on notes from certain officers of
the Company in connection with stock purchases.
Property management fees and income from WDN Management combined decreased
$274,000 in 1995, or 40.1%, from $683,000 in 1994 to $409,000 in 1995. A
portion of the decrease resulted
-19-
<PAGE> 21
from the termination of four management contracts in December 1994, due to the
Company purchasing the properties, and the termination of two additional
management contracts in August 1995. The remaining portion of the decrease was
attributable to accounting for WDN Management on the equity accounting method.
At the close of the IPO, WDN Management was formed to continue the fee
management of multifamily properties for third parties. The Walden Predecessors
accounted for property management income on a combined basis. This decrease in
revenue is partially offset by a decrease in general and administrative
expenses, also as a result of the differing accounting treatment.
General and administrative expense increased $1.1 million in 1995, or
40.7%, from $2.7 million in 1994 to $3.8 million in 1995. This represents a
per unit decrease of $49 in 1995, or 15.8%. The increase in general and
administrative expenses is primarily a result of costs associated with becoming
a public company in February 1994, the increase in weighted average shares
outstanding, the increase in executive officers' compensation, the increase in
occupancy cost due to the relocation of the Company's corporate office and the
increase in salaries resulting from additional personnel to administer the
properties acquired since the IPO.
Interest expense increased $9.7 million in 1995, or 131%, from $7.4 million
in 1994 to $17.1 million in 1995 due to increased weighted average indebtedness
of approximately $113 million associated with the acquisition of properties and
an increased weighted average interest rate in 1995 of approximately 0.71%.
Depreciation and amortization and financing costs increased $7.0 million in
1995, or 72.9%, from $9.6 million in 1994 to $16.6 million in 1995 primarily
due to additional depreciation on properties acquired since the IPO and
additional amortization of deferred loan costs associated with debt incurred in
1995.
Of the $1.5 million gain on disposition of real property, $1.1 million
resulted from the sale of Sterling Pointe Apartments, a 299-unit property
located in Greensboro, North Carolina, in April 1995. The remaining gain of
$.4 million resulted from the sale of Barrington Oaks, a 242-unit property
located in Roswell, Georgia, in December 1995. The Company received total net
sales proceeds from these dispositions of approximately $23.2 million.
The $1.4 million extraordinary loss represented prepayment penalties and
deferred loan costs written off upon repayment of certain of the Company's
indebtedness in 1995.
Comparison of the Combined Results of Operations for the Company and the
Walden Predecessors for the Years Ended December 31, 1994 and 1993.
The weighted average number of units owned increased by 2,899 units in
1994, or 49.2%, from 5,895 units in 1993 to 8,794 units in 1994 as a result of
the acquisition of additional properties. Total units owned at December 31,
1993 and 1994 were 5,895 and 12,319, respectively. The portfolio had a weighted
average occupancy of 95.1% and 94.3% for 1993 and 1994, respectively.
Rental income increased $15.3 million in 1994, or 56.0%, from $27.3 million
in 1993 to $42.6 million in 1994 primarily due to increases in the average
number of units and the average rental
-20-
<PAGE> 22
income per unit. Of the $15.3 million increase, $13.8 million was attributable
to additional properties acquired in 1994 and $1.5 million was attributable to
units owned throughout both periods. Average rental income per unit per month
increased by $18 in 1994, or 4.7%, from $386 in 1993 to $404 in 1994.
Other property income increased $341,000 in 1994, or 26.5%, from $1,286,000
in 1993 to $1,627,000 in 1994 due to the increased number of units owned.
Interest income increased $278,000 in 1994, or 224%, from $124,000 in 1993
to $402,000 in 1994 as the result of increased cash balances and interest
earned on notes from certain officers of the Company in connection with stock
purchases.
Property management fees and income from WDN Management combined decreased
$583,000 in 1994, or 46.1%, from $1,266,000 in 1993 to $683,000 in 1994 because
the Company accounts for WDN Management on the equity accounting method. At
the close of the IPO, WDN Management was formed to continue the fee management
of multifamily properties for third parties. The Walden Predecessors accounted
for property management income on a combined basis. This decrease in revenue
was partially offset by a decrease in general and administrative expenses, also
as a result of the differing accounting treatment.
Property operating and maintenance expense increased $5.4 million in 1994,
or 47.4%, from $11.4 million in 1993 to $16.8 million in 1994. This
represented a slight decrease in per unit expense from $1,934 in 1993 to $1,916
in 1994. Of the $5.4 million increase, $5.6 million was attributable to
additional properties acquired in 1994 and $.2 million was attributable to
units owned throughout both periods, offset by a $.4 million decrease resulting
from Walden Predecessors capitalization policy in 1993.
Real estate taxes increased $1.3 million in 1994, or 59.1%, from $2.2
million in 1993 to $3.5 million in 1994. This represented an increase of $32
per unit in 1994, or 8.7%, from $366 in 1993 to $398 in 1994, due to increases
in valuations of properties, increases in property tax rates and property
acquisitions.
General and administrative expense increased $461,000 in 1994, or 20.4%,
from $2,263,000 in 1993 to $2,724,000 in 1994. This represented a per unit
decrease of $74 in 1994, or 19.3%. The increase in general and administrative
expenses was primarily the result of costs associated with becoming a public
company in February 1994 and the increased number of units owned, partially
offset by a decrease in certain expenses associated with the operations of WDN
Management.
Interest expense decreased $4.1 million in 1994, or 35.7%, from $11.5
million in 1993 to $7.4 million in 1994 due to debt repaid in connection with
the closing of the IPO.
Depreciation and amortization and financing costs increased $2.1 million in
1994, or 28.0%, from $7.5 million in 1993 to $9.6 million in 1994 due to the
acquisition and renovation of properties and due to the adjustments to basis
made to reflect purchase accounting for assets acquired in connection with the
IPO.
-21-
<PAGE> 23
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal demands for liquidity are distributions to its
stockholders, ongoing maintenance and repair of its properties, capital
improvements to its properties, acquisitions of properties, interest on
indebtedness and debt repayments.
The Company received a total of $170.8 million in net equity proceeds from
its IPO in February 1994, its officer stock purchase plan in July 1994 and its
second public offering in November 1994. The net proceeds of the Company's
stock issuances were primarily used to purchase the 20 Original Properties
(6,343 units) and an additional 20 properties (5,976 units) subsequent to the
IPO. The aggregate purchase price including closing costs for these 40
properties totaled approximately $331.3 million. In connection with the
acquisition of these 40 properties, the Company also assumed existing mortgage
indebtedness and obtained new mortgage indebtedness of approximately $162.8
million net of loan costs.
In 1995 the Company received a total of $67.7 million in net equity
proceeds from its public offering in June 1995, its dividend reinvestment plan
and the officers and directors stock purchase plan implemented in December
1995. In addition, the Company received approximately $23.2 million from the
sale of two properties and $16.0 million in net proceeds from mortgage
financings and refinancings. These funds were primarily used to purchase 17
properties (5,427 units) with an aggregate purchase price of approximately
$199.5 million. In connection with the acquisition of these 17 properties, the
Company assumed $73.0 million of existing mortgage indebtedness, issued common
stock and convertible equity securities in lieu of cash in the amount of $22.8
million and funded $4.3 million in rehabilitation costs.
Cash and cash equivalents increased $2.5 million, or 58%, from $4.3 million
as of December 31, 1994 to $6.8 million as of December 31, 1995.
Net cash provided by operating activities increased $14.9 million for
the year ended December 31, 1995 compared to the period from February 9, 1994
through December 31, 1994. This increase was due primarily to the increase in
average number of properties owned, as well as increased revenue from
properties owned in both periods.
Net cash used in investing activities decreased from $256.1 million for
the period from February 9, 1994 through December 31, 1994 to $86.9 million for
the year ended December 31, 1995. The decrease was a result of less net
proceeds in 1995 from equity offerings to purchase additional properties, which
was offset by cash proceeds of $23.2 million from the sale of two properties in
1995. In 1994, the Company had net equity proceeds of $170.8 million, which
resulted in the purchase of 40 properties, including the 20 Original
Properties. In 1995, the Company had net equity proceeds of $67.7 million
which were primarily used to partially fund the purchase of 17 properties.
Net cash provided from financing activities decreased from $244.0 million
for the period from February 9, 1994 through December 31, 1994 to $58.1 million
for the year ended December 31, 1995. The decrease was primarily a result of
less net proceeds from stock issuances, less net
-22-
<PAGE> 24
proceeds from mortgage financings and an increase in distributions.
The Company intends to meet its short-term liquidity requirements,
including capital expenditures related to maintaining and improving its Matured
Properties, through cash flow provided by operations. The Company considers its
cash provided by operating activities to be adequate to meet both its operating
requirements and distribution obligations. The Company has certain loans which
require principal payments on a monthly basis for which cash provided by
operating activities may or may not be sufficient. Accordingly, the Company
anticipates borrowing under its credit facility (the "Credit Facility"), as
discussed below, to fund such payments, if necessary. As of March 4, 1996, the
Company has available borrowings for general corporate purposes under its
Credit Facility of approximately $6 million.
During the year ended December 31, 1995, the Company spent approximately
$6.5 million in capital expenditures and rehabilitation expenditures on
acquisition properties. Rehabilitation costs of $4.3 million and capital
expenditures on Matured Properties of $2.2 million were funded from net cash
provided by operating activities. The Company has budgeted capital
improvements of $3.7 million for 1996 on its Matured Properties and $2.3
million to complete necessary renovations to properties acquired in 1995, which
are anticipated to be funded from borrowings under the Credit Facility.
The Company paid distributions of $22.0 million during the year ended
December 31, 1995. On March 1, 1996, the Company paid a distribution of $.465
per share to stockholders of record on February 15, 1996, which equates to an
annualized distribution of $1.86 per share, a 2.2% increase over the $1.82 per
share distributions paid in 1995.
As of December 31, 1995, the Company had outstanding indebtedness in the
aggregate principal amount of $259.0 million, consisting of fixed rate
conventional and tax-exempt debt in the amount of $179.5 million, variable rate
tax- exempt debt of $73.0 million and $6.5 million variable rate debt under the
Credit Facility.
During the year ended December 31, 1995, the Company refinanced, repaid or
assumed debt as summarized below (in thousands):
<TABLE>
<CAPTION>
OUTSTANDING OUTSTANDING
INDEBTEDNESS INDEBTEDNESS
AS OF DEBT DEBT DEBT PRINCIPAL AS OF
12/31/94 REFINANCINGS REPAID ASSUMED REPAYMENT 12/31/95
-------- ------------ ------ ------- --------- --------
<S> <C> <C> <C> <C> <C>
Fixed rate indebtedness $ 79,285 $125,571 $ (24,199) $ -- $(1,197) $179,460
Variable rate indebtedness 36,654 -- (36,654) 73,055 -- 73,055
Credit Facility 49,500 -- (43,000) -- -- 6,500
-------- -------- ---------- ------- ------- --------
Total $165,439 $125,571 $(103,853) $73,055 $(1,197) $259,015
======== ======== ========= ======= ======= ========
</TABLE>
-23-
<PAGE> 25
The following table sets forth certain information regarding the
outstanding indebtedness as of December 31, 1995:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE OUTSTANDING PERCENTAGE
----------------
INTEREST YEARS TO PRINCIPAL OF
RATE MATURITY BALANCE (1) TOTAL
------- -------- ----------- -----
<S> <C> <C> <C> <C>
Conventional fixed rate 8.62% 8.3 Years $141,331 54.6%
Tax-exempt fixed rate 6.47% 17.9 Years 38,129 14.7%
---------- --------
Total fixed rate 8.16% 10.3 Years 179,460 69.3%
--------- --------
Tax-exempt variable rate 7.24% 2.8 Years 73,055 28.2%
Credit Facility 8.19% 2.1 Years 6,500 2.5%
----------- --------
Total variable rate 7.31% 2.7 Years 79,555 30.7%
---------- -------
Total 7.90% 8.0 Years $259,015 100.0%
======== ======
</TABLE>
(1) In thousands.
The Company has no outstanding indebtedness that matures during the next
two years. Of the total indebtedness, principal and balloon payments become
due as follows (in thousands):
<TABLE>
<CAPTION>
BALLOON
PRINCIPAL PAYMENTS TOTAL
--------- -------- -----
<S> <C> <C> <C>
1996 . . . . . . . . . . . . . . . . . . . . . . $ 2,331 $ -- $ 2,331
1997 . . . . . . . . . . . . . . . . . . . . . . 2,526 -- 2,526
1998 . . . . . . . . . . . . . . . . . . . . . . 2,686 71,765 74,451
1999 . . . . . . . . . . . . . . . . . . . . . . 2,810 21,970 24,780
2000 . . . . . . . . . . . . . . . . . . . . . . 2,988 7,067 10,055
Thereafter . . . . . . . . . . . . . . . . . . . 30,428 114,444 144,872
-------- --------- ---------
Total $43,769 $215,246 $259,015
======= ======== ========
</TABLE>
On February 8, 1996, the Company refinanced its Credit Facility with The
First National Bank of Boston ("Bank of Boston"). This Credit Facility
provides financing up to $75 million; however, the borrowing base is limited to
approximately $55 million based upon the collateral of 13 properties and is
currently further limited to $30 million until Bank of Boston obtains other
participants to commit to lend under the Credit Facility. At the Company's
election, the interest rate on borrowings is at a floating rate equal to either
(i) 1% over the lender's base rate, or (ii) 1.75% over LIBOR; however, the
interest rate may be reduced to 1.60% over LIBOR upon the Company's meeting
certain financial covenants. As of March 4, 1996, the outstanding balance of
the Credit Facility was $10.5 million.
The Credit Facility contains customary representations, warranties and
events of default which require the Company to comply with certain affirmative
and negative covenants. In accordance with a provision of the Credit Facility
loan documents, the Company may not pay distributions in excess of 90% of funds
from operations, as defined.
All of the Company's real estate assets are collateralized for the various debt
agreements.
The Company expects to meet its long-term liquidity requirements, such as
refinancing mortgages and property acquisitions, including capital improvements
on property acquisitions, through long-term borrowings, both secured and
unsecured, and the issuance of debt or equity securities.
The Company's ability to acquire additional properties is dependent upon
its ability to obtain equity or debt financing. During 1995, the Company was
able to raise additional equity and incur indebtedness to acquire 17
properties. As of March 4, 1996, the Company's debt-to-total-market
capitalization ratio was approximately 44.3%, leaving the Company the ability
to borrow funds to acquire additional properties in the amount of $67 million
and still maintain its 50% debt-to-total-market capitalization policy. When
the Company finances its acquisitions with debt, the Company expects that such
acquired properties will generate cash flow adequate to service the associated
indebtedness.
-24-
<PAGE> 26
FUNDS FROM OPERATIONS
Industry analysts generally consider funds from operations ("FFO") an
appropriate measure of performance of an equity REIT. FFO is defined as net
income (determined in accordance with generally accepted accounting
principles), excluding gains (or losses) from debt restructuring and sales of
property, plus depreciation and amortization and other non-cash items. The
Company believes that in order to facilitate a clear understanding of its
operating results, FFO should be examined in conjunction with net income (loss)
as presented in the audited consolidated or combined financial statements and
information included elsewhere in this report. FFO does not represent cash
generated from operating activities in accordance with generally accepted
accounting principles and is not necessarily indicative of cash available to
fund cash needs and cash distributions. FFO should not be considered as an
alternative to net income (determined in accordance with generally accepted
accounting principles) as an indication of the Company's performance or as an
alternative to cash flow (determined in accordance with generally accepted
accounting principles) as a measure of liquidity.
The National Association of Real Estate Investment Trusts ("NAREIT")
adopted certain changes to the calculation of FFO. The Company has adopted
these changes effective January 1, 1996, and the Company has restated below its
1995 calculation of FFO for comparative purposes. Under NAREITs new definition
of FFO, the Company (as well as other REITs using the old definition) will no
longer be able to add back amortization of financing costs. The following is a
calculation of FFO under both the new and old definitions (in thousands):
<TABLE>
<CAPTION>
OLD DEFINITION NEW DEFINITION
-------------- --------------
1995 1994 (1) 1995 1994 (1)
---- ---- ---- ----
<S> <C> <C> <C> <C>
Income before extraordinary item . . . . . . $10,685 $ 5,356 $10,685 $ 5,356
Gain on disposition of real property . . . . (1,502) -- (1,502) --
Depreciation of real assets . . . . . . . . . 15,734 8,589 15,734 8,589
Amortization . . . . . . . . . . . . . . . . 900 371 -- --
------- ------- ------- -------
Funds from Operations . . . . . . . . . $25,817 $14,316 $24,917 $13,945
======= ======= ======= =======
</TABLE>
(1) Represents results from February 9, 1994 (date of commencement of
operations) through December 31, 1994.
Under the old definition, FFO increased $11.5 million, or 80.4%, from $14.3
million for the period ended December 31, 1994 to $25.8 million for the year
ended December 31, 1995. The increase in FFO was primarily attributable to
additional operating income, which resulted from an increase in the number of
units owned as a result of property acquisitions and increased operating income
from properties owned throughout both periods.
-25-
<PAGE> 27
INFLATION
The Company leases apartments under lease terms generally ranging from six
to 12 months. Management believes that such short-term lease contracts lessen
the impact of inflation due to the ability to adjust rental rates to market
levels as leases expire.
NEW ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board (the "FASB")
adopted Statement of Financial Accounting Standard ("SFAS") No. 121,
"Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be
Disposed Of." SFAS No. 121 requires companies to assess potential impairments
of long-lived assets, certain identifiable intangibles and goodwill related to
those assets, and to recognize an impairment loss when the aggregate amount of
expected future net cash flows of an asset is less than its carrying value.
The Company's adoption of SFAS No. 121 in 1995 had no effect on its
consolidated financial statements.
In October 1995, the FASB adopted SFAS No. 123, "Accounting for Stock-Based
Compensation," which requires companies to adopt a method of accounting for
valuing compensation attributable to stock options. SFAS No. 123 is effective
for fiscal years beginning after December 15, 1995. As allowable under the
provisions of SFAS No. 123, the Company has elected to continue accounting for
such compensation as provided by Accounting Practice Bulletin Opinion No. 25,
which will not have an effect on the Company's consolidated financial
statements.
RISKS ASSOCIATED WITH FORWARD-LOOKING STATEMENTS INCLUDED IN THIS FORM 10-K
This Form 10-K contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934, which are intended to be covered by the safe
harbors created thereby. These statements include the plans and objectives of
management for future operations, including plans and objectives relating to
capital expenditures and rehabilitation costs on the Properties. The
forward-looking statements included herein are based on current expectations
that involve numerous risks and uncertainties. Assumptions relating to the
foregoing involve judgments with respect to, among other things, future
economic, competitive and market conditions and future business decisions, all
of which are difficult or impossible to predict accurately and many of which
are beyond the control of the Company. Although the Company believes that the
assumptions underlying the forward- looking statements are reasonable, any of
the assumptions could be inaccurate and, therefore, there can be no assurance
that the forward-looking statements included in this Form 10-K will prove to be
accurate. In light of the significant uncertainties inherent in the
forward-looking statements included herein, the inclusion of such information
should not be regarded as a representation by the Company or any other person
that the objectives and plans of the Company will be achieved.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial statements and supplementary financial information are contained
on pages F-1 through F-33 and S-1 and S-2 of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
-26-
<PAGE> 28
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item will be incorporated by reference
from the Company's definitive Proxy Statement for its 1996 Annual Meeting of
Stockholders to be filed with the Securities and Exchange Commission pursuant
to Regulation 14A under the Securities Exchange Act of 1934.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item will be incorporated by reference
from the Company's definitive Proxy Statement for its 1996 Annual Meeting of
Stockholders to be filed with the Securities and Exchange Commission pursuant
to Regulation 14A under the Securities Exchange Act of 1934.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item will be incorporated by reference
from the Company's definitive Proxy Statement for its 1996 Annual Meeting of
Stockholders to be filed with the Securities and Exchange Commission pursuant
to Regulation 14A under the Securities Exchange Act of 1934.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item will be incorporated by reference
from the Company's definitive Proxy Statement for its 1995 Annual Meeting of
Stockholders to be filed with the Securities and Exchange Commission pursuant
to Regulation 14A under the Securities Exchange Act of 1934.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) Financial Statements:
The financial statements are contained on pages F-1 through F-33 of this
report.
(2) Financial Statement Schedules:
III. Real Estate and Accumulated Depreciation are presented on pages
S-1 and S-2 of this report.
All other schedules have been omitted because the required information
of such other schedules is not present, is not present in amounts
sufficient to require submission of the schedule or is included in the
consolidated financial statements.
(3) Index to Exhibits:
See Index to Exhibits on page E-1.
(b) Reports on Form 8-K:
None.
-27-
<PAGE> 29
SIGNATURES
Pursuant to the requirements of Section 13 or 13(d) of the Securities
Exchange Act of 1934, Walden Residential Properties, Inc. certifies that it has
duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
WALDEN RESIDENTIAL PROPERTIES, INC.
By / s / DON R. DASEKE Don R. Daseke
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of Walden Residential
Properties, Inc. and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
---------- ----- ----
<S> <C> <C>
/ s / DON R. DASEKE Chairman of the Board of Directors, March 8, 1996
- ----------------------------------------
Don R. Daseke Chief Executive Officer and Director
(Principal Executive Officer)
/ s / MARK S. DILLINGER Executive Vice President, Chief March 8, 1996
- ------------------------------------
Mark S. Dillinger Financial Officer and Director
(Principal Financial and Accounting Officer)
/ s / MARSHALL B. EDWARDS President, Chief Acquisitions Officer March 8, 1996
- -----------------------------
Marshall B. Edwards and Director
/ s / LINDA WALKER BYNOE Director March 8, 1996
- ------------------------------
Linda Walker Bynoe
/ s / FRANCESCO GALESI Director March 8, 1996
- ----------------------------------
Francesco Galesi
/ s / EDWARD L. HENNESSY, JR. Director March 8, 1996
- -----------------------------
Edward L. Hennessy, Jr.
/ s / ARCH K. JACOBSON Director March 8, 1996
- -----------------------------------
Arch K. Jacobson
/ s / LOUIS G. MUNIN Director March 8, 1996
- ---------------------------------------
Louis G. Munin
/ s / J. OTIS WINTERS Director March 8, 1996
- ----------------------------------------
J. Otis Winters
</TABLE>
-28-
<PAGE> 30
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
WALDEN RESIDENTIAL PROPERTIES, INC. CONSOLIDATED FINANCIAL STATEMENTS
<S> <C>
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-2
Consolidated Balance Sheets as of December 31, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . F-3
Consolidated Statements of Income for the year ended December 31, 1995
and the period from February 9, 1994 (date of commencement of operations)
through December 31, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-4
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-5
Consolidated Statements of Cash Flows for the year ended December 31, 1995
and the period from February 9, 1994 (date of commencement of operations)
through December 31, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-6
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-7
WALDEN PREDECESSORS COMBINED FINANCIAL STATEMENTS
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-19
Combined Balance Sheet as of December 31, 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-20
Combined Statements of Operations for the period January 1, 1994
through February 8, 1994 and the year ended December 31, 1993 . . . . . . . . . . . . . . . . . . . . . . F-21
Combined Statements of Partners'/Stockholders' Deficit for the period
January 1, 1994 through February 8, 1994 and the year ended
December 31, 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-22
Combined Statements of Cash Flows for the period January 1, 1994
through February 8, 1994 and the year ended December 31, 1993 . . . . . . . . . . . . . . . . . . . . . . F-23
Notes to Combined Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-24
The following financial statement supplementary schedule of the Registrant and its subsidiaries required to be
included in Item 14(a)(2) is listed below:
Schedule III -- Real Estate and Accumulated Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1
</TABLE>
F-1
<PAGE> 31
INDEPENDENT AUDITORS' REPORT
To the Directors and Stockholders of
Walden Residential Properties, Inc.
We have audited the accompanying consolidated balance sheets of Walden
Residential Properties, Inc. and subsidiaries as of December 31, 1995 and 1994,
and the related consolidated statements of income and cash flows for the year
ended December 31, 1995 and the period February 9, 1994 (date of commencement of
operations) through December 31, 1994 and stockholders' equity for the years
ended December 31, 1995 and 1994. Our audits also included the financial
statement schedule listed in the Index at Item 14(a)(2). These financial
statements and financial statement schedule are the responsibility of the
management of Walden Residential Properties, Inc. Our responsibility is to
express an opinion on these financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of Walden Residential
Properties, Inc. and subsidiaries at December 31, 1995 and 1994, and the
results of their operations and their cash flows for the year ended December
31, 1995 and the period February 9, 1994 (date of commencement of operations)
through December 31, 1994 and the changes in stockholders' equity for the years
ended December 31, 1995 and 1994 in conformity with generally accepted
accounting principles. Also, in our opinion, such financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
DELOITTE & TOUCHE LLP
Dallas, Texas
March 7, 1996
F-2
<PAGE> 32
WALDEN RESIDENTIAL PROPERTIES, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE INFORMATION)
<TABLE>
<CAPTION>
ASSETS
December 31,
----------------------------
1995 1994
---- ----
<S> <C> <C>
Real estate assets, at cost
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 60,637 $ 39,784
Buildings and improvements . . . . . . . . . . . . . . . . . . . . . . . . . 452,704 289,422
-------- --------
513,341 329,206
Less: Accumulated depreciation . . . . . . . . . . . . . . . . . . . . (23,734) (8,589)
-------- --------
489,607 320,617
Receivable from and investment in WDN Management . . . . . . . . . . . . . . . . 1,005 702
Rent and other receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,448 255
Prepaid and other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,353 3,052
Deferred financing costs, net . . . . . . . . . . . . . . . . . . . . . . . . . . 4,359 1,946
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,801 4,289
Restricted cash:
Escrow deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,105 3,255
Additional collateral on loans . . . . . . . . . . . . . . . . . . . . . . . 1,870 821
-------- --------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $510,548 $334,937
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Mortgage notes payable and Credit Facility . . . . . . . . . . . . . . . . . $259,015 $165,439
Accrued real estate taxes . . . . . . . . . . . . . . . . . . . . . . . . . 6,522 3,001
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,815 2,936
Accrued expenses and other liabilities . . . . . . . . . . . . . . . . . . . 4,608 3,294
Preferred distribution payable on convertible equity securities . . . . . . 461 --
-------- --------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . 275,421 174,670
Commitments and contingencies
Stockholders' equity:
Convertible equity securities . . . . . . . . . . . . . . . . . . . . . . . 18,608 --
Preferred stock, $.01 par value per share, 10,000,000 shares
authorized, no shares issued . . . . . . . . . . . . . . . . . . . . . . -- --
Common stock, $.01 par value per share, 50,000,000 shares
authorized, 14,189,973 shares issued and outstanding as
of December 31, 1995 and 10,070,300 shares issued and
outstanding as of December 31, 1994 . . . . . . . . . . . . . . . . . . 142 101
Excess stock, $.01 par value per share, 60,000,000 shares
authorized, no shares issued . . . . . . . . . . . . . . . . . . . . . . -- --
Additional paid in capital . . . . . . . . . . . . . . . . . . . . . . . . . 238,899 167,546
Officer and director notes for stock purchases . . . . . . . . . . . . . . . (4,971) (3,438)
Distributions in excess of net income . . . . . . . . . . . . . . . . . . . (17,551) (3,942)
-------- --------
Total stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . 235,127 160,267
-------- --------
Total liabilities and stockholders' equity . . . . . . . . . . . . . $510,548 $334,937
======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE> 33
WALDEN RESIDENTIAL PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
<TABLE>
<CAPTION>
For the Period
February 9, 1994
(Commencement of
For the Year Ended Operations) through
December 31, 1995 December 31, 1994
----------------- -----------------
<S> <C> <C>
REVENUES
Rental income . . . . . . . . . . . . . . . . . . . . . . . . . . . $78,469 $39,602
Other property income . . . . . . . . . . . . . . . . . . . . . . . 3,090 1,493
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . 856 365
Income from WDN Management . . . . . . . . . . . . . . . . . . . . . 409 533
------- -------
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . 82,824 41,993
EXPENSES
Property operating and maintenance . . . . . . . . . . . . . . . . . 28,748 15,607
Real estate taxes . . . . . . . . . . . . . . . . . . . . . . . . . 7,337 3,275
General and administrative . . . . . . . . . . . . . . . . . . . . . 3,811 2,507
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,111 6,288
Amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . 900 371
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,734 8,589
------- -------
Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . 73,641 36,637
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,183 5,356
Gain on disposition of real property . . . . . . . . . . . . . . . . 1,502 --
Income before extraordinary item . . . . . . . . . . . . . . . . . . . . 10,685 5,356
Extraordinary loss on debt extinguishment . . . . . . . . . . . . . (1,352) --
------- -------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,333 5,356
Convertible equity securities preferred distributions . . . . . . . (922) --
------- -------
Net income available to common stockholders . . . . . . . . . . . . . . . $ 8,411 $ 5,356
======= =======
Income per share:
Before extraordinary item less preferred distributions . . . . . . . $ .80 $ .62
Extraordinary loss on debt extinguishment . . . . . . . . . . . . . (.11) --
------- -------
Net income available to common stockholders . . . . . . . . . . . . $ .69 $ .62
======= =======
Weighted average number of common stock and
common stock equivalent shares outstanding . . . . . . . . . . . . . 12,155 8,689
======= =======
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE> 34
WALDEN RESIDENTIAL PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
<TABLE>
<CAPTION>
Convertible Common Stock Additional Officer/Director Distributions
Equity ------------ Paid in Notes for Treasury in Excess of
Securities Shares Par Value Capital Stock Purchases Stock Net Income
---------- ------ --------- ------- --------------- ----- ----------
<S> <C> <C> <C>
Balance, January 1, 1994 . . . . .. $ -- 1 $ -- $ 1 $ -- $ -- $ --
Initial Public Offering, net of
offering costs and reduction
for carryover basis . . . . .. 7,486 75 121,118
Exercise of over-allotment
option, net of offering costs . 900 9 16,109
Officers' stock purchase . . . .. 183 2 3,818 (3,438)
Public offering, net of offering
costs . . . . . . . . . . . .. 1,500 15 26,500
Distributions ($1.09 per share) . (9,298)
Net income . . . . . . . . . . .. 5,356
------- ------ ---- -------- ------- ------ --------
Balance, December 31, 1994 . . . .. -- 10,070 101 167,546 (3,438) -- (3,942)
Stock and convertible equity
securities issued to purchase
real estate assets . . . . . .. 18,608 216 2 4,205
Public offering, net of offering
costs . . . . . . . . . . . .. 3,500 35 60,138
Stock issued under the dividend
reinvestment plan . . . . . .. 404 4 7,037
Treasury stock purchased . . . .. (2,038)
Officers'/Directors' stock
purchase . . . . . . . . . . .. (27) (1,533) 2,038
Distributions ($1.82 per share) . (22,020)
Convertible equity securities
preferred distributions . . .. (922)
Net income . . . . . . . . . . .. 9,333
------- ------ ---- -------- ------- ------ --------
Balance, December 31, 1995 . . . .. $18,608 14,190 $142 $238,899 $(4,971) $ -- $(17,551)
======= ====== ==== ======== ======= ====== =========
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE> 35
WALDEN RESIDENTIAL PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
For the Period
February 9, 1994
(Commencement of
For the Year Ended Operations) through
December 31, 1995 December 31, 1994
----------------- -----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,333 $ 5,356
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . 16,634 8,960
Gain on disposition of real property . . . . . . . . . . . . . . . (1,502) --
Extraordinary loss on debt extinguishment . . . . . . . . . . . . 1,352 --
Net effect of changes in operating accounts:
Escrow deposits . . . . . . . . . . . . . . . . . . . . . . . (850) (3,255)
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . 203 (3,872)
Accrued real estate taxes . . . . . . . . . . . . . . . . . . 3,521 3,001
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . 1,352 2,936
Other liabilities . . . . . . . . . . . . . . . . . . . . . . 1,274 3,294
--------- -----------
Net cash provided by operating activities . . . . . . . . 31,317 16,420
-------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of real estate assets, net of noncash items shown
below . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (103,631) (251,513)
Real estate asset additions . . . . . . . . . . . . . . . . . . . . . (6,451) (4,601)
Proceeds from disposition of real property . . . . . . . . . . . . . . 23,156 --
--------- --------------
Net cash used in investing activities . . . . . . . . . . . . . . (86,926) (256,114)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from stock issuance, net of issuance costs . . . . . . . . . 67,723 170,768
Purchase of treasury stock . . . . . . . . . . . . . . . . . . . . . . (1,928) --
Proceeds from mortgage notes payable . . . . . . . . . . . . . . . . . 125,571 36,654
Net increase (decrease) in credit facility . . . . . . . . . . . . . . (43,000) 49,500
Payment of mortgage notes payable . . . . . . . . . . . . . . . . . . (60,853) --
Principal reductions of debt . . . . . . . . . . . . . . . . . . . . . (1,197) (504)
Payment of financing costs . . . . . . . . . . . . . . . . . . . . . . (3,751) (2,317)
Prepayment penalties on debt extinguishment . . . . . . . . . . . . . (914) --
Additional collateral on loans . . . . . . . . . . . . . . . . . . . . (1,049) (821)
Distributions paid . . . . . . . . . . . . . . . . . . . . . . . . . . (22,020) (9,298)
Preferred distribution on convertible equity securities . . . . . . . (461) --
----------- -------------
Net cash provided by financing activities . . . . . . . . . . . . 58,121 243,982
--------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS . . . . . . . . . . . . . . . . . 2,512 4,288
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,289 1
-------- -------------
CASH AND CASH EQUIVALENTS, END OF PERIOD . . . . . . . . . . . . . . . . . $ 6,801 $ 4,289
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid for interest . . . . . . . . . . . . . . . . . . . . . . . . $ 16,916 $ 5,222
======== =========
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
Items related to purchase of assets:
Mortgage notes assumed . . . . . . . . . . . . . . . . . . . . . . $ 73,055 $ 79,789
======== ========
Securities issued for purchase of assets . . . . . . . . . . . . . $ 22,825 $ 137
======== ==========
Basis adjustment attributable to restricted shares . . . . . . . . $ -- $ 6,697
============ =========
Notes receivable for officers' and directors' stock purchases . . . . $ 1,533 $ 3,438
========= =========
Preferred distribution payable on convertible equity securities . . . $ 461 $ --
========== ============
</TABLE>
See Notes to Consolidated Financial Statements.
F-6
<PAGE> 36
WALDEN RESIDENTIAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) ORGANIZATION
Walden Residential Properties, Inc. (the "Company") was formed on September
29, 1993 as a Maryland corporation to continue the multifamily operations of
The Walden Group, Inc. (collectively with its subsidiaries and predecessors
"Walden") and Don R. Daseke, the sole director and executive officer of Walden.
The Company was capitalized on September 29, 1993 upon the sale of 1,000 shares
of common stock for $1,000 to Don R. Daseke, which amount represented the only
asset of the Company as of December 31, 1993. On February 9, 1994 (date of
commencement of operations), the Company completed an initial public offering
("IPO") of its common stock, which is listed on the New York Stock Exchange.
The Company is a self-administered and self-managed equity real estate
investment trust ("REIT") as defined under the Internal Revenue Code of 1986,
as amended. As of December 31, 1995, the Company owned 55 multifamily
properties, containing 17,205 apartment units, primarily in the Southwest and
Southeast regions of the United States.
(2) BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
the Company, eight wholly-owned subsidiaries (two of which were formed in 1995
and four of which were merged into the Company on November 30, 1995), 12
substantially wholly-owned limited partnerships (one of which was formed in
1995 and four of which were dissolved in 1995) and a limited partnership which
owns 11 multifamily properties in which the Company has a controlling
interest (see Note 9). The Company had no operations for the period September
29, 1993 through February 8, 1994. All material intercompany transactions and
account balances have been eliminated in consolidation.
Income Recognition
Rental, interest and other income are recorded on the accrual method of
accounting as earned.
Rental Operations
As of December 31, 1995, the Company owned 55 multifamily properties in 11
states; with 54% of its apartment units located in Texas and 36% located in
Oklahoma, Florida, Utah and Arizona. Of the total units owned, 6,504 units or
38% are located in the Dallas/Fort Worth area in 17 different submarkets.
Apartment units are leased to residents on terms of one year or less, with
monthly payments due in advance. Certain of the properties are subject to
Federal, state and local statutes or other restrictions requiring that a
percentage of apartments be made available to lower or moderate income
families. In management's opinion, due to the number of residents, the type
and diversity of markets in which the properties operate, and the collection
terms, there is no concentration of credit risk.
F-7
<PAGE> 37
WALDEN RESIDENTIAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Cash and Cash Equivalents
All cash and investments in money market accounts, excluding restricted
cash, that have a maturity of three months or less at the time of purchase are
considered to be cash and cash equivalents.
Restricted Cash
Restricted cash consists of two major components: security deposits and
escrow deposits held by lenders for the payment of property taxes, insurance
and replacement reserves; and additional collateral on mortgage notes payable.
Restricted cash related to security and escrow deposits is invested primarily
in short-term securities. Restricted cash related to additional collateral on
mortgage notes is invested in long-term government securities. The additional
collateral is not available for operating expense purposes.
Real Estate Assets and Depreciation
Expenditures directly related to the acquisition and improvement of real
estate assets are capitalized at cost as land, buildings and improvements. The
Company capitalizes the cost of appliances, exterior painting, roof replacement
and expenditures for other major property improvements, as well as
rehabilitation costs incurred for properties acquired. Depreciation is
computed on a straight-line basis over the estimated useful lives of the
related assets which range from 14 to 30 years for buildings and five, ten or
15 years for personal property. Real estate assets are stated at the lower of
depreciated cost or net realizable value.
In March 1995, Statement of Financial Accounting Standard ("SFAS") No. 121,
"Accounting for the Impairment of Long- Lived Assets and Long-Lived Assets to
be Disposed Of" was issued. The Company early adopted SFAS No. 121 in 1995 and
based on the Company's policy for reviewing impairment of long-lived assets,
there was no adjustment necessary to the accompanying financial statements.
Deferred Financing Costs and Amortization
Legal fees and other costs associated with obtaining financing have been
capitalized and are amortized over the terms of the related debt. Financing
costs were reported net of amortization of $732,000 and $371,000 as of December
31, 1995 and 1994, respectively.
Income Taxes
The Company elected to be taxed as a REIT under the Internal Revenue Code of
1986, as amended, effective with its taxable year ending December 31, 1994. As a
result, the Company generally will not be subject to Federal income taxation if
it distributes 95% of its REIT taxable income to its stockholders and satisfies
certain other requirements.
F-8
<PAGE> 38
WALDEN RESIDENTIAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Net Income Per Share of Common Stock
Net income per share of common stock has been computed by dividing net
income available to common stockholders by the weighted average number of
common stock and common stock equivalent shares outstanding. Net income
available to common stockholders is net income less the preferred distributions
on the convertible equity securities (see Note 9). Common stock equivalents
include the weighted average number of assumed equivalent shares outstanding
from stock options if dilutive. Fully diluted net income per share of common
stock is not materially dilutive and is not presented.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect reported amounts of certain assets, liabilities,
revenues and expenses as of and for the reporting periods. Actual results may
differ from such estimates.
Reclassifications
Certain previously reported amounts have been reclassified to conform to
current financial statement presentation.
(3) ACQUISITIONS AND DISPOSITIONS
Acquisitions
From the date of its IPO through December 31, 1994, the Company acquired 20
multifamily properties consisting of 5,976 units (or 2,797 weighted average
units based on the respective acquisition dates) for a cost of $166.6 million.
During 1995, the company acquired 17 multifamily properties consisting of 5,427
units (or 2,505 weighted average units) for a cost of $199.5 million. The
properties acquired are located in the states of Texas, Oklahoma, Florida, New
Mexico, Colorado and Georgia.
The acquisitions are accounted for by the purchase method of accounting,
and the accompanying financial statements reflect the results of operations of
the acquired properties since the date acquired.
Dispositions
During 1995 the Company disposed of two multifamily properties: a 299-unit
property, located in Greensboro, North Carolina, on April 7, 1995 and a
242-unit property, located in Roswell, Georgia, on December 28, 1995. In
connection with these dispositions, the Company reported gains in the amount of
$1,502,000.
F-9
<PAGE> 39
WALDEN RESIDENTIAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Pro Forma Information
The following unaudited condensed pro forma information for the years ended
December 31, 1995 and 1994 was prepared from the financial statements of the
Walden predecessors and the Company by adjusting for the effect of the IPO and
acquisition of the 20 original properties, the formation transactions, all
subsequent public offerings through December 31, 1995 and all subsequent
property dispositions and acquisitions through December 31, 1995, as if all of
these transactions had occurred on January 1, 1995 and 1994. This information
is not necessarily indicative of what the performance would have been had the
Company owned these properties for the entire period, nor does it purport to
represent future results of operations of the Company. (In thousands, except
per share information.)
<TABLE>
<CAPTION>
PRO FORMA
---------------------
YEAR ENDED
DECEMBER 31,
---------------------
1995 1994
---- ----
(Unaudited)
<S> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $98,170 $92,230
Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87,080 84,295
-------- --------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,090 7,935
Preferred distributions on convertible equity securities . . . . . . . . . . . (1,843) (1,843)
---------- ---------
Net income available to common stockholders . . . . . . . . . . . . . . . . . . $ 9,247 $ 6,092
======== ========
Net income per share of common stock . . . . . . . . . . . . . . . . . . . . . $ .66 $ .45
======== ==========
Weighted average shares of common stock outstanding . . . . . . . . . . . . . . 13,925 13,686
======== ========
</TABLE>
(4) REAL ESTATE ASSETS
Changes in real estate assets and related accumulated depreciation for
the year ended December 31, 1995 and the period February 9, 1994 through
December 31, 1994 are as follows (in thousands):
<TABLE>
<S> <C>
Real estate assets:
Balance at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ --
Purchase of real estate assets (net of $6.7 million
relating to the Restricted Shares) . . . . . . . . . . . . . . . . . . . . . . . . . . 324,605
Fixed asset additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,601
------------
Balance at December 31, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 329,206
Purchase of real estate assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 199,511
Sale of real estate assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (22,243)
Fixed asset additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,867
------------
Balance at December 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $513,341
==========
Accumulated depreciation:
Balance at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ --
Depreciation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,589
------------
Balance at December 31, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,589
Depreciation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,734
Write off related to real estate assets sold . . . . . . . . . . . . . . . . . . . . . . . (589)
-----------
Balance at December 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 23,734
=========
</TABLE>
F-10
<PAGE> 40
WALDEN RESIDENTIAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
In connection with the IPO, the acquisition costs of certain real estate
assets were reduced by $6.7 million to reflect the carryover historical cost
basis attributable to the Restricted Shares (see Note 9).
(5) WDN MANAGEMENT COMPANY
The Company owns 5% of the voting common stock and 100% of the non-voting
common stock (which represents 95% of the economic interest) of WDN Management
Company ("WDN Management"). The remaining 95% voting common stock represents a
5% economic interest owned by the Company's four executive officers. The
results of operations of WDN Management are accounted for on the equity method.
Included in the Receivable from and Investment in WDN Management is a note
receivable from WDN Management ($728,000 and $325,000 balance at December 31,
1995 and 1994, respectively). Of the $728,000 balance at December 31, 1995,
$515,000 bears interest at the prime interest rate plus 2% per annum, payable
quarterly and $213,000 bears interest at 12%, with monthly payments of
principal and interest due beginning in June 1996. Interest income of $54,000
and $20,000 was recorded for the year ended December 31, 1995 and the period
February 9, 1994 through December 31, 1994, respectively, which amounts were
eliminated pursuant to the equity method of accounting. The Company recorded
dividends from WDN Management of $437,000 and $533,000 for the periods ended
December 31, 1995 and 1994, respectively.
For management services rendered to WDN Management for property
supervision, the Company receives a fee equal to 40% of the property management
fees collected by WDN Management ($408,000 and $459,000 recorded for the year
ended December 31, 1995 and the period February 9, 1994 through December 31,
1994, respectively). Such amounts were eliminated pursuant to the equity
method of accounting. WDN Management incurs various costs to provide
administrative services for the Company (payroll and data processing, office
rent, office equipment, clerical support, office supplies, etc.) for which it
is reimbursed monthly. For the year ended December 31, 1995 and the period
from February 9, 1994 through December 31, 1994, $285,000 and $180,000,
respectively, were recorded as reimbursement to WDN Management for such costs,
which amounts are included in general and administrative expenses in the
accompanying financial statements. Beginning in 1995, a wholly-owned
subsidiary of WDN Management performed credit verification on lease
applications for a number of the Company's properties ($83,000 expensed as of
December 31, 1995, which amount was eliminated pursuant to the equity method of
accounting).
Effective October 1, 1995, WDN Management adopted a 401(k) Plan (the
"Plan") for its employees and the employees of the Company. The Plan is a
voluntary defined contribution plan. Employees are eligible to participate in
the Plan on the earlier of October 1 or April 1 following the date the employee
has completed one year of service, as defined, with the Company. Each
participant may make contributions to the Plan by means of a pre-tax salary
deferral in an amount up to 15% of the participant's annual compensation (not
to exceed $9,240 for 1995). WDN Management may make annual matching
contributions on the participant's behalf up to 6% of the participant's annual
compensation, which amount relating to the Company's employees is reimbursed by
the Company. A participant's salary deferral contribution is 100% vested and
nonforfeitable.
F-11
<PAGE> 41
WALDEN RESIDENTIAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
A participant will become vested in the Company's matching contributions as
follows: 20% after three years of service, 40% after four years, 60% after
five years, 80% after six years and 100% after seven years.
(6) MORTGAGE NOTES PAYABLE AND CREDIT FACILITY
Mortgage notes payable and the Company's credit facility (the "Credit
Facility") consist of the following (in thousands):
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1995 PRINCIPAL BALANCE
------------------------------------------- AS OF DECEMBER 31,
WEIGHTED AVERAGE WEIGHTED AVERAGE ------------------
INTEREST RATE YEARS TO MATURITY 1995 1994
------------- ----------------- ---- ----
<S> <C> <C> <C> <C>
Conventional Mortgage Notes:
Mortgage notes payable to the
Federal National Mortgage
Association . . . . . . . . . . . 8.47% 6.5 $47,740 $41,221
Mortgage notes payable to insurance
companies . . . . . . . . . . . . 8.70% 9.4 90,352 4,306
Mortgage notes payable to General
Electric Credit Corporation . . . -- -- -- 36,654
Mortgage notes - other . . . . . . . 8.50% 4.6 3,239 3,264
----- ----- --------- --------
8.62% 8.3 141,331 85,445
Tax-exempt Mortgage Notes:
Fixed rate 6.47% 17.9 38,129 30,494
Variable rate 7.24% 2.8 73,055 --
----- ----- ----------- ----------
6.97% 8.0 111,184 30,494
Credit Facility . . . . . . . . . . . . . 8.19% 2.1 6,500 49,500
----- ----- ----------- ----------
Total / Weighted Average 7.90% 8.0 $259,015 $165,439
===== ===== ======== ========
</TABLE>
Conventional Mortgage Notes Payable
Conventional mortgage notes payable included 15 loans encumbering 31
properties at December 31, 1995, and 17 loans encumbering 18 properties at
December 31, 1994. These mortgage notes are payable in monthly installments
aggregating approximately $1.2 million, including principal and interest at
various fixed rates ranging from 7% to 9.22% per annum. In September and
December of 1996, the interest rate on $14.5 million of these mortgage notes
will increase from 7% to 9.25% and 9.5%. Scheduled maturities are at various
dates through December 1, 2005. The Company has guaranteed $6.1 million of
these mortgage notes.
F-12
<PAGE> 42
WALDEN RESIDENTIAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Tax-Exempt Mortgage Notes Payable
At December 31, 1995, 11 of the Company's properties were encumbered by ten
mortgage notes which were financed from the proceeds of tax-exempt bonds, which
have bond enhancements. At December 31, 1994, four of the Company's properties
were encumbered by three tax-exempt mortgage notes. Mortgage notes of
approximately $38.1 million are payable in monthly installments of
approximately $235,000, including principal and interest at fixed rates ranging
from 6.33% to 6.86% per annum. These mortgage notes have scheduled maturities
through April 1, 2025. The remaining mortgage notes are payable in monthly
installments of interest only with variable interest rates which had a weighted
average interest rate of 7.24% as of December 31, 1995. The bonds underlying
these mortgage notes have scheduled maturities through May 1, 2024, while the
bond enhancements mature on either June 30, 1998 or June 30, 1999. The Company
has guaranteed $2.7 million of the tax-exempt mortgage notes.
Credit Facility
The Company obtained a $50 million Credit Facility from The First National
Bank of Boston ("Bank of Boston") on February 9, 1994 in conjunction with the
IPO. In September 1995, the Company, at its option, reduced the Credit
Facility, which was principally used for working capital, property acquisitions
and renovations of property acquisitions, to $25 million. The Credit Facility
was scheduled to expire on February 8, 1996, or February 8, 1998 if the Company
exercised an option to extend the term and convert the Credit Facility to a
term loan. The interest rate was based on LIBOR (which was 5.94% as of
December 31, 1995) plus 2.25%. As of December 31, 1995, the Credit Facility
was secured by six properties and had a balance of $6.5 million.
On February 8, 1996, the Company entered into a new Credit Facility with
Bank of Boston. This Credit Facility provides financing up to $75 million;
however, the borrowing base is limited to approximately $55 million based upon
the secured collateral of 13 properties and is currently further limited to $30
million until Bank of Boston obtains other participants to commit to lend under
the Credit Facility. At the Company's election, the interest rate on
borrowings is at a floating rate equal to either (i) 1% over the lender's base
rate, or (ii) 1.75% over LIBOR; however, the interest rate may be reduced to
1.60% over LIBOR upon the Company's meeting certain financial covenants.
The Credit Facility contains customary representations, warranties and
events of default which require the Company to comply with certain affirmative
and negative covenants. In accordance with a provision of the Credit Facility
loan documents, the Company may not pay distributions in excess of 90% of funds
from operations, as defined.
Substantially all of the Company's real estate assets are collateral for
the various mortgage loans.
F-13
<PAGE> 43
WALDEN RESIDENTIAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Principal Debt Maturities
Principal debt maturities for the next five years (reflecting the new
maturity of the Credit Facility) are as follows (in thousands):
<TABLE>
<S> <C>
1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,331
1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,526
1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74,451
1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,780
2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,055
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144,872
---------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $259,015
========
</TABLE>
Extraordinary Items
During 1995, the Company refinanced $73.3 million of mortgage loans prior
to maturity, which resulted in an aggregate extraordinary loss of $1.4 million.
These losses represented prepayment fees and unamortized financing costs
related to the debt retired.
(7) OFFICER AND DIRECTOR NOTES FOR STOCK PURCHASES
On July 19, 1994, the Company issued 183,000 shares of its common stock, at
$20.875 per share (the closing sales price of the common stock on the New York
Stock Exchange for that date), to its four executive officers and to seven
other officers of the Company. Each officer acquiring stock paid 10% of the
purchase price in cash, with the remaining 90% loaned by the Company. Each such
loan is evidenced by a note with a five year term, bearing interest at a fixed
rate of 7.25% per annum, payable quarterly, and is secured by a pledge of the
shares of common stock purchased by each officer pursuant to such loans. One
officer, Don R. Daseke, is personally liable for the indebtedness evidenced by
his note, while the loans to each of the other officers are non-recourse.
On December 14, 1995, the Company agreed to issue shares of common stock at
$19.375 per share, the closing sales price of the common stock on the New York
Stock Exchange for that date, to the four executive officers, three other
officers and four directors. On December 20, 1995, the Company issued 122,600
shares of its common stock to such officers and directors. On such date, the
closing sales price of the Company's common stock on the New York Stock
Exchange was $19.50 per share. Such shares were issued from Treasury Stock
acquired pursuant to the Company's stock repurchase program (see Note 9). On
December 28, 1995, the Company issued 103,800 of these shares of common stock.
Each officer and director acquiring stock paid 20% and 50%, respectively, of
the purchase price in cash with the remaining amount loaned by the Company.
Each loan is evidenced by a note with a five year term, bearing interest at a
fixed rate of 8% per annum, payable quarterly, and is secured by a pledge of
the shares of common stock purchased. All loans are recourse debt.
In January 1996, the Company purchased additional Treasury Stock (see Note
9) and on January 18, 1996, the remaining 18,800 shares of common stock were
issued for the same terms as the 103,800 shares discussed above.
F-14
<PAGE> 44
WALDEN RESIDENTIAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
8) STOCK OPTION PLAN
The Company adopted a stock option plan (the "Plan") in 1994 to provide
incentives to officers, key employees and directors. Stock options granted
under the Plan include non-qualified options and incentive stock options (the
"ISOs"). Options granted to directors vest over a one-year period. Options
granted to officers and employees vest ratably over a four-year period. All
options expire ten years from the date of grant. Shares of common stock in an
amount equal to 805,624 shares or 8% of the shares outstanding as of January
31, 1995 were reserved for issuance under the Plan. The number of shares
reserved for issuance will be increased to 9% and 10% of the Company's
outstanding common stock on January 31, 1996 and 1997, respectively. The Plan
limits the number of shares of common stock issuable pursuant to ISOs to
1,000,000. Following is a summary of stock option activity for the periods
ended December 31, 1994 and 1995:
<TABLE>
<CAPTION>
SHARES OPTION PRICE
UNDER OPTION PER SHARE
------------ ---------
<S> <C> <C>
Options granted . . . . . . . . . . . . . . . . . . . 521,350 $19.25
------- ------------------
Outstanding, December 31, 1994 . . . . . . . . . . . 521,350 19.25
Options granted . . . . . . . . . . . . . . . . . . . 286,150 18.91-19.25
Options exercised . . . . . . . . . . . . . . . . . . (1,875) 19.25
Options canceled . . . . . . . . . . . . . . . . . . (13,125) 19.25
------- ------------------
Outstanding, December 31, 1995 . . . . . . . . . . . 792,500 $18.91-$19.25
======= =============
</TABLE>
As of December 31, 1995, options for 141,713 shares of common stock are
exercisable at prices ranging from $18.91 to $19.25 per share.
On February 7, 1996, the Company granted ISOs for 132,750 shares of common
stock and granted non-qualified options to its four executive officers for
315,000 shares of common stock, all at an exercise price of $21.25 per share,
which was the closing sales price of the Company's common stock on that date.
In October 1995, SFAS No. 123, "Accounting for Stock-Based Compensation,"
was issued, effective for calendar-year 1996. The Company has elected to
continue accounting for such compensation as provided by Accounting Practice
Bulletin Opinion No. 25, which is an acceptable alternative under SFAS No. 123.
(9) STOCKHOLDERS' EQUITY
Convertible Equity Securities
As discussed in Note 2, on June 30, 1995, the Company acquired a
controlling interest in a limited partnership (the "Partnership") which owned
11 multifamily properties. This Partnership is being accounted for as
wholly-owned since the limited partnership interests in the Partnership which
were not purchased by the Company are only exchangeable for an aggregate of
1,012,660 shares of the Company's common stock at the option of the
interest holders, but no later than
F-15
<PAGE> 45
WALDEN RESIDENTIAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
June 30, 2018, and are accounted for as convertible equity securities. The
convertible equity securities were valued at $18.375 per share, which was the
market price of the Company's common stock on June 30, 1995. Prior to
exchange, the holders of the limited partnership interests are entitled to
receive quarterly distributions from the Partnership equal to the greater of
the Company's actual distributions on 1,012,660 shares of common stock, or
$460,760 in the aggregate. As of December 31, 1995, distributions of $921,520
have been recorded.
Common Stock
The Company was capitalized on September 29, 1993, upon the issuance of
1,000 shares of common stock. On February 9, 1994, the Company completed an
IPO of 7,486,000 shares of common stock, including 645,000 shares (the
"Restricted Shares") issued to Walden and certain of Walden's officers. On
February 25, 1994, an additional 900,300 shares of common stock were issued to
the public pursuant to the underwriter's over-allotment option. Both issuances
were at $19.25 per share. On July 19, 1994, the Company issued 183,000 shares
of common stock to 11 officers of the Company (see Note 7). On November 7,
1994, the Company issued 1,500,000 shares of common stock in a subsequent
public offering at $19.25 per share.
On March 31, 1995, the Company filed a shelf registration for 500,000
shares of common stock issuable monthly pursuant to a Dividend Reinvestment and
Share Purchase Plan ("DRP"). Pursuant to the DRP, as of December 31, 1995, the
Company had issued 403,973 shares of common stock at 95% of the average of the
high and low sales price of its common stock on the respective issue dates.
On April 19, 1995, the Company acquired a multifamily property for $14
million. The acquisition was funded by $9.8 million in financing and the
issuance of 215,700 shares of the Company's common stock at a price of $19.55
per share.
On June 2, 1995, the Company filed another shelf registration for
$150,000,000 in shares of common or preferred stock. Pursuant to this
registration, the Company issued 3,500,000 shares of common stock at $18.375
per share on June 28, 1995.
On December 28, 1995, the Company issued 103,800 shares of common stock to
seven officers and four directors (see Note 7).
In connection with the above stock issuances, the Company received net
proceeds of approximately $238.5 million, after payment of issuance costs of
$20.3 million. The net proceeds were used primarily to acquire properties.
Treasury Stock
In December 1995, the Company announced its intention to repurchase shares
of its common stock ("Treasury Stock"). As of December 31, 1995, the Company
had acquired 103,800 shares of Treasury Stock at a cost of $2,038,000, of which
$110,000 was not paid until January 1996. All 103,800 shares were reissued to
officers and directors on December 28, 1995. In January 1996, the
F-16
<PAGE> 46
WALDEN RESIDENTIAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Company purchased 45,000 shares of Treasury Stock at a cost of $925,000; of
which 18,800 shares were reissued on January 18, 1996 pursuant to an officer
and director stock purchase agreement (see Note 7).
Distributions
For the year ended December 31, 1995, the Company paid distributions of
$22,020,000 (or $1.82 per share of common stock), of which 45.75% represented a
return of capital, 3.84% represented a long-term capital gain and 50.41%
represented ordinary taxable dividend income. For the period February 9, 1994
through December 31, 1994, the Company paid distributions of $9,298,000 (or
$1.09 per share of common stock), of which 5% represented a return of capital
and 95% represented ordinary taxable dividend income.
On March 1, 1996, the Company paid a distribution of $.465 per share of
common stock to stockholders of record on February 15, 1996, which is
equivalent to $1.86 per share of common stock on an annual basis.
(10) FAIR VALUE DISCLOSURE OF FINANCIAL INSTRUMENTS
The following disclosure of estimated fair value was determined by the
Company using available market information and appropriate valuation
methodologies. However, considerable judgement is necessary to interpret
market data and develop the related estimates of fair value. Accordingly, the
estimates presented herein are not necessarily indicative of the amounts that
could be realized upon disposition of the financial instruments. The use of
different market assumptions and/or estimation methodologies may have a
material effect on the estimated fair value amounts.
Cash and cash equivalents, receivables (including notes receivable from
officers and directors), accounts payable and accrued expenses and other
liabilities are carried at amounts which reasonably approximate their fair
value.
The fixed rate mortgage notes payable totaling $179.5 million as of
December 31, 1995, have a fair value of $194.7 million (excluding prepayment
penalties) as estimated based upon interest rates available for the issuance
of debt with similar terms and remaining maturities as of December 31, 1995.
Of these mortgage notes, $150.4 million are not prepayable at December 31,
1995. The remaining notes are subject to prepayment penalties of $1.6 million
at December 31, 1995, which would be required to retire these notes prior to
maturity. The floating rate mortgage notes payable balance of $79.5 million at
December 31, 1995 reasonably approximates fair value. As of December 31, 1994,
the Company's fixed rate mortgage notes payable of $79.3 million approximated
fair value at such date.
The fair value estimates presented herein are based on information
available to management as of December 31, 1995. Although management is not
aware of any factors that would significantly affect the estimated fair value
amounts, such amounts have not been comprehensively revalued for purposes of
these financial statements since that date, and current estimates of fair value
may differ significantly from the amounts presented herein.
F-17
<PAGE> 47
WALDEN RESIDENTIAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(11) COMMITMENTS AND CONTINGENCIES
The Company is subject to various legal proceedings and claims that arise
in the ordinary course of business. These matters are generally covered by
insurance. While the resolution of these matters cannot be predicted with
certainty, management believes that the final outcome of such matters will not
have a material adverse effect on the financial position, results of operations
or cash flows of the Company.
Effective October 1, 1995, the Company entered into a lease agreement for
its corporate office space. The lease requires monthly lease payments of
$25,000 for a period of sixty months.
On February 9, 1994, the Company entered into three-year employment
agreements with the four executive officers of the Company. The aggregate
compensation of the four executive officers is approximately $959,000 for the
remainder of the agreements. Under such agreements, the Company is liable for
the compensation benefits for the remaining term of the agreements if an
executive officer were to be terminated without cause, as defined.
(12) QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial information for the periods ended December
31, 1995 and 1994 is as follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
1995 QUARTERS ENDED
------------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 TOTAL
-------- ------- ------------ ----------- -----
<S> <C> <C> <C> <C> <C>
Revenues . . . . . . . . . . . . $16,729 $17,571 $23,826 $24,698 $82,824
Expenses . . . . . . . . . . . . 15,181 15,979 21,035 21,446 73,641
-------- -------- -------- -------- --------
Operating income . . . . . . . . 1,548 1,592 2,791 3,252 9,183
Gain on disposition of real
property . . . . . . . . . . . -- 1,110 -- 392 1,502
Extraordinary loss on debt
extinguishment . . . . . . . . -- (465) -- (887) (1,352)
Convertible equity securities
preferred distributions . . . . -- -- (461) (461) (922)
-------- -------- -------- -------- --------
Net income available to
common stockholders . . . . . . $ 1,548 $ 2,237 $ 2,330 $ 2,296 $ 8,411
========= ======== ======== ======== ========
Net income per share:
Before extraordinary item . . . . $ .15 $ .26 $ .17 $ .22 $ .80
Extraordinary loss on debt
extinguishment . . . . . . . . -- (.04) -- ( .07) (.11)
-------- -------- -------- -------- --------
Net income available to
common stockholders . . . . . . $ .15 $ .22 $ .17 $ .15 $ .69
========= ======== ======== ======== ========
Revenues . . . . . . . . . . . . $ 4,699 $ 9,541 $13,139 $14,614 $41,993
Expenses . . . . . . . . . . . . 3,813 7,920 11,929 12,975 36,637
-------- -------- -------- -------- --------
Net income . . . . . . . . . . . $ 886 $ 1,621 $ 1,210 $ 1,639 $ 5,356
========= ======== ======== ======== ========
Net income per share . . . . . . $ .11 $ .19 $ .14 $ .18 $ .62
========= ======== ======== ======== ========
</TABLE>
F-18
<PAGE> 48
INDEPENDENT AUDITORS' REPORT
To the Partners and Stockholders of
Walden Predecessors
We have audited the accompanying combined balance sheet of Walden
Predecessors as of December 31, 1993, and the related combined statements of
operations, partners'/stockholders' deficit and cash flows for the year ended
December 31, 1993 and for the period January 1, 1994 through February 8, 1994
(date of sale of assets to Walden Residential Properties, Inc.). Walden
Predecessors consist of the combination of seventeen individual properties, one
limited partnership and four affiliated operating companies or their
predecessors as described in Note 1, all of which are affiliated with The
Walden Group, Inc., its subsidiaries and predecessors or with Mr. Don R.
Daseke. These financial statements are the responsibility of the management of
Walden Predecessors. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such combined financial statements present fairly, in all
material respects, the financial position of Walden Predecessors at December
31, 1993, and the results of their operations, their partners'/stockholders'
deficit and their cash flows for the year ended December 31, 1993 and for the
period January 1, 1994 through February 8, 1994 in conformity with generally
accepted accounting principles.
DELOITTE & TOUCHE LLP
Dallas, Texas
March 3, 1995
F-19
<PAGE> 49
WALDEN PREDECESSORS
COMBINED BALANCE SHEET AS OF DECEMBER 31, 1993
(IN THOUSANDS)
ASSETS
<TABLE>
<S> <C>
Real estate assets, at cost
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 19,377
Buildings and improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 176,044
---------
195,421
Less: Accumulated depreciation and impairment allowance . . . . . . . . . . . . . . . . (83,026)
----------
112,395
Equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 241
Rent and other receivables (includes amounts from affiliates of $11) . . . . . . . . . . . . . . 182
Deferred financing and other costs, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,549
Prepaid and other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 431
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,171
Restricted cash:
Escrow deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,203
Additional collateral on loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,717
-----------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $121,889
========
LIABILITIES AND PARTNERS'/STOCKHOLDERS' DEFICIT
Liabilities
Mortgage notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $147,322
Accrued interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 723
Deferred interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,283
Real estate taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,313
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,257
Accrued expenses and other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . 693
Security deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 908
------------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 155,499
Commitments and contingencies
Partners'/stockholders' deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (33,610)
-------
Total liabilities and partners'/stockholders' deficit . . . . . . . . . . . . . . . . . $121,889
========
</TABLE>
See Notes to Combined Financial Statements.
F-20
<PAGE> 50
WALDEN PREDECESSORS
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Period from
January 1 through Year Ended
February 8, 1994 December 31, 1993
---------------- -----------------
<S> <C> <C>
REVENUES
Rental income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,047 $27,336
Other property income . . . . . . . . . . . . . . . . . . . . . . . . . 171 1,410
Property management fees (includes revenues
from affiliates of $68 and $568 for the periods
ended in 1994 and 1993, respectively) . . . . . . . . . . . . . . . . 150 1,266
-------- ---------
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,368 30,012
------- --------
EXPENSES
Property operating and maintenance . . . . . . . . . . . . . . . . . . . 1,242 11,398
Real estate taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 226 2,159
General and administrative . . . . . . . . . . . . . . . . . . . . . . . 217 2,263
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,075 11,456
Financing costs and amortization . . . . . . . . . . . . . . . . . . . . 20 1,417
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 633 6,114
-------- ---------
Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,413 34,807
------- --------
Loss before income taxes and extraordinary gains . . . . . . . . . . . . . . (45) (4,795)
Income tax benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 52
---------- -----------
Loss before extraordinary gains . . . . . . . . . . . . . . . . . . . . . . . (45) (4,743)
Extraordinary gains - debt extinguishment and
modifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 223
---------- ---------
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (45) $(4,520)
======== =======
</TABLE>
See Notes to Combined Financial Statements.
F-21
<PAGE> 51
WALDEN PREDECESSORS
COMBINED STATEMENTS OF PARTNERS'/STOCKHOLDERS' DEFICIT
FOR YEAR ENDED DECEMBER 31, 1993 AND
FOR THE PERIOD FROM JANUARY 1, 1994 THROUGH FEBRUARY 8, 1994
(IN THOUSANDS)
<TABLE>
<S> <C>
PARTNERS'/STOCKHOLDERS' DEFICIT, JANUARY 1, 1993 . . . . . . . . . . . . . . . . . . . . . . . $ (29,256)
Capital contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 261
Pension liability adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (95)
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,520)
-----------
PARTNERS'/STOCKHOLDERS' DEFICIT, DECEMBER 31, 1993 . . . . . . . . . . . . . . . . . . . . . . (33,610)
Capital distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (27)
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (45)
-------------
PARTNERS'/STOCKHOLDERS' DEFICIT, FEBRUARY 8, 1994 . . . . . . . . . . . . . . . . . . . . . . . $ (33,682)
=========
</TABLE>
See Notes to Combined Financial Statements.
F-22
<PAGE> 52
WALDEN PREDECESSORS
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Period from
January 1 through Year Ended
February 8, 1994 December 31, 1993
---------------- -----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (45) $(4,520)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . 653 6,284
Debt extinguishment and modifications . . . . . . . . . . . . . . . . -- (223)
Net effect of changes in operating accounts:
Escrow deposits . . . . . . . . . . . . . . . . . . . . . . . . . 663 (424)
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . (54) (745)
Real estate taxes payable . . . . . . . . . . . . . . . . . . . . (777) 92
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . 1,840 266
Accrued and deferred interest . . . . . . . . . . . . . . . . . . (432) 1,044
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . 10 (76)
---------- ------------
Net cash provided by operating activities . . . . . . . . . . . 1,858 1,698
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment . . . . . . . . . . . . . . . . . . . . . . . . . . -- (24)
Proceeds from sale of real estate assets . . . . . . . . . . . . . . . . . -- 1
------------ --------------
Net cash used in investing activities . . . . . . . . . . . . . . . . -- (23)
CASH FLOWS FROM FINANCING ACTIVITIES:
Additional collateral on loans . . . . . . . . . . . . . . . . . . . . . . (56) (287)
Capital contributions (distributions) . . . . . . . . . . . . . . . . . . (27) 261
Principal reductions . . . . . . . . . . . . . . . . . . . . . . . . . . . (228) (2,850)
Proceeds from mortgage notes payable . . . . . . . . . . . . . . . . . . . -- 1,400
------------- ------------
Net cash used in financing activities . . . . . . . . . . . . . . . . (311) (1,476)
---------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS . . . . . . . . . . . . . . . . . . . 1,547 199
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD . . . . . . . . . . . . . . . . 1,171 972
---------- ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD . . . . . . . . . . . . . . . . . . . $ 2,718 $ 1,171
========= ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,507 $ 10,796
========= =========
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING
ACTIVITIES:
Pension liability adjustment . . . . . . . . . . . . . . . . . . . . . . . $ -- $ 95
============ ============
</TABLE>
See Notes to Combined Financial Statements.
F-23
<PAGE> 53
WALDEN PREDECESSORS
NOTES TO COMBINED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Walden Predecessors (not a legal entity) consists of the combination of all
of the assets, liabilities, equity and operations of 17 individual properties,
one limited partnership, and four operating companies and their predecessors
("Walden Operating Companies"), all of which were sold to Walden Residential
Properties, Inc. on February 9, 1994. All of these entities are either
affiliated with The Walden Group, Inc. or Don R. Daseke, its sole director and
chief executive officer. Affiliated partnerships (collectively, the "Present
Owners") acquired or were involved in the development of 18 garden apartment
properties (the "Properties") during the period from 1983 to the present. The
Walden Operating Companies have provided acquisition, financing, construction,
leasing or management services with respect to the Properties for the Present
Owners since their inception.
In addition to the Properties, Walden Predecessors includes the assets,
liabilities, and operations of Real Estate Data Services, Inc., Walden
Management Company, Daseke Consulting, Inc. and Walden Properties Corporation.
The predecessors of Walden Management Company and Walden Properties Corporation
were Daseke Management Corporation of America, Inc. and Daseke Properties
Corporation, respectively, and certain of their assets, liabilities and
operations are included in these combined financial statements. The net
deficit of the corporations, after elimination of transactions with the
Properties, included in the combined financial statements amounted to $(546)
at December 31, 1993.
<TABLE>
<CAPTION>
THE WALDEN GROUP, INC. NUMBER OF
PROPERTIES PERCENTAGE OWNERSHIP UNITS CITY AND STATE
- ---------- -------------------- ----- --------------
<S> <C> <C> <C>
Burning Tree . . . . . . . . 3.81 256 Tulsa, Oklahoma
Casa Verde . . . . . . . . . 39.54 268 Phoenix, Arizona
Chimney Trace . . . . . . . . 7.45 144 Stone Mountain (Atlanta), Georgia
Cinnamon Stick . . . . . . . 2.22 424 Tulsa, Oklahoma
Country View . . . . . . . . 43.08 272 San Antonio, Texas
Eagle Pointe . . . . . . . . 80.00 256 Indianapolis, Indiana
Fountaingate/Willow Creek . . 21.18 280 Wichita Falls, Texas
James Pointe . . . . . . . . 1.01 312 Murray (Salt Lake City), Utah
The Lift . . . . . . . . . . 61.64 328 Tulsa, Oklahoma
Northwest Territory . . . . . 1.05 384 Wichita, Kansas
Post Oak Place . . . . . . . 3.23 354 Euless (Fort Worth), Texas
Preston Greens . . . . . . . 67.00-Phase I; 256 Dallas, Texas
38.13-Phase II
Raintree . . . . . . . . . . 21.18 332 Nashville, Tennessee
Settler's Cove . . . . . . . 9.10 182 Beaumont, Texas
Sterling Pointe . . . . . . . 7.45 299 Greensboro, North Carolina
Stillwater . . . . . . . . . 2.48 456 Murray (Salt Lake City), Utah
Trestles of Austin . . . . . 1.59 396 Austin, Texas
Woodstone . . . . . . . . . . 34.00 696 Phoenix, Arizona
-----
5,895
=====
</TABLE>
F-24
<PAGE> 54
WALDEN PREDECESSORS
NOTES TO COMBINED FINANCIAL STATEMENTS - (CONTINUED)
Principles of Combination
The accounts of each of the entities comprising Walden Predecessors are
combined in the financial statements. All significant inter-entity accounts
and transactions have been eliminated in combination.
Income Recognition
Rental, interest and other income are recorded on the accrual method of
accounting as earned.
Rental Operations
Walden Predecessors include 18 apartment properties located in 9 states.
Apartment units are leased to residents on terms of one year or less, with
monthly payments due in advance. Certain of the Properties are subject to
Federal, state and local statutes or other restrictions requiring a percentage
of apartments be made available to lower or moderate income families. In
management's opinion, due to the number of residents, the type and diversity of
markets and submarkets in which the Properties operate, and the collection
terms, there is no concentration of credit risk.
Cash and Cash Equivalents
All cash and investments in money market accounts, excluding restricted
cash, that have a maturity of three months or less at the time of purchase are
considered to be cash and cash equivalents.
Restricted Cash
Restricted cash consists of two major components: escrow deposits held by
lenders for the payment of property taxes, insurance, replacement reserves and
security deposits; and additional collateral on mortgage notes payable. The
restricted cash is invested in both short-term and long-term securities. The
additional collateral is not available for operating expense purposes.
Real Estate Assets, Depreciation and Impairment
Expenditures directly related to the development, acquisition and
improvement of real estate assets are capitalized at cost as land, buildings
and improvements. Each property is evaluated annually to ascertain that net
book value does not exceed fair value as determined by management. The net
book values of certain Properties were written down prior to 1988 based on
their undiscounted future cash flows for five years plus estimated selling
prices compared to their net book value. This impairment allowance amounted to
$21,317 and is included in the accumulated depreciation and impairment
allowance account. All buildings and improvements are depreciated over their
estimated useful lives of 10 to 30 years using the straight line method.
Expenditures of the Properties for normal maintenance, furnishings and
equipment are expensed as incurred.
F-25
<PAGE> 55
WALDEN PREDECESSORS
NOTES TO COMBINED FINANCIAL STATEMENTS - (CONTINUED)
Equipment, Net
Equipment is reported at cost net of depreciation computed on the straight
line method over 10 years.
Deferred Financing Costs and Amortization
Certain of the Properties have incurred legal fees and other costs
associated with obtaining financing. Those related to troubled debt
restructurings have been written off as incurred. Other loan costs are
amortized over the terms of the related debt on the straight line method which
approximates the interest method of amortization. Deferred financing costs on
the balance sheets are reported net of amortization of $2,248 at December 31,
1993.
Income Taxes
Provisions for income taxes have been made in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
109") on the taxable income of the four combined operating companies and their
predecessors. No provision for income taxes has been made in the accompanying
combined financial statements for the combined operations of the Properties
since each partner of a Present Owner is responsible for reporting its share of
taxable income or loss from the real estate investments.
(2) REAL ESTATE ASSETS
At December 31, 1993, Walden Predecessors owned and operated the following
Properties:
<TABLE>
<CAPTION>
ACCUMULATED
BUILDINGS DEPRECIATION
DATE CONSTRUCTION AND AND IMPAIRMENT
PROPERTY NAME ACQUIRED COMPLETED UNITS LAND IMPROVEMENTS ALLOWANCE
- ------------- -------- --------- ----- ---- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Burning Tree . . . . . . . 1983 1978 256 $ 635 $ 7,152 $(4,941)
Casa Verde . . . . . . . . 1983 1983 268 1,027 6,912 (4,022)
Chimney Trace . . . . . . . 1984 1985 144 449 5,991 (1,831)
Cinnamon Stick . . . . . . 1984 1978 424 963 11,695 (7,318)
Country View . . . . . . . 1985 1981 272 719 4,872 (2,311)
Eagle Pointe . . . . . . . 1986 1988 256 494 9,139 (1,881)
Fountaingate/Willow Creek . 1984 1980 280 751 8,682 (3,643)
James Pointe . . . . . . . 1984 1985 312 1,040 9,688 (3,344)
The Lift . . . . . . . . . 1984 1979 328 804 9,496 (5,967)
Northwest Territory . . . . 1985 1980 384 688 6,021 (4,256)
Post Oak Place . . . . . . 1983 1983 354 1,570 11,284 (5,273)
Preston Greens . . . . . . 1984 1980 256 1,468 14,420 (7,889)
Raintree . . . . . . . . . 1984 1985 332 715 9,239 (3,091)
Settler's Cove . . . . . . 1985 1982 182 159 3,602 (1,597)
Sterling Pointe . . . . . . 1984 1985 299 451 7,913 (2,665)
Stillwater . . . . . . . . 1984 1986 456 2,019 14,531 (4,989)
Trestles of Austin . . . . 1983 1984 396 1,100 11,671 (4,460)
Woodstone . . . . . . . . . 1985 1986 696 4,325 23,736 (13,548)
----- ------ ------- -------
5,895 $19,377 $176,044 $(83,026)
===== ====== ======= =======
</TABLE>
F-26
<PAGE> 56
WALDEN PREDECESSORS
NOTES TO COMBINED FINANCIAL STATEMENTS - (CONTINUED)
All real estate assets are collateral for mortgage notes payable
aggregating $147,322 at December 31, 1993 (see Note 3). Land and buildings had
a cost of $195,421 at December 31, 1993. The following summarizes the total
activity in the accumulated depreciation and impairment allowance account of
real estate assets for the period January 1, 1994 through February 8, 1994 and
the year ended December 31, 1993.
<TABLE>
<CAPTION>
PERIOD FROM 1/1/94
ACCUMULATED DEPRECIATION AND IMPAIRMENT ALLOWANCE THROUGH 2/8/94 1993
- ------------------------------------------------- -------------- ----
<S> <C> <C>
Balance at beginning of period . . . . . . . . . . . . . . . . . . . . . $(83,026) $(76,981)
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (633) (6,045)
-------- -------
Balance at end of period . . . . . . . . . . . . . . . . . . . . . . . . $(83,659) $(83,026)
======= =======
</TABLE>
(3) MORTGAGE NOTES PAYABLE
Substantially all of the Walden Predecessor's debt has been restructured
through either a troubled debt restructuring in accordance with Financial
Accounting Standards Board Statement No. 15 "Accounting by Debtors and
Creditors for Troubled Debt Restructurings" or under the provisions of Chapter
11 of the United States Bankruptcy Code in accordance with the AICPA's
Statement of Position 90-7, "Financial Reporting by Entities in Reorganization
Under the Bankruptcy Code." In most instances, when the debt was
restructured, the principal balance payable and interest rates were reduced.
These restructurings have resulted in changing the basis of the principal
amount of these notes outstanding and the effective interest rate on them for
accounting purposes as reflected in the tables below. In addition, certain
debt has been extinguished at less than the recorded amount using cash from the
Present Owners or cash from operations and an extraordinary gain has been
recognized for financial reporting purposes. Since all mortgage notes relate
to the Properties, any income taxes on the gains recognized are the
responsibility of the partners of the Present Owners and as a result, no
provision has been made for them in the accompanying Combined Statements of
Operations.
A summary of debt restructurings that have resulted in an extraordinary
gain for the year ended December 31, 1993 is as follows:
<TABLE>
<CAPTION>
AMOUNT OF
BALANCE AT DATE OF FORGIVENESS FORGIVENESS -
------------------------------ RESTRUCTURED EXTRAORDINARY
PROPERTY PRINCIPAL INTEREST TOTAL DEBT(A) GAIN
-------- --------- -------- ----- ------- --------------------
<S> <C> <C> <C> <C> <C>
Northwest Territory $ 200 $143 $ 343 $ 120 $ 223
</TABLE>
(a) Includes all undiscounted payments of principal and interest.
F-27
<PAGE> 57
WALDEN PREDECESSORS
NOTES TO COMBINED FINANCIAL STATEMENTS - (CONTINUED)
Activity affecting the principal balance of mortgage notes payable for the
year ended December 31, 1993 was as follows:
<TABLE>
<S> <C>
Balance at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $144,801
Additions during the year:
New debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,400
Conversion of interest payable to principal on restructured
mortgage notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,051
----------
5,451
Deductions during the year:
Payments on principal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,850
Reductions resulting from debt restructurings . . . . . . . . . . . . . . . . . . 80
----------
2,930
----------
Balance at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $147,322
========
</TABLE>
F-28
<PAGE> 58
WALDEN PREDECESSORS
NOTES TO COMBINED FINANCIAL STATEMENTS - (CONTINUED)
Mortgage notes payable are secured by substantially all of the real
estate assets and consist of the following:
<TABLE>
<CAPTION>
SECURED FACE AMOUNT OF MATURITY STATED INTEREST
PROPERTY OF MORTGAGE DATE RATE
- -------- ----------- ---- ----
<S> <C> <C> <C>
Casa Verde $4,150 08/01/97 9.5%
Chimney Trace 4,873 08/01/25 9.5%
Cinnamon Stick 5,559 03/01/97 10.0%
Country View 4,798 05/01/95 9.8%
Eagle Pointe 7,719 10/01/27 9.0%
James Pointe 8,600 11/01/16 Variable
The Lift 4,701 11/30/94 10.75%
Northwest Territory 5,512 01/01/06 11.875%
Post Oak Place 9,156 12/01/95 9.875%
Preston Greens 5,277 03/01/94 9.875%
4,150 08/01/93 8.5%
Raintree 7,100 01/01/04 9.0%
3,268 01/01/04 Cash Flow
Settler's Cove 3,300 08/01/00 8.50%
Sterling Pointe 6,689 02/01/95 10.0%
Stillwater 12,800 11/01/16 Variable
Trestles of Austin 10,132 05/01/98 Variable
Woodstone 24,830 04/01/94 Variable
Other Properties 9,552 11/30/94 to Various -
04/01/00 0% to 12.5%
--------
Total $145,079
========
</TABLE>
<TABLE>
<CAPTION>
RECORDED PRINCIPAL
EFFECTIVE BALANCE AT
PRINCIPAL PAYMENT TERMS INTEREST RATE DECEMBER 31, 1993
----------------------- ------------- -----------------
<C> <C>
$33/month to 8/94; principal and interest of $35/month thereafter with 8.55% $4,000
additional principal amount of $150 paid in 8/93; and $3,868 at maturity.
$40/month; no prepayment before 12/93; thereafter, prepayment penalty of 9.5% 4,850
3% decreasing to maturity.
$49/month; $5,409 at maturity; prepayment penalty of 3.5% decreasing to 10.0% 5,528
maturity.
$44/month to $46/month; $4,363 due at maturity. 0.0% 5,192
$61/month. 9.0% 7,685
Principal of $100/year to $800/year plus interest. Variable 8,500
Monthly interest payments; $4,701 due at maturity. 10.75% 4,701
$57/month; prepayment penalty of 3.5% decreasing to maturity. 11.875% 5,481
Monthly interest payments; $9,156 due at maturity. 9.875% 9,156
Monthly interest payments; $5,277 due at maturity. 9.875% 5,277
Monthly interest payments; $3,994 due at maturity. 0.0% 3,994
Monthly interest payments through restructure in 11/93; thereafter principal 4.6% 7,100
interest of $57/month; $6,350 due at maturity.
Monthly payments of Net Operating Income and 50% of the net proceeds 4.6% 4,381
from the sale of the property.
$25/month; $3,073 due at maturity. 8.5% 3,292
Monthly interest payments; $6,689 due at maturity. 10.0% 6,689
Principal of $200/year to $1,200/year plus interest. Variable 12,600
Principal of $34/month plus interest; $9,950 due at maturity. 8.05% 10,159
Monthly interest payments until refinanced in 4/93; thereafter principal 1.89% 29,001
and interest payments of approximately $85/month.
Monthly payments plus principal of $8,790 due at maturity, prepayment Various - 9,736
penalty of $30 on principal of $2,959; no other prepayment penalties. 0% to 12.5%
--------
$147,322
========
</TABLE>
F-29
<PAGE> 59
WALDEN PREDECESSORS
NOTES TO COMBINED FINANCIAL STATEMENTS - (CONTINUED)
Mortgage notes payable are non-recourse except for those on: Eagle Pointe,
which had a note balance of $7,685 at December 31, 1993 and was guaranteed by
Don R. Daseke and an unaffiliated person; and Fountaingate/Willow Creek and
Preston Greens which were guaranteed by Don R. Daseke and an affiliated company
to the extent of $900 and $850, respectively, at December 31, 1993. In
addition, the James Pointe and Stillwater mortgage notes were collateralized by
letters of credit of $8,656 and $12,831, respectively, as of December 31, 1993.
During 1993, the mortgage notes on the Northwest Territory, Raintree,
Settler's Cove and Woodstone properties were restructured. As a result of
these changes, the recorded principal balance outstanding at December 31, 1993
of $147,472 will be repayable as follows: $19,054 in 1994; $22,235 in 1995;
$3,086 in 1996; $13,208 in 1997; $11,775 in 1998; and $77,964 thereafter. As
of December 31, 1993, a portion of the debt on Preston Greens had matured and
was due and payable. The partnership that owned the Preston Greens property
and the lender with respect to such property entered into a forbearance
agreement with respect to $3,994 of the debt associated with such property,
which agreement permitted the final repayment of this loan to be made in
February 1994. As of December 31, 1993, certain partnerships owning four of
the properties had obtained $8,715 in discounts on debt relating to such
properties based on such debt being repaid prior to February 28, 1994. In
regard to Woodstone's restructured loan, $2,720 was guaranteed by Walden
Properties Corporation and The Walden Group, Inc. (see Note 8).
The weighted average interest rate on floating rate debt was 2.4% for the
year ended December 31, 1993. Additional fees paid on this debt aggregated
0.73%.
Certain of the mortgage notes payable required, among other things, escrow
balances for the payment of insurance, taxes, improvements and repairs and
additional cash collateral.
All mortgage notes were paid in 1994 with the proceeds of the sale of
properties to Walden Residential Properties, Inc. or assumed by Walden
Residential Properties, Inc. in connection with the sale of the respective
properties.
(4) TRANSACTIONS WITH PARTNERS AND AFFILIATES
Walden Predecessors provide management services under 30-day cancelable
contracts for other properties affiliated with The Walden Group, Inc. These
contracts require fees to be paid to Walden Predecessors equal to 3.5% to 5% of
gross receipts, plus reimbursement of applicable expenses. Such management fee
income from affiliates included in property management fees totaled $54 and
$448 for the period January 1, 1994 through February 8, 1994 and the year ended
December 31, 1993, respectively.
Walden Predecessors also provide asset management and data processing
services under contract for other properties affiliated with The Walden Group,
Inc. These contracts require a fixed cost per unit and fees equal to 1% of
gross receipts to be paid to Walden Predecessors. Such fee income from
affiliates included in property management fees totaled $14 and $120 for the
period January 1, 1994 through February 8, 1994 and for the year ended December
31, 1993, respectively.
F-30
<PAGE> 60
WALDEN PREDECESSORS
NOTES TO COMBINED FINANCIAL STATEMENTS - (CONTINUED)
(5) INCOME TAX
The taxable entities included in the Walden Predecessors had a combined
loss from operations for the year ended December 31, 1993. In accordance with
SFAS 109, the income tax benefit was used to offset tax payables and deferred
tax liabilities. Following is a summary of the income tax benefit for the
period January 1, 1994 through February 8, 1994 and the year ended December 31,
1993:
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Federal
Current . . . . . . . . . . . . . . . . . . . . . . . . $ -- $ --
Deferred . . . . . . . . . . . . . . . . . . . . . . . . -- (52)
--------- ------
Total . . . . . . . . . . . . . . . . . . . . . . . $ -- $ (52)
======== =====
</TABLE>
The effective tax benefit for the year ended December 31, 1993 is at the
statutory rate.
Following is a summary of the deferred tax asset at December 31, 1993:
<TABLE>
<S> <C>
Deferred Tax Asset
Net operating loss carryforward tax asset . . . . . . . . . . . . . . . . . . . . . . $ 98
Less: Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (98)
-----
Deferred tax asset, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ --
======
</TABLE>
The net change in the valuation allowance for the year ended December 31,
1993 was an increase of $98. As of December 31, 1993, the Walden Predecessors
taxable entities had federal consolidated net operating losses of approximately
$288 which have a carryforward expiration date of 2008.
(6) PENSION PLAN
Walden Predecessors have a noncontributory defined benefit pension plan
covering substantially all officers and employees, the benefits of which were
frozen in 1989. Under the plan, retirement benefits were primarily a function
of the years of service and the final average monthly compensation, as defined.
The Company's policy is to fund the net periodic pension cost, but not less
than the minimum required nor greater than the maximum deductible contribution
determined in accordance with applicable income tax regulations.
The accumulated plan benefit information, as estimated by consulting
actuaries, and the net assets available for benefits are:
<TABLE>
<CAPTION>
JANUARY 1, 1994
---------------
<S> <C>
Actuarial present value of benefit obligations:
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,480
Non-vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
--------
Accumulated benefit obligation . . . . . . . . . . . . . . . . . . . . . . . $1,485
======
Plan assets at fair value . . . . . . . . . . . . . . . . . . . . . . . . . $ 913
Projected benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . 1,485
-------
Pension liability recognized in balance sheet . . . . . . . . . . . . . . . $ 572
=======
</TABLE>
F-31
<PAGE> 61
WALDEN PREDECESSORS
NOTES TO COMBINED FINANCIAL STATEMENTS - (CONTINUED)
Net pension expense for the year ended December 31, 1993 was composed of
the following elements:
<TABLE>
<S> <C>
Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 39
Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112
Less return on plan assets:
Actual loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (54)
Net amortization and deferral . . . . . . . . . . . . . . . . . . . . . . . . . . . . (10)
------
Net pension expense for the period . . . . . . . . . . . . . . . . . . . . . . . . $ 87
=====
</TABLE>
The weighted average assumed discount rate used in determining the
actuarial present value of the accumulated plan benefit obligation at December
31, 1993 was 7.5%. The projected rate of increase in future salary levels was
5%. The expected long-term rate of return on assets used in determining the
net pension expense was 8.5% for 1993. As of December 31, 1993, the plan
assets consisted primarily of cash, marketable securities and an
interest-bearing note receivable from a third party.
Pension expense for the period January 1, 1994 through February 8, 1994 was
none and was approximately $87 for the year ended December 31, 1993. The
pension plan and related liabilities are not being transferred to Walden
Residential Properties, Inc.
(7) COMMITMENTS AND CONTINGENCIES
Lease Commitments
Walden Predecessors lease the corporate office space of Walden Operating
Companies as well as miscellaneous items of office equipment, model apartment
furniture and computers. These leases will be transferred to Walden
Residential Properties, Inc. or one of its affiliated entities. Rental expense
for the period January 1, 1994 through February 8, 1994 and the year ended
December 31, 1993 totaled $21 and $196, respectively.
At December 31, 1993, Walden Operating Companies had long-term operating
leases covering facilities and equipment. Minimum annual rental commitments
under noncancelable leases of one year or more at December 31, 1993 were as
follows:
<TABLE>
<S> <C>
1994 . . . . . . . . . . . . . . . . . . . . . . . . . . $179
1995 . . . . . . . . . . . . . . . . . . . . . . . . . . 121
1996 . . . . . . . . . . . . . . . . . . . . . . . . . . 34
1997 . . . . . . . . . . . . . . . . . . . . . . . . . . 22
1998 . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Thereafter . . . . . . . . . . . . . . . . . . . . . . . --
</TABLE>
Contingencies
The Walden Predecessors are subject to various legal proceedings and claims
that arise in the ordinary course of business. These matters are generally
covered by insurance. While the resolution
F-32
<PAGE> 62
WALDEN PREDECESSORS
NOTES TO COMBINED FINANCIAL STATEMENTS - (CONTINUED)
of these matters cannot be predicted with certainty, management believes that
the final outcome of such matters will not have a material adverse effect on
the financial position, results of operations or cash flows of the Walden
Predecessors.
In accordance with Statement of Financial Accounting Standards No. 5
"Accounting for Contingencies," the Walden Predecessors have accrued $25,000 in
the year ended December 31, 1993 for the estimated costs it expects to incur to
resolve certain environmental conditions associated with the Properties.
Management believes that further costs, if any, associated with environmental
risks or compliance with applicable environmental laws or regulations to which
the Walden Predecessors may be subject would be capitalized and will not have a
material adverse effect on the financial condition, results of operations or
cash flows of the Walden Predecessors.
Under the Americans with Disabilities Act ("ADA"), all places of public
accommodation are required to meet certain Federal requirements related to
access and use by disabled persons. Noncompliance with the ADA could result in
the imposition of fines or an award of damages to private litigants. The
Company has obtained structural reports from third-party consultants that
indicate modifications to certain of the properties will need to be made in
order to bring such Properties into full compliance with the ADA. Management
estimates that the costs of making these modifications will be approximately
$50,000. This contingent liability was assumed by Walden Residential
Properties, Inc. (see Note 8). Additionally, final regulations under the ADA
have not yet been promulgated and the Company could incur additional costs of
complying with the ADA.
(8) SUBSEQUENT EVENTS
In February 1994, the Properties were sold to Walden Residential
Properties, Inc. (REIT) for $123.9 million of cash plus the assumption of
approximately $34.2 million of existing mortgages. In addition, certain assets
and liabilities were transferred to the REIT in exchange for restricted shares
of Common Stock therein. Debt not assumed was paid off by the respective
entities and any remaining assets or liabilities (which were immaterial) of the
Walden Predecessors remained with the respective entities.
F-33
<PAGE> 63
WALDEN RESIDENTIAL PROPERTIES, INC.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1995
F-34
<PAGE> 64
Walden Residential Properties, Inc.
Schedule III - Real Estate and Accumulated Depreciation
As of December 31, 1995
(In thousands)
<TABLE>
<CAPTION>
Encum-
Description brances
- ----------------------------------------------------------------------------------------------------------------
Property Name Land Location
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Original Properties
Burning Tree 635,000 Tulsa, OK $2,439
Casa Verde 1,027,000 Phoenix, AZ 2,047
Chimney Trace 449,537 Stone Mountain, GA 4,229
Cinnamon Stick 962,521 Tulsa, OK 3,257
Club at Springlake 612,584 Haltom City, TX (3)
Country View 718,740 San Antonio, TX (1)
Eagle Pointe 490,063 Indianapolis, IN (1)
Fountaingate/Willowcreek 754,444 Wichita Falls, TX (3)
James Pointe 1,011,846 Murray, UT 8,471
The Lift 803,922 Tulsa, OK 2,812
Northwest Territory 687,600 Wichita, KS (3)
Post Oak Place 1,570,000 Euless, TX (3)
Preston Greens 1,467,866 Dallas, TX (3)
Raintree 715,000 Nashville, TN 5,378
Settler's Cove 159,180 Beaumont, TX 3,239
Stillwater 2,023,601 Murray, UT 12,359
Trestles of Austin 1,100,000 Austin, TX (1)
Woodridge 340,000 Fort Worth, TX (3)
Woodstone 4,325,039 Phoenix, AZ 13,070
- ----------------------------------------------------------------------------------------------------------------
Subtotal 19,853,943 57,301
- ----------------------------------------------------------------------------------------------------------------
1994 Acquisitions
Bel Shores 1,846,567 Largo, FL 4,770
Brookwood Club 952,500 Jacksonville, FL 6,998
Christiwood 588,643 Corpus Christi, TX (2)
Cinnamon Park 855,000 Arlington, TX (1)
Copper Cove 935,000 Houston, TX (4)
Copperfield 357,000 Oklahoma City, OK 4,258
Fielder's Glen 555,625 Arlington, TX (1)
Foxboro 800,000 Houston, TX (1)
Gables 544,500 McKinney, TX (1)
Greens Crossing 1,367,722 Dallas, TX (2)
Harper's Creek 868,000 Austin, TX (1)
Hunter's Ridge 300,000 Oklahoma City, OK 2,784
Newport 1,200,000 Irving, TX 7,097
Rivercrest 1,649,617 Arlington, TX 5,527
Silverado 1,194,383 Albuquerque, NM (2)
Snug Harbor 1,677,584 Tampa, FL (2)
Springfield 1,042,000 Mesquite, TX (1)
Summerfield Place 619,000 Oklahoma City, OK (1)
Towne Center 1,024,000 Dallas, TX 4,631
- ----------------------------------------------------------------------------------------------------------------
Woodscape 1,077,000 Oklahoma City, OK (1)
- ----------------------------------------------------------------------------------------------------------------
Subtotal 19,454,141 36,065
1995 Acquisitions
Braden's Walk 541,668 Bedford, TX (6)
Hilltop 801,069 N. Richland Hills, TX (6)
Laurel Creek 2,067,360 Houston, TX (1)
Northgreen 1,735,000 Tampa, FL (5)
Pinnacle 250,000 Lewisville, TX (6)
Pinto Creek 486,739 Austin, TX (1)
Reflections of Highpoint 587,000 Dallas, TX 12,490
Remington at Ponte Vedra 1,425,000 Ponte Vedra, FL 12,000
Remington Hill 633,553 Fort Worth, TX 13,880
Sandpiper 1,101,945 Jacksonville, FL (6)
Shadow Creek 666,468 N. Richland Hills, TX (6)
Summer Meadows 1,364,000 Plano, TX 12,580
Summer Villas 869,550 Dallas, TX (6)
Summer's Crossing 864,050 Plano, TX 9,390
Summer's Landing 429,000 Fort Worth, TX (6)
Winridge 790,000 Aurora, CO 12,715
- ----------------------------------------------------------------------------------------------------------------
Subtotal 8,730,566 73,055
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
Grand Total ERR $166,421
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Costs
Capitalized
Subsequent to
Initial Cost to Company Capital Capital Acquisition
- ----------------------------------------------------------------------------------------------------------------------------
Buildings & Improve. Improve. Buildings &
Land Improvements Adjustments 1995 1994 Land Improvements
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$635 $3,475 $109 $64 $173
1,027 3,586 (1) 28 130 157
449 4,488 (1) 128 161 264
962 5,565 284 131 415
613 2,648 1 18 117 136
719 5,302 (1) 90 150 214
494 7,993 (1) 13 86 ($4) 98
751 6,498 181 155 3 336
1,040 10,937 18 20 (28) 39
804 4,164 107 47 154
688 7,145 1 39 128 168
1,570 6,582 194 203 307
1,468 6,687 103 49 152
715 6,457 193 142 335
159 5,056 22 162 184
2,019 16,839 1 49 50 4 100
1,100 9,977 48 136 184
340 2,586 34 150 184
4,325 14,342 (1) 82 48 130
- ----------------------------------------------------------------------------------------------------------------------------
19,878 130,327 (2) 1,740 2,129 (25) 3,730
- ----------------------------------------------------------------------------------------------------------------------------
1,847 6,072 24 262 285
952 8,647 4 693 24 721
589 8,676 236 1 236
855 7,723 50 21 71
935 6,194 8 152 160
357 6,473 (1) 21 103 124
556 5,031 7 150 157
800 3,882 12 286 298
544 6,885 13 148 162
1,368 6,795 238 3 240
868 8,871 (1) 36 83 118
300 4,927 1 29 117 146
1,200 8,878 3 34 76 113
1,650 7,877 1 41 432 474
1,194 8,082 2 140 1 143
1,678 11,154 28 228 3 259
1,042 6,507 112 70 182
619 5,586 (1) 114 6 119
1,024 5,651 1 36 143 180
1,077 13,280 (3) 74 204 275
- ----------------------------------------------------------------------------------------------------------------------------
19,455 147,191 34 2,146 2,285 4,463
- ----------------------------------------------------------------------------------------------------------------------------
542 5,075 0 0
801 5,314 0 0
2,067 12,011 364 364
1,735 14,017 319 319
672 4,190 103 103
487 8,403 230 230
1,984 12,358 162 162
1,425 13,468 259 258
1,846 11,847 199 199
1,102 10,377 83 82
666 5,899 0 0
2,393 14,908 266 266
2,270 14,140 132 132
1,730 10,774 324 324
819 5,259 290 290
790 15,939 285 285
- ----------------------------------------------------------------------------------------------------------------------------
21,329 163,979 0 3,016 0 3,014
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
$60,662 $441,497 $32 $6,902 $4,414 ($25) $11,207
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Gross Amount at Which Accumulated Date
Carried at December 31, 1995 Depreciation Acquired
- ----------------------------------------------------------------------------------------
Buildings &
Land Improvements Total
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$635 $3,648 $4,283 ($496) 02/94
1,027 3,743 4,770 (377) 02/94
449 4,752 5,201 (429) 02/94
962 5,980 6,942 (782) 02/94
613 2,784 3,397 (262) 02/94
719 5,516 6,235 (600) 02/94
490 8,091 8,581 (673) 02/94
754 6,834 7,588 (666) 02/94
1,012 10,976 11,988 (989) 02/94
804 4,318 5,122 (506) 02/94
688 7,313 8,001 (845) 02/94
1,570 6,889 8,459 (677) 02/94
1,468 6,839 8,307 (760) 02/94
715 6,792 7,507 (630) 02/94
159 5,240 5,399 (556) 02/94
2,023 16,939 18,962 (1,490) 02/94
1,100 10,161 11,261 (988) 02/94
340 2,770 3,110 (276) 02/94
4,325 14,472 18,797 (1,250) 02/94
- ----------------------------------------------------------------------------------------
19,853 134,057 153,910 (13,252)
- ----------------------------------------------------------------------------------------
1,847 6,357 8,204 (437) 03/94
952 9,368 10,320 (399) 11/94
589 8,912 9,501 (335) 12/94
855 7,794 8,649 (365) 09/94
935 6,354 7,289 (344) 06/94
357 6,597 6,954 (360) 06/94
556 5,188 5,744 (316) 05/94
800 4,180 4,980 (249) 06/94
544 7,047 7,591 (420) 05/94
1,368 7,035 8,403 (275) 12/94
868 8,989 9,857 (477) 06/94
300 5,073 5,373 (282) 06/94
1,200 8,991 10,191 (478) 06/94
1,650 8,351 10,001 (539) 04/94
1,194 8,225 9,419 (309) 12/94
1,678 11,413 13,091 (430) 12/94
1,042 6,689 7,731 (355) 06/94
619 5,705 6,324 (231) 11/94
1,024 5,831 6,855 (330) 06/94
1,077 13,555 14,632 (728) 06/94
- ----------------------------------------------------------------------------------------
19,455 151,654 171,109 (7,659)
- ----------------------------------------------------------------------------------------
542 5,075 5,617 (1) 12/95
801 5,314 6,115 (1) 12/95
2,067 12,375 14,442 (307) 04/95
1,735 14,336 16,071 (245) 06/95
672 4,293 4,965 (80) 06/95
487 8,633 9,120 (288) 01/95
1,984 12,520 14,504 (237) 06/95
1,425 13,726 15,151 (234) 06/95
1,846 12,046 13,892 (226) 06/95
1,102 10,459 11,561 (80) 10/95
666 5,899 6,565 (2) 12/95
2,393 15,174 17,567 (276) 06/95
2,270 14,272 16,542 (267) 06/95
1,730 11,098 12,828 (202) 06/95
819 5,549 6,368 (101) 06/95
790 16,224 17,014 (276) 06/95
- ----------------------------------------------------------------------------------------
21,329 166,993 188,322 (2,823)
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
$60,637 $452,704 $513,341 ($23,734)
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
</TABLE>
(1) Property is pledged as collateral under a $61.744 million mortgage note
payable to an insurance company.
(2) Property is pledged as collateral under a $24.350 million mortgage note
payable to an insurance company.
(3) Property is pledged as collateral under the Credit Facility.
(4) Property is pledged as additional collateral under the mortgage notes
secured by Hunter's Ridge, Newport and Towne Center.
(5) Property is pledged as additional collateral under the mortgage notes
secured by Reflections of Highpoint, Remington at Ponte Vedra, Remington
Hill, Summer Meadows, Summer's Crossing and Winridge.
(6) Property is pledged as collateral under the Credit Facility effective
February 8, 1996.
(7) The aggregate cost for Federal income tax purposes at December 31,
1995 is $464.2 million.
(8) Depreciation is computed on a straight-line basis over the estimated
useful lives of the related assets which range from 14 to 30 years for
buildings and 5, 10, or 15 years for personal property.
<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
AMENDMENT NO. 1
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1995
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- --- SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
Commission file number: 1-12592
WALDEN RESIDENTIAL PROPERTIES, INC.
(Exact name of Registrant as specified in its charter)
MARYLAND 75-2506197
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ONE LINCOLN CENTRE, 5400 LBJ FREEWAY,
SUITE 400, LB 45, DALLAS, TEXAS 75240
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (214) 788-0510
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
TITLE OF EACH CLASS: NAME OF EACH EXCHANGE ON WHICH REGISTERED:
--------------------- ------------------------------------------
Common Stock, New York Stock Exchange
$.01 par value
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
Indicate by check mark whether Registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this form 10-K. X
-----
The aggregate market value of the voting stock held by non-affiliates of the
registrant was $285,116,607 at March 4, 1996.
THE NUMBER OF SHARES OF COMMON STOCK OUTSTANDING AT MARCH 4, 1996 WAS
14,248,115.
DOCUMENTS INCORPORATED BY REFERENCE
Certain information in the Registrant's definitive proxy statement to be filed
with the Securities and Exchange Commission related to the Company's 1996
Annual Meeting of Stockholders is incorporated by reference into Part III
hereof.
================================================================================
<PAGE> 2
EXPLANATORY NOTE
Walden Residential Properties, Inc., a Maryland corporation, hereby amends
its Annual Report on Form 10-K for the fiscal year ended December 31, 1995 (the
"Form 10-K") by substituting the attached Exhibit 23.1, Consent of Deloitte &
Touche LLP, for the previously filed Exhibit 23.1 in the Form 10-K.
<PAGE> 3
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned representative thereunto duly authorized.
WALDEN RESIDENTIAL PROPERTIES, INC.
By / c / Mark S. Dillinger
--------------------------------
Mark S. Dillinger
Executive Vice President &
Chief Financial Officer
Date March 14, 1996
--------------------------------
<PAGE> 4
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
- ----------- ----------- ----
<S> <C> <C>
23.1 Consent of Deloitte & Touche LLP E-1
</TABLE>
<PAGE> 5
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the Registration
Statement on Form S-3 (Registration No. 33- 90138), the Registration Statement
on Form S-3 (Registration No. 33-90852) and the Registration Statement on Form
S-3 (Registration No. 33-92328) of Walden Residential Properties, Inc., and in
the related prospectuses of our report dated March 7, 1996, with respect to the
consolidated financial statements and schedule of Walden Residential
Properties, Inc. and our report dated March 3, 1995, with respect to the
combined financial statements of Walden Predecessors included in the Annual
Report on Form 10-K for the year ended December 31, 1995.
DELOITTE & TOUCHE LLP
Dallas, Texas
March 14, 1996
E - 1
<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
AMENDMENT NO. 2
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
- ----- ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1995
- ----- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
Commission file number: 1-12592
WALDEN RESIDENTIAL PROPERTIES, INC.
(Exact name of Registrant as specified in its charter)
MARYLAND 75-2506197
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ONE LINCOLN CENTRE, 5400 LBJ FREEWAY,
SUITE 400, LB 45, DALLAS, TEXAS 75240
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (214) 788-0510
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
TITLE OF EACH CLASS: NAME OF EACH EXCHANGE ON WHICH REGISTERED:
--------------------- ------------------------------------------
Common Stock, New York Stock Exchange
$.01 par value
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
Indicate by check mark whether Registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this form 10-K. X
-----
The aggregate market value of the voting stock held by non-affiliates of the
registrant was $285,116,607 at March 4, 1996.
THE NUMBER OF SHARES OF COMMON STOCK OUTSTANDING AT MARCH 4, 1996 WAS
14,248,115.
DOCUMENTS INCORPORATED BY REFERENCE
Certain information in the Registrant's definitive proxy statement to be filed
with the Securities and Exchange Commission related to the Company's 1996
Annual Meeting of Stockholders is incorporated by reference into Part III
hereof.
================================================================================
<PAGE> 2
EXPLANATORY NOTE
Walden Residential Properties, Inc., a Maryland corporation, hereby amends
its Annual Report on Form 10-K for the fiscal year ended December 31, 1995, as
amended, by revising the caption "Item 1. Business--Environmental Matters" to
read as follows:
The environmental assessments on each of the Properties have revealed
elevated lead content in the drinking water at three of the Properties and ACMs
at 25 of the Properties (some of which is friable, but in good and manageable
condition). The consulting firm that conducted the environmental studies has
prepared an operations and maintenance program recommending procedures to be
followed in dealing with ACMs if they are moved or otherwise disturbed. The
cost to the Company resulting from any future disturbance of the ACMs will
depend upon the magnitude of the disturbance and the location of the ACMs. The
consulting firm advised the Company that it is not required by Federal law to
take any action to address the lead levels in the water; however, the Company
is currently evaluating the remedial actions and notification options. The
Company anticipates any such remedial actions and notifications will cost
between $10,000 and $30,000 in the aggregate.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned representative thereunto duly authorized.
WALDEN RESIDENTIAL PROPERTIES, INC.
By / c / Mark S. Dillinger
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Mark S. Dillinger
Executive Vice President &
Chief Financial Officer
Date April 17, 1996
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