<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------------------------------
Amendment No. 1
to
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)
<TABLE>
<S> <C> <C>
MARYLAND 1-12592 75-2506197
(State or other jurisdiction (Commission file number) (I.R.S. Employer Identification
of incorporation or organization) Number)
</TABLE>
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)
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<PAGE> 2
EXPLANATORY NOTE
Walden Residential Properties, Inc.(the "Company"), a Maryland
Corporation, hereby amends its Current Report on Form 8-K, dated October 1,
1997, by revising its proforma condensed combined balance sheet for the year
ended December 31, 1996, and the proforma condensed combined statements of
income for the year ended December 31, 1996 and the six months ended June 30,
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, net income per share, or
funds from operations.
<PAGE> 3
WALDEN RESIDENTIAL PROPERTIES, INC.
<TABLE>
<S> <C>
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) (As Restated).........................28
Notes to Unaudited Pro Forma Condensed Combined
Balance Sheet as of June 30, 1997 (As Restated).......................29
Pro Forma Condensed Combined Statement of Income
for the Six Months Ended June 30, 1997 (Unaudited) (As Restated)......31
Pro Forma Condensed Combined Statement of Income
for the Year Ended December 31, 1996 (Unaudited) (As Restated)........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 (As Restated)......33
</TABLE>
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<PAGE> 4
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:
<TABLE>
<S> <C>
Cash consideration to DPI........................................ $85,000,000
Transaction costs including loan prepayment penalties............ 9,300,000
------------
Credit Facility borrowings....................................... $94,300,000
===========
</TABLE>
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.
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<PAGE> 5
DREVER PARTNERS, INC. AND AFFILIATES
PROPERTIES
<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
</TABLE>
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<PAGE> 6
DREVER PARTNERS, INC. AND AFFILIATES
PROPERTIES
<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>
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
</TABLE>
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<PAGE> 7
DREVER PARTNERS, INC. AND AFFILIATES
PROPERTIES
<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>
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
</TABLE>
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<PAGE> 8
DREVER PARTNERS, INC. AND AFFILIATES
PROPERTIES
<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>
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>
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<PAGE> 9
ITEM 7A. FINANCIAL STATEMENTS OF AUDITED ACQUISITION PROPERTIES
- 7 -
<PAGE> 10
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.
/ s / Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Dallas, Texas
June 27, 1997
October 1, 1997 as to Note 14
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<PAGE> 11
DREVER PARTNERS, INC. AND AFFILIATES
COMBINED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
December 31,
----------------------
June 30, 1997 1996 1995
------------- --------- ---------
(Unaudited)
ASSETS
<S> <C> <C> <C>
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.
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<PAGE> 12
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.
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<PAGE> 13
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
Additional Partners'/
Partners' Common Stock Treasury Paid-In Accumulated Stockholders'
Capital Shares Amount Stock Capital Deficit Equity
--------- ------ ------ -------- ---------- ----------- -----------
Partners'/stockholders' equity at
<S> <C> <C> <C> <C> <C> <C> <C>
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
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<PAGE> 14
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.
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<PAGE> 15
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.
- 13 -
<PAGE> 16
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 - (CONTINUED)
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.
- 14 -
<PAGE> 17
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 - (CONTINUED)
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.
- 15 -
<PAGE> 18
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 - (CONTINUED)
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.
- 16 -
<PAGE> 19
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 - (CONTINUED)
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:
<TABLE>
<S> <C>
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
============
</TABLE>
- 17 -
<PAGE> 20
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 - (CONTINUED)
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:
<TABLE>
<CAPTION>
December 31,
------------------------
June 30, 1997 1996 1995
------------- --------- ----------
(Unaudited)
<S> <C> <C> <C>
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
========== ========== ==========
</TABLE>
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.
- 18 -
<PAGE> 21
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 - (CONTINUED)
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 ----------------------------
Average Average Years December 31, June 30,
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.
- 19 -
<PAGE> 22
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 - (CONTINUED)
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:
<TABLE>
<CAPTION>
June 30, 1997
(Unaudited) December 31, 1996
------------------------------ ------------------------------
Mortgage Other Mortgage Other
Notes Long-Term Notes Long-Term
Payable Debt Payable Debt
------------ ------------- ------------- -------------
<S> <C> <C> <C> <C>
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
============ ============ ============ ============
</TABLE>
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,
- 20 -
<PAGE> 23
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 - (CONTINUED)
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.
- 21 -
<PAGE> 24
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 - (CONTINUED)
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>
- 22 -
<PAGE> 25
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 - (CONTINUED)
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:
<TABLE>
<CAPTION>
December 31,
------------------------
June 30, 1997 1996 1995
------------- --------- ---------
(Unaudited)
<S> <C> <C> <C>
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
========= ========= =========
</TABLE>
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:
<TABLE>
<S> <C>
1997....................................................... $ 841,000
1998....................................................... 511,000
1999....................................................... 439,000
2000....................................................... 226,000
----------
Total................................................. $2,017,000
==========
</TABLE>
- 23 -
<PAGE> 26
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 - (CONTINUED)
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
- 24 -
<PAGE> 27
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 - (CONTINUED)
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.
- 25 -
<PAGE> 28
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 Amendment No. 3 to Form 10-K, and the
Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30,
1997, as amended by Amendment NO. 1 to Form 10-Q, 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 limited
partnership interests, (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.
- 26 -
<PAGE> 29
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
limited partnership interests, (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.
- 27 -
<PAGE> 30
WALDEN RESIDENTIAL PROPERTIES, INC.
PRO FORMA CONDENSED COMBINED BALANCE SHEET (As Restated)
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
--------- ----------- ----------- -----------
Minority Interests...................................... 15,936 303,494(h) 319,430
STOCKHOLDERS' EQUITY
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 .................... 401,605 138,038 (138,038) 401,605
--------- ----------- ----------- -----------
Total liabilities and stockholders' equity .... $ 723,127 $ 449,167 $ 252,958 $ 1,425,252
========= =========== =========== ===========
</TABLE>
See accompanying notes.
- 28 -
<PAGE> 31
WALDEN RESIDENTIAL PROPERTIES, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
BALANCE SHEET (as Restated)
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 and a market
value of $29.17 per Preferred Unit exchangeable for one share of Redeemable
Preferred Stock and 31/3 Warrants, each of which is exercisable for one-third
of one share of Common Stock at $26.875 per share as follows:
<TABLE>
<S> <C>
Issuance of 10,323 Common Units................................ $245,161
Issuance of 2,000 Preferred Units.............................. 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
========
</TABLE>
The following is a calculation of the estimated fees and other expenses
related to the Acquisition:
<TABLE>
<S> <C>
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
======
</TABLE>
(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:
<TABLE>
<S> <C>
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
=========
</TABLE>
- 29 -
<PAGE> 32
(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>
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 subsequent to the
Acquisition as follows:
<TABLE>
<S> <C>
Bridge Loan .................. $110,000
Credit facility borrowing .... 10,070
--------
Total reduction .......... $120,070
========
</TABLE>
(f) Represents borrowings under the Company's unsecured credit facility
as follows:
<TABLE>
<S> <C>
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
========
</TABLE>
(g) Represents borrowings on the unsecured 90-day bridge loan used to
pay off certain DPI mortgages.
(h) Represents minority interests as a result of the issuance of
10,323 Units at a price of $23.75 per unit and 2,000 Preferred Convertible
Units at a price of $29.17 per unit (see note (b)), and to eliminate
partners'/stockholders' equity of DPI.
- 30 -
<PAGE> 33
WALDEN RESIDENTIAL PROPERTIES, INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME (as Restated)
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 (j)
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 income
allocated to minority interests............ 12,420 288 12,708 3,322 (2,592) 13,438
Income taxes................................. -- -- -- (322) 322(h) --
Income before income allocated to --------- ---------- ---------- --------- ----------- ---------
minority interests......................... 12,420 288 12,708 3,000 (2,270) 13,438
Income allocated to minority interests....... (800) (4) (804) -- (3,654)(i) (4,458)
--------- ---------- ---------- --------- ----------- ---------
Net Income................................... 11,620 284 11,904 3,000 (5,924) 8,980
Preferred distributions...................... (6,623) -- (6,623) -- -- (6,623)
--------- ---------- ---------- --------- ----------- ---------
Net income available to common
stockholders............................... $ 4,997 $ 284 $ 5,281 $ 3,000 $ (5,924) $ 2,357
========= ========== ========== ========= =========== =========
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.......................... 17,329 17 17,346 17,346
========= =========== ========== =========
</TABLE>
See accompanying notes.
- 31 -
<PAGE> 34
WALDEN RESIDENTIAL PROPERTIES, INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME (as Restated)
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>
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 (j)
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 income allocated
to minority interests ....................... 19,122 7,428 26,550 1,963 (2,570) 25,943
Income taxes................................... -- -- -- (647) 647(h) --
--------- ---------- --------- ---------- -------- ---------
Income before income allocated to
minority interests .......................... 19,122 7,428 26,550 1,316 (1,923) 25,943
Income allocated to minority interests ........ (1,705) (10) (1,715) (6,926)(i) (8,641)
--------- ---------- --------- ---------- -------- ---------
Net Income..................................... 17,417 7,418 24,835 1,316 (8,849) 17,302
Preferred distributions........................ (2,387) (10,909) (13,296) -- -- (13,296)
--------- ---------- --------- ---------- -------- ---------
Net income available to common
stockholders................................. $ 15,030 $ (3,491) $ 11,539 $ 1,316 $ (8,849) $ 4,006
========= ========== ========= ========== ======== =========
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 2,321 17,041 17,041
========= ========== ========= =========
</TABLE>
See accompanying notes.
- 32 -
<PAGE> 35
WALDEN RESIDENTIAL PROPERTIES, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
STATEMENT OF INCOME (AS RESTATED)
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.
- 33 -
<PAGE> 36
WALDEN RESIDENTIAL PROPERTIES, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
STATEMENT OF INCOME - (AS RESTATED) (CONTINUED)
FOR THE SIX MONTHS ENDED JUNE 30, 1997
AND THE YEAR ENDED DECEMBER 31, 1996
(In thousands, except property information)
Calculation of the fair value of depreciable real estate assets at June
30, 1997:
<TABLE>
<S> <C>
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
=========
</TABLE>
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:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 1997 December 31, 1996
---------------- -----------------
<S> <C> <C>
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
========== =========
</TABLE>
(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 income allocated to minority interests and the
distributions on the Preferred Units issued in connection with the Acquisition
(see note (b) of the pro forma condensed combined balance sheet).
(j) 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.
- 34 -
<PAGE> 37
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: February 18, 1998
------------------------------------
<PAGE> 38
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
23.1 Independent Auditors' Consent
</TABLE>
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the Registration Statements on
Forms S-3 (Registration No. 33-90138, 33-90852 and 33-92328) and on Form S-8
(Registration No. 333-22547) of Walden Residential Properties, Inc., of our
report dated June 27, 1997, except as to Note 14 for which the date is October
1, 1997, with respect to the combined financial statements of Drever Partners,
Inc. and affiliates as of December 31, 1996 and 1995 and for each of the three
years in the period ended December 31, 1996, appearing in the Current Report
on Form 8-K/A dated October 16, 1997 of Walden Residential Properties, Inc. and
to the reference to us under the heading "Experts" in the Prospectus, which is
part of this Registration Statement.
DELOITTE & TOUCHE LLP
Dallas, Texas
February 18, 1998
