==================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------------
FORM 8-K
PURSUANT TO SECTION 12, 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): October 1, 1997
- ------------------------------------------------------------------
WALDEN RESIDENTIAL PROPERTIES, INC.
(Exact name of Registrant as specified in its Charter)
MARYLAND
(State or other jurisdiction
of incorporation or organization)
1-12592
(Commission file number)
75-2506197
(I.R.S. Employer Identification Number)
One Lincoln Centre
5400 LBJ Freeway, Suite 400
Dallas, Texas 75240
(Address of principal executive offices)
Registrant's telephone number, including area code: (972) 788-0510
Not Applicable
(Former name or former address, if changed since last report)
==================================================================
<PAGE 1>
WALDEN RESIDENTIAL PROPERTIES, INC.
Item 2. Acquisition or Disposition of Assets . . . . . . . .2
Item 7. Financial Statements and Exhibits
a. Financial Statements of Audited Acquisition
Properties. . . . . . . . . . . . . . . . . .7
Drever Partners, Inc. and Affiliates
Independent Auditors' Report . . . . . . .8
Combined Balance Sheets as of
June 30, 1997 (Unaudited) and
December 31, 1996 and 1995 . . . . . . .9
Combined Statements of Income for the
Six Months Ended June 30, 1997 and
1996 (Unaudited) and the Years Ended
December 31, 1996, 1995 and 1994 . . . .10
Combined Statements of Stockholders'
Equity for the Six Months Ended
June 30, 1997 (Unaudited) and the
Years Ended December 31, 1996,
1995 and 1994. . . . . . . . . . . . . .11
Combined Statements of Cash Flows
for the Six Months Ended June 30, 1997
and 1996 (Unaudited) and the Years
Ended December 31, 1996, 1995 and
1994 . . . . . . . . . . . . . . . . . .12
Notes to Combined Financial Statements . .13
b. Pro Forma Financial Information of
Walden Residential Properties, Inc. . . . . .26
Pro Forma Condensed Combined Balance Sheet
as of June 30, 1997 (Unaudited) . . . . . . .28
Notes to Unaudited Pro Forma Condensed Combined
Balance Sheet as of June 30, 1997 . . . . . .29
Pro Forma Condensed Combined Statement
of Income for the Six Months Ended
June 30, 1997 (Unaudited) . . . . . . . . . .31
Pro Forma Condensed Combined Statement
of Income for the Year Ended
December 31, 1996 (Unaudited) . . . . . . . .32
Notes to Unaudited Pro Forma Condensed
Combined Statements of Income for the
Six Months Ended June 30, 1997 and the
Year Ended December 31, 1996. . . . . . . . .33
<PAGE 2>
Item 2. ACQUISITION OR DISPOSITION OF ASSETS
Acquisitions
------------
On October 1, 1997, Walden Residential Properties, Inc.
(the "Company") acquired the assets and business of Drever
Partners, Inc. and Affiliates ("DPI") through an acquisition
(the "Acquisition") pursuant to an Exchange Agreement and a
Contribution Agreement each dated as of May 21, 1997 by and
between the Company and DPI. Certain aspects of the Acquisition
were approved by the stockholders of the Company at a special
meeting held on September 29, 1997 and the limited partners of
each of the 18 limited partnerships of DPI and DPI's shareholders
agreed to the exchange of their partnership interests and shares
for Units (as defined below) and cash. The combined company
will continue to operate as Walden Residential Properties, Inc.
DPI is a privately held company based in San Francisco, California
and Houston, Texas. DPI owned and managed 79 apartment properties,
containing 18,118 apartment units in Texas, Arizona, Georgia, and
California.
The transaction value was $685 million, consisting of $303
million in operating partnership units ("Units") issued by
Walden/Drever Operating Partnership ("WDOP") which are convertible,
on or after the first anniversary of issuance, into $245 million of
Walden Common Stock (10,322,580 shares) and $58 million of
preferred stock (2,000,000 shares of 9% Redeemable Preferred Stock)
with detachable warrants (6,666,667 Series B Warrants, each of
which is exercisable for one-third of on share of Common Stock at
$26.875 per share) and $95 million in cash. The balance of the
consideration consisted of the assumption of $287 million of
mortgage debt. The Company borrowed under its unsecured credit
facility for the cash portion of the Acquisition as follows:
Cash consideration to DPI . . . . . . . . . . . . . . . $85,000,000
Transaction costs including loan prepayment penalties . 9,300,000
-----------
Credit Facility borrowings. . . . . . . . . . . . . . . $94,300,000
===========
At the time of the closing of the Acquisition, none of the
shareholders or partners of DPI were affiliated with the Company,
any director or officer of the Company or any associate of any
such director or officer. The properties were previously
operated by DPI as multifamily apartment properties, and it is
the intent of the Company to continue to operate the properties
as multifamily apartment properties.
Subsequent to the closing of the Acquisition, the Company
utilized an unsecured bridge loan for $110 million and an
additional borrowing of $10.1 million on the credit facility
to pay off several of the DPI mortgages. The unsecured bridge
loan matures November 3, 1997 which can be extended to
December 29, 1997 and bears interest at LIBOR plus 1.375% for a
total rate of 7.0625% as of October 1, 1997.
<PAGE 3>
<TABLE>
<CAPTION>
Average Monthly
Occupancy Rent per Unit
Number Year Average ------------------- -----------------
of Construction Apt. Size As of As of December August
Location Property Name Units Completed (Sq. Ft.) 12/31/96 10/06/97 1996 1997
- -------- ------------- ----- ------------ --------- -------- -------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Atlanta, GA Saratoga Springs 266 1985 840 98% 94% 605 629
Atlanta, GA Shannon Chase 156 1987 1,047 97% 94% 641 669
Atlanta, GA Villas at Indian Trials 236 1986 1,026 90% 92% 663 677
------ ---- ----- ---- ---- --- ---
Atlanta Total/Weighted Average 658 1986 956 95% 93% 634 656
------ ---- ----- ---- ---- --- ---
Austin, TX Arbors of Wells Branch 212 1986 737 92% 96% 590 548
Austin, TX Audubon Square 164 1985 850 91% 93% 609 609
Austin, TX Lakes of Renaissance 308 1987 698 92% 94% 567 577
Austin, TX Oakridge 253 1978 687 96% 96% 551 560
Austin, TX Polo Club 304 1986 670 95% 96% 531 530
Austin, TX Shadow Creek 420 1982 750 93% 95% 530 531
------ ---- ----- ---- ---- --- ---
Austin Total/Weighted Average 1,661 1984 723 93% 95% 556 554
------ ---- ----- ---- ---- --- ---
Corpus Christi, TX Rafters, The 250 1984 866 91% 95% 548 559
Corpus Christi, TX Wharf, The 250 1984 866 97% 94% 564 589
Corpus Christi, TX Willowick 250 1984 866 98% 97% 557 582
------ ---- ----- ---- ---- --- ---
Corpus Christi Total/Weighted Average 750 1984 866 95% 95% 556 577
------ ---- ----- ---- ---- --- ---
Dallas, TX Arbor Creek 280 1984 774 93% 96% 562 584
Dallas, TX Bent Creek 326 1980 718 91% 97% 479 490
Dallas, TX Brittany Park 217 1978 892 96% 93% 592 616
Dallas, TX Canyon Ridge 164 1983 737 99% 96% 540 566
Dallas, TX Casa Valley 150 1986 873 93% 91% 675 645
Dallas, TX Creekwood Village 362 1985 709 95% 92% 503 517
Dallas, TX La Prada Club 273 1985 819 95% 95% 575 580
Dallas, TX Montfort Oaks 276 1979 781 97% 98% 579 597
<PAGE 4>
Dallas, TX Shadowridge Village 144 1985 825 95% 94% 606 614
Dallas, TX Trinity Mills 208 1982 783 96% 96% 570 603
Dallas, TX Trinity Oaks 240 1983 626 96% 95% 518 530
------ ---- ----- ---- ---- --- ---
Dallas Total/Weighted Average 2,640 1983 767 95% 95% 553 567
------ ---- ----- ---- ---- --- ---
Houston, TX Arbor Point 65 1984 877 98% 95% 607 606
Houston, TX Ashton Woods 177 1978 854 96% 98% 468 482
Houston, TX Aston Brook 152 1982 785 92% 98% 432 447
Houston, TX Bar Harbor 316 1983 662 97% 97% 462 476
Houston, TX Bayou Oaks 210 1984 755 93% 96% 445 466
Houston, TX Brandon Oaks 196 1984 862 94% 97% 512 529
Houston, TX Briarcrest 376 1982 789 95% 93% 469 494
Houston, TX Brookfield 250 1984 756 96% 98% 473 485
Houston, TX Camden Court 136 1982 766 94% 96% 405 414
Houston, TX Carriage Hill 252 1980 960 95% 98% 538 552
Houston, TX Central Park Condos 93 1985 1,065 95% 90% 670 702
Houston, TX Central Park Regency 348 1983 917 97% 96% 543 557
Houston, TX Charleston, The 312 1981 726 98% 99% 437 450
Houston, TX Cimarron Park 162 1984 832 99% 94% 506 536
Houston, TX Cimarron Parkway 272 1983 876 98% 97% 501 523
Houston, TX Colony Oaks 162 1967 1,028 97% 99% 583 590
Houston, TX Colorado Club 300 1986 753 95% 95% 513 512
Houston, TX Enclave, The 384 1984 859 93% 95% 537 547
Houston, TX Georgetown 131 1968 1,648 100% 97% 962 979
Houston, TX Georgetown II 25 1968 810 100% 100% 599 597
Houston, TX Harbor Pointe 198 1968 903 91% 96% 616 619
Houston, TX Harpers Mill 180 1981 796 94% 94% 443 454
Houston, TX Hidden Lake 440 1986 724 94% 97% 614 630
<PAGE 5>
Houston, TX Holiday on Hayes 312 1981 803 96% 98% 509 527
Houston, TX Hunt Club, The 204 1984 666 98% 100% 433 446
Houston, TX Huntley, The 214 1985 771 92% 95% 603 611
Houston, TX Live Oak 162 1978 750 94% 99% 487 501
Houston, TX Meadows on Memorial 96 1982 999 99% 97% 588 604
Houston, TX Mill Creek 174 1982 860 96% 96% 454 472
Houston, TX Monticello 244 1983 834 95% 96% 473 490
Houston, TX Northwoods 200 1978 1,188 100% 97% 639 659
Houston, TX One Cypress Landing 464 1979 772 94% 94% 412 432
Houston, TX One Westfield Lake 246 1984 1,095 95% 97% 596 617
Houston, TX One Willow Park 178 1984 787 99% 93% 475 494
Houston, TX Pathway 144 1978 969 97% 96% 627 647
Houston, TX Pine Creek 216 1980 788 96% 88% 449 471
Houston, TX Polo Club I 228 1981 708 90% 97% 404 413
Houston, TX Polo Club II 292 1982 737 91% 97% 420 426
Houston, TX Richmond Green 224 1980 958 97% 96% 619 632
Houston, TX Riverwalk 184 1984 764 95% 94% 491 511
Houston, TX Silverado 344 1979 724 98% 97% 485 506
Houston, TX Stony Creek 252 1980 771 94% 95% 439 456
Houston, TX Timbers on Cranbrook 274 1984 755 97% 98% 437 461
Houston, TX Tranquility Lake 90 1983 938 91% 97% 689 692
Houston, TX Willow Chase 136 1983 766 96% 97% 448 416
Houston, TX Wimbledon 161 1978 960 98% 98% 533 556
Houston, TX Woodborough 320 1983 696 98% 99% 403 418
Houston, TX Woodchase 270 1978 935 98% 94% 571 588
Houston, TX Woodedge 126 1982 902 98% 97% 513 523
<PAGE 6>
Houston, TX Woodlake 315 1976 770 98% 98% 495 508
------ ---- ----- ---- ---- --- ---
Houston Total/Weighted Average 11,207 1981 830 96% 96% 508 522
------ ---- ----- ---- ---- --- ---
Texas Total/Weighted Average 16,258 1981 811 95% 96% 521 535
------ ---- ----- ---- ---- --- ---
Phoenix, AZ Crestwood 276 1984 541 92% 98% 437 449
Phoenix, AZ Fairways 160 1981 739 97% 93% 517 521
Phoenix, AZ Garden Place 286 1979 808 97% 94% 546 568
------ ---- ----- ---- ---- --- ---
Phoenix Total/Weighted Average 722 1981 691 95% 95% 498 512
------ ---- ----- ---- ---- --- ---
San Diego, CA Felicita Creek 136 1987 768 96% 99% 606 628
San Diego, CA Park Bonita 184 1984 838 97% 96% 741 769
San Diego, CA Sun Ridge 160 1986 843 96% 96% 591 608
------ ---- ----- ---- ---- --- ---
San Diego Total/Weighted Average 480 1986 820 96% 97% 643 675
------ ---- ----- ---- ---- --- ---
Portfolio Total/Weighted Average 18,118 1982 812 95% 96% 524 542
====== ==== ===== ==== ==== === ===
</TABLE>
<PAGE 7>
Item 7a. Financial statements of Audited Acquisition Properties
<PAGE 8>
INDEPENDENT AUDITORS' REPORT
To the Directors, Stockholders and Partners of
Drever Partners, Inc. and Affiliates
We have audited the accompanying combined balance sheets of
Drever Partners, Inc. and affiliates as of December 31, 1996 and
1995, and the related combined statements of operations,
partners'/stockholders' equity and cash flows for each of the three
years in the period ended December 31, 1996. These financial
statements are the responsibility of the management of Drever
Partners, Inc. and affiliates. 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 Drever
Partners, Inc. and affiliates at December 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996, in conformity
with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Dallas, Texas
June 27, 1997
October 1, 1997 as to Note 14
<PAGE 9>
DREVER PARTNERS, INC. AND AFFILIATES
COMBINED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
December 31,
------------------
June 30, 1997 1996 1995
------------- ---- ----
(Unaudited)
<S> <C> <C> <C>
ASSETS
Real estate assets, at cost:
Land . . . . . . . . . . . . . . . . . . . . $ 70,108 $ 70,336 $ 70,336
Buildings and improvements . . . . . . . . . 466,413 464,432 452,852
Less accumulated depreciation. . . . . . . . (109,649) (99,260) (76,812)
--------- --------- ---------
Total real estate assets. . . . . . . . . 426,872 435,508 446,376
Rent and other receivables . . . . . . . . . . 421 479 326
Receivables from related parties . . . . . . . 3,201 2,957 1,700
Prepaid and other assets . . . . . . . . . . . 1,305 765 3,674
Deferred financing costs, net. . . . . . . . . 3,339 3,741 4,417
Deferred tax asset . . . . . . . . . . . . . . 174 174 268
Cash and cash equivalents. . . . . . . . . . . 11,318 10,866 11,828
Restricted cash. . . . . . . . . . . . . . . . 2,537 4,402 6,549
--------- --------- ---------
Total assets . . . . . . . . . . . . . . . . $ 449,167 $ 458,892 $ 475,138
========= ========= =========
LIABILITIES AND PARTNERS'/STOCKHOLDERS' EQUITY
Liabilities:
Mortgage notes payable . . . . . . . . . . . $ 287,266 $ 290,854 $ 293,702
Other long-term debt . . . . . . . . . . . . 626 759 1,469
Investor notes payable . . . . . . . . . . . 6,336 6,497 6,594
Accrued real estate taxes. . . . . . . . . . 5,845 9,699 9,365
Accounts payable . . . . . . . . . . . . . . 2,473 3,481 3,033
Payable to related parties . . . . . . . . . 318 301 538
Accrued expenses and other liabilities . . . 8,265 8,056 7,823
--------- --------- ---------
Total liabilities . . . . . . . . . . . . 311,129 319,647 322,524
--------- --------- ---------
Commitments and contingencies (Note 11)
Partners'/Stockholders' equity:
Partners' capital. . . . . . . . . . . . . . 182,806 179,559 182,213
Common stock . . . . . . . . . . . . . . . . 25 25 25
Treasury stock . . . . . . . . . . . . . . . (371) (371) (371)
Additional paid-in capital . . . . . . . . . 639 639 639
Accumulated deficit. . . . . . . . . . . . . (45,061) (40,607) (29,892)
--------- --------- ---------
Total partners'/stockholders' equity. . . 138,038 139,245 152,614
--------- --------- ---------
Total liabilities and
partners'/stockholders' equity . . . . . . . $ 449,167 $ 458,892 $ 475,138
========= ========= =========
</TABLE>
See notes to combined financial statements.
<PAGE 10>
DREVER PARTNERS, INC. AND AFFILIATES
COMBINED STATEMENTS OF OPERATIONS
(Dollars in thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30, Years Ended December 31,
----------------- ------------------------------
1997 1996 1996 1995 1994
---- ---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C> <C>
REVENUES
Rental income. . . . . . . . . . . $ 54,635 $ 53,007 $107,344 $101,630 $ 84,935
Other property income. . . . . . . 1,633 1,584 3,259 3,025 2,463
Construction revenue . . . . . . . 647 919 308
Interest income. . . . . . . . . . 229 230 620 979 750
Other income (expense) . . . . . . (200) (178) (1,092) 508 1,668
-------- -------- -------- -------- --------
Total revenues. . . . . . . . . 56,297 55,290 111,050 106,450 89,816
-------- -------- -------- -------- --------
EXPENSES:
Property operating and
maintenance. . . . . . . . . . . 20,048 19,697 40,682 40,060 33,585
Real estate taxes. . . . . . . . . 5,780 5,689 11,486 11,051 8,940
Construction cost of sales . . . . 652 891 240
General and administrative . . . . 4,209 4,729 9,343 9,654 10,485
Interest . . . . . . . . . . . . . 11,060 11,445 22,909 23,412 19,531
Amortization . . . . . . . . . . . 430 440 888 953 794
Depreciation . . . . . . . . . . . 11,278 11,461 22,888 21,227 17,050
-------- -------- -------- -------- --------
Total expenses. . . . . . . . . 52,805 54,113 109,087 106,597 90,385
-------- -------- -------- -------- --------
OPERATING INCOME (LOSS). . . . . . . 3,492 1,177 1,963 (147) (569)
Gain (loss) on disposition of
property . . . . . . . . . . . . (170) -- -- (90) 156
Loss on debt forgiveness . . . . . (455)
-------- -------- -------- -------- --------
INCOME (LOSS) BEFORE
EXTRAORDINARY ITEM AND
INCOME TAXES . . . . . . . . . . . 3,322 1,177 1,963 (692) (413)
INCOME TAXES . . . . . . . . . . . . (322) (243) (647) (487) (373)
-------- -------- -------- -------- --------
INCOME(LOSS) BEFORE
EXTRAORDINARY ITEM . . . . . . . . 3,000 934 1,316 (1,179) (786)
Extraordinary gain (loss) on
debt extinguishment. . . . . . . -- 71 348 -- (735)
-------- -------- -------- -------- --------
NET INCOME (LOSS). . . . . . . . . . $ 3,000 $ 1,005 $ 1,664 $ (1,179) $ (1,521)
======== ======== ======== ======== ========
</TABLE>
See notes to combined financial statements.
<PAGE 11>
DREVER PARTNERS, INC. AND AFFILIATES
COMBINED STATEMENTS OF PARTNERS'/STOCKHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED)
AND YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(In thousands)
<TABLE>
<CAPTION>
Total
Common Stock Additional Partners'/
Partners' -------------- Treasury Paid-In Accumulated Stockholders'
Capital Shares Amount Stock Capital Deficit Equity
--------- ------ ------ -------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Partners'/stockholders' equity at
January 1, 1994. . . . . . . . . . . . $ 102,232 15,000 $ 15 $ (41) $ 607 $(10,688) $ 92,125
Net income (loss). . . . . . . . . . . 7,671 (9,192) (1,521)
Contributions. . . . . . . . . . . . . 80,323 80,323
Distributions. . . . . . . . . . . . . (14,646) (14,646)
Purchase of treasury stock . . . . . . (330) (330)
--------- ------ ------ ------ ------- -------- --------
Partners'/stockholders' equity at
December 31, 1994. . . . . . . . . . . 175,580 15,000 15 (371) 607 (19,880) 155,951
Net income (loss). . . . . . . . . . . 8,833 (10,012) (1,179)
Contributions. . . . . . . . . . . . . 12,304 12,304
Distributions. . . . . . . . . . . . . (14,504) (14,504)
Common stock issued. . . . . . . . . . 10,000 10 32 42
--------- ------ ------ ------ ------- -------- --------
Partners'/stockholders' equity at
December 31, 1995. . . . . . . . . . . 182,213 25,000 25 (371) 639 (29,892) 152,614
Net income (loss). . . . . . . . . . . 12,379 (10,715) 1,664
Distributions. . . . . . . . . . . . . (15,228) (15,228)
Contributions. . . . . . . . . . . . . 195 195
--------- ------ ------ ------ ------- -------- --------
Partners'/stockholders' equity at
December 31, 1996. . . . . . . . . . . 179,559 25,000 25 (371) 639 (40,607) 139,245
Net income (loss) (unaudited). . . . . 7,454 (4,454) 3,000
Distributions (unaudited). . . . . . . (4,207) (4,207)
--------- ------ ------ ------ ------- -------- --------
Partners'/stockholders' equity at
June 30, 1997 (unaudited). . . . . . . $(182,806) 25,000 $ 25 $ (371) $ 639 $(45,061) $138,038
========= ====== ====== ====== ======= ======== ========
</TABLE>
See notes to combined financial statements.
<PAGE 12>
DREVER PARTNERS, INC. AND AFFILIATES
COMBINED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30, Years Ended December 31,
---------------- ----------------------------
1997 1996 1996 1995 1994
---- ---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss). . . . . . . . . $ 3,000 $ 1,005 $ 1,664 $(1,179) $ (1,521)
Adjustments to reconcile net
income (loss) to net cash
provided by operating activities:
Depreciation and amortization 11,708 11,901 23,776 22,180 17,844
(Gain)/loss on disposition of
real property . . . . . . . . 170 90 (156)
Extraordinary (gain) loss on
debt extinguishment . . . . . (71) (348) 455 735
Deferred income tax . . . . . . 94 756 (423)
Net effect of changes in
operating accounts:
Restricted cash . . . . . . . 1,865 3,230 2,147 1,366 (654)
Other assets. . . . . . . . . (598) 1,090 2,469 (6,723) 702
Receivables . . . . . . . . . 58 (303) (153) 118 632
Receivables from related
parties . . . . . . . . . . (244) 219 (1,257) 1,445 214
Accrued real estate taxes . . (3,854) (3,846) 334 1,620 3,372
Accounts payable. . . . . . . (1,008) (795) 448 (58) 340
Payables to related parties . 17 9 (237) (1,038) 4
Other liabilities . . . . . . 209 1,498 233 (226) 1,204
------- ------- ------- ------- --------
Net cash provided by
operating activities . . 11,323 13,937 29,170 18,806 22,293
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of real estate assets . . (20,257) (113,056)
Real estate asset additions. . . . (4,105) (6,264) (11,580) (21,851) (19,494)
Proceeds from disposition of
real property 110 1,485
------- ------- ------- ------- ---------
Net cash used in investing
activities. . . . . . . . . . (4,105) (6,264) (11,580) (41,998) (131,065)
CASH FLOWS FROM FINANCING
ACTIVITIES:
Contributions received . . . . . . 195 195 12,304 80,323
Distributions paid to partners . . (4,207) (6,108) (15,228) (14,504) (14,646)
Common stock issued. . . . . . . . 42
Proceeds from mortgage notes
payable. . . . . . . . . . . . . 21,380 39,080 17,389 163,127
Payment of mortgage notes payable. (20,700) (36,978) (98,181)
Principal reductions of debt . . . (2,237) (2,511) (4,380) (4,000) (2,713)
Payment of financing costs . . . . (28) (75) (434) (1,266) (3,179)
Payment of investor notes. . . . . (161) (97) (97) (120) (737)
Payment of other long-term debt. . (133) (664) (710) (948) (160)
Net cash (used in) provided by
financing activities. . . . . (6,766) (8,580) (18,552) 8,897 123,834
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS. . . . . 452 (907) (962) (14,295) 15,062
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD. . . . . . . . 10,866 11,828 11,828 26,123 11,061
------- ------- ------- ------- ---------
CASH AND CASH EQUIVALENTS,
END OF PERIOD. . . . . . . . . . . $11,318 $10,921 $10,866 $11,828 $ 26,123
======= ======= ======= ======= =========
SUPPLEMENTAL DISCLOSURES
OF CASH FLOW INFORMATION:
Cash paid for interest . . . . . . $11,051 $11,414 $22,318 $22,861 $ 18,021
======= ======= ======= ======= =========
Income taxes paid. . . . . . . . . $ 325 $ 376 $ 391 $ 655 $ 165
======= ======= ======= ======= =========
SUPPLEMENTAL NON CASH
FINANCING ACTIVITIES:
Obligation incurred for treasury
stock. . . . . . . . . . . . . . $ -- $ -- $ -- $ -- $ 330
======= ======= ======= ======= =========
Debt assumed by purchaser of
property . . . . . . . . . . . . $ 1,351 $ -- $ -- $ -- $ --
======= ======= ======= ======= =========
</TABLE>
See notes to combined financial statements.
<PAGE 13>
DREVER PARTNERS, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
Six Months Ended June 30, 1997 and 1996 (Unaudited), and
Years Ended December 31, 1996, 1995 and 1994
1. BASIS OF PRESENTATION AND ORGANIZATION
Drever Partners, Inc. and affiliates (collectively "Drever")
consists of Drever Partners, Inc. and its majority owned
subsidiaries Concierge Management Corporation ("CMC"), Drever
Construction Corporation, Inc. ("DCC"), Concierge Realty & Finance
Corporation ("CRFC"), Drever McIntosh & Co. ("DM & Co.")
(collectively "DPI"), two affiliated corporations, 18 limited
partnerships (collectively the "Partnerships" or individually the
"Partnership") and an affiliated entity, which collectively owned
and operated 79 multifamily apartment properties (the "Properties")
as of June 30, 1997, 80 properties as of December 31, 1996 and
1995, and 79 properties as of December 31, 1994. CMC serves as the
property management company for the Properties, DCC performs
construction and maintenance services, CRFC assists in real estate
acquisitions and financings and DM & Co. performs asset management
services for certain of the Partnerships.
Drever Partners, Inc. is the general partner in each of the
Partnerships except for Apartment Opportunity Fund, L.P. ("AOF")
and Apartment Opportunity Fund II, L.P. ("AOFII"). AOF, Inc. is an
affiliate of DPI and the general partner of AOF Newgen, L.P., which
is, in turn, the general partner of AOF. AOFII, Inc. is an
affiliate of DPI and the general partner of AOFII.
Drever owns properties in Texas, Arizona, California and
Georgia consisting of 18,118 apartment units.
On May 21, 1997, Drever entered into a definitive agreement
with Walden Residential Properties, Inc. ("Walden") which, if
consummated, will result in the combination of Walden, DPI and the
Partnerships. The transaction value is approximately $670 million,
consisting of $295 million in operating partnership units to be
issued by Walden Drever Operating Partnership ("WDOP") which are
convertible into $240 million in Walden Common Stock (10,322,580
shares) and $55 million in preferred stock (2,000,000 shares of 9%
Redeemable Preferred Stock) with detachable warrants (6,666,667
Series B Warrants, each of which is exercisable for one-third of
one share of Common Stock at $26.875 per share) and $85 million in
cash. The balance of the consideration consists of the assumption
of approximately $290 million of mortgage debt. Pursuant to the
agreement, Walden will offer to acquire the partnership interest of
each limited partner in exchange for that portion of the
transaction consideration which would have been allocable to such
partner under the applicable partnership agreement assuming that
the transaction had been structured as a sale of the Partnerships'
underlying assets. The transaction is contingent upon limited
partners owning more than 50% of the total limited partner
interests in AOF and AOF II accepting their respective exchange
offers. The transaction also requires the majority consent of the
Walden common shareholders.
<PAGE 14>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF COMBINATION -- The accompanying combined
financial statements include the consolidated accounts of DPI; AOF,
Inc.; AOFII, Inc.; the accounts of the Partnerships; and the
affiliated entity, since DPI or one of its affiliates is the
general partner of the Partnerships and consequently controls and
manages their operations. All material inter-entity transactions
and balances are eliminated in the combination.
INCOME RECOGNITION -- Rental, interest and other income are
recorded using the accrual method of accounting as earned.
PROPERTY CONCENTRATION -- As of December 31, 1996, Drever
owned 80 multifamily properties in four states, with 90% of its
apartment units located in Texas and 10% located in Arizona,
Georgia and California. Of the total units owned, 11,207 units, or
62%, are located in the Houston area. Apartment units are leased to
residents on terms of one year or less, with monthly rental
payments due in advance. In management's opinion, due to the number
of residents and the type of markets in which the properties
operate and the collection terms, there is not a significant
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 security
deposits and escrow deposits held by lenders for the payment of
property taxes, insurance and replacement reserves. Restricted cash
is invested primarily in short-term securities.
Also included in restricted cash are amounts held in trust for
non-combined affiliated entities of Drever Partners, Inc. Such
amounts represent cash of affiliated entities of Drever Partners,
Inc. which has been put under the care and control of Drever
Partners, Inc. A reserve has been established in an amount equal to
the cash balances held in trust and is included in accounts and
notes payable to related parties in the accompanying financial
statements.
REAL ESTATE ASSETS AND DEPRECIATION -- Expenditures directly
related to the acquisitions and improvement of real estate assets
are capitalized at cost as land, buildings and improvements. Drever
capitalizes the cost of appliances, carpets, major 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 30 years for buildings and five, ten or
15 years for personal property.
<PAGE 15>
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. Drever
adopted SFAS No. 121 in 1995. Drever's management routinely reviews
its investments for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not
be recoverable. Based on Drever's policy for reviewing impairment
of long-lived assets, there was no adjustment necessary for
impairment of properties during the three-year period ended
December 31, 1996.
DEFERRED FINANCING COSTS AND AMORTIZATION -- Legal fees and
other costs associated with obtaining financing have been
capitalized and are being amortized over the terms of the related
debt. Financing costs were reported net of amortization of
$2,998,000, $2,568,000, and $2,107,000 as of June 30, 1997, and
December 31, 1996 and 1995, respectively.
EARNINGS PER SHARE -- The accompanying combined financial
statements do not include disclosures of earnings per share as
Drever Partners, Inc. and affiliates represent privately held
corporate entities and partnerships for which this disclosure would
be meaningless.
INCOME TAXES -- DPI, AOF, Inc. and AOFII, Inc. elected to be
taxed as C Corporations under the Internal Revenue Code and account
for income taxes under the provisions of SFAS No. 109, "Accounting
for Income Taxes." SFAS No. 109 requires the use of the liability
method of accounting for income taxes. Deferred taxes are recorded
based on the difference between the financial statement and income
tax bases of assets and liabilities. A valuation allowance is
recognized for deferred tax assets when it is more likely than not
that some or all of the deferred tax asset will not be realized.
No provision for income taxes has been made in the
accompanying combined financial statements for the combined
operations of the Partnerships because these taxes are the
responsibility of the individual partners.
USE OF ESTIMATES -- The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of certain assets, liabilities, revenues and
expenses during the reporting period. Actual results may differ
from such estimates.
ENVIRONMENTAL REMEDIATION COSTS -- Drever accrues for losses
associated with environmental remediation obligations when such
losses are probable and reasonably estimable. Accruals for
estimated losses from environmental remediation obligations
generally are recognized no later than completion of the remedial
feasibility study. Such accruals are adjusted as further
information develops or circumstances change. Recoveries of
environmental remediation costs from other parties are recorded as
assets when their receipt is deemed probable. Drever's management
is not aware of any environmental remediation obligations which
would materially affect the operations, financial position or cash
flows of the combined entity.
<PAGE 16>
INTERIM FINANCIAL DATA -- In the opinion of management, the
accompanying unaudited combined financial statements contain all
the adjustments (consisting of only normal recurring accruals)
necessary to present fairly the financial position of the combined
entity as of June 30, 1997 and 1996, and the results of their
operations and changes in their financial position for the six
months ended June 30, 1997 and 1996.
3. ACQUISITIONS AND DISPOSITIONS
ACQUISITIONS -- During 1995, the Partnerships acquired two
apartment properties containing 484 units for a cost of $20,257,000
located in San Diego, California and Houston, Texas. During 1994,
the Partnerships acquired 18 apartment properties containing 4,492
units for a cost of $113,056,000. These properties are located in
Houston, Dallas, Austin and Corpus Christi, Texas; San Diego,
California; and Atlanta, Georgia. No properties were acquired
during 1996.
The acquisitions were accounted for by the purchase method of
accounting and the accompanying combined financial statements
reflect the results of operations of the acquired properties since
the date of purchase.
DISPOSITIONS -- During 1994, a Partnership disposed of one
apartment property containing 326 units for $1,536,000, less
closing costs. In connection with this disposition, the Partnership
recorded a gain on the sale of property of $156,000. During 1995,
a Partnership sold land adjacent to one of its apartment properties
due to condemnation. In connection with this disposition, the
Partnership recorded a loss on sale of $90,000. No real estate
asset dispositions occurred during 1996.
In April 1997, a Partnership disposed of one apartment
property having 72 units. In connection with this disposition, the
buyer assumed the mortgage notes on the property of $1,351,000 and
the Partnership recorded a net loss on the sale of property of
$170,000.
<PAGE 17>
4. REAL ESTATE ASSETS
Changes in real estate assets and related accumulated
depreciation for the years ended December 31, 1996, 1995 and 1994,
and the six-month period ended June 30, 1997, are as follows:
Real estate assets:
Balance at January 1, 1994 . . . . . . . . . . . . . . . . . $350,074,000
Purchase of real estate assets . . . . . . . . . . . . . . . 113,056,000
Sale of real estate assets . . . . . . . . . . . . . . . . . (1,344,000)
Fixed asset additions. . . . . . . . . . . . . . . . . . . . 19,494,000
------------
Balance at December 31, 1994 . . . . . . . . . . . . . . . . 481,280,000
Purchase of real estate assets . . . . . . . . . . . . . . . 20,257,000
Sale of real estate assets . . . . . . . . . . . . . . . . . (200,000)
Fixed asset additions. . . . . . . . . . . . . . . . . . . . 21,851,000
------------
Balance at December 31, 1995 . . . . . . . . . . . . . . . . 523,188,000
Fixed asset additions. . . . . . . . . . . . . . . . . . . . 11,580,000
------------
Balance at December 31, 1996 . . . . . . . . . . . . . . . . 534,768,000
Fixed asset additions (unaudited). . . . . . . . . . . . . . 4,105,000
Sale of real estate assets (unaudited) . . . . . . . . . . . (2,352,000)
------------
Balance at June 30, 1997 (unaudited) . . . . . . . . . . . . $536,521,000
============
Accumulated depreciation:
Balance at January 1, 1994 . . . . . . . . . . . . . . . . . $ 39,348,000
Depreciation expense . . . . . . . . . . . . . . . . . . . . 16,776,000
Write-off related to real estate assets sold . . . . . . . . (15,000)
------------
Balance at December 31, 1994 . . . . . . . . . . . . . . . . 56,109,000
Depreciation expense . . . . . . . . . . . . . . . . . . . . 20,703,000
------------
Balance at December 31, 1995 . . . . . . . . . . . . . . . . 76,812,000
Depreciation expense . . . . . . . . . . . . . . . . . . . . 22,448,000
------------
Balance at December 31, 1996 . . . . . . . . . . . . . . . . 99,260,000
Depreciation expense (unaudited) . . . . . . . . . . . . . . 11,220,000
Write-off related to real estate assets sold (unaudited) . . (831,000)
------------
Balance at June 30, 1997 (unaudited) . . . . . . . . . . . . $109,649,000
============
<PAGE 18>
5. ACCRUED EXPENSES AND OTHER LIABILITIES
Included in accrued expenses and other liabilities at June 30,
1997, and December 31, 1996 and 1995, are the following:
December 31,
------------------
June 30, 1997 1996 1995
------------- ---- ----
(Unaudited)
Security deposits . . . . . . . . . . $3,804,000 $3,782,000 $3,649,000
Accrued interest. . . . . . . . . . . 1,694,000 1,685,000 1,915,000
Other accrued liabilities . . . . . . 2,306,000 1,657,000 1,526,000
Self-insurance reserve. . . . . . . . -- 468,000 336,000
Federal income taxes payable. . . . . 461,000 464,000 397,000
---------- ---------- ----------
$8,265,000 $8,056,000 $7,823,000
========== ========== ==========
Other accrued liabilities include construction advances, net
over billings for construction services, and other miscellaneous
operational accruals for DPI and the Partnerships.
SELF INSURANCE RESERVE -- During 1996, 1995 and 1994, Drever
maintained a self-insurance program for that portion of employee
health care and Texas workers' compensation costs which are not
covered by insurance contracts. The self-insurance reserve
represents Drever's estimated liability for workers' compensation
and health benefits claims, including those that have been incurred
but not yet reported. The amounts are based on actuarially
determined estimates.
Beginning January 1, 1997, all of Drever's employees became
covered under a standard workers' compensation insurance contract.
Any claims incurred after January 1, 1997, will be covered under
the new policy. Existing claims for injuries prior to January 1,
1997, will be covered under the self-insurance program.
<PAGE 19>
6. Mortgage Notes Payable and Other Long Term Debt
Mortgage notes payable consist of the following:
<TABLE>
<CAPTION>
As of December 31, 1996 Principal Balance as of
---------------------------- ----------------------------------
Weighted Weighted December 31, June 30,
Average Average Years ------------------ --------
Interest Rate to Maturity 1996 1995 1997
------------- ------------- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C> <C>
Fixed rate conventional mortgage notes
payable, bearing interest at rates
ranging from 6.95% to 9.63% per annum,
maturing at various dates from August
1998 through February 2007. . . . . . . 7.43% 4.2 years $242,580,000 $244,630,000 $240,513,000
Variable rate conventional mortgage
notes payable, bearing interest at
rates ranging from LIBOR plus 1.75% to
prime plus 1.50% per annum, maturing
at various dates from August 1997
through November 2026 . . . . . . . . . 8.08% 5.4 years 48,274,000 49,072,000 46,753,000
----- --------- ------------ ------------ ------------
Total/weighted average. . . . . . . . . . 7.55% 4.3 years $290,854,000 $293,702,000 $287,266,000
===== ========= ============ ============ ============
</TABLE>
At June 30, 1997 and December 31, 1996 and 1995, all of
Drever's real estate assets were collateral for the various
mortgage loans which are nonrecourse to the partners.
Drever Partners, Inc. has guaranteed the payment of
$17,750,000 of the Partnerships' mortgage notes as of December 31,
1996 and June 30, 1997.
OTHER LONG-TERM DEBT -- In September 1994, CMC received
$700,000 under a promissory note which was principally used to
finance computer conversions and expansions. The note is secured by
certain computer equipment and is guaranteed by Drever Partners,
Inc. The note bears interest at the lenders prime rate. At June 30,
1997, and December 31, 1996 and 1995, the outstanding amount due
under the note was $81,000, $162,000 and $599,000, respectively.
The balance of the note is due December 1997.
At June 30, 1997, and December 31, 1996 and 1995, DPI has
additional notes due to other third parties. These notes are
non-interest-bearing and are due on various dates in 1997
($140,000) and 1998 ($40,000). The balance of these notes at June
30, 1997, and December 31, 1996 and 1995, were $130,000, $180,000
and $12,000, respectively.
In February 1994, AOF II, Inc. entered into a $383,000 note
agreement with an investor in AOF II. The note bears interest at 9%
with monthly payments of interest only. The outstanding principal
and unpaid interest is due in November 2003. The outstanding amount
due under this note at June 30, 1997, and December 31, 1996 and
1995, was $295,000.
<PAGE 20>
At December 31, 1995, Drever Partners, Inc. had a $440,000
note with a lending institution. Such note bears interest at the
bank's prime rate and matured in September 1996.
Drever Partners, Inc. has a note payable with a lending
institution which bears interest at 11.5% and matures in January
2010. The outstanding balance at June 30, 1997, and December 31,
1996 and 1995, was $120,000, $122,000 and $123,000, respectively.
PRINCIPAL DEBT MATURITIES -- Principal debt maturities,
including balloon payments, for the next five years are as follows:
June 30, 1997
(Unaudited) December 31, 1996
-------------------- --------------------
Mortgage Other Mortgage Other
Notes Long-Term Notes Long-Term
Payable Debt Payable Debt
---------- --------- -------- ---------
1997 . . . . . . . . . . $ 6,279,000 $173,000 $ 8,516,000 $306,000
1998 . . . . . . . . . . 23,149,000 45,000 24,500,000 45,000
1999 . . . . . . . . . . 12,801,000 5,000 12,801,000 5,000
2000 . . . . . . . . . . 76,428,000 6,000 76,428,000 6,000
2001 . . . . . . . . . . 145,762,000 7,000 145,762,000 7,000
Thereafter . . . . . . . 22,847,000 390,000 22,847,000 390,000
------------ -------- ------------ --------
Total. . . . . . . . . $287,266,000 $626,000 $290,854,000 $759,000
EXTRAORDINARY ITEMS -- During 1996, Drever refinanced
approximately $36,978,000 of mortgage loans prior to maturity,
which resulted in an aggregate extraordinary gain of $348,000.
During 1994, Drever refinanced $98,181,000 of mortgage loans prior
to maturity which resulted in an aggregate extraordinary loss of
$735,000.
7. INVESTOR NOTES
Investor notes represent amounts due to investors by the
Partnerships. Investor notes bear interest at various rates ranging
between 9.5% and 10% and mature at various dates ranging from
December 1997 ($304,000) through December 1998 ($2,141,000).
Interest only payments are due monthly with the principal due in
full upon maturity. The balance of these notes at June 30, 1997,
and December 31, 1996 and 1995, was $2,336,000, $2,445,000 and
$2,366,000, respectively.
Also included in investor notes is the outstanding principal
and accrued interest due under a note between Houston Portfolio
Joint Venture II ("HPJVII"), a Partnership, and an investor, which
was executed in February 1990. The note bears base interest at 5%
and will earn additional interest equal to approximately 25% of the
respective Partnership's profits realized upon sale of its
properties. All base interest, unpaid principal and additional
interest is due upon disposition of the Partnership's assets or in
February 2002. The outstanding amount due under this note at June 30,
<PAGE 21>
1997, and December 31, 1996 and 1995, was $4,000,000,
$4,052,000 and $4,131,000, respectively, including all unpaid
interest. The note is convertible into partners' capital at the
option of the investor or HPJVII upon the satisfaction of certain
conditions precedent as specified in the note agreement.
8. PARTNERS'/STOCKHOLDERS' EQUITY
PARTNERS' CAPITAL -- Each of the Partnerships were formed
under the provisions of a partnership agreement (collectively, the
"Agreements"). Pursuant to the Agreements, initial contributions
were made by each of the partners. A capital account is maintained
for each partner in which their account is increased with the
initial and any subsequent contributions and income from operations
and decreased for any distributions and losses from operations.
During the years ended December 31, 1996, 1995 and 1994,
distributions to limited partners were $15,168,000, $14,504,000 and
$14,646,000, respectively. Distributions to the general partner
were $20,000 and $60,000 for the six month period ended June 30,
1997 and year ended December 31, 1996, respectively. No
distributions were made to the general partner with respect to its
carried interest during the years ended December 31, 1995 and 1994.
During the six-month period ended June 30, 1997, distributions to
limited partners were $4,187,000. Contributions to the partnerships
for the years ended December 31, 1996, 1995 and 1994, were
$195,000, $12,304,000 and $80,323,000. No contributions were
received during the six-month period ended June 30, 1997.
Each partner's capital account is increased for their
allocated share of net income of the partnership and decreased for
their allocated share of net losses. Net income and losses are
allocated to each partner based on their ownership interest in the
partnership. However, no losses are allocated to the limited
partners once their capital account is zero. Limited partners'
unallocated losses are allocated to the general partner.
STOCKHOLDERS' EQUITY -- Drever Partners, Inc. has 5,000 shares
of no par value stock authorized and issued and 4,050 shares
outstanding at June 30, 1997, and December 31, 1996 and 1995. CMC,
DCC and CRFC each have 1,000 shares of $1 par value stock
authorized, issued and outstanding at June 30, 1997, and December
31, 1996 and 1995. DM & Co. has 2,500 shares of no class, no par
value stock authorized and 100 shares issued and outstanding at
June 30, 1997, and December 31, 1996 and 1995. Drever Partners,
Inc. owns 100% of DCC and DM & Co., 95% of CRFC and 90% of CMC
outstanding stock. The remaining shares are held by officers of the
entities. During the six-month period ended June 30, 1997 and the
three-year period ended December 31, 1996, no dividends were
declared or paid by Drever Partners, Inc., DCC, CMC or CRFC. As of
June 30, 1997, a sale of Drever Partners, Inc.'s investment in DM
& Co. to a third party is pending, which is expected to be
completed in the third quarter of 1997.
<PAGE 22>
AOF, Inc. and AOFII, Inc. each have 10,000 shares of $1 par
value stock authorized, issued and outstanding at June 30, 1997,
and December 31, 1996 and 1995. During the three-year period ended
December 31, 1996, and the six-month period ended June 30, 1997, no
dividends were declared or paid by AOF, Inc. and AOFII, Inc.
9. FAIR VALUE DISCLOSURE OF FINANCIAL INSTRUMENTS
The following disclosure of estimated fair value of financial
instruments was determined by Drever using available market
information and appropriate valuation methodologies. However,
considerable judgment 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 could have a material effect on the
estimated fair value amounts.
Cash and cash equivalents, receivables (including receivables
from related parties), accounts payable and accrued expenses and
other liabilities are carried at amounts which reasonably
approximate their fair value.
The fixed rate mortgage notes payable of $242,580,000 and
$244,630,000 as of December 31, 1996 and 1995, respectively, have
a fair value which approximates the book value as estimated based
upon interest rates available for the issuance of debt with similar
terms and remaining maturities as of the respective year end.
The fair value estimates presented herein are based on
information available to management as of December 31, 1996 and
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 those dates, and current estimates of
fair value may differ significantly from the amounts presented
herein.
10. PROVISION FOR INCOME TAXES
The provision for income taxes for DPI consists of the
following for the six-month periods ended June 30, 1997 and 1996,
and the years ended December 31, 1996, 1995 and 1994:
<TABLE>
<CAPTION>
June 30, December 31,
---------------- ----------------------------
1997 1996 1996 1995 1994
---- ---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C> <C>
Current. . . . . . . . . . . . . $322,000 $243,000 $553,000 $(269,000) $ 796,000
Deferred . . . . . . . . . . . . -- -- 94,000 756,000 (423,000)
-------- -------- -------- --------- ---------
$322,000 $243,000 $647,000 $ 487,000 $ 373,000
======== ======== ======== ========= =========
</TABLE>
<PAGE 23>
DPI's effective tax rate differs from the federal statutory
rate of 34% in 1997, 1996, 1995 and 1994 primarily due to
nondeductible meals and entertainment, penalties and state income
taxes.
Deferred taxes result primarily from temporary differences in
the recognition of bad debt expense, self-insurance reserves,
depreciation and accrual versus cash accounting between reporting
for income tax and financial statement purposes.
The tax effects of items that gave rise to significant
portions of the deferred tax accounts are as follows:
December 31,
------------------
June 30, 1997 1996 1995
------------- ---- ----
(Unaudited)
Deferred tax assets:
Fixed asset depreciable basis
adjustment. . . . . . . . . . . . . . $ 172,000 $ 172,000 $ 156,000
Accruals not deductible until paid. . 178,000 178,000 308,000
Bad debt allowance. . . . . . . . . . 180,000 180,000 180,000
Other . . . . . . . . . . . . . . . . 79,000 79,000 59,000
--------- --------- ---------
609,000 609,000 703,000
Deferred tax liability -- Partnership
tax basis adjustment. . . . . . . . . (435,000) (435,000) (435,000)
--------- --------- ---------
$ 174,000 $ 174,000 $ 268,000
========= ========= =========
Management believes that DPI has the ability to utilize its
deferred tax assets by applying them against taxable income to be
generated in future years. Accordingly, no valuation allowance for
deferred tax assets has been recorded for 1997, 1996 or 1995.
11. COMMITMENTS AND CONTINGENCIES
Drever is the lessee under various noncancelable operating
leases for its principal office facilities and other equipment
leases. Minimum annual lease payments required under these
operating leases at December 31, 1996, are as follows:
1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 841,000
1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 511,000
1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 439,000
2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 226,000
----------
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,017,000
==========
<PAGE 24>
Rent expense for the years ended December 31, 1996, 1995 and
1994, and the six-month periods ended June 30, 1997 and 1996, was
$954,000, $1,091,000, $1,089,000, $529,000 and $501,000,
respectively.
As part of a written Stock Purchase Agreement, Drever
Partners, Inc. has the obligation to acquire 500 shares of common
stock held by a former officer of Drever Partners, Inc. The
purchase price is to be the fair market value of such shares as of
May 1, 1994, as determined by a court-appointed appraiser.
Contemporaneous to the May 1, 1994 valuation date, management
ordered an independent appraisal to provide management with an
estimate of its obligation to acquire such shares. The independent
appraisal resulted in a $322,000 fair market value for the shares
as of May 1, 1994. Drever Partners, Inc. has recorded this estimate
for the obligation, which is included in accrued expenses and other
liabilities in the accompanying combined financial statements.
Drever 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 such
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 Drever.
12. RELATED PARTY TRANSACTIONS
PAYABLES TO RELATED PARTIES -- Payable to related parties
represents amounts held in trust at December 31, 1996 ($325,000),
and June 30, 1997 ($56,000), for non-combined affiliated entities
of Drever Partners, Inc. Such amounts represent cash of affiliated
entities of Drever Partners, Inc. which has been put under the care
and control of the Company. The cash amounts are recorded in
restricted cash in the accompanying financial statements.
The remaining balance of payable to related parties represents
miscellaneous amounts due to non-combined affiliated entities.
RECEIVABLES FROM RELATED PARTIES -- Drever Partners, Inc. has
notes receivable from Tassajara Shopping Center Associates, a
Non-combined affiliate of DPI, which bear interest at the lesser of 10%
or prime plus 2%. The notes mature in March 1998 ($170,000) and
July 1998 ($625,000). The outstanding balance for these notes at
June 30, 1997, and December 31, 1996 and 1995, was $542,000,
$795,000 and $263,000, respectively. Included in receivables from
related parties is accrued interest on the notes of $15,000,
$21,000 and $8,000 at June 30, 1997, and December 31, 1996 and
1995, respectively Also included in receivables from related
parties are notes from officers of Drever Partners, Inc. and
individual investors in affiliated partnerships. Officer notes bear
interest at the lesser of 8% or the prime rate and are due upon
liquidation of certain Partnerships. The balance of the officer
notes at June 30, 1997, and December 31, 1996 and 1995, were
$474,000, $368,000 and $181,000, respectively, including accrued
interest. The individual investor notes bear interest at 9%, are
secured by limited partnership interests in Las Positas Land
<PAGE 25>
Partners, LP, a non-combined affiliate, and mature upon the sale of
the assets of Las Positas Land Partners, LP. The balance of the
individual investor notes at June 30, 1997, and December 31, 1996
and 1995, was $74,000 $73,000 and $66,000, respectively, including
accrued interest.
The remaining balance of receivables from related parties
represents miscellaneous receivables, including employee advances
and receivables from non-combined affiliated entities.
During 1995, Drever Partners, Inc. forgave certain debt due
from officers resulting in a loss of $455,000.
13. EMPLOYEE BENEFIT PLANS
401(k) PLAN -- Drever Partners, Inc. adopted a 401(k) Plan
(the "Plan") for its employees and the employees of DPI. The Plan
is a voluntary defined contribution plan. Employees are eligible to
participate in the Plan following the completion of six months of
service and the attainment of 18 years of age. Each participant may
make contributions into the Plan in the form of a salary deferral
of up to 20% of their annual salary (not to exceed $9,500 and
$9,240 for 1996 and 1995, respectively). DPI contributes up to 10%
of the employee's salary deferral up to a maximum of $120 per year
in the form of a matching contribution. DPI also has the option to
make additional discretionary contributions. A participant's salary
deferral contribution is 100% vested at all times. Prior to January
1, 1995, a participant vested immediately in the DPI matching
contribution. Subsequent to January 1, 1995, a participant vested
in the DPI matching contribution after five years of service. DPI
matching contributions for the years ended December 31, 1996, 1995
and 1994, were $20,000, $19,000 and $12,000, respectively. Matching
contributions for the six-month periods ended June 30, 1997 and
1996, were $12,000 and $10,000, respectively.
14. SUBSEQUENT EVENTS
On October 1, 1997, the assets and business of Drever
Partners, Inc. and Affiliates ("DPI"), were acquired by Walden
through an acquisition pursuant to an Exchange Agreement and a
Contribution agreement each dated as of May 21, 1997 by and between
Walden and DPI as described in Note 1. Certain aspects of the
Acquisition were approved by the stockholders of Walden at a
special meeting held September 29, 1997 and the limited partners
of each of the 18 limited partnerships of DPI and DPI's shareholders
agreed to the exchange of their partnership interests and shares for
Units (as defined below) and cash.
The transaction value was $685 million, consisting of $303
million in operating partnership units ("Units") issued by
Walden/Drever Operating Partnership ("WDOP") which are convertible,
on or after the first anniversary of issuance, into $245 million of
Walden Common Stock (10,322,580 shares) and $58 million of
preferred stock (2,000,000 shares of 9% Redeemable Preferred Stock)
with detachable warrants (6,666,667 Series B Warrants, each of
which is exercisable for one-third of one share of Common Stock at
$26.875 per share) and $95 million in cash. The balance of the
consideration consisted of the assumption of $287 million of
mortgage debt.
<PAGE 26>
Item 7 (b). Pro Forma Financial Information
The following Unaudited Pro Forma Condensed Combined Financial
Statements include (i) the historical results of the Company, which
should be read in conjunction with the combined financial
statements of the Company and its "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included
in the Company's Annual Report on Form 10-K for the year ended
December 31, 1996, as amended by Form 10-K/A2, and the Company's
Quarterly Report on Form 10-Q for the quarterly period ended June
30, 1997, and (ii) the Combined Financial Statements of DPI, which
consist of Drever Partners, Inc., four majority owned subsidiaries
(including Drever McIntosh, Inc.), two affiliated corporations (AOF
and AOF II), one affiliated entity and the 18 Partnerships, which
should be read in conjunction with the combined financial
statements of DPI included herein. The acquisition of DPI is
recorded in accordance with the purchase method of accounting
pursuant to Accounting Standards Board Opinion No. 16. It is
assumed the combined entity, consisting of the Company and DPI,
qualifies as a REIT with a taxable management company subsidiary.
It is also assumed that the combined entities will have no Federal
income tax liability for the periods presented. The Unaudited Pro
Forma Condensed Combined Financial Statements are not necessarily
indicative of what the Company's financial position or results of
operations would have been had the Acquisition occurred on the pro
forma dates. Such financial statements also do not purport to
represent the future financial position or results of operations of
the Company.
The purchase is being recorded based upon the cash and fair
value of consideration given in the Acquisition. The fair
values assigned to the Units are based upon the market price of the
Common Stock ($23.75), the Company's 9.20% Senior Preferred Stock
($25.00) and the Company's Series A Warrants ($1.25) for five days
prior and subsequent to the public announcement of the Acquisition.
No assurance can be given that the market price of the Common
Units, Preferred Units and the Warrants is or will be equal to such
assigned values. The combined pro forma adjustments are based on
certain estimates and currently available information. Such
adjustments could change as additional information becomes
available, as estimates are refined or as additional events occur.
However, management does not expect any changes in the purchase
price or allocation of such purchase price to be significant.
The Unaudited Pro Forma Condensed Combined Statement of Income
of the Company for the year ended December 31, 1996 is based upon
the audited statements of income of the Company and DPI for the
year ended December 31, 1996, adjusted to reflect as of January 1,
1996: (i) the purchase by the Company of 24 properties for $232.4
million, including the value of 44,379 convertible equity
securities, (ii) the sale by the Company of three properties, (iii)
the issuance by the Company of 1.8 million shares of Series A and
Series B Convertible Redeemable Preferred Stock having net proceeds
of $43.5 million, (iv) the issuance by the Company of 2,917,650
shares of Common Stock having net proceeds of $61.1 million, (v)
the issuance by the Company of 4.0 million shares of 9.20% Senior
Preferred Stock, including the Series A Warrants having net
proceeds of $95.3 million, (vi) the additional borrowings by the
Company required to complete the purchase of 24 properties, (vii)
the effects of accounting for the purchase of DPI, and (viii) the
subsequent borrowing on the bridge loan and credit facility to pay
off certain DPI mortgages.
<PAGE 27>
The Unaudited Pro Forma Condensed Combined Statement of Income
of the Company for the six months ended June 30, 1997 is based upon
the unaudited statements of operations of the Company and DPI for
the six months ended June 30, 1997, adjusted to reflect as of
January 1, 1997: (i) the purchase by the Company of eight
properties for $53.4 million, including the value of 44,379
convertible equity securities, (ii) the additional borrowings by
the Company required to complete the purchase of eight properties,
(iii) the effects of accounting for the purchase of DPI, and (iv)
the subsequent borrowing on the bridge loan and credit facility to
pay off certain DPI mortgages.
<PAGE 28>
WALDEN RESIDENTIAL PROPERTIES, INC.
PRO FORMA CONDENSED COMBINED BALANCE SHEET
June 30, 1997
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Pro Forma Combined
The Company DPI Transaction Entity
Historical Historical (a) Adjustments (b) Pro Forma
----------- -------------- --------------- ---------
<S> <C> <C> <C> <C>
ASSETS
Real estate assets -- net. . . . . . . $697,502 $426,872 $ 258,188 (c) $1,382,562
Other assets . . . . . . . . . . . . . 11,167 8,440 (3,317) (d) 16,290
Cash and cash equivalents. . . . . . . 5,818 11,318 (1,913) (d) 15,223
Restricted cash. . . . . . . . . . . . 8,640 2,537 -- 11,177
-------- -------- --------- ----------
Total assets. . . . . . . . . . . . $723,127 $449,167 $ 252,958 $1,425,252
======== ======== ========= ==========
LIABILITIES
Mortgage notes payable . . . . . . . . $257,252 $287,266 $(120,070) (e) $ 424,448
Credit facility. . . . . . . . . . . . 29,350 -- 104,370 (f) 133,720
Bridge loan. . . . . . . . . . . . . . -- -- 110,000 (g) 110,000
Other liabilities. . . . . . . . . . . 18,984 23,863 (6,798) (d) 36,049
-------- -------- --------- ----------
Total liabilities . . . . . . . . . 305,586 311,129 87,502 704,217
-------- -------- --------- ----------
STOCKHOLDERS' EQUITY
Common convertible equity securities . 1,049 -- 245,161 (h) 246,210
Preferred convertible equity
securities . . . . . . . . . . . . . 14,887 -- 58,333 (h) 73,220
Common stock . . . . . . . . . . . . . 177 -- -- 177
Preferred stock. . . . . . . . . . . . 58 -- -- 58
Additional paid in capital . . . . . . 451,517 -- -- 451,517
Partners'/stockholders' equity . . . . -- 138,038 (138,038) (h) --
Notes receivable from Company
officers . . . . . . . . . . . . . . (5,263) -- -- (5,263)
Deferred compensation on restricted
stock. . . . . . . . . . . . . . . . (2,463) -- -- (2,463)
Distributions in excess of net income. (42,421) -- -- (42,421)
-------- -------- --------- ----------
Total stockholders' equity. . . . . 417,541 138,038 165,456 721,035
-------- -------- --------- ----------
Total liabilities and stockholders'
equity. . . . . . . . . . . . . . $723,127 $449,167 $ 252,958 $1,425,252
======== ======== ========= ==========
</TABLE>
See accompanying notes.
<PAGE 29>
WALDEN RESIDENTIAL PROPERTIES, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
BALANCE SHEET
June 30, 1997
(In thousands, except property and per share information)
(a) Represents the condensed combined balance sheet of the
DPI included herein.
(b) Represents adjustments to record the acquisition of DPI
in accordance with purchase accounting, assuming a market value of
$23.75 per Common Unit, which is exchangeable for one share of
Common Stock ("Common Convertible Equity Securities"), and a market
value of $29.17 per Preferred Unit exchangeable for one share of
Redeemable Preferred Stock and 3 1/3 Warrants, each of which is
exercisable for one-third of one share of Common Stock at $26.875
per share ("Preferred Convertible Equity Securities"), as follows:
Issuance of 10,323 Common Convertible Equity Securities . . . $245,161
Issuance of 2,000 Preferred Convertible Equity Securities. . . 58,333
Cash consideration to DPI. . . . . . . . . . . . . . . . . . . 85,000
Assumption of the Partnerships' mortgage indebtedness
(approximates fair value). . . . . . . . . . . . . . . . . . 287,266
Transaction costs. . . . . . . . . . . . . . . . . . . . . . . 9,300
--------
Purchase price -- real estate assets . . . . . . . . . . . . . $685,060
========
The following is a calculation of the estimated fees and other
expenses related to the Acquisition:
Advisory fees (fairness opinion) . . . . . . . . . . . . . . . $ 1,400
Legal and accounting fees. . . . . . . . . . . . . . . . . . . 1,300
Loan transfer fees and costs . . . . . . . . . . . . . . . . . 5,700
Due diligence. . . . . . . . . . . . . . . . . . . . . . . . . 600
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 300
--------
Transaction costs. . . . . . . . . . . . . . . . . . . . . . . $ 9,300
========
(c) The increase of $258,188 in the book value of DPI's real
estate assets is based upon the purchase price adjusted to
eliminate the historical basis and related accumulated depreciation
as follows:
Purchase price . . . . . . . . . . . . . . . . . . . . . . . . $685,060
Less: Historical basis of DPI's real estate assets . . . . . . (536,521)
Plus: Historical accumulated depreciation of DPI's
real estate assets . . . . . . . . . . . . . . . . . . . . . 109,649
--------
Pro forma real estate assets adjustment. . . . . . . . . . . . $258,188
========
<PAGE 30>
WALDEN RESIDENTIAL PROPERTIES, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
BALANCE SHEET - (Continued)
June 30, 1997
(In thousands, except property and per share information)
(d) Represents the excess cash in the cash reserves necessary
to provide payment of certain liabilities of DPI per the exchange
and contribution agreement.
<TABLE>
<CAPTION>
DPI DPI
Historical Adjustments Pro Forma
---------- ----------- ---------
<S> <C> <C> <C> <C>
Other assets assumed . . . . . . $ 8,440 $(3,317) (i) $ 5,123
Cash and cash equivalents. . . . 11,318 -- 11,318
Restricted cash. . . . . . . . . 2,537 -- 2,537
Other liabilities assumed. . . . (23,863) 6,798 (ii) (17,065)
--------
Pro forma cash adjustment. . . . $ 1,913
========
</TABLE>
(i) To adjust the historical basis of DPI's other
assets to eliminate deferred financing costs,
deferred tax asset and the other assets of Drever
McIntosh which was eliminated in connection with
the acquisition of DPI.
(ii) To adjust the Federal income taxes and investor
notes payable, which was eliminated in connection
with the acquisition of DPI.
(e) Represents DPI mortgage loans paid off subsuequent to the
Acquisition as follows:
Bridge loan. . . . . . . . . . . . . . . . . . . . . $110,000
Credit facility borrowing. . . . . . . . . . . . . . 10,070
--------
Total reduction . . . . . . . . . . . . . . . . . $120,070
========
(f) Represents borrowings under the Company's unsecured credit
facility as follows:
Cash consideration to DPI. . . . . . . . . . . . . . $ 85,000
DPI indebtedness paid off subsequent to Acquisition. 10,070
Transaction costs. . . . . . . . . . . . . . . . . . 9,300
--------
Pro forma credit facility adjustment . . . . . . . . $104,370
========
(g) Represents borrowings on the unsecured 90-day bridge
loan used to pay off certain DPI mortgages.
(h) To reflect the issuance of 10,323 Common Convertible
Equity Securities at a price of $23.75 per security and 2,000
Preferred Convertible Equity Securities at a price of $29.17 per
security (see note (b)), and to eliminate partners'/stockholders'
equity of DPI.
<PAGE 31>
WALDEN RESIDENTIAL PROPERTIES, INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
For the Six Months Ended June 30, 1997
(Unaudited)
(In thousands, except per share information)
<TABLE>
<CAPTION>
The Company Combined
---------------------------------------- Pro Forma Entity
Pro Forma DPI Transaction Pro
Historical Adjustments (a) Pro Forma Historical (b) Adjustments Forma
---------- --------------- --------- -------------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
REVENUES
Rental income. . . . . . . . . . . $64,587 $ 3,034 $67,621 $ 54,635 $ (90) (c) $122,166
Other property income. . . . . . . 2,605 109 2,714 1,633 (1) (c) 4,346
Interest income. . . . . . . . . . 849 (311) 538 229 -- 767
Other income (expense) . . . . . . -- -- -- (200) 538 (d) 338
------- ------- ------- -------- ------- --------
Total revenues. . . . . . . . . 68,041 2,832 70,873 56,297 447 127,617
------- ------- ------- -------- ------- --------
EXPENSES (k)
Property operating and
maintenance. . . . . . . . . . . 22,013 1,005 23,018 20,048 (55) (c) 43,011
Real estate taxes. . . . . . . . . 6,561 346 6,907 5,780 -- 12,687
General and administrative . . . . 3,394 -- 3,394 4,209 -- 7,603
Interest . . . . . . . . . . . . . 10,121 665 10,786 11,060 2,834 (c,e) 24,680
Financing costs and amortization . 411 -- 411 430 (430) (f) 411
Depreciation . . . . . . . . . . . 13,121 528 13,649 11,278 860 (c,g) 25,787
------- ------- ------- -------- ------- --------
Total expenses. . . . . . . . . 55,621 2,544 58,165 52,805 3,209 114,179
------- ------- ------- -------- ------- --------
Operating income . . . . . . . . . . 12,420 288 12,708 3,492 (2,762) 13,438
Gain (loss) on disposition of real
property . . . . . . . . . . . . . -- -- -- (170) 170 (c) --
------- ------- ------- -------- ------- --------
Income before income taxes and
preferred distributions. . . . . . 12,420 288 12,708 3,322 (2,592) 13,438
Income taxes . . . . . . . . . . . . -- -- -- (322) 322 (h) --
Preferred distributions. . . . . . . (7,419) -- (7,419) -- (2,250) (i) (9,669)
------- ------- ------- -------- ------- --------
Net income available to common
stockholders . . . . . . . . . . . $ 5,001 $ 288 $ 5,289 $ 3,000 $(4,520) $ 3,769
======= ======= ======= ======== ======= ========
Net income available to common
stockholders per share . . . . . . $ 0.29 $ 0.30 $ 0.14
======= ======= ========
Distributions per share of
common stock . . . . . . . . . . . $ 0.965 $ 0.965 $ 0.965
======= ======= ========
Weighted average shares of common
stock outstanding. . . . . . . . . 17,346 45 17,391 10,323 (j) 27,714
======= ======= ======= ======= ========
</TABLE>
See accompanying notes.
<PAGE 32>
WALDEN RESIDENTIAL PROPERTIES, INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
For the Year Ended December 31, 1996
(Unaudited)
(In thousands, except per share information)
<TABLE>
<CAPTION>
The Company Combined
---------------------------------------- Pro Forma Entity
Pro Forma DPI Transaction Pro
Historical Adjustments (a) Pro Forma Historical (b) Adjustments Forma
---------- --------------- --------- -------------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES
Rental income. . . . . . . . . . . $105,602 $ 27,974 $133,576 $107,344 $ (498) (c) $240,422
Other property income. . . . . . . 3,873 876 4,749 3,259 (16) (c) 7,992
Construction revenues. . . . . . . -- -- -- 919 -- 919
Interest income. . . . . . . . . . 1,433 (349) 1,084 620 -- 1,704
Other income (expense) . . . . . . 263 -- 263 (1,092) 2,628 (d) 1,799
-------- -------- -------- -------- ------- --------
Total revenues. . . . . . . . . 111,171 28,501 139,672 111,050 2,114 252,836
-------- -------- -------- -------- ------- --------
EXPENSES (k)
Property operating and maintenance 37,521 10,028 47,549 40,682 (310) (c) 87,921
Real estate taxes. . . . . . . . . 10,039 2,794 12,833 11,486 (33) 24,286
Construction cost of sales . . . . -- -- -- 891 -- 891
General and administrative . . . . 5,124 -- 5,124 9,343 -- 14,467
Interest . . . . . . . . . . . . . 20,573 857 21,430 22,909 4,527 (c,e) 48,866
Financing costs and amortization . 916 (94) 822 888 (888) (f) 822
Depreciation . . . . . . . . . . . 19,810 7,488 27,298 22,888 1,388 (c,g) 51,574
-------- -------- -------- -------- ------- --------
Total expenses. . . . . . . . . 93,983 21,073 115,056 109,087 4,684 228,827
-------- -------- -------- -------- ------- --------
Operating income . . . . . . . . . . 17,188 7,428 24,616 1,963 (2,570) 24,009
Gain (loss) on disposition of real
property . . . . . . . . . . . . . 1,934 -- 1,934 -- -- (c) 1,934
-------- -------- -------- -------- ------- --------
Income before income taxes and
preferred distributions. . . . . . 19,122 7,428 26,550 1,963 (2,570) 25,943
Income taxes . . . . . . . . . . . . -- -- -- (647) 647 (h) --
Preferred distributions. . . . . . . (4,092) (10,909) (15,001) -- (4,500) (i) (19,501)
-------- -------- -------- -------- ------- --------
Net income available to common
stockholders . . . . . . . . . . . $ 15,030 $ (3,481) $ 11,549 $ 1,316 $(6,423) $ 6,442
======== ======== ======== ======== ======= ========
Net income available to common
stockholders per share . . . . . . $ 1.02 $ 0.68 $ 0.24
======== ======== ========
Distributions per share of
common stock . . . . . . . . . . . $ 1.86 $ 1.86 $ 1.86
======== ======== ========
Weighted average shares of common
stock outstanding. . . . . . . . . 14,720 2,365 17,085 10,323 (j) 27,408
======== ======== ======== ======= ========
</TABLE>
See accompanying notes.
<PAGE 33>
WALDEN RESIDENTIAL PROPERTIES, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
STATEMENT OF INCOME
For the Six Months Ended June 30, 1997
and the Year Ended December 31, 1996
(In thousands, except property information)
(a) The pro forma adjustments for the six months ended June
30, 1997, reflect as of January 1, 1997: (i) the operations of
eight apartment properties acquired by the Company in 1997, and
(ii) the reduction in interest income and increase in interest
expense related to the acquisitions by the Company.
The pro forma adjustments for the year ended December 31,
1996, reflect as of January 1, 1996: (i) the operations of 24
apartment properties acquired by the Company in 1996 and 1997, (ii)
the sale by the Company of three apartment properties, (iii) the
issuance by the Company of 1,800 shares of Series A and Series B
Convertible Redeemable Preferred Stock, (iv) the issuance by the
Company of 2,918 shares of Common Stock, (v) the issuance by the
Company of 4,000 shares of Senior Preferred Stock, and (vi) the
reduction in interest income and increase in interest expense
related to the acquisitions by the Company.
(b) Represents the condensed combined statement of operations
of the DPI included herein.
(c) Represents the elimination of the operations of One
Stanford Court, a 72-unit apartment property sold by Drever in
April 1997.
(d) Represents the elimination of Drever McIntosh, which was
sold prior to closing the Acquisition.
(e) Represents interest expense on $104,370 borrowed under
the Company's variable rate credit facility to complete the
Acquisition and interest expense and fees on the $110,000 bridge
loan used to pay off several of the DPI mortgage balances subsequent
to the Acquisition. Interest expense was reduced to reflect
the DPI mortgage balances that were paid off subsequent to the
Acquisition. The weighted average combined interest rate on the
credit facility and bridge loan were 6.96% and 6.83% for the six
months ended June 30, 1997 and the year ended December 31, 1996,
respectively.
(f) Represents an adjustment to the amortization of deferred
financing costs associated with the Partnerships' mortgage
indebtedness, which was eliminated in connection with the
acquisition of DPI.
(g) Represents an adjustment to depreciation of real estate
owned as a result of recording the real estate assets of DPI at
fair value versus historical cost. Depreciation is computed on a
straight-line basis over the estimated useful lives of the related
assets which have an estimated weighted average useful life of
approximately 24 years. Buildings acquired in the Acquisition are
being depreciated over 25 years and other depreciable assets over
5, 10 or 15 years depending on the useful life of the related
asset.
<PAGE 34>
Calculation of the fair value of depreciable real estate
assets at June 30, 1997:
Purchase price (see pro forma condensed
combined balance sheet note (b)). . . . . . . $ 685,060
Less: Purchase price allocated to land. . . . . (102,759)
Pro forma basis of DPI's depreciable ---------
real estate assets recorded at fair value . . $ 582,301
=========
Calculation of depreciation of real estate owned for the six
month ended June 30, 1997 and the year ended December 31, 1996 are
as follows:
Six Months Ended Year Ended
June 30, 1997 December 31, 1996
---------------- -----------------
Depreciation expense based upon an
estimated weighted average useful
life of approximately 24 years. . . . $ 12,138 $ 24,276
Less: Historical depreciation of DPI. . (11,278) (22,888)
-------- --------
Pro forma adjustment. . . . . . . . . . $ 860 $ 1,388
======== ========
(h) Represents the elimination of DPI's provision for
income taxes since the combined entity will operate as a REIT for
Federal income tax purposes and, therefore, will not be subject to
Federal income taxes.
(i) Represents the preferred distributions on the Preferred
Units issued in connection with the Acquisition (see note (b) of
the pro forma condensed combined balance sheet).
(j) Represents 10,323 Common Convertible Equity Securities
which were issued in connection with the Acquisition and which are
exchangeable for one share of Common Stock (see note (b) of the pro
forma condensed combined balance sheet).
(k) Although not presented as pro forma adjustments because
they do not meet the criteria for such presentation, management
anticipates that the combination of the Company and DPI will create
property operational savings, as well as significant administrative
cost savings, of approximately $5,000 in the first full year of
operations.
<PAGE 35>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
WALDEN RESIDENTIAL PROPERTIES, INC.
By: / s / Mark S. Dillinger
------------------------
Mark S. Dillinger
Executive Vice President,
Chief Financial Officer and Director
(Principal Financing and
Accounting Officer)
Date: October 16, 1997
------------------------
