SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10 - Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15
(d) OF THE SECURITIES
AND EXCHANGE ACT OF 1934
Commission File Number: 1-12590
GABLES RESIDENTIAL TRUST
MARYLAND 58-2077868
(State of Incorporation) (I.R.S. Employer Identification No.)
2859 Paces Ferry Road, Suite 1450
Atlanta, Georgia 30339
(770) 436 - 4600
COMMON SHARES OF BENEFICIAL INTEREST, PAR VALUE $0.01 PER SHARE,
16,097,657 SHARES
The number of shares outstanding of each of the
registrant's classes of common stock,
as of July 31, 1996
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(D) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the Registrant
was required to file such reports) and (2) has been subject to such filing
requirements for the past (90) days.
(1) (X) YES ( ) NO
(2) (X) YES ( ) NO
<PAGE>
GABLES RESIDENTIAL TRUST
FORM 10 - Q INDEX
PART I - FINANCIAL INFORMATION
Item 1: Financial Statements
Consolidated Balance Sheets of Gables Residential Trust as of June 30, 1996
and December 31, 1995.
Consolidated Statements of Operations of Gables Residential Trust for the
three months ended June 30, 1996 and June 30, 1995.
Consolidated Statements of Operations of Gables Residential Trust for the
six months ended June 30, 1996 and June 30, 1995.
Consolidated Statements of Cash Flows of Gables Residential Trust for the
six months ended June 30, 1996 and June 30, 1995.
Notes to Consolidated Financial Statements
Item 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations
PART II - OTHER INFORMATION
Item 1: Legal Proceedings
Item 2: Changes in Securities
Item 3: Defaults Upon Senior Securities
Item 4: Submission of Matters to a Vote of Security Holders
Item 5: Other Information
Item 6: Exhibits and Reports on Form 8-K
Signature
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
GABLES RESIDENTIAL TRUST
CONSOLIDATED BALANCE SHEETS
(UNAUDITED AND DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<CAPTION>
June 30, 1996 December 31, 1995
------------- -----------------
ASSETS:
- -------
<S> <C> <C>
Real estate assets (Note 7):
Land ........................................................ $ 97,407 $ 73,848
Building .................................................... 509,742 382,174
Furniture, fixtures and equipment ........................... 41,545 33,382
Construction in progress .................................... 53,920 96,015
Land held for future development ............................ 2,148 5,814
--------- ---------
Real estate assets before accumulated depreciation ........ 704,762 591,233
Less: accumulated depreciation ............................. (64,548) (57,343)
--------- ---------
Net real estate assets .................................... 640,214 533,890
Cash and cash equivalents ...................................... 8,281 8,529
Restricted cash ................................................ 5,397 5,296
Deferred charges, net .......................................... 5,744 5,995
Other assets, net .............................................. 11,229 9,117
--------- ---------
Total assets .............................................. $ 670,865 $ 562,827
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY:
- -------------------------------------
Notes payable .................................................. $ 380,547 $ 286,259
Accrued interest payable ....................................... 1,689 1,075
Dividend payable (Note 8) ...................................... 7,727 7,288
Real estate taxes payable ...................................... 6,497 5,110
Accounts payable and accrued expenses - construction ........... 3,977 9,027
Accounts payable and accrued expenses - operating .............. 5,403 4,718
Security deposits .............................................. 2,027 1,340
--------- ---------
Total liabilities ......................................... 407,867 314,817
--------- ---------
Minority interest of unitholders in Operating Partnership ...... 46,179 45,700
--------- ---------
Shareholders' equity:
Common shares, $0.01 par value, 100,000,000 shares
authorized, 16,097,284 and 15,183,306 shares issued
and outstanding at June 30, 1996 and December 31,
1995, respectively ........................................... 161 152
Additional paid-in capital ................................... 261,142 255,228
Accumulated earnings (deficit) ............................... (44,484) (53,070)
--------- ---------
Total shareholders' equity ................................ 216,819 202,310
--------- ---------
Total liabilities and shareholders' equity ................ $ 670,865 $ 562,827
========= =========
<FN>
The accompanying notes are an integral part of these balance sheets.
</FN>
</TABLE>
<PAGE>
<TABLE>
GABLES RESIDENTIAL TRUST
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED AND AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<CAPTION>
For the Three Months
Ended June 30,
--------------------------
1996 1995
---------- ----------
<S> <C> <C>
Rental revenues .............................................. $ 25,319 $ 16,774
Other property revenues ...................................... 1,269 791
-------- --------
Total property revenues ................................. 26,588 17,565
Property management - third party ............................ 985 1,089
Olympic revenues, net ........................................ 230 0
Other ........................................................ 340 377
-------- --------
Total revenues .......................................... 28,143 19,031
-------- --------
Property operating and maintenance (exclusive
of items shown separately below) ........................ 9,243 6,525
Depreciation and amortization ................................ 4,564 2,880
Amortization of deferred financing costs ..................... 317 214
Property management - owned (Note 4) ......................... 685 481
Property management - third party (Note 4) ................... 719 744
General and administrative ................................... 802 671
Abandoned real estate pursuit costs .......................... 61 53
Interest ..................................................... 5,183 3,057
Credit enhancement fees ...................................... 139 201
-------- --------
Total expenses .......................................... 21,713 14,826
-------- --------
Income before equity in income (loss)
of joint ventures and interest income ................... 6,430 4,205
Equity in income (loss) of joint ventures .................... 59 (14)
Interest income .............................................. 60 85
-------- --------
Income before minority interest ......................... 6,549 4,276
Minority interest of unitholders in
Operating Partnership ................................... (1,117) (994)
-------- --------
Net income ................................................... $ 5,432 $ 3,282
======== ========
Weighted average number of shares outstanding ................ 16,095 10,576
======== ========
Per Share Information (Note 6):
Net income ................................................... $ 0.34 $ 0.31
======== ========
<FN>
The accompanying notes are an integral part of these statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
GABLES RESIDENTIAL TRUST
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED AND AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
For the Six Months
Ended June 30,
--------------------
1996 1995
-------- --------
<S> <C> <C>
Rental revenues ........................................ $ 47,458 $ 33,157
Other property revenues ................................ 2,330 1,443
-------- --------
Total property revenues ........................... 49,788 34,600
Property management - third party ...................... 1,965 2,192
Olympic revenues, net .................................. 230 0
Other .................................................. 602 684
-------- --------
Total revenues .................................... 52,585 37,476
-------- --------
Property operating and maintenance (exclusive
of items shown separately below) .................. 17,313 12,883
Depreciation and amortization .......................... 8,296 5,610
Amortization of deferred financing costs ............... 667 402
Property management - owned (Note 4) ................... 1,342 937
Property management - third party (Note 4) ............. 1,488 1,554
General and administrative ............................. 1,515 1,416
Abandoned real estate pursuit costs .................... 62 79
Interest ............................................... 8,991 5,933
Credit enhancement fees ................................ 303 379
-------- --------
Total expenses .................................... 39,977 29,193
-------- --------
Income before equity in income
of joint ventures and interest income ............. 12,608 8,283
Equity in income of joint ventures ..................... 108 53
Interest income ........................................ 159 165
-------- --------
Income before minority interest and
and extraordinary loss, net ....................... 12,875 8,501
Minority interest of unitholders in
Operating Partnership ............................. (2,243) (1,975)
-------- --------
Income before extraordinary loss, net .................. 10,632 6,526
Extraordinary loss, net of minority interest (Note 5) .. (520) 0
-------- --------
Net income ............................................. $ 10,112 $ 6,526
======== ========
Weighted average number of shares outstanding .......... 15,694 10,576
======== ========
Per Share Information (Note 6):
Income before extraordinary loss, net .................. $ 0.68 $ 0.62
======== ========
Net income ............................................. $ 0.64 $ 0.62
======== ========
<FN>
The accompanying notes are an integral part of these statements.
</FN>
</TABLE>
<PAGE>
GABLES RESIDENTIAL TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED AND DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
For the Six Months
Ended June 30,
----------------------
1996 1995
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
- -------------------------------------
Net income $10,112 $6,526
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 8,963 6,012
Equity in income of joint ventures (108) (53)
Minority interest of unitholders in Operating Partnership 2,243 1,975
Extraordinary loss, net of minority interest 520 0
Change in operating assets and liabilities:
Restricted cash 283 (446)
Other assets (994) 392
Other liabilities 3,373 (2,788)
--------- -------
Net cash provided by operating activities 24,392 11,618
--------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
- -------------------------------------
Purchase and construction of real estate assets (123,137) (78,685)
Long-term land lease payment (1,500) 0
Net proceeds from sale of real estate assets 3,968 0
Distributions received from joint ventures 167 160
--------- -------
Net cash used in investing activities (120,502) (78,525)
--------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
- -------------------------------------
Proceeds from 879,068 share offering, net of issuance costs 20,630 0
Proceeds from the exercise of share options 731 0
Share Builder Plan contributions 13 0
Payments of filing costs for Share Builder Plan 0 (100)
Payments of deferred financing costs (1,226) (1,342)
Notes payable proceeds 130,781 110,813
Notes payable repayments (36,493) (25,966)
Principal escrow deposits (384) (326)
Dividends paid ($0.96 and $0.90 per share, respectively) (15,012) (9,517)
Distributions paid ($0.96 and $0.90 per Unit, respectively) (3,178) (2,880)
--------- -------
Net cash provided by financing activities 95,862 70,682
--------- -------
Net change in cash and cash equivalents (248) 3,775
Cash and cash equivalents, beginning of period 8,529 4,056
--------- -------
Cash and cash equivalents, end of period $ 8,281 $ 7,831
========= =======
Supplemental disclosure of cash flow information:
Cash paid for interest $ 10,805 $ 9,593
Interest capitalized 2,428 3,604
--------- -------
Cash paid for interest, net of amounts
capitalized $ 8,377 $ 5,989
========= =======
<FN>
The accompanying notes are an integral part of these statements.
</FN>
</TABLE>
<PAGE>
GABLES RESIDENTIAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED AND DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
- --------------------------------------------------------------
1. ORGANIZATION AND FORMATION OF THE COMPANY
- -- -----------------------------------------
Gables Residential Trust is a self-administered and self-managed real estate
investment trust (a "REIT") formed in 1993 under Maryland law to continue and to
expand the multifamily apartment community management, development,
construction, and acquisition operations of its privately owned predecessor
organization. The term "Gables Residential Group" as used herein refers to the
privately owned predecessor organization prior to the completion of the
Company's initial public offering on January 26, 1994 (the "IPO") and the
concurrent completion of the various transactions that occurred simultaneously
therewith (the "Formation Transactions"). The term "Company" or "Gables" as used
herein means Gables Residential Trust and its subsidiaries on a consolidated
basis (including Gables Realty Limited Partnership and its subsidiaries), or,
where the context so requires, Gables Residential Trust only, and, as the
context may require, their predecessors.
The Company currently engages in the multifamily apartment community management,
development, construction, and acquisition businesses, including the provision
of related brokerage and corporate rental housing services. Substantially all of
these businesses are conducted through Gables Realty Limited Partnership, a
Delaware limited partnership (the "Operating Partnership"). Through its
ownership of Gables GP, Inc. ("GGPI"), a Texas corporation and wholly-owned
subsidiary of the Company that is the sole general partner of the Operating
Partnership, and its ownership of a direct limited partnership interest in the
Operating Partnership, the Company was an 82.94% economic owner of the Operating
Partnership at June 30, 1996 (this structure is commonly referred to as an
umbrella partnership REIT or "UPREIT"). The Company has had certain equity
transactions subsequent to the IPO that have resulted in changes in its
ownership interest in the Operating Partnership which was 76.0% at the
completion of the IPO (Note 2). The Company's third party management businesses
are conducted through two subsidiaries of the Operating Partnership, Central
Apartment Management, Inc., a Texas corporation, and East Apartment Management,
Inc., a Georgia corporation (each, a "Management Company"). The Management
Companies also provide management services to the communities owned by the
Company.
As of June 30, 1996, Gables owned 43 completed multifamily apartment
communities comprising 13,631 apartment homes, of which 28 were developed and 15
were acquired, or acquired and renovated, by the Company, and an indirect 25%
general partner interest in two apartment communities developed by the Company,
comprising 663 apartment homes. One of these completed communities was in the
lease-up stage as of June 30, 1996. In July, 1996, the Company acquired an
apartment community comprising 500 apartment homes. Additionally, Gables
currently has contracts or options to acquire two apartment communities
comprising 382 apartment homes in total. The acquisition of these communities is
subject to the completion of due diligence as well as ongoing business review by
the Company. Therefore, no assurance can be made that the acquisitions will
close. The Company owns six multifamily apartment communities, expected to
comprise 1,662 apartment homes, that are currently under development. As of June
30, 1996, Gables owned parcels of land for the future development of two
apartment communities expected to comprise 550 apartment homes. In July, 1996,
the Company acquired a parcel of land for the future development of an apartment
community expected to comprise 148 apartment homes. Additionally, Gables has
contracts or options to acquire additional parcels of land for the future
development of four apartment communities expected to comprise 1,647 apartment
homes.
Pursuant to the Company's Declaration of Trust, Gables is authorized to issue
100,000,000 common shares, 10,000,000 preferred shares, and 51,000,000 excess
shares, all of which have a par value of $0.01 per share. To date, no preferred
or excess shares have been issued.
At the completion of the IPO on January 26, 1994, the Company sold 9,430,000
common shares (including 1,230,000 shares as a result of the exercise of an
over-allotment option by the underwriters) at a price to the public of $22.50
per share. The net proceeds to the Company from such sale totaled approximately
$190 million. The Company issued an additional 700,555 common shares in
connection with the Formation Transactions. Also concurrently with the IPO, the
Company entered into and drew down approximately $79 million under a secured
credit facility (the "Original Credit Facility"), including approximately $45
million in the form of letters of credit. The net proceeds of the IPO and
initial draw-down under the Original Credit Facility were principally used (i)
by the Company to acquire a 76.0% economic interest in the Operating
Partnership, (ii) by the Company and the Operating Partnership to acquire
minority interests in partnerships that directly or indirectly owned the
communities acquired by Gables in connection with the IPO and Formation
Transactions (the "IPO Communities"), (iii) by the Operating Partnership to
acquire 99% of each Management Company's capital stock, with the Management
Companies in turn using such proceeds to acquire the fee management business of
the predecessor management companies of the Group (the "Predecessor Management
Companies"), (iv) to acquire certain promissory notes issued by the Predecessor
Management Companies, (v) to repay or economically defease indebtedness with
respect to the IPO Communities and the Predecessor Management Companies, (vi)
with respect to the Original Credit Facility, to provide substitute letters of
credit or replace backup security for existing credit enhancements with respect
to indebtedness associated with the IPO Communities, (vii) to purchase interest
rate protection agreements and pay deferred financing costs related to new
indebtedness, and (viii) to acquire an existing apartment community, an
apartment community that was substantially renovated in 1994 and certain
development rights.
2. OFFERINGS AND ISSUANCE OF OPERATING PARTNERSHIP UNITS
- -- -----------------------------------------------------
On October 7, 1994, Gables consummated a direct placement of 444,500 common
shares at $22.50 per share. The net proceeds of the offering were approximately
$9.9 million and were utilized to fund the acquisition of an apartment community
comprising 200 apartment homes and to repay outstanding indebtedness under the
Original Credit Facility.
During June, 1995, the Company filed a shelf registration statement covering the
registration of up to $200 million of debt securities, common shares, preferred
shares and warrants or other rights to purchase common shares or preferred
shares.
On October 31, 1995, Gables completed a public offering of 4,600,000 common
shares (including 600,000 shares as a result of the exercise of an
over-allotment option by the underwriters) pursuant to the shelf registration
statement at a price to the public of $21.875 per share. The net proceeds of the
offering were approximately $94 million and were utilized to retire
approximately $67 million of variable-rate construction loan indebtedness and to
pay down approximately $27 million of outstanding indebtedness under the
Original Credit Facility.
On December 5, 1995, the Company acquired a parcel of land financed in part
through the issuance of 111,074 minority units of limited partnership interest
in the Operating Partnership ("Units"). Such land acquisition was for the
development of an apartment community expected to comprise 315 apartment homes.
On March 25, 1996, Gables completed a direct placement of an aggregate of
879,068 common shares to six institutional investors pursuant to its shelf
registration statement at a price of $23.95 per share. The net proceeds of the
offering were approximately $20.6 million and were utilized (i) to reduce
outstanding indebtedness under the Original Credit Facility that was drawn
during 1996 primarily to fund costs associated with the Company's development
activities and (ii) for general working capital purposes.
On July 26, 1996, the Company acquired an apartment community comprising 500
apartment homes, financed in part through the issuance of 243,787 Units.
3. BASIS OF PRESENTATION
- -- ---------------------
The accompanying consolidated financial statements of Gables Residential Trust
include the consolidated accounts of Gables Residential Trust and its
subsidiaries (including Gables Realty Limited Partnership and its subsidiaries).
As a result of the structure of the business combination, certain partners and
owners of the entities in Gables Residential Group received common shares of the
Company and/or Units in the Operating Partnership. Pursuant to the terms of the
partnership agreement of the Operating Partnership, as of January 26, 1995, the
Operating Partnership became obligated to redeem Units at a unitholder's request
for cash equal to the fair market value of a common share of the Company at the
time of such redemption, provided that the Company at its option may elect to
acquire any such Units presented for redemption for one common share of the
Company. The Company intends to acquire such Units for common shares of the
Company rather than to cause the Operating Partnership to redeem such Units for
cash. Purchase accounting was applied to the acquisition of all non-controlled
interests. The acquisition of all other interests was accounted for as a
reorganization of entities under common control and, accordingly, was reflected
at historical cost in a manner similar to that in pooling of interests
accounting.
All significant intercompany accounts and transactions have been eliminated in
consolidation. The consolidated financial statements of Gables Residential Trust
have been adjusted for the minority interest of unitholders in the Operating
Partnership. Since Units, if presented for redemption, are likely to be
exchanged for the common shares of the Company on a one-for-one basis minority
interest of unitholders in the Operating Partnership is calculated based on the
weighted average of common shares and Units outstanding during the applicable
period.
The accompanying interim unaudited financial statements have been prepared by
the Company's management in accordance with generally accepted accounting
principles for interim financial information and in conjunction with the rules
and regulations of the Securities and Exchange Commission. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting only of normally recurring adjustments)
considered necessary for a fair presentation for these interim periods have been
included. The results of operations for the interim periods ended June 30, 1996
are not necessarily indicative of the results that may be expected for the full
year. These financial statements should be read in conjunction with the
consolidated and combined financial statements of Gables Residential Trust and
Gables Residential Group and notes thereto, included in the Gables Residential
Trust Form 10-K for the year ended December 31, 1995.
4. PROPERTY MANAGEMENT EXPENSES
- -- ----------------------------
The Company manages its owned properties, as well as properties owned by third
parties for which the Company provides management services for a fee. Property
management expenses have been allocated between owned and third party properties
in the accompanying statements of operations based on the proportionate number
of owned and third party apartment homes managed by the Company during the
applicable periods.
5. EXTRAORDINARY LOSS, NET
- -- -----------------------
Extraordinary loss, net of $520 for the six months ended June 30, 1996
represents the write-off of unamortized deferred financing costs totaling $631
associated with the early retirement of the Company's Original Credit Facility,
net of the $111 portion of the loss attributable to the minority interest
unitholders. The Original Credit Facility that was scheduled to mature in
January, 1997, was refinanced in March, 1996 with a new $175 million unsecured
revolving credit facility (the "New Credit Facility").
6. PER SHARE INFORMATION
- -- ---------------------
Quarterly per share information has been computed based upon the weighted
average number of shares outstanding during the relevant period. The impact of
outstanding share options was not dilutive during these periods.
7. REAL ESTATE ASSETS
- -- ------------------
Real estate assets, before accumulated depreciation, are as follows:
June 30, 1996 December 31, 1995
Basis Units Basis Units
----- ----- ----- -----
Completed properties $648,694 13,631 $489,404 11,283
Properties under development 53,920 1,662 96,015 1,983
Land held for future development 2,148 550 5,814 865
-------- ------ -------- ------
Total (a) $704,762 15,843 $591,233 14,131
======== ====== ======== ======
a) Excludes (i) costs and units attributable to Arbors of Harbortown JV and
Metropolitan Apartments JV as Gables' 25% general partner interests in
these joint ventures are accounted for on the equity method of accounting
and (ii) costs of approximately $3,700 for two prepaid long-term land
leases which are included in other assets in the accompanying balance
sheets.
The change in real estate assets from December 31, 1995 to June 30, 1996
consisted of the following:
Balance at December 31, 1995 $591,233
Acquisitions, including renovation expenditures 88,805
Sale of real estate assets (4,826)
Development costs incurred 27,737
Capital expenditures for operating properties 1,813
--------
Balance at June 30, 1996 $704,762
========
As discussed in Note 3, purchase accounting was applied to the acquisition of
all non-controlled interests in connection with the IPO and Formation
Transactions. The increase in basis related to such acquisition was $48,090 and
was allocated to the respective property's land and building accounts. The
acquisition of all other interests was accounted for as a reorganization of
entities under common control, and accordingly was reflected at historical cost.
8. DECLARATION OF DIVIDEND
- -- -----------------------
On June 13, 1996, the Operating Partnership committed to distribute $0.48 per
Unit with respect to the period April 1, 1996 through June 30, 1996 to
unitholders of record on June 28, 1996. As a result, the Company simultaneously
declared a dividend payable to shareholders of record on June 28, 1996 and
accrued a dividend payable as of June 30, 1996 of $0.48 per common share or
$7,727. The remaining distribution from the Operating Partnership in the amount
of $1,589 was accrued to minority interest unitholders in the Operating
Partnership. The total distribution of $9,316 was paid on July 12, 1996.
9. RECENT ACCOUNTING PRONOUNCEMENT
- -- -------------------------------
In March, 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121 ("FAS 121") "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of,"
which becomes effective for fiscal years beginning after December 15, 1995. FAS
121 establishes standards for determining when impairment losses on long-lived
assets have occurred and how impairment losses should be measured. The Company
adopted FAS 121 effective January 1, 1996. There was no financial statement
impact as a result of this adoption.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
- -----------------------------------
Overview
- --------
Gables is a self-administered and self-managed real estate investment trust
("REIT") focused within the multifamily industry in the Southeastern and
Southwestern United States. Gables' operating performance relies predominantly
on net operating income from its apartment communities. The net operating income
of Gables is influenced by operating expenses and rental revenues, which are
affected by the supply and demand dynamics within Gables' markets. Gables'
performance is also affected by the general availability of capital and by its
ability to develop and to acquire additional apartment communities with returns
in excess of its cost of equity or debt capital.
Gables owns apartment communities in seven core cities in Georgia, Texas and
Tennessee. Within each city, Gables targets specific submarkets for investment.
These submarkets are generally characterized by their proximity to local
employment centers, retail and entertainment venues and traffic arteries. Gables
believes demographic trends (including job, population and household growth) in
its markets in recent years have generally led to favorable demand and supply
dynamics for multifamily communities. Occupancy levels have remained high and
portfolio wide rental rates have outpaced inflation for the last several years.
Gables expects portfolio wide rental expenses to increase at a rate slightly
ahead of inflation, but less than the increase in rental rates, for the coming
twelve months, consistent with the Company's experience during the past few
years.
As a result of the aforementioned generally favorable market conditions,
management has been successful in growing the income of the stabilized
properties as well as growing earnings via a combination of new development and
acquisition. Management's extensive experience in new development (including
site selection, zoning, construction and lease-up) and in-depth local presence
affords Gables the opportunity to acquire land and develop new Class A
multifamily communities. In select markets and in certain real estate cycles,
management believes better returns can be generated from new development than
from acquisitions of comparable properties. During other real estate cycles or
in select markets, management will pursue the acquisition of existing apartment
communities, specifically when the returns on investment and the potential for
growth in net operating income are attractive. Additionally, Gables has been
able to acquire distressed or under-managed apartment communities which, through
strategic renovation and repositioning, have generally resulted in superior
returns when compared to traditional acquisitions and new developments.
Management believes Gables' ability to compete with other companies is
significantly enhanced by its in-depth local presence and the strength of its
management, development, acquisition, and construction personnel. In certain
situations, management's evaluation of the growth prospects for a specific asset
may result in a determination to dispose of the asset. In this event, management
would intend to sell the asset and utilize the net proceeds from any such sale
to invest in new assets which are expected to have better growth prospects or to
reduce indebtedness. The Company maintains staffing levels sufficient to meet
the existing construction, acquisition, and leasing activities. If market
conditions warrant, management would anticipate adjusting staffing levels to
avoid a negative impact on results of operations.
The following discussion and analysis of the financial condition and results of
operations should be read in conjunction with the accompanying consolidated
financial statements and the notes thereto.
This Report on Form 10-Q contains 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. Actual results or developments
could differ materially from those projected in such statements as a result of
the risk factors set forth in the relevant paragraphs of "Management's
Discussion and Analysis of Results of Operations and Financial Condition" and
elsewhere in this report.
<PAGE>
Formation of Gables and Initial Public Offering
- -----------------------------------------------
Gables Residential Trust was formed in 1993 under Maryland law to continue and
to expand the multifamily apartment community management, development,
construction, and acquisition operations of its privately owned predecessor
organization. The term "Gables Residential Group" as used herein refers to the
privately owned predecessor organization prior to the completion of the
Company's initial public offering in January, 1994 (the "IPO"), and the
concurrent completion of the various transactions that occurred therewith (the
"Formation Transactions"). The term "Company" or "Gables" as used herein means
Gables Residential Trust and its subsidiaries on a consolidated basis (including
Gables Realty Limited Partnership and its subsidiaries), or, where the context
so requires, Gables Residential Trust only, and, as the context may require,
their predecessors. At the completion of the IPO on January 26, 1994, Gables
sold 9,430,000 common shares (including 1,230,000 shares as a result of the
exercise of an over-allotment option by the underwriters) at a price to the
public of $22.50 per share. The net proceeds to Gables from such sale totaled
approximately $190 million, the majority of which were used to reduce
indebtedness and to purchase minority interests in certain property
partnerships.
Offerings and Issuance of Operating Partnership Units
- -----------------------------------------------------
On October 7, 1994, Gables consummated a direct placement of 444,500 common
shares at $22.50 per share. The net proceeds of the offering were approximately
$9.9 million and were utilized to fund the acquisition of an apartment community
comprising 200 apartment homes and to repay outstanding indebtedness under the
Original Credit Facility.
On October 31, 1995, Gables completed a public offering of 4,600,000 common
shares (including 600,000 shares as a result of the exercise of an
over-allotment option by the underwriters) at a price to the public of $21.875
per share. The net proceeds of the offering were approximately $94 million and
were utilized to retire approximately $67 million of variable-rate construction
loan indebtedness and to pay down approximately $27 million of outstanding
indebtedness under the Original Credit Facility.
On December 5, 1995, the Company acquired a parcel of land for the development
of an apartment community expected to comprise 315 apartment homes. Such
acquisition was financed in part through the issuance of 111,074 minority units
of limited partnership in the Operating Partnership ("Units").
On March 25, 1996, the Company completed a direct placement of an aggregate of
879,068 common shares to six institutional investors at a price of $23.95 per
share. The net proceeds of the offering were approximately $20.6 million and
were utilized to reduce outstanding indebtedness under the Original Credit
Facility and for general working capital purposes.
On July 26, 1996, the Company acquired an apartment community comprising 500
apartment homes, financed in part through the issuance of 243,787 Units.
<PAGE>
RESULTS OF OPERATIONS
- ---------------------
COMPARISON OF OPERATING RESULTS OF THE COMPANY FOR THE THREE MONTHS ENDED
JUNE 30, 1996 (THE "1996 PERIOD") TO THE THREE MONTHS ENDED JUNE 30, 1995 (THE
"1995 PERIOD").
The Company's net income is generated primarily from the operation of its
apartment communities. For purposes of evaluating comparative operating
performance, the Company categorizes its operating communities based on the
period each community reaches stabilized occupancy. A community is generally
considered by the Company to have achieved stabilized occupancy on the earlier
to occur of (i) attainment of 93% physical occupancy on the first day of any
month or (ii) one year after completion of construction.
The operating performance for all of the Company's apartment communities
combined for the three months ended June 30, 1996 and 1995 is summarized as
follows:
<TABLE>
<CAPTION>
Three Months Ended
June 30,
---------- --------- --------- ----------
$ %
1996 1995 Change Change
---------- --------- --------- ----------
<S> <C> <C> <C> <C>
Rental and other revenue:
- -------------------------
Fully stabilized communities (1) ............................................. $17,160 $16,495 $665 4.0%
Communities stabilized during the 1996 Period, but not during the 1995
Period (2) ................................................................. 3,270 296 2,974 1,004.7%
Development and lease-up communities (3) ..................................... 3,995 551 3,444 625.0%
Acquired communities (4) ..................................................... 2,144 0 2,144 ---
Sold communities (5) ......................................................... 19 223 (204) (91.5)%
------- ------- ------- -------
Total property revenues ........................................................ $26,588 $17,565 $9,023 51.4%
------- ------- ------- -------
Property operating and maintenance expense (exclusive of depreciation and
amortization):
- --------------
Fully stabilized communities (1) ............................................. $6,194 $6,123 $71 1.2%
Communities stabilized during the 1996 Period, but not during the 1995
Period (2) ................................................................. 879 82 797 972.0%
Development and lease-up communities (3) ..................................... 1,394 207 1,187 573.4%
Acquired communities (4) ..................................................... 750 0 750 ---
Sold communities (5) ......................................................... 26 113 (87) (77.0)%
------- ------- ------- -------
Total specified expenses ....................................................... $9,243 $6,525 $2,718 41.7%
------- ------- ------- -------
Revenues in excess of specified expenses ....................................... $17,345 $11,040 $6,305 57.1%
======= ======= ====== =======
Revenues in excess of specified expenses as a percentage of total
property revenues ............................................................ 65.2% 62.9% --- 2.3%
======= ======= ====== =======
<FN>
(1) Communities which were owned and fully stabilized throughout both the
1996 Period and 1995 Period.
(2) Communities which were owned and fully stabilized during all of the
1996 Period, but were not owned and fully stabilized during all of the 1995
Period.
(3) Communities in the development and/or lease-up phase which were not
fully stabilized during all or any of the 1996 Period.
(4) Communities which were acquired during the 1996 Period comprising: (a)
Pin Oak Green and Pin Oak Park, two communities acquired April 23, 1996,
collectively comprising 1,059 apartment homes and (b) Gables River Oaks, a
community acquired May 29, 1996, comprising 228 apartment homes.
(5) Vinings at Central community comprising 132 apartment homes, which was
sold on April 10, 1996.
</FN>
</TABLE>
<PAGE>
Total property revenues increased $9,023, or 51.4%, from $17,565 to $26,588 due
primarily to increases in the number of apartment homes resulting from the
development and acquisition of additional communities and to increases in rental
rates on communities stabilized throughout both periods ("same store"). Below is
additional information regarding the increases in total property revenues for
three of the five community categories presented in the preceding table:
Fully stabilized communities ("same store"):
<TABLE>
<CAPTION>
Increase Percent
(Decrease)in Increase
Number of Total (Decrease) in Occupancy Increase
Apartment Percent Property Total Property During the (Decrease) in
Market Homes of Total Revenues Revenues 1996 Period Occupancy
- ------ ----- -------- -------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Atlanta 3,289 35% $387 6.7% 95.0% 0.9%
Austin 276 3% (4) (0.7%) 92.5% (2.5%)
Dallas 855 9% 11 0.8% 93.6% (1.3%)
Houston 3,512 38% 141 2.2% 94.8% 1.2%
Memphis 464 5% 38 4.9% 97.3% 2.2%
Nashville 912 10% 92 5.8% 95.2% 2.3%
----- ---- ---- ---- ----- ----
9,308 100% $665 4.0% 94.9% 0.9%
===== ==== ==== ==== ===== ====
</TABLE>
Communities stabilized during the 1996 Period but not during the 1995 Period:
Number of Increase Occupancy
Apartment Percent In Total During the
Market Homes of Total Property Revenues 1996 Period
------ ----- -------- ----------------- -----------
Atlanta 1,051 82% $ 2,365 96.3%
Dallas 234 18% 609 94.9%
----- ---- ------- -----
1,285 100% $ 2,974 95.6%
===== ==== ======= =====
Development and lease-up communities:
Number of Increase Occupancy
Apartment Percent In Total During the
Market Homes of Total Property Revenues 1996 Period
- ------ ----- -------- ----------------- -----------
Atlanta 263 10% $ 175 56.1%
Austin 256 10% 725 94.9%
Dallas 488 19% 543 46.1%
Houston 246 10% 424 86.1%
Memphis 490 19% 48 3.0%
Nashville 254 10% 603 88.7%
San Antonio 544 22% 926 82.8%
----- ---- ------ -----
2,541 100% $3,444 59.9%
===== ==== ====== =====
Property management revenues decreased $104, or 9.6%, from $1,089 to $985 due
primarily to a net decrease of properties managed by Gables for third parties
primarily as a result of these properties being sold by the owners.
Olympic revenues, net of $230 for the 1996 Period represent non-recurring net
revenues generated from certain corporate apartment home leases entered into in
connection with the 1996 Olympic games held in Atlanta.
Property operating and maintenance expense (exclusive of depreciation and
amortization) increased $2,718, or 41.7%, from $6,525 to $9,243 due to an
increase in apartment homes resulting from the development and acquisition of
additional communities and an increase in property operating and maintenance
expense for same store communities of 1.2%. The same store increase in operating
expenses represents inflationary increases in expenses, offset in part by
reduced health and workers compensation insurance expenses. Gables anticipates
that property operating and maintenance expense for same store communities will
generally increase at a rate slightly ahead of inflation.
Depreciation and amortization expense increased $1,684, or 58.5%, from $2,880 to
$4,564 due primarily to the completion of newly developed communities and
acquisition of other communities.
<PAGE>
Property management expense for owned communities and third party properties on
a combined basis increased $179, or 14.6%, from $1,225 to $1,404 due primarily
to increased personnel and administrative costs associated with an increase in
the total number of units managed, annual increases in compensation and certain
other costs. Gables allocates property management expenses to both owned
communities and third party properties based on the proportionate share of total
apartment homes and units managed.
General and administrative expense increased $131, or 19.5%, from $671 to $802
due to increased personnel and administrative costs associated primarily with
the appointment of the new Chief Operating Officer and Vice President of
Portfolio Management positions effective January 1, 1996.
Interest expense increased $2,126, or 69.5%, from $3,057 to $5,183 due to an
increase in operating debt associated with newly developed or acquired
communities in addition to communities currently in the lease-up phase.
Additionally, interest costs increased due to the refinancing of certain
variable rate debt to a higher fixed rate cost structure. These increases in
interest expense have been offset in part as a result of the offerings the
Company has consummated between periods, the proceeds of which have been
primarily used to reduce indebtedness.
Net income increased $2,150, or 65.5%, from $3,282 to $ 5,432 for the reasons
discussed above.
<PAGE>
COMPARISON OF OPERATING RESULTS OF THE COMPANY FOR THE SIX MONTHS ENDED
JUNE 30, 1996 (THE "1996 PERIOD") TO THE SIX MONTHS ENDED JUNE 30, 1995 (THE
"1995 PERIOD").
The Company's net income is generated primarily from the operation of its
apartment communities. For purposes of evaluating comparative operating
performance, the Company categorizes its operating communities based on the
period each community reaches stabilized occupancy. A community is generally
considered by the Company to have achieved stabilized occupancy on the earlier
to occur of (i) attainment of 93% physical occupancy on the first day of any
month or (ii) one year after completion of construction.
The operating performance for all of the Company's apartment communities
combined for the six months ended June 30, 1996 and 1995 is summarized as
follows:
<TABLE>
<CAPTION>
Six Months Ended
June 30,
---------- --------- --------- ----------
$ %
1996 1995 Change Change
---------- --------- --------- ----------
<S> <C> <C> <C> <C>
Rental and other revenue:
- -------------------------
Fully stabilized communities (1) ....................................... $34,061 $32,852 $1,209 3.7%
Communities stabilized during the 1996 Period, but not during the 1995
Period (2) ............................................................ 3,252 216 3,036 1,405.6%
Development and lease-up communities (3) ............................... 10,113 1,093 9,020 825.3%
Acquired communities (4) ............................................... 2,144 0 2,144 ---
Sold communities (5) ................................................... 218 439 (221) (50.3)%
------- ------- -------- -------
Total property revenues .................................................. $49,788 $34,600 $15,188 43.9%
------- ------- -------- -------
Property operating and maintenance expense (exclusive of depreciation and
amortization):
- -------------
Fully stabilized communities (1) ....................................... $12,355 $12,230 $125 1.0%
Communities stabilized during the 1996 Period, but not during the 1995
Period (2) ........................................................... 934 72 862 1,197.2%
Development and lease-up communities (3) ............................... 3,146 359 2,787 776.3%
Acquired communities (4) ............................................... 750 0 750 ---
Sold communities (5) ................................................... 128 222 (94) (42.3)%
------- ------- -------- -------
Total specified expenses ................................................. $17,313 $12,883 $4,430 34.4%
------- ------- -------- -------
Revenues in excess of specified expenses ................................. $32,475 $21,717 $10,758 49.5%
======= ======= ======== =======
Revenues in excess of specified expenses as a percentage of total
property revenues ...................................................... 65.2% 62.8% --- 2.4%
======= ======= ======== =======
<FN>
(1) Communities which were owned and fully stabilized throughout both the
1996 Period and 1995 Period.
(2) Communities which were owned and fully stabilized during all of the
1996 Period, but were not owned and fully stabilized during all of the 1995
Period.
(3) Communities in the development and/or lease-up phase which were not
fully stabilized during all or any of the 1996 Period.
(4) Communities which were acquired during the 1996 Period comprising: (a)
Pin Oak Green and Pin Oak Park, two communities acquired April 23, 1996,
collectively comprising 1,059 apartment homes and (b) Gables River Oaks, a
community acquired May 29, 1996, comprising 228 apartment homes.
(5) Vinings at Central community comprising 132 apartment homes, which was
sold on April 10, 1996.
</FN>
</TABLE>
<PAGE>
Total property revenues increased $15,188, or 43.9%, from $34,600 to $49,788 due
primarily to increases in the number of apartment homes resulting from the
development and acquisition of additional communities and to increases in rental
rates on communities stabilized throughout both periods ("same store"). Below is
additional information regarding the increases in total property revenues for
three of the five community categories presented in the preceding table:
Fully stabilized communities ("same store"):
<TABLE>
<CAPTION>
Increase Percent
(Decrease) in Increase
Number of Total (Decrease) in Occupancy Increase
Apartment Percent Property Total Property During the (Decrease) in
Market Homes of Total Revenues Revenues 1996 Period Occupancy
- ------ ----- -------- -------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Atlanta 3,289 35% $643 5.6% 94.4% (0.1%)
Austin 276 3% (13) (1.1%) 92.0% (1.1%)
Dallas 855 9% 82 3.0% 92.5% (1.2%)
Houston 3,512 38% 227 1.8% 94.5% 0.6%
Memphis 464 5% 101 6.7% 97.1% 4.7%
Nashville 912 10% 169 5.3% 96.0% 1.8%
----- ---- ------ ---- ----- ----
9,308 100% $1,209 3.7% 94.5% 0.4%
===== ==== ====== ==== ===== ====
</TABLE>
Communities stabilized during the 1996 Period but not during the 1995 Period:
Number of Increase Occupancy
Apartment Percent In Total During the
Market Homes of Total Property Revenues 1996 Period
- ------ ----- -------- ----------------- -----------
Atlanta 356 60% $ 1,720 96.7%
Dallas 234 40% 1,316 95.4%
--- ---- ------- -----
590 100% $ 3,036 96.1%
=== ==== ======= =====
Development and lease-up communities:
Number of Increase Occupancy
Apartment Percent In Total During the
Market Homes of Total Property Revenues 1996 Period
- ------ ----- -------- ----------------- -----------
Atlanta 958 30% $3,196 80.2%
Austin 256 8% 1,282 81.4%
Dallas 488 15% 821 33.9%
Houston 246 7% 889 83.9%
Memphis 490 15% 48 3.0%
Nashville 254 8% 947 69.7%
San Antonio 544 17% 1,837 78.6%
----- ---- ------ -----
3,236 100% $9,020 71.0%
===== ==== ====== =====
Property management revenues decreased $227, or 10.4%, from $2,192 to $1,965 due
primarily to a net decrease of properties managed by Gables for third parties
primarily as a result of these properties being sold by the owners.
Olympic revenues, net of $230 for the 1996 Period represent non-recurring net
revenues generated from certain corporate apartment home leases entered into in
connection with the 1996 Olympic games held in Atlanta.
Property operating and maintenance expense (exclusive of depreciation and
amortization) increased $4,430, or 34.4%, from $12,883 to $17,313 due to an
increase in apartment homes resulting from the development and acquisition of
additional communities and an increase in property operating and maintenance
expense for same store communities of 1.0%. The same store increase in operating
expenses represents inflationary increases in expenses, offset in part by
reduced health and workers compensation insurance expenses. Gables anticipates
that property operating and maintenance expense for same store communities will
generally increase at a rate slightly ahead of inflation.
Depreciation and amortization expense increased $2,686, or 47.9%, from $5,610 to
$8,296 due primarily to the completion of newly developed communities and
acquisition of other communities.
<PAGE>
Property management expense for owned communities and third party properties on
a combined basis increased $339, or 13.6%, from $2,491 to $2,830 due primarily
to increased personnel and administrative costs associated with an increase in
the total number of units managed, annual increases in compensation and certain
other costs. Gables allocates property management expenses to both owned
communities and third party properties based on the proportionate share of total
apartment homes and units managed.
General and administrative expense increased $99, or 7.0%, from $1,416 to $1,515
due to increased personnel and administrative costs associated primarily with
the appointment of the new Chief Operating Officer and Vice President of
Portfolio Management positions effective January 1, 1996, offset in part by
certain non-recurring costs incurred during the 1995 Period that were not
incurred during the 1996 Period.
Interest expense increased $3,058, or 51.5%, from $5,933 to $8,991 due to an
increase in operating debt associated with newly developed or acquired
communities in addition to communities currently in the lease-up phase.
Additionally, interest costs increased due to the refinancing of certain
variable rate debt to a higher fixed rate cost structure. These increases in
interest expense have been offset in part as a result of the offerings the
Company has consummated between periods, the proceeds of which have been
primarily used to reduce indebtedness.
Extraordinary loss, net of $520 for the six months ended June 30, 1996
represents the write-off of unamortized deferred financing costs totaling $631
associated with the early retirement of the Company's Original Credit Facility,
net of the $111 portion of the loss attributable to the minority interest
unitholders. The Original Credit Facility that was scheduled to mature in
January, 1997, was refinanced in March, 1996 with a new $175 million unsecured
revolving credit facility (the "New Credit Facility").
Net income increased $3,586, or 54.9%, from $6,526 to $10,112 for the reasons
discussed above.
Liquidity and Capital Resources
- -------------------------------
Gables' net cash provided by operating activities increased from $11,618 for the
six months ended June 30, 1995 to $24,392 for the six months ended June 30,
1996, due to (i) an increase of $7,270 in income before certain non-cash items
including depreciation, amortization, equity in income of joint ventures,
minority interest of unitholders in Operating Partnership and net extraordinary
losses and (ii) the change in restricted cash between periods of $729 and the
change in other liabilities between periods of $6,161, offset in part by the
change in other assets between periods of $1,386.
Gables' net cash used in investing activities increased from $78,525 for the six
months ended June 30, 1995 to $120,502 for the six months ended June 30, 1996,
primarily due to the second quarter acquisitions of three apartment communities
named Pin Oak Green, Pin Oak Park, and Gables River Oaks, comprising 1,287
apartment homes in total ($86.7 million) partially offset by the January, 1995
acquisition of Gables Over Peachtree ($11 million) and decreased development
activities in 1996 when compared to 1995. During the six months ended June 30,
1996, Gables expended approximately $86.7 million for the acquisition of three
apartment communities totaling 1,287 apartment homes, approximately $2.1 million
in renovation expenditures related primarily to Gables Over Peachtree,
approximately $32.5 million related to other development expenditures and
approximately $1.8 million related to capital expenditures for operating
apartment communities.
Gables' net cash provided by financing activities increased from $70,682 for the
six months ended June 30, 1995 to $95,862 for the six months ended June 30,
1996, due primarily to increased acquisition cash needs. During the six months
ended June 30, 1996, Gables had net proceeds of $20.6 million from the sale of
879,068 common shares and net borrowings of $94.3 million which were used
primarily to fund Gables' acquisition and development activities discussed
previously. These proceeds from financing activities were offset in part by the
payment of the fourth quarter 1995 and first quarter 1996 dividends and
distributions totaling approximately $18.2 million and the payment of deferred
financing costs totaling approximately $1.2 million related primarily to the
closing of the New Credit Facility.
Gables has elected to be taxed as a REIT under Section 856 through 860 of the
Internal Revenue Code of 1986, as amended, commencing with its taxable year
ended December 31, 1994. REITs are subject to a number of organization and
operational requirements, including a requirement that they currently distribute
95% of their ordinary taxable income. Provided Gables maintains its
qualification as a REIT, the Company generally will not be subject to Federal
income tax on distributed net income.
As of June 30, 1996, Gables had total indebtedness of $380,547, and cash and
cash equivalents of $8,281. Gables' indebtedness includes $187,247 in
conventional mortgages payable secured by individual properties, $112,200 in
tax-exempt bond indebtedness and $81,100 in borrowings outstanding under the
Credit Facility. Gables' indebtedness has an average of 7.9 years to maturity at
June 30, 1996. Excluding monthly principal amortization payments, over the next
five years Gables has the following scheduled debt maturities for indebtedness
outstanding at June 30,1996:
1996 $0
1997 9,550
1998 0
1999 126,030
2000 0
The debt maturities in 1997 of $9,550 relate to a conventional mortgage note
payable that matures August 31, 1997. Gables expects to refinance or retire such
note payable on or prior to maturity. The debt maturities in 1999, totaling
$126,030, consist of Credit Facility borrowings of $81,100 and $44,930 of four
variable-rate notes payables securing tax-exempt bonds. These tax-exempt bonds
are subject to mandatory redemption on the termination dates of letters of
credit securing the bonds, each of which is March, 1999. Three of the underlying
bond issues mature in December, 2007 and the fourth underlying bond issue
matures in August, 2024. Gables expects to be able to remarket such bonds on or
prior to March, 1999.
Gables' dividends through the second quarter of 1996 have been paid from cash
provided by operating activities. Gables anticipates that dividends will
continue to be paid on a quarterly basis from cash provided by operating
activities.
On March 25, 1996, the Company completed a direct placement of an aggregate of
879,068 common shares to six institutional investors pursuant to its shelf
registration statement at a price of $23.95 per share. The net proceeds of the
offering were approximately $20.6 million and were utilized (i) to reduce
outstanding indebtedness under the Original Credit Facility that was drawn
during 1996 primarily to fund costs associated with the Company's development
activities and (ii) for general working capital purposes.
On April 23, 1996, the Company acquired two adjoining apartment communities
located in Houston, Texas (Pin Oak Green and Pin Oak Park) that comprise 1,059
apartment homes. The acquisition costs totaling $65.6 million were funded
primarily through borrowings under the New Credit Facility.
During April, 1996, Gables sold one asset (Vinings at Central, comprising 132
apartment homes) and may plan to sell additional assets during 1996 which, in
management's evaluation, may no longer meet the Company's investment
requirements. The net proceeds from the sale of Vinings at Central of $4.0
million approximated the Company's carrying value of the asset and were utilized
to fund a portion of the costs of the April 23, 1996 acquisition discussed
previously.
On May 29, 1996, the Company acquired an apartment community located in Houston,
Texas (Gables River Oaks) comprised of 228 apartment homes. The acquisition
costs totaling $21.1 million were funded primarily through borrowings under the
New Credit Facility.
On July 26, 1996, the Company acquired an apartment community located in
Memphis, Tennessee (Morning Grove) comprised of 500 apartment homes. The
acquisition costs totaling $26.0 million were funded primarily through the
assumption of a $19.8 million mortgage note payable and the issuance of 243,787
Units.
Gables currently has contracts or options to acquire two apartment communities
comprising 382 apartment homes in total for purchase prices totaling
approximately $35 million. The acquisition of these communities is subject to
the completion of due diligence as well as ongoing business review by the
Company. Therefore, no assurance can be made that the acquisitions will close.
Gables has met and expects to continue to meet its short-term liquidity
requirements generally through net cash provided by operations. Gables' net cash
provided by operations has been adequate and Gables believes that it will
continue to be adequate to meet both operating requirements and payment of
dividends in accordance with REIT requirements in both the short and the long
term. The budgeted expenditures for improvements and renovations to the
communities, in addition to monthly principal amortization payments, are also
expected to be funded from net cash provided by operations. Gables anticipates
construction and development activities and land purchases will be funded
primarily through borrowings under the Credit Facility and the balance of the
long-term financing commitment described below.
Gables expects to meet certain of its long-term liquidity requirements, such as
scheduled debt maturities, repayment of short-term financing of construction and
development activities and possible property acquisitions, through long-term
secured and unsecured borrowings and the issuance of debt securities or
additional equity securities or through the disposition of assets which, in
management's evaluation, may no longer meet the Company's investment
requirements.
<PAGE>
Credit Facility
- ---------------
In conjunction with the IPO, Gables closed a $175 million three-year
revolving credit facility (the "Original Credit Facility") which had an initial
maturity of January, 1997. Borrowings under the Original Credit Facility were
recourse to the Company and bore interest at LIBOR plus 1.90% (reduced from
2.25% in December, 1994) or, at the Company's option, the prime rate plus 0.50%.
Additionally, fees associated with letters of credit issued thereunder for the
Company's tax-exempt variable-rate bonds were 1.25% per annum (reduced from
1.50% in July, 1995).
In March, 1996, Gables closed a new $175 million unsecured revolving credit
facility (the "New Credit Facility" or "Credit Facility") that replaced the
Original Credit Facility. The New Credit Facility has an initial term of three
years and three one-year extension options. Borrowings bear interest initially
at LIBOR plus 1.65% and letter of credit fees for the Company's tax-exempt
variable-rate bonds are 1.00% per annum. Under the New Credit Facility, up to
$50 million is available to provide credit enhancements on outstanding
tax-exempt bond issues and all remaining amounts are available for borrowings.
Gables' availability under the New Credit Facility is limited to the lesser of
the total Credit Facility commitment ($175 million) or the borrowing base
(currently $ 166.5 million). The borrowing base available under the Credit
Facility is based on the designated collateral value of Gables' unsecured
communities and the debt service coverage ratio of communities pledged as
collateral under other recourse loans. As of June 30, 1996, the Company had
approximately $45.8 million of letters of credit issued under the New Credit
Facility and had approximately $81.1 million in borrowings outstanding
thereunder and, therefore, had $39.6 million of remaining capacity on its $166.5
million borrowing base. As Gables' unsecured development communities and
communities in lease-up reach stabilization, Gables' borrowing base under the
New Credit Facility will increase. Management anticipates that such increases in
the borrowing base will allow for total availability equal to the $175 million
commitment.
The Credit Facility contains customary representations, covenants and events of
default, including covenants which restrict the ability of the Operating
Partnership to make distributions in excess of stated amounts, which in turn
restricts the discretion of the Company to declare and pay dividends. In
general, during any fiscal year the Operating Partnership may only distribute up
to 95% of the Operating Partnership's consolidated income available for
distribution (as defined in the related agreement) exclusive of distributions of
capital gains for such year. The Credit Facility contains exceptions to these
limitations to allow the Operating Partnership to make any distributions
necessary to allow the Company to maintain its status as a REIT. The Company
does not anticipate that this provision will adversely effect the ability of the
Operating Partnership to make distributions or the Company to declare dividends,
as currently anticipated.
Long-Term Financing Commitment
- ------------------------------
During 1995, Gables secured a commitment for $130,689 of long-term forward
fixed-rate financing from Teachers Insurance and Annuity Association (the "TIAA
Financing Commitment"). The total commitment is comprised of nine loans each of
which will be recourse to the Company and secured by an apartment community
owned by Gables. The financing carries with it an option to convert the loan to
an unsecured basis should Gables receive an investment grade rating of BBB (or
an equivalent rating) or better from Standard & Poor's or Moody's Investors
Service and one other rating agency.
On December 29, 1995, Gables closed $90,204 of its $130,689 financing
commitment. This funding was comprised of six loans with a blended interest rate
of 8.15% with an average term of 7.9 years. The proceeds of such funding were
used to repay certain variable-rate construction loans and to paydown the
Original Credit Facility.
On June 7, 1996, Gables closed an additional $13,481 of its financing
commitment. This funding was comprised of one loan with an interest rate of
8.49% with a term of 12 years. The proceeds of such funding were used to paydown
borrowings under the New Credit Facility.
The $27,004 balance of the financing commitment is comprised of two loans, each
of which will be secured by an apartment community currently under development,
and is scheduled to close prior to the September 30, 1996 expiration of the
commitment, unless extended in accordance with the terms of the commitment, as
certain funding conditions are met (including the satisfaction of certain
leasing and occupancy requirements). Such fundings are expected to carry a
fixed-rate of 8.23% with a term of seven years.
<PAGE>
COMPLETED COMMUNITIES IN LEASE-UP AND DEVELOPMENT COMMUNITIES
- -------------------------------------------------------------
Gables' current developments and lease-up activities for communities that
had not reached stabilized occupancy as of June 30, 1996 are summarized below:
<TABLE>
<CAPTION>
Actual / Actual /
Estimated Total Actual Estimated
Number of Budgeted Percent Quarter Quarter of
Apartment Cost Construction Percent Percent Construction Initial
Community Homes (millions) Complete Leased Occupied Commenced Occupancy
(A)
COMPLETED COMMUNITY IN LEASE-UP
<S> <C> <C> <C> <C> <C> <C> <C>
Atlanta, GA
- -----------
Gables Over Peachtree 263 $20.4 100% 91% 68% 1 Q 1995 N/A
-------------------------------
DEVELOPMENT COMMUNITIES
Atlanta, GA
- -----------
Gables at Vinings 315 $24.6 6% --- --- 2 Q 1996 1 Q 1997
Roswell Gables II 284 21.7 3% --- --- 2 Q 1996 1 Q 1997
Austin, TX
- ----------
Gables Central Park 273 20.6 6% --- --- 2 Q 1996 1 Q 1997
Dallas, TX
- ----------
Gables Green Oaks I 300 16.5 96% 46% 41% 1 Q 1995 1 Q 1996
Memphis, TN
- -----------
Gables Quail Ridge 238 15.6 76% 14% 10% 1 Q 1995 2 Q 1996
Gables Germantown 252 17.9 72% 17% 8% 1 Q 1995 2 Q 1996
-------------------------------
Totals 1,662 $116.9
-------------------------------
Grand Totals 1,925 $137.3
===============================
Actual / Actual /
Estimated Estimated
Quarter Quarter of
Construction Stabilized
Ended Occupancy
----- ---------
(B)
COMPLETED COMMUNITY IN LEASE-UP
- -------------------------------
<S> <C> <C>
Atlanta, GA
- -----------
Gables Over Peachtree 2 Q 1996 1 Q 1997
DEVELOPMENT COMMUNITIES
- -----------------------
Atlanta, GA
- -----------
Gables at Vinings 3 Q 1997 4 Q 1997
Roswell Gables II 3 Q 1997 4 Q 1997
Austin, TX
- ----------
Gables Central Park 3 Q 1997 4 Q 1997
Dallas, TX
- ----------
Gables Green Oaks I 3 Q 1996 4 Q 1996
Memphis, TN
- -----------
Gables Quail Ridge 4 Q 1996 1 Q 1997
Gables Germantown 4 Q 1996 1 Q 1997
<FN>
The following is a "Safe Harbor" Statement under the Private Securities
Litigation Reform Act of 1995 and Section 21E of the Securities Exchange Act of
1934. The projections contained in the table above that are not historical facts
are forward-looking statements. These forward-looking statements involve risks
and uncertainties and actual results may differ materially from those projected
in such statements. Risks associated with the Company's development,
construction, and lease-up activities, which could impact the forward-looking
statements made, include: development opportunities may be abandoned;
construction costs of a community may exceed original estimates, possibly making
the community uneconomical; and construction and lease-up may not be completed
on schedule, resulting in increased debt service and construction costs.
- --------------------------------------------
(A) Total Budgeted Cost includes all capitalized costs incurred and
projected to be incurred to develop the respective community presented in
accordance with generally accepted accounting principles, including land
acquisition costs, construction costs, real estate taxes, interest and loan
fees, permits, professional fees, allocated development overhead, and other
regulatory fees.
(B) Stabilized occupancy is defined as the earlier to occur of (i) 93%
physical occupancy or (ii) one year after completion of construction.
</FN>
</TABLE>
<PAGE>
STABILIZED APARTMENT COMMUNITIES
- --------------------------------
Gables' portfolio of stabilized apartment communities as of June 30, 1996
is summarized below:
Number of Scheduled Rent Per
Community Homes Occupancy Unit Square Foot (A)
- ----------------------- --------- --------- ----- ------------------
ATLANTA, GA
- -----------
Briarcliff Gables ....... 104 94% $1,048 $0.85
Buckhead Gables ......... 162 98% 783 1.03
Club Candlewood ......... 486 95% 592 0.49
Dunwoody Gables ......... 311 95% 792 0.85
Gables Cinnamon Ridge ... 200 95% 643 0.67
Gables Cityscape ........ 192(B) 89% 813 0.98
Gables Wood Arbor ....... 140 94% 656 0.72
Gables Wood Crossing .... 268 98% 693 0.72
Gables Wood Glen ........ 380 97% 650 0.65
Gables Wood Knoll ....... 312 97% 674 0.68
Lakes at Indian Creek ... 603 94% 560 0.61
Roswell Gables I ........ 384 98% 831 0.77
Spalding Gables ......... 252 95% 832 0.84
Wildwood Gables ......... 546 98% 795 0.70
----- ------ ----- ----
4,340 96% 712 0.70
HOUSTON, TX
- -----------
Baybrook Village ........ 776 98% 515 0.64
Cityscape ............... 252 97% 790 0.93
CityWalk/Waterford Square 317 97% 777 0.96
Edgewater ............... 292 96% 748 0.85
Gables Bradford Place ... 372 95% 654 0.76
Gables Bradford Pointe .. 360 96% 578 0.75
Gables CityPlaza ........ 246 94% 791 0.90
Gables Meyer Park ....... 345 95% 780 0.91
Gables Piney Point ...... 246 98% 825 0.89
Metropolitan Uptown (JV). 318 95% 893 0.98
Pin Oak Green ........... 582 88% 868 0.85
Pin Oak Park ............ 477 94% 879 0.86
Rivercrest .............. 140 98% 670 0.79
Gables River Oaks ....... 228 94% 1,282 1.05
Westhollow Park ......... 412 96% 517 0.57
----- ---- ----- ----
5,363 95% 744 0.83
AUSTIN, TX
- ----------
Gables Great Hills ...... 276 96% 771 0.93
Gables Town Lake ........ 256 98% 996 1.07
---- ---- ----- ----
532 97% 879 1.00
DALLAS, TX
- ----------
Arborstone .............. 536 94% 453 0.63
Gables at Pearl Street .. 108 100% 1,206 1.11
Gables Preston .......... 126 97% 1,021 0.93
Gables Spring Park ...... 188 95% 902 0.86
Gables Valley Ranch ..... 319 96% 888 0.87
----- ---- ----- ----
1,277 95% 748 0.82
NASHVILLE, TN
- -------------
Brentwood Gables ........ 254 97% 916 1.00
Gables Hendersonville ... 364 98% 629 0.67
Gables Hickory Hollow I 276 96% 643 0.68
Gables Hickory Hollow II 272 97% 628 0.69
----- ---- ----- ----
1,166 97% 694 0.75
MEMPHIS, TN
- -----------
Arbors of Harbortown (JV). 345 94% 742 0.75
Gables Cordova .......... 464 97% 635 0.68
----- ---- ----- ----
809 96% 680 0.71
SAN ANTONIO, TX
- ---------------
Gables Colonnade I ...... 312 94% 759 0.83
Gables Wall Street ...... 232 91% 789 0.83
----- ---- ----- ----
544 93% 772 0.83
TOTALS ............... 14,031 96% $733 $0.78
====== ==== ===== =====
(A) In the Atlanta and Tennessee markets, rentable area is typically
measured including any patio or balcony. In the Texas markets, rentable area is
measured using only the heated area.
(B) This community has 21 apartment homes which the Company did not hold
available for occupancy as of June 30, 1996. The occupancy rate of the 171
apartment homes available was 100% at June 30, 1996.
<PAGE>
PORTFOLIO INDEBTEDNESS SUMMARY AND INTEREST RATE PROTECTION ARRANGEMENT SUMMARY
- -------------------------------------------------------------------------------
A summary of Gables' portfolio indebtedness and interest rate protection
arrangements as of June 30, 1996 follows:
Portfolio Indebtedness Summary
- ------------------------------
Percentage Interest Total Years to
Type of Indebtedness Balance of Total Rate Rate Maturity
- -------------------- ------- -------- ---- ---- --------
(A) (B)
Conventional fixed-rate ..... $187,247 49.2% 8.174% 8.174% 9.21
Tax-exempt fixed-rate ....... 67,270 17.7% 6.559% 6.728% 13.90
-------- ----- ----- ----- -----
Total fixed-rate ....... $254,517 66.9% 7.747% 7.792% 10.45
-------- ----- ----- ----- -----
Tax-exempt variable-rate .... $44,930 11.8% 3.400% 4.400% 2.75
-------- ----- ----- ----- -----
Credit Facility ............. $81,100 21.3% 7.142% 7.142% 2.75
-------- ----- ----- ----- -----
Total portfolio debt (C), (D) $380,547 100.0% 7.105% 7.253% 7.90
======== ===== ===== ===== =====
(A) Interest Rate represents the weighted average interest rate incurred on
the indebtedness, exclusive of deferred financing cost amortization and credit
enhancement fees, as applicable.
(B) Total Rate represents the Interest Rate (A) plus credit enhancement
fees, as applicable.
(C) Interest associated with construction activities is capitalized as a
cost of development and does not impact current earnings. The qualifying
construction expenditures at June 30, 1996 for purposes of interest
capitalization were $48,160.
(D) Excludes $16.4 million of tax-exempt bonds and $16.5 million of
outstanding conventional indebtedness related to joint ventures in which Gables
owns a 25% interest.
Interest Rate Protection Arrangement Summary
- --------------------------------------------
Description Notional Strike Effective Termination
of Arrangement Amount Price (E) Date Date
- -------------- ------ --------- ---- ----
LIBOR, 30-day $44,530 6.25% 01/27/94 01/30/99 (F)
LIBOR, 30-day $35,470 5.13% 01/27/94 01/30/97
LIBOR, 30-day $50,000 6.45% 01/30/97 12/31/97
(E) The 30-day LIBOR rate in effect at month-end was 5.49%.
(F) This arrangement has the effect of capping the interest rate on $44,530
of tax-exempt bond financing at a LIBOR strike price which represents a
tax-exempt equivalent rate of 4.0% on a quarterly basis, based on historical
relationships of interest rates and current federal income tax rates.
<PAGE>
ROLLFORWARD OF PORTFOLIO INDEBTEDNESS
- -------------------------------------
A rollforward of Gables' portfolio indebtedness from December 31, 1995 to
June 30, 1996 by category follows:
<TABLE>
<CAPTION>
Balance at Balance at
12-31-95 Advances Repayments 6-30-96
---------------- ---------------- ---------------- ------------------
<S> <C> <C> <C> <C>
Conventional fixed-rate $173,944 $13,481 (A) $178 $187,247
Tax-exempt fixed-rate 67,385 0 115 67,270
---------------- ---------------- ---------------- ------------------
Total fixed-rate $241,329 $13,481 $293 $254,517
---------------- ---------------- ---------------- ------------------
Tax-exempt variable-rate $44,930 $0 $0 $44,930
---------------- ---------------- ---------------- ------------------
(A),
Credit Facility $0 $117,300 $36,200 (B) $81,100
---------------- ---------------- ---------------- ------------------
Total portfolio debt $286,259 $130,781 $36,493 $380,547
================ ================ ================ ==================
<FN>
(A) During June, 1996, the Company closed on $13.5 million of its $130.7
million fixed rate financing commitment with Teachers Insurance and Annuity
Association ("TIAA"). The proceeds of this financing were used to paydown
outstanding borrowings under the Credit Facility. In December, 1995, the Company
closed on $90.2 million of the TIAA financing commitment and the remaining $27.0
million of the commitment is expected to close in the second half of 1996.
(B) During March, 1996, the Company completed a direct placement of 879,068
common shares which generated approximately $20.6 million in net proceeds. Such
proceeds were used to paydown outstanding borrowings under the Credit Facility.
</FN>
</TABLE>
<PAGE>
BOOK VALUE OF ASSETS AND EQUITY
- -------------------------------
The application of historical cost accounting in accordance with GAAP for
Gables' UPREIT structure results in an understatement of total assets and equity
compared to the amounts that would be recorded via the application of purchase
accounting in accordance with GAAP had Gables not been organized as an UPREIT.
Management believes it is imperative to understand this difference when
evaluating the book value of assets and equity. The understatement of basis
related to this difference in organizational structure is $119,582, exclusive of
the effect of depreciation. Accordingly, on a pro forma basis, the real estate
assets before accumulated depreciation and total assets as of June 30, 1996
would be $824,344 and $790,447, respectively, if such $119,582 value was
reflected. In addition, on a pro forma basis, the total equity plus minority
interest as of June 30, 1996 would be $382,580 if such $119,582 value was
reflected.
INFLATION
- ---------
Substantially all of the leases at the communities are for a term of one year or
less, which may enable Gables to seek increased rents upon renewal of existing
leases or commencement of new leases. The short-term nature of these leases
generally serves to reduce the risk to Gables of the adverse effects of
inflation.
RECENT ACCOUNTING PRONOUNCEMENT
- -------------------------------
In March, 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121 ("FAS 121") "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of,"
which becomes effective for fiscal years beginning after December 15, 1995. FAS
121 establishes standards for determining when impairment losses on long-lived
assets have occurred and how impairment losses should be measured. The Company
adopted FAS 121 effective January 1, 1996. There was no financial statement
impact as a result of this adoption.
SUPPLEMENTAL DISCUSSION
FUNDS FROM OPERATIONS AND ADJUSTED FUNDS FROM OPERATIONS
- --------------------------------------------------------
The Company considers funds from operations ("FFO") to be a useful performance
measure of the operating performance of an equity REIT because, together with
net income and cash flows, FFO provides investors with an additional basis to
evaluate the ability of a REIT to incur and service debt and to fund
acquisitions and other capital expenditures. The Company believes that in order
to facilitate a clear understanding of its operating results, FFO should be
examined in conjunction with net income as presented in the financial statements
and data included elsewhere in this report. FFO was previously defined as net
income before minority interest of unitholders in the Operating Partnership and
extraordinary items plus certain non-cash items, primarily depreciation and
amortization (the "old definition"). During the first quarter of 1995, the
National Association of Real Estate Investment Trusts adopted a White Paper
recommending certain changes to the calculation of FFO. FFO, as revised, is
defined as net income before minority interest of unitholders in the Operating
Partnership and extraordinary items, plus real estate depreciation (the "revised
definition"). Adjusted funds from operations ("AFFO") is defined as FFO under
the revised definition less capital expenditures funded by operations. FFO and
AFFO should not be considered as an alternative to net income as an indicator of
Gables' operating performance or as an alternative to cash flows as a measure of
liquidity. FFO does not measure whether cash flow is sufficient to fund all of
the Company's cash needs including principal amortization, capital expenditures,
and distributions to shareholders. Additionally, FFO does not represent cash
flows from operating, investing or financing activities as defined by generally
accepted accounting principles. Reference is made to "Management's Discussion
and Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources" for a discussion of the Company's cash needs and cash flows.
<PAGE>
RECONCILIATION OF FUNDS FROM OPERATIONS AND ADJUSTED FUNDS FROM OPERATIONS
- --------------------------------------------------------------------------
A reconciliation of funds from operations (using the revised definition)
and adjusted funds from operations follows:
<TABLE>
<CAPTION>
For the three months ended For the six months ended
June 30 June 30
--------------------------- ---------------------------
1996 1995 1996 1995
------------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
RECONCILIATIONS:
Income before minority interest and extraordinary
loss, net $6,549 $4,276 $12,875 $8,501
Real estate asset depreciation:
Wholly-owned real estate assets 4,464 2,795 8,095 5,440
Joint venture real estate assets 54 53 108 80
------------- ----------- ------------- -----------
Total 4,518 2,848 8,203 5,520
------------- ----------- ------------- -----------
Funds from operations (revised definition) (A) $11,067 $7,124 $21,078 $14,021
------------- ----------- ------------- -----------
Capital expenditures for operating apartments:
Carpet 281 237 508 464
Roofing 102 21 115 21
Exterior painting 86 42 86 43
Appliances 25 37 50 65
Other additions/improvements 680 528 1,054 946
------------- ----------- ------------- -----------
Total 1,174 865 1,813 1,539
------------- ----------- ------------- -----------
Adjusted funds from operations $9,893 $6,259 $19,265 $12,482
============= =========== ============= ===========
<FN>
(A) Funds from operations (revised definition) is calculated in accordance
with the White Paper that was adopted by the National Association of Real Estate
Investment Trusts in the first quarter of 1995.
</FN>
</TABLE>
<PAGE>
Part II - Other Information
Item 1: Legal Proceedings
None
Item 2: Changes in Securities
None
Item 3: Defaults Upon Senior Securities
None
Item 4: Submission of Matters to a Vote of Security Holders
The Company held its annual meeting of shareholders on May 14,
1996. The shareholders voted to elect John W. McIntyre and
Perry M. Parrott, Jr. to serve as Class II Trustees of the
Company until their terms expire in 1999 and their respective
successors are duly elected. 14,038,764 votes were cast for,
and 47,977 votes were withheld from, the election of John W.
McIntyre and 14,041,074 votes were cast for, and 45,667 votes
were withheld from, the election of Perry M. Parrott, Jr. John
T. Rippel, Peter D. Linneman and Lauralee E. Martin will
continue to serve as Class III Trustees until their present
terms expire in 1997 and their successors are duly elected,
and Marcus E. Bromley and David M. Holland will continue to
serve as Class I Trustees until their present terms expire in
1998 and their successors are duly elected. The shareholders
also voted to approve the amendment to the Gables Residential
Trust Amended and Restated 1994 Share Option and Incentive
Plan described in the Proxy Statement. 9,813,638 votes were
cast in favor of this proposal, 4,193,790 votes were cast
against it, and 79,313 abstained.
Item 5: Other Information
None
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Second Amended and Restated 1994 Share Option and
Incentive Plan.
27 Financial Data Schedule.
(b) Reports on Form 8-K
(i) A Form 8-K dated April 23, 1996 was filed with the
Securities and Exchange Commission. The filing reported
the acquisition of two partnerships. Each acquired
partnership owns a multifamily apartment community
located in Houston, Texas, collectively comprising 1,059
apartment homes in total.
<PAGE>
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: August 8, 1996 GABLES RESIDENTIAL TRUST
/s/ Marvin R. Banks, Jr.
Marvin R. Banks, Jr.
Vice President and Chief
Financial Officer
(Authorized Officer of the Registrant
and Principal Financial Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000913782
<NAME> Gables Residential Trust
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-START> Jan-1-1996
<PERIOD-END> Jun-30-1996
<CASH> 13,678
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 704,762
<DEPRECIATION> 64,548
<TOTAL-ASSETS> 670,865
<CURRENT-LIABILITIES> 0
<BONDS> 380,547
0
0
<COMMON> 161
<OTHER-SE> 216,658
<TOTAL-LIABILITY-AND-EQUITY> 670,865
<SALES> 0
<TOTAL-REVENUES> 52,585
<CGS> 0
<TOTAL-COSTS> 30,683
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,294
<INCOME-PRETAX> 12,875
<INCOME-TAX> 0
<INCOME-CONTINUING> 10,632
<DISCONTINUED> 0
<EXTRAORDINARY> 520
<CHANGES> 0
<NET-INCOME> 10,112
<EPS-PRIMARY> .64
<EPS-DILUTED> 0
</TABLE>
GABLES RESIDENTIAL TRUST
SECOND AMENDED AND RESTATED 1994 SHARE OPTION AND INCENTIVE PLAN*
* The 1994 Share Option and Incentive Plan was approved by the Board of
Trustees and the shareholders on January 19, 1994; the first amendment thereto
was approved by the Board of Trustees at a Meeting of the Board of Trustees on
February 20, 1995 and by the shareholders at the 1995 Annual Meeting of
Shareholders on May 16, 1995; the second amendment thereto was approved by the
Board of Trustees at a Meeting of the Board of Trustees on February 6, 1996 and
by the shareholders at the 1996 Annual Meeting of Shareholders on May 14, 1996.
SECTION 1. GENERAL PURPOSE OF THE PLAN; DEFINITIONS
- ---------- ----------------------------------------
The name of the plan is the Gables Residential Trust 1994 Share Option
and Incentive Plan (the "Plan"). The purpose of the Plan is to encourage and
enable the officers, employees and Trustees of Gables Residential Trust (the
"Company") and its Subsidiaries upon whose judgment, initiative and efforts the
Company largely depends for the successful conduct of its business to acquire a
proprietary interest in the Company. It is anticipated that providing such
persons with a direct stake in the Company's welfare will assure a closer
identification of their interests with those of the Company, thereby stimulating
their efforts on the Company's behalf and strengthening their desire to remain
with the Company.
The following terms shall be defined as set forth below:
"Act" means the Securities Exchange Act of 1934, as amended.
"Award" or "Awards," except where referring to a particular category of
grant under the Plan, shall include Incentive Share Options, Non-Qualified Share
Options, Restricted Share Awards and Unrestricted Share Awards.
"Board" means the Board of Trustees of the Company.
"Cause" means and shall be limited to a vote of the Board of Trustees
resolving that the participant should be dismissed as a result of (i) any
material breach by the participant of any agreement to which the participant and
the Company are parties, (ii) any act (other than retirement) or omission to act
by the participant which may have a material and adverse effect on the business
of the Company or any Subsidiary or on the participant's ability to perform
services for the Company or any Subsidiary, including, without limitation, the
commission of any crime (other than ordinary traffic violations), or (iii) any
material misconduct or neglect of duties by the participant in connection with
the business or affairs of the Company or any Subsidiary.
"Change of Control" is defined in Section 12.
"Code" means the Internal Revenue Code of 1986, as amended, and any
successor Code, and related rules, regulations and interpretations.
"Committee" means the Board or any Committee of the Board referred to in
Section 2.
"Disability" means disability as set forth in Section 22(e)(3) of the Code.
"Disinterested Person" means an Independent Trustee who qualifies as such
under Rule 16b-3(c)(2)(i) promulgated under the Act, or any successor definition
under the Act.
- --------
<PAGE>
"Effective Date" means the date on which the Plan is approved by
shareholders as set forth in Section 14.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and the related rules, regulations and interpretations.
"Fair Market Value" on any given date means the last reported sale price at
which the Shares are traded on such date or, if no Shares are traded on such
date, the most recent date on which the Shares were traded, as reflected on the
New York Stock Exchange or, if applicable, any other national stock exchange on
which the Shares are traded. Notwithstanding the foregoing, the Fair Market
Value on the first day of the Company's initial public offering shall mean the
initial public price.
"Incentive Share Option" means any Share Option designated and qualified as
an "incentive stock option" as defined in Section 422 of the Code.
"Independent Trustee" means a member of the Board who is not also an
employee of the Company or any Subsidiary.
"Non-Qualified Share Option" means any Share Option that is not an
Incentive Share Option.
"Option" or "Share Option" means any option to purchase Shares granted
pursuant to Section 5.
"Restricted Share Award" means Awards granted pursuant to Section 6.
"Share" or "Shares" means one or more, respectively, of the Common Shares
of beneficial interest, par value $.01 per share, of the Company, subject to
adjustments pursuant to Section 3.
"Subsidiary" means Gables Realty Limited Partnership, Central Apartment
Management, Inc., East Apartment Management, Inc., Gables Central Construction,
Inc., and Gables East Construction, Inc., and any corporation or other entity
(other than the Company) in any unbroken chain of corporations or other
entities, beginning with the Company if each of the corporations or entities
(other than the last corporation or entity in the unbroken chain) owns stock or
other interests possessing 50% or more of the economic interest or the total
combined voting power of all classes of stock or other interests in one of the
other corporations or entities in the chain.
"Unit" or "Units" means a unit or units of limited partnership interest in
Gables Realty Limited Partnership, a Delaware limited partnership and the entity
through which the Company principally conducts its business.
"Unrestricted Share Award" means Awards granted pursuant to Section 7.
SECTION 2. ADMINISTRATION OF PLAN; COMMITTEE AUTHORITY TO SELECT
PARTICIPANTS AND DETERMINE AWARDS
---------------------------------
(a) COMMITTEE. Prior to the closing of the Company's initial public
offering and the appointment of the Independent Trustees, the Plan shall be
administered by the Board. After the closing of the Company's initial public
offering and the appointment of the Independent Trustees, the Plan shall be
administered by all of the Independent Trustee members of the Compensation
Committee of the Board, or any other committee of not less than two Independent
Trustees performing similar functions, as appointed by the Board from time to
time. Each member of the Committee shall be a Disinterested Person after the
date of the closing of the Company's initial public offering.
(b) POWERS OF COMMITTEE. The Committee shall have the power and authority
to grant Awards consistent with the terms of the Plan, including the power and
authority:
(i) to select the officers and other employees of the Company and its
Subsidiaries to whom Awards may from time to time be granted;
(ii) to determine the time or times of grant, and the extent, if any,
of Incentive Share Options, Non-Qualified Share Options, Restricted Share
Awards and Unrestricted Share Awards, or any combination of the foregoing,
granted to any one or more participants;
(iii) to determine the number of Shares to be covered by any Award;
(iv) to determine and modify the terms and conditions, including
restrictions, not inconsistent with the terms of the Plan, of any Award,
which terms and conditions may differ among individual Awards and
participants, and to approve the form of written instruments evidencing the
Awards;
(v) to accelerate the exercisability or vesting of all or any portion
of any Award;
(vi) subject to the provisions of Section 5(a)(iii), to extend the
period in which Share Options may be exercised;
(vii) to determine whether, to what extent, and under what
circumstances Shares and other amounts payable with respect to an Award
shall be deferred either automatically or at the election of the
participant and whether and to what extent the Company shall pay or credit
amounts constituting interest (at rates determined by the Committee) or
dividends or deemed dividends on such deferrals; and
(viii) to adopt, alter and repeal such rules, guidelines and practices
for administration of the Plan and for its own acts and proceedings as it
shall deem advisable; to interpret the terms and provisions of the Plan and
any Award (including related written instruments); to make all
determinations it deems advisable for the administration of the Plan; to
decide all disputes arising in connection with the Plan; and to otherwise
supervise the administration of the Plan.
All decisions and interpretations of the Committee shall be binding on
all persons, including the Company and Plan participants.
SECTION 3. SHARES ISSUABLE UNDER THE PLAN; MERGERS; SUBSTITUTION
- ---------- -----------------------------------------------------
(a) SHARES ISSUABLE. At any time, the maximum number of Shares available
for issuance under the Plan shall be 8% of the sum of (i) the total number of
Shares outstanding at such time (which limit shall be determined without
considering as outstanding any Shares that are the subject of any unexercised
options under the Plan or any other option plan of the Company or any Shares
owned by the Company or any of its subsidiaries) and (ii) the total number of
Shares issuable upon the exchange of Units that are outstanding at such time
(other than Units owned by the Company or any of its subsidiaries); provided,
however, that the maximum number of Shares for which Incentive Share Options may
be granted under the Plan shall not exceed 1,101,960 Shares (which number is
subject to adjustment as provided in paragraph (b) below); provided, further,
that at any time the total number of Shares issued or available for issuance
under the Plan in respect of Restricted Share Awards or Unrestricted Share
Awards shall not exceed 50% of the total number of Shares available for issuance
under the Plan at such time. For purposes of this limitation, the Shares
underlying any Awards which are forfeited, cancelled, reacquired by the Company,
satisfied without the issuance of Shares or otherwise terminated (other than by
exercise) shall be added back to the Shares available for issuance under the
Plan. Shares issued under the Plan may be authorized but unissued Shares or
Shares reacquired by the Company.
(b) SHARE DIVIDENDS. MERGERS, ETC. In the event of a share dividend, share
split or similar change in capitalization affecting the Shares, the Committee
shall make appropriate adjustments in (i) the number and kind of shares or
securities on which Awards may thereafter be granted, (ii) the number and kind
of shares remaining subject to outstanding Awards, and (iii) the option or
purchase price in respect of such shares. In the event of any merger,
consolidation, dissolution or liquidation of the Company or Gables Realty
Limited Partnership, the Committee in its sole discretion may, as to any
outstanding Awards, make such substitution or adjustment in the aggregate number
of shares reserved for issuance under the Plan and the number and purchase price
(if any) of shares subject to such Awards as it may determine and as may be
permitted by the terms of such transaction, or amend or terminate such Awards
upon such terms and conditions as it shall provide (which, in the case of the
termination of the vested portion of any Award, shall require payment or other
consideration which the Committee deems equitable in the circumstances).
(c) SUBSTITUTE AWARDS. The Committee may grant Awards under the Plan in
substitution for stock and stock based awards held by employees of another
corporation who concurrently become employees of the Company or a Subsidiary as
the result of a merger or consolidation of the employing corporation with the
Company or a Subsidiary or the acquisition by the Company or a Subsidiary of
property or stock of the employing corporation. The Committee may direct that
the substitute awards be granted on such terms and conditions as the Committee
considers appropriate in the circumstances.
SECTION 4. ELIGIBILITY
- ---------- -----------
Participants in the Plan will be such full or part-time officers and other
employees of the Company and its Subsidiaries who are responsible for or
contribute to the management, growth or profitability of the Company and its
Subsidiaries and who are selected from time to time by the Committee, in its
sole discretion. Independent Trustees are also eligible to participate in the
Plan but only to the extent provided in Section 5(c) and Section 7 below.
SECTION 5. SHARE OPTIONS
- ---------- -------------
Any Share Option granted under the Plan shall be in such form as the
Committee may from time to time approve.
Share Options granted under the Plan may be either Incentive Share Options
or Non-Qualified Share Options. To the extent that any Option does not qualify
as an Incentive Share Option, it shall constitute a Non- Qualified Share Option.
No Incentive Share Option shall be granted under the Plan after January 18,
2004.
(a) SHARE OPTIONS GRANTED TO EMPLOYEES. The Committee in its
discretion may grant Share Options to employees of the Company or any
Subsidiary. Share Options granted to employees pursuant to this Section
5(a) shall be subject to the following terms and conditions and shall
contain such additional terms and conditions, not inconsistent with the
terms of the Plan, as the Committee shall deem desirable:
(i) EXERCISE PRICE. The exercise price per share for the
Shares covered by a Share Option granted pursuant to this Section 5(a)
shall be determined by the Committee at the time of grant but shall not
be less than 100% of Fair Market Value on the date of grant.
Notwithstanding the foregoing, with respect to Non-Qualified Share
Options which are granted in lieu of cash bonus, the exercise price per
share shall not be less than 50% of the Fair Market Value on the date of
grant. If an employee owns or is deemed to own (by reason of the
attribution rules applicable under Section 424(d) of the Code) more than
10% of the combined voting power of all classes of stock of the Company
or any Subsidiary or parent corporation and an Incentive Share Option is
granted to such employee, the option price of such Incentive Share
Option shall be not less than 110% of Fair Market Value on the grant
date.
(ii) GRANT OF DISCOUNT OPTIONS IN LIEU OF CASH BONUS. Upon the
request of an employee and with the consent of the Committee, such
employee may elect each calendar year to receive a Non- Qualified Share
Option in lieu of cash bonus to which he may become entitled during the
following calendar year pursuant to any other plan of the Company, but
only if such employee makes an irrevocable election to waive receipt of
all or a portion of such cash bonus. Such election shall be made on or
before the date set by the Committee which date shall be no later than
15 days preceding January 1 of the calendar year in which the cash bonus
would otherwise be paid. A Non-Qualified Share Option shall be granted
to each employee who made such an irrevocable election on the date the
waived cash bonus would otherwise be paid; provided, however, that with
respect to an employee who is subject to Section 16 of the Act, if such
grant date is not at least six months and one day from the date of the
election, the grant shall be delayed until the date which is six months
and one day from the date of the election (or the next following
business day, if such date is not a business day). The exercise price
per Share Option shall be determined by the Committee but shall not be
less than 50% of the Fair Market Value of a single Share on the date the
Share Option is granted. The number of Shares subject to the Share
Option shall be determined by dividing the amount of the waived cash
bonus by the difference between the Fair Market Value of a single Share
on the date the Share Option is granted and the exercise price per Share
Option. The Share Option shall be granted for whole number of Shares so
determined; the value of any fractional share shall be paid in cash. An
employee may revoke his election under this Section 5(a)(ii) on a
prospective basis at any time; provided, however, that with respect to
an employee who is subject to Section 16 of the Act, such revocation
shall only be effective six months and one day following the date of
such revocation.
(iii) OPTION TERM. The term of each Share Option shall be
fixed by the Committee, but no Incentive Share Option shall be
exercisable more than ten years after the date the option is granted. If
an employee owns or is deemed to own (by reason of the attribution rules
of Section 424(d) of the Code) more than 10% of the combined voting
power of all classes of stock of the Company or any Subsidiary or parent
corporation and an Incentive Share Option is granted to such employee,
the term of such option shall be no more than five years from the date
of grant.
(iv) EXERCISABILITY; RIGHTS OF A SHAREHOLDER. Share Options
shall become vested and exercisable at such time or times, whether or
not in installments, as shall be determined by the Committee at or after
the grant date; provided, however, that Share Options granted in lieu of
cash bonus shall be exercisable immediately. The Committee may at any
time accelerate the exercisability of all or any portion of any Share
Option. An optionee shall have the rights of a shareholder only as to
shares acquired upon the exercise of a Share Option and not as to
unexercised Share Options.
(v) METHOD OF EXERCISE. Share Options may be exercised in
whole or in part, by giving written notice of exercise to the Company,
specifying the number of shares to be purchased. Payment of the purchase
price may be made by one or more of the following methods:
(A) In cash, by certified or bank check or other
instrument acceptable to the Committee;
(B) In the form of Shares that are not then subject to
restrictions under any Company plan and that have been held
by the optionee for at least six months, if permitted by the
Committee in its discretion. Such surrendered Shares shall
be valued at Fair Market Value on the exercise date; or
(C) By the optionee delivering to the Company a
properly executed exercise notice together with irrevocable
instructions to a broker to promptly deliver to the Company
cash or a check payable and acceptable to the Company to pay
the purchase price; provided that in the event the optionee
chooses to pay the purchase price as so provided, the
optionee and the broker shall comply with such procedures
and enter into such agreements of indemnity and other
agreements as the Committee shall prescribe as a condition
of such payment procedure. Payment instruments will be
received subject to collection.
The delivery of certificates representing the Shares to be purchased
pursuant to the exercise of a Share Option will be contingent upon receipt from
the optionee (or a purchaser acting in his stead in accordance with the
provisions of the Share Option) by the Company of the full purchase price for
such Shares and the fulfillment of any other requirements contained in the Share
Option or applicable provisions of laws.
(vi) NON-TRANSFERABILITY OF OPTIONS. No Share Option shall be
transferable by the optionee otherwise than by will or by the laws of
descent and distribution and all Share Options shall be exercisable,
during the optionee's lifetime, only by the optionee.
(vii) TERMINATION BY REASON OF DEATH. If any optionee's
employment by the Company and its Subsidiaries terminates by reason of
death, the Share Option may thereafter be exercised, to the extent
exercisable at the date of death, by the legal representative or
legatee of the optionee, for a period of six months (or such longer
period as the Committee shall specify at any time) from the date of
death, or until the expiration of the stated term of the Option, if
earlier.
(viii) TERMINATION BY REASON OF DISABILITY.
(A) Any Share Option held by an optionee whose
employment by the Company and its Subsidiaries has
terminated by reason of Disability may thereafter be
exercised, to the extent it was exercisable at the time of
such termination, for a period of twelve months (or such
longer period as the Committee shall specify at any time)
from the date of such termination of employment, or until
the expiration of the stated term of the Option, if earlier.
(B) The Committee shall have sole authority and
discretion to determine whether a participant's employment
has been terminated by reason of Disability.
(C) Except as otherwise provided by the Committee at
the time of grant, the death of an optionee during a period
provided in this Section 5(a)(viii) for the exercise of a
Non- Qualified Share Option, shall extend such period for
six months from the date of death, subject to termination on
the expiration of the stated term of the Option, if earlier.
(ix) TERMINATION FOR CAUSE. If any optionee's employment by the
Company and its Subsidiaries has been terminated for Cause, any Share
Option held by such optionee shall immediately terminate and be of no
further force and effect; provided, however, that the Committee may,
in its sole discretion, provide that such Share Option can be
exercised for a period of up to 30 days from the date of termination
of employment or until the expiration of the stated term of the
Option, if earlier.
(x) OTHER TERMINATION. Unless otherwise determined by the
Committee, if an optionee's employment by the Company and its
Subsidiaries terminates for any reason other than death, Disability,
or for Cause, any Share Option held by such optionee may thereafter be
exercised, to the extent it was exercisable on the date of termination
of employment, for three months (or such longer period as the
Committee shall specify at any time) from the date of termination of
employment or until the expiration of the stated term of the Option,
if earlier.
(xi) ANNUAL LIMIT ON INCENTIVE SHARE OPTIONS. To the extent
required for "incentive stock option" treatment under Section 422 of
the Code, the aggregate Fair Market Value (determined as of the time
of grant) of the Shares with respect to which Incentive Share Options
granted under this Plan and any other plan of the Company or its
Subsidiaries become exercisable for the first time by an optionee
during any calendar year shall not exceed $100,000.
(xii) FORM OF SETTLEMENT. Shares issued upon exercise of a Share
Option shall be free of all restrictions under the Plan, except as
otherwise provided in this Plan.
(b) RELOAD OPTIONS. At the discretion of the Committee, Options granted
under Section 5(a) may include a so-called "reload" feature pursuant to which an
optionee exercising an option by the delivery of a number of Shares in
accordance with Section 5(a)(v)(B) hereof would automatically be granted an
additional Option (with an exercise price equal to the Fair Market Value of the
Share on the date the additional Option is granted and with the same expiration
date as the original Option being exercised, and with such other terms as the
Committee may provide) to purchase that number of Shares equal to the number
delivered to exercise the original Option.
(c) SHARE OPTIONS GRANTED TO INDEPENDENT TRUSTEES.
(i) AUTOMATIC GRANT OF OPTIONS. Promptly after the closing of the
Company's initial public offering and the appointment of the
Independent Trustees, each Independent Trustee shall automatically be
granted a Non-Qualified Share Option to purchase 3,000 Shares. Each
Independent Trustee who is serving as Trustee of the Company on the
fifth business day after each annual meeting of shareholders,
beginning with the 1995 annual meeting, shall automatically be granted
on such day a Non-Qualified Share Option to acquire 5,000 Shares. The
exercise price per Share for the Shares covered by a Share Option
granted pursuant to the first sentence hereof shall be equal to the
greater of the initial public offering price or the Fair Market Value
of a single Share on the date the Share Option is granted. The
exercise price per Share for the Shares covered by a Share Option
granted pursuant to the second sentence hereof shall be equal to the
Fair Market Value of a single Share on the date the Share Option is
granted.
(ii) EXERCISE; TERMINATION; NON-TRANSFERABILITY.
(A) Except as provided in Section 12, no Option granted
under Section 5(c)(i) may be exercised before the first
anniversary of the date upon which it was granted; provided,
however, that any Option so granted shall become exercisable upon
the termination of service of the Independent Trustee because of
Disability or death. No Option issued under this Section 5(c)
shall be exercisable after the expiration of ten years from the
date upon which such Option is granted.
(B) The rights of an Independent Trustee in an Option
granted under Section 5(c) shall terminate six months after such
Trustee ceases to be a Trustee of the Company or the specified
expiration date, if earlier; provided, however, that if the
Independent Trustee ceases to be a Trustee for Cause, the rights
shall terminate immediately on the date on which he ceases to be
a Trustee.
(C) No Share Option granted under this Section 5(c) shall be
transferable by the optionee otherwise than by will or by the
laws of descent and distribution, and such Options shall be
exercisable, during the optionee's lifetime only by the optionee.
Any Option granted to an Independent Trustee and outstanding on
the date of his death may be exercised by the legal
representative or legatee of the optionee for a period of six
months from the date of death or until the expiration of the
stated term of the option, if earlier.
(D) Options granted under this Section 5(c) may be exercised
only by written notice to the Company specifying the number of
Shares to be purchased. Payment of the full purchase price of the
Shares to be purchased may be made by one or more of the methods
specified in Section 5(a)(v). An optionee shall have the rights
of a shareholder only as to shares acquired upon the exercise of
a Share Option and not as to unexercised Share Options.
(iii) LIMITED TO INDEPENDENT TRUSTEES. The provisions of this
Section 5(c) shall apply only to Options granted or to be granted to
Independent Trustees, and shall not be deemed to modify, limit or
otherwise apply to any other provision of this Plan or to any Option
issued under this Plan to a participant who is not an Independent
Trustee of the Company. To the extent inconsistent with the provisions
of any other Section of this Plan, the provisions of this Section 5(c)
shall govern the rights and obligations of the Company and Independent
Trustees respecting Options granted or to be granted to Independent
Trustees. The provisions of this Section 5(c) which affect the price,
date of exercisability, option period or amount of Shares under an
Option shall not be amended more than once in any six-month period,
other than to comport with changes in the Code or ERISA.
SECTION 6. RESTRICTED SHARE AWARDS
- ---------- -----------------------
(a) NATURE OF RESTRICTED SHARE AWARD. The Committee may grant Restricted
Share Awards to any employee of the Company or any Subsidiary. A Restricted
Share Award is an Award entitling the recipient to acquire, at no cost or for a
purchase price determined by the Committee, Shares subject to such restrictions
and conditions as the Committee may determine at the time of grant ("Restricted
Shares"). Conditions may be based on continuing employment and/or achievement of
pre-established performance goals and objectives.
(b) ACCEPTANCE OF AWARD. A participant who is granted a Restricted Share
Award shall have no rights with respect to such Award unless the participant
shall have accepted the Award within 60 days (or such shorter date as the
Committee may specify) following the award date by making payment to the
Company, if required, by certified or bank check or other instrument or form of
payment acceptable to the Committee in an amount equal to the specified purchase
price, if any, of the Shares covered by the Award and by executing and
delivering to the Company a written instrument that sets forth the terms and
conditions of the Restricted Shares in such form as the Committee shall
determine.
(c) RIGHTS AS A SHAREHOLDER. Upon complying with Section 6(b) above, a
participant shall have all the rights of a shareholder with respect to the
Restricted Shares including voting and dividend rights, subject to
non-transferability restrictions and Company repurchase or forfeiture rights
described in this Section 6 and subject to such other conditions contained in
the written instrument evidencing the Restricted Share Award. Unless the
Committee shall otherwise determine, certificates evidencing the Restricted
Shares shall remain in the possession of the Company until such Shares are
vested as provided in Section 6(e) below.
(d) RESTRICTIONS. Restricted Shares may not be sold, assigned, transferred,
pledged or otherwise encumbered or disposed of except as specifically provided
herein. In the event of termination of employment by the Company and its
Subsidiaries for any reason (including death, retirement, Disability, and for
Cause), the Company shall have the right, at the discretion of the Committee, to
repurchase Restricted Shares with respect to which conditions have not lapsed at
their purchase price, or to require forfeiture of such Shares to the Company if
acquired at no cost, from the participant or the participant's legal
representative. The Company must exercise such right of repurchase or forfeiture
not later than the 90th day following such termination of employment (unless
otherwise specified in the written instrument evidencing the Restricted Share
Award).
(e) VESTING OF RESTRICTED SHARES. The Committee at the time of grant shall
specify the date or dates and/or the attainment of pre-established performance
goals, objectives and other conditions on which the non-transferability of the
Restricted Shares and the Company's right of repurchase or forfeiture shall
lapse. Subsequent to such date or dates and/or the attainment of such
pre-established performance goals, objectives and other conditions, the Shares
on which all restrictions have lapsed shall no longer be Restricted Shares and
shall be deemed "vested."
(f) WAIVER, DEFERRAL AND REINVESTMENT OF DIVIDENDS. The written instrument
evidencing the Restricted Share Award may require or permit the immediate
payment, waiver, deferral or investment of dividends paid on the Restricted
Shares.
SECTION 7. UNRESTRICTED SHARE AWARDS
- ---------- -------------------------
(a) GRANT OR SALE OF UNRESTRICTED SHARES. The Committee may, in its sole
discretion, grant (or sell at a purchase price determined by the Committee) an
Unrestricted Share Award to any employee of the Company or any Subsidiary which
will entitle such employee to receive Shares free of any restrictions under the
Plan ("Unrestricted Shares"). Unrestricted Shares may be granted or sold as
described in the preceding sentence in respect of past services or other valid
consideration, or in lieu of any cash compensation to such employee.
(b) ELECTIONS TO RECEIVE UNRESTRICTED SHARES IN LIEU OF COMPENSATION. Upon
the request of an employee and with the consent of the Committee, each employee
may, pursuant to an irrevocable written election delivered to the Company no
later than the date or dates specified by the Committee, receive a portion of
the cash compensation otherwise due to him in Unrestricted Shares (valued at
Fair Market Value on the date or dates the cash compensation would otherwise be
paid, or on the effective date of the election, if later). With respect to any
employee who is subject to Section 16 of the Act, such irrevocable election
shall become effective no earlier than six months and one day following the date
of such election and the revocation of such election shall be effective six
months and one day following the date of the revocation.
(c) ELECTIONS TO RECEIVE UNRESTRICTED SHARES IN LIEU OF TRUSTEES' FEES.
Each Independent Trustee may, pursuant to an irrevocable written election
delivered to the Company, receive all or a portion of his cash trustee's fees in
Unrestricted Shares (valued at Fair Market Value on the date or dates the
trustee's fees would otherwise be paid, or on the effective date of the
election, if later). Such election shall be effective no earlier than six months
and one day following the date of such election. Any revocation of such election
shall be effective six months and one day following the date of the revocation.
SECTION 8. TAX WITHHOLDING
- ---------- ---------------
(a) PAYMENT BY PARTICIPANT. Each participant shall, no later than the
date as of which the value of an Award or of any Shares or other amounts
received thereunder first becomes includable in the gross income of the
participant for Federal income tax purposes, pay to the Company, or make
arrangements satisfactory to the Committee regarding payment of any Federal,
state, or local taxes of any kind required by law to be withheld with respect to
such income. The Company and its Subsidiaries shall, to the extent permitted by
law, have the right to deduct any such taxes from any payment of any kind
otherwise due to the participant.
(b) PAYMENT IN SHARES. A participant may elect to have such tax
withholding obligation satisfied, in whole or in part, by (i) authorizing the
Company to withhold from of Shares to be issued pursuant to any Award a number
of shares with an aggregate Fair Market Value (as of the date the withholding is
effected) that would satisfy the withholding amount due, or (ii) transferring to
the Company Shares owned by the participant with an aggregate Fair Market Value
(as of the date the withholding is effected) that would satisfy the withholding
amount due. With respect to any participant who is subject to Section 16 of the
Act, the following additional restrictions shall apply:
(A) the election to satisfy tax withholding obligations relating
to an Award in the manner permitted by this Section 8(b) shall be made
either (1) during the period beginning on the third business day
following the date of release of quarterly or annual summary
statements of revenues of the Company and ending on the twelfth
business day following such date, or (2) at least six months prior to
the date as of which the receipt of such an Award first becomes a
taxable event for Federal income tax purposes;
(B) such election shall be irrevocable;
(C) such election shall be subject to the consent or disapproval
of the Committee; and
(D) the Shares withheld to satisfy tax withholding must pertain
to an Award which has been outstanding for at least six months.
Notwithstanding the foregoing, the first sentence of Section 8(b)(A) shall not
be applicable until the Company has been subject to the reporting requirements
of Section 13(a) of the Act for at least a year prior to the election and has
filed all reports and statements required to be filed pursuant to that Section
for that year.
SECTION 9. TRANSFER, LEAVE OF ABSENCE, ETC
- ---------- -------------------------------
For purposes of the Plan, the following events shall not be deemed a
termination of employment:
(a) a transfer to the employment of the Company from a Subsidiary or from
the Company to a Subsidiary, or from one Subsidiary to another; or
(b) an approved leave of absence for military service or sickness, or for
any other purpose approved by the Company, if the employee's right to
re-employment is guaranteed either by a statute or by contract or under the
policy pursuant to which the leave of absence was granted or if the Committee
otherwise so provides in writing.
SECTION 10. AMENDMENTS AND TERMINATION
- ----------- --------------------------
The Board may, at any time, amend or discontinue the Plan and the Committee
may, at any time, amend or cancel any outstanding Award (or provide substitute
Awards at the same or reduced exercise or purchase price or with no exercise or
purchase price, but such price, if any, must satisfy the requirements which
would apply to the substitute or amended Award if it were then initially granted
under this Plan) for the purpose of satisfying changes in law or for any other
lawful purpose, but no such action shall adversely affect rights under any
outstanding Award without the holder's consent. To the extent required by the
Code to ensure that Options granted hereunder qualify as Incentive Share Options
and to the extent required by the Act to ensure that Awards and Options granted
under the Plan are exempt under Rule 16b-3 promulgated under the Act, Plan
amendments shall be subject to approval by the Company's shareholders.
SECTION 11. STATUS OF PLAN
- ----------- --------------
With respect to the portion of any Award which has not been exercised and
any payments in cash, Shares or other consideration not received by a
participant, a participant shall have no rights greater than those of a general
creditor of the Company unless the Committee shall otherwise expressly determine
in connection with any Award or Awards. In its sole discretion, the Committee
may authorize the creation of trusts or other arrangements to meet the Company's
obligations to deliver Shares or make payments with respect to Awards hereunder,
provided that the existence of such trusts or other arrangements is consistent
with the provision of the foregoing sentence.
SECTION 12. CHANGE OF CONTROL PROVISIONS
- ----------- ----------------------------
Upon the occurrence of a Change of Control as defined in this Section 12:
(a) Each outstanding Share Option shall automatically become fully
exercisable notwithstanding any provision to the contrary herein.
(b) Restrictions and conditions on Restricted Share Awards shall
automatically be deemed waived, and the recipients of such Awards shall become
entitled to receipt of the Shares subject to such Awards unless the Committee
shall otherwise expressly provide at the time of grant.
(c) "Change of Control" shall mean the occurrence of any one of the
following events:
(i) any "person," as such term is used in Sections 13(d) and 14(d) of
the Act (other than the Company, any of its Subsidiaries, any trustee,
fiduciary or other person or entity holding securities under any employee
benefit plan of the Company or any of its Subsidiaries), together with all
"affiliates" and "associates" (as such terms are defined in Rule 12b-2
under the Act) of such person, shall become the "beneficial owner" (as such
term is defined in Rule 13d-3 under the Act), directly or indirectly, of
securities of the Company representing 40% or more of either (A) the
combined voting power of the Company's then outstanding securities having
the right to vote in an election of the Company's Board of Trustees
("Voting Securities") or (B) the then outstanding Shares of the Company (in
either such case other than as a result of acquisition of securities
directly from the Company); or
(ii) persons who, as of the date of the closing of the Company's
initial public offering, constitute the Company's Board of Trustees (the
"Incumbent Trustees") cease for any reason, including, without limitation,
as a result of a tender offer, proxy contest, merger or similar
transaction, to constitute at least a majority of the Board, provided that
any person becoming a director of the Company subsequent to the closing of
the Company's initial public offering whose election or nomination for
election was approved by a vote of at least a majority of the Incumbent
Trustees shall, for purposes of this Plan, be considered an Incumbent
Trustee; or
(iii) the shareholders of the Company shall approve (A)any
consolidation or merger of the Company or any Subsidiary where the
shareholders of the Company, immediately prior to the consolidation or
merger, would not, immediately after the consolidation or merger,
beneficially own (as such term is defined in Rule 13d-3 under the Act),
directly or indirectly, shares representing in the aggregate 50% of the
voting shares of the corporation issuing cash or securities in the
consolidation or merger (or of its ultimate parent corporation, if any),
(B) any sale, lease, exchange or other transfer (in one transaction or a
series of transactions contemplated or arranged by any party as a single
plan) of all or substantially all of the assets of the Company or (C) any
plan or proposal for the liquidation or dissolution of the Company;
Notwithstanding the foregoing, a "Change of Control" shall not be deemed to
have occurred for purposes of the foregoing clause (i) solely as the result of
an acquisition of securities by the Company which, by reducing the number of
Shares or other Voting Securities outstanding, increases (x) the proportionate
number of Shares beneficially owned by any person to 40% or more of the Shares
then outstanding or (y) the proportionate voting power represented by the Voting
Securities beneficially owned by any person to 40% or more of the combined
voting power of all then outstanding Voting Securities; provided, however, that
if any person referred to in clause (x) or (y) of this sentence shall thereafter
become the beneficial owner of any additional Shares or other Voting Securities
(other than pursuant to a share split, stock dividend, or similar transaction),
then a "Change of Control" shall be deemed to have occurred for purposes of the
foregoing clause(i).
SECTION 13. GENERAL PROVISIONS
- ----------- ------------------
(a) NO DISTRIBUTION; COMPLIANCE WITH LEGAL REQUIREMENTS. The Committee may
require each person acquiring Shares pursuant to an Award to represent to and
agree with the Company in writing that such person is acquiring the Shares
without a view to distribution thereof.
No Shares shall be issued pursuant to an Award until all applicable
securities law and other legal and stock exchange requirements have been
satisfied. The Committee may require the placing of such stop-orders and
restrictive legends on certificates for Shares and Awards as it deems
appropriate.
(b) DELIVERY OF SHARE CERTIFICATES. Delivery of share certificates to
participants under this Plan shall be deemed effected for all purposes when the
Company or a share transfer agent of the Company shall have delivered such
certificates in the United States mail, addressed to the participant, at the
participant's last known address on file with the Company.
(c) OTHER COMPENSATION ARRANGEMENTS; NO EMPLOYMENT RIGHTS. Nothing
contained in this Plan shall prevent the Board from adopting other or additional
compensation arrangements, including trusts, subject to shareholder approval if
such approval is required; and such arrangements may be either generally
applicable or applicable only in specific cases. The adoption of the Plan and
the grant of Awards do not confer upon any employee any right to continued
employment with the Company or any Subsidiary.
SECTION 14. EFFECTIVE DATE OF PLAN
- ----------- ----------------------
The Plan shall become effective upon approval by the holders of a majority
of the Shares of the Company present or represented and entitled to vote at a
meeting of shareholders. Subject to such approval by the shareholders, and to
the requirement that no Shares may be issued hereunder prior to such approval,
Share Options and other Awards may be granted hereunder on and after adoption of
the Plan by the Board.
SECTION 15. GOVERNING LAW
- ----------- -------------
This Plan shall be governed by Maryland law except to the extent such law
is preempted by federal law.
