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, 1999
( ) 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
(Exact name of Registrant as specified in its Charter)
MARYLAND 58-2077868
(State of Incorporation) (I.R.S. Employer Identification No.)
2859 Paces Ferry Road, Suite 1450
Atlanta, Georgia 30339
(Address of principal executive offices, including zip code)
(770) 436 - 4600
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year,
if changed since last report)
Common shares of beneficial interest, par value $0.01 per share,
26,247,309 shares.
The number of shares outstanding of each of the registrant's
classes of common stock, as of July 31, 1999
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
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GABLES RESIDENTIAL TRUST
FORM 10 - Q INDEX
Page
PART I - FINANCIAL INFORMATION
Item 1: Financial Statements
Consolidated Balance Sheets as of June 30, 1999 and
December 31, 1998 3
Consolidated Statements of Operations for the three and
six months ended June 30, 1999 and 1998 4
Consolidated Statements of Cash Flows for the six months
ended June 30, 1999 and 1998 5
Notes to Consolidated Financial Statements 6
Item 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations 11
Item 3: Quantitative and Qualitative Disclosures About Market Risk 29
PART II - OTHER INFORMATION 30
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 31
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PART I. - FINANCIAL INFORMATION
ITEM 1. - FINANCIAL STATEMENTS
GABLES RESIDENTIAL TRUST
CONSOLIDATED BALANCE SHEETS
(Amounts in Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
------------- ------------
(Unaudited)
<S> <C> <C>
ASSETS:
Real estate assets:
Land .......................................................... $ 229,302 $ 229,960
Buildings ..................................................... 1,232,991 1,218,782
Furniture, fixtures and equipment ............................. 92,211 87,238
Construction in progress ...................................... 19,172 79,829
Land held for future development .............................. 50,884 66,152
---------- ----------
Real estate assets before accumulated depreciation ............ 1,624,560 1,681,961
Less: accumulated depreciation ............................... (161,343) (138,239)
---------- ----------
Net real estate assets ...................................... 1,463,217 1,543,722
Cash and cash equivalents ........................................ 15,326 7,054
Restricted cash .................................................. 7,614 8,017
Deferred financing costs, net .................................... 4,538 4,696
Investment in joint ventures ..................................... 18,339 161
Other assets, net ................................................ 23,663 22,667
---------- ----------
Total assets ................................................ $ 1,532,697 $ 1,586,317
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Notes payable .................................................... $ 783,416 $ 812,788
Accrued interest payable ......................................... 5,910 6,045
Preferred dividends payable ...................................... 657 545
Real estate taxes payable ........................................ 14,663 16,224
Accounts payable and accrued expenses - construction ............. 2,609 8,402
Accounts payable and accrued expenses - operating ................ 11,180 7,094
Security deposits ................................................ 4,605 4,725
Other liability, net ............................................. 10,363 11,729
---------- ----------
Total liabilities ........................................... 833,403 867,552
Minority interest of common unitholders in Operating Partnership.. 102,182 108,110
Minority interest of Series B preferred unitholders in
Operating Partnership ............................................ 50,192 50,192
Series Z Preferred Shares at $25.00 liquidation preference,
180 shares issued and outstanding .............................. 4,500 4,500
Shareholders' equity:
Excess shares, $0.01 par value, 51,000 shares authorized ....... 0 0
Preferred shares, $0.01 par value, 20,000 shares authorized,
Series A Preferred Shares at $25.00 liquidation preference,
4,600 shares issued and outstanding; Series Z Preferred
Shares and Series B Preferred Units, exchangeable into
Series B Preferred Shares, reported above ................... 115,000 115,000
Common shares, $0.01 par value, 100,000 shares authorized,
26,612 and 26,302 shares issued at June 30, 1999 and
December 31, 1998, respectively .............................. 266 263
Treasury shares at cost, 363 common shares at June 30, 1999 (8,380) 0
Additional paid-in capital ..................................... 437,127 441,512
Deferred long-term compensation ................................ (1,593) (812)
Accumulated earnings ........................................... 0 0
---------- ----------
Total shareholders' equity .................................. 542,420 555,963
---------- ----------
Total liabilities and shareholders' equity .................. $ 1,532,697 $ 1,586,317
=========== ===========
<FN>
The accompanying notes are an integral part of these consolidated balance
sheets.
</FN>
</TABLE>
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GABLES RESIDENTIAL TRUST
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited and Amounts in Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
1999 1998 1999 1998
-------- --------- --------- --------
<S> <C> <C> <C> <C>
Rental revenues ................................................... $ 55,231 $ 51,794 $ 110,768 $ 90,435
Other property revenues ........................................... 3,195 2,724 6,059 4,513
--------- --------- --------- ---------
Total property revenues ...................................... 58,426 54,518 116,827 94,948
--------- --------- --------- ---------
Property management revenues ...................................... 1,288 1,245 2,553 1,912
Development revenues, net ......................................... 784 0 1,229 0
Other ............................................................. 420 413 751 806
--------- --------- --------- --------
Total other revenues ......................................... 2,492 1,658 4,533 2,718
--------- --------- --------- --------
Total revenues ............................................... 60,918 56,176 121,360 97,666
--------- --------- --------- --------
Property operating and maintenance (exclusive of items shown
separately below) .............................................. 19,531 18,469 39,631 32,099
Real estate asset depreciation and amortization ................... 11,721 10,210 23,530 17,694
Corporate asset depreciation and amortization ..................... 134 114 252 226
Amortization of deferred financing costs .......................... 234 285 461 507
Property management - owned ....................................... 1,214 1,283 2,418 2,359
Property management - third/related party ......................... 916 903 1,778 1,481
General and administrative ........................................ 1,640 1,614 3,320 2,674
Severance costs ................................................... 0 0 2,000 0
Interest .......................................................... 10,893 11,163 21,259 17,498
Credit enhancement fees ........................................... 440 441 877 562
--------- --------- --------- ---------
Total expenses ............................................... 46,723 44,482 95,526 75,100
--------- --------- --------- ---------
Equity in income of joint ventures ................................ 103 92 182 167
Interest income ................................................... 219 119 339 181
Loss on treasury locks ............................................ 0 (199) 0 (2,010)
--------- ----------- --------- ---------
Income before gain on sale of real estate assets .................. 14,517 11,706 26,355 20,904
Gain on sale of real estate assets ................................ 0 0 666 0
--------- --------- --------- --------
Income before minority interest ................................... 14,517 11,706 27,021 20,904
Minority interest of common unitholders in Operating Partnership .. (2,136) (2,192) (3,904) (3,251)
Minority interest of preferred unitholders in Operating Partnership (1,078) 0 (2,156) 0
--------- --------- --------- --------
Net income ........................................................ 11,303 9,514 20,961 17,653
Dividends to preferred shareholders ............................... (2,442) (2,394) (4,885) (4,780)
--------- --------- --------- --------
Net income available to common shareholders ....................... $ 8,861 $ 7,120 $ 16,076 $ 12,873
========= ========= ========= =========
Weighted average number of common shares outstanding - basic ...... 26,214 22,573 26,269 22,300
Weighted average number of common shares outstanding - diluted .... 32,587 30,087 32,694 28,167
Per Common Share Information:
Net income - basic ................................................ $ 0.34 $ 0.32 $ 0.61 $ 0.58
Net income - diluted .............................................. $ 0.34 $ 0.32 $ 0.61 $ 0.58
<FN>
The accompanying notes are an integral part of these consolidated statements.
</FN>
</TABLE>
<PAGE>
Page - 5
GABLES RESIDENTIAL TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited and Amounts in Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
Six Months Ended June 30,
1999 1998
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ....................................................... $ 20,961 $ 17,653
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization ................................. 24,243 18,427
Equity in income of joint ventures ............................ (182) (167)
Minority interest of unitholders in Operating Partnership ..... 6,060 3,251
Gain on sale of real estate assets ............................ (666) 0
Long-term compensation expense ................................ 430 580
Loss on treasury locks ........................................ 0 2,010
Severance costs ............................................... 2,000 0
Amortization of discount on long-term liability ............... 356 192
Operating distributions received from joint ventures .......... 147 149
Change in operating assets and liabilities:
Restricted cash ............................................. 751 (2,344)
Other assets ................................................ (1,157) (4,706)
Other liabilities, net ...................................... 710 5,090
--------- ---------
Net cash provided by operating activities .............. 53,653 40,135
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition and construction of real estate assets ............... (44,078) (259,775)
Long-term land lease payments .................................... 0 (1,000)
Net proceeds from sale of real estate assets ..................... 19,014 0
Investment in joint ventures ..................................... (2,929) 0
Proceeds from contribution of real estate assets to joint venture. 60,347 0
--------- ---------
Net cash provided by (used in) investing activities ......... 32,354 (260,775)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from common share offerings, net of issuance costs ...... 0 87,530
Proceeds from the exercise of share options ...................... 388 2,143
Dividend reinvestment plan contributions ......................... 4,653 30
Treasury share purchases and Unit redemptions .................... (12,453) 0
Payments of deferred financing costs ............................. (408) (2,425)
Notes payable proceeds ........................................... 17,426 378,500
Notes payable repayments ......................................... (46,798) (209,366)
Principal escrow deposits ........................................ (348) (349)
Preferred dividends paid ......................................... (4,773) (4,772)
Preferred distributions paid ..................................... (2,156) 0
Common dividends paid ($1.02 and $1.00 per share, respectively) .. (26,775) (23,769)
Common distributions paid ($1.02 and $1.00 per Unit, respectively) (6,491) (5,314)
--------- ---------
Net cash (used in) provided by financing activities ......... (77,735) 222,208
--------- ---------
Net change in cash and cash equivalents .......................... 8,272 1,568
Cash and cash equivalents, beginning of period ................... 7,054 3,179
--------- ---------
Cash and cash equivalents, end of period ......................... $ 15,326 $ 4,747
========= =========
Supplemental disclosure of cash flow information:
Cash paid for interest ...................................... $ 25,751 $ 17,743
Interest capitalized ........................................ 4,357 3,641
--------- ---------
Cash paid for interest, net of amounts capitalized .......... $ 21,394 $ 14,102
========= =========
<FN>
The accompanying notes are an integral part of these consolidated statements.
</FN>
</TABLE>
<PAGE>
Page - 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited and Amounts in Thousands, Except Property and Per Share Amounts)
- -------------------------------------------------------------------------------
1. ORGANIZATION AND FORMATION OF THE COMPANY
Gables Residential Trust (the "Company" or "Gables") is a real estate investment
trust (a "REIT") formed in 1993 under Maryland law to continue and expand the
multifamily apartment community management, development, construction, and
acquisition operations of its privately owned predecessor organization. The
Company completed its initial public offering on January 26, 1994 (the "IPO").
Gables 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"). The Company controls the
Operating Partnership through Gables GP, Inc. ("GGPI"), a wholly-owned
subsidiary and the sole general partner of the Operating Partnership (this
structure is commonly referred to as an umbrella partnership REIT or "UPREIT").
At June 30, 1999, the Company was an 80.7% economic owner of the common equity
of the Operating Partnership. Gables' 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 (the "Management Companies").
The Company's limited partner and indirect general partner interests in the
Operating Partnership entitle it to share in cash distributions from, and in the
profits and losses of, the Operating Partnership in proportion to its ownership
interest therein and entitle the Company to vote on all matters requiring a vote
of the limited partners. Generally, the other limited partners of the Operating
Partnership are persons who contributed their direct or indirect interests in
certain properties to the Operating Partnership primarily in connection with the
IPO, the South Florida Acquisition and the Greystone Acquisition (as defined
herein). The Operating Partnership is obligated to redeem each common unit of
limited partnership interest ("Unit") held by a person other than the Company,
at the request of the holder thereof, for cash equal to the fair market value of
a share of the Company's common shares at the time of such redemption, provided
that the Company, at its option, may elect to acquire any such Unit presented
for redemption for one common share or cash. With each such redemption, the
Company's percentage ownership interest in the Operating Partnership will
increase. In addition, whenever the Company issues common shares or preferred
shares, the Company is obligated to contribute any net proceeds therefrom to the
Operating Partnership and the Operating Partnership is obligated to issue an
equivalent number of common or preferred units, as applicable, to the Company.
As of June 30, 1999, Gables owned 84 completed multifamily apartment communities
comprising 24,643 apartment homes, of which 40 were developed and 44 were
acquired by Gables, and an indirect 25% general partner interest in two
apartment communities developed by Gables comprising 663 apartment homes. Gables
also owned two multifamily apartment communities under construction at June 30,
1999 that are expected to comprise 763 apartment homes upon completion and an
indirect 20% interest in seven apartment communities under construction at June
30, 1999 that are expected to comprise 2,181 apartment homes upon completion. As
of June 30, 1999, Gables owned parcels of land for the future development of 13
apartment communities expected to comprise an estimated 2,851 apartment homes.
There can be no assurance that Gables will develop such land. Additionally,
Gables has contracts or options to acquire additional parcels of land. There can
be no assurance that Gables will acquire these land parcels; however, it is
Gables' intent to develop an apartment community on each such land parcel, if
purchased.
2. COMMON AND PREFERRED EQUITY ACTIVITY
Secondary Common Share Offerings
- --------------------------------
Since the IPO, the Company has issued a total of 14,831 common shares in eight
offerings, generating $347,771 in net proceeds which were generally used (i) to
reduce outstanding indebtedness under interim financing vehicles utilized to
fund Gables' development and acquisition activities (the "Interim Financing
Vehicles") and (ii) for general working capital purposes, including funding of
future development and acquisition activities.
<PAGE>
Page - 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited and Amounts in Thousands, Except Property and Per Share Amounts)
- -------------------------------------------------------------------------------
Preferred Share Offerings
- -------------------------
On July 24, 1997, the Company issued 4,600 shares of 8.30% Series A Cumulative
Redeemable Preferred Shares (liquidation preference $25.00 per share) (the
"Series A Preferred Shares"). The net proceeds from this offering of
approximately $111.0 million were used to reduce outstanding indebtedness under
the Interim Financing Vehicles. The Series A Preferred Shares, which may be
redeemed by the Company at $25.00 per share plus accrued and unpaid dividends on
or after July 24, 2002, have no stated maturity, sinking fund or mandatory
redemption and are not convertible into any other securities of the Company.
On June 18, 1998, the Company issued 180 shares of 5.0% Series Z Cumulative
Redeemable Preferred Shares (liquidation preference $25.00 per share) (the
"Series Z Preferred Shares") in connection with the acquisition of a parcel of
land for future development. The Series Z Preferred Shares, which may be
redeemed by the Company at $25.00 per share plus accrued and unpaid dividends at
any time, are subject to mandatory redemption on June 18, 2018. The Series Z
Preferred Shares are not subject to any sinking fund and are not convertible
into any other securities of the Company.
Issuances of Common Operating Partnership Units
- -----------------------------------------------
Since the IPO, the Operating Partnership has issued a total of 3,917 Units in
connection with the South Florida Acquisition, the Greystone Acquisition and the
acquisition of other operating apartment communities and a parcel of land for
future development.
Issuance of Preferred Operating Partnership Units
- -------------------------------------------------
On November 12, 1998, the Operating Partnership issued 2,000 of its 8.625%
Series B Preferred Units (the "Series B Preferred Units") to an institutional
investor. The net proceeds from this issuance of approximately $48.7 million
were used to reduce outstanding indebtedness under the Interim Financing
Vehicles. The Series B Preferred Units may be redeemed by the Company at its
option after November 14, 2003 and are exchangeable by the holder into 8.625%
Series B Cumulative Redeemable Preferred Shares of the Company on a one-for-one
basis. This exchange right is generally not exercisable until after November 14,
2008. The Series B Preferred Units have no stated maturity, sinking fund or
mandatory redemption.
Common Equity Repurchase Program
- -------------------------------
On March 22, 1999, Gables announced a common equity repurchase program pursuant
to which the Company is authorized to purchase up to $50 million of its
outstanding common shares or Units. The Company plans to repurchase shares from
time to time in open market and privately negotiated transactions, depending on
market prices and other conditions, using proceeds from sales of selected
assets. Units may be repurchased for cash upon their presentation for redemption
by unitholders. As of June 30, 1999, the Company had repurchased 363 common
shares and 173 Units for $12,453.
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 the Operating Partnership and the Management Companies).
Gables consolidates the financial statements of all entities in which it has a
controlling financial interest as that term is defined under generally accepted
accounting principles ("GAAP") through either majority voting interest or
contractual agreements. 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. Because Units, if presented for
redemption, can 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.
<PAGE>
Page - 8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited and Amounts in Thousands, Except Property and Per Share Amounts)
- -------------------------------------------------------------------------------
The accompanying interim unaudited financial statements have been prepared by
Gables' management in accordance with generally accepted accounting principles
("GAAP") 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 GAAP 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 period ended June 30, 1999 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 financial statements
of Gables Residential Trust included in the Gables Residential Trust Form 10-K
for the year ended December 31, 1998.
4. RECENT PORTFOLIO ACQUISITIONS AND JOINT VENTURE
On April 1, 1998, Gables acquired the properties and operations of Trammell Crow
Residential South Florida ("TCR/SF"), which consisted of 15 multifamily
apartment communities containing a total of 4,197 apartment homes, and all of
TCR/SF's residential construction and development and third party management
activities in South Florida (collectively, the "South Florida Acquisition"). In
consideration for such properties and operations, Gables (i) paid $155.0 million
in cash, (ii) assumed approximately $135.9 million of tax-exempt debt and (iii)
issued approximately 2,348 Units valued at approximately $64.9 million. In
addition, $10.7 million of the purchase price was deferred by Gables until
January 1, 2000, at which time Gables will issue a number of Units equal in
value to such deferred amount. The acquisition increased the size of Gables'
portfolio under management on April 1, 1998 from approximately 28,000 to 40,000
apartment homes.
The South Florida Acquisition has been 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 recorded at their
estimated fair values. The accompanying consolidated statements of operations
include the operating results of TCR/SF since April 1, 1998, the closing date of
the South Florida Acquisition. The following unaudited pro forma information for
the six months ended June 30, 1998 has been prepared assuming the South Florida
Acquisition had been consummated on January 1, 1998. The unaudited pro forma
information (i) includes the historical operating results of the properties and
residential construction and development and third party management activities
acquired and (ii) does not purport to be indicative of the results which
actually would have been obtained had the South Florida Acquisition been
consummated on January 1, 1998, or which may be attained in future periods.
Six Months Ended June 30,
1999 1998
---- ----
Total revenues $121,360 $107,694
Net income available to common shareholders 16,076 11,983
Per common share information:
Net income - basic $0.61 $0.54
Net income - diluted $0.61 $0.53
In April, 1998, Gables acquired four multifamily apartment communities
comprising a total of 913 apartment homes located in Houston, Texas (the
"Greystone Acquisition"). In connection with such acquisition, Gables assumed
approximately $31.0 million of indebtedness at fair value, and issued
approximately 665 Units valued at approximately $18.0 million. In addition,
Gables has accrued approximately $0.5 million as of June 30, 1999 for a portion
of the purchase price that was deferred by Gables, the payment of which is
contingent upon 1999 economic performance. Gables will issue a number of Units
equal in value to the amount due, once determined.
<PAGE>
Page - 9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited and Amounts in Thousands, Except Property and Per Share Amounts)
- -------------------------------------------------------------------------------
On March 26, 1999, Gables entered into a joint venture agreement with an
affiliate of J.P. Morgan Investment Management Inc. ("J.P. Morgan"). The
business purpose of the venture is to develop, own and operate seven multifamily
apartment communities, located in four of Gables' nine markets, which are
expected to comprise 2,181 apartment homes. As of March 25, 1999, Gables (i) had
commenced construction of four of the communities, (ii) owned the land for the
future development of two of the communities and (iii) owned the acquisition
right for the land for the future development of one of the communities. The
capital budget for the development of the seven communities is approximately
$213 million and is anticipated to be funded with 50% debt and 50% equity. The
equity component will be funded 80% by J.P. Morgan and 20% by Gables. Gables'
portion of the equity will be funded through a contribution of cash and
property. On March 26, 1999, Gables contributed its interests in the seven
development communities to the joint venture in return for (i) cash of $60,347
and (ii) an initial capital account in the joint venture of $15,214. Gables
serves as the managing member of the venture and has responsibility for all
day-to-day operating issues. Gables also serves as the property manager and the
general contractor for construction activities.
5. EARNINGS PER SHARE
Basic earnings per share are computed based on net income available to common
shareholders and the weighted average number of common shares outstanding.
Diluted earnings per share reflect the assumed issuance of common shares under
share option and incentive plans and upon conversion of Units. The numerator and
denominator used for both basic and diluted earnings per share computations are
as follows:
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
BASIC AND DILUTED INCOME AVAILABLE TO
COMMON SHAREHOLDERS (NUMERATOR):
Net income - basic $8,861 $7,120 $16,076 $12,873
Minority interest of common unitholders in
Operating Partnership 2,136 2,192 3,904 3,251
Amortization of discount on long-term liability 0 192 0 192
------- ------ ------- -------
Net income - diluted $10,997 $9,504 $19,980 $16,316
======= ====== ======= =======
COMMON SHARES (DENOMINATOR):
Average shares outstanding - basic 26,214 22,573 26,269 22,300
Incremental shares from assumed conversions of:
Stock options 50 150 40 150
Outstanding common Units 6,323 6,946 6,385 5,508
Units issuable upon settlement of long-term liability 0 418 0 209
------ ------ ------ ------
Average shares outstanding - diluted 32,587 30,087 32,694 28,167
====== ====== ====== ======
</TABLE>
6. RECENT ACCOUNTING PRONOUNCEMENTS
Gables adopted SFAS No. 130, "Reporting Comprehensive Income," during 1998. SFAS
No. 130 established standards for reporting and disclosing comprehensive income
(defined as revenues, expenses, gains and losses that under GAAP are not
included in net income) and its components. As of June 30, 1999, Gables had no
items of other comprehensive income.
In June, 1998, SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities" was issued establishing accounting and reporting standards requiring
that every derivative instrument (including certain derivative instruments
embedded in other contracts) be recorded in the balance sheet as either an asset
or liability measured at its fair value. SFAS No. 133 requires that changes in
the derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the hedged
item in the statement of operations, and requires that a company must formally
document, designate, and assess the effectiveness of transactions that receive
hedge accounting. SFAS No. 133 is effective for Gables beginning January 1,
2000. The impact of SFAS No. 133 on Gables' financial statements will depend on
the extent, type and effectiveness of Gables' hedging activities. SFAS No. 133
could increase volatility in net income and other comprehensive income.
<PAGE>
Page - 10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited and Amounts in Thousands, Except Property and Per Share Amounts)
- -------------------------------------------------------------------------------
7. INTEREST RATE PROTECTION AGREEMENTS
In the ordinary course of business, Gables is exposed to interest rate risks.
Gables' senior management periodically seeks input from third party consultants
regarding market interest rate and credit risk in order to evaluate its interest
rate exposure. In certain situations, Gables may utilize derivative financial
instruments in the form of rate caps, rate swaps or rate locks to hedge interest
rate exposure by modifying the interest rate characteristics of related balance
sheet instruments and prospective financing transactions. Gables does not
utilize such instruments for trading or speculative purposes. Derivatives used
as hedges must be effective at reducing the risk associated with the exposure
being hedged, correlate in nominal amount, rate, and term with the balance sheet
instrument being hedged, and must be designated as a hedge at the inception of
the derivative contract.
Lump sum payments made or received at the inception or settlement of derivative
instruments designated as hedges are capitalized and amortized as an adjustment
to interest expense over the life of the associated balance sheet instrument.
Monthly amounts paid or received under rate cap and rate swap hedge agreements
are recognized as adjustments to interest expense as incurred. In the event that
circumstances arise indicating that an existing derivative instrument no longer
meets the hedge criteria described above, the derivative is marked to market in
the statement of operations.
In anticipation of a projected seven-year debt offering, Gables entered into two
forward treasury lock agreements in late 1997. The timing and amount of the
projected debt offering was modified several times as a result of unanticipated
capital transactions, including the South Florida Acquisition. The treasury lock
agreements were extended to align with the projected timing of the debt
offering. For the three and six months ended June 30, 1998, Gables recognized
mark to market losses of $199 and $2,010, respectively, upon the expiration of
the original and extended terms of the treasury lock agreements since the
required hedge criteria no longer existed at those dates.
8. SEGMENT REPORTING
Gables adopted SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information," during 1998. SFAS No. 131 established standards for
reporting financial and descriptive information about operating segments in
annual financial statements. Operating segments are defined as components of an
enterprise about which separate financial information is available that is
evaluated regularly by the chief operating decision maker in deciding how to
allocate resources and in assessing performance. Gables' chief operating
decision maker is its senior management group.
Gables owns, operates and develops multifamily apartment communities in nine
major markets located in Texas, Georgia, Florida and Tennessee. Such apartment
communities generate rental revenue and other income through the leasing of
apartment homes to a diverse base of residents. Gables evaluates the performance
of each of its apartment communities on an individual basis. However, because
each of the apartment communities has similar economic characteristics,
residents, and products and services, the apartment communities have been
aggregated into one reportable segment. This segment comprised 96% of Gables'
total revenues for the three and six month periods ended June 30, 1999.
The primary financial measure for Gables' reportable business segment is net
operating income ("NOI"), which represents total property revenues less property
operating and maintenance expenses (as reflected in the accompanying statements
of operations). Accordingly, NOI excludes certain expenses included in the
determination of net income. Current year NOI is compared to prior year NOI and
current year budgeted NOI as a measure of financial performance. The NOI yield
or return on total capitalized costs is an additional measure of financial
performance. NOI from apartment communities totaled $38,895 and $36,049 for the
three months ended June 30, 1999 and 1998, respectively, and $77,196 and $62,849
for the six months ended June 30, 1999 and 1998, respectively. All other segment
measurements are disclosed in Gables' consolidated financial statements.
Gables also provides management, brokerage, corporate apartment home and
development and construction services to third parties. These operations on an
individual and aggregate basis do not meet the quantitative thresholds for
segment reporting per SFAS No. 131.
<PAGE>
Page - 11
MANAGEMENT'S DISCUSSION AND ANALYSIS
(Amounts in Thousands, Except Property and Per Share Amounts)
- --------------------------------------------------------------------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview
- --------
Gables is a real estate investment trust (a "REIT") focused within the
multifamily industry in the Southwestern and Southeastern region of the United
States (the "Sunbelt" or "Sunbelt Region"). Gables' operating performance relies
predominantly on net operating income from its apartment communities. Gables'
net operating income 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 and cost of
capital and its ability to develop and to acquire additional apartment
communities with returns in excess of its blended cost of equity and debt
capital.
The Company's objective is to increase shareowner value by being a profitable
owner and operator of Class AA/A multifamily apartment communities in the
Sunbelt Region. To achieve its objective, Gables employs a number of business
strategies. First, Gables adheres to a strategy of owning and operating Class
AA/A apartment communities which should maintain high levels of occupancy and
rental rates. Gables believes that such communities, when supplemented with high
quality services and amenities, attract the affluent renter-by-choice who is
willing to pay a premium for conscientious service and high quality communities.
Accordingly, Gables' communities possess innovative architectural designs and
numerous amenities and services that Gables believes are desirable to its target
customers. Second, Gables seeks to grow cash flow from operating communities
through innovative, proactive property management that focuses on resident
satisfaction and retention, increases in property rents and occupancy levels,
and the control of operating expenses through improved economies of scale.
Third, Gables develops and acquires high-quality apartment communities in
in-fill locations and master-planned communities near major employment centers
in the Sunbelt with the objective of achieving critical mass in the most
desirable submarkets. Finally, due to the cyclical nature of the real estate
markets, Gables has adopted an investment strategy based on strong local
presence and expertise which it believes will allow for growth through
acquisition and development (as warranted by underlying market fundamentals) and
help ensure favorable initial and long-term returns. Gables believes the
successful execution of these operating and investment strategies will result in
operating cash flow growth.
Gables believes it is well positioned to continue achieving its objective
because of its long-established presence as a fully-integrated real estate
management, development, construction and acquisition company in its markets.
Gables believes that its established local market presence creates a competitive
advantage in generating increased cash flow from (i) property operations during
different economic cycles and (ii) new investment opportunities that involve
site selection, market information, and requests for entitlements and zoning
petitions. Gables' markets are geographically independent, rely on diverse
economic foundations, and have experienced above-average job growth.
Portfolio-wide occupancy levels have remained high and portfolio-wide rental
rates have continued to increase during each of 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 property revenues for the coming twelve
months. 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, to reduce indebtedness or, in certain circumstances
with appropriate approval from the board of trustees, to repurchase outstanding
common equity. Gables maintains staffing levels sufficient to meet the existing
construction acquisition, and leasing activities. If market conditions warrant,
management would anticipate adjusting staffing levels to mitigate 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.
<PAGE>
Page - 12
MANAGEMENT'S DISCUSSION AND ANALYSIS
(Amounts in Thousands, Except Property and Per Share Amounts)
- --------------------------------------------------------------------------------
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
certain factors set forth in the section entitled "Certain Factors Affecting
Future Operating Results" on Page 21 of this Form 10-Q and elsewhere in this
report.
RECENT PORTFOLIO ACQUISITIONS
On April 1, 1998, Gables acquired the properties and operations of Trammell Crow
Residential South Florida ("TCR/SF"), which consisted of 15 multifamily
apartment communities containing a total of 4,197 apartment homes, and all of
TCR/SF's residential construction and development and third party management
activities in South Florida (collectively, the "South Florida Acquisition"). In
consideration for such properties and operations, Gables (i) paid $155.0 million
in cash, (ii) assumed approximately $135.9 million of tax-exempt debt and (iii)
issued approximately 2,348 Units valued at approximately $64.9 million. The cash
portion of the purchase price was funded through borrowings under Gables'
unsecured credit facilities (the "Credit Facilities"). In addition, $10.7
million of the purchase price was deferred by Gables until January 1, 2000, at
which time Gables will issue a number of Units equal in value to such deferred
amount. The acquisition increased the size of Gables' portfolio under management
on April 1, 1998 from approximately 28,000 to 40,000 apartment homes.
In April 1998, Gables acquired four multifamily apartment communities comprising
a total of 913 apartment homes located in Houston, Texas (the "Greystone
Acquisition"). In connection with such acquisition, Gables assumed approximately
$31.0 million of indebtedness, at fair value, and issued approximately 665 Units
valued at $18.0 million.
COMMON AND PREFERRED EQUITY ACTIVITY
Secondary Common Share Offerings
- --------------------------------
Since the IPO, the Company has issued a total of 14,831 common shares in eight
offerings, generating $347,771 in net proceeds which were generally used (i) to
reduce outstanding indebtedness under interim financing vehicles utilized to
fund Gables' development and acquisition activities (the "Interim Financing
Vehicles") and (ii) for general working capital purposes, including funding of
future development and acquisition activities.
Preferred Share Offerings
- -------------------------
On July 24, 1997, the Company issued 4,600 shares of 8.30% Series A Cumulative
Redeemable Preferred Shares (liquidation preference $25.00 per share) (the
"Series A Preferred Shares"). The net proceeds from this offering of
approximately $111 million were used to reduce outstanding indebtedness under
the Interim Financing Vehicles. The Series A Preferred Shares, which may be
redeemed by the Company at $25.00 per share plus accrued and unpaid dividends on
or after July 24, 2002, have no stated maturity, sinking fund or mandatory
redemption and are not convertible into any other securities of the Company.
On June 18, 1998, the Company issued 180 shares of 5.0% Series Z Cumulative
Redeemable Preferred Shares (liquidation preference $25.00 per share) (the
"Series Z Preferred Shares") in connection with the acquisition of a parcel of
land for future development. The Series Z Preferred Shares, which may be
redeemed by the Company at $25.00 per share plus accrued and unpaid dividends at
any time, are subject to mandatory redemption on June 18, 2018. The Series Z
Preferred Shares are not subject to any sinking fund and are not convertible
into any other securities of the Company.
Issuances of Common Operating Partnership Units
- -----------------------------------------------
Since the IPO, the Operating Partnership has issued a total of 3,917 Units in
connection with the South Florida Acquisition, the Greystone Acquisition and the
acquisition of other operating apartment communities and a parcel of land for
future development.
<PAGE>
Page - 13
MANAGEMENT'S DISCUSSION AND ANALYSIS
(Amounts in Thousands, Except Property and Per Share Amounts)
- --------------------------------------------------------------------------------
Issuance of Preferred Operating Partnership Units
- -------------------------------------------------
On November 12, 1998, the Operating Partnership issued 2,000 of its 8.625%
Series B Preferred Units (the "Series B Preferred Units") to an institutional
investor. The net proceeds from this issuance of approximately $48.7 million
were used to reduce outstanding indebtedness under the Interim Financing
Vehicles. The Series B Preferred Units may be redeemed by the Company at its
option after November 14, 2003 and are exchangeable by the holder into 8.625%
Series B Cumulative Redeemable Preferred Shares of the Company on a one-for-one
basis. This exchange right is generally not exercisable until after November 14,
2008. The Series B Preferred Units have no stated maturity, sinking fund, or
mandatory redemption.
Common Equity Repurchase Program
- --------------------------------
On March 22, 1999, Gables announced a common equity repurchase program
pursuant to which the Company is authorized to purchase up to $50 million of its
outstanding common shares or Units. The Company plans to repurchase shares from
time to time in open market and privately negotiated transactions, depending on
market prices and other conditions, using proceeds from sales of selected
assets. Units may be repurchased for cash upon their presentation for redemption
by unitholders. As of June 30, 1999, the Company had repurchased 363 common
shares and 173 Units for $12,453.
Shelf Registration Statement
- ----------------------------
On December 3, 1998, the Company and the Operating Partnership filed a shelf
registration statement with the Securities and Exchange Commission to add an
additional $500 million of equity capacity and an additional $300 million of
debt capacity. Gables believes it is prudent to maintain shelf registration
capacity in order to facilitate future capital raising activities.
OTHER FINANCING ACTIVITY
Property Sale
- -------------
On March 4, 1999, Gables sold an apartment community located in Atlanta
comprising 213 apartment homes. The net proceeds of $19.0 million were initially
used to pay down outstanding borrowings under the Interim Financing Vehicles.
Joint Venture with J.P. Morgan
- ------------------------------
On March 26, 1999, Gables entered into a joint venture agreement with an
affiliate of J.P. Morgan Investment Management Inc. ("J.P. Morgan"). The
business purpose of the venture is to develop, own and operate seven multifamily
apartment communities, located in four of Gables' nine markets, which are
expected to comprise 2,181 apartment homes. As of March 25, 1999, Gables (i) had
commenced construction of four of the communities, (ii) owned the land for the
future development of two of the communities and (iii) owned the acquisition
right for the land for the future development of one of the communities. The
capital budget for the development of the seven communities is approximately
$213 million and is anticipated to be funded with 50% debt and 50% equity. The
equity component will be funded 80% by J.P. Morgan and 20% by Gables. Gables'
portion of the equity will be funded through a contribution of cash and
property. On March 26, 1999, Gables contributed its interests in the seven
development communities to the joint venture in return for (i) cash of $60,347
and (ii) an initial capital account in the joint venture of $15,214. Gables
serves as the managing member of the venture and has responsibility for all
day-to-day operating issues. Gables also serves as the property manager and the
general contractor for construction activities.
<PAGE>
Page - 14
MANAGEMENT'S DISCUSSION AND ANALYSIS
(Amounts in Thousands, Except Property and Per Share Amounts)
- --------------------------------------------------------------------------------
Results of Operations
- ---------------------
COMPARISON OF OPERATING RESULTS OF GABLES FOR THE THREE MONTHS ENDED JUNE 30,
1999 (THE "1999 PERIOD") TO THE THREE MONTHS ENDED JUNE 30, 1998 (THE "1998
PERIOD").
Gables' net income is generated primarily from the operation of its apartment
communities. For purposes of evaluating comparative operating performance,
Gables categorizes its operating communities based on the period each community
reaches stabilized occupancy. A community is considered by Gables to have
achieved stabilized occupancy on the earlier to occur of (i) attainment of 93%
physical occupancy or (ii) one year after completion of construction. The
operating performance for all of Gables' apartment communities combined for the
three months ended June 30, 1999 and 1998 is summarized as follows:
<TABLE>
<CAPTION>
Three Months Ended June 30,
---------- ---------- ---------- -----------
$ %
1999 1998 Change Change
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
RENTAL AND OTHER REVENUE:
Same store communities (1) $49,625 $48,778 $847 1.7%
Communities stabilized during the 1999 Period, but not
during the 1998 Period (2) 1,357 682 675 99.0%
Development and lease-up communities (3) 2,101 352 1,749 496.9%
Acquired communities (4) 5,343 4,404 939 21.3%
Sold communities (5) 0 302 -302 -100.0%
---------- ---------- ---------- -----------
Total property revenues $58,426 $54,518 $3,908 7.2%
---------- ---------- ---------- -----------
PROPERTY OPERATING AND MAINTENANCE EXPENSE (EXCLUSIVE OF DEPRECIATION
AND AMORTIZATION):
Same store communities (1) $16,729 $16,656 $73 0.4%
Communities stabilized during the 1999 Period, but not
during the 1998 Period (2) 215 59 156 264.4%
Development and lease-up communities (3) 691 61 630 1,032.8%
Acquired communities (4) 1,896 1,589 307 19.3%
Sold communities (5) 0 104 -104 -100.0%
---------- ---------- ---------- ---------
Total specified expenses $19,531 $18,469 $1,062 5.8%
---------- ---------- ---------- ---------
Revenues in excess of specified expenses $38,895 $36,049 $2,846 7.9%
========= ========= ========= ==========
Revenues in excess of specified expenses as a percentage of total
property revenues 66.6% 66.1% --- 0.5%
========= ========= ========= ==========
<FN>
(1) Communities which were owned and fully stabilized throughout both the
1999 Period and 1998 Period ("same store").
(2) Communities which were stabilized during all of the 1999 Period, but
were not stabilized during all of the 1998 Period.
(3) Communities in the development and/or lease-up phase which were not
fully stabilized during all or any of the 1999 Period.
(4) Communities which were acquired subsequent to April 1, 1998.
(5) Communities which were sold subsequent to April 1, 1998.
</FN>
</TABLE>
<PAGE>
Page - 15
MANAGEMENT'S DISCUSSION AND ANALYSIS
(Amounts in Thousands, Except Property and Per Share Amounts)
- --------------------------------------------------------------------------------
Total property revenues increased $3,908, or 7.2%, from $54,518 to $58,426 due
primarily to increases in the number of apartment homes resulting from the
acquisition and development of additional communities and to increases in rental
rates on communities stabilized throughout both periods ("same store"). Below is
additional data regarding the increases in total property revenues for three of
the five community categories presented in the preceding table:
Same store communities:
<TABLE>
<CAPTION>
Percent
Increase Increase
Percent of (Decrease) Increase (Decrease)
Number of Total in Total Occupancy (Decrease) in Total
Number of Apartment Apartment Property During the in Property
Market Communities Homes Homes Revenues 1999 Period Occupancy Revenues
- ------ ----------- --------- ---------- -------- ----------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Atlanta 20 5,841 27.7% $547 95.2% -0.4% 4.1%
Houston 15 5,633 26.7% -177 92.4% -3.1% -1.3%
South Florida 12 3,430 16.2% 420 96.4% 2.9% 5.3%
Dallas 9 2,085 9.9% 140 92.6% -1.4% 2.7%
Memphis 4 1,454 6.9% -34 90.0% -5.3% -1.2%
Nashville 4 1,166 5.5% -83 90.0% -5.0% -3.6%
Austin 4 953 4.5% 49 88.8% -3.9% 1.8%
San Antonio 2 544 2.6% -15 87.8% -3.8% -1.2%
-- ------ ------ ---- ----- ----- -----
70 21,106 100.0% $847 93.3% -1.7% 1.7%
== ====== ====== ==== ===== ===== ====
</TABLE>
Communities stabilized during the 1999 Period, but not during the 1998 Period:
Percent of Increase
Number of Total in Total Occupancy
Number of Apartment Apartment Property During the
Market Communities Homes Homes Revenues 1999 Period
- ------ ----------- ------------ ---------- -------- -----------
Austin 1 256 47.8% $453 93.5%
Orlando 1 280 52.2% 222 100.0%
--- --- ------ ---- ------
2 536 100.0% $675 96.2%
=== === ====== ==== ======
Development and lease-up communities:
Percent of Increase
Number of Total in Total Occupancy
Number of Apartment Apartment Property During the
Market Communities Homes Homes Revenues 1999 Period
- ------ ----------- --------- ---------- -------- -----------
Atlanta 1 386 44.2% $794 88.9%
Houston 1 256 29.3% 440 85.5%
Orlando 1 231 26.5% 515 72.9%
--- --- ------ ------ -----
3 873 100.0% $1,749 82.6%
=== === ====== ====== =====
Other revenues increased $834, or 50.3%, from $1,658 to $2,492 due primarily to
development revenues, net of $784 in the 1999 Period.
Property operating and maintenance expense (exclusive of depreciation and
amortization) increased $1,062, or 5.8%, from $18,469 to $19,531 due to an
increase in apartment homes resulting from the acquisition and development of
additional communities and an increase for same store communities of 0.4%.
<PAGE>
Page - 16
MANAGEMENT'S DISCUSSION AND ANALYSIS
(Amounts in Thousands, Except Property and Per Share Amounts)
- --------------------------------------------------------------------------------
Real estate depreciation and amortization expense increased $1,511, or 14.8%,
from $10,210 to $11,721 due primarily to the acquisition and development of
additional communities.
Property management expense for owned communities and third party properties on
a combined basis decreased $56, or 2.6%, from $2,186 to $2,130. 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 $26, or 1.6%, from $1,614 to
$1,640.
Interest expense decreased $270, or 2.4%, from $11,163 to $10,893 as a result of
the offerings and property sale Gables consummated between periods, the proceeds
of which have been primarily used to reduce indebtedness. This decrease in
interest expense has been offset in part by an increase in operating debt
associated with the acquisition and development of additional communities.
Loss on treasury locks of $199 in the 1998 Period represents mark to market
losses recorded upon the expiration of the terms of treasury lock agreements
that were (i) entered into in anticipation of a projected debt offering and (ii)
subsequently extended in connection with modifications in the projected timing
of the debt.
<PAGE>
Page - 17
MANAGEMENT'S DISCUSSION AND ANALYSIS
(Amounts in Thousands, Except Property and Per Share Amounts)
- --------------------------------------------------------------------------------
Results of Operations
- ---------------------
COMPARISON OF OPERATING RESULTS OF GABLES FOR THE SIX MONTHS ENDED JUNE 30, 1999
(THE "1999 PERIOD") TO THE SIX MONTHS ENDED JUNE 30, 1998 (THE "1998 PERIOD").
Gables' net income is generated primarily from the operation of its apartment
communities. For purposes of evaluating comparative operating performance,
Gables categorizes its operating communities based on the period each community
reaches stabilized occupancy. A community is considered by Gables to have
achieved stabilized occupancy on the earlier to occur of (i) attainment of 93%
physical occupancy or (ii) one year after completion of construction. The
operating performance for all of Gables' apartment communities combined for the
six months ended June 30, 1999 and 1998 is summarized as follows:
<TABLE>
<CAPTION>
Six Months Ended June 30,
---- ---- -------- --------
1999 1998 $ Change % Change
---- ---- -------- --------
<S> <C> <C> <C> <C>
RENTAL AND OTHER REVENUE:
Same store communities (1) $80,513 $79,158 $1,355 1.7%
Communities stabilized during the 1999 Period, but not
during the 1998 Period (2) 4,342 2,444 1,898 77.7%
Development and lease-up communities (3) 3,912 358 3,554 992.7%
Acquired communities (4) 27,605 12,686 14,919 117.6%
Sold communities (5) 455 302 153 50.7%
-------- -------- -------- ------
Total property revenues $116,827 $94,948 $21,879 23.0%
-------- -------- -------- ------
PROPERTY OPERATING AND MAINTENANCE EXPENSE (EXCLUSIVE OF DEPRECIATION
AND AMORTIZATION):
Same store communities (1) $27,146 $26,966 $180 0.7%
Communities stabilized during the 1999 Period, but not
during the 1998 Period (2) 987 548 439 80.1%
Development and lease-up communities (3) 1,411 62 1,349 2175.8%
Acquired communities (4) 9,930 4,419 5,511 124.7%
Sold communities (5) 157 104 53 51.0%
------- ------- ------ -------
Total specified expenses $39,631 $32,099 $7,532 23.5%
------- ------- ------ -------
Revenues in excess of specified expenses $77,196 $62,849 $14,347 22.8%
======= ======= ======= =======
Revenues in excess of specified expenses as a percentage of total
property revenues 66.1% 66.2% --- -0.1%
======= ======= ======= =======
<FN>
(1) Communities which were owned and fully stabilized throughout both the
1999 Period and 1998 Period ("same store").
(2) Communities which were stabilized during all of the 1999 Period, but
were not stabilized during all of the 1998 Period.
(3) Communities in the development and/or lease-up phase which were not
fully stabilized during all or any of the 1999 Period.
(4) Communities which were acquired subsequent to January 1, 1998,
including the 15 communities acquired in April, 1998 in South Florida.
(5) Communities which were sold subsequent to January 1, 1998.
</FN>
</TABLE>
<PAGE>
Page - 18
MANAGEMENT'S DISCUSSION AND ANALYSIS
(Amounts in Thousands, Except Property and Per Share Amounts)
- --------------------------------------------------------------------------------
Total property revenues increased $21,879, or 23.0%, from $94,948 to $116,827
due primarily to increases in the number of apartment homes resulting from the
acquisition and development of additional communities and to increases in rental
rates on communities stabilized throughout both periods ("same store"). Below is
additional data regarding the increases in total property revenues for three of
the five community categories presented in the preceding table:
Same store communities:
<TABLE>
<CAPTION>
Percent
Increase Increase
Percent of (Decrease) Increase (Decrease)
Number of Total in Total Occupancy (Decrease) in Total
Number of Apartment Apartment Property During the in Property
Market Communities Homes Homes Revenues 1999 Period Occupancy Revenues
- ------ ----------- --------- ---------- --------- ----------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Atlanta 20 5,841 33.6% $1,179 95.2% -0.1% 4.5%
Houston 15 5,633 32.4% -44 92.6% -2.9% -0.2%
Dallas 9 2,085 12.0% 183 92.0% -2.3% 1.7%
Memphis 4 1,454 8.3% 28 90.3% -4.2% 0.5%
Nashville 4 1,166 6.7% -187 90.6% -4.6% -4.1%
Austin 3 680 3.9% 228 92.9% 0.8% 6.3%
San Antonio 2 544 3.1% -32 87.5% -4.2% -1.4%
-- ------ ------ ------ ----- ----- -----
57 17,403 100.0% $1,355 92.9% -1.9% 1.7%
== ====== ====== ====== ===== ===== ====
</TABLE>
Communities stabilized during the 1999 Period but not during the 1998 Period:
Percent of Increase
Number of Total in Total Occupancy
Number of Apartment Apartment Property During the
Market Communities Homes Homes Revenues 1999 Period
- ------ ----------- --------- --------- -------- -----------
Austin 2 529 65.4% $1,167 88.4%
Orlando 1 280 34.6% 731 100.0%
--- --- ------ ------ ------
3 809 100.0% $1,898 91.4%
=== === ====== ====== ======
Development and lease-up communities:
Percent of Increase
Number of Total in Total Occupancy
Number of Apartment Apartment Property During the
Market Communities Homes Homes Revenues 1999 Period
- ------ ----------- --------- ---------- -------- -----------
Atlanta 1 386 44.2% $1,545 81.7%
Houston 1 256 29.3% 962 81.6%
Orlando 1 231 26.5% 1,047 66.9%
--- --- ------ ------ -----
3 873 100.0% $3,554 76.7%
=== === ====== ====== =====
Other revenues increased $1,815, or 66.8%, from $2,718 to $4,533 due primarily
to (i) an increase in property management revenues of $641, or 33.5%, from
$1,912 to $2,553 resulting from a net increase of properties managed by Gables
for third parties as a result of the South Florida Acquisition and (ii)
development revenues, net of $1,229 in the 1999 Period.
Property operating and maintenance expense (exclusive of depreciation and
amortization) increased $7,532, or 23.5%, from $32,099 to $39,631 due to an
increase in apartment homes resulting from the acquisition and development of
additional communities and an increase for same store communities of 0.7%.
<PAGE>
Page - 19
MANAGEMENT'S DISCUSSION AND ANALYSIS
(Amounts in Thousands, Except Property and Per Share Amounts)
- --------------------------------------------------------------------------------
Real estate depreciation and amortization expense increased $5,836, or 33.0%,
from $17,694 to $23,530 due primarily to the acquisition and development of
additional communities.
Property management expense for owned communities and third party properties on
a combined basis increased $356, or 9.3%, from $3,840 to $4,196 due primarily to
an increase of approximately 8,000 apartment homes managed from 34,500 in the
1998 Period to 42,500 in the 1999 Period, resulting primarily from the South
Florida Acquisition in addition to inflationary increases in expenses. 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 $646, or 24.2%, from $2,674 to
$3,320 due primarily to (i) compensation and other costs for new positions
associated with the South Florida Acquisition and (ii) increased compensation
costs.
Severance costs of $2,000 in the 1999 Period represent a charge associated with
Gables' recently announced organizational changes, including the departure of
the chief operating officer.
Interest expense increased $3,761, or 21.5%, from $17,498 to $21,259 due to an
increase in operating debt associated with the acquisition and development of
additional communities, including the debt assumed in connection with the South
Florida Acquisition and Greystone Acquisition. These increases in interest
expense have been offset in part as a result of the offerings and property sale
Gables consummated between periods, the proceeds of which have been primarily
used to reduce indebtedness.
Loss on treasury locks of $2,010 in the 1998 Period represents mark to market
losses recorded upon the expiration of the terms of treasury lock agreements
that were (i) entered into in anticipation of a projected debt offering and (ii)
subsequently extended in connection with modifications in the projected timing
of the debt.
Gain on sale of real estate assets of $666 in the 1999 Period relates to the
sale of an apartment community located in Atlanta comprised of 213 apartment
homes.
LIQUIDITY AND CAPITAL RESOURCES
Gables' net cash provided by operating activities increased from $40,135 for the
six months ended June 30, 1998 to $53,653 for the six months ended June 30, 1999
due to (i) an increase of $11,254 in income (a) before certain non-cash or
non-operating items, including depreciation, amortization, equity in income of
joint ventures, minority interest of unitholders in Operating Partnership, gain
on sale of real estate assets, long-term compensation expense, severance costs
and loss on treasury locks, and (b) after operating distributions received from
joint ventures, (ii) the change in other assets between periods of $3,549 and
(iii) the change in restricted cash between periods of $3,095. Such increases
were offset in part by the change in other liabilities between periods of
$4,380.
For the six months ended June 30, 1999, Gables had $32,354 of net cash provided
by investing activities compared to $260,775 of net cash used in investing
activities for the six months ended June 30, 1998. During the six months ended
June 30, 1999, Gables received cash of (i) $60.3 million in connection with the
contribution of its interests in certain development communities to the joint
venture with J.P. Morgan and (ii) $19.0 million in connection with the sale of
an operating apartment community. During the six months ended June 30, 1999,
Gables expended approximately $36.1 million related to development expenditures,
including related land acquisitions, approximately $2.9 million related to its
investment in the J.P. Morgan joint venture, approximately $4.8 million related
to recurring, non-revenue enhancing, capital expenditures for operating
apartment communities, and approximately $3.2 million related to non-recurring,
renovation/revenue-enhancing expenditures.
For the six months ended June 30, 1999, Gables had $77,735 of net cash used in
financing activities compared to $222,208 of net cash provided by financing
activities for the six months ended June 30, 1998. During the six months ended
June 30, 1999, Gables had net repayments of borrowings of approximately $29.4
million, net payments of dividends and distributions totaling approximately
$35.5 million, and payments for treasury share purchases and Unit redemptions
totaling approximately $12.4 million. The repayments of borrowings were funded
by the net cash provided by investing activities.
<PAGE>
Page - 20
MANAGEMENT'S DISCUSSION AND ANALYSIS
(Amounts in Thousands, Except Property and Per Share Amounts)
- --------------------------------------------------------------------------------
Gables 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 organizational 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, 1999, Gables had total indebtedness of $783,416, cash and cash
equivalents of $15,326, and principal escrow deposits reflected in restricted
cash of $2,638. Gables' indebtedness has an average of 5.66 years to maturity at
June 30, 1999. Excluding monthly principal amortization payments, over the next
five years Gables has the following scheduled debt maturities for indebtedness
outstanding at June 30, 1999:
1999 $25,241
2000 53,521
2001 55,000
2002 152,392
2003 62,676
The debt maturities in 2002 include $70,000 of outstanding indebtedness under
Gables' $225 million Credit Facility which has two one-year extension options.
The debt maturities in 2003 include $44,930 of tax-exempt bond indebtedness
credit-enhanced through a letter of credit facility which has unlimited one-year
extension options. Three of the underlying bond issues mature in December, 2007
and the fourth underlying bond issue matures in August, 2024.
Gables' dividends through the second quarter of 1999 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.
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. 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 initially funded primarily through
borrowings under its Credit Facilities 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, the issuance of debt securities or equity
securities, private equity investments in the form of joint ventures or through
the disposition of assets which, in management's evaluation, may no longer meet
Gables' investment requirements.
$225 Million Credit Facility
- ----------------------------
Gables has a $225 million unsecured revolving credit facility. In May, 1999 the
facility was amended and the maturity date was extended to May, 2002, with two
one-year extension options. In addition, the interest rate on Gables' current
syndicated borrowings was increased from LIBOR plus 0.80% to LIBOR plus 0.95%.
Gables' availability under the facility is limited to the lesser of the total
$225 million commitment or the borrowing base. The borrowing base available
under the facility is based on the value of Gables' unencumbered real estate
assets as compared to the amount of Gables' unsecured indebtedness. As of June
30, 1999, Gables had $70.0 million in borrowings outstanding under the facility
and, therefore, had $155.0 million of remaining capacity on the $225 million
available commitment. Additionally, a competitive bid option feature is in place
for up to 50% of the total commitment.
<PAGE>
Page - 21
MANAGEMENT'S DISCUSSION AND ANALYSIS
(Amounts in Thousands, Except Property and Per Share Amounts)
- --------------------------------------------------------------
$25 Million Credit Facility
- ---------------------------
Gables has an unsecured revolving credit facility that provides for up to $25
million in borrowings. This facility has an initial term of one year and
unlimited one-year extension options. Gables has exercised two of its one-year
extension options, resulting in a current maturity date for the facility of
October, 1999. Borrowings currently bear interest under this facility at LIBOR
plus 0.80%. As of June 30, 1999, Gables had $24.3 million of borrowings
outstanding under this facility.
Restrictive Covenants
- ----------------------
Certain of Gables' debt agreements contain 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 applicable debt agreements contain
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.
Gables 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.
BOOK VALUE OF ASSETS AND SHAREHOLDERS' EQUITY
The application of historical cost accounting in accordance with generally
accepted accounting principles ("GAAP") for Gables' UPREIT structure results in
an understatement of total assets and shareholders' 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 shareholders' equity. The understatement of basis related to
this difference in organizational structure at June 30, 1999 is $112,494,
exclusive of the effect of depreciation. Accordingly, on a pro forma basis, the
real estate assets before accumulated depreciation, total assets, and total
shareholders' equity plus minority interest and Series Z Preferred Shares at
liquidation value as of June 30, 1999 would be $1,737,054, $1,645,191 and
$811,788, respectively, if such $112,494 value were reflected.
INFLATION
Substantially all of Gables' 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 in times of rising prices. The
short-term nature of these leases generally serves to lessen the impact of cost
increases arising from inflation.
RECENT ACCOUNTING PRONOUNCEMENTS
See Note 6 to Consolidated Financial Statements.
CERTAIN FACTORS AFFECTING FUTURE OPERATING RESULTS
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. The words "believe", "expect",
"anticipate", "intend", "estimate", "assume" and other similar expressions which
are predictions of or indicate future events and trends and which do not relate
solely to historical matters identify forward-looking statements. Reliance
should not be placed on forward-looking statements because they involve known
and unknown risks, uncertainties and other factors which are, in some cases,
beyond the control of Gables and may cause the actual results, performance or
achievements of Gables to differ materially from anticipated future results,
performance or achievements expressed or implied by such forward-looking
statements.
<PAGE>
Page - 22
MANAGEMENT'S DISCUSSION AND ANALYSIS
(Amounts in Thousands, Except Property and Per Share Amounts)
- --------------------------------------------------------------------------------
Factors that might cause such a difference include, but are not limited to, the
following: Gables may abandon or fail to secure development opportunities;
construction costs of a community may exceed original estimates; construction
and lease-up may not be completed on schedule, resulting in increased debt
service expense and construction costs and reduced rental revenues; occupancy
rates and market rents may be adversely affected by local economic and market
conditions which are beyond management's control; financing may not be available
or may not be available on favorable terms; Gables' cash flow may be
insufficient to meet required payments of principal and interest; and existing
indebtedness may mature in an unfavorable credit environment, preventing such
indebtedness from being refinanced or, if financed, causing such refinancing to
occur on terms that are not as favorable as the terms of existing indebtedness.
YEAR 2000 COMPLIANCE
The statements in the following section include "Year 2000 Readiness Disclosure"
within the meaning of the Year 2000 Information and Readiness Disclosure Act of
1998.
The Year 2000 issue occurs when business application software or embedded
microcontrollers use two digits to specify the year, rather than four.
Therefore, on January 1, 2000, unless corrections are made, most computers with
time-sensitive software programs will recognize the year as "00" and may assume
that the year is "1900". This could result in a system failure or
miscalculations which could result in disruptions of normal business operations.
The Year 2000 issue can also affect embedded microcontrollers in non-computer
equipment such as elevators, HVAC and security systems. Gables is in the process
of assessing the impact of the Year 2000 issue on its computer systems
(hardware), software and other equipment with embedded microcontrollers
(non-IT). Gables' Year 2000 Project is divided into four phases, as described
below:
Phase 1 - Inventory assessment: Identify all equipment that could potentially be
affected by the Year 2000 issue. Equipment is divided into three
categories: hardware, software and non-IT.
Phase 2 - Contact vendors and third-party service providers: Contact the vendors
and third-party service providers that maintain and/or support the
equipment identified in Phase I to obtain a Year 2000 compliance
certification.
Phase 3 - Determine scope of non-compliance: Based on vendor response and
in-house testing, assemble a list of items that will not be compliant and
prioritize the items to be either replaced or retrofitted.
Phase 4 - Implementation, identification of alternative solutions and testing:
Replace or retrofit items that are not Year 2000 compliant, identify and
implement alternative solutions to items that cannot be replaced or
retrofitted, and perform testing thereof.
Gables' progress is described by category in the following table:
Category Status Phase 4 Completion Date
-------- ------ -----------------------
Hardware Complete 3/31/99
Software Complete 3/31/99
Non-IT Complete 6/30/99
Gables' costs of addressing the Year 2000 issue have not been, and are not
expected to be, material and relate primarily to costs of upgrading older
equipment in addition to personnel resource allocation. However, no estimates
can be made as to the potential adverse impact resulting from the failure of
third party service providers and vendors to prepare for the Year 2000 issue.
Gables has included banks and utilities in its vendor survey, as their services
are considered to be mission-critical to its business function. As with other
vendors, Gables is attempting to attain compliance certification from these
vendors to assure that there will be no business interruption to its customers
on January 1, 2000. Based on vendor response and in-house testing, Gables has
developed specific contingency plans where necessary. In addition, Gables is in
the process of designing a general contingency plan to be implemented in the
event of unanticipated equipment and systems failures. However, there can be no
assurance that such plan will be adequate or that failures or delays by third
parties in achieving Year 2000 compliance will not result in material business
interruptions, loss of revenues or other adverse effects.
<PAGE>
Page - 23
MANAGEMENT'S DISCUSSION AND ANALYSIS
(Amounts in Thousands, Except Property and Per Share Amounts)
- --------------------------------------------------------------------------------
The discussion above regarding Gables' Year 2000 Project 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. Gables' assessment of the impact of the Year 2000 issue may prove to
be inaccurate due to a number of factors which cannot be determined with
certainty, including the receipt of inaccurate compliance certifications from
third party vendors, inaccurate testing or assessments by Gables' personnel of
its equipment or systems, and inaccurate projections by Gables of the cost of
remediation and/or replacement of affected equipment and systems. A failure by
Gables to adequately remediate or replace affected equipment or systems due to
the factors cited above or for other reasons, a material increase in the actual
cost of such remediation or replacement, or a failure by a third party vendor to
remediate Year 2000 problems in systems that are vital to the operation of
Gables' properties or financial systems, could cause a material disruption to
its business and adversely affect its results of operations and financial
condition.
<PAGE>
Page - 24
MANAGEMENT'S DISCUSSION AND ANALYSIS
- ------------------------------------
<TABLE>
<CAPTION>
DEVELOPMENT COMMUNITIES AT JUNE 30, 1999
Number of Total Actual or Estimated Quarter of
Apartment Budgeted Percent at June 30, 1999 Construction Initial Construction Stabilized
Community Homes Cost Complete Leased Occupied Start Occupancy End Occupancy
- ---------- --------- -------- -------- ------ -------- ------------ --------- ------------ ---------
(millions) (1)
WHOLLY-OWNED DEVELOPMENT COMMUNITIES:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Orlando, FL
- -----------
Gables Chatham Square 448 $37 3% --- --- 2Q 1999 2Q 2000 3Q 2001 3Q 2001
Gables North Village 315 40 1% --- --- 2Q 1999 4Q 2000 1Q 2002 1Q 2002
--- ---
WHOLLY-OWNED TOTALS 763 $77
--- ---
CO-INVESTMENT DEVELOPMENT COMMUNITIES (2), (3):
Atlanta, GA
- -----------
Gables Metropolitan I 435 $49 64% 9% --- 2Q 1998 3Q 1999 2Q 2000 4Q 2000
Houston, TX
- -----------
Gables Raveneaux 382 28 72% 23% 7% 3Q 1998 2Q 1999 1Q 2000 3Q 2000
Dallas, TX
- ----------
Gables San Raphael 222 17 94% 21% 14% 3Q 1998 2Q 1999 3Q 1999 1Q 2000
Gables State Thomas I 290 33 14% --- --- 2Q 1999 2Q 2000 1Q 2001 3Q 2001
Boca Raton, FL
- --------------
Gables Grande Isle 320 23 4% --- --- 2Q 1999 1Q 2000 4Q 2000 1Q 2001
Gables Palma Vista 189 23 35% --- --- 1Q 1999 4Q 1999 2Q 2000 4Q 2000
Gables San Michele II 343 40 58% 17% 8% 3Q 1998 2Q 1999 2Q 2000 4Q 2000
----- ----
CO-INVESTMENT TOTALS 2,181 $213 (3)
----- ----
DEVELOPMENT TOTALS 2,944 $290
===== ====
<FN>
(1) Stabilized occupancy is defined as the earlier to occur of (i) 93% occupancy or (ii) one year after completion of construction.
(2) These communities were contributed into a joint venture in March, 1999.
(3) Construction loan proceeds are expected to fund 50% of total budgeted costs. The remaining costs will be funded by capital
contributions to the venture from the venture partner and Gables in a funding ratio of 80% and 20%, respectively.
</FN>
</TABLE>
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, as amended. The projections and estimates contained in the table above 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 Gables' 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.
<PAGE>
Page - 25
MANAGEMENT'S DISCUSSION AND ANALYSIS
- ------------------------------------
STABILIZED APARTMENT COMMUNITIES AT JUNE 30, 1999
<TABLE>
<CAPTION>
Number of June 30, 1999 June 30, 1999 Scheduled Rent Per
Community Homes Occupancy Unit Square Foot
- ----------------------------- ---------- ------------- ---- -----------
<S> <C> <C> <C> <C>
Houston, TX
- -----------
Austin Colony 237 90% $886 $0.91
Baybrook Village 776 97% 598 0.75
Gables Bradford Place 372 96% 770 0.89
Gables Bradford Pointe 360 96% 669 0.87
Gables Champions 404 92% 826 0.91
Gables CityPlaza 246 98% 912 1.03
Gables Cityscape 252 97% 939 1.10
Gables CityWalk/Waterford Square 317 98% 914 1.13
Gables Edgewater 292 89% 837 0.95
Gables Meyer Park 345 94% 889 1.03
Gables New Territory 256 93% 863 0.95
Gables of First Colony 324 90% 917 0.92
Gables Piney Point 246 91% 965 1.04
Gables Pin Oak Green 582 93% 971 0.95
Gables Pin Oak Park 477 93% 1,006 0.99
Gables River Oaks 228 93% 1,409 1.16
Lions Head 277 89% 752 0.89
Metropolitan Uptown (JV) 318 94% 1,032 1.13
Rivercrest I 140 91% 706 0.84
Rivercrest II 140 85% 694 0.82
Westhollow Park 412 93% 668 0.74
Windmill Landing 259 94% 706 0.81
-------- ----------- ------------- -------------
7,260 93% 847 0.94
Atlanta, GA
- -----------
Briarcliff Gables 104 100% 1,122 0.90
Buckhead Gables 162 99% 823 1.09
Dunwoody Gables 311 95% 841 0.90
Gables Cinnamon Ridge 200 97% 695 0.72
Gables Cityscape 192 99% 863 1.04
Gables Mill 438 96% 829 0.89
Gables Northcliff 82 100% 1,190 0.76
Gables Over Peachtree 263 95% 1,040 1.14
Gables Sugarloaf 386 98% 936 0.94
Gables Vinings 315 97% 1,000 0.93
Gables Walk 310 96% 1,034 0.87
Gables Wood Arbor 140 93% 721 0.79
Gables Wood Crossing 268 92% 733 0.76
Gables Wood Glen 380 94% 720 0.73
Gables Wood Knoll 312 98% 724 0.73
Lakes at Indian Creek 603 92% 630 0.69
Rock Springs Estates 295 95% 886 0.88
Roswell Gables I 384 96% 890 0.82
Roswell Gables II 284 96% 890 0.76
Spalding Gables 252 98% 881 0.89
Wildwood Gables 546 98% 868 0.76
-------- ----------- ------------- -------------
6,227 96% 847 0.84
South FL
- --------
Boca Place 180 97% 838 0.86
Cotton Bay 444 96% 698 0.71
Hampton Lakes 300 96% 756 0.71
Hampton Place 368 96% 721 0.75
Kings Colony 480 99% 760 0.86
Mahogany Bay 328 96% 754 0.75
Mizner on the Green 246 97% 1,564 1.24
San Michele 249 96% 1,395 1.04
<PAGE>
Page - 26
MANAGEMENT'S DISCUSSION AND ANALYSIS
- ------------------------------------
STABILIZED APARTMENT COMMUNITIES AT JUNE 30, 1999
(continued from previous page)
Number of June 30, 1999 June 30, 1999 Scheduled Rent Per
Community Homes Occupancy Unit Square Foot
- ------------------------------- ---------- ------------- ---- -----------
<S> <C> <C> <C> <C>
South FL (continued)
- --------
San Remo 180 96% $1,228 $0.67
Town Colony 172 96% 824 0.96
Vinings at Boynton Beach I 252 96% 875 0.73
Vinings at Boynton Beach II 296 97% 901 0.75
Vinings at Hampton Village 168 97% 802 0.66
Vinings at Town Place 312 93% 822 0.99
Vinings at Wellington 222 93% 996 0.74
--------- ------------ ------------- -------------
4,197 96% 896 0.82
Dallas, TX
- ----------
Arborstone 536 98% 539 0.75
Gables at Pearl Street 108 96% 1,438 1.32
Gables CityPlace 232 98% 1,439 1.37
Gables Green Oaks 300 94% 839 0.88
Gables Mirabella 126 96% 1,276 1.40
Gables Preston 126 96% 1,067 0.97
Gables Spring Park 188 96% 943 0.89
Gables Turtle Creek 150 98% 1,334 1.33
Gables Valley Ranch 319 92% 954 0.93
--------- ------------- ------------- -------------
2,085 96% 963 1.02
Memphis, TN
- -----------
Arbors of Harbortown (JV) 345 91% 858 0.87
Gables Cordova 464 94% 704 0.75
Gables Germantown 252 95% 945 0.81
Gables Quail Ridge 238 83% 917 0.77
Gables Stonebridge 500 94% 695 0.79
--------- ------------- ------------- -------------
1,799 92% 793 0.80
Austin, TX
- ----------
Gables at the Terrace 308 93% 1,061 1.12
Gables Bluffstone 256 96% 1,081 1.10
Gables Central Park 273 88% 1,176 1.25
Gables Great Hills 276 97% 819 0.99
Gables Park Mesa 148 95% 1,121 1.03
Gables Town Lake 256 88% 1,195 1.28
--------- ------------- ------------- -------------
1,517 93% 1,069 1.13
Nashville, TN
- -------------
Brentwood Gables 254 91% 881 0.78
Gables Hendersonville 364 94% 681 0.72
Gables Hickory Hollow I 272 92% 672 0.74
Gables Hickory Hollow II 276 92% 672 0.71
--------- ------------- ------------- -------------
1,166 93% 720 0.74
San Antonio, TX
- ---------------
Gables Colonnade I 312 89% 801 0.88
Gables Wall Street 232 95% 810 0.85
--------- ------------- ------------- -------------
544 92% 804 0.87
Orlando, FL
- -----------
Gables Celebration 231 92% 1,228 1.06
The Commons at Little Lake Bryan I 280 100% --- (A) ---- (A)
--------- ------------- ------------- -------------
511 96% 1,228 1.06
TOTALS 25,306 95% $871 $0.89
========= ============= ============= =============
<FN>
(A)This property is leased to a single user group pursuant to a triple net master lease. Accordingly, scheduled rent
data is not reflected as it is not comparable to the rest of Gables' portfolio.
</FN>
</TABLE>
<PAGE>
Page - 27
MANAGEMENT'S DISCUSSION AND ANALYSIS
- ------------------------------------
PORTFOLIO INDEBTEDNESS AND INTEREST RATE PROTECTION AGREEMENT SUMMARIES
AT JUNE 30, 1999 (Dollars in thousands)
PORTFOLIO INDEBTEDNESS SUMMARY
<TABLE>
<CAPTION>
Percentage Interest Total Years to
Type of Indebtedness Balance of Total Rate (A) Rate (B) Maturity
- -------------------- ------- ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Fixed-rate:
Secured notes $124,606 15.9% 7.80% 7.80% 8.75
Unsecured notes 322,954 41.2% 7.20% 7.20% 4.20
Tax-exempt 90,545 11.5% 5.90% 6.31% 8.17
------------ ---------- ----------- --------- --------
Total fixed-rate $538,105 68.6% 7.12% 7.19% 5.92
------------ ---------- ----------- --------- --------
Tax-exempt variable-rate $150,070 19.2% 3.49% 4.47% 6.94
------------ ---------- ----------- --------- --------
Unsecured credit facilities $95,241 12.2% 6.00% 6.00% 2.15
------------ ---------- ----------- --------- --------
Total portfolio debt (C), (D) $783,416 100.0% 6.29% 6.52% 5.66
============ ========== =========== ========= ========
<FN>
(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, 1999 for purposes of interest
capitalization were $84,104.
(D) Excludes (i) $16.4 million of tax-exempt bonds and $17.7 million of outstanding conventional indebtedness
related to joint ventures in which Gables owns a 25% interest and (ii) $22.2 million of construction loan
indebtedness related to a joint venture in which Gables owns a 20% interest.
</FN>
</TABLE>
INTEREST RATE PROTECTION AGREEMENT SUMMARY
Notional Effective Termination
Description of Agreement Amount Rate Date Date
- ------------------------ -------- ------- --------- -----------
LIBOR, 30-day - "Rate Swap" $44,530 5.35%(E) 08/30/96 08/30/99(F)
LIBOR, 30-day - "Rate Swap" $25,000 5.76%(E) 02/27/98 02/27/00(G)
LIBOR, 30-day - "Rate Swap" $40,000 4.79%(E) 11/30/98 09/29/00
(E) The 30-day LIBOR rate in effect at June 30, 1999 was 5.35%.
(F) This is a knock-out swap agreement which fixes Gables' underlying 30-day
LIBOR rate at 5.35%. The swap terminates upon the earlier to occur of (i)
the termination date or (ii) a rate reset date on which the 30-day LIBOR
rate is 6.26% or higher.
(G) This is a knock-out swap agreement which fixes Gables' underlying 30-day
LIBOR rate at 5.76%. The swap terminates upon the earlier to occur of (i)
the termination date or (ii) a rate reset date on which the 30-day LIBOR
rate is 6.70% or higher.
<PAGE>
Page - 28
SUPPLEMENTAL DISCUSSION - Funds From Operations and Adjusted Funds From
Operations
Gables 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. Gables 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. Gables computes FFO in accordance
with standards established by the National Association of Real Estate Investment
Trusts ("NAREIT"). FFO as defined by NAREIT represents net income (loss)
determined in accordance with GAAP, excluding gains or losses from sales of
assets or debt restructuring plus certain non-cash items, primarily real estate
depreciation, and after adjustments for unconsolidated partnerships and joint
ventures. In addition, extraordinary or unusual items, along with significant
non-recurring events that materially distort the comparative measure of FFO, are
typically disregarded in its calculation. FFO presented herein is not
necessarily comparable to FFO presented by other real estate companies due to
the fact that not all real estate companies use the same definition. However,
Gables' FFO is comparable to the FFO of real estate companies that use the
NAREIT definition. Adjusted funds from operations ("AFFO") is defined as FFO
less recurring, non-revenue enhancing capital expenditures. FFO and AFFO should
not be considered alternatives to net income as indicators of Gables' operating
performance or alternatives to cash flows as measures of liquidity. FFO does not
measure whether cash flow is sufficient to fund all of Gables' cash needs,
including principal amortization, capital expenditures, and distributions to
shareholders and unitholders. Additionally, FFO does not represent cash flows
from operating, investing or financing activities as defined by GAAP. Reference
is made to "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources" for a discussion of
Gables' cash needs and cash flows. A reconciliation of FFO and AFFO follows:
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income available to common shareholders $ 8,861 $7,120 $16,076 $12,873
Minority interest of common unitholders in Operating Partnership 2,136 2,192 3,904 3,251
Non-recurring severance costs (a) 0 0 2,000 0
Non-recurring loss on treasury locks (b) 0 199 0 2,010
Amortization of loss on extension of used treasury locks -47 -46 -92 -50
Gain on sale of real estate assets 0 0 -666 0
Real estate asset depreciation:
Wholly-owned real estate assets 11,721 10,210 23,530 17,694
Joint venture real estate assets 67 56 125 112
------ ------ ------ ------
Total 11,788 10,266 23,655 17,806
------- ------- ------- -------
Funds from operations - basic $22,738 $19,731 $44,877 $35,890
Amortization of discount on long-term liability (c) 164 192 356 192
------- ------- ------- -------
Funds from operations - diluted $22,902 $19,923 $45,233 $36,082
------- ------- ------- -------
Capital expenditures for operating apartment communities:
Carpet $ 1,017 $ 709 $ 1,856 $ 1,152
Roofing 6 34 26 50
Exterior painting 18 0 18 0
Appliances 103 109 212 157
Other additions and improvements 1,450 1,074 2,717 1,691
------- ------- ------- -------
Total 2,594 1,926 4,829 3,050
------- ------- ------- -------
Adjusted funds from operations - diluted $20,308 $17,997 $40,404 $33,032
======= ======= ======= =======
Average shares and Units outstanding - basic 32,537 29,519 32,654 27,808
====== ====== ====== ======
Average shares and Units outstanding - diluted (c) 33,007 30,087 33,176 28,167
====== ====== ====== ======
<PAGE>
Page - 29
MANAGEMENT'S DISCUSSION AND ANALYSIS
(Amounts in Thousands, Except Property and Per Share Amounts)
- --------------------------------------------------------------------------------
<FN>
(a) Severance costs of $2,000 for the six months ended June 30, 1999 represent
a charge associated with Gables' organizational changes, including the
departure of the chief operating officer. The NAREIT definition of FFO
disregards significant non-recurring events that materially distort the
comparative measurement of FFO over time. Gables believes that such
organizational changes that resulted in the charge are unusual and
non-recurring in nature. Gables also believes that other organizational
changes could arise in the future that could result in similar charges.
Gables believes these severance costs materially distort the comparative
measurement of FFO and, therefore, have been disregarded in the calculation
of FFO pursuant to the NAREIT definition of FFO.
(b) Loss on treasury locks of $199 and $2,010 for the three and six months
ended June 30, 1998, respectively, represents mark to market losses
recorded upon the expiration of the terms of treasury lock agreements that
were (i) entered into in anticipation of a projected debt offering and (ii)
subsequently extended in connection with modifications in the projected
timing of the debt offering as a result of unanticipated capital
transactions, including the South Florida Acquisition. The NAREIT
definition of FFO disregards significant non-recurring events that
materially distort the comparative measurement of FFO over time. While
Gables may utilize derivative financial instruments such as rate locks to
hedge interest rate exposure by modifying the interest rate characteristics
of prospective financing transactions, it believes the specific series of
events and circumstances that resulted in the loss of hedge accounting for
these treasury locks is unusual and non-recurring in nature. Gables also
believes that different events and circumstances could arise in the future
that could result in similar losses. Gables believes these losses
materially distort the comparative measurement of FFO and, therefore, have
been disregarded in the calculation of FFO pursuant to the NAREIT
definition of FFO.
(c) This obligation will be settled with Units. Such Units are excluded from
basic shares and Units outstanding, but are included in the calculation of
diluted shares and Units outstanding.
</FN>
</TABLE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Gables' capital structure includes the use of variable rate and fixed rate
indebtedness. As such, Gables is exposed to the impact of changes in interest
rates. Gables' senior management periodically seeks input from third party
consultants regarding market interest rate and credit risk in order to evaluate
its interest rate exposure. In certain situations, Gables may utilize derivative
financial instruments in the form of rate caps, rate swaps or rate locks to
hedge interest rate exposure by modifying the interest rate characteristics of
related balance sheet instruments and prospective financing transactions. Gables
does not utilize such instruments for trading or speculative purposes.
Gables typically refinances maturing debt instruments at then-existing market
interest rates and terms which may be more or less than the interest rates and
terms on the maturing debt.
Refer to the Company's Annual Report on Form 10-K for the year ended December
31, 1998 for detailed disclosure about quantitative and qualitative disclosures
about market risk. Quantitative and qualitative disclosures about market risk
have not materially changed since December 31, 1998.
<PAGE>
Page - 30
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
25, 1999. The shareholders voted to elect John W. McIntyre,
D. Raymond Riddle and Chris D. Wheeler to serve as Class II
Trustees of the Company until their terms expire in 2002 and
their respective successors are duly elected. The votes cast
for, and withheld from, the election of the aforementioned
trustees are listed below:
Votes Votes
Cast For Withheld From
---------- -------------
John W. McIntyre 19,258,239 94,387
D. Raymond Riddle 19,257,896 94,730
Chris D. Wheeler 19,261,264 91,362
Item 5: Other Information
None
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibits
10.1*First Amendment to $225,000,000 Amended and Restated
Credit Agreement dated as of May 13, 1998 by and among
Gables Realty Limited Partnership (as Borrower) and
Wachovia Bank, N.A., First Union National Bank, Chase
Bank of Texas, National Association, PNC Bank, National
Association, Guaranty Federal Bank, F.S.B., AmSouth
Bank of Alabama and Commerzbank AG, Atlanta Agency
(collectively, as lenders) and Wachovia Bank, N.A. (as
Agent) dated June 14, 1999.
27.1*Financial Data Schedule
-----------------------
*Filed herewith
(b) Reports on Form 8-K
(i) A Form 8-K dated April 5, 1999 was filed with the
Securities and Exchange Commission to supplement pro
forma financial information included in the Form 8-K
dated April 1, 1998 filed in connection with the South
Florida Acquisition.
<PAGE>
Page - 32
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.
GABLES RESIDENTIAL TRUST
Date: August 10, 1999 /s/ Marvin R. Banks, Jr.
------------------------
Marvin R. Banks, Jr.
Senior Vice President and
Chief Financial Officer
(Authorized Officer of the Registrant)
Date: August 10, 1999
/s/ Dawn H. Severt
-------------------
Dawn H. Severt
Vice President and
Chief Accounting Officer
FIRST AMENDMENT TO CREDIT AGREEMENT
THIS FIRST AMENDMENT TO CREDIT AGREEMENT (this "First Amendment") is dated
as of the 14th day of June, 1999 among GABLES REALTY LIMITED PARTNERSHIP (the
"Borrower"), WACHOVIA BANK, N.A., as Administrative Agent (the "Administrative
Agent"), FIRST UNION NATIONAL BANK, as Syndication Agent, CHASE BANK OF TEXAS,
NATIONAL ASSOCIATION, as Documentation Agent and WACHOVIA BANK, N.A., FIRST
UNION NATIONAL BANK, CHASE BANK OF TEXAS, NATIONAL ASSOCIATION, COMMERZBANK AG,
ATLANTA AGENCY, PNC BANK, NATIONAL ASSOCIATION, AMSOUTH BANK OF ALABAMA and
GUARANTY FEDERAL BANK, F.S.B. (collectively, the "Banks");
W I T N E S S E T H:
WHEREAS, the Borrower, the Administrative Agent and the Banks executed and
delivered that certain Amended and Restated Credit Agreement, dated as of May
13, 1998 (the "Credit Agreement");
WHEREAS, the Borrower has requested and the Administrative Agent and the
Banks have agreed to certain amendments to the Credit Agreement, subject to the
terms and conditions hereof;
NOW, THEREFORE, for and in consideration of the above premises and other
good and valuable consideration, the receipt and sufficiency of which hereby is
acknowledged by the parties hereto, the Borrower, the Administrative Agent and
the Banks hereby covenant and agree as follows:
1. DEFINITIONS. Unless otherwise specifically defined herein, each term
used herein which is defined in the Credit Agreement shall have the meaning
assigned to such term in the Credit Agreement. Each reference to "hereof",
"hereunder", "herein" and "hereby" and each other similar reference and each
reference to "this Agreement" and each other similar reference contained in the
Credit Agreement shall from and after the date hereof refer to the Credit
Agreement as amended hereby.
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2. AMENDMENT TO SECTION 1.01.
(a) Section 1.01 of the Credit Agreement hereby is amended by adding the
following definitions in the appropriate alphabetical sequence:
"Adjusted Total Assets Value" means Total Assets Value; provided, that in
calculating Adjusted Total Assets Value, clauses (v), (vi) and (vii) of the
definition of Total Assets Value shall be excluded.
"Consolidated Fixed Charges" for any period means the sum of the following
of the Borrower and its Consolidated Subsidiaries, determined on a consolidated
basis (x) Consolidated Interest Expense, plus (y) all scheduled principal
payments (excluding balloon payments payable at maturity), plus (z) all
preferred dividends paid or accrued.
"Consolidated Fixed Charges Coverage Ratio" means, at any date, for the
Fiscal Quarter most recently ended and the immediately preceding 3 Fiscal
Quarters, the ratio of: (i) Consolidated Income Available for Debt Service; to
(ii) Consolidated Fixed Charges.
"Joint Venture" means a Person (i) whose primary business is the
development or ownership of Multi-Family Properties, (ii) in which the Borrower
or any of its Consolidated Subsidiaries owns a legal and beneficial ownership
interest and (iii) whose accounts at any date are not consolidated with those of
the Borrower in its consolidated financial statements as of such date in
accordance with GAAP.
"Joint Venture Property" means a Multi-Family Property which is owned by a
Joint Venture.
"Joint Venture Share" means, with respect to any Joint Venture, the
percentage of legal and beneficial ownership interest in such Joint Venture held
by the Borrower or by any of its Consolidated Subsidiaries.
(b) Section 1.01 of the Credit Agreement hereby is amended by deleting the
definitions of "Borrowing Base", "Consolidated Income Available for Debt
Service", "Construction Period Termination Date", "Debt", "Economically
Occupied", "Termination Date", "Total Assets Value" and "Total Debt", and
substituting the following therefor:
"Borrowing Base" means the sum of each of the following, as determined by
reference to the most recent Borrowing Base Certificate furnished pursuant
to Section 3.01(h) or Section 5.01(h), as applicable:
(i) an amount equal to the product of: (x) 7.22222; times (y) the Net
Operating Income for the 12 month period ending on the last day of the
month just ended prior to the date of determination, from each Eligible
Property which either was on average at least 90% Economically Occupied
during, or with respect to which the Construction Period Termination Date
occurred prior to the commencement of, such 12 month period; provided, that
if an Eligible Property satisfies the criteria set forth in both this
clause (i) and in clause (ii) below, it shall be included in the
calculations only in this clause (i); plus
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(ii) an amount equal to the product of: (x) 28.88889; times (y) the
Net Operating Income for the 3 month period ending on the last day of the
month just ended prior to the date of determination, from each Eligible
Property with respect to which the Construction Period Termination Date did
not occur prior to the commencement of the 12 month period ending on the
last day of the month just ended prior to the date of determination; plus
(iii)an amount equal to the lesser of: (x) 50% of the aggregate amount
of cash expenditures (including indirect costs internally allocated in
accordance with GAAP) as of the last day of the month just ended prior to
the date of determination on all Eligible Properties which consist of
Properties as to which the Construction Period Termination Date has not
occurred as of such last day of the month just ended (provided, that no
more than an aggregate of 20% of such amount shall be included for land on
which construction has not commenced); and (y) 30% of the aggregate
Commitments in effect on the date of determination; less
(iv) the aggregate amount of all outstanding unsecured Consolidated
Debt including standby letters of credit, but excluding the outstanding
balance under this Agreement.
"Consolidated Income Available for Debt Service" shall mean, calculated on
a consolidated basis, the sum of the Borrower's and its Subsidiaries': (i) net
income (but excluding equity in, and income and losses of, joint ventures)
before minority interests and extraordinary items in accordance with GAAP, plus
(ii) depreciation and amortization, plus (iii) losses from sales or joint
ventures, plus (iv) increases in deferred taxes and other non-cash items, minus
(v) gains from sales or joint ventures, minus (vi) decreases in deferred taxes
and other non-cash items, plus (vii) interest expense and letter of credit fees
on tax exempt bonds and plus (viii) taxes (excluding ad valorem taxes).
"Construction Period Termination Date" means, with respect to construction
of Multi-Family Properties and Joint Venture Properties, the date which is 3
months after the issuance of a permanent certificate of occupancy for the last
unit of such Multi-Family Property or a Joint Venture Property.
"Debt" of any Person means at any date, without duplication, (i) all
obligations of such Person for borrowed money, (ii) all obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments (but
excluding such obligations to the extent of principal amounts escrowed or
maintained in a trust or escrow account or other fund with one or more trustees
pursuant to the applicable indenture or other agreement pertaining to such
obligations), (iii) all obligations of such Person to pay the deferred purchase
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price of property or services, except trade accounts payable arising in the
ordinary course of business, (iv) all obligations of such Person as lessee under
capital leases, (v) all obligations of such Person to reimburse any bank or
other Person in respect of amounts payable under a banker's acceptance, (vi) all
Redeemable Preferred Stock of such Person (in the event such Person is a
corporation), (vii) all obligations of such Person to reimburse any bank or
other Person in respect of amounts paid or to be paid or to be paid under a
letter of credit or similar instrument, (viii) all obligations of others secured
by a Lien on any asset of such Person, whether or not such obligations are
assumed by such Person, and (ix) all obligations of others Guaranteed by such
Person.
"Economically Occupied" means, with respect to any Eligible Property, Joint
Venture Property or other Multi-Family Property and in reference to a specified
percentage, that tenants paying rental obligations are occupying at least the
specified percentage of the total number of units at such Eligible Property,
Joint Venture Property or other Multi-Family Property, as the case may be.
"Termination Date" means May 13, 2002, provided, that if any of the
following events occur, the Termination Date shall be such earlier date or later
date as is applicable pursuant to the following: (i) such later date to which it
is extended by the Banks pursuant to Section 2.04(b), in their sole and absolute
discretion; (ii) such earlier date on which the Commitments are terminated
pursuant to Section 2.08 following the occurrence of a Change in Control; (iii)
such earlier date on which the Commitments are terminated pursuant to Section
6.01 following the occurrence of an Event of Default; or (iv) such earlier date
on which the Borrower terminates the Commitments entirely pursuant to Section
2.07.
"Total Assets Value" means the sum of:
(i) the quotient of (x) the Net Operating Income for the 12 month
period ending on the last day of the month just ended prior to the date of
determination, from each Multi-Family Property which either was on average
at least 90% Economically Occupied during, or with respect to which the
Construction Period Termination Date occurred prior to the commencement of,
such 12 month period, divided by (y) 0.09; provided, that if a Multi-Family
Property satisfies the criteria set forth in both this clause (i) and in
clause (ii) below, it shall be included in the calculations only in clause
(ii) below; plus
(ii) an amount equal to the quotient of (x) 400% of the Net Operating
Income for the 3 month period ending on the last day of the month just
ended prior to the date of determination, from each Multi-Family Property
with respect to which the Construction Period Termination Date did not
occur prior to the commencement of the 12 month period ending on the last
day of the month just ended prior to the date of determination, divided by
(y) 0.09; plus
(iii)an amount equal to 100% of the aggregate amount of cash
expenditures (including indirect costs internally allocated in accordance
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with GAAP)as of the last day of the month just ended prior to the date of
determination on all Multi-Family Properties as to which the Construction
Period Termination Date has not occurred as of such last day of the month
just ended, plus
(iv) an amount equal to 100% of all unrestricted cash and cash
equivalents held by the Borrower, including amounts on deposit with banks
or other financial institutions and Investments of the types described in
clauses (i) through (vi), inclusive, of the definition of "Investments",
provided, with respect to Investments described in clause (vi), that such
Investments are readily marketable, plus
(v) the quotient of (x) the Joint Venture Share of the net operating
income for the 12 month period ending on the last day of the month just
ended prior to the date of determination, from each Joint Venture Property
which either was on average at least 90% Economically Occupied during, or
with respect to which the Construction Period Termination Date occurred
prior to the commencement of, such 12 month period, divided by (y) 0.09,
plus
(vi) an amount equal to the Joint Venture Share of the aggregate
amount of the quotient of (x) 400% of the net operating income for the 3
month period ending on the last day of the month just ended prior to the
date of determination, from each Joint Venture Property with respect to
which the Construction Period Termination Date did not occur prior to the
commencement of the 12 month period ending on the last day of the month
just ended prior to the date of determination, divided by (y) 0.09; plus
(vii) an amount equal to the Joint Venture Share of the aggregate
amount of cash expenditures (including indirect costs internally allocated
in accordance with GAAP) as of the last day of the month just ended prior
to the date of determination on each Joint Venture Property as to which the
Construction Period Termination Date has not occurred as of such last day
of the month just ended.
"Total Debt" means the sum (without duplication) of (i) total liabilities
(but excluding such obligations to the extent of principal amounts escrowed
or maintained in a trust or escrow account or other fund with one or more
trustees pursuant to the applicable indenture or other agreement pertaining
to such obligations) of the Borrower and the Guarantors, on a consolidated
basis, plus (ii) the aggregate amount of Debt Guaranteed by the Borrower,
the Guarantors and the other Subsidiaries (other than Guarantees which have
been fully cash collateralized), plus (iii) the Borrower's Joint Venture
Share of the aggregate amount of Debt of all Joint Ventures, plus (iv) the
face amount of all letters of credit (other than amounts which are fully
cash collateralized) for which any of the Borrower or the Guarantors is the
account party, determined at the end of the Borrower's most recent Fiscal
Quarter, less (v) the aggregate amount of all tenant deposits which are
maintained in segregated accounts and classified as restricted cash in
accordance with GAAP, and less (vi) amounts maintained in escrow deposits
with banks or other financial
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institutions for payment of real estate property taxes reflected on the
Borrower's balance sheet and reflected as restricted cash in accordance
with GAAP.
3. AMENDMENT TO SECTION 2.04(b). Section 2.04(b) of the Credit Agreement
hereby is deleted, and the following is substituted therefor:
(b) Notwithstanding the foregoing, the outstanding principal amount of
the Loans, if any, together with all accrued but unpaid interest thereon,
if any, shall be due and payable on May 13, 2002, unless the Termination
Date is otherwise extended by the Banks, in their sole and absolute
discretion. Upon the written request of the Borrower, which request shall
be delivered to the Agent at least 90 days prior to each Extension Date (as
such term is hereinafter defined), the Banks shall have the option (without
any obligation whatsoever so to do) of extending the then current
Termination Date for additional one-year periods from the then current
Termination Date on but not before each of May 13, 2000 and May 13, 2001
(each, an "Extension Date"), but in no event shall the Commitment of any
Bank or any Loan hereunder be outstanding for a period greater than three
(3) years. Notwithstanding any request by the Borrower as described in the
foregoing sentence, in the event that a Bank chooses, in its sole and
absolute discretion, not to extend the Termination Date for such an
additional one-year period, notice shall be given by such Bank to the
Borrower and the Agent not more than 60 days but not less than 45 days
prior to the relevant Extension Date; provided, that the Termination Date
shall not be extended with respect to any of the Banks unless the Required
Banks are willing to extend the Termination Date and either (x) the
remaining Banks shall elect to purchase ratable assignments (without any
obligation so to do) from such terminating Bank (in the form of an
Assignment and Acceptance) in accordance with their respective percentage
of the remaining aggregate Commitments; provided, that, such Banks shall be
provided such opportunity (which opportunity shall allow such Banks at
least 30 days in which to make a decision) prior to the Borrower finding
another bank pursuant to the immediately succeeding clause (y); and,
provided, further, that, should any of the remaining Banks elect not to
purchase such an assignment, then, such other remaining Banks shall be
entitled to purchase an assignment from any terminating Bank which includes
the ratable interest that was otherwise available to such non-purchasing
remaining Bank or Banks, as the case may be, or (y) the Borrower shall find
another bank, acceptable to the Agent, willing to accept an assignment from
such terminating Bank (in the form of an Assignment and Acceptance) or (z)
the Borrower shall reduce the aggregate Commitments in an amount equal to
the Commitment of any such terminating Bank and pay to the terminating Bank
all principal, interest, fees and other amounts then payable to it
hereunder and under such terminating Bank's Notes. Notwithstanding the
foregoing, if the Termination Date is not extended for an additional one
year period on each Extension Date, there shall be no further Extension
Dates or extensions of the Termination Date. If the Termination Date is
extended for an additional one year period on each Extension Date, the
Borrower shall pay to the Agent, for the ratable account of the remaining
Banks, an extension fee in an amount equal to 0.10% of the aggregate
Commitments in effect on the relevant Extension Date, which fee shall be
payable on such Extension Date.
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4. AMENDMENT TO SECTION 2.05(a). Section 2.05(a) of the Credit Agreement
hereby is amended by deleting the table contained therein and substituting
therefor the following table:
<TABLE>
<CAPTION>
Level I Level II Level III Level IV
------- -------- --------- --------
<S> <C> <C> <C> <C>
Debt Rating Greater than or = BBB+ BBB BBB- Less than BBB-
or or or or
Greater than or = Baa1 Baa2 Baa3 Less than Baa3
Applicable
Margin 0.825 0.95 1.10 1.30
</TABLE>
5. AMENDMENT TO SECTION 5.01(c). Section 5.01(c) of the Credit Agreement
hereby is deleted and the following is substituted therefor:
(c) simultaneously with the delivery of each set of financial
statements referred to in paragraphs (a) and (b) above, a certificate,
substantially in the form of Exhibit-F (a "Compliance Certificate"), of an
Executive Officer (i) setting forth in reasonable detail the calculations
required to establish whether the Borrower was in compliance with the
requirements of Sections 5.03 through 5.09, inclusive, and Sections 5.25,
5.27 and 5.28, on the date of such financial statements and (ii) stating
whether any Default exists on the date of such certificate and, if any
Default then exists, setting forth the details thereof and the action which
the Borrower is taking or proposes to take with respect thereto;
6. AMENDMENT TO SECTION 5.11. Section 5.11 of the Credit Agreement hereby
is amended by deleting clause (c) thereof, and the following is substituted
therefor:
(c) the foregoing limitation on the sale, lease or other transfer of
assets and on the discontinuation or elimination of a business line or
segment shall not prohibit,
(i) the sale of Properties, during any period of 12 calendar
months, pursuant to reasonable terms which are no less favorable to
the Borrower or such Subsidiary than would be obtained in a comparable
arm's length transaction with a Person which is not an Affiliate, for
fair market value (as determined in good faith by the Board of
Directors of the Borrower or an Executive Committee thereof), for an
aggregate amount, when combined with all other such sales pursuant to
this clause (c)(i), does not exceed 15% of Consolidated Total Assets
as of the end of the Fiscal Quarter immediately preceding the Fiscal
Quarter in which such 12 calendar month period begins, or
(ii) during any Fiscal Quarter, other transfers of assets or the
discontinuance or elimination of a business line or segment (in a
single transaction or in a series of related transactions) unless the
aggregate assets to be so transferred or utilized in a business line
or segment to be so discontinued, when combined with all other assets
transferred, and all other assets utilized in all other business lines
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or segments discontinued, during such Fiscal Quarter and the
immediately preceding 3 Fiscal Quarters, excluding in all cases sales
permitted under clause (c)(i) above, either (x) constituted more than
5% of Consolidated Total Assets at the end of the Fiscal Quarter
immediately preceding such Fiscal Quarter, or (y) contributed more
than 5% of Consolidated Income Available for Debt Service during the 4
Fiscal Quarters immediately preceding such Fiscal Quarter.
7. NEW SECTION 5.28. A new Section 5.28 hereby is added to the Credit
Agreement, as follows:
SECTION 5.28. Consolidated Fixed Charges Coverage Ratio. At the
end of each Fiscal Quarter, the Consolidated Fixed Charges Coverage
Ratio shall not be less than 1.75 to 1.0.
8. AMENDMENT TO SECTION 5.03. Section 5.03 of the Credit Agreement hereb
is amended and the following is substituted therefor:
SECTION 5.03. Total Secured Debt. The amount of Total Secured
Debt will not at any time exceed 40% of Adjusted Total Assets Value.
9. AMENDMENT TO SECTION 6.01(b). Section 6.01(b) of the Credit Agreement
hereby is amended and the following is substituted therefor:
(b) the Borrower or any Guarantor shall fail to observe or
perform any covenant contained in Sections 5.01(c), 5.02(ii), 5.03
through 5.12, inclusive, Sections 5.22 or Sections 5.24 through 5.28;
or
10. AMENDMENT TO COMPLIANCE CERTIFICATE (Exhibit F).
(a) Paragraph 1 of the Compliance Certificate hereby is deleted
and the following is substituted therefor:
1. Consolidated Total Secured Debt (Section 5.03)
The amount of Total Secured Debt will not at any time exceed 40% of
Adjusted Total Assets Value.
(a) Total Secured Debt Schedule 1 $
----------
(b) Adjusted Total Assets Value Schedule 2 $
----------
(c) 40% of (b) $
----------
Limitation: (a) must be less than (c)
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(b) Paragraph 2 of the Compliance Certificate hereby is deleted
and the following is substituted therefor:
2. Ratio of Total Debt to Total Assets (Section 5.04)
The ratio of Total Debt to Total Assets Value will not at any time
exceed 0.55 to 1.00.
(a) consolidated total liabilities at end of most recent Fiscal
Quarter (other than principal amount equal to cash held in
escrow) $
-------------
(b) aggregate amount of Debt Guaranteed by Borrower, the Guarantor
and the Subsidiaries (other than of Guarantees of Debt of any of
them and Guarantees which have been fully cash collateralized) at
end of most recent Fiscal Quarter $
-------------
(c) Borrower's Joint Venture Share of aggregate amount of Debt of all
Joint Ventures $
-------------
(d) face amount of all letters of credit (other than amounts which
are fully cash collateralized) for which the Borrower or any of
the Guarantors is account party at the end of the most recent
Fiscal Quarter $
-------------
(e) aggregate amount of all tenant deposits which are maintained in
segregated accounts and classified as restricted cash in
accordance with GAAP $
-------------
(f) amounts maintained in escrow deposits with banks or other
financial institutions for payment of real estate property taxes
reflected on the Borrower's balance sheet and reflected as
restricted cash in accordance with GAAP $
-------------
(g) Total Debt (sum of (a) plus (b) plus (c) plus (d) less (e less
(f)) $-------------
(h) Total Assets Value - Schedule 2 $
-------------
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Actual Ratio of (g) to (h) to 1.00
---------
Maximum Ratio Less than 0.55 to 1.00 (1)
(c) a new Paragraph 10 hereby is added to the Compliance Certificate,
as follows:
10. Consolidated Fixed Charges Coverage Ratio (Section 5.28)
At the end of each Fiscal Quarter, the Consolidated Fixed
Charges Coverage Ratio shall not be less than 1.75 to 1.0.
(a) Consolidated Income Available for Debt Service -
Schedule 4 $
-----------
(b) Consolidated Fixed Charges - Schedule 7 $
-----------
(c) Actual Ratio of (a) to (b) to 1.0
------
Minimum Ratio 1.75 to 1.0
(d) Schedules 2, 3, 4 and 7 to the Compliance Certificate hereby are
deleted and Schedules 2, 3, 4 and 7 attached hereto are
substituted therefor.
11. AMENDMENT TO BORROWING BASE CERTIFICATE (Exhibit H) . The Borrowing
Base Certificate hereby is deleted and Exhibit H attached hereto hereby is
substituted therefor.
12. RESTATEMENT OF REPRESENTATIONS AND WARRANTIES. The Borrower hereby
restates and renews each and every representation and warranty heretofore made
by it in the Credit Agreement and the other Loan Documents as fully as if made
on the date hereof (except to the extent such representations and warranties
expressly relate to an earlier date) and with specific reference to this First
Amendment and all other loan documents executed and/or delivered in connection
herewith.
13. EFFECT OF AMENDMENT. Except as set forth expressly hereinabove, all
terms of the Credit Agreement and the other Loan Documents shall be and remain
in full force and effect, and shall constitute the legal, valid, binding and
enforceable obligations of the Borrower. The amendments contained herein shall
be deemed to have prospective application only, unless otherwise specifically
stated herein.
14. RATIFICATION. The Borrower hereby restates, ratifies and reaffirms each
and every term, covenant and condition set forth in the Credit Agreement and the
other Loan Documents effective as of the date hereof.
- -----------------------
(1) 0.60 to 1.0 for the Fiscal Quarter ending June 30, 1998 (but not
thereafter), if a ratio of 0.55 to 1.0 is exceeded solely because of the
South Florida Acquisition.
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<PAGE>
15. COUNTERPARTS. This First Amendment may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed and delivered (which may be by telecopier pursuant to
Section 20 below) shall be deemed to be an original and all of which
counterparts, taken together, shall constitute but one and the same instrument.
16. Section References. Section titles and references used in this First
Amendment shall be without substantive meaning or content of any kind whatsoever
and are not a part of the agreements among the parties hereto evidenced hereby.
17. No Default. To induce the Administrative Agent and the Banks to enter
into this First Amendment and to continue to make advances pursuant to the
Credit Agreement, the Borrower hereby acknowledges and agrees that, as of the
date hereof, and after giving effect to the terms hereof, there exists (i) no
Default or Event of Default and (ii) no right of offset, defense, counterclaim,
claim or objection in favor of the Borrower arising out of or with respect to
any of the Loans or other obligations of the Borrower owed to the Banks under
the Credit Agreement.
18. Further Assurances. The Borrower agrees to take such further actions as
the Administrative Agent shall reasonably request in connection herewith to
evidence the amendments herein contained to the Borrower.
19. Governing Law. This First Amendment shall be governed by and construed
and interpreted in accordance with, the laws of the State of Georgia.
20. Conditions Precedent. This First Amendment shall become effective only
upon (i) execution hereof by the Administrative Agent; (ii) execution and return
to the Administrative Agent at the telecopier number set forth below of a copy
hereof by the Borrower and the Banks; (iii) execution and return to the
Administrative Agent at the telecopier number set forth below of a copy of the
Consent and Reaffirmation of Initial Guarantors at the end hereof and (iv)
payment to the Administrative Agent, for the ratable account of the Banks, of an
amendment and extension fee in an amount equal to 0.15% of the aggregate
Commitments in effect on the date hereof. Executed copies hereof shall be sent
by facsimile to counsel for the Administrative Agent, Jones, Day, Reavis &
Pogue, Attention: Christopher l. Carson, at telecopier number 404-581-8868,
confirmation number 404-581-8035.
[SIGNATURES CONTAINED ON NEXT PAGE]
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<PAGE>
IN WITNESS WHEREOF, the Borrower, the Administrative Agent and each of the
Banks has caused this First Amendment to be duly executed, under seal, by its
duly authorized officer as of the day and year first above written.
GABLES REALTY LIMITED
PARTNERSHIP
(SEAL)
By: Gables GP, Inc., its sole
general partner
By: /s/Marvin R. Banks, Jr.
-----------------------------
Name: Marvin R. Banks, Jr.
Title: Senior Vice President
WACHOVIA BANK, N.A., FIRST UNION NATIONAL BANK.,
as Administrative Agent and as a Bank as Syndication Agent and as a Bank
By: /s/ Mary F. Hughes By: /s/ David Hoagland
----------------------------- -----------------------------
Name: Mary F. Hughes Name: David Hoagland
Title: Vice President Title: Vice President
CHASE BANK OF TEXAS, COMMERZBANK AG, ATLANTA AGENCY,
NATIONAL ASSOCIATION, as a Bank
as Documentation Agent and as a Bank
By: /s/ Susan M. Tate By: /s/ Douglas P. Traynor
----------------------------- -----------------------------
Name: Susan M. Tate Name: Douglas P. Traynor
Title: Vice President Title: Vice President
By: /s/ E. Marcus Perry
-----------------------------
Name: E. Marcus Perry
Title: Assistant Vice President
PNC BANK, NATIONAL AMSOUTH BANK OF ALABAMA,
ASSOCIATION, as a Bank as a Bank
By: /s/ Wayne Robertson By: /s/ James Miller
----------------------------- -----------------------------
Name: Wayne Robertson Name: James Miller
Title: Vice President Title: Vice President
GUARANTY FEDERAL BANK, F.S.B.
as a Bank
By: /s/ Richard V. Thompson
-----------------------------
Name: Richard V. Thompson
Title: Senior Vice President
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SCHEDULE - 2
------------
ADJUSTED TOTAL ASSETS VALUE AND TOTAL ASSETS VALUE
(a) Net Operating Income for the 12 month period ending on
the last day of the month just ended from each
Multi-Family Property which either was on average at
least 90% economically occupied during, or with respect
to which the Construction Period Termination Date occurred
prior to the commencement of, such 12 month period (2) $
--------------
(b) (a) divided by 0.09; $
--------------
(c) Net Operating Income for the 3 month period ending
on the last day of the month just ended from each
Multi-Family Property with respect to which the
Construction Period Termination Date did not occur
prior to the commencement of the 12 month period ending
on the last day of the month just ended $
--------------
(d) (c) times 4.0 $
--------------
(e) (d) divided by 0.09 $
--------------
(f) aggregate amount of cash expenditures (3) as of the last
day of the month just ended on each Multi-Family
Property as to which the Construction Period
Termination Date has not occurred as of such last
day of the month just ended $
--------------
(g) aggregate amount of all cash and cash equivalents
held by the Borrower (4) $
--------------
-----------------------
(2) If a Multi-Family Property satisfies the criteria set forth in both
(a) and (b), in shall be included only in the calculations in (b).
(3) Including indirect costs internally allocated in accordance with GAAP.
(4) Including amounts on deposit with banks or other financial
institutions and Investments of the types described in clauses (i)
through (vi), inclusive, of the definition of "Investments", provided,
with respect to Investments described in clause (vi), that such
Investments are readily marketable.
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<PAGE>
(h) ADJUSTED TOTAL ASSETS VALUE
sum of (b) plus (e) plus (f) plus (g) $
--------------
(i) Joint Venture Share of the net operating income
for the 12 month period ending on the last day of
the month just ended from each Joint Venture
Property which either was on average at least 90%
economically occupied during, or with respect to
which the Construction Period Termination Date
occurred prior to the commencement of, such 12 month
period $
--------------
(j) (i) divided by 0.09 $
--------------
(k) Joint Venture Share of the net operating income
for the 3 month period ending on the last day of
the month just ended from each Joint Venture
Property with respect to which the Construction Period
Termination Date did not occur prior to the commencement
of the 12 month period ending on the last day of the
month just ended $
--------------
(l) (k) times 4.0 $
--------------
(m) (l) divided by 0.09 $
--------------
(n) Joint Venture Share of the aggregate amount of cash
expenditures (5) as of the last day of the month just
ended prior to the date of determination on each
Joint Venture Property which is still under
construction as of such last day of the month just
ended $
--------------
(o) TOTAL ASSETS VALUE
sum of (h) plus (j) plus (m) plus (n) $
--------------
- -----------------------
(5) Including indirect costs internally allocated in accordance with GAAP.
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<PAGE>
SCHEDULE - 3
------------
CONSOLIDATED INCOME AVAILABLE FOR DEBT SERVICE
(for Fiscal Quarter just ended and immediately preceding 3 Fiscal Quarters)
quarter
- ---- ----
net income (6) $
plus minority interests $
less extraordinary gains ($ )
plus extraordinary losses $
plus depreciation and amortization $
plus losses from sales or joint ventures $
less gains from sales or joint ventures ($ )
less decreases in deferred taxes
and non-cash items ($ )
plus increases in deferred taxes
and non-cash items $
plus interest expense $
plus letter of credit fees on
on tax exempt bonds $
plus taxes (excluding ad valorem taxes) $
quarter
- ---- ----
net income (6) $
plus minority interests $
less extraordinary gains ($ )
plus extraordinary losses $
plus depreciation and amortization $
plus losses from sales or joint ventures $
less gains from sales or joint ventures ($ )
less decreases in deferred taxes
and non-cash items ($ )
plus increases in deferred taxes
and non-cash items $
plus interest expense $
plus letter of credit fees on
on tax exempt bonds $
plus taxes (excluding ad valorem taxes) $
quarter
- ---- ----
net income (6) $
plus minority interests $
less extraordinary gains ($ )
plus extraordinary losses $
- -----------------------
(6) Excluding equity in and income and losses of joint ventures
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<PAGE>
plus depreciation and amortization $
plus losses from sales or joint ventures $
less gains from sales or joint ventures ($ )
less decreases in deferred taxes
and non-cash items ($ )
plus increases in deferred taxes
and non-cash items $
plus interest expense $
plus letter of credit fees on
on tax exempt bonds $
plus taxes (excluding ad valorem taxes) $
quarter
- ---- ----
net income (6) $
plus minority interests $
less extraordinary gains ($ )
plus extraordinary losses $
plus depreciation and amortization $
plus losses from sales or joint ventures $
less gains from sales or joint ventures ($ )
less decreases in deferred taxes
and non-cash items ($ )
plus increases in deferred taxes
and non-cash items $
plus interest expense $
plus letter of credit fees on
on tax exempt bonds $
plus taxes (excluding ad valorem taxes) $
Consolidated Income Available
for Debt Service
(last 4 Fiscal Quarters) $
=============
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<PAGE>
SCHEDULE - 4
------------
INCOME AVAILABLE FOR DEBT SERVICE
(for the current calendar year)
First Quarter
net income (7) $
plus minority interests $
less extraordinary gains ($ )
plus extraordinary losses $
plus depreciation and amortization $
plus losses from sales or joint ventures $
less gains from sales or joint ventures ($ )
less decreases in deferred taxes
and non-cash items ($ )
plus increases in deferred taxes
and non-cash items $
plus interest expense $
plus letter of credit fees on
on tax exempt bonds $
plus taxes (excluding ad valorem taxes) $
Second Quarter
net income (7) $
plus minority interests $
less extraordinary gains ($ )
plus extraordinary losses $
plus depreciation and amortization $
plus losses from sales or joint ventures $
less gains from sales or joint ventures ($ )
less decreases in deferred taxes
and non-cash items ($ )
plus increases in deferred taxes
and non-cash items $
plus interest expense $
plus letter of credit fees on
on tax exempt bonds $
plus taxes (excluding ad valorem taxes) $
Third Quarter
net income (7) $
- -----------------------
(7) Excluding equity in and income and losses of joint ventures
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<PAGE>
plus minority interests $
less extraordinary gains ($ )
plus extraordinary losses $
plus depreciation and amortization $
plus losses from sales or joint ventures $
less gains from sales or joint ventures ($ )
less decreases in deferred taxes
and non-cash items ($ )
plus increases in deferred taxes
and non-cash items $
plus interest expense $
plus letter of credit fees on
on tax exempt bonds $
plus taxes (excluding ad valorem taxes) $
fourth quarter
net income (7) $
plus minority interests $
less extraordinary gains ($ )
plus extraordinary losses $
plus depreciation and amortization $
plus losses from sales or joint ventures $
less gains from sales or joint ventures ($ )
less decreases in deferred taxes
and non-cash items ($ )
plus increases in deferred taxes
and non-cash items $
plus interest expense $
plus letter of credit fees on+
on tax exempt bonds $
plus taxes (excluding ad valorem taxes) $
Income Available for Debt Service
(current calendar year) $
===============
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<PAGE>
SCHEDULE - 7
------------
CONSOLIDATED FIXED CHARGES
___ quarter ___
interest expense $
scheduled principal payments (8) $
preferred dividends paid or accrued $
Total $
___ quarter ___
interest expense $
scheduled principal payments (8) $
preferred dividends paid or accrued $
Total $
___ quarter ___
interest expense $
scheduled principal payments (8) $
preferred dividends paid or accrued $
Total $
___ quarter ___
interest expense $
scheduled principal payments (8) $
preferred dividends paid or accrued $
Total $
- -----------------------
(8) Excluding balloon payments payable at maturity.
AT: 1029909v7
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<PAGE>
EXHIBIT H
BORROWING BASE CERTIFICATE
Reference is made to the Amended and Restated Credit Agreement dated as of
May 13, 1998 (as modified and supplemented and in effect from time to time, the
"Credit Agreement") among Gables Realty Limited Partnership, the Banks from time
to time parties thereto and Wachovia Bank, N.A., as Administrative Agent, First
Union National Bank, as Syndication Agent, and Chase Bank of Texas, National
Association, as Documentation Agent. Capitalized terms used herein shall have
the meanings ascribed thereto in the Credit Agreement.
Pursuant to Section [3.01(i)][5.01(h)] of the Credit
Agreement,___________________________ , the duly authorized chief financial
officer of the General Partner, hereby certifies to the Administrative Agent and
the Banks that (i) sufficient funds are available to complete all Eligible
Properties now under construction, and (ii) the calculation of the Borrowing
Base contained in this Borrowing Base Certificate is true, accurate and complete
in all material respects as of ________________,_______ .
The calculation of the Borrowing Base is as follows:
(i) (a) Net Operating Income for the 12 month
period ending on the last day of the
month just ended from each Eligible
Property which either was on
average at least 90% economically
occupied during, or with respect to
which the Construction Period
Termination Date occurred prior
to the commencement of, such
12 month period (9) $______________
(b) product of 7.22222 times (i)(a) $______________
- -----------------------
(9) If an Eligible Property satisfies the criteria set forth in both clause (i)
and in clause (ii), it shall be included in the calculations only in clause (i).
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<PAGE>
(ii) (a) Net Operating Income for the 3 month
period ending on the last day of the
month just ended from each Eligible
Property with respect to which
the Construction Period Termination
Date did not occur prior to the
commencement of the 12 month period
ending on the last day of the month
just ended $
(b) product of 28.88889 times (ii)(a) $
(iii) (a) aggregate amount of cash expenditures
(including indirect costs internally
allocated in accordance with GAAP)
as of the last day of the month just
ended on all Eligible Properties
which consist of Properties as
to which the Construction Period
Termination Date has not occurred
as of such last day of the month
just ended $
(b) 20% of amount in (iii)(a) $
(c) amount in excess of amount in
(iii)(b)for all Eligible Properties
included in (iii)(a)for undeveloped
land $
(d) (iii)(a) less (iii)(c) $
(e) product of 0.50 times (iii)(d) $
(f) aggregate amount of Commitments $
(g) 30% of (iii)(f) $
(h) lesser of (iii)(e) and (iii)(g) $
AT: 1029909v7
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<PAGE>
(iv) aggregate amount of all outstanding
unsecured Consolidated Debt, including
standby letters of credit, other than
the outstanding balance under this
Agreement. $
BORROWING BASE (sum of (i)(b), plus (ii)(b), plus
(iii)(h) and less (iv) $
GABLES REALTY LIMITED PARTNERSHIP (SEAL)
By: Gables GP, Inc., its sole general partner
By:______________________________
[Chief Financial Officer]
AT: 1029909v7
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<PAGE>
CONSENT AND REAFFIRMATION OF GUARANTORS
Each of the undersigned (i) acknowledges receipt of the foregoing First
Amendment to Credit Agreement (the "First Amendment"), (ii) consents to the
execution and delivery of the First Amendment by the parties thereto and (iii)
reaffirms all of its obligations and covenants under the Guaranty Agreement
dated as of May 13, 1998 executed by it, and agrees that none of such
obligations and covenants shall be affected by the execution and delivery of the
First Amendment. This Consent and Reaffirmation may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed and delivered shall be deemed to be an original and all
of which counterparts, taken together, shall constitute but one and the same
instrument.
GABLES GP, INC. (SEAL)
By: /s/ Marvin R. Banks, Jr.
----------------------------
Title: Senior Vice President
GABLES RESIDENTIAL TRUST (SEAL)
By: /s/ Marvin R. Banks, Jr.
----------------------------
Title: Senior Vice President
GABLES-TENNESSEE PROPERTIES (SEAL)
By: Gables Realty Limited Partnership,
a general partner
By: Gables GP, Inc.,
its general partner
By: /s/ Marvin R. Banks, Jr.
----------------------------
Title: Senior Vice President
AT: 1029909v7
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<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF GABLES RESIDENTIAL TRUST FOR THE SIX
MONTHS ENDED JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000913782
<NAME> Gables Residential Trust
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 22,940
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 1,624,560
<DEPRECIATION> 161,343
<TOTAL-ASSETS> 1,532,697
<CURRENT-LIABILITIES> 0
<BONDS> 783,416
4,500
115,000
<COMMON> 266
<OTHER-SE> 427,154
<TOTAL-LIABILITY-AND-EQUITY> 1,532,697
<SALES> 0
<TOTAL-REVENUES> 121,360
<CGS> 0
<TOTAL-COSTS> 72,929
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 22,597
<INCOME-PRETAX> 20,961
<INCOME-TAX> 0
<INCOME-CONTINUING> 20,961
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,076
<EPS-BASIC> 0.61
<EPS-DILUTED> 0.61
</TABLE>
