<PAGE> 1
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------
Amendment No. 2
to
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 preceeding 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.
================================================================================
<PAGE> 2
EXPLANATORY NOTE
Walden Residential Properties, Inc. (the "Company"), a Maryland
Corporation, hereby amends its Quarterly Report on Form 10-Q, as amended, for
the fiscal period ended March 31, 1997, by revising its financial statements for
the fiscal year ended December 31, 1996 and the three month periods ended March
31, 1997 and 1996, by reclassifying the convertible equity securities formerly
reported as a component of stockholders' equity in its consolidated balance
sheets to minority interest and by restating its statements of income to reflect
distributions or income on such convertible equity securities as income
allocated to minority interest which is deducted in arriving at net income. The
Company believes these changes are necessary to conform the Company's financial
statements to generally accepted accounting principles. These changes will have
no impact on the financial condition, business or assets of the Company and do
not change the Company's net income available to common stockholders, net income
per share or funds from operations.
<PAGE> 3
WALDEN RESIDENTIAL PROPERTIES, INC.
<TABLE>
<CAPTION>
PART 1. FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of March 31, 1997
(Unaudited) and December 31, 1996 (As Restated) ............................2
Condensed Consolidated Statements of Income for the
Three Months Ended March 31, 1997 and 1996 (Unaudited) (As Restated) ......3
Condensed Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 1997 and 1996 (Unaudited) (As Restated) ......4
Notes to Condensed Consolidated Financial Statements (Unaudited)
(As Restated) .............................................................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
</TABLE>
-1-
<PAGE> 4
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
WALDEN RESIDENTIAL PROPERTIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (AS RESTATED)
(In thousands)
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996
-------------- -----------------
ASSETS (Unaudited)
<S> <C> <C>
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
Minority interest .......................................... 14,886 14,886
Stockholders' equity:
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 .............................. 401,108 396,535
--------- ---------
Total liabilities and stockholders' equity ............. $ 690,093 $ 689,714
========= =========
</TABLE>
See Notes to Condensed Consolidated
Financial Statements.
-2-
<PAGE> 5
WALDEN RESIDENTIAL PROPERTIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (AS RESTATED)
(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 and income allocated to
minority interest ......................................... 6,735 3,520
Extraordinary loss on debt extinguishment ................... -- (488)
--------- ---------
Income before income allocated to minority interest.......... 6,735 3,032
Income allocated to minority interest ....................... (405) (471)
--------- ---------
Net income .................................................. 6,330 2,561
Preferred distributions ..................................... (3,312) --
--------- ---------
Net income available to common stockholders ................. $ 3,018 $ 2,561
========= =========
Income per share:
Before extraordinary item, less preferred distributions
and income allocated to minority interest................ $ .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.
-3-
<PAGE> 6
WALDEN RESIDENTIAL PROPERTIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (AS RESTATED)
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------
1997 1996
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ............................................................. $ 6,330 $ 2,561
Adjustments to reconcile net income to net cash provided by operating
activities:
Income allocated to minority interest .............................. 405 471
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 $ --
========= =========
Distribution payable to minority interest holders................... $ 391 $ 471
========= =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
-4-
<PAGE> 7
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 $ 3,049
Add: Adjustment for change in accounting policy to capitalize carpet replacement
costs 261
---------
Income before extraordinary item as adjusted $ 3,310
=========
Net income as adjusted $ 2,822
=========
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>
-5-
<PAGE> 8
WALDEN RESIDENTIAL PROPERTIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
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 AND MINORITY INTEREST (AS RESTATED)
Minority Interest
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 consolidated by the company and the limited
partnership interests in the Partnership which were not purchased by the
Company is recorded as minority interest. The limited partnership interests are
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 limited partnership interests 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 $.0l 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.
-6-
<PAGE> 9
WALDEN RESIDENTIAL PROPERTIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
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 distributions on
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.
-7-
<PAGE> 10
WALDEN RESIDENTIAL PROPERTIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
5. PRO FORMA STATEMENTS OF INCOME (AS RESTATED)
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
-------- --------
Operating Income ........................................ 6,782 5,139
Income allocated to minority interest ................... (405) (503)
-------- --------
Net income .............................................. 6,377 4,636
Preferred distributions ................................. (3,312) (3,312)
-------- --------
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
minority interest.
-8-
<PAGE> 11
WALDEN RESIDENTIAL PROPERTIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
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.
8. RESTATEMENT OF FINANCIAL INFORMATION
Subsequent to the issuance of the Company's quarterly financial
statements for the period ended March 31, 1997, the Company's management
determined that the accounting for convertible equity securities was
inappropriate. The Company revised its financial statements for the fiscal
quarters ended March 31, 1997 and 1996 and the fiscal year ended December 31,
1996, by reclassifying the convertible equity securities formerly reported as a
component of stockholders' equity in its consolidated balance sheets to
minority interest and by restating its statements of income to reflect
distributions or income on such convertible equity securities as income
allocated to minority interest which is deducted in arriving at net income. A
summary of the significant effects of the restatement is as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
As previously As As previously As
reported restated reported restated
<S> <C> <C> <C> <C>
At March 31 and December 31,
respectively:
Minority interest $ -- $ 14,886 $ -- $ 14,886
Stockholders' equity 415,994 401,108 411,421 396,535
For the quarter ended
March 31:
Net income 6,735 6,330 3,032 2,561
</TABLE>
The Company believes these changes are necessary to conform the Company's
financial statements to generally accepted accounting principles. These
changes will have no impact on the financial condition, business or assets of
the Company and do not change the Company's net income available to common
stockholders net income per share.
-9-
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
The Company revised its financial statements for the fiscal year
ended December 31, 1996 and for the fiscal quarter ended March 31, 1997 by
reclassifying the convertible equity securities formerly reported as a
component of stockholders' equity in its consolidated balance sheets to
minority interest and by restating its statements of income to reflect
distributions or income on such convertible equity securities as income
allocated to minority interest which is deducted in arriving at net income. The
Company believes these changes are necessary to conform the Company's financial
statements to generally accepted accounting principles. These changes will have
no impact on the financial condition, business or assets of the Company and do
not change the Company's net income available to common stockholders per share
or funds from 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.
-10-
<PAGE> 13
SUPPLEMENTAL FINANCIAL AND OPERATING DATA (AS RESTATED) (a)
(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
and income allocated to minority interest ............... 6,735 3,520
Extraordinary loss on debt extinguishment .................. -- (488)
--------- ---------
Income before income allocated to minority interest ........ 6,735 3,032
Income allocated to minority interest....................... (405) (471)
--------- ---------
Net income ................................................. 6,330 2,561
Preferred distributions .................................... (3,312) --
--------- ---------
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
- ---------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
--------- -----------
<S> <C> <C>
BALANCE SHEET DATA
Real estate assets, at cost, net ........................... $ 649,665 $ 641,808
Mortgage notes payable and Credit facility ................. 401,108 396,535
Minority interest........................................... 14,886 14,886
Stockholders' equity ....................................... 401,108 396,535
</TABLE>
(a) The selected financial data as of March 31, 1997 and December 31, 1996 and
for the three-month periods ended March 31, 1997 and 1996 have been
restated. See Note 8 to the Company's unaudited financial statement
included herein.
-11-
<PAGE> 14
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.
-12-
<PAGE> 15
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
-13-
<PAGE> 16
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 before income allocated to
minority interest (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:
Operating income.................................................. $ 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>
-14-
<PAGE> 17
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.
-15-
<PAGE> 18
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.
-16-
<PAGE> 19
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 Directors, February 18, 1998
- --------------------------------- Chief Executive Officer and Director
Don R. Daseke (Principal Executive Officer)
/s/ Mark S. Dillinger Executive Vice President, Chief February 18, 1998
- --------------------------------- Financial Officer and Director
Mark S. Dillinger (Principal Financial and Accounting Officer)
/s/ Marshall B. Edwards President, Chief Acquisitions Officer February 18, 1998
- --------------------------------- and Director
Marshall B. Edwards
</TABLE>
-17-
<PAGE> 20
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE NO.
- ------- ----------- ----------
<S> <C> <C>
11.1 Computation of Net Income per Share
(As Restated) E-2 *
12.1 Computation of Ratio of Earnings to E-3
combined Fixed Charges and Preferred
Stock Dividends
27 Financial Data Schedule -- *
</TABLE>
* Previously filed with original Form 10-Q for the three months ended
March 31, 1997.
-E-1-
<PAGE> 1
EXHIBIT 11.1
WALDEN RESIDENTIAL PROPERTIES, INC.
COMPUTATION OF NET INCOME PER SHARE (AS RESTATED) (1)
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended
March 31,
-------------------------
1997 1996
--------- ---------
<S> <C> <C>
Income before extraordinary item and income allocated
to minority interest...................................... $ 6,735 $ 3,520
Extraordinary loss on debt extinguishment .................. -- (488)
--------- ---------
Income before income allocated to minority interest......... 6,735 3,032
Income allocated to minority interest....................... (405) (471)
--------- ---------
Net income ................................................. 6,330 2,561
Preferred distributions .................................... (3,312) --
--------- ---------
Net income available to common stockholders ................ $ 3,018 $ 2,561
========= =========
Income per share -- Primary:
Before extraordinary item, less preferred distributions
and income allocated to minority interest ................ $ .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
and income allocated to minority interest ................ $ .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
and income allocated to minority interest................. $ .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 minority
interest 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.
-E-2-
<PAGE> 1
EXHIBIT 12.1
WALDEN RESIDENTIAL PROPERTIES, INC.
COMPUTATION OF RATIO OR EARNINGS TO COMBINED
FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
(Dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------------
1997 1996
-------- --------
<S> <C> <C>
Income before extraordinary item and income allocated
to minority interest . . . . . . . . . . . . . . . . . . . . . $ 6,735 $ 3,520
Add:
Interest on indebtedness . . . . . . . . . . . . . . . . . . 4,877 4,922
Amortization . . . . . . . . . . . . . . . . . . . . . . . . 211 175
-------- --------
Earnings . . . . . . . . . . . . . . . . . . . . . . . . . $ 11,823 $ 8,617
======== ========
Fixed charges and preferred stock dividends:
Interest on indebtedness . . . . . . . . . . . . . . . . . . $ 4,877 $ 4,922
Amortization . . . . . . . . . . . . . . . . . . . . . . . . 211 175
-------- --------
Fixed charges . . . . . . . . . . . . . . . . . . . . . . 5,088 5,097
Add:
Preferred stock dividends(1). . . . . . . . . . . . . . . 3,717 471
-------- --------
Combined fixed charges and preferred stock
dividends. . . . . . . . . . . . . . . . . . . . . $ 8,805 $ 5,568
======== ========
Ratio of earnings to fixed charges . . . . . . . . . . . . . . . 2.32x 1.69x
Ratio of earnings to fixed charges and preferred stock . . . . .
dividends 1.34x 1.55x
</TABLE>
(1) Includes dividends on convertible and perpetual (senior) preferred stock
and distributions to minority interest unitholders.
-E-3-
