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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
----------------------------------
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 (I.R.S. Employer Identification
of incorporation or organization) Number)
One Lincoln Centre
5400 LBJ Freeway, Suite 400
Dallas, Texas 75240
(Address of principal executive offices)
(972) 788-0510
(Registrant's telephone number, including area code)
Indicate by check mark whether the 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 the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days.
YES X NO
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date: As of
May 5, 1997, there were 17,401,486 shares of Common Stock, $0.01,
par value outstanding.
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<Page 1>
WALDEN RESIDENTIAL PROPERTIES, INC.
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of
March 31, 1997 (Unaudited) and December 31,
1996. . . . . . . . . . . . . . . . . . . . . .2
Condensed Consolidated Statements of Income for the
Three Months Ended March 31, 1997 and
1996 (Unaudited). . . . . . . . . . . . . . . .3
Condensed Consolidated Statements of Cash Flows for
the Three Months Ended March 31, 1997 and
1996 (Unaudited). . . . . . . . . . . . . . . .4
Notes to Condensed Consolidated Financial
Statements (Unaudited). . . . . . . . . . . . .5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . 10
PART 2. OTHER INFORMATION
Item 1. Legal Proceedings. . . . . . . . . . . . . . . .16
Item 2. Changes in Securities. . . . . . . . . . . . . .16
Item 3. Defaults Upon Senior Securities. . . . . . . . .16
Item 4. Submission of Matters to a Vote of Security
Holders. . . . . . . . . . . . . . . . . . . . .16
Item 5. Other Information. . . . . . . . . . . . . . . .16
Item 6. Exhibits and Reports on Form 8-K . . . . . . . .16
<Page 2>
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
--------------------
WALDEN RESIDENTIAL PROPERTIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996
-------------- -----------------
(Unaudited)
<S> <C> <C>
ASSETS
Real estate assets, at cost
Land . . . . . . . . . . . . . . . . . $ 81,647 $ 80,914
Buildings. . . . . . . . . . . . . . . 615,995 602,601
-------- --------
697,642 683,515
Less: Accumulated depreciation . . (47,977) (41,707)
-------- --------
649,665 641,808
Rent and other receivables . . . . . . . 1,011 1,324
Prepaid and other assets . . . . . . . . 3,407 3,146
Deferred financing costs, net. . . . . . 5,621 5,827
Cash and cash equivalents. . . . . . . . 22,493 29,720
Restricted cash:
Escrow deposits. . . . . . . . . . . . 5,376 5,369
Additional collateral on loans . . . . 2,520 2,520
-------- --------
Total assets. . . . . . . . . . . . $690,093 $689,714
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Mortgage notes payable . . . . . . . . $258,085 $258,908
Credit facility. . . . . . . . . . . . -- --
Accrued real estate taxes. . . . . . . 3,762 7,960
Accounts payable . . . . . . . . . . . 6,836 5,653
Accrued expenses and other
liabilities . . . . . . . . . . . . 5,025 5,395
Preferred distribution payable on
convertible equity securities . . . 391 377
-------- --------
Total liabilities . . . . . . . . . 274,099 278,293
Commitments and contingencies
Stockholders' equity:
Convertible equity securities. . . . . 14,886 14,886
Preferred stock. . . . . . . . . . . . 58 58
Common stock . . . . . . . . . . . . . 174 169
Additional paid in capital . . . . . . 444,947 432,974
Notes receivable from Company
officers and directors. . . . . . . (5,263) (5,263)
Deferred compensation on
Restricted Stock. . . . . . . . . . (2,800) --
Distributions in excess of net income. (36,008) (31,403)
-------- --------
Total stockholders' equity. . . . . 415,994 411,421
-------- --------
Total liabilities and
stockholders' equity . . . . . $690,093 $689,714
======== ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<Page 3>
WALDEN RESIDENTIAL PROPERTIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share information)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------
1997 1996
---- ----
<S> <C> <C>
REVENUES
Rental income . . . . . . . . . . . . . . . $31,516 $24,133
Other property income . . . . . . . . . . . 1,272 827
Interest income . . . . . . . . . . . . . . 503 211
Other income. . . . . . . . . . . . . . . . -- 104
------- -------
Total revenues . . . . . . . . . . . . . 33,291 25,275
EXPENSES
Property operating and maintenance. . . . . 10,569 8,642
Real estate taxes . . . . . . . . . . . . . 3,149 2,353
General and administrative. . . . . . . . . 1,422 1,145
Interest. . . . . . . . . . . . . . . . . . 4,877 4,922
Amortization. . . . . . . . . . . . . . . . 211 175
Depreciation. . . . . . . . . . . . . . . . 6,328 4,518
------- -------
Total expenses . . . . . . . . . . . . . 26,556 21,755
------- -------
Income before extraordinary item. . . . . . . 6,735 3,520
Extraordinary loss on debt extinguishment . . -- (488)
------- -------
Net income. . . . . . . . . . . . . . . . . . 6,735 3,032
Preferred distributions . . . . . . . . . . . (3,717) (471)
------- -------
Net income available to common stockholders . $ 3,018 $ 2,561
======= =======
Income per share:
Before extraordinary item, less
preferred distributions. . . . . . . . . $ .18 $ .21
Extraordinary loss on debt extinguishment . -- (.03)
------- -------
Net income available to common
stockholders . . . . . . . . . . . . . . $ .18 $ .18
======= =======
Distribution per share of common stock. . . . $ .4825 $ .465
======= =======
Weighted average number of common stock
and common stock equivalent shares
outstanding . . . . . . . . . . . . . . . . 17,153 14,207
======= =======
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<Page 4>
WALDEN RESIDENTIAL PROPERTIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income. . . . . . . . . . . . . . . . . . . $ 6,735 $ 3,032
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization . . . . . . . . 6,539 4,693
Amortization of deferred compensation
on Restricted Stock. . . . . . . . . . . . 34 --
Extraordinary loss on debt extinguishment . . -- 488
Net effect of changes in operating
accounts:
Escrow deposits. . . . . . . . . . . . . . (7) 347
Other assets . . . . . . . . . . . . . . . (6) 308
Accrued real estate taxes. . . . . . . . . (4,198) (3,834)
Accounts payable . . . . . . . . . . . . . (4) (179)
Other liabilities. . . . . . . . . . . . . (370) (109)
------- -------
Net cash provided by operating
activities. . . . . . . . . . . . . . 8,723 4,746
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of real estate assets. . . . . . . . (5,742) --
Real estate asset additions . . . . . . . . . (7,198) (1,131)
------- -------
Net cash used in investing activities. . . (12,940) (1,131)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from stock issuance, net of
issuance costs . . . . . . . . . . . . . . 9,143 1,760
Purchase of the Company's common stock. . . . -- (3,090)
Distributions paid. . . . . . . . . . . . . . (11,326) (7,080)
Proceeds from mortgage notes payable
and credit facility. . . . . . . . . . . . -- 10,500
Payment of mortgage notes payable
and credit facility. . . . . . . . . . . . -- (6,500)
Payment of financing costs. . . . . . . . . . (4) (709)
Additional collateral on loans. . . . . . . . -- 1
Principal reductions of debt. . . . . . . . . (823) (573)
------- -------
Net cash used in financing activities. . . (3,010) (5,691)
------- -------
NET DECREASE IN CASH AND CASH EQUIVALENTS . . . (7,227) (2,076)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD. 29,720 6,801
------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD. . . . $22,493 $ 4,725
======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest. . . . . . . . . . . . $ 4,821 $ 4,857
======= =======
SUPPLEMENTAL DISCLOSURE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Accrued real estate asset additions . . . . . $ 1,187 $ 199
======= =======
Notes receivable for officer and
director stock purchases . . . . . . . . . $ -- $ 292
======= =======
Deferred compensation on Restricted Stock . . $ 2,834 $ --
======= =======
Preferred distribution payable on
convertible equity securities. . . . . . . $ 391 $ 471
======= =======
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<Page 5>
WALDEN RESIDENTIAL PROPERTIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. INTERIM UNAUDITED FINANCIAL INFORMATION
Walden Residential Properties, Inc. (the "Company") is a
self-administered and self-managed equity real estate investment trust,
as defined under the Internal Revenue Code of 1986, as amended. As
of March 31, 1997, the Company owned 68 multifamily properties,
containing 21,615 apartment units, primarily in the Southwest and
Southeast regions of the United States.
The accompanying unaudited financial statements should be read
in conjunction with the consolidated financial statements and notes
thereto included in the Company's Form 10-K for the years ended
December 31, 1996 and 1995, which was filed with the Securities and
Exchange Commission ("SEC"). The accompanying interim unaudited
financial information has been prepared pursuant to the rules and
regulations of the SEC. Certain information and footnote
disclosures normally included in the annual financial statements
have been condensed or omitted pursuant to rules and regulations of
the SEC. Management believes that the disclosures contained in
this Form 10-Q are adequate to make the information presented not
misleading. In the opinion of management, all adjustments and
eliminations, consisting only of normal recurring adjustments,
necessary to present fairly the consolidated financial position of
the Company and its subsidiaries as of March 31, 1997 and the
consolidated results of their operations and cash flows for
the three months ended March 31, 1997 and 1996, have been
included. The consolidated results of operations for the
three months ended March 31, 1997 are not necessarily indicative
of the results for the full year.
Effective July 1, 1996, the Company revised its method of
accounting to capitalize the cost of replacement carpets on a
prospective basis. The Company believes this accounting policy
change is preferable because it is consistent with policies
currently being used by the majority of the largest publicly traded
apartment real estate investment trusts and provides a better
matching of expenses with the related benefit of the expenditures.
Following is pro forma information for the three months ended
March 31, 1996 as if the revised capitalization policy was in
effect as of January 1, 1996:
<TABLE>
<S> <C>
Income before extraordinary item as reported $3,520
Add: Adjustment for change in accounting
policy to capitalize carpet replacement costs 261
------
Income before extraordinary item as adjusted $3,781
======
Net income as adjusted $3,293
======
Net income available to common stockholders as adjusted $2,822
======
Income per share:
Before extraordinary item, less preferred
distributions as reported $ 0.21
Adjustment for effect of change in accounting policy 0.02
Income before extraordinary item, less preferred ------
distributions as adjusted $ 0.23
======
Net income available to common stockholders
as reported $ 0.18
Adjustment for effect of change in accounting policy 0.02
Net income available to common stockholders ------
as adjusted $ 0.20
======
</TABLE>
<Page 6>
2. ACQUISITIONS
In January 1997, the Company purchased a 208-unit apartment
property located in Arlington, Texas for $5.7 million, which is
being operated in conjunction with an adjacent property previously
purchased by the Company. The acquisition was funded from
available cash of the Company.
3. STOCKHOLDERS' EQUITY
Convertible Equity Securities
-----------------------------
In June 1995, the Company acquired a controlling interest in
a limited partnership (the "Partnership") which owned 13 apartment
properties as of March 31, 1997. 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 810,128 shares of
the Company's common stock at the option of the interest holders,
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 will only be entitled to receive quarterly
distributions from the Partnership equal to the greater of the
Company's actual distributions on 810,128 shares of common stock,
or $368,608 in the aggregate ($391,000 was accrued as of March 31,
1997.)
Public Offering
---------------
In connection with the exercise by the underwriter's of the
overallotment option of the Company's December 1996 common stock
offering, 161,400 shares of common stock were sold in January 1997
at $24.25 per share for net proceeds of $3.7 million.
Restricted Stock
----------------
In February 1997, the Company adopted a Long-Term Incentive
Plan to attract and retain individuals to serve as directors,
officers and employees of the Company. Pursuant to this plan, the
Company issued 107,500 restricted shares of common stock
("Restricted Stock") in February 1997 for $.01 per share to its
non-employee directors, four executive officers and certain other
employees. The shares issued to the non-employee directors vest
ratably over a three-year period; while the shares issued to the
executive officers and other employees vest over a ten-year period,
with 40% vesting after the fourth anniversary and 10% vesting
annually thereafter. Deferred compensation on Restricted Stock was
computed based upon the market value of the shares at the date of
issuance. This deferred compensation is being amortized over the
respective vesting periods. The unamortized amount as of March 31,
1997 was $2,800,000.
<Page 7>
Stock Options
-------------
Pursuant to the Company's stock option plan, in February 1997,
the Company granted incentive stock options for 96,750 shares of
common stock to certain officers and other employees and non-qualified
options of 150,000 shares of common stock to its four
executive officers, all at an exercise price of $26.00 per share,
which was the closing sales price of the Company's common stock on
the option grant date.
4. 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, if material, outstanding. Net income available to common
stockholders is net income less the preferred distributions on the
convertible equity securities (see Note 3) and preferred stock.
Common stock equivalents include the weighted average number of
assumed equivalent shares outstanding from stock options, if
material and dilutive. Fully diluted net income per share of
common stock is not materially dilutive and is not presented.
Statement of Financial Accounting Standards ("SFAS") No. 128,
"Earnings per Share", which is effective for periods ending after
December 15, 1997, requires that companies disclose basic earnings
per share using only the weighted average number of common shares
outstanding during a period. Currently common stock equivalents
are included in this computation if they are material. Fully
diluted earnings per share will continue to be calculated in a
manner similar to the current calculation. Compliance with SFAS
No. 128 will require no change to the Company's earnings per share
for the periods presented.
<Page 8>
5. PRO FORMA STATEMENTS OF INCOME
The following unaudited condensed pro forma information for
the three months ended March 31, 1997 and 1996 was prepared from
the financial statements of the Company by adjusting for the effect
of all public offerings and property acquisitions and dispositions
in 1997 and 1996, including debt used to finance acquisitions or
repaid from proceeds of dispositions, as if all of these
transactions had occurred on January 1, 1996. The pro forma
results do not include gains on property dispositions or
extraordinary losses on early extinguishment of debt. The
following 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
------------------
Three Months Ended
March 31,
------------------
1997 1996
---- ----
<S> <C> <C>
Revenues. . . . . . . . . . . . . . . . . . . . . $33,314 $32,035
Expenses. . . . . . . . . . . . . . . . . . . . . 26,532 26,896
------- -------
Net income. . . . . . . . . . . . . . . . . . . . 6,782 5,139
Preferred distributions . . . . . . . . . . . . . (3,717) (3,815)
------- -------
Net income available to common stockholders . . . $ 3,065 $ 1,324
======= =======
Net income available to common stockholders
per share . . . . . . . . . . . . . . . . . . . $ .18 $ .08
======= =======
Weighted average shares of common
stock outstanding . . . . . . . . . . . . . . . 17,189 17,124
======= =======
</TABLE>
6. COMMITMENTS AND CONTINGENCIES
As of March 31, 1997, the Company had executed contracts to
acquire 13 apartment properties containing 3,200 units, of which
six properties were purchased in April 1997 (see Note 7). In
connection with such contracts, the Company deposited $300,000 of
earnest money. The property acquisitions are subject to the
completion of normal due diligence procedures and there is no
assurance the Company will purchase such properties.
7. SUBSEQUENT EVENTS
On April 21, 1997, the Company purchased six apartment
properties, containing 1,263 units, in Dallas/Fort Worth and
Austin, Texas for approximately $39.8 million. The acquisitions
were funded by a $18.5 million borrowing under the Company's credit
facility and $20.2 million of available cash. In addition, the
Company issued $1.1 million of limited partnership interests in an
existing subsidiary partnership which are convertible into 44,419
shares of the Company's common stock. Prior to exchange, the
holders of the limited partnership interests will only be entitled
to receive quarterly distributions from the partnership equal to
the Company's actual distributions on 44,419 shares of common
stock. Such partnership interests will be accounted for as
additional convertible equity securities.
<Page 9>
On April 23, 1997, the Company declared distributions of
$.4825 per share of common stock, $.5725 per share of convertible
preferred stock and $.575 per share of senior preferred stock, all
of which are payable on June 3, 1997 to stockholders of record on
May 15, 1997.
On April 23, 1997, the Company entered into a contract to
acquire a 177-unit apartment property for $5.8 million. In
connection therewith, the Company deposited $100,000 of earnest
money. The acquisition of this property is subject to the
completion of normal due diligence procedures and there is no
assurance that the Company will purchase such property.
On May 8, 1997, the Company signed an agreement in principle
with Drever Partners, Inc. ("Drever") to provide for a strategic
alliance combining the two companies, subject to completion of
definitive documentation and approval of regulatory authorities,
the Drever investors and the Company's board of directors and
stockholders. Under the agreement, the Drever organization and all
80 Drever apartment properties, containing 18,100 units located in
Texas, Arizona, Georgia and California, would be acquired by the
Company for approximately $670 million, consisting of $380 million
in common and preferred stock, warrants and cash and $290 million
of assumed debt.
<Page 10>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
-------------------------------------------------
Results of Operations
- ---------------------
The following discussion should be read in conjunction with
the "Supplemental Financial and Operating Data" and all of the
consolidated financial statements and notes thereto included
elsewhere in this Form 10-Q. Such financial statements and
information have been prepared to reflect the historical condensed
consolidated operations of the Company for the three months ended
March 31, 1997 and 1996, and the condensed consolidated balance
sheet data of the Company as of March 31, 1997 and December 31,
1996.
The changes in revenues and expenses related to property
operations during the first quarter of 1997 and 1996 are primarily
the result of the increased number of units owned due to
acquisitions of additional multifamily properties by the Company.
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 following financial and operating data (see Page 10) is
provided as supplemental information to all financial statements
included elsewhere in this Form 10-Q. Such supplemental
information is unaudited except the balance sheet data as of
December 31, 1996.
<Page 11>
SUPPLEMENTAL FINANCIAL AND OPERATING DATA
(In thousands, except per share and property data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------
1997 1996
---- ----
<S> <C> <C>
OPERATING DATA
Revenues
Rental income . . . . . . . . . . . . . . . . $ 31,516 $ 24,133
Other property income . . . . . . . . . . . . 1,272 827
Interest income . . . . . . . . . . . . . . . 503 211
Other income. . . . . . . . . . . . . . . . . -- 104
-------- --------
Total revenues . . . . . . . . . . . . . . 33,291 25,275
-------- --------
Expenses
Property operating and maintenance. . . . . . 10,569 8,642
Real estate taxes . . . . . . . . . . . . . . 3,149 2,353
General and administrative. . . . . . . . . . 1,422 1,145
Interest. . . . . . . . . . . . . . . . . . . 4,877 4,922
Amortization. . . . . . . . . . . . . . . . . 211 175
Depreciation. . . . . . . . . . . . . . . . . 6,328 4,518
-------- --------
Total expenses . . . . . . . . . . . . . . 26,556 21,755
-------- --------
Income before extraordinary item. . . . . . . . 6,735 3,520
Extraordinary loss on debt extinguishment . . . -- (488)
-------- --------
Net income. . . . . . . . . . . . . . . . . . . 6,735 3,032
Preferred distributions . . . . . . . . . . . . (3,717) (471)
-------- --------
Net income available to common stockholders . . $ 3,018 $ 2,561
======== ========
Distribution per share of common stock. . . . . $ .4825 $ .465
======== ========
Weighted average number of common stock
and common stock equivalent shares
outstanding . . . . . . . . . . . . . . . . . 17,153 14,207
======== ========
- ---------------------------------------------------------------------
PROPERTY DATA
Total properties (at end of period) . . . . . . 68 55
Total units (at end of period). . . . . . . . . 21,615 17,205
Total units (weighted average). . . . . . . . . 21,599 17,205
Weighted average monthly property revenue
per unit. . . . . . . . . . . . . . . . . . . $ 506 $ 484
- ---------------------------------------------------------------------
March 31, December 31,
1997 1996
---- ----
BALANCE SHEET DATA
Real estate assets, at cost, net. . . . . . . . $649,665 $641,808
Mortgage notes payable and Credit facility. . . 258,085 258,908
Stockholders' equity. . . . . . . . . . . . . . 415,994 411,421
</TABLE>
<Page 12>
Comparison of Three Months Ended March 31, 1997
to Three Months Ended March 31, 1996
- -----------------------------------------------
The weighted average number of units owned increased by 4,394
units, or 25.5%, from 17,205 units for the first quarter of 1996 to
21,599 units for the first quarter of 1997 as a result of the
acquisition of additional properties. Total units owned at March
31, 1996 and 1997 were 17,205 and 21,615, respectively. The
portfolio had a weighted average occupancy of 94.5% and 93.7% for
the first three months of 1996 and 1997, respectively.
The Company owned 52 properties with 16,373 units throughout
both periods in 1997 and 1996 ("same store"). A summary of the
operating performance for same store properties is as follows:
<TABLE>
<CAPTION>
First Quarter
---------------
1997 1996 % Change
---- ---- --------
<S> <C> <C> <C>
Rental and other property revenue (in thousands) . . . . $24,534 $23,839 2.9%
Property operating expenses (in thousands) (1) . . . . . 10,274 10,488 (2.0%)
------- ------- -----
Property operating income (in thousands) . . . . . . . . $14,260 $13,351 6.8%
======= ======= =====
Weighted average physical occupancy. . . . . . . . . . . 93.7% 94.5%
======= =======
Average monthly revenue per unit . . . . . . . . . . . . $ 499 $ 485 2.9%
======= ======= =====
Average annualized operating and
maintenance expenses per unit. . . . . . . . . . . . . $ 1,938 $ 2,007 (3.4%)
======= ======= =====
Average annualized real estate taxes per unit. . . . . . $ 572 $ 555 3.1%
======= ======= =====
Operating expense ratio. . . . . . . . . . . . . . . . . 41.9% 44.0% N/A
======= ======= =====
</TABLE>
(1) Consists of property operating and maintenance and real estate
tax expenses.
The operating performance of properties not owned throughout
both periods in 1997 and 1996 is summarized as follows:
<TABLE>
<CAPTION>
First Quarter
---------------
1997 1996
---- ----
<S> <C> <C>
Rental and other property revenue (in thousands) . . . . $ 8,254 $ 1,121
Property operating expenses (in thousands) (1) . . . . . 3,444 507
------- -------
Property operating income (in thousands) . . . . . . . . $ 4,810 $ 614
======= =======
Weighted average number of units . . . . . . . . . . . . 5,226 832
======= =======
Weighted average physical occupancy. . . . . . . . . . . 93.7% 94.5%
======= =======
Average monthly revenue per unit . . . . . . . . . . . . $ 526 $ 449
======= =======
Average annualized operating and
maintenance expenses per unit. . . . . . . . . . . . . $ 2,017 $ 2,043
======= =======
Average annualized real estate taxes per unit. . . . . . $ 619 $ 395
======= =======
Operating expense ratio. . . . . . . . . . . . . . . . . 41.7% 45.2%
======= =======
</TABLE>
(1) Consists of property operating and maintenance and real estate
tax expenses.
Interest income increased $292,000 in 1997, or 138.4%, from
$211,000 in 1996 to $503,000 in 1997 primarily due to interest
earned on increased cash balances in 1997.
The 1996 other income of $104,000 was attributable to income
from WDN Management Company, which was merged into the Company and
dissolved effective December 31, 1996.
<Page 13>
General and administrative expenses increased $277,000 in
1997, or 24.2%, from $1,145,000 in 1996 to $1,422,000 in 1997.
This represented a per unit decrease of $3, or 1.1%, on an
annualized basis. The increase in general and administrative
expenses was primarily due to increased salaries expense, increased
costs associated with the increased number of stockholders
(quarterly mailings to stockholders, transfer services, etc.) and
the liquidation of WDN Management. This increase was offset by
$254,000 of fee income received from third-party management
contracts in the first three months of 1997, which amounts were
recorded in WDN Management operations in 1996.
Interest expense decreased $45,000 in 1997, or 0.9%, from
$4,922,000 in 1996 to $4,877,000 in 1997 primarily due to the
repayment of the Company's credit facility in December 1996.
Depreciation increased $1,810,000 in 1997, or 40.1%, from
$4,518,000 in 1996 to $6,328,000 in 1997 due to depreciation on
additional properties acquired and capital improvements on existing
properties.
The $488,000 extraordinary loss on debt extinguishment in 1996
resulted from the write off of unamortized deferred financing costs
due to the refinancing of the Company's credit facility in February
1996.
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 intends to meet its short-term liquidity
requirements, including capital expenditures related to the
maintenance and improvements of its properties, through cash flow
provided by operations. Historically, on an annual basis, cash
provided by the Company's operating activities has been adequate to
meet both its operating requirements and distributions to
stockholders. Net cash flow from operating activities was $8.7
million for the first three months of 1997 (including the payment
of $4.2 million of 1996 real estate taxes). In the first three
months of 1997, the Company paid distributions of $11.3 million and
expended $4.7 million and $3.7 million, respectively, for capital
expenditures, including non recurring items, and acquisition
rehabilitation costs. Such amounts were funded by the net cash
flow from operating activities from the first quarter of 1997 and
available cash from the prior year. Capital expenditures and
rehabilitation on acquisition properties are anticipated to be
approximately $15.0 million and $7.6 million, respectively, for
the remainder of 1997.
As of March 31, 1997, the Company had outstanding indebtedness
in the aggregate principal amount of $258.1 million, consisting of
fixed rate debt of $207.0 million and variable rate debt of $51.1
million. The weighted average interest rate on the Company's
outstanding indebtedness at March 31, 1997 was approximately 7.5%.
The Company's ability to meet its long-term liquidity
requirements, such as refinancing mortgages and property
acquisitions, including capital improvements on property
acquisitions, is dependent upon its ability to obtain long-term
borrowings, both secured and unsecured, and to issue
<Page 14>
debt or equity securities. The Company has a $150 million unsecured credit
facility (the "Credit Facility"), which expires in February 1998.
The Credit Facility has been used to finance property acquisitions,
including capital improvements. The availability of funds to the
Company under the Credit Facility is subject, however, to certain
borrowing base and other customary restrictions.
Investing activities of the Company used $12.9 million in the
first three months of 1997, consisting of a property acquisition
for $5.7 million in January 1997 and $3.8 million of capital
expenditures and $3.4 million of acquisition rehabilitation.
Financing activities of the Company used $3.0 million in the
first three months of 1997, primarily due to $11.3 million of
distributions paid to stockholders, which amount was offset by $9.1
million of net proceeds received from common stock sold under the
Company's dividend reinvestment plan and upon exercise of the
underwriter's overallotment option.
Funds from Operations
- ---------------------
Management of the Company generally considers funds from
operations ("FFO") an appropriate measure of the performance of an
equity real estate investment trust. 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 of real estate assets.
The Company believes that in order to facilitate a clear
understanding of its operating results, FFO should be examined in
conjunction with net income as presented herein. FFO does not
represent cash generated from operating, investing and financing
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. Effective
January 1, 1996, the Company adopted the modified definition of FFO
as recommended by the National Association of Real Estate
Investment Trusts, however, the Company's FFO is not necessarily
comparable to similar entitled items reported by other REITs. FFO
for the three months ended March 31, 1997 and 1996 (as restated to
conform to the new definition of FFO) are as follows (unaudited):
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------
1997 1996
---- ----
<S> <C> <C>
Funds from operations:
Income before extraordinary loss. . . . . . . $ 6,735 $ 3,520
Depreciation of real estate assets. . . . . . 6,269 4,518
Preferred distributions on senior
(perpetual) preferred stock. . . . . . . . (2,300) --
------- -------
Funds from operations. . . . . . . . . . . $10,704 $ 8,038
======= =======
Cash flows provided by (used in):
Operating activities. . . . . . . . . . . . . $ 8,723 $ 4,746
Investing activities. . . . . . . . . . . . . (12,940) (1,131)
Financing activities. . . . . . . . . . . . . (3,010) (5,691)
</TABLE>
<Page 15>
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 on the
cost of property operations, as well as allows for the adjustment
of rental rates to market levels as leases expire.
<Page 16>
PART 2. OTHER INFORMATION
Item 1. Legal Proceedings
---------------------------
None.
Item 2. Changes in Securities
-------------------------------
None.
Item 3. Defaults Upon Senior Securities
-----------------------------------------
None.
Item 4. Submission of Matters to a Vote of Security Holders
-------------------------------------------------------------
None.
Item 5. Other Information
---------------------------
None.
Item 6. Exhibits and Reports on Form 8-K
------------------------------------------
(a) Exhibits
11.1 Computation of Net Income per Share
27 Financial Data Schedule
(b) Reports
None.
<Page 17>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(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 May 13, 1997
- ------------------------ Directors, Chief Executive
Don R. Daseke Officer and Director
(Principal Executive Officer)
/s/ Mark S. Dillinger Executive Vice President, Chief May 13, 1997
- ------------------------ Financial Officer and Director
Mark S. Dillinger (Principal Financial and Accounting
Officer)
/s/ Marshall B. Edwards President, Chief Acquisitions May 13, 1997
- ------------------------ Officer and Director
Marshall B. Edwards
<Page E-1>
EXHIBIT INDEX
Exhibit No. Description
----------- -----------
11.1 Computation of Net Income per Share
27 Financial Data Schedule
</TABLE>
Exhibit 11.1
WALDEN RESIDENTIAL PROPERTIES, INC.
COMPUTATION OF NET INCOME PER SHARE (1)
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended
March 31,
---------------
1997 1996
---- ----
<S> <C> <C>
Income before extraordinary item. . . . . . . . . $6,735 $3,520
Extraordinary loss on debt extinguishment . . . . -- (488)
------ ------
Net income. . . . . . . . . . . . . . . . . . . . 6,735 3,032
Preferred distributions . . . . . . . . . . . . . (3,717) (471)
------ ------
Net income available to common stockholders . . . $3,018 $2,561
====== ======
Income per share -- Primary:
Before extraordinary item, less preferred
distributions. . . . . . . . . . . . . . . . $ .18 $ .21
Extraordinary loss on debt extinguishment . . . -- (.03)
------ ------
Net income available to common stockholders . . $ .18 $ .18
====== ======
Income per share -- Additional Primary (2):
Before extraordinary item, less preferred
distributions. . . . . . . . . . . . . . . . $ .17 $ .21
Extraordinary loss on debt extinguishment . . . -- (.03)
------ ------
Net income available to common stockholders . . $ .17 $ .18
====== ======
Income per share -- Fully diluted (2):
Before extraordinary item, less preferred
distributions. . . . . . . . . . . . . . . . $ .17 $ .21
Extraordinary loss on debt extinguishment . . . -- (.03)
------ ------
Net income available to common stockholders . . $ .17 $ .18
====== ======
Weighted average number of shares outstanding:
Primary . . . . . . . . . . . . . . . . . . . . 17,153 14,207
Dilutive effect of outstanding options. . . . . 193 65
------ ------
Additional Primary (2). . . . . . . . . . . . . 17,346 14,272
Fully dilutive effect of outstanding options. . -- 38
------ ------
Fully diluted (2) . . . . . . . . . . . . . . . 17,346 14,310
====== ======
</TABLE>
(1) Fully diluted net income per share does not include the
convertible equity securities and preferred stock since they
are anti-dilutive.
(2) This calculation is submitted in accordance with Securities
Exchange Act of 1934 Release No. 9083, although not required
by APB Opinion No. 15, because it results in dilution of less
than three percent.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 22,493
<SECURITIES> 0
<RECEIVABLES> 1,011
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 697,642
<DEPRECIATION> 47,977
<TOTAL-ASSETS> 690,093
<CURRENT-LIABILITIES> 0
<BONDS> 0
174
0
<COMMON> 58
<OTHER-SE> 415,762
<TOTAL-LIABILITY-AND-EQUITY> 690,093
<SALES> 0
<TOTAL-REVENUES> 32,788
<CGS> 0
<TOTAL-COSTS> 13,718
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,877
<INCOME-PRETAX> 6,735
<INCOME-TAX> 0
<INCOME-CONTINUING> 6,735
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,735
<EPS-PRIMARY> .18
<EPS-DILUTED> .18
</TABLE>
