UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
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)
5080 Spectrum Drive
Suite 1000 East
Addison, Texas 75001-6410
(Address of principal executive offices)
(972) 788-0510
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES X NO
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: As of April 15, 1999, there
were 24,447,817 shares of Common Stock, $0.01, par value outstanding.
<PAGE>
WALDEN RESIDENTIAL PROPERTIES, INC.
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of March 31,
1999 (Unaudited) and December 31, 1998. . . . . . . . . . . . .2
Condensed Consolidated Statements of Income for the
Three Months Ended March 31, 1999 and 1998 (Unaudited) . . . 3
Condensed Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 1999 and 1998 (Unaudited). . . . 4
Notes to Condensed Consolidated Financial Statements
(Unaudited). . . . . . . . . . . . . . . . . . . . . . . . . . 5
Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . . . . . 11
Item 3. Quantitative and Qualitative Disclosures About
Market Risks. . . . . . . . . . . . . . . . . . . . . . 20
PART 2. OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . 21
Item 2. Changes in Securities . . . . . . . . . . . . . . . . . . .21
Item 3. Defaults Upon Senior Securities . . . . . . . . . . . . . 21
Item 4. Submission of Matters to a Vote of Security Holders . . 21
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . 21
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . 21
<PAGE>
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
WALDEN RESIDENTIAL PROPERTIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
March 31, 1999 December 31, 1998
--------------- -----------------
(Unaudited)
<S> <C> <C>
ASSETS
Real estate assets, at cost
Land . . . . . . . . . . . . . . . . . . . . $ 170,347 $ 170,347
Buildings and improvements . . . . . . . . . 1,373,851 1,360,816
---------- ----------
1,544,198 1,531,163
Less: Accumulated depreciation . . . . . . . . . . (144,013) (128,765)
---------- ----------
1,400,185 1,402,398
Construction in progress . . . . . . . . . . . 30,438 29,322
Real estate assets held for sale . . . . . . . 7,162 7,162
Rent and other receivables ($1.5 million due from related
party) . . . . . . . . . . . . . . . . . . . 6,433 6,765
Prepaid assets . . . . . . . . . . . . . . . . 3,417 6,055
Deferred financing costs, net. . . . . . . . . 46,289 46,070
Cash and cash equivalents. . . . . . . . . . . 7,143 9,292
Investment in joint ventures . . . . . . . . . 49,958 18,000
Other assets . . . . . . . . . . . . . . . . . 3,625 3,121
Restricted cash:
Escrow deposits. . . . . . . . . . . . . . . 13,177 21,568
Additional collateral on loans . . . . . . . 2,520 2,520
---------- ----------
Total assets. . . . . . . . . . . . . . . $1,570,347 $1,552,273
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Mortgage notes payable . . . . . . . . . . . $ 460,316 $ 461,867
Secured credit facility. . . . . . . . . . . 249,861 250,000
Unsecured credit facility. . . . . . . . . . 124,500 95,000
Other unsecured loans. . . . . . . . . . . . 15,000 --
Accrued real estate taxes. . . . . . . . . . 7,443 22,869
Accounts payable . . . . . . . . . . . . . . 12,975 13,564
Accrued expenses and other liabilities 29,587 28,102
Preferred distribution payable to minority
interests. . . . . . . . . . . . . . . . . 391 391
---------- ----------
Total liabilities . . . . . . . . . . . . 900,073 871,793
Commitments and contingencies (Note 7)
Minority interests . . . . . . . . . . . . . . 130,865 147,277
Stockholders' equity:
Preferred stock. . . . . . . . . . . . . . . 71 70
Common stock . . . . . . . . . . . . . . . . 244 236
Additional paid in capital . . . . . . . . . 639,429 620,006
Notes receivable for stock purchases (8,650) (6,410)
Deferred compensation on Restricted Stock (1,560) (1,108)
Distributions in excess of net income (90,125) (79,591)
---------- ----------
Total stockholders' equity. . . . . . . . 539,409 533,203
---------- ----------
Total liabilities and stockholders' equity $1,570,347 $1,552,273
========== ==========
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
WALDEN RESIDENTIAL PROPERTIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share information)
(Unaudited)
Three Months Ended
March 31,
-------------------
1999 1998
---- ----
<S> <C> <C>
REVENUES
Rental income. . . . . . . . . . . . . . . . . . . . $66,130 $65,907
Other property income. . . . . . . . . . . . . . . . 2,716 2,546
Equity income from joint ventures. . . . . . . . . . 890 --
Management fees and other income . . . . . . . . . . 193 --
Interest income. . . . . . . . . . . . . . . . . . . 545 361
------- -------
Total revenues. . . . . . . . . . . . . . . . . . 70,474 68,814
------- -------
EXPENSES
Property operating and maintenance . . . . . . . . . 21,537 22,512
Real estate taxes. . . . . . . . . . . . . . . . . . 7,066 6,948
General and administrative . . . . . . . . . . . . . 3,043 2,835
Unusual charges (Note 5) . . . . . . . . . . . . . . 1,728 --
Interest . . . . . . . . . . . . . . . . . . . . . . 14,847 13,315
Amortization . . . . . . . . . . . . . . . . . . . . 618 233
Depreciation . . . . . . . . . . . . . . . . . . . . 15,514 14,333
------- -------
Total expenses. . . . . . . . . . . . . . . . . . 64,353 60,176
------- -------
Income before extraordinary item and income allocated to
minority interests . . . . . . . . . . . . . . . . . 6,121 8,638
Extraordinary loss on debt extinguishment. . . . . . -- (24)
------- -------
Income before income allocated to minority interests 6,121 8,614
Income allocated to minority interests . . . . . . . (933) (2,898)
------- -------
Net income . . . . . . . . . . . . . . . . . . . . . . 5,188 5,716
Preferred distributions. . . . . . . . . . . . . . . (4,073) (3,280)
------- -------
Net income available to common stockholders. . . . . . $ 1,115 $ 2,436
======= =======
Basic net income per share . . . . . . . . . . . . . . $ 0.05 $ 0.13
======= =======
Diluted net income per share . . . . . . . . . . . . . $ 0.05 $ 0.13
======= =======
Basic weighted average number of common shares outstanding 24,101 18,277
======= =======
Diluted weighted average number of common shares and
common share equivalents outstanding . . . . . . . . 24,101 18,472
======= =======
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
<PAGE>
WALDEN RESIDENTIAL PROPERTIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months Ended
March 31,
-------------------
1999 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . . . . $ 5,188 $ 5,716
Adjustments to reconcile net income to net cash provided by
operating activities:
Income allocated to minority interests . . . . . . . 933 2,898
Depreciation and amortization. . . . . . . . . . . . 16,132 14,566
Amortization of deferred compensation on Restricted Stock 102 52
Amortization of prepaid interest expense . . . . . . 859 304
Extraordinary loss on debt extinguishment. . . . . . -- 24
Net effect of changes in operating accounts:
Escrow deposits . . . . . . . . . . . . . . . . . 8,391 (2,350)
Receivables, prepaid and other assets . . . . . . 2,183 (1,921)
Accrued real estate taxes . . . . . . . . . . . . (15,426) (10,941)
Accounts payable. . . . . . . . . . . . . . . . . 168 (2,989)
Other liabilities . . . . . . . . . . . . . . . . 1,485 3,001
------- -------
Net cash provided by operating activities . . . . . . . 20,015 8,360
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of real estate assets . . . . . . . . . . . -- (5,100)
Real estate asset additions. . . . . . . . . . . . . (17,218) (7,795)
Collection of construction loan receivable . . . . . . . . . 2,327 --
Investment in joint ventures . . . . . . . . . . . . (31,958) --
------- -------
Net cash used in investing activities . . . . . . (46,849) (12,895)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from stock issuance, net of issuance costs 2,174 10,338
Distributions paid . . . . . . . . . . . . . . . . . (18,603) (18,511)
Proceeds from mortgage notes payable, other unsecured loan
and credit facility . . . . . . . . . . . . . . . . 62,000 76,533
Payment of mortgage notes payable and credit facility (17,639) (62,585)
Payment of financing costs . . . . . . . . . . . . . (1,696) (1,388)
Additional collateral on loans . . . . . . . . . . . -- (331)
Principal reductions of debt . . . . . . . . . . . . (1,551) (1,290)
------- -------
Net cash provided by financing activities . . . . . . . . 24,685 2,766
------- -------
NET DECREASE IN CASH AND CASH EQUIVALENTS. . . . . . . (2,149) (1,769)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD . . . . . . . . 9,292 9,757
------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD . . . . . . . $ 7,143 $ 7,988
======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid for interest . . . . . . . . . . . . . . . $13,306 $10,887
======= =======
SUPPLEMENTAL DISCLOSURE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Accrued real estate asset additions. . . . . . . . . $ 719 $ 241
======= =======
Mortgages assumed. . . . . . . . . . . . . . . . . . $ -- $10,806
======= =======
Notes receivable for stock purchases . . . . . . . . $ 2,240 $ 3,560
======= =======
Deferred compensation on restricted stock. . . . . . $ 554 $ 106
======= =======
Conversion of minority interest securities to common and
preferred stock . . . . . . . . . . . . . . . . . $14,463 $ --
======= =======
Distribution payable to minority interest holders. . . . . $ 391 $ 391
======= =======
See Notes to Condensed Consolidated Financial Statements.<PAGE>
</TABLE>
WALDEN RESIDENTIAL PROPERTIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Interim Unaudited Financial Information
Walden Residential Properties, Inc. (the "Company") was formed
on September 29, 1993 as a Maryland Corporation. The Company is a
Dallas, Texas based equity real estate investment trust ("REIT"),
as defined under the Internal Revenue Code of 1986, as amended. On
February 9, 1994, the Company completed an initial public offering
("IPO") of its common stock, which is listed on the New York Stock
Exchange. As of March 31, 1999, the Company owned 150 multifamily
properties, containing 41,594 apartment units, primarily in the
Southwest and Southeast regions of the United States. The
Company's real estate assets are operated with the same long-term
objectives and therefore are viewed as a single operating segment.
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 year ended
December 31, 1998, 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, 1999 and the consolidated results of
their operations and cash flows for the three months ended March
31, 1999 and 1998, have been included. The consolidated results of
operations for the three months ended March 31, 1999 are not
necessarily indicative of the results for the full year.
As of March 31, 1999, the Company had one apartment property
held for sale. Management has determined that the property does
not match the Company's long-term investment strategies.
In June 1998, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards
("SFAS") No. 133, "Accounting for Derivative Instruments and
Hedging Activities" (the "Statement"), which establishes standards
for accounting and reporting for derivative financial instruments.
The Statement is effective for fiscal years beginning after June
15, 1999; however, earlier application is permitted. Management is
currently not planning on early adoption of this Statement. The
Company expects the adoption of the provisions of the Statement to
result in the Company presenting a statement of comprehensive
income beginning in fiscal year 2000.
In June 1997, the FASB issued SFAS No. 130, " Reporting
Comprehensive Income". SFAS No. 130 establishes standards for
reporting comprehensive income and its components. The Company's
comprehensive income equals its net income for the three months
ended March 31, 1999 and 1998.
2. Other Unsecured Loans
On February 26, 1999, the Company entered into a $15 million
unsecured loan with BankBoston, the proceeds of which were used to
fund a portion of the Company's February 1999 investment in GGL
Ventures LLC ("GGL") (see Note 3). The loan bears interest at 8%,
with $5 million maturing in one year and $10 million maturing in
August 2001. The Company incurred a fee of $1.5 million in
connection with this financing which is being amortized over the
related loan terms.
3. Investment in GGL Ventures LLC
On February 26, 1999, the Company made an additional
investment of $32 million in preferred membership units of GGL, for
a total investment of $50 million as of March 31, 1999. The
Company is to receive a 12% cumulative preferred return on its
equity investment in GGL and may receive up to an additional 6%
preferred return on its investment from available cash in
connection with sales or refinancings of GGL assets. For the
period ended March 31, 1999, the Company has accounted for its
investment in GGL on the equity method, which is reflected in
investment in real estate ventures in the accompanying balance
sheet and income statement. The following table summarizes the net
assets and operations of GGL as of March 31, 1999 (in thousands):
Balance Sheet:
Real estate assets, net $277,168
Other assets 10,900
--------
Total assets $288,068
========
Mortgage notes payable $211,113
Accounts payable and other liabilities 8,183
Venturers' preferred capital - the Company 49,958
Venturers' capital - other members 18,814
--------
Total liabilities and venturers' capital $288,068
========
Income Statement:
Revenues $ 6,061
Expenses 6,356
--------
Net Loss $ ( 295)
========
In connection with this transaction, the Company formed WGGL
Corporation ("WGGL"), a wholly owned subsidiary, to manage the
properties purchased by GGL. WGGL receives a monthly management
fee equal to 3.5% of the gross receipts of the properties
(approximately $140,000 of management fee income was recorded in
1999).
4. Minority Interests and Stockholders' Equity
Minority Interests
In connection with certain apartment property acquisitions,
certain partnership subsidiaries of the Company have issued Common
Operating Partnership ("OP") Units and Preferred OP Units which are
exchangeable into the Company's common stock and 9.00% redeemable
preferred stock, with detachable warrants, respectively. The
holders of the Preferred OP Units are entitled to receive quarterly
distributions of $0.5625 per unit and the holders of the Common OP
Units are entitled to receive quarterly distributions equal to
those paid on the Company's common stock. A portion of the Common
OP Units that are exchangeable into 810,128 shares of the Company's
common stock are entitled to receive quarterly distributions of a
minimum of $369,000 in the aggregate. During 1999, 474,060 Common
OP Units and 133,571 Preferred OP Units were converted into the
same number of shares of the Company's common stock and 9.00%
redeemable preferred stock, respectively, leaving 5,274,309 Common
OP Units and 580,869 Preferred OP Units outstanding at March 31,
1999. All OP Unit securities have been recorded as minority
interests in the accompanying balance sheets.
Restricted Stock
In February 1997, the Company adopted a Long-Term Incentive
Plan to attract and retain individuals to serve as directors and
officers of the Company. Pursuant to this plan, the Company issued
26,564 restricted shares of common stock ("Restricted Stock")
effective Februray 4, 1999, for $0.01 per share to its six outside
directors and eight officers of the Company. Of these shares,
10,064 were approved in February 1999 with the remaining approved
in April 1999. The shares issued vest ratably over periods ranging
from one to three years. 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. In April 1999, an additional 4,000
shares of Restricted Stock were approved for issuance to an officer
of the Company for $0.01 per share, which vest ratably over five
years.
Notes Receivable for Stock Purchases
During 1998, the Company implemented a stock purchase loan
program allowing officers and key employees to purchase the
Company's common stock at current market prices and to exercise
vested stock options with the assistance of loans from the Company.
Under this program, officers and key employees are eligible to
purchase stock on March 1 and September 1 of each year in an
aggregate amount of up to three times their annual salary. A cash
payment of 5% to 15% of the purchase price is required by the
officer or key employee, depending upon the amount of the purchase,
with the remainder loaned on a full recourse basis to the officer
or key employee. Each loan is evidenced by a note with a five-year
term, requiring quarterly payments of interest only at a fixed
interest rate equal to the Company's then current interest rate
under its credit facility. The loan is secured by a pledge of the
shares of common stock purchased pursuant to such loan.
On March 1, 1999, the Company issued loans to 18 officers and
key employees under the stock purchase loan program in the amount
of approximately $2.2 million, bearing interest at 7.0%. Such
loans related to the issuance of 148,723 shares of the Company's
common stock, at $16.69 per share (the closing price of the common
stock on the New York Stock Exchange for the previous trading day).
Stock Options
On April 15, 1999, the Company issued 277,000 stock options to
certain officers and key employees at an exercise price of $17.50
per share. These options vest ratably over four years and expire
in ten years.
Associate Stock Purchase Plan
During 1998, the Company adopted an Associate Stock Purchase
Plan. This plan allows Company employees to purchase shares of the
Company's common stock at a 15% discount, up to $25,000 annually.
During 1999, 1,057 shares of the Company's common stock was
purchased by employees at $14.98 per share.
Distributions
On March 3, 1999, the Company paid distributions of $15.7
million to stockholders of record on February 18, 1999. The common
stockholders were paid $0.4825 per share, the 9.16% convertible
redeemable preferred stockholders were paid $0.5725 per share, the
9.20% senior preferred stockholders were paid $0.575 per share, and
the 9.00% redeemable preferred stockholders were paid $0.5625 per
share.
In March 1999, the Company paid distributions of $2.6 million
on the Common OP Units (which represented $0.4825 per unit) and
$0.3 million on the Preferred OP Units (which represented $0.5625
per unit).
5. Unusual Charges
The unusual charges included in the accompanying financial
statements consist of $1.4 million of costs related to the closing
of the Houston corporate office and the elimination of 40 staff
positions; and $319,000 of costs related primarily to professional
fees incurred in connection with a significant portfolio
acquisition which was abandoned in March 1999.
6. Net Income per Share of Common Stock
Basic net income per share has been computed by dividing net
income available to common stockholders by the weighted average
number of common shares outstanding. Diluted net income per share
has been computed by dividing net income available to common
stockholders by the weighted average number of common shares
outstanding plus potential dilutive common share equivalents.
The following table presents information necessary to
calculate basic and diluted net income per share for the three
months ended March 31, 1999 and 1998 (in thousands, except per
share amounts):
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
--------------------------
1999 1998
---- ----
<S> <C> <C>
Net Income for Basic and Diluted Computation:
Income before extraordinary item and income
allocated to minority interests . . . . . . . . $ 6,121 $ 8,638
Extraordinary loss on debt extinguishment. . . . . . . -- (24)
------- -------
Income before minority interests . . . . . . . . . . . 6,121 8,614
Income allocated to minority interests . . . . . . . . (933) (2,898)
------- -------
Net income . . . . . . . . . . . . . . . . . . . . . . 5,188 5,716
Preferred distributions. . . . . . . . . . . . . . . . (4,073) (3,280)
------- -------
Net income available to common stockholders (basic and
diluted net income per share computation). . . . . . $ 1,115 $ 2,436
======= =======
Basic Net Income per Share:
Before extraordinary item, less preferred distributions $ 0.05 $ 0.13
Extraordinary loss on debt extinguishment. . . . . . . -- --
------- -------
Net income available to common stockholders. . . . . . $ 0.05 $ 0.13
======= =======
Diluted Net Income per Share:
Before extraordinary item, less preferred distributions $ 0.05 $ 0.13
Extraordinary loss on debt extinguishment. . . . . . . -- --
------- -------
Net income available to common stockholders. . . . . . $ 0.05 $ 0.13
======= =======
Weighted Average Number of Shares Outstanding (a):
Basic. . . . . . . . . . . . . . . . . . . . . . . . . 24,101 18,277
Dilutive effect of outstanding options . . . . . . . . -- 195
------- -------
Diluted. . . . . . . . . . . . . . . . . . . . . . . . 24,101 18,472
======= =======
(a) Excludes 1,709,182 convertible preferred shares, 8,724,480 warrants, Common
OP Units (see Note 4) and 2,717,808 stock options, which are not dilutive at
March 31, 1999.
</TABLE>
7. Commitments and Contingencies
In March 1999, the Company entered into an agreement with The
Spanos Corporation ("Spanos") whereby Spanos would develop, and the
Company would later purchase, a 324-unit apartment property in
Sarasota, Florida. The Company is committed to purchase 100% of
the property for approximately $24 million upon completion of
construction and achievement of 80% occupancy at rental rates equal
to or greater than $865 per unit. The closing date of the purchase
is anticipated to be in March 2000.
In February 1998, the Company signed a joint venture agreement
with The Grupe Company ("Grupe") to purchase, for approximately $47
million, two Sacramento area properties which will consist of 616
apartment units. Under the terms of the joint venture, Grupe will
build and lease-up the two properties before the Company purchases
100% of both properties from the joint venture. The purchase is
anticipated to occur sometime in late 1999. The Company has
guaranteed the construction loan related to these two properties
($26.2 million balance at March 31, 1999).
In July 1998, the Company entered into an agreement to loan to
The Greystone Group, Inc. ("Greystone"), an unrelated third-party,
amounts necessary to purchase and develop a parcel of land in
Chandler (Phoenix), Arizona. In March 1999, Greystone obtained a
construction loan commitment for $16.6 million, which requires a $1
million guarantee by the Company. Upon the closing of this
construction loan in March 1999, the Company's loan to Greystone
was reduced to $4.8 million. The Company also entered into a
purchase agreement with Greystone in November 1998, whereby
Greystone will construct a 272-unit apartment community on the
respective land. The Company is committed to purchase the
property for approximately $21.3 million upon completion of
construction and the achievement of specified targeted occupancy
levels, anticipated to occur sometime in mid-2000.
In August 1998, the Company entered into an agreement with
Allied Realty Services, Inc. ("Allied") whereby Allied will
construct and the Company will later purchase a 192-unit apartment
property located in Houston, Texas, adjacent to a 168-unit
apartment property purchased by the Company in August 1998. The
Company is committed to purchase 100% of the property for
approximately $11.3 million upon completion of construction and
achievement of targeted occupancy levels, anticipated to occur
sometime in early 2000.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Overview
--------
This Form 10-Q contains certain forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934, which are
intended to be covered by the safe harbors created therein. These
statements include the plans and objectives of management for
future operations, including plans and objectives relating to
capital expenditures and rehabilitation costs on the properties
owned by the Company. The forward-looking statements included
herein are based on current expectations that involve numerous
risks and uncertainties. Assumptions relating to the foregoing
involve judgments with respect to, among other things, future
economic, competitive and market conditions and future business
decisions, all of which are difficult or impossible to predict
accurately and many of which are beyond the control of the Company.
Although the Company believes that the assumptions underlying the
forward-looking statements are reasonable, any of the assumptions
could be inaccurate and, therefore, there can be no assurance that
the forward-looking statements included in this Form 10-Q will
prove to be accurate. In light of the significant uncertainties
inherent in the forward-looking statements included herein, the
inclusion of such information should not be regarded as a
representation by the Company or any other person that the
objectives and plans of the Company will be achieved.
The 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 and the Company's Form 10-K for the
year ended December 31, 1998 Such financial statements and
information included in this Form 10-Q have been prepared to
reflect the historical condensed consolidated operations of the
Company for the three months ended March 31, 1999 and 1998 and the
condensed consolidated balance sheet data of the Company as of
March 31, 1999 and December 31, 1998.
The changes in revenues and expenses related to property
operations during the three months ended March 31, 1999 and 1998
are primarily the result of the increased rental rates achieved and
decreased operating and maintenance expenses. 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 financial and operating data provided on page 12 is
supplemental information to all financial statements included
elsewhere in this Form 10-Q. Such supplemental information is
unaudited, except for the balance sheet data as of December 31,
1998
<TABLE>
<CAPTION>
SUPPLEMENTAL FINANCIAL AND OPERATING DATA
(In thousands, except per share and property data)
(Unaudited)
Three Months Ended
March 31,
------------------
1999 1998
---- ----
<S> <C> <C>
OPERATING DATA
REVENUES
Rental income. . . . . . . . . . . . . . . . . . . . $ 66,130 $ 65,907
Other property income. . . . . . . . . . . . . . . . 2,716 2,546
Equity income from joint ventures. . . . . . . . . . 890 --
Management fees and other income . . . . . . . . . . 193 --
Interest income. . . . . . . . . . . . . . . . . . . 545 361
--------- --------
Total revenues. . . . . . . . . . . . . . . . . . 70,474 68,814
--------- --------
EXPENSES
Property operating and maintenance . . . . . . . . . 21,537 22,512
Real estate taxes. . . . . . . . . . . . . . . . . . 7,066 6,948
General and administrative . . . . . . . . . . . . . 3,043 2,835
Unusual charges (1) . . . . . . . . . . . . . . . . 1,728 --
Interest . . . . . . . . . . . . . . . . . . . . . . 14,847 13,315
Amortization . . . . . . . . . . . . . . . . . . . . 618 233
Depreciation . . . . . . . . . . . . . . . . . . . . 15,514 14,333
-------- --------
Total expenses . . . . . . . . . . . . . . . . . . . 64,353 60,176
-------- --------
Income before extraordinary item and income allocated.
to minority interests . . . . . . . . . . . . . . . 6,121 8,638
Extraordinary loss on debt extinguishment. . . . . . . -- (24)
-------- --------
Income before income allocated to minority interests . 6,121 8,614
Income allocated to minority interests . . . . . . . . (933) (2,898)
-------- --------
Net income . . . . . . . . . . . . . . . . . . . . . . 5,188 5,716
Preferred distributions. . . . . . . . . . . . . . . . (4,073) (3,280)
-------- --------
Net income available to common stockholders. . . . . . $ 1,115 $ 2,436
======== ========
Distribution per share of common stock . . . . . . . . $ 0.4825 $ 0.4825
======== ========
Basic weighted average number of common shares
outstanding . . . . . . . . . . . . . . . . . . . 24,101 18,277
======== ========
(1) Consists of $1.4 million of costs related to the closing of the Houston
corporate office and reductions in staff; and $319,000 related to the abandonment
of a significant portfolio acquisition.
- ---------------------------------------------------------------------------------------
PROPERTY DATA
Total properties (at end of period). . . . . . . . . . 150 156
Total units (at end of period) . . . . . . . . . . . . 41,594 42,858
Total units (weighted average) . . . . . . . . . . . . 41,594 42,657
Weighted average monthly property revenue per unit . . $552 $535
- ----------------------------------------------------------------------------------------
March 31, December 31,
1999 1998
---- ----
BALANCE SHEET DATA
Real estate assets, at cost. . . . . . . . . . . . . . $1,544,198 $1,531,163
Mortgage notes payable, credit facilities and other
unsecured loans . . . . . . . . . . . . . . . . . . 849,677 806,867
Minority interests . . . . . . . . . . . . . . . . . . 130,865 147,277
Stockholders' equity . . . . . . . . . . . . . . . . . 539,409 533,203
</TABLE>
Comparison of Three Months Ended March 31, 1999 to Three Months
- ---------------------------------------------------------------
Ended March 31, 1998
- --------------------
The weighted average number of units owned decreased by 1,063
units from 42,657 units for the first quarter of 1998 to 41,594
units for the first quarter of 1999 as a result of the sale of nine
properties and the purchase of five properties in 1998. Total
units owned at March 31, 1998 and 1999 were 42,858 and 41,594,
respectively. The portfolio had a weighted average physical
occupancy of 93.2% and 92.7% for the first three months of 1998 and
1999, respectively.
The Company owned 145 properties with 40,496 units throughout
both periods in 1999 and 1998 ("same store"). A summary of the
operating performance for same store properties is as follows:
<TABLE>
<CAPTION>
First Quarter
----------------
1999 1998 Change
---- ---- ------
<S> <C> <C> <C>
Rental and other property revenues (in thousands). . . . $67,082 $65,155 3.0%
Property operating expenses (in thousands) (1) . . . . . 27,764 27,833 -0.2%
------- -------
Property operating income (in thousands) . . . . . . . . $39,318 $37,322 5.3%
======= =======
Weighted average physical occupancy. . . . . . . . . . . 92.8% 93.3% N/A
======= =======
Average monthly revenue per unit . . . . . . . . . . . . $ 552 $ 536 3.0%
======= =======
Average annualized operating and maintenance
expenses per unit. . . . . . . . . . . . . . . . . . . $ 2,072 $ 2,097 -1.2%
======= =======
Average annualized real estate taxes per unit. . . . . . $ 670 $ 652 2.8%
======= =======
Operating expense ratio. . . . . . . . . . . . . . . . . 41.4% 42.7% N/A
======= =======
(1) Consists of property operating and maintenance and real estate tax expenses.
</TABLE>
The operating performance of properties not owned throughout both
periods in 1999 and 1998 is summarized as follows:
<TABLE>
<CAPTION>
First Quarter
----------------
1999 1998
---- ----
<S> <C> <C>
Rental and other property revenues (in thousands). . . . $1,764 $3,298
Property operating expenses (in thousands) (1) . . . . . 839 1,627
------ ------
Property operating income (in thousands) . . . . . . . . $ 925 $1,671
====== ======
Weighted average number of units . . . . . . . . . . . . 1,098 2,161
====== ======
Weighted average physical occupancy. . . . . . . . 89.3% 91.8%
====== ======
Average monthly revenue per unit . . . . . . . . . $ 536 $ 509
====== ======
Average annualized operating and maintenance
expenses per unit. . . . . . . . . . . . . . . . $2,044 $2,372
====== ======
Average annualized real estate taxes per unit. . . $1,013 $ 640
====== ======
Operating expense ratio. . . . . . . . . . . . . . 47.6% 49.3%
====== ======
(1) Consists of property operating and maintenance and real estate tax expenses.
</TABLE>
Equity income from joint ventures and management fees and other income
recorded in 1999 are primarily due to a preferred return and management fees
received from GGL Ventures LLC ("GGL"),in which the Company invested in
December 1998.
Interest income increased $184,000 in 1999, or 51.0%, from
$361,000 in 1998 to $545,000 in 1999, primarily due to increased
interest income recorded on escrow accounts held with lenders.
General and administrative expenses increased $208,000 in
1999, or 7.3%, from $2,835,000 in 1998 to $3,043,000 in 1999. This
represented a per unit increase of $27, or 10.2%, on an annualized
basis. The increase in general and administrative expenses was
primarily due to increased salary and related benefit costs and
increased occupancy costs for the Company's corporate offices.
The $1.7 million of unusual charges in 1999 resulted from $1.4
million of costs related to the closing of the Company's Houston
corporate office and reductions in staff; and $319,000 of costs
primarily related to professional fees incurred in connection with
a significant property portfolio acquisition which was abandoned in
March 1999.
Interest expense increased $1,532,000 in 1999, or 11.5%, from
$13,315,000 in 1998 to
$14,847,000 in 1999, primarily due to additional indebtedness
incurred during 1998 for capital expenditures and financing costs
related to debt refinanced in the fourth quarter of 1998.
Depreciation increased $1,181,000 in 1999, or 8.2%, from
$14,333,000 in 1998 to
$15,514,000 in 1999, primarily due to increased capital
improvements on existing properties.
The $24,000 extraordinary loss on debt extinguishment in 1998
resulted from the write off of unamortized deferred financing costs
due to the refinancing of certain of the Company's indebtedness
during the first quarter of 1998.
Liquidity and Capital Resources
- -------------------------------
The Company intends to maintain what it believes is a
conservative capital structure by: (i) maintaining an interest
coverage ratio (operating income before interest expense,
depreciation and amortization to interest expense) of 2.5 times or
greater, (ii) managing interest exposure by obtaining fixed rate
debt and contractually fixing all or portions of variable rate debt
with interest rate swap or cap agreements, (iii) obtaining
unsecured indebtedness when possible, and (iv) staggering principal
maturities when possible.
For the quarter ended March 31, 1999, the Company had cash
flows from operating activities of $20.0 million, proceeds from a
construction loan funding of $2.3 million and net proceeds from its
officer stock loan program and dividend reinvestment plan of $2.2
million. These funds, together with $2.1 million of existing
working capital and $44.4 million of net proceeds from an unsecured
loan and the unsecured credit facility (the "Credit Facility"),
were used during the quarter to fund $17.2 million of capital
improvements to properties, a $32 million investment in GGL, $18.6
million of distributions to stockholders and minority interest
holders, $1.5 million of principal payments and $1.7 million of
financing costs.
During the first three months of 1999, net cash used in
investing activities was $46.8 million, compared to $12.9 million
for the same period in 1998. The increase was primarily due to the
Company's investment of $32 million in GGL.
Net cash provided by financing activities increased by $21.9
million for the first three months of 1999 compared to the same
period in 1998, primarily due to a net increase in borrowings from
an unsecured loan and under the Credit Facility. This increase was
partially offset by a decrease in proceeds from stock issuances of
$8.2 million.
The Company's principal demands for short-term liquidity are:
ongoing maintenance and repairs to its properties, capital
improvements to its properties, monthly debt service payments on
indebtedness, distributions to stockholders and minority interest
holders and property acquisitions. The Company anticipates that
its cash provided by operating activities will be adequate to meet
debt service and distribution obligations for the remainder of
1999. The Company anticipates spending $24.8 million during the
remainder of 1999 for capital expenditures. In addition the
Company has a commitment to fund $5 million to GGL. The Company
currently has 10 properties listed for sale for which letters of
intent or purchase and sale agreements have been executed. The
properties are located in Houston, Dallas/Fort Worth, Oklahoma
City, and Indianapolis. The sales are anticipated to occur by the
end of July 1999 which will result in net proceeds of approximately
$83 million which will be used to fund the Company's capital
expenditures, the GGL commitment and repay a portion of the Credit
Facility. The Company has one mortgage loan in the amount of $8.3
million, maturing in 1999, which is anticipated to be refinanced
during the third quarter of 1999.
The Company has entered into various agreements to purchase
five apartment properties, upon the completion of their
construction and lease-up phase, at an aggregate cost of $103.6
million. The purchases are anticipated to occur in late 1999 and
during the first six months of 2000 and will be funded through the
assumption of existing construction loans or borrowings under the
Credit Facility. Approximately $45 million of existing
construction loans have scheduled maturities in 2001.
The Company has a $150 million Credit Facility, which expires
in February 2001. The Credit Facility has been used to finance
property acquisitions, including capital improvements, and to meet
short-term liquidity requirements. The availability of funds to
the Company under the Credit Facility is subject, however, to
certain borrowing base and other customary covenants. As of March
31, 1999, the Company's borrowing capacity was approximately $125.1
million, of which $124.5 million had been borrowed.
As of March 31, 1999, the Company had outstanding indebtedness
in the aggregate principal amount of $849.7 million, consisting of
fixed rate debt of $667.8 million ($180.5 million of which is fixed
through interest rate swap agreements) and variable rate debt of
$181.9 million. The weighted average interest rate on the
Company's outstanding indebtedness at March 31, 1999 was
approximately 7.3%.
The Company expects to meets its long-term liquidity
requirements, such as refinancing mortgages, including construction
loans assumed related to new property developments, property
acquisitions and capital improvements on property acquisitions,
through long-term borrowings, both secured and unsecured, proceeds
from property dispositions, and the issuance of debt or equity
securities.
The Company's ability to acquire additional properties is
dependent upon its ability to sell properties or obtain equity or
debt financing. Currently, the Company's borrowing capacity under
its Credit Facility is insufficient to acquire properties. As a
result, the Company does not anticipate acquiring properties in
1999 (other than those to be purchased upon completion of
development) unless it is able to sell existing properties in
excess of the planned $83 million of dispositions. When the
Company finances its acquisitions with debt, the Company expects
that such acquired properties will generate cash flow adequate to
service the associated indebtedness.
Funds from Operations
Based on the guidelines established by the National
Association of Real Estate Investment Trusts ("NAREIT") and Real
Estate Investment Trust ("REIT") industry standards, management
believes funds from operations, or "FFO", is an appropriate measure
of the performance of an equity REIT. FFO is generally calculated
by excluding from net income any gains or losses from debt
restructurings and sales of property and adding back any
depreciation of real estate assets. In addition, extraordinary or
unusual items that are non-recurring events which would materially
distort the comparative measure of FFO are typically excluded.
Management believes FFO helps to evaluate its operations by
determining its ability to incur and service debt and to make
capital expenditures. By adding depreciation expense back to net
income, FFO presents a more accurate picture of the Company's
operating cash flows. In evaluating FFO and the trends it depicts,
consideration should be given to the major factors affecting FFO.
Growth in FFO results from increases in revenues or decreases in
related operating expenses. The Company's historical increases in
FFO have been primarily the result of increased revenues coming
from property acquisitions. FFO does not represent cash generated
from operating activities in accordance with generally accepted
accounting principles and is not necessarily indicative of cash
available to fund cash needs and cash distributions. FFO should
not be considered as an alternative to net income as an indication
of performance or as an alternative to cash flow as a measure of
liquidity. The Company's calculation of FFO includes income
allocated to minority interests and assumes the conversion of all
convertible securities, including minority interest securities.
This calculation may differ from the FFO calculation used by other
REITs and, accordingly, may not be comparable to similar entitled
items reported by other REITs.
FFO for the three months ended March 31, 1999 and 1998 are as
follows (unaudited):
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------
1999 1998
---- ----
<S> <C> <C>
Funds from operations:
Net income available to common stockholders. . . . . $ 1,115 $ 2,436
Preferred distributions (1). . . . . . . . . . . . . 978 980
Income allocated to minority interests (2) . . . . . 603 1,773
Unusual charges. . . . . . . . . . . . . . . . . . . 1,728 --
Extraordinary loss on debt extinguishment . . . . . -- 24
Depreciation of real estate assets . . . . . . . . . 15,269 14,219
------- -------
Funds from operations . . . . . . . . . . . . . . $19,693 $19,432
======= =======
(1) Distributions on convertible preferred stock are added back in computing
funds from operations, since the conversion to common shares has been
assumed.
(2) Excludes distributions on the preferred operating partnership units, which
are not added back in computing funds from operations ($330 for 1999 and
$1,125 for 1998).
Cash flows provided by (used in):
Operating activities . . . . . . . . . . . . . . . . $20,015 $ 8,360
Investing activities . . . . . . . . . . . . . . . . (46,849) (12,895)
Financing activities . . . . . . . . . . . . . . . . 24,685 2,766
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.
Year 2000 Conversion
Many of the world's computer systems currently record years in
a two-digit format. Such computer systems will be unable to
properly interpret dates beyond the year 1999, which could lead to
disruptions in our operations. This problem is commonly referred
to as the "Year 2000" issue.
The Company has identified three primary information
technology systems which are vulnerable to the Year 2000 issue:
(1) General Ledger/Accounts Payable Systems. A new general
ledger/accounts payable system was installed in October
1998 which has been warranted to be Year 2000 compliant.
(2) Payroll. As of March 31, 1999, payroll was converted to
a third-party payroll vendor ("ProBusiness"). The
conversion to ProBusiness was substantially completed as
of March 31, 1999 at a total cost of approximately
$85,000. The ProBusiness system has been warranted to be
Year 2000 compliant.
(3) On-Site Accounting. The on-site accounting and rent roll
activities are processed on AMSI. The AMSI version currently
used is Year 2000 compliant.
While all three of the above vendors have warranted their
packages to be Year 2000 compliant, the systems have been or will
be individually tested to ensure compliance pursuant to the
Company's "Disaster Recovery and Year 2000 Compliance Testing
Plan."
The Company has also identified certain on-site, non-information
technology systems that may be Year 2000 sensitive and has requested
each of these vendors to certify that their systems are Year 2000
compliant. Potential non-information technology systems include:
access gates
alarms
irrigation systems
thermostats
utility meters and switches
As of March 31, 1999 we had received a response from
approximately 54% of these vendors, with approximately 69% of those
responding indicating that they are not Year 2000 compliant, but
are working toward Year 2000 compliance.
The identification phase is expected to be completed and the
repair or replacement of any vulnerable systems begun by the end of
the second quarter of 1999. The cost to repair or replace any Year
2000 vulnerable information technology systems is not expected to
exceed $500,000.
The Company has also identified those vendors it believes
could have an impact on either site or corporate day-to-day
operations. These vendors include financial institutions, insurance
companies and strategic suppliers, such as maintenance supplies,
etc., which have been contacted to determine their Year 2000
status. We have requested these vendors to certify in writing that
their internal systems are Year 2000 compliant. As of March 31,
1999, the response rate from Company-wide vendors is approximately
61%, with approximately 67% of those responding indicating that
they are not Year 2000 compliant, but are working toward Year 2000
compliance.
The Company will adopt the following policy pertaining to
non-compliant vendors. Vendors that are indentified as critical to
operations and who can not assure Year 2000 compliance by September
30, 1999 will not be used, if an acceptable alternative vendor or
strategy is available.
The Company will utilize both internal and external resources
to reprogram, replace and test its systems for Year 2000 modifications.
This process is anticipated to be completed by the second quarter of 1999.
However, there can be no guarantee that the systems of other companies
on which the Company relies will be timely converted, which may have
an adverse effect on the Company's operations.
In the event of a complete failure of the Company's
information technology systems, the Company would be able to
continue the affected functions either manually or through the use
of non-Year 2000 affected systems. The primary costs associated
with such a necessity would be (1) increased time delays associated
with posting of information, and (2) increased personnel to
manually process the information. Increased costs associated with
such personnel is not expected to exceed $1 million.
The Company does not currently have a contingency plan in
place. Now that it has preliminary responses from vendors, the
Company will develop a formal contingency plan by the end of the
third quarter of 1999.
The cost of Year 2000 compliance and the estimated date of
completion of necessary modifications are based on the Company's
best estimates, which were derived from various assumptions of
future events, including the continued availability of resources,
third party modification plans and other factors. However, there
is no guarantee these estimates will be achieved and actual results
could differ materially from those anticipated.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no significant changes in risk factors from
those previously reported in the Company's Form 10-K for the year
ended December 31, 1998. The Company is exposed to market risk
primarily due to fluctuations in interest rates. The Company's
policy has been to utilize long-term debt to finance its long-term
assets. The Company utilizes both fixed rate and variable rate
long-term debt. As debt matures, there is inherent rollover risk
as it is renewed at current market rates. The extent of this risk
is not quantifiable or predictable because of the variability of
future interest rates and the Company's future financing
requirements.
The Company does not enter into derivative financial
instrument transactions for trading or other speculative purposes;
however, management has reduced the net exposure of interest rate
fluctuations on its variable rate debt by utilizing derivative
financial instruments. In order to minimize interest rate risk,
management utilizes long-term fixed rate debt and enters into swap
agreements on its variable rate long-term debt and enters into
interest rate cap agreements on its variable rate tax exempt debt.
Management believes that exposure to interest rate fluctuations on
its variable rate Credit Facility is manageable, as the outstanding
balance will be reduced with long-term debt or proceeds from real
estate asset sales. A 10% adverse change in interest rates on the
Credit Facility, which bears interest at LIBOR plus 1.875%, would
result in an increase in interest expense of approximately $0.6
million.
The Company has entered into three interest rate swap
agreements to reduce its exposure to changes in interest expense
related to changes in market interest rates. At any point in time
these interest rate swap agreements may not be fully effective
since the quarterly payments due from or payable to the
counterparty are based on the LIBOR index, and the actual interest
is based upon the imputed interest rate on 90-day mortgage-backed
securities. Therefore, at any given time, a change in interest
rates could result in either an increase or decrease in the
Company's interest expense. The Company also has entered into six
rate cap agreements on its tax exempt variable rate debt to hedge
against significant increases in tax exempt interest rates.
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
10.1 Amended and Restated Limited Partnership Agreement of
Walden/Drever Operating Partnership, L.P.
12.1 Computation of Ratio of Earnings to Combined Fixed
Charges and Preferred Stock Dividends
27.1 Financial Data Schedule
(b) Reports
None
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 / Marshall B. Edwards
---------------------------
Marshall B. Edwards
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>
<TABLE>
<CAPTION>
Signatures Title Date
- ---------- ----- ----
<S> <C> <C>
/s/ Michael A. Masterson Chairman of the Board of Directors May______, 1999
- ------------------------
Michael A. Masterson
/s/ Marshall B. Edwards President, Chief Executive Officer May______, 1999
- ------------------------ and Director (Principal Executive Officer)
Marshall B. Edwards
/s/ Mark S. Dillinger Executive Vice President, Chief May_______, 1999
- ------------------------ Financial Officer and Director
Mark S. Dillinger (Principal Financial and Accounting Officer)
</TABLE>
EXHIBIT INDEX
Exhibit No. Description
10.1 Employment Agreement, dated as of March 1, 1999
between Walden Residential Properties, Inc. and
Theodore M. Kerr
12.1 Computation of Ratio of Earnings to Combined
Fixed Charges and Preferred Distributions
27.1 Financial Data Schedule
_______________
<TABLE>
<CAPTION>
EXHIBIT 12.1<PAGE>
Exhibit 12.1
WALDEN RESIDENTIAL PROPERTIES, INC.
COMPUTATION OF RATIO OF EARNINGS TO COMBINED
FIXED CHARGES AND PREFERRED DISTRIBUTIONS
(Dollars in thousands)
Three Months Ended
March 31,
-----------------------
1999 1998
-------- ------
<S> <C> <C>
Income before extraordinary item and
income allocated to minority interests . . . . . $ 6,121 $ 8,638
Add:
Interest on indebtedness. . . . . . . . . . . 14,847 13,315
Amortization of deferred financing costs . . . . 618 233
--------- --------
Earnings. . . . . . . . . . . . . . . . . . . . $ 21,586 $ 22,186
========= ========
Fixed charges and preferred distributions:
Interest on indebtedness. . . . . . . . . . $ 14,847 $ 13,315
Amortization of deferred financing costs. . 618 233
--------- --------
Fixed charges . . . . . . . . . . . . . . 15,465 13,548
Add:
Preferred distributions (1) . . . . . . . 4,793 4,796
--------- --------
Combined fixed charges and
preferred distributions. . . . . . . . $ 20,258 18,344
========= ========
Ratio of earnings to fixed charges . . . . . . 1.40x 1.64x
Ratio of earnings to fixed charges and
preferred distributions. . . . . . . . . . . 1.07x 1.21x
(1) Includes dividends on preferred stock and preferred distributions to minority interest
holders.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 7,143
<SECURITIES> 0
<RECEIVABLES> 6,433
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 1,544,198
<DEPRECIATION> 144,013
<TOTAL-ASSETS> 1,570,347
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
71
<COMMON> 244
<OTHER-SE> 539,094
<TOTAL-LIABILITY-AND-EQUITY> 1,570,347
<SALES> 0
<TOTAL-REVENUES> 68,846
<CGS> 0
<TOTAL-COSTS> 28,603
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,847
<INCOME-PRETAX> 6,121
<INCOME-TAX> 0
<INCOME-CONTINUING> 6,121
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,115
<EPS-PRIMARY> .05
<EPS-DILUTED> .05
</TABLE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement"), dated as of
March 1 , 1999, by and between Walden Residential Properties,
Inc., a Maryland corporation (the "Company"), and Theodore M.
Kerr (the "Executive").
W I T N E S S E T H:
WHEREAS, the Company desires (a) to assure itself of both
present and future continuity of management, (b) to provide
certain minimum termination benefits for Executive, and (c) to
provide additional inducements for Executive to continue to
remain in the employ of the Company following the date hereof;
and
WHEREAS, Executive is willing to render services to the
Company on the terms and subject to the conditions set forth in
this Agreement.
NOW, THEREFORE, in consideration of the foregoing premises
and the agreements set forth herein, the Company and Executive
agree as follows:
1. Employment. The Company agrees to and does hereby employ
Executive to perform the duties of Executive Vice President -
Property Operations of the Company, and Executive accepts such
employment, upon the terms and conditions set forth herein.
2. Term. The term of this Agreement shall be the period
commencing as of the date set forth above and continuing
thereafter for a period of three years (as extended as
hereinafter provided, the "Term"); provided, however, that at the
end of such three year period and each anniversary date
thereafter, the Term will automatically be extended for an
additional year unless, not later than 60 days prior to the end
of such three year period or any such anniversary date, as the
case may be, the Company or Executive shall have given notice
that the Company or Executive, as the case may be, does not wish
to have the Term extended.
3. Duties and Services.
(a) Executive agrees to serve the Company as the Executive Vice
President - Property Operations and to devote his full time,
attention and energies to the business of the Company and will
not, without the prior written consent of the Board or Directors
of the Company (the "Board"), be engaged (whether or not during
normal business hours) in any other business or professional
activity, whether or not such activities are pursued for gain,
profit or other pecuniary advantage. Notwithstanding the
foregoing, Executive will not be prevented from (i) engaging in
any civic or charitable activity for which Executive receives no
compensation or other pecuniary advantage; (ii) investing his
personal assets in businesses which do not compete with the
Company provided that such investment will not require any
services on the part of Executive in the operation of the affairs
of the businesses in which investments are made and provided
further that Executive's participation in such businesses is
solely that of an investor; (iii) purchasing securities in any
corporation whose securities are publicly traded, provided that
such purchases will not result in Executive owning beneficially
at any time five percent (5%) or more of the equity securities of
any corporation engaged in a business competitive with that of
the Company; or (iv) participating in any other activity approved
in advance in writing by the Board. Executive also agrees to
perform from time to time such other executive services as the
Company shall reasonably request, provided that such services
shall be consistent with his position and status as Executive
Vice President - Property Operations. In attending to the
business and affairs of the Company, Executive agrees to serve
the Company faithfully, diligently and to the best of his
ability.
(b) The duties and responsibilities of Executive shall be
commensurate with those of the executive vice president -
property operations of any large, publicly-held corporation
similar to the Company.
4. Compensation.
(a) As consideration for the services to be rendered hereunder by
Executive, the Company agrees to pay Executive, and Executive
agrees to accept, payable in accordance with the Company's
standard payroll practices for executives, but payable in not
less than bi-weekly installments, compensation of (i) $175,000
for the 12 month period commencing on the date hereof, (ii)
$200,000 for the 12 month period commencing on the first
anniversary of the date hereof and (iii) $225,000 for the 12
month period commencing on the second anniversary of the date
hereof, or such greater amounts as may be determined from time to
time by the Board pursuant to performance reviews to be conducted
on an annual basis or such shorter time period as the Board shall
deem appropriate.
(b) At all times during the Term, Executive shall be eligible to
receive an annual incentive bonus as provided for in any
incentive plan of the Company, based on the level of
accomplishment of specific performance targets established by the
Board or any committee thereof, or such other bonus plans as may
be adopted by the Board from time to time in the future. In
addition, Executive shall participate in any Company perquisite
and supplemental benefit programs established for the benefit of
senior executives of the Company.
5. Termination for Cause.
(a) In the event that Executive shall be discharged for "Cause"
as provided in Section 5(b) hereof, all compensation payable to
Executive pursuant to Section 4 in respect of periods after such
discharge shall terminate immediately upon such discharge, and
the Company shall have no obligations with respect thereto, nor
shall the Company be obligated to pay Executive severance
compensation under Section 7 hereof.
(b) For the purposes of this Agreement, "Cause" shall mean that,
prior to any termination pursuant to Section 5(a) hereof,
Executive shall have committed:
(i) an intentional act or acts of fraud, embezzlement or theft
constituting a felony and resulting or intended to result
directly or indirectly in gain or personal enrichment for
Executive at the expense of the Company; or
(ii) the continued, repeated, intentional and willful refusal to
perform the duties associated with Executive's position with the
Company, which is not cured within 15 days following written
notice to Executive.
For purposes of this Agreement, no act or failure to act on the
part of Executive shall be deemed "intentional" if it was due
primarily to an error in judgment or negligence, but shall be
deemed "intentional" only if done or omitted to be done by
Executive not in good faith and without reasonable belief that
his action or omission was in the best interest of the Company.
Executive shall not be deemed to have been terminated for
"Cause" hereunder unless and until there shall have been
delivered to Executive a copy of a resolution duly adopted by the
affirmative vote of not less than a majority of the Board then in
office at a meeting of the Board called and held for such
purpose, after reasonable notice to Executive and an opportunity
for Executive, together with his counsel (if Executive chooses to
have counsel present at such meeting), to be heard before the
Board, finding that, in the good faith opinion of the Board,
Executive had committed an act constituting "Cause" as herein
defined and specifying the particulars thereof in detail.
Nothing herein will limit the right of Executive or his
beneficiaries to contest the validity or propriety of any such
determination.
6. Termination Without Cause. Either the Company or Executive
may terminate this Agreement without Cause, but only upon
delivery to the other party of a written notice of termination
specifying a termination date at least 30 days, but not more than
60 days, after the date of delivery of such notice. Executive
may elect to terminate this Agreement under this Section 6 at any
time prior to receiving the Board resolution described in Section
5(b) hereof notwithstanding that the Company claims a right to
terminate Executive under Section 5(a) hereof and such election
by Executive shall be binding on both parties.
7. Termination Compensation.
(a) If, during the Term, this Agreement is terminated (i) for any
reason other than (A) pursuant to Section 5(a) hereof, (B) by
reason of death, (C) by reason of "Disability," or (D) by notice
by Executive pursuant to Section 6 hereof or (ii) by Executive
due to "Constructive Discharge," then Executive shall receive
termination pay in an amount equal to the highest annualized rate
of Executive's Salary prior to the date of termination, payable
in cash within five business days of the date of termination.
(b) For the purposes of this Agreement, "Constructive Discharge"
shall mean:
(i) any reduction in Salary;
(ii) a material reduction in Executive's job function, authority,
duties or responsibilities, or a similar change in Executive's
reporting relationships;
(iii) a required relocation of Executive of more than 35
miles from Executive's current job location;
(iv) any breach of any of the terms of this Agreement by the
Company which is not cured within 15 days following written
notice thereof by Executive to the Company; or
(v) in the event of a "Change in Control" (as hereinafter
defined) Executive has reasonably determined that, as a result of
a change in circumstances following the Change in Control of the
Company that significantly affect his relationship with the
Company, he is unable to exercise the authority, duties and
responsibilities contemplated by Section 3 hereof;
provided, however, that the term "Constructive Discharge" shall
not include a specific event described in the preceding clause
(i), (ii), (iii), (iv) or (v) unless Executive actually
terminates his employment with the Company within 60 days after
the occurrence of such event.
(c) The amount of compensation payable pursuant to this Section 7
is not subject to any deduction (except for withholding taxes),
reduction, offset or counterclaim, and the Company may not give
advance notice of termination in lieu of the payment provided for
in this Section 7.
8. Termination in the Event of Death. This Agreement shall
terminate automatically upon the death of Executive. In such
event, the Company shall pay to Executive's legal representative
only the base salary due to Executive up to the date of
termination as well as incentive bonuses, which have accrued
through the date of termination, and benefits payable pursuant to
this Agreement.
9. Termination in the Event of Disability. If during the Term,
Executive becomes physically or mentally disabled so as to become
unable, for a period of more than six (6) consecutive months, to
perform his duties hereunder on substantially a full time basis
("Disability"), the Company may at its option terminate this
Agreement upon not less than thirty (30) days' written notice.
In the event of such termination, Executive shall be entitled to
continue to receive his base salary and benefits, excluding any
incentive bonuses, for a period equal to the lesser of (a)
twenty-four (24) months from the date of termination and (b) the
remainder of the Term, and then shall receive such benefits as
are available to senior executives of the Company under any
applicable disability plan.
10. Change in Control of the Company.
(a) If a Change in Control (as hereinafter defined) of the
Company occurs prior to the scheduled expiration of the Term and
within three years after the Change in Control of the Company (i)
Executive is terminated by the Company for reasons other than (A)
death, (B) Disability, or (C) Cause or (ii) Executive terminates
his employment as a result of Constructive Discharge, the Company
or any successor thereto, within 30 days of Executive's
termination of employment, will pay to Executive, in lieu of any
severance obligation under Section 7 hereof, an amount equal to
2.99 times Executive's compensation, which, for purposes of this
Section 10, shall mean an amount equal to the highest annualized
rate of Executive's Salary prior to the date of termination, plus
Executive's cash bonus for the year immediately prior to such
termination.
(b) For purposes of this Agreement, a "Change in Control" shall
have occurred if at any time during the Term any of the following
events occurs:
(i) The Company is merged, consolidated or reorganized into or
with another corporation or other legal person and as a result of
such merger, consolidation or reorganization less than a majority
of the combined voting power of the then-outstanding securities
of such corporation or person immediately after such transaction
are held in the aggregate by the holders of Voting Stock (as
hereinafter defined) of the Company immediately prior to such
transaction;
(ii) The Company sells all or substantially all of its assets to
any other corporation or other legal person, less than a majority
of the combined voting power of the then-outstanding voting
securities of which are held in the aggregate by the holders of
Voting Stock of the Company immediately prior to such sale;
(iii) There is a report filed on Schedule 13D or Schedule
14D-1 (or any successor schedule, form or report), each as
promulgated pursuant to the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), disclosing that any person (as the
term "person" is used in Section 13(d)(3) or Section 14(d)(2) of
the Exchange Act) has become the beneficial owner (as the term
"beneficial owner" is defined under Rule 13d-3 or any successor
rule or regulation promulgated under the Exchange Act) of
securities representing 25% or more of the combined voting power
of the then-outstanding securities of the Company entitled to
vote generally in the election of directors of the Company
("Voting Stock"), other than as a result of the transactions
contemplated by the Contribution Agreement and the Exchange
Agreement, dated as of May 21, 1997 by and among the Company,
Drever and the other parties named therein;
(iv) The Company files a report or proxy statement with the
Securities and Exchange Commission pursuant to the Exchange Act
disclosing in response to Form 8-K or Schedule 14A (or any
successor schedule, form or report or item therein) that a change
in control of the Company has or may have occurred or will or may
occur in the future pursuant to any then-existing contract or
transaction; or
(v) If during any period of two consecutive years, individuals
who at the beginning of any such period constitute the directors
of the Company cease for any reason to constitute at least a
majority thereof unless the election, or the nomination for
election by the Company's stockholders, of each director of the
Company first elected during such period was approved by a vote
of at least two-thirds of the directors of the Company then still
in office who were directors of the Company at the beginning of
any such period.
Notwithstanding the foregoing provisions of Section 10(b)(iii) or
10(b)(iv) hereof, a "Change in Control" shall not be deemed to
have occurred for purposes of this Agreement solely because the
Company, an entity in which the Company directly or indirectly
beneficially owns 50% or more of the voting securities of such
entity, any Company-sponsored employee stock ownership plan or
any other employee benefit plan of the Company either files or
becomes obligated to file a report or a proxy statement under or
in response to Schedule 13D, Schedule 14D-1, Form 8-K or Schedule
14A (or any successor schedule, form or report or item therein)
under the Exchange Act, disclosing beneficial ownership by it of
shares of voting securities of the Company, whether in excess of
25% or otherwise, or because the Company, reports that a change
in control of the Company has or may have occurred or will or may
occur in the future by reason of such beneficial ownership.
11. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary notwithstanding,
in the event that it shall be determined (as hereafter provided)
that any payment or distribution by the Company to or for the
benefit of Executive, whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or
otherwise pursuant to or by reason of any other agreement,
policy, plan, program or arrangement (a "Payment"), would be
subject to the excise tax imposed by Section 4999 (or any
successor provision thereto) of the Internal Revenue Code of
1986, as amended (the "Code"), or any interest or penalties with
respect to such excise tax (such excise tax, together with any
such interest and penalties, are hereafter collectively referred
to as the "Excise Tax"), then Executive shall be entitled to
receive an additional payment or payments (a "Gross-Up Payment")
in an amount such that, after payment by Executive of all taxes
(including any interest or penalties imposed with respect to such
taxes), including any Excise Tax imposed upon the Gross-Up
Payment, Executive retains an amount of the Gross-Up Payment
equal to the Excise Tax imposed upon the Payments.
(b) All determinations required to be made under this Section 11,
including whether an Excise Tax is payable by Executive and the
amount of such Excise Tax and whether a Gross-Up Payment is
required and the amount of such Gross-Up Payment, shall be made
by a nationally recognized firm of certified public accountants
(the "Accounting Firm") selected by Executive in his sole
discretion. Executive shall direct the Accounting Firm to submit
its determination and detailed supporting calculations to both
the Company and Executive within 15 calendar days after the
termination date, if applicable, or such earlier time or times as
may be requested by the Company or Executive. If the Accounting
Firm determines that any Excise Tax is payable by Executive, the
Company shall pay the required Gross-Up Payment to Executive
within five business days after receipt of such determination and
calculations. If the Accounting Firm determines that no Excise
Tax is payable by Executive, it shall, at the same time as it
makes such determination, furnish Executive with an opinion that
he has substantial authority not to report any Excise Tax on his
federal income tax return. Any determination by the Accounting
Firm as to the amount of the Gross-Up Payment shall be binding
upon the Company and Executive. As a result of the uncertainty
in the application of Section 4999 of the Code (or any successor
provision thereto) at the time of the initial determination by
the Accounting Firm hereunder, it is possible that Gross-Up
Payments which will not have been made by the Company should have
been made (an "Underpayment"), consistent with the calculations
required to be made hereunder. In the event that Executive is
required to make a payment of any Excise Tax, Executive shall
direct the Accounting Firm to determine the amount of the
Underpayment that has occurred and to submit its determination
and detailed supporting calculations to both the Company and
Executive as promptly as possible. Any such Underpayment shall
be promptly paid by the Company to, or for the benefit of,
Executive within five business days after receipt of such
determination and calculations.
(c) The Company and Executive shall each provide the Accounting
Firm access to and copies of any books, records and documents in
the possession of the Company or Executive, as the case may be,
reasonably requested by the Accounting Firm, and otherwise
cooperate with the Accounting Firm in connection with the
preparation and issuance of the determination contemplated by
Section 11(b) hereof.
(d) The fees and expenses of the Accounting Firm for its services
in connection with the determinations and calculations
contemplated by Section 11(b) hereof shall be borne by the
Company. If such fees and expenses are initially paid by
Executive, the Company shall reimburse Executive the full amount
of such fees and expenses within five business days after receipt
from Executive of a statement therefor and reasonable evidence of
his payment thereof.
12. Other Benefits.
(a) Except as expressly provided herein, this Agreement shall
not:
(i) be deemed to limit or affect the right of Executive to
receive other forms of additional compensation or to participate
in any insurance, retirement, disability, profit-sharing, stock
purchase, stock option, stock appreciation rights, cash or stock
bonus or other plan or arrangement or in any other benefits now
or hereafter provided by the Company or any of the Company's
affiliated companies for its employees; or
(ii) be deemed to be a waiver by Executive of any vested rights
which Executive may have or may hereafter acquire under any
employee benefit plan or arrangement of the Company or any of the
Company's affiliated companies.
(b) It is contemplated that, in connection with his services
hereunder, Executive may be required to incur reasonable
business, entertainment, telephone and travel expenses. The
Company agrees to reimburse Executive in full for all reasonable
and necessary business, entertainment, telephone and other
related expenses, including travel expenses, incurred or expended
by him incident to the performance of his duties hereunder, upon
submission by Executive to the Company of such vouchers or
expense statements satisfactorily evidencing such expenses as may
be reasonably requested by the Company.
(c) It is understood and agreed by the Company that during the
term of Executive's employment hereunder as Executive Vice
President - Property Operations, he shall be entitled to annual
paid vacations (taken consecutively or in segments), the length
of which shall be consistent with the effective discharge of
Executive's duties and the general customs and practices of the
Company applicable to its executive officers.
13. No Mitigation Obligation. The Company hereby acknowledges
that it will be difficult and may be impossible (a) for Executive
to find reasonably comparable employment following the date of
termination, and (b) to measure the amount of damages which
Executive may suffer as a result of termination of employment
hereunder. Accordingly, the payment of the termination
compensation by the Company to Executive in accordance with the
terms of this Agreement is hereby acknowledged by the Company to
be reasonable and will be liquidated damages, and Executive will
not be required to mitigate the amount of any payment provided
for in this Agreement by seeking other employment or otherwise,
nor will any profits, income, earnings or other benefits from any
source whatsoever create any mitigation, offset, reduction or any
other obligation on the part of Executive hereunder or otherwise.
14. Confidentiality.
(a) Recognizing that the knowledge and information about the
business methods, systems, plans and policies of the Company and
of its affiliated companies which Executive has heretofore and
shall hereafter receive, obtain or establish as an employee of
the Company or its affiliated companies are valuable and unique
assets of the Company and its affiliated companies, Executive
agrees that he shall not (otherwise than pursuant to his duties
hereunder) disclose, without the written consent of the Company,
any confidential knowledge or information pertaining to the
Company or its affiliated companies, or their business, personnel
or plans, to any person, firm, corporation or other entity, which
would result in any material harm or damage to the Company, its
business or prospects, for any reason or purpose whatsoever,
unless required by law or legal process. In the event Executive
is required by law or legal process to provide documents or
disclose information, he shall take all reasonable steps to
maintain confidentiality of documents and information, including
notifying the Company and giving it an opportunity to seek a
protective order, at its sole cost and expense.
(b) The provisions of this Section 14 shall survive the
expiration or termination of this Agreement, without regard to
the reason therefor, for a period of two years from the earlier
of (i) expiration of the Term or (ii) the date of termination.
15. Legal Fees and Expenses. It is the intent of the Company
that Executive not be required to incur legal fees and the
related expenses associated with the interpretation, enforcement
or defense of Executive's rights under this Agreement by
litigation or otherwise because the cost and expense thereof
would substantially detract from the benefits intended to be
extended to Executive hereunder. Accordingly, if it should
appear to Executive that the Company has failed to comply with
any of its obligations under this Agreement or in the event that
the Company or any other person takes or threatens to take any
action to declare this Agreement void or unenforceable or in any
way reduce the possibility of collecting the amounts due
hereunder, or institutes any litigation or other action or
proceeding designed to deny, or to recover from, Executive any
payments or benefits provided hereunder, the Company irrevocably
authorizes Executive from time to time to retain counsel of
Executive's choice, at the expense of the Company as hereafter
provided, to advise and represent Executive in connection with
any such interpretation, enforcement or defense, including,
without limitation, the initiation or defense of any litigation
or other legal action, whether by or against the Company or any
director, officer, stockholder or other person affiliated with
the Company, in any jurisdiction. The Company will pay and be
solely financially responsible for any and all attorneys' and
related fees and expenses incurred by Executive in connection
with any of the foregoing, except only in the event of litigation
where the Company fully and finally prevails on all causes of
action.
16. Withholding of Taxes. The Company may withhold from any
amounts payable under this Agreement all federal, state, city or
other taxes as the Company is required to withhold pursuant to
any law or government regulation or ruling.
17. Successors and Binding Agreement.
(a) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation, reorganization or
otherwise) to all or substantially all of the business or assets
of the Company, by agreement in form and substance satisfactory
to Executive, expressly to assume and agree to perform this
Agreement in the same manner and to the same extent the Company
would be required to perform if no such succession had taken
place. This Agreement will be binding upon and inure to the
benefit of the Company and any successor to the Company,
including, without limitation, any persons acquiring directly or
indirectly all or substantially all of the business or assets of
the Company whether by purchase, merger, consolidation,
reorganization or otherwise (and such successor shall thereafter
be deemed the "Company" for the purposes of this Agreement), but
will not otherwise be assignable, transferable or delegable by
the Company.
(b) This Agreement will inure to the benefit of and be
enforceable by Executive's personal or legal representatives,
executors, administrators, successors, heirs, distributees and
legatees.
(c) This Agreement is personal in nature and neither of the
parties hereto shall, without the consent of the other, assign,
transfer or delegate this Agreement or any rights or obligations
hereunder except as expressly provided in Sections 17(a) and
17(b) hereof and with respect to the Company's obligation to pay
legal fees and expenses under Section 15 hereof. Without
limiting the generality or effect of the foregoing, Executive's
right to receive payments hereunder will not be assignable,
transferable or delegable, whether by pledge, creation of a
security interest or otherwise, other than by a transfer by
Executive's will or by the laws of descent and distribution and,
in the event of any attempted assignment or transfer contrary to
this Section 17(c), the Company shall have no liability to pay
any amount so attempted to be assigned, transferred or delegated,
except with respect to legal fees and expenses, as and to the
extent provided in Section 15 hereof.
18. Notices. For all purposes of this Agreement, all
communications, including, without limitation, notices, consents,
requests or approvals, required or permitted to be given
hereunder will be in writing and will be deemed to have been duly
given when hand delivered or dispatched by electronic facsimile
transmission (with receipt thereof orally confirmed), or five
business days after having been mailed by United States
registered or certified mail, return receipt requested, postage
prepaid, or three business days after having been sent by a
nationally recognized overnight courier service such as Federal
Express, UPS or Purolator, addressed to the Company (to the
attention of the Secretary of the Company) at the address set
forth on the signature pages of this Agreement and to Executive
at the address set forth on the signature pages of this
Agreement, or to such other address as either party may have
furnished to the other in writing and in accordance herewith,
except that notices of changes of address shall be effective only
upon receipt.
19. Governing Law. The validity, interpretation, construction
and performance of this Agreement will be governed by and
construed in accordance with the substantive laws of the State of
Texas, without giving effect to the principles of conflict of
laws of such State.
20. Validity. If any provision of this Agreement or the
application of any provision hereof to any person or
circumstances is held invalid, unenforceable or otherwise
illegal, the remainder of this Agreement and the application of
such provision to any other person or circumstances will not be
affected, and the provision so held to be invalid, unenforceable
or otherwise illegal will be reformed to the extent (and only to
the extent) necessary to make it enforceable, valid or legal.
21. Miscellaneous. No provision of this Agreement may be
modified, waived or discharged unless such waiver, modification
or discharge is agreed to in writing signed by Executive and the
Company. No waiver by either party hereto at any time of any
breach by the other party hereto or compliance with any condition
or provision of this Agreement to be performed by such other
party will be deemed a waiver of similar or dissimilar provisions
or conditions at the same or at any prior or subsequent time. No
agreements or representations, oral or otherwise, expressed or
implied with respect to the subject matter hereof have been made
by either party which are not set forth expressly in this
Agreement. Except as otherwise identified, references to
Sections are references to Sections of this Agreement.
22. Survival of Certain Provisions. Notwithstanding anything
herein to the contrary, the obligations of the Company under
Sections 7, 9, 10, 11, 12 and 15 hereof, to the extent
applicable, shall remain operative and in full force and effect
regardless of the expiration, for any reason, of the Term.
23. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but
all of which together will constitute one and the same agreement.
24. Warranty. Executive warrants and represents that he is not a
party to any agreement, contract or understanding, whether of
employment or otherwise, which would in any way restrict or
prohibit him from undertaking or performing employment in
accordance with the terms and conditions of this Agreement.
25. Board Approval. By executing this Agreement, the Company
acknowledges that this Agreement has been reviewed and approved
by the Compensation Committee of the Board.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement.
WALDEN RESIDENTIAL PROPERTIES, INC.
By: /s/ Marshall B. Edwards
-----------------------------------
Marshall B. Edwards
President and Chief Executive Officer
Address:
5080 Spectrum Drive
Suite 1000 East
Addison, Texas 75001
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Theodore M. Kerr, Individually
Address:
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[TEXT]
