<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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 of (I.R.S. Employer
incorporation or organization) Identification No.)
5080 SPECTRUM DR., SUITE 1000E
ADDISON, TEXAS 75001-6410
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (972) 788-0510
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
<TABLE>
<CAPTION>
TITLE OF EACH CLASS: NAME OF EACH EXCHANGE ON WHICH REGISTERED:
-------------------- ------------------------------------------
<S> <C>
Common stock, New York Stock Exchange
$.01 par value
9.16% Series B Convertible New York Stock Exchange
Redeemable Preferred Stock,
$.01 par value
9.20% Senior Preferred Stock, New York Stock Exchange
$.01 par value
9.00% Redeemable Preferred Stock, New York Stock Exchange
$.01 Per Value
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
Indicate by check mark whether 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 Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the
registrant was $394,159,851 at March 3, 1999.
THE NUMBER OF SHARES OF COMMON STOCK OUTSTANDING AT MARCH 3, 1999 WAS
24,136,680.
DOCUMENTS INCORPORATED BY REFERENCE
Certain information in the Registrant's definitive proxy statement to be filed
with the Securities and Exchange Commission related to the Company's 1999
Annual Meeting of Stockholders is incorporated by reference in Part III hereof.
================================================================================
EXPLANATORY NOTE
Walden Residential Properties, Inc. (the "Company"), a Maryland
Corporation, hereby amends its Annual Report on Form 10-K for the fiscal year
ended December 31, 1998 (the "Form 10-K") as follows: 1) By expanding its asset
impairment policy disclosure discussed in Note 2 to the Condensed Consolidated
Financial Statements to describe the Company's methodology for determining the
amount of impairment loss recognized if an asset is deemed impaired; and 2) by
naming Francesco Galesi as the director involved in the Company's December 1998
transaction with GGL Ventures LLC, described in Part I Item 1 of the Form 10-K.
The Company believes these changes are necessary to satisfy requests made by
the staff of the Securities and Exchange Commission (the "Commission") in
connection with a review of the Company's Form 10-K which is incorporated by
reference in the Company's preliminary Schedule 14A filed with the Commission
on November 18, 1999.
<PAGE> 2
PART I
ITEM 1. BUSINESS
GENERAL
Walden Residential Properties, Inc. (the "Company") is a Dallas,
Texas-based real estate investment trust ("REIT") focused on middle income
multifamily properties located primarily in selected Southwestern and
Southeastern metropolitan areas. The Company is a Maryland corporation which
was formed on September 29, 1993, with a perpetual duration of existence, to
continue and expand the multifamily property ownership, management, acquisition
and marketing operations and related business objectives and strategies of The
Walden Group, Inc. and its subsidiaries and affiliates (collectively, the
"Walden Predecessors"). The Company owned and operated 150 multifamily
properties (the "Properties") as of December 31, 1998, containing 41,594
apartment units. Approximately 92% of the Properties are located in the
Houston, Dallas/Fort Worth, Austin, Phoenix, Nashville, Jacksonville, Tampa,
San Antonio, Tulsa, Atlanta, Salt Lake City and San Diego areas (the "Target
Markets"), with the remaining Properties primarily located in other areas in
the Southwest and Southeast regions of the United States. Of the total units
owned, 28% are located in Houston (in 14 different submarkets), and 26% are
located in Dallas/Fort Worth (in 20 different submarkets). The Properties had a
weighted average physical occupancy rate of approximately 93.6% for 1998 and
92.7% for the month of February 1999. The Company's real estate assets are
operated with the same long-term objectives and therefore are viewed as a
single operating segment.
Upon completion of the Company's initial public offering on February
9, 1994 (the "IPO"), the Company purchased the multifamily operations of the
Walden Predecessors, including 18 properties containing 5,895 apartment units
(of which five properties consisting of 1,275 units have been sold) and
concurrently purchased two additional properties containing 448 apartment
units, one of which was owned by a third party and the other of which was
principally owned by the Walden Predecessors (collectively, the "Original
Properties"). Since the consummation of the IPO, the Company has acquired 151
properties (the "Acquisition Properties") (of which ten properties consisting
of 2,479 units have been sold and six properties were combined in 1997 with
certain other properties owned to achieve operating efficiencies) containing an
aggregate of 39,005 apartments units, for an aggregate acquisition cost of $1.4
billion. In connection with one property acquired in December 1996, the Company
acquired approximately 81 acres of adjacent undeveloped land in Nashville,
Tennessee for $4 million. The Company intends to sell tracts of the land over a
period of time to a developer of single family homes. Management believes that
these acquisitions are consistent with its core acquisition strategy of
acquiring well located garden apartment properties at prices less than
replacement costs, which serve middle income residents and can benefit from the
Company's comprehensive management and enhancement programs.
On October 1, 1997, the Company acquired the assets and business of
Drever Partners, Inc. and its affiliates (collectively, "Drever"), a private
real estate management company based in San Francisco and Houston. This
transaction included the acquisition by the Company of 18 partnerships, for
which Drever was the general partner, which owned 79 apartment properties with
18,118 units. The 79 properties are included in the 151 properties acquired by
the Company since its IPO. Pursuant to an Exchange Agreement with Drever, the
consideration exchanged by the Company consisted of approximately $95 million
of cash, the assumption of $286 million of mortgage debt (of which the Company
repaid $119 million with proceeds from an unsecured term loan and its unsecured
credit facility) and approximately $304 million of operating partnership units
(the
-1-
<PAGE> 3
"Common OP Units" and "Preferred OP Units", collectively the "Units") issued by
a newly-formed operating partnership subsidiary of the Company, Walden/Drever
Operating Partnership, L.P. ("WDOP"), to the shareholders and partners of and
equity participants in Drever. The Units became exchangeable on October 1,
1998, into an aggregate of 10,326,284 shares of the Company's common stock
(4,899,365 Common OP Units remained outstanding at December 31, 1998),
1,999,909 shares of the Company's 9.00% Redeemable Preferred Stock (714,440
Preferred OP Units remained outstanding at December 31, 1998) and 6,666,363
Series B Warrants, all of which are outstanding at December 31, 1998, (each of
which is exercisable for one-third of one share of the Company's common stock
at $26.875 per share). The 9.00% Redeemable Preferred Stock and the Preferred
OP Units are redeemable at the option of the Company in 10 years at a
redemption price of $25 per share or unit.
On December 27, 1998, the Company entered into an agreement to invest
$55 million (of which $18 million was invested as of December 31, 1998) to
purchase preferred membership units of GGL Ventures LLC ("GGL"), a newly formed
entity controlled by a group of entities owned by Francesco Galesi, a member of
the Company's board of directors. GGL was formed to acquire 17 apartment
properties located primarily in Georgia, of which seven properties were
purchased on December 27, 1998. The Company currently manages on a fee basis the
seven properties acquired by GGL in 1998 and is to manage the other ten
properties once they have been acquired.
The Company's executive offices are located at 5080 Spectrum Dr.,
Suite 1000E, Addison, Texas 75001-6410. The telephone number is (972) 788-0510.
BUSINESS STRATEGIES
The Company's primary business objective is to maximize stockholder
value by maintaining long-term growth in funds from operations for
distributions to its stockholders. To achieve this objective, the Company will
focus on maximizing the internal growth of its expanded portfolio through
property management and resident services, continuation of its property
enhancement program, acquisition of garden apartment properties that have
strong cash flow growth potential and are located in the Company's Target
Markets, and implementation of programs to reduce general and administrative
expenses. Specifically, the Company intends to implement the following business
strategies:
Increased Property Cash Flow. The Company will continue to produce a
level of service that is successful at resident retention and focused on
increasing occupancy and rental rates. The Company also anticipates increasing
its cash flow by controlling operating expenses and implementing programs to
generate ancillary income (such as cable, telephone and laundry).
Property Enhancement Program. The Company will continue its property
enhancement program to upgrade the physical appearance of its properties. This
program generally consists of one of two components. The first component is
limited to unit interior upgrades, such as: appliances, lighting, bathroom
fixtures and doors, cabinets, countertops, mirrors, ceiling fans, mantels and
trim. The second component is a property repositioning program, which is a
complete property enhancement of both the interior and exterior of a property.
Repositioning programs include the unit interior upgrades discussed above, as
well as interior and exterior clubhouse renovation, access gates, exterior
lighting, signs, landscaping and building exterior work including facades and
shutters.
-2-
<PAGE> 4
Property enhancements are expected to generate high yields through increased
rental rates and resident retention. By reinvesting in its properties, the
Company expects to set them apart from deteriorating, similar aged properties
and increase their competitiveness with newly constructed units that are
generally available at considerably higher rates. During 1998, the Company
initiated repositioning programs for 23 properties, spending $10.4 million. An
additional $7.3 million was spent in 1998 on unit interior upgrades.
Sale of Properties. Through the Company's asset management function,
properties are routinely evaluated to determine that optimal operating results
are achieved. In connection with this evaluation, properties may be targeted
for disposition once a determination is made that such properties have achieved
their maximum investment return. In addition, certain properties not located in
the Company's core markets may be targeted for disposition. Since its IPO, the
Company has sold 15 properties, containing 3,754 apartment units.
The Company has targeted eight to ten properties for disposition in
1999, one of which was reflected as held for sale at December 31, 1998 and had
an executed sales contract in February 1999. The targeted sales would result in
estimated proceeds of approximately $60 million, which will be used to fund the
Company's commitments for capital expenditures and its GGL investment and to
repay a portion of the Company's unsecured credit facility (the "Credit
Facility").
Acquisitions. The Company also seeks to increase its funds from
operations by acquiring multifamily properties that have prospects for
long-term growth and can be purchased at prices substantially below replacement
cost. Following the IPO, the Company has engaged in an active acquisition
program, acquiring 151 multifamily properties, containing 39,005 apartment
units (including the Drever transaction of 79 properties consisting of 18,118
units in 1997). Due to current limitations on the Company's borrowing capacity
and status of the debt and equity markets, the Company will be limited in its
acquisition activities. As a result, the Company does not anticipate acquiring
properties in 1999 unless it is able to sell existing properties in excess of
the planned $60 million of dispositions. Any acquisition efforts would be in
the Target Markets due to the attractive demographics of these markets and the
opportunity to gain operating efficiencies.
New Development. Selective development of new apartment properties in
our Target Markets will become increasingly important to the growth of the
Company's portfolio over the next several years. Properties will be selected
for development that meet an identified market demand, are well located in
their markets and have an anticipated total return in excess of that projected
for acquisition properties.
Corporate Restructuring. The Company recently announced a corporate
restructuring plan which is expected to reduce ongoing general and
administrative expenses by approximately $1 million annually. The key
components of this plan include closing the corporate office in Houston, Texas,
consolidating all of the corporate functions at the Dallas, Texas headquarters,
realigning the corporate departments to provide more cost-effective operations,
and reducing staff in several areas. The costs associated with the corporate
restructuring are estimated to be approximately $1 million, which will be
reflected as an unusual charge in the first quarter of 1999.
PROPERTY MANAGEMENT
The Company conducts its property management operations with an
experienced staff of professionals and support personnel, including property
directors and sales directors. The depth of the organization is intended to
enable the Company to deliver quality services on an uninterrupted
-3-
<PAGE> 5
basis, thereby promoting resident satisfaction and improving resident
retention. Each of the Properties is operated by a staff specifically selected
based on the size, location, age, management plan and marketing plan of the
individual property. Personnel are carefully trained in their areas of
responsibility by Senior Vice Presidents and Regional Vice Presidents for
property management functions and by senior marketing and construction
personnel for property marketing and leasing, resident relations and
maintenance.
The Company's standardized policies and procedures specify reporting
requirements and management guidelines which are to be applied at each
property. These policies and procedures facilitate management consistency in
all markets. The Company uses customized software programs, including an
on-site computerized rent roll system, to provide site, regional and executive
management with rapid access to all marketing and accounting information.
Weekly marketing reports are prepared by on-site property directors which track
each property's leasing status, occupancy rate, prospective resident traffic,
unit availability, lease renewals, residents moving in and out of apartments,
notices by residents to vacate their apartments and delinquent rental charges
or other fees. Accounting elements such as receivables, payables, rent roll
status and budget compliance are regularly monitored through this system.
Marketing and leasing activities and procedures are designed to comply
with all established Federal, state and local laws and regulations. The Company
generally offers leases having six to 12 month terms, with individual property
marketing plans structured to respond to local market conditions. Qualifying
standards for prospective residents are established to comply with the
affordable housing restrictions placed on certain of the Properties, the Fair
Housing Amendments Act of 1988 (the "FHA") and the regulations thereunder and
are designed to stabilize service levels and income streams. The Company has 15
properties which are currently subject to restrictions that require a specified
number of apartments be offered to households with lower or moderate incomes.
The Company utilizes standard lease contracts promulgated by local apartment
associations to ensure compliance with the most recent legislative and judicial
activities related to multifamily properties, as well as to permit uniform
lease administration relating to rent collections, security deposit
dispositions, evictions, repairs and renewals.
EMPLOYEES
As of March 12, 1999, the Company had 1,243 employees, of which 179
are located at the Company's headquarters in Dallas, Texas and its regional
offices located in Atlanta, Austin, Dallas, Fort Worth, Houston, Jacksonville,
Phoenix, San Antonio, Tampa and Tulsa. The remaining 1,064 employees are
located at the properties owned by the Company and those fee managed. None of
the Company's employees are currently represented by a union. The Company
believes that relations with its employees are good.
COMPETITION
The Properties compete directly with other multifamily properties and
single family homes that are available for rent in markets in which the
Properties are located. In addition, the Properties also compete directly with
new and existing home markets for residents. The Properties compete on the
basis of location, apartment quality and rental rates. Such competition could
have a material effect on the Company's ability to lease units at its
Properties or at any newly acquired properties and on the rents charged.
-4-
<PAGE> 6
The Company competes for acquisitions with other entities, such as insurance
companies, pension funds, private individuals, investment companies and other
REITs, which may have greater resources than the Company.
REGULATION
General. Apartment community properties are subject to various laws,
ordinances and regulations, including regulations relating to recreational
facilities such as swimming pools, activity centers and other common areas. The
Company believes that it has the necessary permits and approvals under present
laws, ordinances and regulations to operate its business in the manner
described herein.
Americans with Disabilities Act. The Properties and any newly acquired
or developed multifamily properties must comply with Title III of the Americans
with Disabilities Act of 1990 (the "ADA") to the extent that the Properties are
"public accommodations" and/or "commercial facilities" as defined by the ADA.
Compliance with the ADA requirements could require removal of structural
barriers to handicapped access in certain public areas of the Properties where
such removal is readily achievable. The ADA does not, however, consider
residential properties, such as multifamily properties, to be public
accommodations or commercial facilities, except to the extent that portions of
such facilities, such as leasing offices, are open to the public. The Company
obtained structural reports from third-party consultants specifying
modifications to certain of the Properties that needed to be made in order to
bring such properties into full compliance with the ADA. The Company has
substantially completed such modifications.
Fair Housing Amendments Act of 1988. The FHA requires multifamily
properties first occupied after March 13, 1990 to be accessible to the
handicapped. Noncompliance with the FHA could result in the imposition of fines
or an award of damages to private litigants. Substantially all of the Company's
Properties were occupied prior to March 13, 1990. Any current or future new
development properties will comply with FHA requirements.
Affordable Housing Restrictions. The Company has 15 properties which
are subject to restrictions requiring that a specified percentage of the
apartment units in such properties be offered to households with lower or
moderate incomes. Currently, 71% of the total number of apartment units in
these 15 properties, or 9% of the total number of the Company's apartment
units, are subject to such restrictions. Generally, these provisions originated
from the use of tax exempt financing in those instances where it was determined
that the benefits of the lower interest rate associated with such financing
offset the potential reduction of rental income resulting from such rental
restrictions.
The 15 regulated properties are:
<TABLE>
<S> <C> <C>
o Colorado Club o James Pointe o Meadow Glen
o Reflections of Highpoint o Remington Hill o Remington at Ponte Verdra
o Sierra Springs o South Pointe o Stillwater
o Summer Meadows o Summers Crossing o Windsor Park
o Winridge o Woodstone o Terra Vida
</TABLE>
In addition, one of these properties is subject to limits on the
amount of rent that can be charged for certain of the apartment units. The
Company believes it is in compliance with these restrictions. These
restrictions have not had a material adverse effect on the Company's operations
-5-
<PAGE> 7
or ability to rent the units, and management does not anticipate that such
restrictions will have a material adverse effect on future operations or
possible sales of the 15 properties in the future.
Rent Control Legislation. State and local rent control laws in certain
jurisdictions limit a property owner's ability to increase rents and to recover
from residents increases in operating expenses and the costs of capital
improvements. Enactment of such laws has been considered from time to time in
other jurisdictions, although none of the jurisdictions in which the Company
presently operates has adopted such laws. The Company does not presently own,
nor does it intend to acquire, multifamily properties in markets that are
either subject to rent control or in which rent limiting legislation exists.
ENVIRONMENTAL MATTERS
Under various Federal, state and local environmental laws, ordinances
and regulations, a current or previous owner or operator of real estate may be
required to investigate and remediate hazardous or toxic substances or
petroleum product releases at such property and may be held liable to a
government entity or third party for property damage, investigation and
remediation costs incurred by such parties in connection with such
contamination. Such laws typically impose cleanup responsibility and liability
without regard to whether the owner or operator knew of, or caused the presence
of, the contaminants. The costs of investigation, remediation or removal of
such substances may be substantial, and the presence of such substances, or the
failure to properly remediate such substances, may adversely affect the owner's
ability to sell or rent such real estate or to borrow using such real estate as
collateral. In addition, some environmental laws create a lien on the
contaminated site in favor of the government for damages and costs it incurs in
connection with the contamination. Individuals who arrange for the disposal or
treatment of hazardous or toxic substances may be held liable for the costs of
investigation, remediation or removal of such hazardous or toxic substances at
or from the disposal or treatment facility regardless of whether such facility
is owned or operated by such person. Finally, the owner of a site may be
subject to common law claims by third parties based on damages and costs
resulting from environmental contamination emanating from a site.
Certain Federal, state and local laws, ordinances and regulations
govern the removal, encapsulation or disturbance of asbestos-containing
materials ("ACMs") when such materials are in poor condition or in the event of
the remodeling, renovation or demolition of a building. Such laws may impose
liability for the release of ACMs and may provide for third parties to seek
recovery from owners or operators of real estate for personal injury associated
with ACMs. In connection with the ownership and operation of its properties,
the Company may be potentially liable for costs in connection with the matters
discussed above.
All of the Properties have been the subject of environmental
assessments, which are intended to reveal information regarding, and to
evaluate the environmental condition of, the surveyed properties and
surrounding properties. The environmental assessments generally include a
historical review, a public records review, a preliminary investigation of the
site and surrounding properties, screening for the presence of asbestos and
equipment containing polychlorinated biphenyl and underground storage tanks and
the preparation and issuance of a written report, but do not include soil
sampling or subsurface investigations.
-6-
<PAGE> 8
Environmental assessments of all of the Properties have revealed
elevated lead content in the drinking water at three of the Properties and ACMs
at 67 of the Properties (some of which is "friable", or easily crumbled, but in
good and manageable condition).The Company has implemented an operations and
maintenance program which establishes procedures to be followed in dealing with
ACMs if they are moved or otherwise disturbed. The cost to the Company
resulting from any future disturbance of the ACMs will depend upon the
magnitude of the disturbance and the location of the ACMs. Although the Company
does not believe any remedial action is required, it is currently either taking
action, or determining the most effective remedial action to take, with respect
to the elevated lead levels in the water of the three properties. The Company
anticipates any such remedial action will cost between $760,000 and $780,000 in
the aggregate, which amount will be capitalized when incurred. The costs are
expected to be funded through cash flow from operations.
Environmental assessments performed on the Properties have not
revealed any environmental liability that the Company believes would have a
material adverse effect on the Company's business, assets, or results of
operations, nor is the Company aware of any such environmental liability.
Nevertheless, it is possible that these assessments did not reveal all
environmental liabilities or that there are material environmental liabilities
of which the Company is unaware. Moreover, no assurances can be given that (i)
future laws, ordinances or regulations will not require any material
expenditures by or impose any material liabilities on the Company in connection
with environmental conditions by or on the Company or its properties, (ii) the
current environmental condition of a property will not be adversely affected by
residents and occupants of such property, by the condition of properties in the
vicinity of such property (such as the presence of underground storage tanks)
or by third parties unrelated to the Company, or (iii) prior owners of the
Properties did not create environmental problems of which the Company is not
aware.
The Company believes that the Properties are in compliance in all
material respects with all Federal, state and local laws, ordinances and
regulations regarding hazardous or toxic substances or petroleum products.
Except as otherwise described above, the Company has not been notified by any
governmental authority, and is not otherwise aware, of any material
noncompliance, liability or claim relating to hazardous or toxic substances or
petroleum products with respect to any of the Properties.
The Company accrues for losses associated with environmental
remediation obligations when such losses are probable and reasonably
estimatable. Accruals for estimated losses from environmental remediation
obligations generally are recognized no later than completion of the
remediation 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. Management is not aware of any environmental remediation
obligations which would materially affect the operations, financial position or
cash flows of the Company.
INSURANCE
The Company carries comprehensive liability, fire, extended coverage
and rental loss insurance with respect to all of the Properties, with policy
specifications, insured limits and deductibles customarily carried for similar
properties. There are, however, certain types of losses (such as losses arising
from earthquakes or wars) that are not generally insured because they are
either uninsurable or not economically insurable. Should an uninsured loss or a
loss in excess of
-7-
<PAGE> 9
insured limits occur, the Company could lose its capital invested in the
affected property, as well as the anticipated future revenues from such
property and would continue to be obligated on any mortgage indebtedness or
other obligations related to the property. Any such loss could adversely affect
the Company. Management believes that the Properties are currently adequately
insured in accordance with industry standards.
ITEM 2. PROPERTIES
The Company's Portfolio. As of December 31, 1998, the Company's
portfolio consisted of 150 multifamily properties containing 41,594 apartment
units located in 11 states. The Properties are generally comprised of two and
three-story buildings in landscaped settings and generally include such
amenities as a clubhouse, swimming pool, laundry facilities and cable
television access. Certain of the Properties offer additional amenities such as
saunas, whirlpools, exercise facilities, tennis courts and covered parking. The
Properties contain an average of 277 apartment units, with the largest property
containing 994 apartment units. The apartment units have an average size of 787
square feet. The Properties were built between 1968 and 1998 and have a
weighted average age by number of apartment units of approximately 14 years.
The Properties are concentrated in the following markets:
<TABLE>
<CAPTION>
Number Number Percent
Location of Properties of Units of Total Units
- -------- ------------- -------- --------------
<S> <C> <C> <C>
Houston 49 11,723 28.18%
Dallas/Fort Worth 37 10,887 26.17%
Austin 11 3,216 7.73%
Phoenix 7 2,360 5.67%
Nashville 4 1,858 4.47%
Jacksonville 5 1,748 4.20%
Tampa 7 1,904 4.58%
San Antonio 5 1,146 2.76%
Tulsa 3 1,008 2.42%
Atlanta 4 1,002 2.41%
Salt Lake City 2 768 1.85%
San Diego 3 480 1.15%
---- -------- -------
Subtotal 137 38,100 91.59%
Other Markets (a) 13 3,494 8.41%
---- -------- -------
Total 150 41,594 100.00%
==== ======== =======
</TABLE>
(a) Represents properties in six different states.
No single property accounts for greater than 3% of the Company's total
revenues. The Properties had a weighted average physical occupancy of 93.6%
for 1998 and 92.7% for the month of February 1999. Resident leases are
generally for six to 12 month terms and often require security deposits. The
Properties are located in mature, developed neighborhoods. Management believes
the Properties are well built and have been well maintained.
Repair and Maintenance Expenses. The Company has adopted a policy of
expensing all maintenance and non-major, recurring repair and replacement
items, with the exception of carpet replacement which, as of July 1, 1996, is
capitalized on a prospective basis. Such maintenance expense items include, but
are not limited to, landscaping, pest control, electrical, plumbing, cleaning
units, interior painting of the units, window blinds, and pool and recreation
facility maintenance. Non-major expense items include but are not limited to
roofing and exterior painting
-8-
<PAGE> 10
under approximately $10,000. Repair and maintenance expenses for 1998 were
approximately $22.3 million, or $522 per weighted average unit. In comparison,
repair and maintenance expenses for 1997 were approximately $13.0 million, or
$477 per weighted average unit. Repair and maintenance expenses for 1999 are
budgeted to be $21.5 million, or $517 per unit.
Capital Expenditures. The Company capitalizes all major repairs and
replacements which are not considered part of the normal maintenance of the
Properties or turnover of an apartment unit. As of July 1, 1996, the Company
revised its method of accounting to capitalize the cost of replacement carpets,
on a prospective basis ($864,000 was capitalized in 1996 which would have been
expensed under the old policy). The Company believes that this accounting
policy change is preferable because it is consistent with policies currently
being used by the majority of the largest publicly traded apartment REITs and
provides a better matching of expenses with the related benefit of the
expenditures. In addition, the Company capitalizes non-recurring items such as
access gates and carports initially installed on the property. The Company also
capitalizes all deferred maintenance items of an acquisition property which are
planned at the time of acquisition to bring the property to satisfactory
operating condition. Such renovation of an acquisition property generally takes
six to 18 months to complete, depending on the magnitude of the renovations.
The Company's management believes that asset quality is one of the
most important characteristics of an apartment property. Asset quality can be
significantly improved by repositioning the asset through capital improvements
that create an attractive, upscale residential appearance, like building
facades or enhancements that improve with age, such as landscaping
enhancements. The Company's repositioning program includes professional design
of exterior buildings and clubhouse interiors. This program also includes
interior upgrades such as modern lighting, wall mirrors and crown molding. All
of these capital improvements help distinguish the Properties from their aging
contemporaries. The economic justification for the Company's repositioning
program is the anticipated higher yield on the total cost of a property, which
should be achieved through higher occupancy and rental rates.
For the year ended December 31, 1998, the Company spent approximately
$7.5 million related to the funding of new development projects and $64.2
million on capital expenditures to its Properties. Following is a summary by
type of expenditure (in thousands):
<TABLE>
<S> <C>
Funding of new development projects................................................ $ 7,523
Normal recurring capital expenditures ($545 per unit).............................. 22,903
Non-recurring capital expenditures ................................................ 13,694
Acquisition renovation costs (for properties acquired in 1997
and 1998) .................................................................. 9,891
Repositioning program (including $7,305 for unit
interior upgrades .......................................................... 17,699
-------
Total ...................................................................... $71,710
=======
</TABLE>
The average cost of $545 per unit in 1998 for normal recurring capital
expenditures is approximately $150 per unit higher than the estimated reserve
necessary for the Company to maintain its properties. During 1998, management's
review of its properties determined that a significant amount of capital
improvements was necessary on numerous properties. The majority of this work
was completed in 1998, resulting in the increased average cost per unit. The
Company has projected its recurring capital expenditures for 1999 to be $374
per unit (see below).
-9-
<PAGE> 11
For 1999, the Company has budgeted total capital expenditures of $42.0
million. The breakdown by type of capital expenditure is as follows (in
thousands):
<TABLE>
<S> <C>
Normal recurring capital expenditures ($374 per unit) ............... $15,157
Non-recurring capital expenditures................................... 8,810
Acquisition renovation costs (for properties acquired in 1998)....... 2,523
Repositioning program capital expenditures........................... 15,535
-------
Total ........................................................... $42,025
=======
</TABLE>
-10-
<PAGE> 12
Walden Residential Properties, Inc.
Apartments Owned
<TABLE>
<CAPTION>
TOTAL UNIT TYPE
NUMBER YEAR RENTABLE -----------------------------
METROPOLITAN AREA/ OF CONSTRUCTION AREA TOTAL 3 BR/
PROPERTY LOCATION UNITS COMPLETED (1) (SQ. FT.) ACREAGE 1 BR 2 BR 4 BR
- ------------------ -------- ------ ------------- --------- -------- ---------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AUSTIN
- ------
Arbors of Austin Austin, TX 226 1985 154,920 9.68 182 44 --
Arbors of Wells Branch Austin, TX 212 1986 156,228 11.20 164 48 --
Ashbury Parke Austin, TX 416 1983 278,936 13.20 304 112 --
Audubon Square Austin, TX 164 1985 139,476 6.50 36 128 --
Harper's Creek Austin, TX 268 1982 201,838 8.00 228 40 --
Lakes of Renaissance Austin, TX 308 1987 215,024 11.60 218 84 6
Oak Ridge Austin, TX 253 1978 173,669 9.29 151 102 --
Pinto Creek Austin, TX 249 1985 199,146 22.60 162 87 --
Polo Club Austin, TX 304 1986 203,784 11.20 240 64 --
Shadow Creek Austin, TX 420 1982 314,936 18.02 354 66 --
Trestles of Austin Austin, TX 396 1984 275,904 10.66 252 144 --
--- ---- ------- ----- --- --- --
AUSTIN TOTAL/
WEIGHTED AVERAGE 3,216 1984 2,313,861 131.95 2,291 919 6
----- ---- --------- ------ ----- --- --
CORPUS CHRISTI
- --------------
Rafters, The Corpus Christi, TX 250 1984 216,496 12.00 74 132 44
Wharf, The Corpus Christi, TX 250 1984 216,496 17.13 74 132 44
Willowick Corpus Christi, TX 250 1984 216,496 12.00 74 132 44
--- ---- ------- ----- -- --- --
CORPUS CHRISTI TOTAL/
WEIGHTED AVERAGE 750 1984 649,488 41.13 222 396 132
--- ---- ------- ----- --- --- ---
DALLAS/FORT WORTH
- -------------------
Arbor Creek Dallas, TX 280 1984 216,676 12.22 136 144 --
Arbors of Bedford Bedford, TX 204 1983 161,332 8.56 128 76 --
Arbors of Carrollton Carrollton, TX 131 1984 112,418 8.56 55 76 --
Arbors of Euless Euless, TX 272 1984 213,794 12.82 136 136 --
Bent Creek Dallas, TX 326 1980 234,082 11.72 284 42 --
Braden's Walk(2) Bedford, TX 706 1983 514,220 32.79 468 238 --
Brittany Park Dallas, TX 217 1978 193,556 8.67 149 68 --
Canyon Ridge Dallas, TX 164 1983 120,812 7.33 76 88 --
Casa Valley Dallas, TX 150 1986 130,926 5.46 120 30 --
Cinnamon Park Arlington, TX 272 1985 213,192 13.00 144 112 16
Clover Hill Arlington, TX 216 1984 178,928 8.87 104 112 --
Creekwood Village Dallas, TX 362 1985 256,584 9.40 328 34 --
Fielder's Glen Arlington, TX 220 1985 165,752 10.00 140 80 --
Gables, The McKinney, TX 220 1986 169,880 10.00 160 60 --
Greens Crossing Dallas, TX 364 1984 262,761 10.50 292 72 --
Hillcrest Grand Prairie, TX 310 1984 204,146 12.94 264 46 --
Hilltop North Richland Hills, TX 238 1984 179,256 12.20 150 88 --
Montfort Oaks Dallas, TX 276 1979 215,476 12.07 160 116 --
Newport Irving, TX 308 1982 238,768 12.40 208 100 --
Parks at Tree Point Arlington, TX 586 1985 471,968 29.52 276 294 16
Pinnacle Lewisville, TX 150 1985 119,774 6.30 86 64 --
Post Oak Place Euless, TX 354 1983 255,798 11.08 270 84 --
Preston Greens Dallas, TX 257 1980 247,463 11.21 165 92 --
Reflections of Highpoint Dallas, TX 373 1986 283,488 11.10 276 96 --
Remington Hill Fort Worth, TX 440 1986 339,008 15.00 300 140 --
Rivercrest Arlington, TX 420 1979 337,056 19.30 320 100 --
Shadow Creek North Richland Hills, TX 240 1986 181,896 12.20 120 120 --
Shadowridge Village Dallas, TX 144 1985 118,804 5.97 112 32 --
Sierra Springs (2) Bedford, TX 286 1985 211,006 15.96 160 126
Springfield Mesquite, TX 264 1985 193,212 9.00 192 72 --
</TABLE>
<TABLE>
<CAPTION>
AVERAGE MONTHLY
PHYSICAL OCCUPANCY RENTAL RATE PER UNIT
AVERAGE ---------------------- -------------------------
METROPOLITAN AREA/ APT. SIZE DECEMBER DECEMBER DECEMBER DECEMBER
PROPERTY LOCATION (SQ. FT.) 1998 1997 1998 1997
- ------------------ -------- --------- ---------- --------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
AUSTIN
- ------
Arbors of Austin Austin, TX 685 97.2% 96.0% $ 566 $ 551
Arbors of Wells Branch Austin, TX 737 97.3% 97.1% 615 595
Ashbury Parke Austin, TX 671 96.1% 95.2% 564 549
Audubon Square Austin, TX 850 96.8% 94.8% 644 611
Harper's Creek Austin, TX 753 98.9% 95.8% 581 570
Lakes of Renaissance Austin, TX 693 95.8% 97.1% 599 579
Oak Ridge Austin, TX 686 98.5% 97.5% 602 563
Pinto Creek Austin, TX 800 94.1% 95.4% 649 636
Polo Club Austin, TX 670 97.9% 95.2% 558 534
Shadow Creek Austin, TX 750 95.1% 94.6% 556 531
Trestles of Austin Austin, TX 697 93.5% 93.6% 617 613
--- ---- ---- --- ---
AUSTIN TOTAL/WEIGHTED AVERAGE 719 96.2% 95.5% 591 572
--- ---- ---- --- ---
CORPUS CHRISTI
- --------------
Rafters, The Corpus Christi, TX 866 94.7% 92.8% 588 573
Wharf, The Corpus Christi, TX 866 89.0% 94.1% 592 599
Willowick Corpus Christi, TX 866 93.9% 94.9% 610 595
--- ---- ---- --- ---
CORPUS CHRISTI TOTAL/WEIGHTED AVERAGE 866 92.6% 93.9% 597 589
--- ---- ---- --- ---
DALLAS/FORT WORTH
- -------------------
Arbor Creek Dallas, TX 774 94.1% 92.8% 627 593
Arbors of Bedford Bedford, TX 791 87.8% 89.7% 579 569
Arbors of Carrollton Carrollton, TX 858 97.3% 95.7% 634 624
Arbors of Euless Euless, TX 786 94.9% 91.7% 571 556
Bent Creek Dallas, TX 718 95.6% 93.9% 509 495
Braden's Walk(2) Bedford, TX 728 94.5% N/A 529 N/A
Brittany Park Dallas, TX 889 90.2% 91.8% 635 625
Canyon Ridge Dallas, TX 737 93.9% 97.2% 596 573
Casa Valley Dallas, TX 873 95.2% 94.2% 728 704
Cinnamon Park Arlington, TX 784 93.5% 90.6% 580 563
Clover Hill Arlington, TX 828 93.3% 92.6% 540 530
Creekwood Village Dallas, TX 713 94.5% 95.9% 536 519
Fielder's Glen Arlington, TX 753 93.8% 93.4% 545 513
Gables, The McKinney, TX 772 89.9% 94.8% 625 617
Greens Crossing Dallas, TX 722 84.4% 89.9% 511 495
Hillcrest Grand Prairie, TX 659 95.9% 94.3% 482 472
Hilltop North Richland Hills, TX 753 95.1% 95.6% 536 528
Montfort Oaks Dallas, TX 781 95.4% 98.1% 632 605
Newport Irving, TX 775 91.9% 94.4% 585 575
Parks at Tree Point Arlington, TX 805 95.6% 92.7% 556 543
Pinnacle Lewisville, TX 798 95.5% 95.5% 642 610
Post Oak Place Euless, TX 723 92.4% 91.3% 550 541
Preston Greens Dallas, TX 963 85.6% 91.4% 753 693
Reflections of Highpoint Dallas, TX 760 83.7% 92.6% 656 613
Remington Hill Fort Worth, TX 770 97.1% 93.3% 585 563
Rivercrest Arlington, TX 803 91.1% 89.3% 544 535
Shadow Creek North Richland Hills, TX 758 94.1% 93.6% 559 545
Shadowridge Village Dallas, TX 825 94.4% 87.7% 633 614
Sierra Springs (2) Bedford, TX 86.3% N/A 582 N/A
Springfield Mesquite, TX 732 96.4% 95.4% 558 534
</TABLE>
<PAGE> 13
Walden Residential Properties, Inc.
Apartments Owned
<TABLE>
<CAPTION>
TOTAL UNIT TYPE
NUMBER YEAR RENTABLE --------------------------
METROPOLITAN AREA/ OF CONSTRUCTION AREA TOTAL 3 BR/
PROPERTY LOCATION UNITS COMPLETED (1) (SQ. FT.) ACREAGE 1 BR 2 BR 4 BR
- ------------------- -------------- --------- ------------- ---------- --------- ------ -------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Summer Meadows Plano, TX 389 1986 323,434 21.60 236 153 --
Summer Villas Dallas, TX 460 1984 328,020 15.80 380 80 --
Summers Crossing Plano, TX 294 1986 239,817 15.70 216 78 --
Summers Landing Fort Worth, TX 196 1985 139,300 7.80 172 24 --
Trinity Mills Dallas, TX 208 1982 162,960 10.53 128 80 --
Trinity Oaks Dallas, TX 240 1983 150,318 4.90 189 51 --
Waterford on the Meadow Plano, TX 350 1985 310,746 22 102 248 --
--------- ------- ------------ --------- ------ -------- -----
DALLAS TOTAL / WEIGHTED AVERAGE 10,887 1984 8,396,627 464.46 7,202 3,652 33
--------- ------- ------------ --------- ------ -------- -----
HOUSTON
- --------------------
Arbor Point Houston, TX 65 1984 57,000 2.20 43 22 --
Ashton Woods Houston, TX 177 1978 151,142 6.85 76 74 27
Aston Brook Houston, TX 152 1982 119,376 5.29 88 64 --
Bar Harbor Houston, TX 316 1983 209,076 13.19 260 56 --
Bayou Oaks Houston, TX 210 1984 158,470 6.08 138 72 --
Brandon Oaks Houston, TX 196 1984 168,856 8.00 88 108 --
Briarcrest Houston, TX 376 1982 296,760 13.90 232 144 --
Brookfield Houston, TX 250 1984 188,974 10.93 190 60 --
Carriage Hill Houston, TX 252 1980 242,008 11.20 96 120 36
Central Park Condos Houston, TX 93 1985 99,080 7.20 29 52 12
Central Park Regency Houston, TX 348 1983 318,968 13.38 132 216 --
Charleston, The Houston, TX 312 1981 226,043 5.69 228 84 --
Cimarron Park Houston, TX 162 1984 134,756 6.50 100 54 8
Cimarron Parkway Houston, TX 272 1983 238,264 9.26 216 56 --
Colorado Club Houston, TX 300 1986 225,788 10.13 220 80 --
Copper Cove Houston, TX 270 1983 204,240 7.00 192 78 --
Enclave at Cypress Park Houston, TX 384 1984 329,844 11.20 232 124 28
Foxboro Houston, TX 220 1982 162,712 6.30 160 60 --
Georgetown Houston, TX 156 1968 237,328 34.40 42 33 81
Hidden Lake Houston, TX 440 1986 318,748 32.63 288 152 --
Holiday on Hayes Houston, TX 312 1981 250,564 10.47 172 140 --
Hunt Club, The Houston, TX 204 1984 135,948 8.25 168 36 --
Huntley, The Houston, TX 214 1985 165,054 7.35 128 86 --
Laurel Creek Houston, TX 428 1985 323,568 15.80 304 100 24
Meadows on Memorial Houston, TX 96 1982 94,940 3.56 -- 75 21
Mill Creek Houston, TX 174 1982 149,640 5.59 76 98 --
Monticello on Cranbrook Houston, TX 244 1983 203,500 11.20 73 171 --
Northwoods Houston, TX 200 1978 237,656 17.44 -- 100 100
One Cypress Landing Houston, TX 464 1979 358,156 15.27 396 68 --
One Westfield Lake Houston, TX 246 1984 269,454 19.98 72 126 48
One Willow Chase Houston, TX 136 1983 104,216 4.36 60 76 --
One Willow Park Houston, TX 178 1984 140,165 6.00 131 47 --
Pathway, The Houston, TX 144 1978 139,498 5.95 136 8 --
Pine Creek Houston, TX 216 1980 170,184 8.06 128 88 --
Polo Club on Cranbrook I Houston, TX 228 1981 161,456 9.30 156 72 --
Polo Club on Cranbrook II Houston, TX 292 1982 215,080 7.00 176 116 --
Retreat at Eldridge (2) Houston, TX 168 1998 158,304 8.76 108 60 --
Richmond Green Houston, TX 224 1980 214,494 8.76 74 150 --
Riverwalk Houston, TX 184 1984 140,560 7.58 128 56 --
Silverado Houston, TX 344 1979 248,960 11.31 272 72 --
<CAPTION>
AVERAGE MONTHLY
PHYSICAL OCCUPANCY RENTAL RATE PER UNIT
AVERAGE --------------------- ----------------------
METROPOLITAN AREA/ APT. SIZE DECEMBER DECEMBER DECEMBER DECEMBER
PROPERTY LOCATION (SQ. FT.) 1998 1997 1998 1997
- -------------------- -------------- ---------- -------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Summer Meadows Plano, TX 831 90.5% 92.0% 689 667
Summer Villas Dallas, TX 713 95.1% 91.9% 592 565
Summers Crossing Plano, TX 816 87.7% 94.7% 685 652
Summers Landing Fort Worth, TX 711 92.5% 97.0% 596 563
Trinity Mills Dallas, TX 783 90.7% 91.3% 649 612
Trinity Oaks Dallas, TX 626 96.2% 96.9% 558 538
Waterford on the Meadow Plano, TX 888 98.3% 93.0% 674 654
----- ------ ------ ---- ----
DALLAS TOTAL / WEIGHTED AVERAGE 771 92.7% 92.6% 588 552
----- ------ ------ ---- ----
HOUSTON
- --------------------
Arbor Point Houston, TX 877 96.8% 97.0% 665 631
Ashton Woods Houston, TX 854 94.9% 93.2% 534 496
Aston Brook Houston, TX 785 98.3% 95.5% 503 463
Bar Harbor Houston, TX 662 96.9% 92.8% 519 487
Bayou Oaks Houston, TX 755 97.8% 96.9% 504 480
Brandon Oaks Houston, TX 862 98.3% 90.2% 572 540
Briarcrest Houston, TX 789 94.9% 90.5% 537 511
Brookfield Houston, TX 756 97.4% 95.8% 541 505
Carriage Hill Houston, TX 960 98.3% 95.5% 602 568
Central Park Condos Houston, TX 1,065 89.8% 97.2% 754 715
Central Park Regency Houston, TX 917 93.5% 95.6% 601 570
Charleston, The Houston, TX 724 93.4% 96.1% 499 452
Cimarron Park Houston, TX 832 91.6% 95.2% 583 546
Cimarron Parkway Houston, TX 876 96.7% 97.1% 561 536
Colorado Club Houston, TX 753 96.5% 96.4% 542 523
Copper Cove Houston, TX 756 89.1% 88.8% 519 496
Enclave at Cypress Park Houston, TX 859 92.5% 93.7% 582 563
Foxboro Houston, TX 740 93.4% 93.0% 507 487
Georgetown Houston, TX 1,521 97.7% 97.9% 986 941
Hidden Lake Houston, TX 724 96.1% 96.4% 668 639
Holiday on Hayes Houston, TX 803 96.1% 96.2% 563 536
Hunt Club, The Houston, TX 666 98.4% 97.7% 470 456
Huntley, The Houston, TX 771 97.0% 95.8% 647 617
Laurel Creek Houston, TX 756 89.2% 93.2% 607 578
Meadows on Memorial Houston, TX 990 97.1% 97.6% 659 612
Mill Creek Houston, TX 860 98.1% 97.4% 512 484
Monticello on Cranbrook Houston, TX 835 94.6% 96.8% 541 502
Northwoods Houston, TX 1,188 96.6% 96.2% 719 675
One Cypress Landing Houston, TX 772 97.9% 90.9% 476 442
One Westfield Lake Houston, TX 1,095 86.2% 95.5% 689 637
One Willow Chase Houston, TX 766 94.5% 97.5% 520 482
One Willow Park Houston, TX 789 96.7% 96.9% 510 509
Pathway, The Houston, TX 968 97.6% 96.4% 680 655
Pine Creek Houston, TX 788 91.7% 91.9% 506 475
Polo Club on Cranbrook I Houston, TX 708 94.3% 94.3% 462 429
Polo Club on Cranbrook II Houston, TX 737 95.4% 91.4% 476 443
Retreat at Eldridge (2) Houston, TX 942 83.7% N/A 781 N/A
Richmond Green Houston, TX 958 94.5% 97.7% 680 644
Riverwalk Houston, TX 764 93.3% 94.9% 549 527
Silverado Houston, TX 723 92.3% 97.3% 567 526
</TABLE>
<PAGE> 14
Walden Residential Properties, Inc.
Apartments Owned
<TABLE>
<CAPTION>
TOTAL
NUMBER YEAR RENTABLE UNIT TYPE
METROPOLITAN AREA/ OF CONSTRUCTION AREA TOTAL -------------------
PROPERTY LOCATION UNITS COMPLETED (1) (SQ. FT.) ACREAGE 1 BR 2 BR
- ------------------ -------------- --------- ------------- ---------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
South Green (2) Houston, TX 268 1982 219,948 8.90 172 96
Stony Creek Houston, TX 252 1980 194,240 9.30 164 88
Timbers of Cranbrook Houston, TX 274 1984 206,884 9.50 184 90
Tranquility Lake Houston, TX 90 1983 84,446 10.10 35 55
Wimbledon Houston, TX 161 1978 154,601 6.30 49 106
Woodborough Houston, TX 320 1983 222,640 10.30 240 80
Woodchase Houston, TX 270 1978 252,542 9.98 86 184
Woodedge Houston, TX 126 1982 113,850 6.65 21 104
Woodlake Houston, TX 315 1976 242,587 8.28 260 52
--------- ------- ------------ --------- -------- --------
HOUSTON TOTAL / WEIGHTED AVERAGE 11,723 1982 9,660,568 489.71 7,019 4,309
--------- ------- ------------ --------- -------- --------
SAN ANTONIO
Costa Del Sol San Antonio, TX 244 1985 180,798 10.00 170 74
Country View San Antonio, TX 272 1981 213,120 11.00 176 96
Remington San Antonio, TX 158 1986 112,018 4.90 108 50
Summer Oaks San Antonio, TX 256 1983 171,464 9.50 184 72
Villas of St. Moritz San Antonio, TX 216 1986 149,040 7.50 136 80
--------- ------- ------------ --------- -------- --------
SAN ANTONIO TOTAL / WEIGHTED AVERAGE 1,146 1984 826,440 42.90 774 372
--------- ------- ------------ --------- -------- --------
OTHER TEXAS
Fountaingate Wichita Falls, TX 280 1980 252,040 17.79 160 104
Settler's Cove Beaumont, TX 182 1982 133,654 6.24 138 44
--------- ------- ------------ --------- -------- --------
OTHER TEXAS TOTAL / WEIGHTED AVERAGE 462 1981 385,694 24.03 298 148
--------- ------- ------------ --------- -------- --------
TEXAS TOTAL / WEIGHTED AVERAGE 28,184 1983 22,232,678 1,194.18 17,806 9,796
--------- ------- ------------ --------- -------- --------
JACKSONVILLE
Bentley Green Jacksonville, FL 444 1986 308,096 25.69 336 108
Brookwood Club Jacksonville, FL 360 1987 287,480 15.00 200 160
Huntington at Hidden Hills Jacksonville, FL 224 1986 183,200 14.97 64 160
Remington at Ponte Vedra Ponte Vedra Beach, FL 344 1986 302,904 28.60 136 208
Sandpiper Jacksonville, FL 376 1985 289,112 17.00 200 144
--------- ------- ------------ --------- -------- --------
JACKSONVILLE TOTAL / WEIGHTED AVERAGE 1,748 1986 1,370,792 101.26 936 780
--------- ------- ------------ --------- -------- --------
<CAPTION>
UNIT AVERAGE MONTHLY
TYPE PHYSICAL OCCUPANCY RENTAL RATE PER UNIT
------ AVERAGE -------------------- ----------------------
METROPOLITAN AREA/ 3 BR/ APT. SIZE DECEMBER DECEMBER DECEMBER DECEMBER
PROPERTY LOCATION 4 BR (SQ. FT.) 1998 1997 1998 1997
- ------------------- ------------- ----- --------- -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
South Green (2) Houston, TX -- 821 93.0% N/A 582 N/A
Stony Creek Houston, TX -- 771 96.4% 96.7% 500 464
Timbers of Cranbrook Houston, TX -- 755 94.4% 95.5% 509 470
Tranquility Lake Houston, TX -- 938 97.3% 98.0% 744 699
Wimbledon Houston, TX 6 957 94.3% 96.8% 607 567
Woodborough Houston, TX -- 696 95.4% 95.4% 468 428
Woodchase Houston, TX -- 935 97.9% 94.5% 620 601
Woodedge Houston, TX 1 902 94.9% 95.4% 583 541
Woodlake Houston, TX 3 770 95.4% 95.8% 552 517
----- ----- ------ ------ ---- ----
HOUSTON TOTAL / WEIGHTED AVERAGE 395 824 94.7% 94.9% 570 535
----- ----- ------ ------ ---- ----
SAN ANTONIO
Costa Del Sol San Antonio, TX -- 741 98.1% 89.6% 510 522
Country View San Antonio, TX -- 784 94.6% 96.3% 493 486
Remington San Antonio, TX -- 709 97.6% 91.6% 499 504
Summer Oaks San Antonio, TX -- 670 95.7% 91.0% 456 464
Villas of St. Moritz San Antonio, TX -- 690 98.2% 98.5% 487 483
----- ----- ------ ------ ---- ----
SAN ANTONIO TOTAL / WEIGHTED AVERAGE -- 721 96.7% 93.5% 488 491
----- ----- ------ ------ ---- ----
OTHER TEXAS
Fountaingate Wichita Falls, TX 16 900 95.9% 89.6% 521 526
Settler's Cove Beaumont, TX -- 734 88.7% 94.8% 523 501
----- ----- ------ ------ ---- ----
OTHER TEXAS TOTAL / WEIGHTED AVERAGE 16 835 93.1% 91.6% 522 516
----- ----- ------ ------ ---- ----
TEXAS TOTAL / WEIGHTED AVERAGE 582 789 94.1% 93.9% 643 551
----- ----- ------ ------ ---- ----
JACKSONVILLE
Bentley Green Jacksonville, FL -- 694 90.8% 94.0% 550 559
Brookwood Club Jacksonville, FL -- 799 93.8% 87.0% 563 547
Huntington at Hidden Hills Jacksonville, FL -- 818 97.1% 95.6% 571 541
Remington at Ponte Vedra Ponte Vedra Beach, FL -- 881 91.2% 93.1% 666 651
Sandpiper Jacksonville, FL 32 769 96.8% 89.7% 562 548
----- ----- ------ ------ ---- ----
JACKSONVILLE TOTAL / WEIGHTED AVERAGE 32 784 93.5% 91.6% 581 570
----- ----- ------ ------ ---- ----
</TABLE>
<PAGE> 15
Walden Residential Properties, Inc.
Apartments Owned
<TABLE>
<CAPTION>
TOTAL
NUMBER YEAR RENTABLE UNIT TYPE
METROPOLITAN AREA/ OF CONSTRUCTION AREA TOTAL -------------------
PROPERTY LOCATION UNITS COMPLETED (1) (SQ. FT.) ACREAGE 1 BR 2 BR
- ------------------- ------------ --------- ------------- ----------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
TAMPA
- -----
Ashton Park(2) Tampa, FL 192 1988 152,072 10.93 122 70
Bel Shores Largo, FL 250 1985 189,874 22.30 138 112
Carlyle at Waters Tampa, FL 392 1986 281,893 13.00 310 82
Oak Ramble Tampa, FL 256 1985 229,384 20.56 128 128
South Pointe (2) Tampa, FL 112 1986 97,232 5.00 72 40
St. James Crossing (2) Tampa, FL 264 1986 198,424 12.30 176 88
Three Palms Tampa, FL 438 1986 369,362 34.70 254 184
--------- ------- ------------ --------- -------- --------
TAMPA TOTAL / WEIGHTED AVERAGE 1,904 1986 1,518,241 118.79 1,200 704
--------- ------- ------------ --------- -------- --------
OTHER FLORIDA
- -------------
Saratoga Melbourne, FL 210 1986 146,732 14.00 160 50
--------- ------- ------------ --------- -------- --------
FLORIDA TOTAL / WEIGHTED AVERAGE 3,862 1986 3,035,765 234.05 2,296 1,534
--------- ------- ------------ --------- -------- --------
PHOENIX
- -------
Casa Verde Phoenix, AZ 268 1983 178,140 8.23 184 84
Crestwood Phoenix, AZ 276 1984 149,433 8.29 255 21
Fairways, The Phoenix, AZ 160 1981 118,192 5.80 108 52
Garden Place Phoenix, AZ 286 1979 231,120 14.20 132 154
Meadow Glen Glendale, AZ 290 1987 242,020 11.20 90 200
Terra Vida Mesa, AZ 384 1988 305,600 15.40 128 224
Woodstone Phoenix, AZ 696 1986 573,564 19.70 432 240
--------- ------- ------------ --------- -------- --------
PHOENIX TOTAL / WEIGHTED AVERAGE 2,360 1985 1,798,069 82.82 1,329 975
--------- ------- ------------ --------- -------- --------
OKLAHOMA CITY
- -------------
Copperfield Oklahoma City, OK 262 1983 187,080 7.70 196 66
Hunter's Ridge Oklahoma City, OK 212 1984 155,587 6.00 148 64
Summerfield Place Oklahoma City, OK 224 1981 154,528 9.00 176 48
Woodscape Oklahoma City, OK 498 1985 363,073 15.60 348 150
--------- ------- ------------ --------- -------- --------
OKLAHOMA CITY TOTAL / WEIGHTED AVERAGE 1,196 1984 860,268 38.30 868 328
--------- ------- ------------ --------- -------- --------
TULSA
- -----
Avondale Tulsa, OK 328 1979 194,168 14.23 280 48
Coventry Park Tulsa, OK 256 1978 156,848 11.32 208 48
Fountain Crest Tulsa, OK 424 1978 256,672 14.57 360 64
--------- ------- ------------ --------- -------- --------
TULSA TOTAL / WEIGHTED AVERAGE 1,008 1978 607,688 40.12 848 160
--------- ------- ------------ --------- -------- --------
OKLAHOMA TOTAL / WEIGHTED AVERAGE 2,204 1981 1,467,956 78.42 1,716 488
--------- ------- ------------ --------- -------- --------
NASHVILLE
- ---------
Nashboro Village Nashville, TN 994 1982 959,153 60.73 456 426
Brandywine Nashville, TN 300 1985 203,418 21.00 240 60
Raintree Nashville, TN 332 1985 216,930 24.90 252 80
Windsor Park Hendersonville, TN 232 1985 151,954 13.35 186 46
--------- ------- ------------ --------- -------- --------
NASHVILLE TOTAL / WEIGHTED AVERAGE 1,858 1984 1,531,455 119.98 1,134 612
--------- ------- ------------ --------- -------- --------
<CAPTION>
UNIT AVERAGE MONTHLY
TYPE PHYSICAL OCCUPANCY RENTAL RATE PER UNIT
----- AVERAGE -------------------- ----------------------
METROPOLITAN AREA/ 3 BR/ APT. SIZE DECEMBER DECEMBER DECEMBER DECEMBER
PROPERTY LOCATION 4 BR (SQ. FT.) 1998 1997 1998 1997
- ------------------- ------------- ---- -------- -------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
TAMPA
- -----
Ashton Park Tampa, FL -- 792 95.2% N/A 577 N/A
Bel Shores Largo, FL -- 759 93.1% 93.9% 627 608
Carlyle at Waters Tampa, FL -- 719 94.7% 90.6% 532 511
Oak Ramble Tampa, FL -- 896 95.5% 94.3% 624 621
South Pointe (2) Tampa, FL -- 868 97.5% N/A 656 N/A
St. James Crossing (2) Tampa, FL -- 752 94.4% N/A 537 N/A
Three Palms Tampa, FL -- 843 98.0% 86.0% 629 623
----- ----- ------ ------ ---- ----
TAMPA TOTAL / WEIGHTED AVERAGE -- 797 95.6% 90.4% 592 412
----- ----- ------ ------ ---- ----
OTHER FLORIDA
- -------------
Saratoga Melbourne, FL -- 699 94.5% 93.4% 576 514
----- ----- ------ ------ ---- ----
FLORIDA TOTAL / WEIGHTED AVERAGE 32 786 94.6% 91.3% 586 489
----- ----- ------ ------ ---- ----
PHOENIX
- -------
Casa Verde Phoenix, AZ -- 665 96.2% 93.3% 438 408
Crestwood Phoenix, AZ -- 541 98.6% 95.5% 481 450
Fairways, The Phoenix, AZ -- 739 89.8% 92.8% 561 546
Garden Place Phoenix, AZ -- 808 91.8% 94.8% 613 580
Meadow Glen Glendale, AZ -- 835 96.9% 96.3% 629 610
Terra Vida Mesa, AZ 32 796 93.4% 96.5% 642 613
Woodstone Phoenix, AZ 24 824 89.7% 89.5% 615 589
----- ----- ------ ------ ---- ----
PHOENIX TOTAL / WEIGHTED AVERAGE 56 762 93.0% 93.5% 581 554
----- ----- ------ ------ ---- ----
OKLAHOMA CITY
- -------------
Copperfield Oklahoma City, OK -- 714 93.5% 94.7% 470 473
Hunter's Ridge Oklahoma City, OK -- 734 92.4% 90.7% 448 455
Summerfield Place Oklahoma City, OK -- 690 89.7% 89.9% 448 445
Woodscape Oklahoma City, OK -- 729 88.2% 88.8% 477 475
----- ----- ------ ------ ---- ----
OKLAHOMA CITY TOTAL / WEIGHTED AVERAGE -- 719 90.3% 90.6% 465 465
----- ----- ------ ------ ---- ----
TULSA
- -----
Avondale Tulsa, OK -- 592 88.9% 90.9% 365 348
Coventry Park Tulsa, OK -- 613 93.5% 97.0% 388 359
Fountain Crest Tulsa, OK -- 605 90.2% 92.5% 369 352
----- ----- ------ ------ ---- ----
TULSA TOTAL / WEIGHTED AVERAGE -- 603 90.7% 93.1% 372 352
----- ----- ------ ------ ---- ----
OKLAHOMA TOTAL / WEIGHTED AVERAGE -- 666 90.5% 91.8% 423 414
----- ----- ------ ------ ---- ----
NASHVILLE
- ---------
Nashboro Village Nashville, TN 112 965 88.2% 91.0% 637 632
Brandywine Nashville, TN -- 678 95.8% 88.0% 539 543
Raintree Nashville, TN -- 653 95.9% 84.9% 541 545
Windsor Park Hendersonville, TN -- 655 92.5% 92.8% 533 534
----- ----- ------ ------ ---- ----
NASHVILLE TOTAL / WEIGHTED AVERAGE 112 824 91.1% 89.7% 591 590
----- ----- ------ ------ ---- ----
</TABLE>
<PAGE> 16
Walden Residential Properties, Inc.
Apartments Owned
<TABLE>
<CAPTION>
TOTAL
NUMBER YEAR RENTABLE UNIT TYPE
METROPOLITAN AREA/ OF CONSTRUCTION AREA TOTAL -------------------
PROPERTY LOCATION UNITS COMPLETED (1) (SQ. FT.) ACREAGE 1 BR 2 BR
- ---------------------- ----------------- --------- ------------- ---------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
SALT LAKE CITY
James Pointe Murray, UT 312 1985 236,928 11.60 144 168
Stillwater Murray, UT 456 1986 343,216 15.34 152 304
--------- ------- ------------ --------- -------- --------
SALT LAKE CITY TOTAL / WEIGHTED AVERAGE 768 1986 580,144 26.94 296 472
--------- ------- ------------ --------- -------- --------
ATLANTA
Parkway Station Atlanta, GA 344 1986 369,960 28.63 72 164
Saratoga Springs Atlanta, GA 266 1985 223,402 20.00 128 138
Shannon Chase Atlanta, GA 156 1987 163,400 26.00 50 106
Villas at Indian Trails Atlanta, GA 236 1986 242,044 39.70 60 176
--------- ------- ------------ --------- -------- --------
Atlanta Total / Weighted Average 1,002 1986 998,806 114.33 310 584
--------- ------- ------------ --------- -------- --------
SAN DIEGO
Felicita Creek San Diego, CA 136 1987 104,440 6.20 36 100
Park Bonita San Diego, CA 184 1984 154,256 11.12 36 148
Sun Ridge San Diego, CA 160 1986 134,800 5.44 16 144
--------- ------- ------------ --------- -------- --------
SAN DIEGO TOTAL / WEIGHTED AVERAGE 480 1986 393,496 22.76 88 392
--------- ------- ------------ --------- -------- --------
OTHER MARKETS
Eagle Pointe Indianapolis, IN 256 1988 202,000 19.77 152 104
Silverado Albuquerque, NM 256 1985 183,656 8.10 180 76
Winridge Aurora, CO (Denver) 364 1986 303,438 15.80 262 102
--------- ------- ------------ --------- -------- --------
OTHER MARKETS TOTAL / WEIGHTED AVERAGE 876 1986 689,094 43.67 594 282
--------- ------- ------------ --------- -------- --------
TOTAL / WEIGHTED AVERAGE 41,594 1984 32,727,463 1,917.15 25,569 15,135
========= ======= ============ ========= ======== ========
<CAPTION>
UNIT AVERAGE MONTHLY
TYPE PHYSICAL OCCUPANCY RENTAL RATE PER UNIT
----- AVERAGE -------------------- ----------------------
METROPOLITAN AREA/ 3 BR/ APT. SIZE DECEMBER DECEMBER DECEMBER DECEMBER
PROPERTY LOCATION 4 BR (SQ. FT.) 1998 1997 1998 1997
- ------------------- ------------ ----- --------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
SALT LAKE CITY
James Pointe Murray, UT -- 759 98.0% 90.4% 594 588
Stillwater Murray, UT -- 753 98.1% 94.5% 610 597
----- ----- ------ ------ ---- ----
SALT LAKE CITY TOTAL / WEIGHTED AVERAGE -- 755 98.1% 92.9% 604 593
----- ----- ------ ------ ---- ----
ATLANTA
Parkway Station Atlanta, GA 108 1,075 85.7% N/A $732 N/A
Saratoga Springs Atlanta, GA -- 840 97.1% 94.8% 654 635
Shannon Chase Atlanta, GA -- 1,047 93.3% 90.6% 672 674
Villas at Indian Trails Atlanta, GA -- 1,026 94.2% 84.5% 692 684
----- ----- ------ ------ ---- ----
Atlanta Total / Weighted Average 108 997 91.7% 90.1% 693 662
----- ----- ------ ------ ---- ----
SAN DIEGO
Felicita Creek San Diego, CA -- 768 99.2% 97.9% 703 649
Park Bonita San Diego, CA -- 838 98.8% 94.0% 847 789
Sun Ridge San Diego, CA -- 843 96.7% 93.6% 667 629
----- ----- ------ ------ ---- ----
SAN DIEGO TOTAL / WEIGHTED AVERAGE -- 820 98.3% 95.0% 746 696
----- ----- ------ ------ ---- ----
OTHER MARKETS
Eagle Pointe Indianapolis, IN -- 789 86.7% 90.1% 593 576
Silverado Albuquerque, NM -- 717 84.4% 88.6% 583 560
Winridge Aurora, CO (Denver) -- 834 94.0% 93.7% 654 627
----- ----- ------ ------ ---- ----
OTHER MARKETS TOTAL / WEIGHTED AVERAGE -- 787 89.3% 91.1% 615 593
----- ----- ------ ------ ---- ----
TOTAL / WEIGHTED AVERAGE 890 787 93.6% 93.2% $622 $531
===== ===== ====== ====== ==== ====
</TABLE>
(1) Year construction completed indicates the year in which the final
certificate of occupancy for the property was issued.
(2) Represents recently acquired property for which historical information is
not available.
(3) Total rentable area is calculated by adding the square footage for each
individual apartment in the property, excluding the leasing office or
maintenance area.
<PAGE> 17
ITEM 3. LEGAL PROCEEDINGS
The Company and the Properties are occasionally subjected to routine
litigation arising in the ordinary course of business, which has been and is
expected to be covered by liability insurance and none of which has had, or is
expected to have, a material adverse effect on the business, financial
condition, results of operations or cash flows of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
-16-
<PAGE> 18
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The common stock of the Company ("Common Stock") has traded on the New
York Stock Exchange ("NYSE") under the symbol "WDN" since February 2, 1994, the
date on which the Common Stock began trading. The following table sets forth
for the periods indicated the high and low sales prices per common share as
reported on the NYSE and the distributions declared by the Company per common
share for each such period in 1998 and 1997:
<TABLE>
<CAPTION>
Distributions
Quarter Ended High Low Per share
- ------------- ------- -------- -------------
<S> <C> <C> <C>
March 31, 1998....................... $27.125 $ 23.750 $0.4825
June 30, 1998........................ 26.000 23.813 0.4825
September 30, 1998................... 23.063 22.750 0.4825
December 31, 1998.................... 23.938 19.250 0.4825
March 31, 1997....................... $26.875 $ 24.000 $0.4825
June 30, 1997........................ 25.688 21.250 0.4825
September 30, 1997................... 25.750 22.750 0.4825
December 31, 1997.................... 26.000 23.500 0.4825
</TABLE>
As of March 3, 1999, the Common Stock was held by 1,571 stockholders
of record, including shares held in nominee or street name by brokers.
For the year ended December 31, 1998, the Company declared and paid
distributions totaling $1.93 per share of Common Stock. On March 3, 1999, the
Company paid a distribution of $.4825 per share to record holders of Common
Stock on February 18, 1999, representing an annualized distribution of $1.93
per share of Common Stock.
Pursuant to a provision of the Company's credit facility,
distributions to stockholders may not exceed 90% of funds from operations, as
defined in the credit facility. The Company does not anticipate its
distributions to be restricted by this provision.
Future distributions made by the Company will be at the discretion of
its Board of Directors and will depend upon numerous factors, including the
gross revenues received from the Properties, the operating expenses of the
Company, capital expenditures for the Properties and the interest expense
incurred in borrowing.
Pursuant to Internal Revenue Code provisions, a REIT is generally
required to distribute at least 95% of its taxable income, as defined.
Distributions by the Company to the extent of its current and accumulated
earnings and profits for Federal income tax purposes generally will be taxable
to stockholders as ordinary dividend income, ordinary gain or capital gain.
Distributions in excess of such earnings and profits generally will be treated
as a non-taxable reduction of the stockholder's basis in the shares of Common
Stock to the extent thereof (which may have the effect of deferring taxation
until the sale of such shares of Common Stock), and thereafter as taxable gain.
-17-
<PAGE> 19
Following is an allocation of the 1998 distributions to common stockholders:
<TABLE>
<CAPTION>
Amount of Distribution
Distribution Type per Common Share Percentage
- ----------------- ---------------------- ----------
<S> <C> <C>
Ordinary Taxable Dividend $ 0.76 39.30%
20% Rate Capital Gain 0.15 7.71%
Section 1250 Ordinary Gain 0.05 2.85%
Return of Capital 0.97 50.14%
------ ----------
$ 1.93 100.00%
====== ==========
</TABLE>
ITEM 6. SELECTED FINANCIAL DATA
The following tables set forth selected consolidated financial data
for the Company and combined financial data for the Walden Predecessors, which
included the 18 Original Properties (five of which have been sold) acquired
concurrently with the closing of the IPO. The historical consolidated operating
data for the Company for the years ended December 31, 1998, 1997, 1996 and 1995
and the period from February 9, 1994 (date of commencement of operations) to
December 31, 1994 and the balance sheet data as of December 31, 1998, 1997,
1996, 1995, and 1994 and the combined operating data of the Walden Predecessors
for the period January 1, 1994 to February 8, 1994 have been derived from the
consolidated financial statements and accounting records of the Company and the
combined financial statements and accounting records of the Walden
Predecessors, respectively, which have been audited by independent auditors.
The consolidated and combined historical operating results of the Company and
the Walden Predecessors may not be indicative of future operating results of
the Company. The following selected financial information should be read in
conjunction with the discussion set forth under "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and all of the
financial statements included elsewhere in this report. All amounts are in
thousands except per share and property data.
-18-
<PAGE> 20
<TABLE>
<CAPTION>
The Company
------------------------------------------------
Year Ended December 31,
-----------------------
1998 1997 (a) 1996 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
OPERATING DATA
Revenues
Rental income ................................. $ 268,224 $ 163,224 $ 105,602 $ 78,469
Other property income ......................... 10,593 6,313 3,873 3,090
Interest income ............................... 1,717 1,598 1,433 856
Other income .................................. -- -- 263 409
--------- --------- --------- ---------
Total revenues ........................... 280,534 171,135 111,171 82,824
Expenses
Property operating and maintenance ............ 91,930 56,483 37,521 28,748
Real estate taxes ............................. 28,272 16,805 10,039 7,337
General and administrative .................... 11,901 7,734 5,124 3,811
Unusual charge ................................ 3,993 1,940 -- --
Interest expense .............................. 54,409 28,447 20,573 17,111
Depreciation and amortization ................. 60,275 34,668 20,726 16,634
--------- --------- --------- ---------
Total expenses ........................... 250,780 146,077 93,983 73,641
--------- --------- --------- ---------
Operating income .................................. 29,754 25,058 17,188 9,183
Gain on disposition of real property .............. 6,459 2,055 1,934 1,502
Extraordinary loss on debt extinguishment ......... (423) (422) (1,848) (1,352)
--------- --------- --------- ---------
Income before income allocated
to minority interests ........................... 35,790 26,691 17,274 9,333
Income allocated to minority interests ............ (11,935) (4,109) (1,705) (922)
--------- --------- --------- ---------
Net income ........................................ 23,855 22,582 15,569 8,411
Preferred distributions ........................... (13,119) (13,186) (2,387) --
--------- --------- --------- ---------
Net income available to common stockholders ....... $ 10,736 $ 9,396 $ 13,182 $ 8,411
========= ========= ========= =========
Basic net income per share ........................ $ 0.58 $ 0.53 $ 0.90 $ 0.69
========= ========= ========= =========
Diluted net income per share ...................... $ 0.58 $ 0.53 $ 0.89 $ 0.69
========= ========= ========= =========
Distributions per share of common stock ........... $ 1.93 $ 1.93 $ 1.86 $ 1.82
========= ========= ========= =========
Basic weighted average number of common shares .... 18,497 17,590 14,720 12,155
========= ========= ========= =========
PROPERTY DATA
Total properties (at end of period) (b) ........... 150 154 68 55
Total units (at end of period) .................... 41,594 42,482 21,407 17,205
Total units (weighted average) .................... 42,629 27,346 18,430 14,601
Weighted average monthly property revenue
per unit(c) ..................................... $ 545 $ 517 $ 495 $ 465
OTHER DATA
Funds from operations (d) ......................... $ 78,649 $ 50,233 $ 36,998 $ 24,917
Cash flows provided by (used in):
Operating activities .......................... $ 69,405 $ 70,822 $ 38,281 $ 31,317
Investing activities .......................... $ (53,776) $(327,814) $(158,668) $ (86,926)
Financing activities .......................... $ (16,094) $ 237,029 $ 143,306 $ 58,121
</TABLE>
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------
1998 1997 1996 1995
---------- ---------- -------- --------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA
Real estate assets, at cost.......................... $1,531,163 $1,506,030 $683,515 $513,341
Accumulated depreciation............................. (128,765) (74,584) (41,707) (23,734)
Total assets......................................... 1,552,273 1,469,472 689,714 510,548
Mortgage notes payable, credit facility
and term loan...................................... 806,867 702,354 258,908 259,015
Minority interests................................... 147,277 321,916 14,886 18,608
Stockholders' equity................................. 533,203 395,215 396,535 216,519
</TABLE>
(a) On October 1, 1997, the Company acquired Drever. For a discussion of the
Drever transaction, see the general section located in Item 1 of Part I.
(b) During 1997, in order to achieve operating efficiencies, the Company
combined six properties with certain other properties owned by the Company,
bringing the total number of Properties to 154 at December 31, 1997.
(c) Represents rental income and other property income, divided by weighted
average units, divided by twelve months.
(d) Based on the guidelines established by the National Association of Real
Estate Investment Trusts ("NAREIT") and 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.
-19-
<PAGE> 21
<TABLE>
<CAPTION>
Walden
The Company Predecessors
----------- ------------
February 9 to January 1 to
December 31, February 8,
1994 1994
---- ----
<S> <C> <C>
OPERATING DATA .................................................
Revenues
Rental income ......................................... $ 39,602 $ 3,047
Other property income ................................. 1,493 134
Interest income ....................................... 365 37
Other income .......................................... 533 --
Property management fees .............................. -- 150
--------- ---------
Total revenues ................................. 41,993 3,368
Expenses
Property operating and maintenance .................... 15,607 1,242
Real estate taxes ..................................... 3,275 226
General and administrative ............................ 2,507 217
Interest expense ...................................... 6,288 1,075
Depreciation and amortization ......................... 8,960 653
--------- ---------
Total expenses ................................. 36,637 3,413
--------- ---------
Operating income (loss) (a) ............................... $ 5,356 $ (45)
========= =========
Net income available to common stockholders ............... $ 5.356 --
========= =========
Basic net income per share ................................ $ 0.62 --
========= =========
Diluted net income per share .............................. $ 0.62 --
========= =========
Distributions per share of common stock ................... $ 1.09 --
========= =========
Basic weighted average number of common shares ............ 8,689 --
========= =========
PROPERTY DATA
Total properties (at end of period) ....................... 40 18
Total units (at end of period) ............................ 12,319 5,895
Total units (weighted average) ............................ 9,140 5,895
Weighted average monthly property revenue per unit (b) .... $ 420 $ 421
OTHER DATA
Funds from operations (c) ................................. $ 13,945 $ 588
Cash flows provided by (used in):
Operating activities .................................. $ 16,420 $ 1,858
Investing activities .................................. $(256,114) $ --
Financing activities .................................. $ 243,982 $ (311)
</TABLE>
<TABLE>
<CAPTION>
December 31
BALANCE SHEET DATA 1994
-----------
<S> <C>
Real estate assets, at cost................................ $ 329,206
Accumulated depreciation and impairment allowance.......... (8,589)
Total assets............................................... 334,937
Mortgage notes payable..................................... 165,439
Stockholders' equity....................................... 160,267
</TABLE>
(a) Net loss of Walden Predecessors is before income tax benefits and
extraordinary gains.
(b) Represents rental income and other property income, divided by weighted
average units, divided by the number of months.
(c) Based on the guidelines established by the National Association of Real
Estate Investment Trusts ("NAREIT") and 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.
-20-
<PAGE> 22
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The following discussion should be read in conjunction with the
"Selected Financial Data" and all of the financial statements and notes thereto
included elsewhere in this report. Such financial statements and information
have been prepared to reflect the consolidated statements of income of the
Company for each of the three years in the period ended December 31, 1998 and
the balance sheets of the Company as of December 31, 1998 and 1997. (See the
Walden Residential Properties, Inc. Consolidated Financial Statements and
related Notes included elsewhere in this report.)
Changes in revenues and expenses related to the Properties during
1998, 1997 and 1996 are primarily the result of property acquisitions. 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.
RESULTS OF OPERATIONS
Results of Operations for the Company for the Year Ended December 31,
1998 Compared to the Year Ended December 31,1997.
The weighted average number of units owned increased by 15,283 in 1998
or 55.9% from 27,346 in 1997 to 42,629 in 1998 primarily as a result of the
Drever acquisition in the fourth quarter of 1997. Total units owned at December
31, 1997 and 1998 were 42,482 and 41,594, respectively. The portfolio had a
weighted average physical occupancy of 93.3% for 1997 and 93.6% for 1998.
The Company owned 62 properties with 20,400 units throughout both
calendar years 1998 and 1997 ("same property"). The "same property" operating
performance is summarized as follows:
<TABLE>
<CAPTION>
Year Ended
December 31,
------------
1998 1997 % Change
-------- -------- --------
<S> <C> <C> <C>
Rental and other property revenue (in thousands) .... $130,261 $126,416 3.0%
Property operating expenses (in thousands)(1) ....... 55,228 53,761 2.7%
-------- --------
Property operating income (in thousands) ............ $ 75,033 $ 72,655 3.3%
======== ========
Weighted average physical occupancy ................. 92.6% 92.9% N/A
======== ========
Average monthly revenue per unit .................... $ 532 $ 516 3.0%
======== ========
Average annual operating and maintenance
expenses per unit ................................. $ 2,082 $ 2,027 2.7%
======== ========
Average annual real estate taxes per unit ........... $ 625 $ 608 2.7%
======== ========
Operating expense ratio ............................. 42.4% 42.5% N/A
======== ========
</TABLE>
(1) Consists of property operating and maintenance and real
estate tax expenses.
-21-
<PAGE> 23
The operating performance of those properties not owned throughout
1998 (88 properties) and 1997 (92 properties) is summarized below:
<TABLE>
<CAPTION>
Year Ended
December 31,
--------------------
1998 1997
-------- --------
<S> <C> <C>
Rental and other property revenue (in thousands) .... $148,556 $ 43,121
Property operating expenses (in thousands)(1) ....... 64,974 19,527
-------- --------
Property operating income (in thousands) ............ $ 83,582 $ 23,594
======== ========
Weighted average number of units .................... 22,229 6,946
======== ========
Weighted average physical occupancy ................. 94.6% 94.5%
======== ========
Average monthly revenue per unit .................... $ 557 $ 517
======== ========
Average annual operating and maintenance
expenses per unit ................................. $ 2,225 $ 2,177
======== ========
Average annual real estate taxes per unit ........... $ 698 $ 634
======== ========
Operating expense ratio ............................. 43.7% 45.3%
======== ========
</TABLE>
(1) Consists of property operating and maintenance and real
estate tax expenses.
General and administrative expenses increased $4.2 million in 1998, or
54.5%, from $7.7 million in 1997 to $11.9 million in 1998. This represents a
per unit decrease of $4, or 1.4%, primarily due to operating efficiencies
gained from the merger with Drever. The increase in general and administrative
expenses was primarily the result of adding corporate personnel due to the
acquisition of properties in late 1997, and increased occupancy costs for
additional corporate and regional office space.
The $4.0 million unusual charge resulted from costs associated with
the December 1998 settlement of a $25 million forward treasury rate lock
agreement entered into in 1997.
Interest expense increased $26.0 million in 1998, or 91.5%, from $28.4
million in 1997 to $54.4 million in 1998, primarily due to an increase in the
weighted average indebtedness outstanding of approximately $365.8 million
associated with the acquisition of properties in 1997 and 1998 and the funding
of capital expenditures, partially offset by indebtedness repaid on properties
sold in 1998.
Depreciation expense increased $25.4 million in 1998, or 75.1%, from
$33.8 million in 1997 to $59.2 million in 1998, due to depreciation on
additional properties acquired in 1997 and 1998 and increased capital
improvements on existing properties. This represented a weighted average
increase of $151 per unit, or 12.2%.
The $6.5 million gain on disposition of real property in 1998 related
to the August 1998 sale of four properties located in Dallas/Forth Worth, Texas
and the December 1998 sale of five
-22-
<PAGE> 24
properties located in Houston, Texas. The Company received total net sales
proceeds from these dispositions of approximately $63.4 million, which was used
for the repayment of outstanding indebtedness and to purchase additional
properties.
The $0.4 million extraordinary loss on debt extinguishment in 1998 was
due to prepayment penalties incurred in connection with the Company's payoff of
a $7.2 million mortgage loan in April 1998, the payoff of two loans, totaling
$4.5 million, in December 1998 and the write off of unamortized deferred
financing costs related to the refinancing of certain of the Company's
indebtedness during 1998.
Results of Operations for the Company for the Year Ended December 31,
1997 Compared to the Year Ended December 31,1996.
The weighted average number of units owned increased by 8,916 in 1997,
or 48.4%, from 18,430 units in 1996 to 27,346 in 1997 as a result of the
acquisition of additional properties. Total units owned at December 31, 1996
and 1997 were 21,407 and 42,482, respectively. The portfolio had a weighted
average physical occupancy of 93.5% for 1996 and 93.3% for 1997.
The Company owned 51 properties with 15,981 apartment units throughout
both calendar years 1997 and 1996 ("same property"). The "same property"
operating performance is summarized as follows:
<TABLE>
<CAPTION>
Year Ended
December 31,
------------------
1997 1996 % Change
------- ------- --------
<S> <C> <C> <C>
Rental and other property revenue (in thousands) .... $97,520 $95,294 2.3%
Property operating expenses (in thousands)(1) ....... 41,412 41,437 (0.1%)
------- -------
Property operating income (in thousands) ............ $56,108 $53,857 4.2%
======= =======
Weighted average physical occupancy ................. 92.7% 93.6% N/A
======= =======
Average monthly revenue per unit .................... $ 509 $ 497 2.3%
======= =======
Average annual operating and maintenance
expenses per unit ................................. $ 2,005 $ 2,041 (1.8%)
======= =======
Average annual real estate taxes per unit ........... $ 586 $ 552 6.2%
======= =======
Operating expense ratio ............................. 42.5% 43.5% N/A
======= =======
</TABLE>
(1) Consists of property operating and maintenance and real estate tax
expenses.
-23-
<PAGE> 25
The operating performance of properties not owned throughout both
calendar years 1997 (103 properties) and 1996 (17 properties) is summarized as
follows:
<TABLE>
<CAPTION>
Year Ended
December 31,
------------------
1997 1996
------- -------
<S> <C> <C>
Rental and other property revenue (in thousands) .... $72,017 $14,181
Property operating expenses (in thousands) (1) ...... 31,876 6,123
------- -------
Property operating income (in thousands) ............ $40,141 $ 8,058
======= =======
Weighted average number of units .................... 11,365 2,449
======= =======
Weighted average physical occupancy ................. 94.1% 92.9%
======= =======
Average monthly revenue per unit .................... $ 528 $ 483
======= =======
Average annual operating and maintenance
expenses per unit ................................. $ 2,151 $ 2,005
======= =======
Average annual real estate taxes per unit ........... $ 654 $ 495
======= =======
Operating expense ratio ............................. 44.3% 43.2%
======= =======
</TABLE>
(1) Consists of property operating and maintenance and real estate tax
expenses.
Interest income increased $165,000 in 1997, or 11.5%, from $1,433,000
in 1996 to $1,598,000 in 1997, primarily as the result of increased cash
balances during 1997.
The other income of $263,000 in 1996 was primarily attributable to the
net income from WDN Management Company allocated to the Company. WDN Management
Company was merged into the Company effective December 31, 1996.
General and administrative expenses increased $2.6 million in 1997, or
51.0%, from $5.1 million in 1996 to $7.7 million in 1997. This represented a
weighted average increase of $5 per unit, or 1.8%. The increases in general and
administrative expenses were primarily the result of adding corporate
personnel, due to the acquisition of properties during 1997, increased salary
costs, higher professional fees, higher costs related to stockholders
(quarterly mailings to stockholders, transfer services, etc.) and a one-time
severance charge relating to the departure of an executive of the Company
during the second quarter of 1997.
The $1.9 million unusual charge resulted from a settlement agreement
relating to the resignation of the Company's former Chairman of the Board of
Directors and Chief Executive Officer in October 1997.
Interest expense increased $7.8 million in 1997, or 37.9%, from $20.6
million in 1996 to $28.4 million in 1997, due to an increase in weighted
average indebtedness outstanding of approximately $99.3 million associated with
the acquisition of properties and a slight increase in the weighted average
interest rate in 1997 of approximately 0.1%.
Depreciation expense increased $14.0 million in 1997, or 70.7%, from
$19.8 million in 1996 to $33.8 million in 1997, due to depreciation on
additional properties acquired and capital improvements on existing properties.
This represented a weighted average increase of $162 per unit, or 15.1%.
-24-
<PAGE> 26
The $2.1 million gain on disposition of real property in 1997 related
to the sale of a 392-unit property located in Dallas, Texas on October 2, 1997.
The Company received total net sales proceeds from the disposition of
approximately $4.1 million ($8.7 million sale proceeds less $4.6 million
repayment of related debt), which was used to purchase additional properties.
The $0.4 million extraordinary loss on debt extinguishment in 1997
resulted from the write-off of unamortized deferred financing costs and
prepayment penalties incurred in connection with the repayment of debt on the
property sold in October 1997.
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 debt with
interest rate swap or cap agreements, (iii) obtaining unsecured indebtedness
when possible, and (iv) staggering principal maturities when possible.
The Company's principal demands for liquidity are distributions to its
stockholders, ongoing maintenance and repair of its properties, capital
improvements to its properties (including unit interior upgrades and
repositioning costs), acquisitions of properties, new development commitments,
interest on indebtedness and debt repayments.
For the year ended December 31, 1998, the Company had cash flows from
operating activities of $69.4 million, net proceeds from the sale of nine
properties of $63.4 million, and net proceeds from stock issuances of $19.3
million, including $6.6 million related to the dividend reinvestment plan and
$3.3 million related to the stock loan program. These funds, together with
$91.0 million of net proceeds from mortgage notes and the unsecured and secured
credit facilities, were used during the year to primarily pay for $27.5 million
of the total acquisition cost of five apartment properties containing 1,098
units, capital improvements to properties of $71.7 million (including $7.5
million related to the funding of new development costs), the $18.0 million
investment in GGL, the purchase of 731,500 shares of common stock for $17.8
million, distributions to stockholders and unit holders of $74.3 million,
principal payments of $5.6 million and financing costs of $28.3 million ($16
million related to the cost of settling forward treasury rate lock agreements).
As a result, cash and cash equivalents decreased $0.5 million, from $9.8
million as of December 31, 1997 to $9.3 million as of December 31, 1998.
The Company's principal demands for short-term liquidity are: ongoing
maintenance and repairs to the Properties, capital improvements to the
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 in 1999. The Company
anticipates spending $42 million in 1999 for capital expenditures, including
non-recurring capital expenditures and acquisition renovation and repositioning
costs. Of the $42 million of capital expenditures budgeted for 1999, the
Company is contractually obligated for approximately $10 million. In addition,
the Company has a commitment to fund $37 million to GGL. In February 1999, the
Company funded $32 million of the GGL commitment, which amount was partially
funded through the proceeds of a $15 million unsecured loan obtained in
February 1999. The Company anticipates selling several properties during the
first six months of 1999 which will result in net proceeds of approximately $60
million which will be used to fund the Company's capital expenditure and a
portion of GGL commitments and repay a portion of the Credit Facility.
-25-
<PAGE> 27
The Company has entered into various agreements to purchase four
apartment properties, upon the completion of their construction and lease up
phase, at an aggregate cost of $78.8 million. The purchases are anticipated to
occur in late 1999 or early 2000 and will be funded through the assumption of
existing construction loans or borrowings under the Credit Facility.
Approximately $46 million of existing construction loans have scheduled
maturities in 2001.
During 1998, the Company spent approximately $7.5 million related to
the funding of new development projects and $64.2 million on capital
expenditures to its Properties. The Company has budgeted capital improvements
of $42.0 million for 1999. Following is a summary of capital expenditures
incurred in 1998 and budgeted for 1999 (in thousands):
<TABLE>
<CAPTION>
1998 1999
------- -------
<S> <C> <C>
Funding of new development projects............... $ 7,523 $ --
Normal recurring capital expenditures............. 22,903 15,157
Non-recurring capital expenditures................ 13,694 8,810
Acquisition renovation costs...................... 9,891 2,523
Repositioning program capital expenditures........ 17,699 15,535
------- -------
Total........................................ $71,710 $42,025
======= =======
</TABLE>
Acquisition renovation costs and normal recurring capital expenditures
were funded in 1998 from cash flow from operating activities and borrowings
under the Credit Facility. All other capital expenditures were funded from
borrowings under the Credit Facility. The non-recurring capital expenditures
budgeted for 1999 include the construction of covered carports, the
installation of access gates with perimeter fencing, retaining walls,
installation of cable equipment and the reconstruction of balconies and
exterior stairwells. The 1999 budgeted capital expenditures are anticipated to
be funded from borrowings under the Credit Facility and proceeds from planned
property dispositions.
For the year ended December 31, 1998, the Company paid distributions
of $35.1 million to common stockholders, $13.1 million to preferred
stockholders and $26.1 million to minority interest holders. On March 3, 1999,
the Company paid distributions of $11.6 million to common stockholders and $4.1
million to preferred stockholders and on March 1, 1999 paid distributions of
$2.9 million to minority interest holders. The distributions paid to common
stockholders and minority interest holders of common units were $0.4825 per
share or unit, which equates to an annualized distribution of $1.93 per share
or unit. Distributions on the Company's preferred stock, Preferred OP Units and
certain of the minority interests of common stock have a priority over other
distributions.
As of December 31, 1998, the Company had outstanding indebtedness in
the aggregate principal amount of $806.9 million, consisting of $654.3 million
of conventional and tax-exempt fixed rate debt (including $180.5 million of
variable rate debt which has been converted to fixed rate debt through interest
rate swap agreements) and $152.6 million of variable rate debt (including $95
million outstanding under the Credit Facility).
-26-
<PAGE> 28
During the year ended December 31, 1998, the Company refinanced,
repaid or assumed debt as summarized below (in thousands):
<TABLE>
<CAPTION>
Outstanding Outstanding
Indebtedness Indebtedness
as of Debt Debt Debt Principal as of
12/31/97 Proceeds Assumed Repaid Amortization 12/31/98
------------ -------- ------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Secured credit facility $ -- $250,000 $ -- $ -- $ -- $250,000
Other fixed rate debt 370,069 37,448 13,391 11,372 5,251 404,285
Unsecured Term Loan 200,000 -- -- 200,000 -- --
Other variable rate debt 58,285 57,955 5,750 64,035 373 57,582
Unsecured Credit Facility 74,000 214,000 -- 193,000 -- 95,000
-------- -------- -------- --------- ------- --------
Total $702,354 $559,403 $ 19,141 $ 468,407 $ 5,624 $806,867
======== ======== ======== ========= ======= ========
</TABLE>
The following table sets forth certain information regarding the
Company's outstanding indebtedness as of December 31, 1998:
<TABLE>
<CAPTION>
Weighted Average
------------------------ Outstanding Percentage
Interest Years to Principal of
Rate Maturity Balance (1) Total
-------- -------- ----------- ----------
<S> <C> <C> <C> <C>
Secured credit facility 7.78% 8.5 $ 250,000 31.0%
Conventional fixed rate 7.69% 6.8 322,768 40.0%
Tax-exempt fixed rate 6.30% 18.8 81,517 10.1%
------- ----- ----------- ----------
Total fixed rate 7.55% 8.9 654,285 81.1%
------- ----- ----------- ----------
Tax-exempt variable rate 4.85% 28.0 57,582 7.1%
Unsecured Credit Facility 7.67% 2.1 95,000 11.8%
------- ----- ----------- ----------
Total variable rate 6.61% 11.9 152,582 18.9%
------- ----- ----------- ----------
Total 7.37% 9.5 $ 806,867 100.0%
======= ===== =========== ==========
</TABLE>
(1) In thousands.
As of December 31, 1998, the Company's total indebtedness becomes due
as follows (in thousands):
<TABLE>
<CAPTION>
Balloon
Principal Payments Total
--------- -------- --------
<S> <C> <C> <C>
1999 ............................................ $ 7,159 $ 8,335 $ 15,494
2000 ............................................ 7,657 7,067 14,724
2001 ............................................ 6,807 158,691 165,498
2002 ............................................ 7,006 -- 7,006
2003 ............................................ 7,182 98,207 105,389
Thereafter....................................... 111,157 387,599 498,756
--------- -------- --------
Total....................................... $ 146,968 $659,899 $806,867
========= ======== ========
</TABLE>
The Credit Facility is with BankBoston, as agent for a group of
financial institutions. The Company entered into a new agreement and changed
the interest rate and maturity date of the previous Credit Facility in December
1998. The Credit Facility provides an unsecured borrowing
-27-
<PAGE> 29
commitment of up to $150 million, with borrowings outstanding under the Credit
Facility generally bearing interest at LIBOR plus 1.875% (7.46% at December 31,
1998). Although the Company has a commitment up to $150 million, it must have
sufficient unencumbered properties in order to borrow the full amount. At
December 31, 1998, the Company's borrowing capacity was approximately $126
million. The Credit Facility expires in February 2001. In March 1999, the
Company further modified the Credit Facility to increase its borrowing
capacity. As of March 15, 1999, the Company's borrowing capacity was
approximately $138 million, of which $123 million was outstanding.
The Credit Facility contains customary representations, warranties and
events of default which require the Company to comply with certain affirmative
and negative covenants. The primary restrictive covenants provide that: (1)
distributions to stockholders may not exceed 90% of funds from operations, as
defined in the Credit Facility; (2) secured mortgage indebtedness may not
exceed 46% of the Company's total assets before depreciation; (3) the Company's
fixed charge coverage ratio, as defined, must exceed 1.5; and (4) the Company's
debt service coverage ratio, as defined, must exceed 2.0. As of December 31,
1998, the Company is in compliance with all covenants of the Credit Facility.
In December 1997, the Company entered into a term loan agreement (the
"Term Loan") with BankBoston, as agent for a group of financial institutions.
The term loan provided unsecured borrowings of $200 million and bore an
interest rate of 1.375% over LIBOR. The Company repaid the Term Loan upon its
maturity in December 1998 with proceeds from a $250 million secured credit
facility with FNMA. This facility provides a revolving secured borrowing
capacity of up to $250 million. As of December 31, 1998, the secured credit
facility was fully drawn. The secured credit facility is divided into $75
million of fixed rate debt with a ten-year term, and $100 million and $75
million of floating rate debt with a ten year-term and a five-year term,
respectively. The Company utilized $250 million of the forward treasury rate
lock agreements entered into in 1997 in connection with executing the secured
credit facility. In addition, in order to fix the interest rate on the $175
million of variable rate debt, the Company entered into a ten-year and a
five-year interest rate swap agreement, creating effective interest rates on
the $250 million secured credit facility ranging from 7.34% to 7.98%. These
rates include the amortization of settlement costs of utilizing forward
treasury rate lock agreements.
The secured credit facility contains customary representations,
warranties and events of default which require the Company to comply with
affirmative and negative covenants. The restrictive covenants provide that: (i)
the percentage of consolidated total indebtedness to consolidated total
undepreciated assets be less than 56%; (ii) total equity, as defined, be
greater than $600 million; (iii) earnings before interest, taxes, depreciation
and amortization ("EBITDA") less capital expenditures (based on $300 per
apartment unit) be greater than two times interest expense; and (iv) EBITDA
less capital expenditures be greater than 1.5 times fixed changes (interest
expense plus amortization plus preferred distributions). As of December 31,
1998, the Company is in compliance with all covenants of the secured credit
facility.
As of December 31, 1998, the Company had 124 of its Properties as
collateral under various secured debt agreements.
-28-
<PAGE> 30
The Company expects to meet 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. During
1998, the Company was able to raise additional equity, sell nine properties and
incur indebtedness to acquire five properties. 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 $60
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 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.
-29-
<PAGE> 31
Following is a calculation of the Company's FFO (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net income available to common stockholders $ 10,736 $ 9,396 $ 13,182
Preferred distributions (1) ............... 3,919 2,861 2,387
Income allocated to minority interests (2) 7,435 4,109 1,705
Extraordinary loss on debt extinguishment . 423 422 1,848
Gain on disposition of real property ...... (6,459) (2,055) (1,934)
Depreciation of real estate assets ........ 58,602 33,560 19,810
Unusual charges (3) ....................... 3,993 1,940 --
--------- --------- ---------
Funds from operations ..................... $ 78,649 $ 50,233 $ 36,998
========= ========= =========
Cash flows provided by (used in):
Operating activities ................. $ 69,405 $ 70,822 $ 38,281
Investing activities ................. (53,776) (327,814) (158,668)
Financing activities ................. (16,094) 237,029 143,306
</TABLE>
(1) Distributions on convertible preferred stock were added back
in computing FFO since their conversion to common shares is
assumed.
(2) Excludes distributions on the Preferred OP Units, which are
not convertible into common stock and therefore not added
back in computing FFO ($1,125 per quarter for 1998 and 1997).
(3) Represents forward treasury rate lock agreement settlement
costs in 1998 and an officer settlement agreement in 1997.
FFO increased $28.4 million, or 56.6%, from $50.2 million for the year
ended December 31, 1997 to $78.6 million for the year ended December 31, 1998.
The increase in FFO was primarily due to increased property operating income
offset by increased interest expense on new indebtedness, both resulting from
the increased number of units owned as a result of property acquisitions.
FFO increased $13.2 million, or 35.7%, from $37.0 million for the year
ended December 31, 1996 to $50.2 million for the year ended December 31, 1997.
The increase in FFO was primarily attributable to additional operating income,
which resulted from an increase in the number of units owned as a result of
property acquisitions and increased operating income from properties owned
throughout both periods.
As discussed in Note (3) in the accompanying financial statements,
effective July 1, 1996, the Company revised its method of accounting to
capitalize the cost of replacement carpets on a prospective basis. Following is
the decrease to depreciation and increase to net income and FFO of this change
in accounting policy for the year ended December 31, 1996:
<TABLE>
<S> <C>
Adjustment for change in accounting policy to capitalize
carpet replacement costs (and effect on FFO) ................................................... $ 864
Adjustment for effect of depreciation on capitalized carpet replacement costs..................... (43)
-----
Net effect on net income ......................................................................... $ 821
=====
</TABLE>
-30-
<PAGE> 32
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 due to the ability to adjust rental rates to
market levels as leases expire.
NEW ACCOUNTING STANDARDS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (the "Statement"), which establishes
standards for accounting and reporting for derivative instruments. The
Statement is effective for periods 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.
RISKS ASSOCIATED WITH FORWARD-LOOKING STATEMENTS INCLUDED IN THIS FORM 10-K
This Form 10-K contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended, which are intended to
be covered by the safe harbors created thereby. 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. 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-K 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.
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. The total
cost of the new system was approximately $750,000, which has
been paid as of December 31, 1998.
(2) Payroll. As of December 31, 1998, payroll is processed
through ADP, an outside payroll vendor, on a system that is
not Year 2000 compliant. The Company has
-31-
<PAGE> 33
selected a new payroll vendor, ProBusiness, to provide the
payroll processing for the Company. The conversion from ADP
to ProBusiness is expected to be completed by April 1999, for
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.
The Company has also identified certain on-site, non-information
technology systems that may be Year 2000 sensitive and is in the process of
questioning vendors to determine whether these systems are vulnerable to the
Year 2000 issue. Potential non-information technology systems include:
o access gates
o alarms
o irrigation systems
o thermostats
o utility meters and switches
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 day-to-day operations and has developed a short questionnaire
regarding the vendor's Year 2000 status. These vendors, consisting primarily of
financial institutions, have been contacted to determine their Year 2000
status. In the event a vendor's system will not be Year 2000 compliant, the
Company will assess the potential risk and, to the extent it is feasible,
transfer business to alternate vendors.
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. The
need for a plan will be evaluated in 1999 as the Year 2000 conversion
progresses.
-32-
<PAGE> 34
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 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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. The table below presents principal cash flows and related
weighted average effective interest rates of the Company's long-term fixed rate
debt and variable rate debt (excluding variable rate debt converted to fixed
rates through interest rate swap agreements) at December 31, 1998, by expected
maturity dates:
<TABLE>
<CAPTION>
Expected Maturity Date
As of December 31, 1998
-----------------------
(Dollars in thousands)
Description 1999 2000 2001 2002 2003 Thereafter Total Fair Value
- ----------- ---- ---- ---- ---- ---- ---------- ----- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Long-Term Debt:
Fixed Rate Debt $ 14,799 $ 13,978 $ 69,699 $ 6,145 $ 29,467 $339,703 $ 473,791 $489,354
Average Effective Interest Rate 6.66% 7.73% 7.49% 7.96% 7.59% 7.55% 7.53%
Variable Rate Debt $ -- $ -- $ 95,000 $ -- $ -- $ -- $ 95,000 $ 95,000
Average Effective Interest Rate -- -- 8.46% -- -- -- 8.46%
</TABLE>
There is inherent rollover risk for borrowings as they mature and are
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. The table below
presents variable rate debt for which there exists interest rate swap and
interest rate cap agreements at December 31, 1998, by expected maturity dates:
<TABLE>
<CAPTION>
Expected Maturity Date
As of December 31, 1998
-----------------------
(Dollars in thousands)
Description 1999 2000 2001 2002 2003 Thereafter Total Fair Value
- ----------- ---- ---- ---- ---- ---- ---------- ----- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Debt Hedged with
Interest Rate Swaps:
Variable to Fixed Amount $ 70 $ 75 $ 81 $ 90 $ 75,095 $105,083 $ 180,494 $180,494
Average Pay Rate 6.57% 6.57% 6.57% 6.57% 6.57% 6.57% 6.57%
Average Received Rate 5.16% 5.16% 5.16% 5.16% 5.16% 5.16% 5.16%
Debt Hedged with
Interest Rate Caps:
Tax Exempt Variable Amount $ 625 $ 670 $ 719 $ 771 $ 827 $ 53,970 $ 57,582 $ 57,582
Average Interest Rate 3.83% 3.83% 3.83% 3.83% 3.83% 3.83% 3.83%
Average Rate Cap 5.87% 5.87% 5.87% 5.87% 5.87% 5.87% 5.87%
</TABLE>
-33-
<PAGE> 35
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. The fair
value liability of the Company's interest rate swap and cap agreements is
approximately $15 million. A 10% change in interest rates as of December 31,
1998, with all other variables held constant, would result in a change in the
fair value of the swap and rate cap agreements by an estimated $3.3 million.
Changes in interest rates could also impact the fair values of the swap and
rate cap agreements.
The Company measures its interest rate risk by estimating the net
amount by which the fair values of all interest rate sensitive liabilities,
including derivative financial instruments, would be impacted by selected
hypothetical changes in market interest rates. A 10% increase in interest rates
as of December 31, 1998, with all other variables held constant, would result
in a decrease in the fair value of fixed rate debt by an estimated $18 million.
A 10% decrease in interest rates would result in a increase in the fair value
of fixed rate debt by an estimated $19 million. In addition, a 10% adverse
change in interest rates on the portion of the Credit Facility, which bears
interest at LIBOR plus 1.875%, would result in an increase in interest expense
of approximately $0.5 million.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial statements and supplementary financial information are
contained on pages F-1 through F-34 and S-1 through S-7 of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
-34-
<PAGE> 36
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is incorporated by reference
from the Company's definitive Proxy Statement for its 1999 Annual Meeting of
Stockholders to be filed with the Securities and Exchange Commission pursuant
to Regulation 14A under the Securities Exchange Act of 1934.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference
from the Company's definitive Proxy Statement for its 1999 Annual Meeting of
Stockholders to be filed with the Securities and Exchange Commission pursuant
to Regulation 14A under the Securities Exchange Act of 1934.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference
from the Company's definitive Proxy Statement for its 1999 Annual Meeting of
Stockholders to be filed with the Securities and Exchange Commission pursuant
to Regulation 14A under the Securities Exchange Act of 1934.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference
from the Company's definitive Proxy Statement for its 1999 Annual Meeting of
Stockholders to be filed with the Securities and Exchange Commission pursuant
to Regulation 14A under the Securities Exchange Act of 1934.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) Financial Statements:
The financial statements are contained on pages F-1
through F-34 of this report.
(2) Financial Statement Schedules:
III. Real Estate and Accumulated Depreciation
are presented on pages S-1 through S-7 of
this report.
All other schedules have been omitted because the
required information of such other schedules is not
present, is not present in amounts sufficient to
require submission of the schedule or is included in
the consolidated financial statements.
-35-
<PAGE> 37
(3) Index to Exhibits:
See Index to Exhibits on page E-1.
(b) Reports on Form 8-K:
None
-36-
<PAGE> 38
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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/ 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>
<CAPTION>
Signatures Title Date
---------- ----- ----
<S> <C> <C>
/s/ Marshall B. Edwards Chief Executive Officer, President January 27, 2000
- ------------------------------ and Director (Principal Executive Officer)
Marshall B. Edwards
/s/ Mark S. Dillinger Executive Vice President, Chief January 27, 2000
- ------------------------------ Financial Officer and Director
Mark S. Dillinger (Principal Financial and Accounting Officer)
/s/ Michael E. Masterson Chairman of the Board of Directors January 27, 2000
- ------------------------------
Michael E. Masterson
Chairman Emeritus January 27, 2000
- ------------------------------
Don R. Daseke
/s/ Maxwell B. Drever Chairman Emeritus January 27, 2000
- ------------------------------
Maxwell B. Drever
/s/ Linda Walker Bynoe Director January 27, 2000
- ------------------------------
Linda Walker Bynoe
/s/ Francesco Galesi Director January 27, 2000
- ------------------------------
Francesco Galesi
/s/ Robert Honstein Director January 27, 2000
- ------------------------------
Robert L. Honstein
/s/ Arch K. Jacobson Director January 27, 2000
- ------------------------------
Arch K. Jacobson
/s/ Louis G. Munin Director January 27, 2000
- ------------------------------
Louis G. Munin
</TABLE>
-37-
<PAGE> 39
INDEX TO FINANCIAL STATEMENTS
WALDEN RESIDENTIAL PROPERTIES, INC.
CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Independent Auditors' Report ....................................................... F-2
Consolidated Balance Sheets as of December 31, 1998 and 1997 ....................... F-3
Consolidated Statements of Income for each of the three years in the period
ended December 31, 1998 ........................................................... F-4
Consolidated Statements of Stockholders' Equity for the
three years ended December 31, 1998 .............................................. F-5
Consolidated Statements of Cash Flows for each of the three years in the
period ended December 31, 1998 ................................................... F-6
Notes to Consolidated Financial Statements ......................................... F-7
</TABLE>
The following financial statement supplementary schedule of the
Registrant and its subsidiaries required to be included in Item 14(a)(2) is
listed below:
<TABLE>
<S> <C>
Schedule III -- Real Estate and Accumulated Depreciation .................. S-1
</TABLE>
-F-1-
<PAGE> 40
INDEPENDENT AUDITORS' REPORT
To the Directors and Stockholders of
Walden Residential Properties, Inc.
We have audited the accompanying consolidated balance sheets of Walden
Residential Properties, Inc. and subsidiaries as of December 31, 1998 and 1997,
and the related consolidated statements of income, stockholders' equity and
cash flows for each of the three years in the period ended December 31, 1998.
Our audit for the year ended December 31, 1998 also included the financial
statement schedule listed in the Index at Item 14(a)(2). These financial
statements and financial statement schedule are the responsibility of the
management of Walden Residential Properties, Inc. Our responsibility is to
express an opinion on these financial statements and financial statement
schedule 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 consolidated financial statements present fairly,
in all material respects, the financial position of Walden Residential
Properties, Inc. and subsidiaries at December 31, 1998 and 1997, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1998 in conformity with generally accepted
accounting principles. Also, in our opinion, such financial statement schedule,
when considered in relation to the basic consolidated financial statements
taken as a whole, presents fairly in all material respects the information set
forth therein.
As discussed in Note 3 to the consolidated financial statements, the
Company changed its method of accounting for the cost of replacement carpets
effective July 1, 1996.
/s/ Deloitte & Touche LLP
- ---------------------------------
DELOITTE & TOUCHE LLP
Dallas, Texas
March 18, 1999
-F-2-
<PAGE> 41
WALDEN RESIDENTIAL PROPERTIES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share information)
<TABLE>
<CAPTION>
December 31,
----------------------------
ASSETS 1998 1997
---- ----
<S> <C> <C>
Real estate assets, at cost
Land ............................................................................... $ 170,347 $ 173,635
Buildings and improvements ......................................................... 1,360,816 1,332,395
----------- -----------
1,531,163 1,506,030
Less: Accumulated depreciation ................................................ (128,765) (74,584)
----------- -----------
1,402,398 1,431,446
Construction in progress ................................................................ 29,322 1,583
Real estate assets held for sale ........................................................ 7,162 --
Rent and other receivables ($1.5 million due from related party)......................... 6,765 1,613
Prepaid assets .......................................................................... 6,055 5,257
Deferred financing costs, net ........................................................... 46,070 6,603
Cash and cash equivalents ............................................................... 9,292 9,757
Investment in real estate ventures ...................................................... 18,000 --
Other assets ............................................................................ 3,121 1,646
Restricted cash:
Escrow deposits .................................................................... 21,568 9,047
Additional collateral on loans ..................................................... 2,520 2,520
----------- -----------
Total assets ................................................................... $ 1,552,273 $ 1,469,472
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Mortgage notes payable ............................................................. $ 461,867 $ 428,354
Secured credit facility ............................................................ 250,000 --
Unsecured term loan ................................................................ -- 200,000
Unsecured credit facility .......................................................... 95,000 74,000
Accrued real estate taxes .......................................................... 22,869 22,571
Accounts payable ................................................................... 13,564 13,648
Accrued expenses and other liabilities ............................................. 28,102 13,377
Preferred distribution payable to minority interests ............................... 391 391
----------- -----------
Total liabilities .............................................................. 871,793 752,341
Commitments and contingencies (Note 13)
Minority interests ...................................................................... 147,277 321,916
Stockholders' equity:
Preferred stock, $.01 par value per share, 10,000 shares authorized, 6,993
and 5,712 shares issued and outstanding as of December 31, 1998 and 1997,
respectively
(aggregate liquidation value of $174,824) ........................................ 70 57
Common stock, $.01 par value per share,
50,000 shares authorized, 23,637 and 18,030 shares issued and
outstanding as of December 31, 1998 and 1997, respectively ....................... 236 180
Excess stock, $.01 par value per share,
60,000 shares authorized, no shares issued ...................................... -- --
Additional paid in capital ......................................................... 620,006 456,842
Notes receivable for stock purchases ............................................... (6,410) (5,263)
Deferred compensation on Restricted Stock .......................................... (1,108) (1,404)
Distributions in excess of net income .............................................. (79,591) (55,197)
----------- -----------
Total stockholders' equity ..................................................... 533,203 395,215
----------- -----------
Total liabilities and stockholders' equity ................................ $ 1,552,273 $ 1,469,472
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
-F-3-
<PAGE> 42
WALDEN RESIDENTIAL PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share information)
<TABLE>
<CAPTION>
For the Year Ended
December 31,
---------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
REVENUES
Rental income ............................. $ 268,224 $ 163,224 $ 105,602
Other property income ..................... 10,593 6,313 3,873
Interest income ........................... 1,717 1,598 1,433
Other income .............................. -- -- 263
--------- --------- ---------
Total revenues .......................... 280,534 171,135 111,171
EXPENSES
Property operating and maintenance ........ 91,930 56,483 37,521
Real estate taxes ......................... 28,272 16,805 10,039
General and administrative ................ 11,901 7,734 5,124
Unusual charges ........................... 3,993 1,940 --
Interest .................................. 54,409 28,447 20,573
Amortization .............................. 1,048 827 916
Depreciation .............................. 59,227 33,841 19,810
Total expenses
--------- --------- ---------
250,780 146,077 93,983
--------- --------- ---------
Operating income ............................... 29,754 25,058 17,188
Gain on disposition of real property....... 6,459 2,055 1,934
--------- --------- ---------
Income before extraordinary item
and income allocated to minority interests .. 36,213 27,113 19,122
Extraordinary loss on debt extinguishment.. (423) (422) (1,848)
--------- --------- ---------
Income before income allocated
to minority interests ....................... 35,790 26,691 17,274
Income allocated to minority interests .... (11,935) (4,109) (1,705)
--------- --------- ---------
Net income ..................................... 23,855 22,582 15,569
Preferred distributions.................... (13,119) (13,186) (2,387)
--------- --------- ---------
Net income available to common stockholders .... $ 10,736 $ 9,396 $ 13,182
========= ========= =========
Basic net income per share ..................... $ 0.58 $ 0.53 $ 0.90
========= ========= =========
Diluted net income per share ................... $ 0.58 $ 0.53 $ 0.89
========= ========= =========
Basic weighted average number of common shares
outstanding ................................. 18,497 17,590 14,720
========= ========= =========
Diluted weighted average number of common shares
and common share equivalents outstanding ..... 18,608 17,747 14,792
========= ========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
-F-4-
<PAGE> 43
WALDEN RESIDENTIAL PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THREE YEARS ENDED DECEMBER 31, 1998
(In thousands)
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional
--------------- ------------ Paid In
Shares Par Value Shares Par Value Capital
------ --------- ------ --------- -------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1996 .................... -- $ -- 14,190 $ 142 $238,899
Repurchases of the Company's
common stock ...........................
Officers'/Directors' stock purchase ...... 19 -- (22)
Retirement of common stock
repurchased ............................ (318) (3) (6,075)
Public offerings, net of offering costs .. 5,800 58 2,756 28 196,094
Conversion of preferred stock to
common stock ........................... (14) -- 16 --
Stock issued under the dividend
reinvestment plan ...................... 217 2 4,331
Purchase and cancellation of
minority interest securities ........... (253)
Distributions ............................
Net income ...............................
-------- -------- -------- -------- --------
Balance, December 31, 1996 .................. 5,786 58 16,880 169 432,974
Repurchases and retirements of the
Company's common stock ................ (278) (3) (6,663)
Public offerings, net of offering costs .. 161 2 3,522
Conversion of preferred stock to
common stock ........................... (74) (1) 84 1
Stock issued under the dividend
reinvestment plan ...................... 955 9 21,950
Stock issued through exercise of stock
options ................................ 138 1 2,700
Restricted stock issuance ................ 108 1 2,833
Restricted stock cancellation ............ (18) -- (474)
Amortization of deferred
compensation ...........................
Distributions ............................
Net income
-------- -------- -------- -------- --------
Balance, December 31, 1997 .................. 5,712 57 18,030 180 456,842
Repurchases and retirements of the
Company's common stock .............. (731) (7) (17,765)
Public offerings, net of offering costs .. 323 3 7,559
Conversion of preferred stock to common
stock ............................... (3) 3
Conversion of minority interest securities
to preferred and common stock ....... 1,284 13 5,437 54 160,593
Stock issued under the dividend
reinvestment plan ................... 318 3 6,936
Stock issued through exercise of stock
options ............................. 53 1 1,047
Stock issued under stock loan program .... 206 2 4,858
Restricted stock issuance ................ 5 136
Restricted stock cancellation ............ (7) (200)
Stock loan repayments ....................
Amortization of deferred compensation ....
Distributions ............................
Net income ...............................
-------- -------- -------- -------- --------
Balance, December 31, 1998 ............... 6,993 $ 70 23,637 $ 236 $620,006
======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Notes
Receivable Distributions
for Stock Deferred Stock in Excess of
Purchases Compensation Repurchases Net Income
--------- ------------ ----------- ----------
<S> <C> <C> <C> <C>
Balance, January 1, 1996 .................... $ (4,971) $ -- $ -- $(17,551)
Repurchases of the Company's
common stock ........................... (6,462)
Officers'/Directors' stock purchase ...... (292) 387
Retirement of common stock
repurchased ............................ 6,075
Public offerings, net of offering costs ..
Conversion of preferred stock to
common stock ...........................
Stock issued under the dividend
reinvestment plan ......................
Purchase and cancellation of
minority interest securities ...........
Distributions ............................ (29,421)
Net income ............................... 15,569
-------- -------- -------- --------
Balance, December 31, 1996 .................. (5,263) -- -- (31,403)
Repurchases and retirements of the
Company's common stock ................ --
Public offerings, net of offering costs ..
Conversion of preferred stock to
common stock ...........................
Stock issued under the dividend
reinvestment plan ......................
Stock issued through exercise of stock
options ................................
Restricted stock issuance ................ (2,834)
Restricted stock cancellation ............ 474
Amortization of deferred
compensation ........................... 956
Distributions ............................ (46,376)
Net income
22,582
-------- -------- -------- --------
Balance, December 31, 1997 .................. (5,263) (1,404) -- (55,197)
Repurchases and retirements of the
Company's common stock .............. --
Public offerings, net of offering costs ..
Conversion of preferred stock to common
stock ...............................
Conversion of minority interest securities
to preferred and common stock .......
Stock issued under the dividend
reinvestment plan ...................
Stock issued through exercise of stock
options .............................
Stock issued under stock loan program .... (4,413)
Restricted stock issuance ................ (136)
Restricted stock cancellation ............ 200
Stock loan repayments .................... 3,266
Amortization of deferred compensation .... 232
Distributions ............................ (48,249)
Net income ............................... 23,855
-------- -------- -------- --------
Balance, December 31, 1998 ............... $ (6,410) $ (1,108) $ -- $(79,591)
======== ======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
-F-5-
<PAGE> 44
WALDEN RESIDENTIAL PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
For the Year Ended
December 31,
---------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ........................................ $ 23,855 $ 22,582 $ 15,569
Adjustments to reconcile net income to net
cash provided by operating activities:
Income allocated to minority interests ........ 11,935 4,109 1,705
Depreciation and amortization ................. 60,275 34,668 20,726
Amortization of deferred compensation on
restricted stock ............................ 232 956 --
Amortization of deferred financing costs ...... 1,373 121 --
Gain on disposition of real property .......... (6,459) (2,055) (1,934)
Extraordinary loss on debt extinguishment ..... 423 422 1,848
Net effect of changes in operating accounts:
Escrow deposits .......................... (12,521) (1,099) (1,299)
Receivables, prepaids, and other assets .. (8,067) 622 (784)
Accrued real estate taxes ................ 298 6,172 1,438
Accounts payable ......................... (2,641) 294 492
Accrued expenses and other liabilities ... 702 4,030 520
--------- --------- ---------
Net cash provided by operating
activities ......................... 69,405 70,822 38,281
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of net assets of Drever Partners, Inc. and
its affiliates, net of noncash items shown below. -- (201,032) --
Purchase of real estate assets, net of noncash
items shown below ............................... (27,512) (103,114) (168,219)
Real estate asset additions ....................... (71,710) (32,363) (9,455)
Proceeds from disposition of real property, net
of noncash items shown below .................... 63,446 8,695 18,667
Purchase of WDN Management net assets, net
of noncash item shown below ..................... -- -- 339
Investment in real estate ventures ................ (18,000) -- --
--------- --------- ---------
Net cash used in investing activities ......... (53,776) (327,814) (158,668)
--------- --------- ---------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from stock issuance, net of issuance
costs ........................................... 15,996 28,185 200,614
Proceeds from stock loan repayments ............... 3,266 -- --
Purchase of the Company's common stock ............ (17,772) (6,666) (6,573)
Purchase of minority interest securities .......... (339) -- (3,975)
Distributions paid on common and preferred stock
and minority interests .......................... (74,329) (47,979) (31,210)
Proceeds from term loan, unsecured
credit facility and mortgage notes payable ...... 309,403 393,098 166,770
Proceeds from secured credit facility ............. 250,000 -- --
Payment of mortgage notes payable, unsecured
credit facility, and term loan ................. (468,407) (123,747) (172,188)
Principal reductions of mortgage notes payable .... (5,624) (3,716) (5,242)
Payment of financing costs .................... (28,288) (1,798) (4,143)
Prepayment penalties on debt extinguishment ....... -- (348) (97)
Additional collateral on loans .................... -- -- (650)
--------- --------- ---------
Net cash provided by (used in) financing
activities .................................... (16,094) 237,029 143,306
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS ..................................... (465) (19,963) 22,919
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD .................................. 9,757 29,720 6,801
--------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF
PERIOD ............................................... $ 9,292 $ 9,757 $ 29,720
========= ========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
-F-6-
<PAGE> 45
WALDEN RESIDENTIAL PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(In thousands)
<TABLE>
<CAPTION>
For the Year Ended
December 31,
-----------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Cash paid for interest .............................................. $ 52,270 $ 26,342 $ 20,706
============ ========= =========
SUPPLEMENTAL DISCLOSURE OF
NONCASH INVESTING AND FINANCING
ACTIVITIES:
Purchase of net assets of Drever Partners, Inc. .....................
and its affiliates:
Rent and other receivables ...................................... $ -- $ 4,635 $ --
Prepaid and other assets......................................... -- 315 --
Escrow deposits ................................................. -- 2,579 --
Mortgage notes payable .......................................... -- (166,995) --
Accrued real estate taxes ....................................... -- (8,433) --
Accounts payable ................................................ -- (7,765) --
Accrued expenses and other liabilities .......................... -- (3,998) --
Minority interest securities .................................... -- (303,488) --
------------ --------- ---------
$ -- $(483,150) $ --
============ ========= =========
Items related to purchase of assets:
Mortgage notes assumed .......................................... $ 19,141 $ 10,816 $ 14,748
============ ========= =========
Minority interest securities issued for purchase
of assets .................................................. $ 505 $ 1,050 $ --
============ ========= =========
Accrued real estate asset additions ................................. $ 3,024 $ 104 $ 517
============ ========= =========
Mortgage notes assumed by buyer upon
disposition of property .......................................... $ -- $ -- $ 4,195
============ ========= =========
Purchase of WDN Management net assets ............................... $ -- $ -- $ (354)
============ ========= =========
Notes receivable for stock purchases ................................ $ 4,413 $ -- $ 292
============ ========= =========
Deferred compensation on restricted stock,
net of cancellations .............................................. $ (64) $ 2,359 $ --
============ ========= =========
Conversion of minority interest securities
to common and preferred stock ..................................... $ 160,660 $ -- $ --
============ ========= =========
Deferred financing costs settled with interest rate
swap agreements ................................................. $ 14,032 $ -- $ --
============ ========= =========
Distribution payable to minority interest
holders ........................................................... $ 391 $ 391 $ 377
============ ========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
-F-7-
<PAGE> 46
WALDEN RESIDENTIAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) ORGANIZATION
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 December 31, 1998, 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.
(2) BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The Company consolidates investments in partnerships in which it has a
controlling general partner interest through its right to make major decisions
such as the acquisition, sale, financing or refinancing of principal
partnership assets, issuance of debt or equity securities, declaration and
payment of distributions and all other business matters.
The accompanying consolidated financial statements include the
accounts of the Company, its wholly-owned corporation and partnership
subsidiaries and four limited partnerships in which the Company is the general
partner and has a controlling interest. The limited partnership interests not
owned by the Company are accounted for as minority interests (see Note 11). All
material intercompany transactions and account balances have been eliminated in
consolidation.
Investment in Real Estate Ventures
The Company has an investment in a limited partnership and a limited
liability corporation (see Note 6). The Company does not control either entity
and records its investment on the equity method.
Income Recognition
Rental, interest and other income are recorded on the accrual method
of accounting as earned.
Rental Operations
As of December 31, 1998, the Company owned 150 multifamily properties
in eleven states; with 68% of its apartment units located in Texas and 27%
located in Florida, Oklahoma, Arizona, Tennessee and Utah. Of the total units
owned, 11,723 or 28% are located in the Houston area and 10,887 or 26% are
located in the Dallas/Fort Worth area. Apartment units are leased to residents
on terms of one year or less, with monthly payments due in advance. The Company
has 15 properties which are subject to Federal, state and local statutes or
other restrictions requiring that a percentage of apartments be made available
to lower or moderate income families. In management's opinion,
-F-8-
<PAGE> 47
WALDEN RESIDENTIAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
due to the number of residents, the type and diversity of markets in which the
properties operate and the collection terms, there is no concentration of
credit risk.
Unusual Charges
During 1998, the Company settled a $25 million forward treasury
interest rate lock agreement which was not utilized in connection with a
financing transaction. The settlement cost of approximately $4.0 million is
reflected as an unusual charge in the accompanying statement of income.
In October 1997, the Company entered into a settlement agreement in
connection with the resignation of its former Chief Executive Officer ("CEO")
and Chairman of the Board. The total cost of this settlement of $1.9 million is
reflected as an unusual charge in the statement of income. The vesting of the
restricted stock that was issued to this individual was accelerated and these
shares now vest in October 2000. The vesting of all stock options held by this
individual was accelerated such that they vested immediately and expire in
October 2002.
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 two major components: (1) security
deposits and escrow deposits held by lenders for the payment of property taxes,
insurance and replacement reserves and (2) additional collateral on mortgage
notes payable. Restricted cash related to security and escrow deposits is
invested primarily in short-term securities. Restricted cash related to
additional collateral on mortgage notes is invested in long-term government
securities. Restricted cash is not available for general operating purposes.
Real Estate Assets and Depreciation
Expenditures directly related to the acquisition and improvement of
real estate assets are capitalized at cost as land, buildings and improvements.
The Company capitalizes the cost of exterior painting and roof replacement in
excess of $10,000, appliances, and expenditures for other major property
improvements, as well as rehabilitation and repositioning costs incurred for
properties owned or acquired. Effective July 1, 1996, the Company revised its
method of accounting to capitalize the cost of replacement carpets on a
prospective basis (see Note 3).
Depreciation is computed on a straight-line basis over the estimated
useful lives of the related assets which range from 14 to 30 years for
buildings and three, five, ten or 15 years for personal property.
-F-9-
<PAGE> 48
WALDEN RESIDENTIAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The Company'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. If an impairment is
indicated, management will prepare an estimate of undiscounted future cash flows
expected from the use of the asset and its eventual disposal. If these cash
flows are less than the carrying amount of the asset, an impairment loss would
be recognized and the asset written down to its estimated fair value. Based on
the Company's policy of reviewing for impairment of long-lived assets by
reviewing expected future cash flows of its properties, there were no
adjustments necessary for impairment of properties during the three year period
ended December 31, 1998.
Construction in Progress
Costs related to the Company's property repositioning programs,
acquisition renovations, and new development are recorded as construction in
progress until completion of the project, at which time they are placed in
service and transferred to buildings and improvements. Upon their transfer,
depreciation on such improvements commences.
The Company capitalizes carrying costs, primarily interest costs on
outstanding indebtedness, related to amounts funded for new developments
projects until completion of the project. Interest costs of approximately
$154,000 were capitalized and recorded to construction in progress during 1998.
Real Estate Held for Sale
As of December 31, 1998, the Company had one property, containing 256
units, as real estate held for sale. Depreciation on such property ceased at
the time it was listed as held for sale. Net operating income for this property
was $841,000 for the year ended December 31, 1998.
Deferred Financing Costs and Amortization
The costs incurred under forward treasury rate lock agreements
utilized in financing transactions, the cost of interest rate swap and cap
agreements and legal fees and other costs associated with obtaining financing
have been capitalized and are being amortized over the terms of the related
debt. Deferred financing costs are reported net of accumulated amortization of
$1,979,000 and $1,625,000 as of December 31, 1998 and 1997, respectively.
Derivative Instruments
The Company has entered into forward treasury rate lock agreements in
order to hedge its exposure to interest rate fluctuations. Settlement costs
incurred under the forward treasury rate lock agreements utilized in financing
transactions are capitalized as deferred financing costs and amortized to
interest expense over the term of the related financing, or expensed if the
refinancing does not occur.
The Company has entered into interest rate swap agreements at the
request of lenders to provide variable rate debt with a fixed interest rate
feature. Each interest rate swap agreement corresponds to all or a portion of
the outstanding principal balance of a specific debt obligation. The
-F-10-
<PAGE> 49
WALDEN RESIDENTIAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Company records the amounts paid or received pursuant to the swap agreements as
an adjustment to interest expense, and the related payable or receivable to or
from the counterparty as a liability or asset, respectively.
The Company also enters into interest rate cap agreements to ensure
that interest rates on certain variable rate debt obligations do not exceed
specified rates. Each interest rate cap agreement corresponds to a specific
debt obligation. The interest rate cap agreements entered into by the Company
during 1998 were required by lenders. The fees paid to obtain rate cap
agreements are recorded as deferred financing costs and amortized over the term
of the rate cap agreement.
The termination of the above derivative instruments prior to scheduled
maturities would result in a charge to expense for the amount of unamortized
costs and payments required under the agreements which vary from amounts
recorded.
Income Taxes
The Company elected to be taxed as a REIT for Federal income tax
purposes as provided under the Internal Revenue Code of 1986, as amended,
effective with its taxable year ended December 31, 1994. As a result, the
Company generally will not be subject to Federal income taxation if it
distributes 95% of its REIT taxable income to its stockholders and satisfies
certain other requirements. The Company qualified as a REIT for its taxable
years prior to 1998 and anticipates that its method of operations will enable
it to continue to satisfy the requirements for such qualification.
Minority Interests
Minority interests represent limited partnership interests not owned
by the Company in partnerships for which the Company is general partner and has
a controlling interest. Amounts initially are recorded based on the fair value
of the cash and securities issued in exchange for the net assets acquired (see
Note 11). Partnership units are convertible into common stock (5,748,369 units
at December 31, 1998) ("Common OP Units") and preferred stock (714,440 units at
December 31, 1998) ("Preferred OP Units") (collectively, the "OP Units") in
accordance with the partnership agreements. Minority interest holders are
entitled to cash distributions at rates equivalent to common or preferred
stockholders of the Company as defined in the partnership agreements. Certain
Common OP Units have guaranteed distributions. Income allocated to minority
interests is equal to either (i) the preferred or guaranteed distributions paid
or accrued or (ii) an amount equal to income before income allocated to
minority interests divided by the number of common shares and Common OP Units.
Stock-based Compensation
The Company has elected not to recognize compensation expense for
stock options issued as calculated under Statement of Financial Accounting
Standards ("SFAS") No. 123, but rather will continue recognizing expense as
prescribed by APB Opinion No. 25. Disclosure of amounts required by SFAS No.
123 for stock options issued are included in Note 10. The Company also accounts
for restricted stock issued as prescribed by APB Opinion No. 25 (see Note 11).
-F-11-
<PAGE> 50
WALDEN RESIDENTIAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
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 periods indicated (in thousands,
except per share amounts):
<TABLE>
<CAPTION>
For the Year Ended December 31,
------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net Income for Basic and Diluted Computation:
Income before extraordinary item and income allocated to
minority interests ......................................... $ 36,213 $ 27,113 $ 19,122
Extraordinary loss on debt extinguishment .................... (423) (422) (1,848)
-------- -------- --------
Income before minority interests ............................. 35,790 26,691 17,274
Income allocated to minority interests ....................... (11,935) (4,109) (1,705)
-------- -------- --------
Net income ................................................... 23,855 22,582 15,569
Preferred distributions ...................................... (13,119) (13,186) (2,387)
-------- -------- --------
Net income available to common stockholders (basic and diluted
net income per share computation) .......................... $ 10,736 $ 9,396 $ 13,182
======== ======== ========
Basic Net Income per Share:
Before extraordinary item, less preferred distributions ...... $ 0.60 $ 0.55 $ 1.02
Extraordinary loss on debt extinguishment .................... (0.02) (0.02) (0.12)
-------- -------- --------
Net income available to common stockholders .................. $ 0.58 $ 0.53 $ 0.90
======== ======== ========
Diluted Net Income per Share:
Before extraordinary item, less preferred distributions ...... $ 0.60 $ 0.55 $ 1.02
Extraordinary loss on debt extinguishment .................... (0.02) (0.02) (0.13)
-------- -------- --------
Income available to common stockholders ...................... $ 0.58 $ 0.53 $ 0.89
======== ======== ========
Weighted Average Number of Shares Outstanding (a):
Basic ........................................................ 18,497 17,590 14,720
Dilutive effect of outstanding options ....................... 111 157 72
-------- -------- --------
Diluted ...................................................... 18,608 17,747 14,792
======== ======== ========
</TABLE>
(a) Excludes the convertible preferred shares, warrants and Common OP
Units (see Note 11) and 1,719,875 stock options (see Note 10), which
are anti-dilutive.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect reported amounts of certain assets, liabilities,
revenues and expenses as of and for the reporting periods. Actual results may
differ from such estimates.
-F-12-
<PAGE> 51
WALDEN RESIDENTIAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Environmental Remediation Costs
The Company accrues for losses associated with environmental
remediation obligations when such losses are probable and reasonably
estimatable. Accruals for estimated losses from environmental remediation
obligations generally are recognized no later than completion of the
remediation 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. The Company's management is not aware of any environmental
remediation obligations which would materially affect the operations, financial
position or cash flows of the Company.
Comprehensive Income
In June 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 130, "Reporting Comprehensive Income." SFAS No. 130 establishes
standards for reporting and displaying comprehensive income and its components.
For the Company, comprehensive income is equal to net income for each of the
three years in the period ended December 31, 1998.
Segment Reporting
In June 1997, the FASB issued SFAS No. 131, "Disclosures About
Segments of an Enterprise and Related Information." SFAS No. 131 establishes
standards for the way that public business enterprises report information about
operating segments and related information in interim and annual financial
statements. The Company operates solely in the real estate industry, managing
apartment properties across 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. Because the Company has no operations outside of the
United States, its country of domicile, information as to geographical
operations is not presented.
New Accounting Pronouncements
In June 1998, the FASB issued 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 periods 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.
Reclassifications
Certain previously reported amounts have been reclassified to conform
to the current financial statement presentation.
(3) CHANGE IN ACCOUNTING POLICY
Effective July 1, 1996, the Company revised its method of accounting
to capitalize the cost of replacement carpets on a prospective basis ($864,000
capitalized in 1996 which would have been expensed under the old policy, which
represents $0.06 for basic and diluted net income per share). The Company
believes that this accounting policy change is preferable because it is
consistent with
-F-13-
<PAGE> 52
WALDEN RESIDENTIAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
policies currently being used by the majority of the largest publicly traded
apartment REITs and provides a better matching of expenses with the related
benefit of the expenditures.
Following is pro forma information as if the revised capitalization
policy was in effect as of January 1, 1996 (in thousands, except per share
data):
<TABLE>
<CAPTION>
Year Ended
December 31,
------------
1996
----
<S> <C>
Income before extraordinary item and income allocated to minority
interests as reported ............................................... $ 19,122
Add: Adjustment for change in accounting policy to capitalize carpet
replacement costs ................................................... 264
----------
Income before extraordinary item and income allocated to minority
interests as adjusted ............................................... $ 19,386
==========
Net income as adjusted ................................................ $ 15,833
==========
Net income available to common stockholders as adjusted ............... $ 13,446
==========
Basic net income per share:
Before extraordinary item, less preferred distributions and income
allocated to minority interests as reported .................... $ 1.02
Adjustment for effect of change in accounting policy ............. 0.02
----------
Income before extraordinary item, less preferred distributions and
income allocated to minority interests as adjusted ............. $ 1.04
==========
Net income available to common stockholders as reported .......... $ 0.90
Adjustment for effect of change in accounting policy ............. 0.02
----------
Net income available to common stockholders as adjusted .......... $ 0.92
==========
Diluted net income per share:
Before extraordinary item, less preferred distributions and income
allocated to minority interests as reported .................... $ 1.02
Adjustment for effect of change in accounting policy ............. 0.02
----------
Income before extraordinary item, less preferred distributions and
income allocated to minority interests as adjusted ............. $ 1.04
==========
Net income available to common stockholders as reported .......... $ 0.89
Adjustment for effect of change in accounting policy ............. 0.02
----------
Net income available to common stockholders as adjusted .......... $ 0.91
==========
</TABLE>
(4) ACQUISITIONS AND DISPOSITIONS
Acquisitions
During 1998, the Company acquired five apartment properties containing
1,098 units (or 581 weighted average units) for a cost of $46.7 million. The
acquisitions were funded through the assumption of $19.2 million of
indebtedness, proceeds from property dispositions, and cash flow from
operations.
During 1997 the Company acquired 93 apartment properties containing
21,467 units (or 6,037 weighted average units) for a cost of $799.2 million.
Included in the 1997 acquisitions is the acquisition by the Company of the
assets and business of Drever Partners, Inc. and its affiliates,
-F-14-
<PAGE> 53
WALDEN RESIDENTIAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(collectively, "Drever"), a private real estate management company based in San
Francisco and Houston. This acquisition included 18 partnerships for which
Drever was the general partner, which owned 79 apartment properties with 18,118
units. Pursuant to an Exchange Agreement with Drever, the consideration
exchanged by the Company consisted of approximately $95 million of cash, the
assumption of $286 million of mortgage debt (of which the Company repaid $119
million with proceeds from an unsecured term loan and its unsecured credit
facility) and approximately $304 million (based upon the price of the Company's
stock at the time of the announcement of the acquisition) of Common OP Units
and Preferred OP Units, issued by a newly-formed operating partnership
subsidiary of the Company, Walden/Drever Operating Partnership, L.P. ("WDOP"),
to the shareholders and partners of and equity participants in Drever. See Note
11 for additional information concerning these Common and Preferred OP Units.
During 1996 the Company acquired 16 apartment properties containing
5,034 units (or 1,631 weighted average units) for a cost of $179.0 million. In
addition, in connection with one property acquired in December 1996, the
Company acquired approximately 81 acres of adjacent undeveloped land in
Nashville, Tennessee for $4 million.
The properties acquired in 1998, 1997 and 1996 are located in the
states of Texas, Florida, California, Georgia, Arizona and Tennessee. The
acquisitions are accounted for by the purchase method of accounting, and the
accompanying consolidated financial statements reflect the results of
operations of the acquired properties since the date of purchase.
Dispositions
On August 26, 1998, the Company disposed of four properties in
Dallas/Fort Worth, Texas with a total of 1,151 units for net sale proceeds of
$36.7 million. On December 17, 1998, the Company disposed of five properties in
Houston, Texas with a total of 838 units for net sale proceeds of approximately
$26.7 million. On October 2, 1997, the Company disposed of one 392-unit
property located in Dallas, Texas for net sale proceeds of $8.7 million. During
1996, the Company disposed of three properties containing 832 units. In
connection with these dispositions, the Company reported gains in the amount of
$6.5 million, $2.1 million and $1.9 million for the years ended December 31,
1998, 1997 and 1996, respectively.
On February 26, 1999, the Company entered into an agreement to sell
Eagle Pointe Apartments, a 256-unit property located in Indianapolis, Indiana,
for $10.5 million. In connection therewith, the Company received a refundable
earnest money deposit of $50,000. The sale of Eagle Pointe is contingent upon
the completion of normal due diligence procedures by the purchaser, therefore,
there is no guarantee that the purchaser will acquire the property.
Pro Forma Information (Unaudited)
The following unaudited condensed pro forma information for each of
the two years ended December 31, 1998 was prepared from the consolidated
financial statements of the Company by adjusting for the effect of the
historical operations of all property acquisitions and dispositions in
-F-15-
<PAGE> 54
WALDEN RESIDENTIAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
1998 and 1997, including debt used to finance acquisitions or repaid from
proceeds of dispositions, as if all of these transactions had occurred on
January 1, 1997. The pro forma results do not include gains on property
dispositions or extraordinary losses on early extinguishment of debt. The
following information is not necessarily indicative of what the performance
would have been had the Company owned these properties for the entire period,
nor does it purport to represent future results of operations of the Company.
(In thousands, except per share information.)
<TABLE>
<CAPTION>
Pro Forma
---------
Year Ended December 31,
-----------------------
1998 1997
---- ----
<S> <C> <C>
Revenues ............................................... $ 273,504 $ 267,038
Expenses ............................................... 246,753 250,277
--------- ---------
Income before income allocated to minority interests.... 26,751 16,761
Income allocated to minority interests ................. (8,740) (5,149)
--------- ---------
Net income ............................................. 18,011 11,612
Preferred distributions ................................ (13,119) (13,186)
--------- ---------
Net income (loss) available to common stockholders ..... $ 4,892 $ (1,574)
========= =========
Basic net income (loss) per share ...................... $ 0.26 $ (0.09)
========= =========
Diluted net income (loss) per share ................... $ 0.26 $ (0.09)
========= =========
</TABLE>
(5) REAL ESTATE ASSETS
Changes in real estate assets and related accumulated depreciation for
the years ended December 31, 1998 and 1997 are as follows (in thousands):
<TABLE>
<S> <C>
Real estate assets:
Balance at January 1, 1997 ................. $ 683,515
Purchase of real estate assets ................. 799,162
Sale of real estate assets ..................... (7,323)
Fixed asset additions .......................... 30,676
-----------
Balance at December 31, 1997 ............... 1,506,030
Purchase of real estate assets ................. 46,653
Real estate held for sale ...................... (8,983)
Sale of real estate assets ..................... (59,533)
Fixed asset additions .......................... 46,996
-----------
Balance at December 31, 1998 ............... $ 1,531,163
===========
Accumulated depreciation:
Balance at January 1, 1997 ................. $ 41,707
Depreciation expense ........................... 33,560
Write off related to real estate assets sold.... (683)
-----------
Balance at December 31, 1997 ............... 74,584
Depreciation expense ........................... 58,602
Real estate held for sale ...................... (1,821)
Write off related to real estate assets sold.... (2,600)
-----------
Balance at December 31, 1998 ............... $ 128,765
===========
</TABLE>
(6) TRANSACTIONS WITH AFFILIATES
WDN Management Company
-F-16-
<PAGE> 55
WALDEN RESIDENTIAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
For the period February 9, 1994 through December 31, 1996, the Company
owned 5% of the voting common stock and 100% of the non-voting common stock
(which represented 95% of the economic interest) of WDN Management Company
("WDN Management"). The remaining 95% of the voting common stock (which
represented a 5% economic interest) was owned by the Company's four executive
officers. For this period, the results of operations of WDN Management were
accounted for on the equity method. On December 31, 1996, the Company purchased
the additional 5% economic interest in WDN Management from the four executive
officers for $15,000 which represents the four executive officers' original
cost of the shares. At such time, WDN Management and its wholly-owned
subsidiary were merged into the Company and WDN Management was dissolved.
Investment in GGL Ventures LLC
On December 27, 1998, the Company entered into an agreement to invest
$55 million, which represents preferred membership units of GGL Ventures LLC
("GGL"), a newly formed entity for which a group of entities owned by a member
of the Company's board of directors, have control and voting power. GGL was
established to acquire 17 apartment communities located primarily in Georgia,
of which seven properties were purchased on December 27, 1998. The Company made
an initial investment of $18 million in GGL in December 1998, an additional
investment of $32 million on February 26, 1999, and, pursuant to the agreement,
is required to purchase additional preferred membership units totaling $5
million in 1999. In exchange for its investment in GGL, the Company is to
receive a 12% cumulative preferred return on its equity investment. The Company
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 December 31, 1998, 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. The following table summarizes the
net assets of GGL as of December 31, 1998 (in thousands):
<TABLE>
<S> <C>
Real estate assets $133,826
Other assets 8,489
--------
Total assets $142,315
========
Mortgage notes payable $103,970
Accounts payable and other liabilities 345
Venturers' capital - the Company 18,000
Venturers' capital - other members 20,000
--------
Total liabilities and venturers' capital $142,315
</TABLE>
The results of operations of GGL were insignificant for the year ended
December 31, 1998.
In connection with this transaction, the Company formed WGGL
Corporation ("WGGL"), a wholly owned subsidiary, to manage the properties
purchased by GGL. Beginning in 1999, WGGL will receive a monthly management fee
equal to 3.5% of the gross receipts of the properties.
Peppertree Associates, Ltd.
Peppertree Associates, Ltd. ("Peppertree") owns a 504-unit apartment
property located in Austin, Texas, which has been fee managed by the Company
since its IPO in 1994. In June 1998, the Company executed a loan with
Peppertree to facilitate the refinancing of the first mortgage loan
-F-17-
<PAGE> 56
WALDEN RESIDENTIAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
on the property ($1.5 million balance at December 31, 1998 which is included in
rent and other receivables in the accompanying balance sheet). In connection
with this refinancing, the first mortgage lender required the Company to
replace the existing 1% general partner of Peppertree. Pursuant to Peppertree's
partnership agreement, the Company does not have a controlling interest and
therefore records its investment in Peppertree on the equity method.
The $1.5 million note matures on January 1, 2009 and requires monthly
payments to the Company of interest and excess cash flow from the property at
an effective annual interest rate of 17.6% ($139,000 of interest income
recorded in 1998).
(7) MORTGAGE NOTES PAYABLE, UNSECURED TERM LOAN AND UNSECURED CREDIT
FACILITY
Mortgage notes payable (including the Company's secured credit
facility) and the Company's unsecured term loan (the "Term Loan") and unsecured
credit facility (the "Credit Facility") consist of the following (in
thousands):
<TABLE>
<CAPTION>
As of December 31, 1998 Principal Balance
------------------------ As of December 31,
Weighted Average Weighted Average -----------------------
Interest Rate Years to Maturity 1998 1997
------------- ----------------- ---- ----
<S> <C> <C> <C> <C>
Conventional Fixed Rate Mortgage Notes:
Mortgage notes payable
to the Federal National
Mortgage Association (FNMA) .... 8.81% 5.1 $ 42,502 $ 43,101
Mortgage notes payable
to insurance companies ......... 7.99% 4.6 167,126 170,103
Mortgage notes payable to
JP Morgan ................... 6.78% 10.8 110,000 78,052
Mortgage notes payable - other ... 8.50% 1.7 3,140 3,175
----- ----- -------- --------
7.69% 6.8 322,768 294,431
Secured credit facility (1) ...... 7.78% 8.5 250,000 --
----- ----- -------- --------
7.73% 7.5 572,768 294,431
Tax-exempt Mortgage Notes:
Fixed rate ....................... 6.30% 18.8 81,517 75,638
Variable rate .................... 4.85% 28.0 57,582 51,085
----- ----- -------- --------
5.70% 22.6 139,099 126,723
Variable Rate Notes:
Unsecured Term Loan .............. -- -- -- 200,000
Unsecured Credit Facility ........ 7.67% 2.1 95,000 74,000
Other ............................ -- -- -- 7,200
----- ----- -------- --------
7.67% 2.1 95,000 281,200
----- ----- -------- --------
Total/Weighted Average ........... 7.37% 9.5 $806,867 $702,354
===== ===== ======== ========
</TABLE>
(1) Interest rate on $175,000 is fixed through interest rate swap
agreements.
As of December 31, 1998, the Company had collateralized 124 of its 150
properties under various mortgage loans.
Conventional Mortgage Notes Payable
-F-18-
<PAGE> 57
WALDEN RESIDENTIAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Conventional mortgage notes payable include 58 loans encumbering 73
properties at December 31, 1998. Mortgage notes for $322.8 million are payable
in monthly installments aggregating approximately $2.5 million, including
principal and interest at various fixed rates ranging from 6.62% to 9.22% per
annum. Scheduled maturities are at various dates ranging from August 1, 2000
through June 30, 2016.
In March 1998, $78.1 million of conventional fixed-rate mortgages were
refinanced with $110.0 million of fixed-rate debt, of which $80 million of such
debt bears interest at 6.62% and matures in March 2007 and the remaining $30
million bears interest at 7.06% and matures in June 2016. In connection with
the $30 million mortgage, the Company utilized a $20 million forward treasury
rate lock agreement, which resulted in a settlement cost of $0.7 million. The
settlement cost is included in deferred financing costs and will be amortized
over the 18 year loan term for an effective fixed annual interest rate of
7.22%.
In December 1998, in connection with the sale of five Houston, Texas
properties, the Company retired $4.5 million of conventional, fixed-rate
mortgage indebtedness.
Secured Credit Facility
On December 15, 1998, the Company entered into a $250 million secured
revolving credit facility agreement with the Federal National Mortgage
Association (FNMA), which is collateralized by 35 properties. The credit
facility is divided into three tiers, as described below:
<TABLE>
<CAPTION>
Fixed Effective
Loan Fixed Rate Fixed
Amount Term Rate Swap Amortization Rate
------ ---- ---- ---- ------------ ----
(in millions)
<S> <C> <C> <C> <C> <C>
$ 75 10 years 6.385% N/A 30 Years 7.95%(1)
100 10 years N/A 6.75%(2) None 7.98%(2)
75 5 years N/A 6.54%(3) None 7.34%(3)
-----
$250
=====
</TABLE>
(1) The Company utilized a $75 million forward treasury rate lock
agreement at a settlement cost of $11.9 million. The settlement cost
is included in deferred financing costs and will be amortized to
interest expense over the 10 year loan term for an effective fixed
annual interest rate of 7.95%.
(2) The Company entered into a $100 million variable rate loan with FNMA,
which requires quarterly interest payments in advance based on the 90
day FNMA mortgage backed security ("MBS") rate plus 0.8% ($1.3 million
included in prepaid assets at December 31, 1998). In order to fix the
interest rate on this loan, the Company entered into a ten year above
market interest rate swap agreement with Deutsche Bank, in exchange
for their settlement of a portion of the Company's $100 million
forward treasury rate lock agreement at a cost of approximately $10
million. The swap agreement fixed the interest rate at 6.75% and is
settled quarterly. In addition, the Company settled the remaining
portion of the $100 million forward treasury rate lock agreement at a
cost of $4.3 million,which is included in deferred financing costs and
will be amortized to interest expense over the 10 year loan term.
These transactions result in an effective annual interest rate of
7.98% (including the 0.8% FNMA fee).
(3) The Company entered into a $75 million variable rate loan with FNMA,
which requires quarterly interest payments in advance based on the 90
day FNMA MBS rate plus 0.8% ($1.0 million included in prepaid assets
at December 31, 1998). In order to fix the interest rate on this loan,
the Company entered into a five year above
-F-19-
<PAGE> 58
WALDEN RESIDENTIAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
market interest rate swap agreement with Morgan Guaranty Trust
Company, in exchange for their settlement of the Company's $75 million
forward treasury rate lock agreement at a cost of approximately $4
million. The swap agreement fixed the interest rate at 6.54% and is
settled quarterly. Including the 0.8% FNMA fee, the effective annual
interest rate on this loan is 7.34%.
The total settlement cost of approximately $14 million paid on behalf
of the Company by Deutsche Bank and Morgan Guaranty Trust Company has been
recorded as both a deferred financing cost and an accrued liability in the
accompanying balance sheet at December 31, 1998. The asset will be amortized to
interest expense over the related terms of the interest rate swap agreements.
The secured credit facility contains customary representations,
warranties and events of default which require the Company to comply with
affirmative and negative covenants. The restrictive covenants provide that: (i)
the percentage of consolidated total indebtedness to consolidated total
undepreciated assets be less than 56%; (ii) total equity, as defined, be
greater than $600 million; (iii) earnings before interest, taxes, depreciation
and amortization ("EBITDA") less capital expenditures (based on $300 per
apartment unit) be greater than two times interest expense; and (iv) EBITDA
less capital expenditures be greater than 1.5 times fixed charges (interest
expense plus amortization plus preferred distributions). As of December 31,
1998, the Company was in compliance with all covenants of the secured credit
facility.
As of December 31, 1998, the secured credit facility is fully drawn.
Proceeds were used to retire the Company's $200 million term loan (described
below) and pay down a portion of the unsecured credit facility.
Tax-Exempt Mortgage Notes Payable
At December 31, 1998, 16 of the Company's properties are encumbered by
14 mortgage notes which were financed from the proceeds of tax-exempt bonds,
for which all but one loan have credit enhancements. The total amount of these
mortgage notes are approximately $139.1 million at December 31, 1998, of which
$81.5 million are fixed rate loans with monthly installments of approximately
$0.5 million, including principal and interest at rates ranging from 4.85% to
6.70% per annum. The scheduled maturities on these notes range from September
1, 1999 through September 1, 2028. The remaining tax-exempt mortgage notes in
the amount of $57.6 million have variable interest rates, are payable in
monthly installments of principal and interest (with a weighted average annual
interest rate of 4.85% as of December 31, 1998) and scheduled maturities
ranging from January 15, 2023 to February 1, 2028.
On October 28, 1998, the Company refinanced $5.5 million of variable
rate, tax-exempt mortgage indebtedness related to one of its properties. The
Company entered into a five-year interest rate swap agreement with Morgan
Guaranty Trust Company, fixing the interest rate on this indebtedness to an
all-inclusive rate of 4.85%.
Unsecured Credit Facility and Unsecured Term Loan
The Company has a $150 million unsecured Credit Facility with
BankBoston, as agent for a group of financial institutions, which matures
February 2001. At December 31, 1998, the Company's borrowing capacity was
approximately $126 million. At the Company's election, the
-F-20-
<PAGE> 59
WALDEN RESIDENTIAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
interest rate on any borrowings under its Credit Facility is at a floating rate
equal to either (i) BankBoston's base rate plus 0.5% (8.25% at December 31,
1998) or (ii) LIBOR plus 1.875% (7.46% at December 31, 1998). In March 1999,
the Company modified the Credit Facility to increase its borrowing capacity.
The Credit Facility contains customary representations, warranties and
events of default which require the Company to comply with certain affirmative
and negative covenants. The primary restrictive covenants provide that: (i)
distributions to stockholders may not exceed 90% of funds from operations, as
defined in the Credit Facility; (ii) secured mortgage indebtedness may not
exceed 46% of the Company's total assets before depreciation; (iii) the
Company's fixed charge coverage ratio, as defined, must exceed 1.5; and (iv) the
Company's debt service coverage ratio, as defined, must exceed 2.0. As of
December 31, 1998, the Company was in compliance with all covenants of the
Credit Facility.
On December 15, 1997, the Company entered into an unsecured $200
million one year term loan agreement (the "Term Loan") with BankBoston, as agent
for a group of financial institutions. The interest rate on the borrowing was at
1.375% over LIBOR. This borrowing was utilized to repay a $110 million term loan
obtained on October 1, 1997 in connection with the acquisition of the apartment
properties owned by Drever. The balance of the proceeds of the Term Loan were
used to reduce the Credit Facility borrowings. The Company paid a loan fee of
$1.2 million for the Term Loan which was amortized over the life of the loan.
The Term Loan was repaid in full in December 1998 with proceeds from the secured
credit facility.
On February 26, 1999, the Company entered into a $15 million unsecured
loan with BankBoston, for which the proceeds were used to fund a portion of the
Company's February 1999 investment in GGL (see Note 6). The loan bears interest
at 8%, with $5 million maturing in one year and $10 million maturing in August
2001. The Company paid a loan fee of $1.5 million in connection with this
financing which will be amortized over the related loan terms.
On April 14, 1998, the Company repaid $7.2 million of variable rate
indebtedness related to one property.
-F-21-
<PAGE> 60
WALDEN RESIDENTIAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Principal Debt Maturities
Principal debt maturities, including balloon payments, for the next five
years are as follows (in thousands):
<TABLE>
<S> <C>
1999 .......................... $ 15,494
2000 .......................... 14,724
2001 .......................... 165,498
2002 .......................... 7,006
2003 .......................... 105,389
Thereafter .................... 498,756
--------
Total .................... $806,867
========
</TABLE>
Extraordinary Items
During 1998, the Company completed debt refinancings prior to scheduled
maturities on several properties and sold two encumbered properties. In
connection with these activities, the Company recorded an extraordinary loss in
the amount of $0.4 million in 1998, which represented the write-off of
unamortized deferred financing costs and prepayment penalties for the early
retirement of debt.
As a result of the sale of a property during 1997, the Company recorded
an extraordinary loss in the amount of $0.4 million, which represented the
write-off of unamortized deferred financing costs and prepayment penalties from
the early retirement of debt.
During 1996, the Company refinanced approximately $36.4 million of
mortgage loans and the Credit Facility prior to maturity, which resulted in an
aggregate extraordinary loss of $1.8 million. These losses represented
prepayment fees and the write-off of unamortized financing costs related to the
debt retired.
(9) EMPLOYEE BENEFIT PLANS
401(k) Plan
The Company has a 401(k) Plan for its employees. The 401(k) plan is a
voluntary defined contribution plan. Qualified employees may participate in the
plan by contributing up to 20% (15% prior to October 1, 1997) of the
participant's annual compensation (not to exceed $10,000, $9,500 and $9,500 per
annum for 1998, 1997 and 1996, respectively). The Company made annual matching
contributions on the participants' behalf of $286,000 and $136,000,
respectively, representing up to 3% of the participant's annual compensation for
the period from (i) January 1, 1998 through December 31, 1998 and (ii) the
periods from October 1, 1996 through September 30, 1997 and from October 1, 1997
through December 31, 1997. In 1996, an annual matching contribution was made on
the participant's behalf of $217,000. This represented up to 6% and 3% of the
participant's annual compensation for the periods from October 1, 1995 through
March 31, 1996 and from April 1, 1996 through September 30, 1996, respectively.
A participant's salary deferral contribution is 100% vested and nonforfeitable.
A participant vests ratably over five years in the Company's matching
contributions.
-F-22-
<PAGE> 61
WALDEN RESIDENTIAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Non Qualified Deferred Compensation Plan
On October 1, 1998, the Company adopted a non-qualified deferred
compensation plan to provide certain employees of the Company with retirement
benefits. Under this plan, eligible employees may elect to defer up to 20% of
their annual compensation, and the Company will make a matching contribution
equal to 10% of the employee's contributions. In 1998, the Company made a
matching contribution on the participants' behalf of $3,000. Matching
contributions vest ratably over five years.
(9) NOTES RECEIVABLE FOR STOCK PURCHASES
In 1994, the Company implemented a stock purchase program allowing its
officers and directors to purchase shares of the Company's common stock at
current market prices with the assistance of a loan from the Company. Each
officer or director acquiring stock under the program paid 10% to 20% and 50%,
respectively, of the purchase price in cash with the remaining amount loaned on
a non-recourse basis by the Company. During 1998, many directors and officers
converted their loans from a non-recourse to a recourse basis for tax purposes.
On February 17, 1998, the Company implemented a new 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 a loan 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.
Under both plans, the loans are evidenced by a note with a five-year
term, secured by a pledge of the shares of common stock purchased, and require
quarterly payments of interest only at fixed interest rates equal to the
Company's then current interest rate under its Credit Facility. The table below
summarizes shares issued and key components of the loans outstanding:
<TABLE>
<CAPTION>
Shares Outstanding
Date of Number of Outstanding at Issue Fixed Loan Balance at
Issuance Shares Issued December 31, 1998 Price Interest Rate December 31,1998
-------- ------------- ----------------- ----- ------------- ----------------
<S> <C> <C> <C> <C> <C>
July 19, 1994 183,000 95,000 $ 20.875 7.25% $1,784,813
December 14, 1995 122,600(a) 18,600 $ 19.375 8.00% 212,738
March 2, 1998 138,692 138,692 $ 24.750 7.00% 3,102,749
March 2, 1998 26,192(b) 26,192 $ 19.250 7.00% 457,345
September 1, 1998 40,818 40,818 $ 22.625 7.00% 852,850
------- ------- ----------
511,302 319,302 $6,410,495(c)
======= ======= ==========
</TABLE>
(a) Represents shares issued from common stock repurchased
pursuant to the Company's stock repurchase program.
(b) Represents shares issued upon the exercise of 26,192 stock
options at an option grant price of $19.25.
(c) Of the total notes receivable for stock purchases at December
31, 1998, $169,088 is non-recourse.
-F-23-
<PAGE> 62
WALDEN RESIDENTIAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
In November 1998, an executive of the Company repaid the full amount
outstanding on his note payable to the Company ($3.3 million) related to the
purchase of 192,000 shares of common stock.
On March 1, 1999, the Company issued 148,723 shares of its common stock
under the stock loan program at $16.69 per share. The amount loaned by the
Company in connection with this stock issuance was $2,239,000. The loans bear
interest at a fixed annual rate of 7%.
(10) STOCK OPTION PLAN
The Company adopted a stock option plan (the "Option Plan") in 1994 to
provide incentives to officers, key employees and directors. Stock options
granted under the Option Plan include non-qualified options and incentive stock
options ("ISOs"). Options granted to non-employee directors vest over a
one-year period. Options granted to officers and other employees generally vest
ratably over a four-year period. All options expire ten years from the date of
grant. Shares of common stock reserved for issuance under the Option Plan are
in an amount equal to 10% of the Company's outstanding shares including
exchangeable or convertible securities. As of December 31, 1998, 3,309,570
shares of common stock were reserved for issuance under the Option Plan. The
Option Plan limits the number of shares of common stock issuable pursuant to
ISOs to 2,500,000.
Following is a summary of stock option activity for the three years
ended December 31, 1998:
<TABLE>
<CAPTION>
1998 1997 1996
--------------------- ---------------------- -----------------------
Weighted Weighted Weighted
Average Average Average
Price Options Price Options Price Options
----- ------- ----- ------- ----- -------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding, beginning of year $23.20 2,883,625 $20.07 1,392,750 $19.23 792,500
Granted ......................... 23.54 80,000 25.34 1,778,250 21.16 603,250
Exercised ....................... 19.54 (79,466) 19.56 (138,813) 19.25 (125)
Canceled ........................ 25.13 (85,876) 22.83 (148,562) 20.64 (2,875)
------ ---------- ------ ---------- ------ ----------
Options outstanding, end of year ..... $23.25 2,798,283 $23.20 2,883,625 $20.07 1,392,750
====== ========== ====== ========== ====== ==========
Exercisable options, end of year ..... $22.18 1,537,914 $21.21 1,076,619 $19.22 356,900
====== ========== ====== ========== ====== ==========
</TABLE>
As of December 31, 1998, options for 1,537,914 shares of common stock
were exercisable at prices ranging from $18.47 to $26.00 per share and had a
weighted average remaining contractual life of 5.7 years. Outstanding options
as of December 31, 1998 had a weighted average contractual life of 7.0 years.
SFAS No. 123, "Accounting for Stock-Based Compensation," requires
companies to use recognized option pricing models to estimate the fair value of
stock based compensation, including stock options and stock purchases by
employees under company-sponsored stock purchase plans. The Company has elected
not to recognize compensation expense as calculated under SFAS No. 123, but
rather will continue recognizing expense as prescribed by APB Opinion No. 25,
"Accounting for Stock Issued to Employees," as allowed under SFAS No. 123. (See
Note 11 for a description of the Company's Associate Stock Purchase Plan.)
Had compensation expense been determined based on the fair value of
the stock option grants and associate stock purchases at the grant dates and
purchase dates, respectively, consistent with the
-F-24-
<PAGE> 63
WALDEN RESIDENTIAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
provisions of SFAS No. 123, the Company's net income and net income per common
share would have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net income available to common stockholders:
As reported (in thousands) ................................................ $ 10,736 $ 9,396 $ 13,182
Pro forma (in thousands) .................................................. $ 10,057 $ 8,180 $ 12,806
Basic net income per share:
As reported ............................................................... $ 0.58 $ 0.53 $ 0.90
Pro forma ................................................................. $ 0.54 $ 0.47 $ 0.87
Diluted net income per share:
As reported ............................................................... $ 0.58 $ 0.53 $ 0.89
Pro forma ................................................................. $ 0.54 $ 0.46 $ 0.87
Stock options:
Stock options issued (in thousands) ....................................... 80 1,778 603
Weighted average option exercise price .................................... $ 23.54 $ 25.34 $ 21.16
Weighted average compensation value of options granted per option (1)...... $ 1.59 $ 2.38 $ 1.14
Compensation cost (in thousands) .......................................... $ 1,038 $ 1,397 $ 376
Associate Stock Purchase Plan:
Weighted average compensation value ....................................... $ 3.61 -- --
Compensation cost (in thousands) .......................................... $ 10 -- --
</TABLE>
(1) Calculated in accordance with the binomial model, using the following
assumptions: (i) expected volatility of 13.00%, 13.40%, and 11.92% for
the years ended December 31, 1998, 1997, and 1996, respectively,
computed using the monthly average of the Company's common stock
market price as listed on the New York Stock Exchange for the period
February 1994 through August 1998; (ii) expected dividend yield
ranging from 7.42% to 9.90%; (iii) expected option term of six years;
(iv) risk-free rate of return as of the date of grant, which ranged
from 5.31% to 7.61%, based on extrapolated yield of six year U.S.
Treasury securities; and (v) forfeiture rate of 4.0%.
(11) MINORITY INTERESTS AND STOCKHOLDERS' EQUITY
Minority Interests
In connection with apartment acquisitions in June 1995, the Company
issued Common OP Units that are exchangeable for an aggregate of 810,128 shares
of the Company's common stock at the option of the unit holders. Prior to
exchange, the holders of these Common OP Units will be entitled to receive
quarterly distributions equal to the greater of the Company's actual
distributions on 810,128 shares of common stock, or $369,000 in the aggregate
($391,000 was accrued as of December 31, 1998). Distributions of $1,564,000,
$1,564,000 and $1,789,000 were paid to these unit holders for the year ended
December 31, 1998, 1997 and 1996, respectively. These securities have been
recorded as minority interests in the accompanying balance sheets.
In connection with an apartment acquisition in April 1997, the Company
issued $1.1 million of Common OP Units which are currently convertible into
38,876 shares of the Company's common stock. Prior to conversion, the holders
of these Common OP Units will be entitled to receive quarterly distributions on
the equivalent of 38,876 shares of common stock if and when declared and paid
($80,000 and $39,000 paid during 1998 and 1997, respectively). These securities
have been recorded as minority interests in the accompanying balance sheets.
-F-25-
<PAGE> 64
WALDEN RESIDENTIAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
In connection with the properties acquired from Drever in October 1997
(see Note 4), the Company issued approximately $304 million of Common OP Units
and Preferred OP Units, including 20,621 Common OP Units issued in connection
with the final accounting of the Drever transaction in June 1998. Beginning
October 1, 1998, each Common OP Unit became exchangeable into one share of the
Company's Common Stock, and each Preferred OP Unit became exchangeable into one
share of the Company's 9.0% Redeemable Preferred Stock and Series B Warrants
(each of which is exercisable for one-third of one share of the Company's common
stock at $26.875 per share). The 9.0% Redeemable Preferred Stock and the
Preferred OP Units are redeemable at the option of the Company in ten years at a
redemption price of $25 per share or unit.
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 on the
Company's common stock (distributions of $24,436,000 were paid during 1998).
Effective December 30, 1998, Common OP Units of 5,436,919 and Preferred OP Units
of 1,283,773 were exchanged into the Company's common stock and 9.00% Redeemable
Preferred Stock, respectively. The remaining outstanding Common and Preferred OP
Units of 4,899,365 and 714,440, respectively, have been recorded as minority
interests in the accompanying balance sheets.
On March 1, 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).
Dividend Reinvestment Program
The Company has a Dividend Reinvestment and Stock Purchase Program
("DRP") which allows stockholders to reinvest their common or preferred
distributions quarterly into shares of the Company's common stock, in lieu of
receiving cash distributions. The current DRP provides that the issue price of
dividend reinvestment purchases are at 95% of the average closing market price
of the Company's common stock for the five days preceding such purchase. The
Company has filed various shelf registration statements for an aggregate of
2,500,000 shares of common stock to be issued pursuant to the DRP, of which
609,398 shares were available for issuance as of December 31, 1998. Pursuant to
the DRP, the Company issued 314,328 and 955,434 shares of its common stock
during 1998 and 1997, respectively.
Other Shelf Registrations
The amount of common or preferred stock or stock warrants available for
issuance under previously filed registration statements was $18,025,000 at
December 31, 1998.
Public Offerings
Following is a summary of the Company's public offerings through
December 31, 1998:
-F-26-
<PAGE> 65
WALDEN RESIDENTIAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
<TABLE>
<CAPTION>
Description Date Issued Issue Price Shares Net Proceeds
- ----------- ----------- ----------- ------ ------------
(In thousands) (In thousands)
<S> <C> <C> <C> <C>
Common Stock:
IPO............................ February 9, 1994 $19.250 8,386 $143,680(1)
Follow-on offerings: November 7, 1994 $19.250 1,500 26,706
June 23, 1995 $18.375 3,500 60,173
August 27, 1996 $20.625 1,680 32,626(1)
December 24, 1996 $24.250 1,237 28,233(2)
February 19, 1998 $24.750 323 7,562
------- --------
Preferred Stock/Warrants: 16,626 298,980
------- --------
9.16% Series A Convertible
Redeemable Preferred
Stock........................ April 26, 1996 $25.000 1,800 43,500
9.20% Senior Preferred
Stock and Warrants........... December 27, 1996 $25.000 4,000 95,344
------- ----------
5,800 138,844
------- ---------
Total public offerings.............. 22,426 $437,824
======= ========
</TABLE>
(1) Includes overallotment option exercised.
(2) Includes 161,000 shares issued in January 1997 pursuant to an
overallotment option. Net proceeds were $3,524,000.
Preferred Stock and Warrants
On April 26, 1996, the Company sold 1,800,000 shares of a 9.16% Series
A Convertible Redeemable Preferred Stock ("Series A") at $25.00 per share. On
August 14, 1996, 1,707,300 shares of Series A were exchanged for the same
number of shares of a 9.16% Series B Convertible Redeemable Preferred Stock
("Series B"), with the remaining Series A shares either converted to common
stock in 1996 or 1997 or automatically exchanged for Series B shares on July 2,
1997. Series B shares of 73,818 and 3,000 were converted to common stock during
1997 and 1998, respectively. As of December 31, 1998, there were 1,709,182
Series B shares outstanding, which are convertible into 1.1406 shares of common
stock and are redeemable at the option of the Company on or after April 30,
2006 at $25.00 per share. Distributions on Series B shares are cumulative and
are equal to the greater of (i) $2.29 per annum or (ii) the distribution on the
number of shares of common stock into which a share of Series B is convertible.
On December 27, 1996, the Company sold 4,000,000 units at $25.00 per
unit. Each unit represented one share of 9.20% Senior Preferred Stock and one
detachable warrant. The preferred stock is not convertible into common stock
and is redeemable by the Company on or after December 31, 2006 at $25.00 per
share. Distributions on the preferred stock are cumulative. A warrant may be
exchanged for one-third share of common stock at an exercise price of $26.875
per share. The warrants expire on January 1, 2002.
-F-27-
<PAGE> 66
WALDEN RESIDENTIAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Effective December 30, 1998, pursuant to the terms of the Drever
transaction, Preferred OP Units of 1,283,773 were exchanged into the same
number of shares of the Company's 9.00% Redeemable Preferred Stock.
Distributions on this security are cumulative and are payable quarterly at
$0.5625 per share beginning in March 1999. The 9.00% Redeemable Preferred Stock
is redeemable by the Company after January 1, 2008 at $25.00 per share.
The aggregate liquidation preference of the Company's outstanding
preferred stock was $174,824,000 as of December 31, 1998.
Shareholder Rights Plan
On March 26, 1998, the Company adopted a shareholder rights plan (the
"Plan") designed to assure that all stockholders would receive fair treatment
in the event of a proposed acquisition of the Company. On April 20, 1998, the
Company issued a dividend of one right for each share of common stock owned by
stockholders of record as of April 7, 1998. Effective April 8, 1998, each share
of the Company's common stock has one right attached to it, which becomes
exercisable upon the occurrence of certain events.
Each right will entitle the holder to buy one one-hundredth of a share
of a new Series A Junior Participating Preferred Stock, at an exercise price of
$70.00 per share. The rights will trade with the Company's common stock until
exercisable and will expire on April 20, 2008. The rights will not be
exercisable until ten days following a public announcement that a person or
group has acquired 15% or more of the Company's common stock or until ten
business days after a person or group begins a tender offer that would result
in ownership of 15% or more of the Company's common stock, subject to certain
extensions by the Board. If either of these events occur, the holder will be
eligible to purchase shares of the Company's common stock at a 50 percent
discount.
Restricted Stock
On February 6, 1997, the Company adopted a Long-Term Incentive Plan to
attract and retain individuals to serve as directors, officers and employees of
the Company. The recipients of the Company's restricted shares of common stock
(the "Restricted Stock") are required to pay the $0.01 par value of the common
stock. During 1998, the Company issued 5,206 shares of Restricted Stock to two
of its executive officers and its six outside directors and canceled 7,583
shares upon employee departures from the Company. The shares issued to officers
and key employees vest ratably over a three year period, and the shares issued
to directors vest ratably over a one year period. On February 12, 1997, the
Company issued 107,500 shares of Restricted Stock under this plan to four
executive officers, its non-employee directors and certain other employees of
the Company (of which 18,000 shares of Restricted Stock were subsequently
canceled upon departures of certain individuals). The shares issued to the
non-employee directors vest ratably over a three-year period; while the shares
issued to the executive officers and other employees vest over a ten-year
period, with an initial vesting of 40% after the fourth anniversary and a 10%
annual vesting thereafter. Deferred compensation related to the Restricted
Stock was computed based upon the market value of the shares at the date of
issuance less the amount paid for the shares. This deferred compensation is
being amortized over the respective vesting periods. The unamortized amount as
of December 31, 1998 was $1,108,000.
On February 4, 1999, the Company issued 10,064 shares of Restricted
Stock to its six outside directors and two officers at $19.375 per share, which
vest over periods ranging from one to three years.
-F-28-
<PAGE> 67
WALDEN RESIDENTIAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
In 1997, the vesting period of the Restricted Stock issued to the
Company's former CEO and Chairman of the Board was accelerated to October 2000,
pursuant to a settlement agreement. In addition, the balance of the deferred
compensation on such Restricted Stock ($739,000) was fully amortized in 1997
and is reflected as an unusual charge in the statement of income.
Stock Repurchases
During 1995 and 1996, the Company repurchased 422,100 shares of its
common stock at a cost of $8.5 million; of which 103,800 and 18,800 shares were
reissued on December 28, 1995 and January 18, 1996, respectively, pursuant to
an officer and director stock purchase agreement (see Note 9). The remaining
299,500 shares were retired in 1996.
In July 1997, the Company announced a stock repurchase program which
authorized the Company to purchase up to 1 million shares of its common stock.
During 1997, the Company repurchased and retired 278,500 shares of its common
stock at a cost of $6.7 million and 721,500 shares in 1998 at a cost of $17.5
million.
On June 4, 1998, the Company adopted an additional stock repurchase
program. This new program authorizes the Company to purchase up to 2.5 million
shares of the Company's common stock through December 31, 1999. The Company
purchased 10,000 shares under this program at a cost of $0.2 million. The
Company does not intend to purchase additional shares if the Company's total
debt to total market capitalization continues to exceed 46%, which it does as
of March 3, 1999.
Associate Stock Purchase Plan
Effective April 1, 1998, the Company adopted an Associate Stock
Purchase Plan. This plan allows Company employees to purchase on a quarterly
basis shares of the Company's common stock at a 15% discount, up to $100,000
annually. As of December 31, 1998, $76,008 had been purchased by employees.
Distributions to Common and Preferred Stockholders
The following table illustrates distributions paid for the three years
ended December 31, 1998 on the Company's Common Stock, 9.16% Convertible
Redeemable Preferred Stock ("Convertible Preferred"), and 9.2% Senior Preferred
Stock, as well as the tax characteristics of the distributions:
<TABLE>
<CAPTION>
Ordinary
Long Term Taxable
Total Distributions Return of Ordinary/Capital Dividend
Year Security Distributions Per Share Capital Gain Income
- ---- -------- ------------- --------- ------- ---- ------
<S> <C> <C> <C> <C> <C> <C>
1998 Common $35,130 $ 1.93 50.14% 10.56% 39.30%
Convertible Preferred $ 3,919 $ 2.29 -- 21.19% 78.81%
9.2% Senior Preferred $ 9,200 $ 2.30 -- 21.19% 78.81%
1997 Common $33,852 $ 1.93 44.06% 2.23% 53.71%
Convertible Preferred $ 3,986 $ 2.29 -- 3.99% 96.01%
9.2% Senior Preferred $ 8,538 $ 2.30 -- 3.99% 96.01%
1996 Common $27,034 $ 1.86 43.30% 3.70% 53.00%
Convertible Preferred $ 2,387 $1.335 -- 6.53% 93.47%
</TABLE>
-F-29-
<PAGE> 68
WALDEN RESIDENTIAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
On March 3, 1999, the Company paid distributions of $11.6 million and
$4.1 million, respectively, to common and preferred stockholders of record on
February 18, 1999.
Distribution Preferences
Distributions on the Company's preferred stock and certain of its
minority interest securities have priority over other distributions. Following
are the Company's distribution preferences:
(a) First, to holders of the 9.20% Senior Preferred Stock
(4,000,000 shares at December 31, 1998, with an annual
dividend rate of $2.30 per share); then
(b) to holders of the 9.16% Series B Convertible Redeemable
Preferred Stock (1,709,182 shares at December 31, 1998, with
an annual dividend rate of $2.29 per share), the 9.00%
Redeemable Preferred Stock (1,283,773 shares at December 31,
1998, with an annual dividend rate of $2.25 per share) and
the holders of Preferred OP Units (714,440 units at December
31, 1998, with an annual distribution of $2.25 per unit);
then
(c) to holders of 810,128 Common OP Units (at a minimum
cumulative annual distribution equal to $1.82 per unit); and
(d) finally, to all remaining holders of Common OP Units and
common stock.
(12) FAIR VALUE DISCLOSURE OF FINANCIAL INSTRUMENTS
The following disclosure of estimated fair value of financial
instruments was determined by the Company using available market information
and appropriate valuation methodologies. However, considerable judgement 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 may have a material effect on the estimated fair value
amounts.
Cash and cash equivalents, receivables (including notes receivable for
stock purchases), accounts payable and accrued expenses and other liabilities
are carried at amounts which reasonably approximate their fair value.
As of December 31, 1998, the outstanding balance of fixed rate
mortgage notes payable of $473.8 million (excluding $180.5 million of variable
rate debt fixed through interest rate swap agreements) had a fair value of
$489.4 million (excluding prepayment penalties) as estimated based upon
interest rates available for the issuance of debt with similar terms and
remaining maturities as of December 31, 1998. Of these mortgages, $361.8
million were not prepayable at December 31, 1998. The remaining notes were
subject to prepayment penalties of $13.0 million at December 31, 1998, which
would be required to retire these notes prior to maturity. The floating rate
mortgage notes payable balance at December 31, 1998 reasonably approximates
fair value.
As of December 31, 1998, the fair value of the Company's interest rate
swap agreements and interest rate cap agreements was approximately $15 million
in the aggregate, which approximates the amount recorded.
-F-30-
<PAGE> 69
WALDEN RESIDENTIAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
As of December 31, 1997, the outstanding balance of fixed rate
mortgage notes payable of $370.1 million had a fair value of $379.1 million
(excluding prepayment penalties) as estimated based upon interest rates
available for the issuance of debt with similar terms and remaining maturities
as of December 31, 1997. Of these mortgages, $179.0 million were not prepayable
at December 31, 1997. The remaining notes were subject to prepayment penalties
of $5.6 million at December 31, 1997, which would be required to retire these
notes prior to maturity. The floating rate mortgage notes payable balance at
December 31, 1997 reasonably approximates fair value.
The fair value estimates presented herein are based on information
available to management as of December 31, 1998 and 1997. 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 that date, and current estimates of fair
value may differ significantly from the amounts presented herein.
(13) COMMITMENTS AND CONTINGENCIES
The Company 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 these 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 the Company.
The Company has executed lease agreements for its Dallas and Houston,
Texas corporate offices, which expire in May 2008 and October 2002,
respectively. Following is a summary of the annual payments required under
these agreements (in thousands):
<TABLE>
<S> <C>
1999 $1,061
2000 1,062
2001 1,101
2002 1,096
2003 959
Thereafter 4,311
------
Total $9,590
</TABLE>
As of December 31, 1998, the Company had employment agreements with
six officers for three and five year periods ending in June 2001 and February
or October 2002. On March 1, 1999, the Company entered into a three-year
employment agreement with one additional executive. Each employment agreement
provides that the Company is liable for the compensation benefits for one year
if an executive officer were to be terminated without cause, as defined. The
aggregate annual compensation under these agreements is approximately $1.4
million.
As of December 31, 1998, the Company had approximately $10 million of
contractual obligations with third parties related to capital improvements to
the Company's properties.
On February 27, 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 would purchase 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
($19.8 million balance at December 31, 1998).
-F-31-
<PAGE> 70
WALDEN RESIDENTIAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
On July 29, 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, Arizona ($7
million loaned as of December 31, 1998). The loan bears an interest rate of
LIBOR plus 1.50%, is secured by a mortgage loan on the property and a guarantee
by Greystone, and is generally due upon the earlier of completion of
construction of the related apartment project and subsequent purchase by the
Company or substitution of a third-party lender. In February 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 will be reduced to $4.7 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 late
1999 or early 2000.
On August 11, 1998, the Company entered into an agreement with Allied
Realty Services, Inc. ("Allied") whereby Allied will construct and the Company
will later purchase a 168-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 $10.5 million upon completion of construction and achievement of
targeted occupancy levels, anticipated to occur sometime in early 2000.
(14) SUBSEQUENT EVENT
In February 1999, the Company announced a corporate restructuring plan
which is expected to reduce general and administrative expenses in 1999. The key
components of the plan include closing the corporate office in Houston, Texas,
consolidating all of the corporate functions at the Dallas, Texas headquarters,
realigning the corporate departments to provide more cost-effective operations,
and reducing staff in several areas. The costs associated with the corporate
restructuring are estimated to be approximately $1 million, which will be
reflected as an unusual charge in the first quarter of 1999.
-F-32-
<PAGE> 71
WALDEN RESIDENTIAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(16) QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial information for the two year period
ended December 31, 1998 is as follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
1998 Quarters Ended
-------------------------------------------------------
March 31 June 30 September 30 December 31 Total
-------- ------- ------------ ----------- -----
<S> <C> <C> <C> <C> <C>
Revenues ............................. $ 68,814 $ 69,755 $ 71,158 $ 70,807 $ 280,534
Expenses ............................. 60,176 61,392 62,216 66,996 (a) 250,780
--------- --------- --------- --------- ---------
Operating income ..................... 8,638 8,363 8,942 3,811 29,754
Gain (loss) on disposition of real
property ........................... -- -- 6,696 (237) 6,459
Extraordinary loss on debt
extinguishment ..................... (24) (80) -- (319) (423)
Income allocated to minority
interests .......................... (2,898) (2,769) (5,470) (798) (11,935)
--------- --------- --------- --------- ---------
Net income ........................... 5,716 5,514 10,168 2,457 23,855
Preferred distributions .............. (3,280) (3,280) (3,281) (3,278) (13,119)
--------- --------- --------- --------- ---------
Net income (loss) available to
common stockholders .............. $ 2,436 $ 2,234 $ 6,887 $ (821) $ 10,736
========= ========= ========= ========= =========
Basic net income (loss) per share:
Before extraordinary item, less
preferred distributions and income
allocated to minority interests .... $ 0.13 $ 0.13 $ 0.38 $ (0.03) $ 0.60 (b)
Extraordinary loss on debt
extinguishment ..................... -- (0.01) -- (0.01) (0.02)
--------- --------- --------- --------- ---------
Net income (loss) available to common
stockholders ....................... $ 0.13 $ 0.12 $ 0.38 $ (0.04) $ 0.58 (b)
========= ========= ========= ========= =========
Diluted net income (loss) per share:
Before extraordinary item, less
preferred distributions and income
allocated to minority interests .... $ 0.13 $ 0.13 $ 0.38 $ (0.03) $ 0.60 (b)
Extraordinary loss on debt
extinguishment ..................... -- (0.01) -- (0.01) (0.02)
--------- --------- --------- --------- ---------
Net income available to common
stockholders ....................... $ 0.13 $ 0.12 $ 0.38 $ (0.04) $ 0.58 (b)
========= ========= ========= ========= =========
</TABLE>
(a) Includes an unusual charge of $4 million related to settlement costs
on one of the Company's forward treasury rate lock agreements.
(b) Due to the significant variances between quarters in net income and
weighted average shares outstanding, the combined quarterly income
(loss) per share does not equal the reported income per share for the
year.
-F-33-
<PAGE> 72
<TABLE>
<CAPTION>
1997 Quarters Ended
-------------------
March 31 June 30 September 30 December 31 (a) Total
-------- ------- ------------ --------------- -----
<S> <C> <C> <C> <C> <C>
Revenues ........................... $ 33,291 $ 34,750 $ 36,499 $ 66,595 $ 171,135
Expenses ........................... 26,556 29,065 30,328 60,128 146,077
--------- --------- --------- --------- -----------
Operating income ................... 6,735 5,685 6,171 6,467 25,058
Gain on disposition of real
property ......................... -- -- -- 2,055 2,055
Extraordinary loss on debt
extinguishment ................... -- -- -- (422) (422)
Income allocated to minority
interests ........................ (405) (395) (397) (2,912) (4,109)
--------- --------- --------- --------- -----------
Net income ......................... 6,330 5,290 5,774 5,188 22,582
Preferred distributions ............ (3,312) (3,311) (3,282) (3,281) (13,186)
--------- --------- --------- --------- -----------
Net income available to common
stockholders ..................... $ 3,018 $ 1,979 $ 2,492 $ 1,907 $ 9,396
========= ========= ========= ========= ===========
Basic net income per share:
Before extraordinary item, less
preferred distributions and income
allocated to minority interests .. $ 0.18 $ 0.11 $ 0.14 $ 0.13 $ 0.55 (b)
Extraordinary loss on debt
extinguishment ................... -- -- -- (0.02) (0.02)
--------- --------- --------- --------- -----------
Net income available to common
stockholders ..................... $ 0.18 $ 0.11 $ 0.14 $ 0.11 $ 0.53 (b)
========= ========= ========= ========= ===========
Diluted net income per share:
Before extraordinary item, less
preferred distributions and income
allocated to minority interests .. $ 0.17 $ 0.11 $ 0.14 $ 0.13 $ 0.55
Extraordinary loss on debt
extinguishment ................... -- -- -- (0.02) (0.02)
--------- --------- --------- --------- -----------
Net income available to common
stockholders ..................... $ 0.17 $ 0.11 $ 0.14 $ 0.11 $ 0.53
========= ========= ========= ========= ===========
</TABLE>
(a) Operations for the fourth quarter of 1997 include Drever, which was
acquired on October 1, 1997 (see Note 12).
(b) Due to the significant variances between quarters in net income and
weighted average shares outstanding, the combined quarterly income per
share does not equal the reported income per share for the year.
-F-34-
<PAGE> 73
WALDEN RESIDENTIAL PROPERTIES, INC.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1998
<PAGE> 74
WALDEN RESIDENTIAL PROPERTIES, INC.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
Encum- Cost Capitalized
Description brances Initial Cost to Company Subsequent to Acquisition
- ----------------------------------------------------------------------------------------------------------------------------------
Buildings & Buildings &
Property Name Location Land Improvements Land Improvements
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Original Properties
- -------------------
Avondale Tulsa OK 2,703 804 4,164 0 792
Casa Verde Phoenix AZ 1,968 1,027 3,586 0 442
Country View San Antonio TX (A) 719 5,302 0 891
Coventry Park Tulsa OK 2,345 635 3,475 0 935
Fountain Crest Tulsa OK 3,131 962 5,565 0 1,317
Fountaingate Wichita Falls TX -- 751 6,498 0 854
James Pointe Murray UT 8,106 1,040 10,937 (28) 831
Post Oak Place Euless TX -- 1,570 6,582 0 1,723
Preston Greens Dallas TX -- 1,468 6,687 0 1,032
Raintree Nashville TN 5,170 715 6,457 0 1,446
Settler's Cove Beaumont TX 3,140 159 5,056 0 657
Stillwater Murray UT 11,826 2,019 16,839 3 770
Trestles of Austin Austin TX (A) 1,100 9,977 0 1,623
Woodstone Phoenix AZ 12,404 4,325 14,210 0 936
--------- -------- ----------- ----- --------
Subtotal 50,793 17,294 105,335 (25) 14,249
--------- -------- ----------- ----- --------
1994 Acquisitions
- -----------------
Bel Shores Largo FL 4,586 1,847 6,072 0 1,051
Brookwood Club Jacksonville FL 6,800 952 8,647 (4) 1,623
Carlyle at Waters Tampa FL (B) 1,678 11,154 0 1,989
Cinnamon Park Arlington TX (A) 855 7,723 (4) 725
Copper Cove Houston TX (G) 935 6,194 0 773
Copperfield Oklahoma City OK 4,091 357 6,473 0 428
Fielder's Glen Arlington TX (A) 556 5,031 0 770
Foxboro Houston TX (A) 800 3,882 0 839
Gables, The McKinney TX (A) 544 6,885 0 737
Greens Crossing Dallas TX (B) 1,368 6,795 0 1,207
<CAPTION>
Gross Amount at Which Accumulated Date Depreciable
Description Carried at December 31, 1998 Depreciation Acquired Life (Years)
- -----------------------------------------------------------------------------------------------------------------------------------
Buildings &
Property Name Location Land Improvements Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Original Properties
- -------------------
Avondale Tulsa OK 804 4,956 5,760 (1,403) 02/94
Casa Verde Phoenix AZ 1,027 4,028 5,055 (1,057) 02/94
Country View San Antonio TX 719 6,193 6,912 (1,667) 02/94
Coventry Park Tulsa OK 635 4,410 5,045 (1,397) 02/94
Fountain Crest Tulsa OK 962 6,882 7,844 (2,195) 02/94
Fountaingate Wichita Falls TX 751 7,352 8,103 (1,903) 02/94
James Pointe Murray UT 1,012 11,768 12,780 (2,697) 02/94
Post Oak Place Euless TX 1,570 8,305 9,875 (1,903) 02/94
Preston Greens Dallas TX 1,468 7,719 9,187 (2,104) 02/94
Raintree Nashville TN 715 7,903 8,618 (1,898) 02/94
Settler's Cove Beaumont TX 159 5,713 5,872 (1,543) 02/94
Stillwater Murray UT 2,022 17,609 19,631 (3,991) 02/94
Trestles of Austin Austin TX 1,100 11,600 12,700 (2,737) 02/94
Woodstone Phoenix AZ 4,325 15,146 19,471 (3,367) 02/94
--------- ----------- ----------- ---------
Subtotal 17,269 119,584 136,853 (29,862)
--------- ----------- ----------- ---------
1994 Acquisitions
- -----------------
Bel Shores Largo FL 1,847 7,123 8,970 (1,309) 03/94
Brookwood Club Jacksonville FL 948 10,270 11,218 (1,665) 11/94
Carlyle at Waters Tampa FL 1,678 13,143 14,821 (1,897) 12/94
Cinnamon Park Arlington TX 851 8,448 9,299 (1,275) 09/94
Copper Cove Houston TX 935 6,967 7,902 (1,153) 06/94
Copperfield Oklahoma City OK 357 6,901 7,258 (1,113) 06/94
Fielder's Glen Arlington TX 556 5,801 6,357 (979) 05/94
Foxboro Houston TX 800 4,721 5,521 (843) 06/94
Gables, The McKinney TX 544 7,622 8,166 (1,274) 05/94
Greens Crossing Dallas TX 1,368 8,002 9,370 (1,184) 12/94
</TABLE>
<PAGE> 75
WALDEN RESIDENTIAL PROPERTIES, INC.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
Encum- Cost Capitalized
Description brances Initial Cost to Company Subsequent to Acquisition
- -----------------------------------------------------------------------------------------------------------------------------------
Buildings & Buildings &
Property Name Location Land Improvements Land Improvements
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Harper's Creek Austin TX (A) 868 8,871 0 828
Hunter's Ridge Oklahoma City OK 3,495 300 4,927 0 665
Newport Irving TX 6,993 1,200 8,878 0 802
Rivercrest Arlington TX 5,312 1,650 7,877 0 1,691
Silverado Albuquerque NM (B) 1,194 8,082 0 295
Springfield Mesquite TX (A) 1,042 6,507 0 648
Summerfield Place Oklahoma City OK (A) 619 5,586 0 599
Woodscape Oklahoma City OK (A) 1,077 13,280 0 1,227
--------- -------- ----------- ----- --------
Subtotal 31,277 17,842 132,864 (8) 16,897
--------- -------- ----------- ----- --------
1995 Acquisitions
Braden's Walk (E) Bedford TX (G) 1,839 18,495 0 2,248
Hilltop North Richland
Hills TX -- 801 5,314 0 821
Laurel Creek Houston TX (A) 2,067 12,011 0 1,464
Pinnacle Lewisville TX -- 672 4,190 0 525
Pinto Creek Austin TX (A) 487 8,403 0 1,301
Reflections of Highpoint Dallas TX 12,426 1,984 12,358 0 1,613
Remington at Ponte Vedra Ponte Vedra
Beach FL 11,938 1,425 13,468 0 1,119
Remington Hill Fort Worth TX 13,797 1,846 11,847 0 532
Sandpiper Jacksonville FL (B) 1,102 10,377 0 1,509
Shadow Creek North Richland
Hills TX (G) 666 5,899 0 943
Summer Meadows Plano TX 12,123 2,393 14,908 0 634
Summer Villas Dallas TX (C) 2,270 14,140 0 2,385
Summers Crossing Plano TX 9,047 1,730 10,774 0 966
Summers Landing Fort Worth TX (G) 819 5,259 0 635
Three Palms Tampa FL (G) 1,735 14,017 0 1,322
Winridge Aurora CO 12,608 790 15,939 0 936
--------- -------- ----------- ----- --------
<CAPTION>
Gross Amount at Which Accumulated Date Depreciable
Description Carried at December 31, 1998(H) Depreciation Acquired Life (Years)(D)
- -----------------------------------------------------------------------------------------------------------------------------------
Buildings &
Property Name Location Land Improvements Total
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Harper's Creek Austin TX 868 9,699 10,567 (1,524) 06/94
Hunter's Ridge Oklahoma City OK 300 5,592 5,892 (883) 06/94
Newport Irving TX 1,200 9,680 10,880 (1,502) 06/94
Rivercrest Arlington TX 1,650 9,568 11,218 (1,646) 04/94
Silverado Albuquerque NM 1,194 8,377 9,571 (1,210) 12/94
Springfield Mesquite TX 1,042 7,155 8,197 (1,133) 06/94
Summerfield Place Oklahoma City OK 619 6,185 6,804 (909) 11/94
Woodscape Oklahoma City OK 1,077 14,507 15,584 (2,255) 06/94
--------- ----------- ----------- ---------
Subtotal 17,834 149,761 167,595 (23,754)
--------- ----------- ----------- ---------
1995 Acquisitions
Braden's Walk (E) Bedford TX 1,839 20,743 22,582 (1,588) 12/95, 10/96, 12/97
Hilltop North Richland
Hills TX 801 6,135 6,936 (683) 12/95
Laurel Creek Houston TX 2,067 13,475 15,542 (1,852) 04/95
Pinnacle Lewisville TX 672 4,715 5,387 (593) 06/95
Pinto Creek Austin TX 487 9,704 10,191 (1,342) 01/95
Reflections of Highpoint Dallas TX 1,984 13,971 15,955 (1,631) 06/95
Remington at Ponte Vedra Ponte Vedra Beach FL 1,425 14,587 16,012 (1,836) 06/95
Remington Hill Fort Worth TX 1,846 12,379 14,225 (1,563) 06/95
Sandpiper Jacksonville FL 1,102 11,886 12,988 (1,447) 10/95
Shadow Creek North Richland
Hills TX 666 6,842 7,508 (769) 12/95
Summer Meadows Plano TX 2,393 15,542 17,935 (1,951) 06/95
Summer Villas Dallas TX 2,270 16,525 18,795 (1,887) 06/95
Summers Crossing Plano TX 1,730 11,740 13,470 (1,461) 06/95
Summers Landing Fort Worth TX 819 5,894 6,713 (784) 06/95
Three Palms Tampa FL 1,735 15,339 17,074 (1,935) 06/95
Winridge Aurora CO 790 16,875 17,665 (2,087) 06/95
--------- ----------- ----------- ---------
</TABLE>
<PAGE> 76
WALDEN RESIDENTIAL PROPERTIES, INC.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
Encum- Cost Capitalized
Description brances Initial Cost to Company Subsequent to Acquisition
- ----------------------------------------------------------------------------------------------------------------------------------
Buildings & Buildings &
Property Name Location Land Improvements Land Improvements
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Subtotal 71,939 22,626 177,399 0 18,953
--------- -------- ----------- ----- --------
1996 Acquisitions
Ashbury Parke Austin TX (G) 2,007 11,591 0 1,194
Bentley Green Jacksonville FL (G) 1,430 14,095 0 1,765
Brandywine Nashville TN -- 646 8,479 0 1,240
Costa Del Sol San Antonio TX (G) 871 6,432 0 778
Huntington at Hidden Hills Jacksonville FL -- 722 6,165 0 1,753
Meadow Glen Mesa AZ 6,969 1,802 10,754 0 839
Nashboro Village Nashville TN -- 6,186 42,869 0 3,809
Parks at Treepoint (F) Arlington TX (G) 1,966 15,036 0 2,188
Remington San Antonio TX -- 427 4,411 0 633
Saratoga Melbourne FL -- 676 5,788 0 917
Summer Oaks San Antonio TX (G) 826 5,624 0 737
Terra Vida Mesa AZ 7,214 1,929 13,383 0 1,067
Villas of St. Moritz San Antonio TX (G) 653 5,544 0 794
Waterford on the Meadow Plano TX -- 2,156 11,423 0 1,222
--------- -------- ----------- ----- --------
Subtotal 14,183 22,297 161,594 0 18,936
--------- -------- ----------- ----- --------
1997 Acquisitions
Arbors of Austin Austin TX (G) 670 7,306 0 610
Arbors of Bedford Bedford TX (G) 531 5,623 0 653
Arbors of Carrollton Carrollton TX -- 684 4,019 0 465
Arbors of Euless Euless TX (G) 1,206 6,733 0 1,227
Ashton Park Tampa FL 3,908 935 6,094 0 224
Clover Hill Arlington TX (G) 725 5,944 0 752
Hillcrest Grand Prairie TX -- 1,040 6,823 0 701
Oak Ramble Tampa FL -- 1,247 8,797 0 567
<CAPTION>
Gross Amount at Which Accumulated Date Depreciable
Description Carried at December 31, 1998(H) Depreciation Acquired Life (Years)(D)
- -----------------------------------------------------------------------------------------------------------------------------------
Buildings &
Property Name Location Land Improvements Total
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Subtotal 22,626 196,352 218,978 (23,409)
--------- ----------- ----------- ---------
1996 Acquisitions
Ashbury Parke Austin TX 2,007 12,785 14,792 (1,169) 06/96
Bentley Green Jacksonville FL 1,430 15,860 17,290 (1,421) 08/96 & 09/96
Brandywine Nashville TN 646 9,719 10,365 (937) 08/96
Costa Del Sol San Antonio TX 871 7,210 8,081 (681) 06/96
Huntington at Hidden Hills Jacksonville FL 722 7,918 8,640 (772) 08/96
Meadow Glen Mesa AZ 1,802 11,593 13,395 (864) 11/96
Nashboro Village Nashville TN 6,186 46,678 52,864 (3,424) 12/96
Parks at Treepoint (F) Arlington TX 1,966 17,224 19,190 (1,475) 09/96 & 01/97
Remington San Antonio TX 427 5,044 5,471 (475) 06/96
Saratoga Melbourne FL 676 6,705 7,381 (577) 09/96
Summer Oaks San Antonio TX 826 6,361 7,187 (599) 06/96
Terra Vida Mesa AZ 1,929 14,450 16,379 (1,377) 06/96
Villas of St. Moritz San Antonio TX 653 6,338 6,991 (623) 06/96
Waterford on the Meadow Plano TX 2,156 12,645 14,801 (1,099) 09/96
--------- ----------- ----------- ---------
Subtotal 22,297 180,530 202,827 (15,493)
--------- ----------- ----------- ---------
1997 Acquisitions
Arbors of Austin Austin TX 670 7,916 8,586 (482) 04/97
Arbors of Bedford Bedford TX 531 6,276 6,807 (419) 04/97
Arbors of Carrollton Carrollton TX 684 4,484 5,168 (289) 04/97
Arbors of Euless Euless TX 1,206 7,960 9,166 (537) 04/97
Ashton Park Tampa FL 935 6,318 7,253 (312) 12/97
Clover Hill Arlington TX 725 6,696 7,421 (303) 10/97
Hillcrest Grand Prairie TX 1,040 7,524 8,564 (414) 06/97
Oak Ramble Tampa FL 1,247 9,364 10,611 (404) 11/97
</TABLE>
<PAGE> 77
WALDEN RESIDENTIAL PROPERTIES, INC.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
Encum- Cost Capitalized
Description brances Initial Cost to Company Subsequent to Acquisition
- ----------------------------------------------------------------------------------------------------------------------------------
Buildings & Buildings &
Property Name Location Land Improvements Land Improvements
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Parkway Station Atlanta GA -- 666 17,761 0 594
Windsor Park Hendersonville TN 6,812 500 9,012 0 710
--------- -------- ----------- ----- --------
Subtotal 10,720 8,204 78,112 0 6,503
--------- -------- ----------- ----- --------
Drever Transaction
Arbor Creek Dallas TX (G) 2,284 9,841 0 314
Arbor Point Houston TX 1,428 313 2,568 0 51
Arbors of Wells Branch Austin TX (G) 912 7,522 0 159
Ashton Woods Houston TX (C) 251 4,423 0 185
Aston Brook Houston TX 1,618 194 3,676 0 275
Audubon Square Austin TX (G) 529 6,284 0 144
Bar Harbor Houston TX 5,097 1,149 9,326 0 261
Bayou Oaks Houston TX 3,506 222 6,120 0 127
Bent Creek Dallas TX 5,585 1,802 8,155 0 236
Brandon Oaks Houston TX 2,556 293 6,454 0 172
Briarcrest Houston TX 3,987 714 11,199 0 429
Brittany Park Dallas TX (G) 1,620 7,892 0 360
Brookfield Houston TX (G) 400 8,422 0 230
Canyon Ridge Dallas TX 3,946 1,127 5,620 0 118
Carriage Hill Houston TX 4,181 410 8,474 0 307
Casa Valley Dallas TX (G) 1,020 6,010 0 295
Central Park Condos Houston TX 2,034 370 3,945 0 145
Central Park Regency Houston TX 5,814 490 12,636 0 653
Charleston, The Houston TX 4,268 810 8,469 0 225
Cimarron Park Houston TX 3,265 334 4,888 0 212
Cimarron Parkway Houston TX (G) 1,319 9,527 0 383
Colorado Club Houston TX (G) 883 9,780 0 316
Creekwood Village Dallas TX 6,934 1,433 11,173 0 399
<CAPTION>
Gross Amount at Which Accumulated Date Depreciable
Description Carried at December 31, 1998(H) Depreciation Acquired Life (Years)(D)
- ------------------------------------------------------------------------------------------------------------------------------------
Buildings &
Property Name Location Land Improvements Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Parkway Station Atlanta GA 666 18,355 19,021 (904) 12/97
Windsor Park Hendersonville TN 500 9,722 10,222 (502) 07/97
--------- ----------- ----------- ---------
Subtotal 8,204 84,615 92,819 (4,566)
--------- ----------- ----------- ---------
Drever Transaction
Arbor Creek Dallas TX 2,284 10,155 12,439 (536) 10/97
Arbor Point Houston TX 313 2,619 2,932 (142) 10/97
Arbors of Wells Branch Austin TX 912 7,681 8,593 (406) 10/97
Ashton Woods Houston TX 251 4,608 4,859 (247) 10/97
Aston Brook Houston TX 194 3,951 4,145 (210) 10/97
Audubon Square Austin TX 529 6,428 6,957 (343) 10/97
Bar Harbor Houston TX 1,149 9,587 10,736 (511) 10/97
Bayou Oaks Houston TX 222 6,247 6,469 (332) 10/97
Bent Creek Dallas TX 1,802 8,391 10,193 (444) 10/97
Brandon Oaks Houston TX 293 6,626 6,919 (351) 10/97
Briarcrest Houston TX 714 11,628 12,342 (631) 10/97
Brittany Park Dallas TX 1,620 8,252 9,872 (436) 10/97
Brookfield Houston TX 400 8,652 9,052 (459) 10/97
Canyon Ridge Dallas TX 1,127 5,738 6,865 (301) 10/97
Carriage Hill Houston TX 410 8,781 9,191 (464) 10/97
Casa Valley Dallas TX 1,020 6,305 7,325 (327) 10/97
Central Park Condos Houston TX 370 4,090 4,460 (216) 10/97
Central Park Regency Houston TX 490 13,289 13,779 (696) 10/97
Charleston, The Houston TX 810 8,694 9,504 (463) 10/97
Cimarron Park Houston TX 334 5,100 5,434 (272) 10/97
Cimarron Parkway Houston TX 1,319 9,910 11,229 (513) 10/97
Colorado Club Houston TX 883 10,096 10,979 (531) 10/97
Creekwood Village Dallas TX 1,433 11,572 13,005 (608) 10/97
</TABLE>
<PAGE> 78
WALDEN RESIDENTIAL PROPERTIES, INC.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
Encum- Cost Capitalized
Description brances Initial Cost to Company Subsequent to Acquisition
- ----------------------------------------------------------------------------------------------------------------------------------
Buildings & Buildings &
Property Name Location Land Improvements Land Improvements
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Crestwood Phoenix AZ (G) 932 9,151 0 82
Enclave at Cypress Park Houston TX (G) 1,595 12,455 0 411
Fairways, The Phoenix AZ -- 766 5,747 0 146
Felicita Creek San Diego CA 3,995 1,594 5,550 0 69
Garden Place Phoenix AZ (G) 1,596 12,480 0 113
Georgetown Houston TX -- 1,565 7,826 0 110
Hidden Lake Houston TX (G) 2,843 19,840 0 455
Holiday on Hayes Houston TX 6,622 1,491 10,600 0 129
Hunt Club, The Houston TX 2,764 1,175 5,184 0 109
Huntley, The Houston TX 5,182 640 8,974 0 291
Lakes of Renaissance Austin TX -- 945 10,463 0 186
Meadows on Memorial Houston TX -- 609 2,348 0 82
Mill Creek Houston TX 1,597 205 4,595 0 128
Montfort Oaks Dallas TX 7,242 2,256 11,177 0 220
Monticello on Cranbrook Houston TX 3,360 410 7,522 0 187
Northwoods Houston TX 5,124 638 8,176 0 336
Oak Ridge Austin TX (G) 834 10,389 0 266
One Cypress Landing Houston TX (G) 559 11,830 0 455
One Westfield Lake Houston TX -- 731 9,692 0 320
One Willow Chase Houston TX -- 160 3,425 0 366
One Willow Park Houston TX (G) 219 5,880 0 286
Park Bonita San Diego CA 6,753 6,951 5,647 0 74
Pathway, The Houston TX (G) 848 5,855 0 96
Pine Creek Houston TX -- 414 5,697 0 349
Polo Club Austin TX 6,218 912 10,586 0 223
Polo Club on Cranbrook I Houston TX 2,794 340 5,693 0 245
Polo Club on Cranbrook II Houston TX 3,830 256 7,362 0 342
Rafter, The Corpus Christi TX 5,314 899 8,304 0 116
Richmond Green Houston TX (G) 1,248 10,049 0 178
<CAPTION>
Gross Amount at Which Accumulated Date Depreciable
Description Carried at December 31, 1998(H) Depreciation Acquired Life(Years)(D)
- -----------------------------------------------------------------------------------------------------------------------------------
Buildings &
Property Name Location Land Improvements Total
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Crestwood Phoenix AZ 932 9,233 10,165 (488) 10/97
Enclave at Cypress Park Houston TX 1,595 12,866 14,461 (690) 10/97
Fairways, The Phoenix AZ 766 5,893 6,659 (314) 10/97
Felicita Creek San Diego CA 1,594 5,619 7,213 (293) 10/97
Garden Place Phoenix AZ 1,596 12,593 14,189 (654) 10/97
Georgetown Houston TX 1,565 7,936 9,501 (412) 10/97
Hidden Lake Houston TX 2,843 20,295 23,138 (1,057) 10/97
Holiday on Hayes Houston TX 1,491 10,729 12,220 (561) 10/97
Hunt Club, The Houston TX 1,175 5,293 6,468 (281) 10/97
Huntley, The Houston TX 640 9,265 9,905 (482) 10/97
Lakes of Renaissance Austin TX 945 10,649 11,594 (560) 10/97
Meadows on Memorial Houston TX 609 2,430 3,039 (133) 10/97
Mill Creek Houston TX 205 4,723 4,928 (254) 10/97
Montfort Oaks Dallas TX 2,256 11,397 13,653 (594) 10/97
Monticello on Cranbrook Houston TX 410 7,709 8,119 (415) 10/97
Northwoods Houston TX 638 8,512 9,150 (448) 10/97
Oak Ridge Austin TX 834 10,655 11,489 (557) 10/97
One Cypress Landing Houston TX 559 12,285 12,844 (654) 10/97
One Westfield Lake Houston TX 731 10,012 10,743 (524) 10/97
One Willow Chase Houston TX 160 3,791 3,951 (195) 10/97
One Willow Park Houston TX 219 6,166 6,385 (320) 10/97
Park Bonita San Diego CA 6,951 5,721 12,672 (300) 10/97
Pathway, The Houston TX 848 5,951 6,799 (310) 10/97
Pine Creek Houston TX 414 6,046 6,460 (329) 10/97
Polo Club Austin TX 912 10,809 11,721 (570) 10/97
Polo Club on Cranbrook I Houston TX 340 5,938 6,278 (325) 10/97
Polo Club on Cranbrook II Houston TX 256 7,704 7,960 (421) 10/97
Rafter, The Corpus Christi TX 899 8,420 9,319 (432) 10/97
Richmond Green Houston TX 1,248 10,227 11,475 (533) 10/97
</TABLE>
<PAGE> 79
WALDEN RESIDENTIAL PROPERTIES, INC.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
Encum- Cost Capitalized
Description brances Initial Cost to Company Subsequent to Acquisition
- ----------------------------------------------------------------------------------------------------------------------------------
Buildings & Buildings &
Property Name Location Land Improvements Land Improvements
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Riverwalk Houston TX 2,830 390 6,497 0 98
Saratoga Springs Atlanta GA 7,458 1,568 12,041 0 665
Shadow Creek Austin TX 8,449 1,617 13,250 0 863
Shadowridge Village Dallas TX 3,230 918 5,055 0 143
Shannon Chase Atlanta GA 4,317 3,465 4,564 0 141
Silverado Houston TX 7,726 1,611 12,003 0 144
Stony Creek Houston TX 2,921 478 6,540 0 422
Sun Ridge San Diego CA 3,842 3,400 3,316 0 89
Timbers of Cranbrook Houston TX (G) 348 8,273 0 270
Tranquility Lake Houston TX -- 742 3,231 0 72
Trinity Mills Dallas TX 4,671 1,968 6,372 0 185
Trinity Oaks Dallas TX 3,056 916 8,688 0 303
Villas at Indian Trails Atlanta GA 3,562 3,119 6,138 0 508
Wharf, The Corpus Christi TX 6,063 1,283 8,928 0 160
Willowick Corpus Christi TX 5,959 899 9,161 0 139
Wimbledon Houston TX -- 231 5,667 0 145
Woodborough Houston TX (G) 376 8,731 0 389
Woodchase Houston TX 4,416 1,422 10,826 0 204
Woodedge Houston TX 1,711 243 3,606 0 128
Woodlake Houston TX (G) 1,179 10,338 0 309
--------- -------- ----------- ----- --------
Subtotal 185,225 78,683 568,126 0 17,743
--------- -------- ----------- ----- --------
Subtotal - 1997 195,945 86,887 646,238 0 24,246
--------- -------- ----------- ----- --------
1998 Acquisitions
Retreat at Eldridge Houston TX -- 549 9,452 0 4
Sierra Springs Bedford TX 8,334 745 10,517 0 273
South Green Houston TX -- 494 9,008 0 271
<CAPTION>
Gross Amount at Which Accumulated Date Depreciable
Description Carried at December 31, 1998(H) Depreciation Acquired Life (Years)(D)
- -----------------------------------------------------------------------------------------------------------------------------------
Buildings &
Property Name Location Land Improvements Total
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Riverwalk Houston TX 390 6,595 6,985 (348) 10/97
Saratoga Springs Atlanta GA 1,568 12,706 14,274 (646) 10/97
Shadow Creek Austin TX 1,617 14,113 15,730 (728) 10/97
Shadowridge Village Dallas TX 918 5,198 6,116 (280) 10/97
Shannon Chase Atlanta GA 3,465 4,705 8,170 (252) 10/97
Silverado Houston TX 1,611 12,147 13,758 (635) 10/97
Stony Creek Houston TX 478 6,962 7,440 (375) 10/97
Sun Ridge San Diego CA 3,400 3,405 6,805 (185) 10/97
Timbers of Cranbrook Houston TX 348 8,543 8,891 (453) 10/97
Tranquility Lake Houston TX 742 3,303 4,045 (175) 10/97
Trinity Mills Dallas TX 1,968 6,557 8,525 (344) 10/97
Trinity Oaks Dallas TX 916 8,991 9,907 (466) 10/97
Villas at Indian Trails Atlanta GA 3,119 6,646 9,765 (356) 10/97
Wharf, The Corpus Christi TX 1,283 9,088 10,371 (482) 10/97
Willowick Corpus Christi TX 899 9,300 10,199 (491) 10/97
Wimbledon Houston TX 231 5,812 6,043 (306) 10/97
Woodborough Houston TX 376 9,120 9,496 (484) 10/97
Woodchase Houston TX 1,422 11,030 12,452 (588) 10/97
Woodedge Houston TX 243 3,734 3,977 (201) 10/97
Woodlake Houston TX 1,179 10,647 11,826 (553) 10/97
--------- ----------- ----------- ---------
Subtotal 78,683 585,869 664,552 (30,893)
--------- ----------- ----------- ---------
Subtotal - 1997 86,887 670,484 757,371 (35,459)
--------- ----------- ----------- ---------
1998 Acquisitions
Retreat at Eldridge Houston TX 549 9,456 10,005 (111) 8/98
Sierra Springs Bedford TX 745 10,790 11,535 (126) 8/98
South Green Houston TX 494 9,279 9,773 (113) 8/98
</TABLE>
<PAGE> 80
WALDEN RESIDENTIAL PROPERTIES, INC.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
Encum- Cost Capitalized
Description brances Initial Cost to Company Subsequent to Acquisition
- -----------------------------------------------------------------------------------------------------------------------------------
Buildings & Buildings &
Property Name Location Land Improvements Land Improvements
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
South Pointe Tampa FL 5,493 490 5,685 0 125
St. James Tampa FL 4,980 1,156 8,557 0 213
--------- -------- ----------- ----- --------
Subtotal - 1998 18,807 3,434 43,219 0 886
--------- -------- ----------- ----- --------
Grand Total $ 382,944 $170,380 $ 1,266,649 $ (33) $ 94,167
========= ======== =========== ===== ========
<CAPTION>
Gross Amount at Which Accumulated Date Depreciable
Description Carried at December 31, 1998 Depreciation Acquired Life (Years)
- ------------------------------------------------------------------------------------------------------------------------------------
Buildings &
Property Name Location Land Improvements Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
South Pointe Tampa FL 490 5,810 6,300 (174) 2/98
St. James Tampa FL 1,157 8,770 9,927 (264) 2/98
--------- ----------- ----------- ---------
Subtotal - 1998 3,435 44,105 47,540 (788)
--------- ----------- ----------- ---------
Grand Total $ 170,347 $ 1,360,816 $ 1,531,163 $(128,765)
========= =========== =========== =========
</TABLE>
(A) Property is pledged as collateral under a $56.308 million mortgage note
payable to an insurance company.
(B) Property is pledged as collateral under a $22.615 million mortgage note
payable to an insurance company.
(C) Property is pledged as collateral under the mortgage notes secured by
Reflections of Highpoint, Remington at Ponte Vedra, Remington Hill,
Winridge, and Windsor Park.
(D) Depreciation is computed on a straight-line basis over the estimated useful
lives of the related assets which range from 14 to 30 years for buildings
and 3, 5, 10, or 15 years for personal property.
(E) Braden's Walk, Oak Forest and Woods of Bedford were combined on
December 31, 1997 to be operated as one property.
(F) Timber Creek and Treepoint were combined on January 8, 1997 and Quayle Walk
was combined on December 31, 1997, to be operated as one property - Parks
at Treepoint.
(G) Property is pledged as collateral under a $250 million credit facility
secured by FNMA.
(H) The aggregate cost for Federal income tax purposes at December 31, 1998 is
approximately $1.4 billion.
<PAGE> 81
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
3.1 Articles of Amendment and Restatement of the Company. (1)
3.2 Restated Bylaws of the Company. (1)
4.1 Specimen of certificate representing shares of Common Stock.
(2)
4.2 Form of certificate representing shares of 9.16% Series B
Convertible Redeemable Preferred Stock. (3)
4.3 Form of certificate representing shares of 9.20% Senior
Preferred Stock. (4)
4.4 Form of Articles Supplementary relating to 9.16% Series B
Convertible Redeemable Preferred Stock. (3)
4.5 Form of Articles Supplementary designating the rights of the
holders of 9.20% Senior Preferred Stock. (4)
4.6 Form of certificate representing shares of 9.00% Redeemable
Preferred Stock. *
4.7 Form of Articles Supplementary relating to the 9.00%
Redeemable Preferred Stock.*
10.1 Rights Agreement, dated as of March 26, 1998, between the
Company and BankBoston, N.A., as Rights Agent, which
includes: as Exhibit A thereto, the Form of Articles
Supplementary, establishing the Series A Junior Participating
Preferred Share, par value $0.01 per share, of the Companys'
as Exhibit B thereto, the Form of Right Certificate; and as
Exhibit C thereto, the Summary of Rights to Purchase
Preferred Shares. (5)
10.2 Master Credit Facility Agreement dated as of December 18,
1998, by and among Walden Residential Properties, Inc.,
Walden/Drever Operating Partnership, and WF Washington
Mortgage Corp.*
10.3 First Amended and Restated Revolving Credit Agreement, dated
as of December 18, 1998, by and among Walden Residential
Properties, Inc., Walden/Drever Operating Partnership, L.P.,
BankBoston, N.A., and the other lending institutions which
may become parties hereto.*
10.4 First Amendment to First Amended and Restated Revolving
Credit Agreement, dated as of December 18, 1998, by and among
Walden Residential Properties, Inc., Walden/Drever Operating
Partnership, L.P., BankBoston, N.A., Keybank National
Association, Bank of Montreal, Chicago Branch, Dresdner Bank
AG New York and Grand Cayman Branches, First Union National
Bank, and Compass Bank.*
</TABLE>
-E-1-
<PAGE> 82
<TABLE>
<S> <C>
10.5 Amended and Restated Operating Agreement of GGL Ventures,
LLC, by and among the undersigned parties listed on "Exhibit
A" attached thereto (each thereinafter referred to
individually, as a "Class A Member" and collectively, as the
"Class A Members"), WGGL Corp., (the "Class B Member"), the
undersigned Managers of the Company, (each thereinafter
referred to individually as a "Manager" and collectively as
"Managers") and the Persons who thereafter become Managers of
the Company in accordance with the provisions thereof.*
10.6 Employment Agreement, dated as of July 1, 1998 between Walden
Residential Properties, Inc. and Robin K. Minick.*
10.7 Purchase and Sale Agreement between Walden Residential
Properties, Inc. and Lakeview Ocotillo, L.L.C (Lakeview at
Ocotillo Apartment).*
12.1 Computation of Ratio of Earnings to Combined Fixed Charges
and Preferred Stock Dividends. *
21.1 Schedule of Subsidiaries of the Company. *
23.1 Independent Auditors' Consent. *
27.1 Financial Data Schedule. *
</TABLE>
-E-2-
<PAGE> 83
--------------------------------
* Previously filed with the Company's Form 10-K for the year ended
December 31, 1998 filed with the Securities and Exchange Commission
on March 30, 1999.
(1) Previously filed with the Amendment No. 3 to the Company's
Registration Statement on Form S-11 (Registration No. 33-70132) filed
with the Securities and Exchange Commission on December 23, 1993 and
incorporated herein by reference.
(2) Previously filed with the Company's Registration Statement on Form S-3
(Registration No. 33-90438) filed with the Securities and Exchange
Commission on March 8, 1995 and incorporated herein by reference.
(3) Previously filed with the Company's Registration Statement on Form S-3
(Registration No. 33-13809) filed with the Securities and Exchange
Commission on October 9, 1996 and herein incorporated by reference.
(4) Previously filed with the Company's Form 8-A filed with the Securities
and Exchange Commission on December 20, 1996 and herein incorporated
by reference. (Previously numbered Exhibit 1.1 and 2.3)
(5) Previously filed as Exhibit 4.1 to the Company's Form 8-K, filed with
the Commission on April 9, 1998, and incorporated herein by reference.
-E-3-
