SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 1 TO
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
April 1, 1998
Gables Residential Trust
(Exact name of Registrant as specified in its charter)
Maryland 1-12590 58-2077868
(State or other jurisdiction (Commission File (I.R.S. Employer
of incorporation) Number) Identification No.)
2859 Paces Ferry Road, Suite 1450
Atlanta, Georgia 30339
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code:
770-436-4600
<PAGE>
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The undersigned Registrant hereby amends Item 7 of its Current Report on Form
8-K dated April 1, 1998 to read in its entirety as follows:
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) Financial Statements of Business Acquired:
Financial statements for the Trammell Crow Residential South Florida Group are
filed with this report as Attachment A.
(b) Pro Forma Financial Information:
Pro forma financial information for the Registrant is filed with this report as
Attachment B.
(c) Exhibits:
Exhibit No.
- -----------
10.1 Contribution Agreement dated March 16, 1998 (incorporated herein by
reference to the Registrant's Current Report on Form 8-K dated March 16,
1998).
10.2 Amendment No. 1 to Contribution Agreement dated April 1, 1998.
23.1 Consent of Independent Public Accountants.
<PAGE>
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: June 15, 1998 GABLES RESIDENTIAL TRUST
/s/ Marvin R. Banks, Jr.
---------------------------
By: Marvin R. Banks, Jr.
Chief Financial Officer
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Attachment A
TRAMMELL CROW RESIDENTIAL SOUTH FLORIDA GROUP
COMBINED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1997
TOGETHER WITH
AUDITORS' REPORT
<PAGE>
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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO TRAMMELL CROW RESIDENTIAL SOUTH FLORIDA GROUP:
We have audited the accompanying combined balance sheet of TRAMMELL CROW
RESIDENTIAL SOUTH FLORIDA GROUP as of December 31, 1997 and the related combined
statements of operations, partners' and owners' equity, and cash flows for the
year then ended. These financial statements are the responsibility of the
Group's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Trammell Crow Residential South
Florida Group as of December 31, 1997 and the results of its operations and its
cash flows for the year then ended in conformity with generally accepted
accounting principles.
/s/ Arthur Andersen LLP
Atlanta, Georgia
May 15, 1998
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TRAMMELL CROW RESIDENTIAL SOUTH FLORIDA GROUP
COMBINED BALANCE SHEET
DECEMBER 31, 1997
(Dollars in Thousands)
REAL ESTATE ASSETS:
Land $ 34,909
Buildings and land improvements 156,547
Furniture, fixtures, and equipment 12,125
Construction in progress 50,088
---------
Real estate assets before accumulated depreciation 253,669
Less accumulated depreciation (40,569)
---------
Net real estate assets 213,100
CASH AND CASH EQUIVALENTS 7,700
RESTRICTED CASH 2,544
DEFERRED CHARGES, net of accumulated amortization of $158 1,507
OTHER ASSETS, net of accumulated depreciation of fixed assets of $979 3,844
---------
Total assets $228,695
=========
LIABILITIES AND PARTNERS' AND OWNERS' EQUITY
LIABILITIES:
Notes payable $211,826
Accrued interest payable 1,026
Real estate taxes payable 198
Accounts payable and accrued expenses-construction 3,759
Accounts payable and accrued expenses-operating 2,839
Security deposits 1,789
---------
Total liabilities 221,437
COMMITMENTS AND CONTINGENCIES
PARTNERS' AND OWNERS' EQUITY 7,258
---------
Total liabilities and partners' and owners' equity $228,695
=========
The accompanying notes are an integral part of this combined balance sheet.
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TRAMMELL CROW RESIDENTIAL SOUTH FLORIDA GROUP
COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(Dollars in Thousands)
Rental revenues $31,320
Other property revenues 1,598
---------
Total property revenues 32,918
---------
Property management--third party 2,346
Property management--related party 479
---------
Total property management revenues 2,825
---------
Construction revenues, net 548
Brokerage revenues, net 942
---------
Total revenues 37,233
---------
Property operating and maintenance
(exclusive of items shown separately below) 12,830
Depreciation 6,597
Amortization of deferred financing costs 671
Property management-owned 824
Property management-third/related party 2,056
Interest 10,091
Credit enhancement fees 1,045
---------
Total expenses 34,114
---------
Income before interest income 3,119
Interest income 346
---------
Net income $ 3,465
=========
The accompanying notes are an integral part of this combined statement.
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TRAMMELL CROW RESIDENTIAL SOUTH FLORIDA GROUP
COMBINED STATEMENT OF PARTNERS' AND OWNERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1997
(Dollars in Thousands)
PARTNERS' AND OWNERS' EQUITY, December 31, 1996 $ 8,554
Capital contributions 5,896
Capital distributions (10,657)
Net income 3,465
--------
PARTNERS' AND OWNERS' EQUITY, December 31, 1997 $ 7,258
========
The accompanying notes are an integral part of this combined statement.
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TRAMMELL CROW RESIDENTIAL SOUTH FLORIDA GROUP
COMBINED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1997
(Dollars in Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,465
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 7,268
Change in operating assets and liabilities:
Restricted cash 3,038
Other assets 42
Other liabilities 2,315
---------
Total adjustments 12,663
---------
Net cash provided by operating activities 16,128
---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase and construction of real estate assets,
net of related payables (39,410)
---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital contributions 5,896
Capital distributions (10,657)
Notes payable proceeds 34,861
Notes payable repayments (1,141)
Payments of deferred financing costs (1,586)
---------
Net cash provided by financing activities 27,373
---------
INCREASE IN CASH AND CASH EQUIVALENTS 4,091
Cash and cash equivalents, beginning of period 3,609
---------
Cash and cash equivalents, end of period $ 7,700
=========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 11,160
Interest capitalized 680
---------
Cash paid for interest, net of capitalized amounts $ 10,480
=========
The accompanying notes are an integral part of this combined statement.
<PAGE>
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TRAMMELL CROW RESIDENTIAL SOUTH FLORIDA GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(Dollars in Thousands)
1. ORGANIZATION AND NATURE OF OPERATIONS
Trammell Crow Residential South Florida Group ("TCR/SF" or the "Group") engages
in the development, construction, and management of multifamily apartment
communities in the South Florida region. On April 1, 1998, Gables Residential
Trust ("Gables") acquired the properties and operations of the Group, consisting
of 15 multifamily apartment communities (the "South Florida Communities") and
all of TCR/SF's residential construction and development and third-party
management activities. Such acquisition was made pursuant to a Contribution
Agreement dated March 16, 1998 (the "Contribution Agreement") between Gables and
certain entities affiliated with the Group.
As of December 31, 1997, the 15 South Florida Communities consisted of a total
of 4,197 apartment homes, assuming the completion of three communities under
construction at December 31, 1997 expected to comprise 767 apartment homes. Two
of the communities under construction at December 31, 1997 were in the lease-up
stage at December 31, 1997. The South Florida Communities are located in the
metropolitan areas of Palm Beach, Fort Lauderdale, and Miami. In addition, as of
December 31, 1997, TCR/SF has contracts or options to acquire parcels of land
for future development.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Combination
- -------------------------
The accompanying combined financial statements of TCR/SF have been presented on
a combined basis because of common ownership, control, and management and
because the assets of the Group are the subject of an acquisition by Gables
which was consummated on April 1, 1998.
All significant accounts and transactions between entities included in the Group
as of December 31, 1997 and for the year then ended have been eliminated in
combination.
Use of Estimates
- ----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
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Real Estate Assets and Depreciation
- -------------------------------------
Real estate assets are stated at historical cost. The cost of buildings and
improvements includes interest, property taxes, insurance, and allocated
development overhead incurred during the construction period. Ordinary repairs
and maintenance are expensed as incurred. Major replacements and betterments are
capitalized and depreciated over their useful lives. Depreciation is computed on
a straight-line basis over the useful lives of the real estate assets (buildings
and improvements--40 years; furniture, fixtures, and equipment--5-10 years; land
improvements--20 years).
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of," requires that long-lived assets to be held and used by an entity be
reviewed for impairment whenever the carrying amount of an asset may not be
recoverable. SFAS No. 121 also requires that certain long-lived assets to be
disposed of be reported at the lower of carrying value or fair value less cost
to sell. Pursuant to the acquisition by Gables executed April 1, 1998, the Group
realized an amount in excess of the carrying value of its assets at December 31,
1997. Accordingly, management has determined that no impairment provision of the
carrying cost of TCR/SF's real estate assets is necessary at December 31, 1997.
Revenue Recognition
- -------------------
RENTAL REVENUES
- ----------------
TCR/SF leases its residential properties under operating leases with terms
generally equal to one year or less. The related rental income is recognized
when earned which materially approximates revenue recognition on a straight-line
basis.
BROKERAGE
- ---------
TCR/SF provides brokerage services for properties which it does not own. Income
is recognized when earned.
PROPERTY MANAGEMENT
- --------------------
TCR/SF provides property management services for properties which it does not
own. Income is recognized when earned.
DEVELOPMENT AND CONSTRUCTION SERVICES
- ---------------------------------------
TCR/SF provides development and construction services for properties which it
does not own. Income is recognized when earned on a percentage-of-completion
basis.
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Cash and Cash Equivalents
- -------------------------
Cash and cash equivalents represent amounts deposited with financial
institutions and investments with original maturities of three months or less.
Restricted Cash
- ---------------
Restricted cash includes capital improvement and mortgage interest payment
escrow balances required by certain lenders. It also includes cash restricted to
pay letter of credit fees and to refund tenant security deposits.
Deferred Charges
- ----------------
Deferred charges represent the costs incurred to obtain long-term financing.
These costs are capitalized and amortized over the term of the related
indebtedness and are written off upon repayment or expiration.
Income Taxes
- ------------
TCR/SF is not a legal entity subject to federal or state income taxes, and
therefore, none have been provided for in the accompanying financial statements.
The legal entities comprising the Group are primarily partnerships and S
corporations whose partners and owners are required to include their respective
share of Group profits and losses in their individual tax returns. One legal
entity comprising the Group is a C corporation whose net profits are subject to
federal and state income taxes; however, no income tax provision has been
provided in the accompanying financial statements since this entity had no tax
liability for the year ended December 31, 1997.
Property Management Expenses
- ----------------------------
TCR/SF manages its owned properties, as well as properties owned by third- and
related-parties for which TCR/SF provides services for a fee. Property
management expenses are reported net of $609 of cost reimbursements received
from related Trammell Crow Residential entities. Such expenses have been
allocated between owned and third/related-party properties in the accompanying
combined statement of operations based on the proportional number of owned and
third/related party apartment homes managed by TCR/SF during the year.
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3. NOTES PAYABLE
TCR/SF has the following notes payable, secured by the real estate assets of the
Group as of December 31, 1997:
Conventional fixed-rate $ 9,792
Tax exempt fixed-rate 46,986
---------
Total fixed-rate 56,778
---------
Conventional variable-rate 49,908
Tax exempt variable-rate 105,140
---------
Total variable-rate 155,048
---------
Total notes payable $211,826
=========
Conventional Fixed-Rate Notes Payable
- -------------------------------------
At December 31, 1997, the conventional fixed-rate mortgage indebtedness was
comprised of one loan collateralized by one apartment community included in real
estate assets in the accompanying combined balance sheet. This mortgage
indebtedness bears interest at a rate of 8% and has a maturity of 2003.
Tax Exempt Fixed-Rate Notes Payable
- -----------------------------------
At December 31, 1997, the tax-exempt fixed-rate indebtedness was comprised of
four loans collateralized by four apartment communities included in real estate
assets in the accompanying combined balance sheet. These bonds bear interest at
a fixed rate as determined by the individual loan agreements. The interest rates
on these notes payable in effect at December 31, 1997 ranged from 5.35% to 8.81%
(weighted average 6.49%) and the maturity dates ranged from 2000 through 2008.
Each of these bonds is secured by a guarantor. The tax-exempt bonds contain
certain covenants which require minimum rentals to individuals based upon income
levels specified by U.S. government programs, as defined.
Conventional Variable-Rate Notes Payable
- -----------------------------------------
At December 31, 1997, the conventional variable-rate mortgage indebtedness was
comprised of five loans collateralized by five apartment communities included in
real estate assets in the accompanying combined balance sheet. At December 31,
1997, the interest rates on these notes payable ranged from 7.13% to 7.86%
(weighted average 7.20%) and the maturity dates ranged from 1998 through 2000.
Certain of these notes payable require monthly principal amortization payments.
Tax Exempt Variable-Rate Notes Payable
- --------------------------------------
At December 31, 1997, the variable-rate mortgage notes payable securing
tax-exempt bonds were comprised of five loans collateralized by five apartment
communities included in real estate assets in the accompanying combined balance
sheet. These bonds bear interest at a variable rate of interest, adjusted weekly
based upon a negotiated remarketing rate. The interest rates on these notes
payable in effect at December 31, 1997 ranged from 3.85% to 4.30% (weighted
average 3.96%) and the maturity dates ranged from 1998 through 2007. Each of
<PAGE>
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these bonds is backed by either a letter of credit or guarantor. The fees for
the letters of credit were $1,045 for the year ended December 31, 1997. The
tax-exempt bonds contain certain covenants which require minimum rentals to
individuals based upon income levels specified by U.S. government programs, as
defined.
As of December 31, 1997, the aggregate stated maturities of notes payable are as
follows:
1998 $ 57,272
1999 25,220
2000 15,401
2001 10,800
2002 25,740
2003 and thereafter 77,393
--------
$211,826
========
4. RELATED-PARTY TRANSACTIONS
TCR/SF provides development, construction, management, and other services to
related Trammell Crow Residential entities. The related-party fees and expenses
for such services reflected in the accompanying combined financial statements
are as follows for the year ended December 31, 1997:
Development fees $365
Brokerage revenue 493
Management fees 479
In addition, as of December 31, 1997, the Group had accounts receivable and
accounts payable to related parties of $777 and $162, respectively.
5. PROFIT-SHARING PLAN
Eligible employees of TCR/SF may participate in a profit-sharing plan pursuant
to Section 401(k) of the Internal Revenue Code. Under the plan, employees may
defer portions of their salaries on a pretax basis. TCR/SF also has the
discretion to make matching contributions within Internal Revenue Code
guidelines, as defined. Employer contributions under this plan for the year
ended December 31, 1997 were $152.
6. COMMITMENTS AND CONTINGENCIES
Office Leases
- -------------
TCR/SF is party to office space leases with various terms. The Group recognizes
rental expense as incurred, which materially approximates recognition on a
straight-line basis. Rental expense of $123 was recognized under these leases
during the year ended December 31, 1997 and is included in property management
expenses in the accompanying combined statement of operations.
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The Group is subject to future rental expenses due under noncancelable operating
leases at December 31, 1997 as follows:
Years ended December 31:
1998 $ 490
1999 288
2000 288
2001 296
2002 305
2003 and thereafter 79
-------
$1,746
=======
Contingencies
- -------------
The entities comprising TCR/SF are subject to various legal proceedings and
claims that arise in the ordinary course of business. These matters are
generally covered by insurance. While the resolution of these matters cannot be
predicted with certainty, management believes that the final outcome of such
matters will not have a material adverse effect on the financial position or
results of operations of TCR/SF.
7. DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash and Cash Equivalents
- -------------------------
TCR/SF estimates that the fair value of cash equivalents approximates carrying
value due to the relatively short maturities of these instruments.
Notes Payable
- -------------
TCR/SF estimates that the aggregate fair value of notes payable, including
accrued interest payable, approximates the aggregate carrying value of these
instruments based on the Group's effective current borrowing rate for issuance
of debt with similar terms and remaining maturities.
Disclosure about the fair value of financial instruments is based on pertinent
information available to management and conditions specific to the Group as of
December 31, 1997 and may not be indicative of valuations based on factors and
conditions surrounding entities external to the Group. Although management is
not aware of any factors that would significantly affect the fair value amounts,
such amounts have not been comprehensively revalued for purposes of these
financial statements since that date.
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Attachment B
GABLES RESIDENTIAL TRUST
PREFACE TO UNAUDITED PRO FORMA CONSOLIDATED
FINANCIAL INFORMATION
BASIS OF PRESENTATION
- ---------------------
The following unaudited pro forma consolidated financial statements are
presented as if the Company acquired the properties and operations of Trammell
Crow Residential South Florida Group (TCR/SF) as of the beginning of the period
presented and include the historical operating results of the properties and
residential construction and development and third-party management activities
acquired. The financial statements further assume that the Company distributed
at least 95% of its taxable income and met all other requirements to qualify as
a REIT and, therefore, incurred no income tax expense. The acquisition will be
accounted for under the purchase method of accounting in accordance with
Accounting Principles Board Opinion No. 16. Accordingly, assets acquired and
liabilities assumed have been reflected herein at their estimated fair values
which may be subject to further modification based upon the final determination
of the acquired properties' fair values and the final determination of actual
closing costs associated with the transaction. Management believes that its
final allocation of the purchase price will not differ materially from the
purchase price allocation included herein. In management's opinion, all material
adjustments necessary to present fairly the effects of the acquisition have been
made.
The unaudited pro forma consolidated financial statements should be read in
conjunction with the consolidated financial statements and accompanying notes
thereto of the Company included in its Annual Report on Form 10-K for the year
ended December 31, 1997.
The unaudited pro forma consolidated statement of operations is not necessarily
indicative of what the actual results of operations of the Company would have
been assuming the Company had consummated the acquisition as of the beginning of
the period presented, nor does it purport to represent the results of operations
for future periods. The unaudited pro forma consolidated balance sheet is not
necessarily indicative of what the actual financial position would have been at
December 31, 1997 nor does it purport to represent the future financial position
of the Company.
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GABLES RESIDENTIAL TRUST
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(Amounts in Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
Pro Forma
Company TCR/SF Acquisition Company
Historical(A) Historical(B) Adjustments Pro Forma
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Rental revenues .................................................... $ 132,371 $ 31,320 $ -- $ 163,691
Other property revenues ............................................ 6,322 1,598 -- 7,920
-------- ------- ----- --------
Total property revenues ....................................... 138,693 32,918 -- 171,611
-------- ------- ----- --------
Property management revenues ....................................... 3,032 2,825 -- 5,857
Other .............................................................. 1,713 1,490 -- 3,203
-------- ------- ----- --------
Total other revenues .......................................... 4,745 4,315 -- 9,060
-------- ------- ----- --------
Total revenues ................................................ 143,438 37,233 -- 180,671
-------- ------- ----- --------
Property operating and maintenance (exclusive of items shown
separately below) ............................................. 47,592 12,830 -- 60,422
Depreciation and amortization ...................................... 25,194 6,597 888 (C) 32,679
Amortization of deferred financing costs ........................... 992 671 (541)(D) 1,122
Property management - owned ........................................ 3,364 824 -- 4,188
Property management - third party .................................. 2,332 2,056 -- 4,388
General and administrative ......................................... 3,248 -- -- 3,248
Interest ........................................................... 24,804 10,091 1,140 (E) 36,035
Credit enhancement fees ............................................ 509 1,045 316 (F) 1,870
Loss on treasury lock extension .................................... 1,178 -- -- 1,178
------- ------- ------ --------
Total expenses ................................................ 109,213 34,114 1,803 145,130
------- ------- ------ --------
Income before equity in income of joint ventures and interest income 34,225 3,119 (1,803) 35,541
Equity in income of joint ventures ................................. 320 -- -- 320
Interest income .................................................... 371 346 (346)(G) 371
------- ------- ------ --------
Income before gain on sale of real estate assets ................... 34,916 3,465 (2,149) 36,232
Gain on sale of real estate assets ................................. 5,349 -- -- 5,349
------- ------- ------ --------
Income before minority interest and extraordinary loss, net ........ 40,265 3,465 (2,149) 41,581
Minority interest of unitholders in Operating Partnership .......... (5,611) -- (3,096)(H) (8,707)
------- ------- ------ --------
Income before extraordinary loss, net .............................. 34,654 3,465 (5,245) 32,874
Extraordinary loss, net of minority interest ....................... (602) -- 56 (I) (546)
------- ------- ------ --------
Net income ......................................................... 34,052 3,465 (5,189) 32,328
Dividends to preferred shareholders ................................ (4,163) -- -- (4,163)
------- ------- ------ --------
Net income available to common shareholders ........................ $ 29,889 $ 3,465 ($ 5,189) $ 28,165
======= ======= ====== ========
Weighted average number of common shares outstanding - basic ....... 19,788 -- -- 19,788
Weighted average number of common shares outstanding - diluted ..... 23,591 -- 2,348 (J) 25,939
Per Common Share Information:
Income before extraordinary loss, net - basic ...................... $ 1.54 $ 1.45
Extraordinary loss, net - basic .................................... ($ 0.03) ($ 0.03)
Net income - basic ................................................. $ 1.51 $ 1.42
Income before extraordinary loss, net - diluted .................... $ 1.53 $ 1.44
Extraordinary loss, net - diluted .................................. ($ 0.03) ($ 0.03)
Net income - diluted ............................................... $ 1.50 $ 1.41
<FN>
The accompanying notes are an integral part of this statement.
</FN>
</TABLE>
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GABLES RESIDENTIAL TRUST
NOTES AND ASSUMPTIONS TO UNAUDITED PRO FORMA
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited and Amounts in Thousands)
(A) Represents the historical audited consolidated statement of operations of
the Company contained in its Annual Report on Form 10-K for the year ended
December 31, 1997.
(B) Represents the historical audited combined statement of operations of
TCR/SF for the year ended December 31, 1997, included herein in Attachment
A.
(C) Represents the net increase in depreciation of real estate owned as a
result of recording the TCR/SF real estate assets at fair value versus
historical cost. The acquisition price of the real estate assets was
allocated to land, buildings, furniture, fixtures and equipment, and
construction in progress and the related depreciation is calculated
utilizing an estimated useful life of 40 years for the buildings and 5
years for furniture, fixtures and equipment. Depreciation expense is
provided to the extent the real estate was operational during the year
ended December 31, 1997.
(D) Represents the net adjustment to amortization of deferred financing costs
to (i) record the amortization of deferred financing costs related to the
credit enhancement facility put into effect on April 1, 1998 to enhance the
bond indebtedness assumed by the Company (the "Bond Enhancement Facility")
and (ii) eliminate the amortization of TCR/SF's deferred financing costs
which have a zero fair value at April 1, 1998.
(E) Represents the net adjustment to interest expense to (i) record interest
expense on the cash portion of the purchase price financed with borrowings
under the Company's unsecured credit facilities, (ii) eliminate the
interest expense recorded on bond indebtedness that was not assumed by the
Company, (iii) record the amortization of the discount required to record
the $12,500 portion of the purchase price that was deferred until January
1, 2000 at fair value and (iv) record the net increase in capitalization of
interest for qualifying construction expenditures at fair value versus
historical cost.
The Company's borrowings under its current unsecured credit facilities
currently bear interest at LIBOR plus 0.80%. If interest rates under the
credit facilities fluctuated 0.125%, interest costs on the pro forma credit
facility indebtedness would increase or decrease by approximately
$194 on an annualized basis.
(F) Represents the net adjustment to credit enhancement fees to (i) record the
credit enhancement fees under the Bond Enhancement Facility and (ii)
eliminate the credit enhancement fees incurred by TCR/SF related to
enhancements that do not remain in place at April 1, 1998.
(G) Represents the adjustment to eliminate interest income included in the
TCR/SF historical amounts as the cash balances were not acquired by the
Company.
(H) Reflects (i) the portion of all of the preceding pro forma adjustments
attributable to the minority interest unitholders in the Operating
Partnership and (ii) an adjustment to minority interest associated with the
issuance of minority units of limited partnership interest in the Operating
Partnership ("Units") in connection with the acquisition.
(I) Reflects an adjustment to the minority interest portion of the
extraordinary loss associated with the issuance of Units in connection
with the acquisition.
(J) Reflects the issuance of Units in connection with the acquisition that are
not antidilutive.
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GABLES RESIDENTIAL TRUST
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997
(Amounts in Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
Pro Forma
Company TCR/SF Acquisition Company
Historical (A) Historical (B) Adjustments Pro Forma
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS:
Real estate assets:
Land .......................................................... $ 150,894 $ 34,909 $ 9,543 (C) $ 195,346
Buildings ..................................................... 770,305 156,547 61,432 (C) 988,284
Furniture, fixtures and equipment ............................. 60,015 12,125 (3,754)(C) 68,386
Construction in progress ...................................... 53,240 50,088 48,532 (C) 151,860
Land held for future development .............................. 21,774 -- -- 21,774
--------- ---------- ------- ---------
Real estate assets before accumulated depreciation ......... 1,056,228 253,669 115,753 1,425,650
Less: accumulated depreciation ............................... (98,236) (40,569) 40,569 (D) (98,236)
--------- ---------- ------- ---------
Net real estate assets ...................................... 957,992 213,100 156,322 1,327,414
Cash and cash equivalents ........................................ 3,179 7,700 (7,700)(E) 3,179
Restricted cash .................................................. 4,498 2,544 (755)(F) 6,287
Deferred charges, net ............................................ 4,194 1,507 (207)(G) 5,494
Other assets, net ................................................ 11,304 3,844 (2,737)(H) 12,411
--------- ---------- ------- ---------
Total assets ................................................ $ 981,167 $ 228,695 $ 144,923 $ 1,354,785
========= ========== ======= =========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Notes payable .................................................... $ 435,362 $ 211,826 $79,159 (I) $ 726,347
Accrued interest payable ......................................... 1,999 1,026 (164)(J) 2,861
Preferred dividend payable ....................................... 424 -- -- 424
Real estate taxes payable ........................................ 13,568 198 -- 13,766
Accounts payable and accrued expenses - construction ............. 8,505 3,759 -- 12,264
Accounts payable and accrued expenses - operating ................ 5,552 2,839 (2,839)(E) 5,552
Security deposits ................................................ 2,260 1,789 -- 4,049
Other long-term liability ........................................ -- 0 11,150 (K) 11,150
--------- ---------- ------- ---------
Total liabilities ........................................... 467,670 221,437 87,306 776,413
--------- ---------- ------- ---------
Minority interest of unitholders in Operating Partnership ........ 62,059 -- 42,447 (L) 104,506
--------- ---------- ------- ---------
Shareholders' equity:
Preferred shares (4,600 shares at $25.00 liquidation preference) 115,000 -- -- 115,000
Common shares (21,991 shares at $0.01 par value) ............... 220 -- -- 220
Additional paid-in capital ..................................... 339,009 -- 22,428 (M) 361,437
Deferred long-term compensation ................................ (594) -- -- (594)
Accumulated earnings (deficit) ................................. (2,197) -- -- (2,197)
Partners' and owners' equity ................................... -- 7,258 (7,258)(E) --
--------- ---------- ------- ---------
Total shareholders' equity .................................. 451,438 7,258 15,170 473,866
--------- ---------- ------- ---------
Total liabilities and shareholders' equity .................. $ 981,167 $ 228,695 $ 144,923 $ 1,354,785
========= ========== ======= =========
<FN>
The accompanying notes are an integral part of this balance sheet.
</FN>
</TABLE>
<PAGE>
Page-20
GABLES RESIDENTIAL TRUST
NOTES AND ASSUMPTIONS TO UNAUDITED PRO FORMA
CONSOLIDATED BALANCE SHEET
(Unaudited and Amounts in Thousands)
(A) Represents the historical audited consolidated balance sheet of the Company
as of December 31, 1997 contained in its Annual Report on Form 10-K for the
year ended December 31, 1997.
(B) Represents the historical audited combined balance sheet of TCR/SF as of
December 31, 1997, included herein in Attachment A.
(C) Represents (i) the fair value adjustment to TCR/SF's real estate assets
based upon the Company's purchase price, including estimated closing costs
and acquisition expenses and (ii) the elimination of fully depreciated real
estate assets.
(D) Represents an adjustment to eliminate TCR/SF's historical accumulated
depreciation.
(E) Represents adjustments to eliminate certain asset, liability and equity
amounts that were not acquired or assumed by the Company as part of the
transaction.
(F) Represents the net adjustment to restricted cash to (i) record the
restricted cash related to the security deposit liability assumed by the
Company and (ii) eliminate the remaining restricted cash that was not
acquired by the Company.
(G) Represents the net adjustment to deferred charges, net to (i) record the
deferred financing costs incurred associated with the Bond Enhancement
Facility and (ii) eliminate TCR/SF's deferred financing costs which have a
zero fair value at April 1, 1998.
(H) Represents the net adjustment to other assets, net to (i) record the fixed
assets acquired by the Company and (ii) eliminate the remaining other
assets that were not acquired by the Company.
(I) Represents the net adjustment to notes payable to (i) record the borrowings
under the Company's unsecured revolving credit facilities to fund the cash
component of the acquisition price and (ii) eliminate the bond indebtedness
that was not assumed by the Company as part of the transaction.
(J) Represents the adjustment to accrued interest payable to eliminate the
interest payable related to the bond indebtedness that was not assumed by
the Company.
(K) Represents the adjustment to record the fair value of the $12,500 portion
of the purchase price that was deferred until January 1, 2000.
(L) Represents the issuance of 2,348 Units valued at $64,875. The resulting
consolidated pro forma minority interest balance was adjusted to reflect
the consolidated pro forma minority interest ownership percentage of 22.6%
at December 31, 1997.
(M) Represents the adjustment to state the consolidated pro forma shareholders'
equity balance and minority interest balance to 77.4% and 22.6%,
respectively, of the total consolidated pro forma common equity interests
(both shareholders' equity and minority interest) in the Company.
AMENDMENT NO. 1 TO
CONTRIBUTION AGREEMENT
This Amendment No. 1 to the Contribution Agreement, dated April 1, 1998, is
made and entered into among the TCR Parties, on the one hand, and Gables
Residential Trust and Gables Realty Limited Partnership, on the other hand, and
amends the Contribution Agreement, dated as of March 16, 1998, by and among the
TCR Parties and the Transferee (the "Contribution Agreement"). All capitalized
terms used herein and not otherwise defined shall have the meanings ascribed to
them in the Contribution Agreement.
1. The Schedules attached hereto shall amend and restate in their
entirety the Schedules attached to the Contribution Agreement.
2. The second sentence of Section 2.4(c) of the Contribution Agreement is
amended and restated to read in its entirety as follows:
"The Management Contracts are all of the TCR Parties' contracts
relating to their management of third-party owned properties in
the southern Florida area, except for contracts to manage third-
party and properties that have been terminated or with respect to
which the owner of the relevant property under management has not
on or prior to the Closing Date given notice of its intent to
terminate the contract."
3. The Transferee (a) acknowledges that none of the TCR Parties will
obtain the consent from third parties to any Management Contract and
certain Service Contracts necessary for the TCR Parties to consummate
the transactions contemplated by the Contribution Agreement and (b)
waives the breach of the Contribution Agreement relating thereto.
4. The Transferee acknowledges and agrees that all accrued vacation of
the Rehired Employee as of the Closing Date shall be treated as a
credit to the Transferee for purposes of adjustments made pursuant to
Article 10 of the Contribution Agreement and the Transferee therefore
has assumed the obligations of the TCR Parties with respect thereto.
5. Section 1.87 of the Contribution Agreement is amended and restated in
its entirety to read as follows:
"Net Value" shall mean an amount equal to $368,250,000, (a)
reduced by the applicable amount(s) set forth in Schedule 1.87(a)
if one or more of the JV Real Estate Properties cease to be Real
Estate Properties hereunder as provided in Section 2.1 hereof and
(b) reduced by the sum of (i) the outstanding principal balance
plus all accrued and unpaid interest thereon as of the Closing
Date on the Assumed Loans, (ii) the Cash Consideration (before
making the deductions described in Section 3.6(b)(ii)), (iii) the
Assigned Value of each Withdrawn Property, (iv) the amount of any
reduction in the Net Value made pursuant to Section 2.2(d) hereof
in the event of a transfer of less than 100% of the Partnership
Interests in a Contributor, (v) the amount of any prepayment
premium or penalties set forth in Section 3.2(c)(y), if
applicable and without duplication, and (vi) the amount of any
reduction in the Net Value made pursuant to Section 4.3(b);
provided, however, that (x) in no event shall the Net Value
exceed $100,000,000 and (y) the Retained Amount shall be retained
by the Transferee for payment pursuant to Section 3.9.
6. Section 3.6(a) of the Contribution Agreement is amended and restated
in its entirety to read as follows:
"'Cash Consideration' shall be an amount which is not more than
$155,000,000."
<PAGE>
Page-2
IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the
date first written above.
GABLES RESIDENTIAL TRUST
By: /s/ Marvin R. Banks, Jr.
------------------------------
Name: Marvin R. Banks, Jr.
Title: Chief Financial Officer
GABLES REALTY LIMITED PARTNERSHIP
By:Gables GP, Inc., its general partner
By: /s/ Dennis Rainosek
-------------------------
Name: Dennis Rainosek
Title: Vice President
[TCR PARTIES]
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report included in this Form 8-K, into the Company's previously filed
Registration Statements on Form S-8 (File Nos. 333-00618, 33-83054 and
333-27177) and Form S-3 (File Nos. 33-90032, 33-89000, 333-40, 333-13651,
333-30093 and 333-41999).
/s/ Arthur Andersen LLP
Atlanta, Georgia
June 15, 1998
