<PAGE> 1
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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 SEPTEMBER 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ____________
COMMISSION FILE NUMBER 1-12792
---------------------
SUMMIT PROPERTIES INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
MARYLAND 56-1857807
(State or other jurisdiction of incorporation (I.R.S. Employer Identification No.)
or organization)
</TABLE>
212 S. TRYON STREET, SUITE 500, CHARLOTTE, NORTH CAROLINA 28281
(Address of principal executive offices -- zip code)
(704) 334-9905
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
----- -----
---------------------
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
23,311,960 shares outstanding as of October 31, 1997.
================================================================================
<PAGE> 2
SUMMIT PROPERTIES INC.
INDEX
<TABLE>
<CAPTION>
PAGE
----
PART I FINANCIAL INFORMATION
<S> <C> <C>
Item 1 Financial Statements
Consolidated Balance Sheets as of September 30, 1997
and December 31, 1996 (Unaudited)......................... 2
Consolidated Statements of Earnings for the three months and
nine months ended September 30, 1997 and 1996
(Unaudited)............................................... 3
Consolidated Statement of Stockholders' Equity
(Unaudited)............................................... 4
Consolidated Statements of Cash Flows for the nine months
ended September 30, 1997 and 1996 (Unaudited)............. 5
Notes to Consolidated Financial Statements.................. 6
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 10
PART II OTHER INFORMATION
Item 2 Changes in Securities.......................................
22
Item 6 Exhibits and Reports on Form 8-K............................
22
SIGNATURES........................................................... 23
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SUMMIT PROPERTIES INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
<S> <C> <C>
ASSETS
Real estate assets:
Land and land improvements................................ $120,811 $102,605
Buildings and improvements................................ 576,932 472,996
Furniture, fixtures and equipment......................... 49,405 43,021
-------- --------
747,148 618,622
Less: accumulated depreciation............................ (99,789) (85,651)
-------- --------
Operating real estate assets....................... 647,359 532,971
Construction in progress.................................. 118,108 86,157
-------- --------
Net real estate assets............................ 765,467 619,128
Cash and cash equivalents................................... 3,930 3,665
Restricted cash............................................. 5,115 4,121
Deferred financing costs, net............................... 7,294 4,675
Other assets................................................ 4,404 3,402
-------- --------
Total assets................................................ $786,210 $634,991
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Notes payable............................................. $438,094 $309,933
Accrued interest payable.................................. 2,597 1,318
Accounts payable and accrued expenses..................... 17,641 7,257
Dividends and distributions payable....................... 10,867 10,244
Security deposits and prepaid rents....................... 3,605 3,196
-------- --------
Total liabilities................................. 472,804 331,948
-------- --------
Commitments
Minority interest........................................... 45,865 45,829
-------- --------
Stockholders' equity:
Common stock, $.01 par value -- 100,000,000 authorized,
23,306,930 and 22,409,638 shares issued and outstanding
in 1997 and 1996, respectively......................... 233 224
Additional paid-in capital................................ 359,942 342,872
Accumulated deficit....................................... (91,521) (85,068)
Unamortized restricted stock compensation................. (1,113) (814)
-------- --------
Total stockholders' equity........................ 267,541 257,214
-------- --------
Total liabilities and stockholders' equity.................. $786,210 $634,991
======== ========
</TABLE>
See notes to consolidated financial statements.
2
<PAGE> 4
SUMMIT PROPERTIES INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(DOLLARS IN THOUSANDS EXCEPT FOR PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- -------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Rental.................................... $ 28,240 $ 23,143 $ 80,348 $ 65,097
Other property income..................... 1,660 1,293 4,558 3,461
Interest.................................. 97 240 305 395
Other income.............................. 71 95 209 310
----------- ----------- ----------- -----------
Total revenues.................... 30,068 24,771 85,420 69,263
----------- ----------- ----------- -----------
Expenses:
Property operating and maintenance:
Personnel................................. 2,427 2,191 6,899 6,315
Advertising and promotion................. 596 434 1,418 1,015
Utilities................................. 1,312 1,056 3,623 3,036
Building repairs and maintenance.......... 2,326 2,022 6,382 5,456
Real estate taxes and insurance........... 2,573 2,258 8,111 6,744
Depreciation.............................. 5,852 4,682 16,463 13,249
Property supervision...................... 701 576 2,041 1,632
Other operating expenses.................. 797 690 2,356 1,943
----------- ----------- ----------- -----------
16,584 13,909 47,293 39,390
Interest.................................... 5,790 4,292 15,382 13,346
General and administrative.................. 857 764 2,099 2,045
Loss (income) in equity investments:
Summit Management Company................. (111) 66 (86) 161
Real estate joint venture................. -- -- -- (1)
----------- ----------- ----------- -----------
Total expenses.................... 23,120 19,031 64,688 54,941
----------- ----------- ----------- -----------
Income before gain on sale of real estate
assets, minority interest of unitholders
in Operating Partnership and extraordinary
items..................................... 6,948 5,740 20,732 14,322
Gain on sale of real estate assets.......... -- -- 4,366 --
----------- ----------- ----------- -----------
Income before minority interest of
unitholders in Operating Partnership and
extraordinary items....................... 6,948 5,740 25,098 14,322
Minority interest of unitholders in
Operating Partnership..................... (1,031) (974) (3,812) (2,652)
----------- ----------- ----------- -----------
Income before extraordinary items........... 5,917 4,766 21,286 11,670
Extraordinary items, net of minority
interest of unitholders in Operating
Partnership............................... -- (516) -- (516)
----------- ----------- ----------- -----------
Net income.................................. $ 5,917 $ 4,250 $ 21,286 $ 11,154
=========== =========== =========== ===========
Per share data:
Income before extraordinary items......... $ 0.25 $ 0.24 $ 0.92 $ 0.66
=========== =========== =========== ===========
Net income................................ $ 0.25 $ 0.21 $ 0.92 $ 0.63
=========== =========== =========== ===========
Dividends declared........................ $ 0.40 $ 0.39 $ 1.19 $ 1.16
=========== =========== =========== ===========
Weighted average common shares............ 23,273,056 20,040,578 23,113,222 17,742,425
=========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE> 5
SUMMIT PROPERTIES INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
ADDITIONAL RESTRICTED
COMMON PAID IN ACCUMULATED STOCK
STOCK CAPITAL DEFICIT COMPENSATION TOTAL
------ ---------- ----------- ------------ --------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996............... $224 $342,872 $(85,068) $ (814) $257,214
Dividends.............................. -- -- (27,739) -- (27,739)
Issuance of stock...................... 6 11,740 -- -- 11,746
Exercise of stock options.............. -- 738 -- -- 738
Conversion of units to shares.......... 2 3,808 -- -- 3,810
Issuance of restricted stock grants.... -- 570 -- (570) --
Amortization of restricted stock
grants.............................. -- -- -- 271 271
Proceeds from Dividend Reinvestment and
Employee Stock Purchase Plans....... 1 1,759 -- -- 1,760
Costs of shelf registrations........... -- (511) -- -- (511)
Adjustment for minority interest in
Operating Partnership............... -- (1,034) -- -- (1,034)
Net income............................. -- -- 21,286 -- 21,286
---- -------- -------- ------- --------
Balance, September 30, 1997.............. $233 $359,942 $(91,521) $(1,113) $267,541
==== ======== ======== ======= ========
</TABLE>
See notes to consolidated financial statements.
4
<PAGE> 6
SUMMIT PROPERTIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------
1997 1996
--------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 21,286 $ 11,154
Adjustments to reconcile net income to net cash provided
by operating activities:
Extraordinary items.................................... -- 516
(Gain) loss on equity method investments............... (86) 160
Gain on sale of real estate assets..................... (4,366) --
Depreciation and amortization.......................... 17,336 13,994
Increase in restricted cash............................ (994) (610)
Increase in other assets............................... (699) (1,747)
Increase (decrease) in accrued interest payable........ 1,262 (82)
Increase in accounts payable and accrued expenses...... 4,484 4,114
Increase (decrease) in security deposits and prepaid
rents................................................. (104) 557
Increase in minority interest of unitholders in
Operating Partnership................................. 3,812 2,652
--------- --------
Net cash provided by operating activities......... 41,931 30,708
--------- --------
Cash flows from investing activities:
Construction of real estate assets, net of payables....... (68,980) (54,259)
Purchase of Communities................................... (57,749) (6,360)
Proceeds from sale of Community........................... 9,271 --
Capitalized interest...................................... (4,528) (2,884)
Recurring capital expenditures............................ (2,589) (1,805)
Non-recurring capital expenditures........................ (3,317) (2,329)
--------- --------
Net cash used in investing activities............. (127,892) (67,637)
--------- --------
Cash flows from financing activities:
Debt proceeds, net of underwriters discount, offering and
related costs.......................................... 226,920 80,775
Debt repayments........................................... (117,358) (103,751)
Dividends and distributions to unitholders................ (32,104) (23,761)
Payments of financing costs............................... (32) (148)
Issuance of stock......................................... 6,813 --
Exercise of stock options................................. 738 224
Common stock offering proceeds, net of underwriters
discount, offering and related costs................... -- 97,619
Shelf registration costs.................................. (511) --
Proceeds from Dividend Reinvestment and Employee Stock
Purchase Plans......................................... 1,760 1,262
--------- --------
Net cash provided by financing activities......... 86,226 52,220
--------- --------
Net increase in cash and cash equivalents................... 265 15,291
Cash and cash equivalents, beginning of period.............. 3,665 2,881
--------- --------
Cash and cash equivalents, end of period.................... $ 3,930 $ 18,172
========= ========
Supplemental disclosure of cash flow information -- Cash
paid for interest, net of capitalized interest............ $ 13,359 $ 12,643
========= ========
</TABLE>
See notes to consolidated financial statements.
5
<PAGE> 7
SUMMIT PROPERTIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared by the
management of Summit Properties Inc., (the "Company") in accordance with
generally accepted accounting principles for interim financial information and
in conformity with the rules and regulations of the Securities and Exchange
Commission. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
only of normal recurring adjustments) considered necessary for a fair
presentation have been included. The results of operations for the nine months
ended September 30, 1997 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 Company's December 31, 1996 audited financial statements
and notes thereto included in the Company's Annual Report on Form 10-K.
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standard No. 128 (SFAS No. 128), "Earnings Per Share," which will be
effective for periods ending after December 15, 1997. SFAS No. 128 will change
the method for calculating earnings per share. Had the Company applied SFAS No.
128 for the three and nine months ended September 30, 1997, the effect on
reported earnings per share would not be significant.
2. ACQUISITIONS AND DISPOSITIONS
During 1997, the Company completed the acquisition of four Communities: Summit
Mayfaire, Summit Portofino, Summit Sand Lake and Summit Windsor II. The
acquisitions added a total of 1,188 apartment homes to the Company's portfolio
at an aggregate purchase price of $82.9 million. The acquisitions were primarily
financed with the assumption of $15.2 million in debt, the issuance of 243,608
shares of Common Stock, the issuance of 194,495 Operating Partnership Units in
Summit Properties Partnership, L.P., (the "Operating Partnership"), and the
payment of $57.7 million in cash.
In addition, the Company acquired its joint venture partner's interest in Summit
Plantation (formerly Plantation Cove) apartment community on April 1, 1996. The
Company paid $6.4 million in cash for the remaining 75% interest in this joint
venture, which is now owned entirely by the Company.
The following summary of selected unaudited pro forma results of operations
presents information as if the communities acquired in 1997 and the Summit
Plantation acquisition had occurred at the beginning of each period presented.
The pro forma information for the nine months ended September 30, 1997 and 1996
is provided for informational purposes only and is not indicative of results
that would have occurred or which may occur in the future (dollars in thousands,
except per share amounts):
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------
1997 1996
----------- -----------
<S> <C> <C>
Net revenues................................................ $ 87,356 $ 78,131
=========== ===========
Income before gain on sale of real estate assets and
minority interest of unitholders in Operating
Partnership............................................... $ 20,613 $ 13,922
=========== ===========
Net income.................................................. $ 21,154 $ 11,313
=========== ===========
Net income per share........................................ $ 0.91 $ 0.62
=========== ===========
Weighted average shares..................................... 23,193,144 18,301,062
=========== ===========
Weighted average shares and units........................... 27,386,667 22,522,939
=========== ===========
</TABLE>
6
<PAGE> 8
SUMMIT PROPERTIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
On May 14, 1997, the Company sold a community in Charlotte, North Carolina known
as Summit Charleston for $9.5 million. A gain on the sale of $4.4 million was
recognized. Proceeds from the sale were used to partially fund the acquisition
of Summit Windsor II.
3. SENIOR UNSECURED DEBT OFFERING
On August 12, 1997, the Company completed a $125 million senior unsecured debt
offering (the Notes). The Notes consist of: $25 million of 6.8% Notes due on
August 15, 2002, $50 million of 6.95% Notes due on August 15, 2004 and $50
million of 7.2% Notes due on August 15, 2007. The Notes are redeemable at any
time at the option of the Company, in whole or in part, at a redemption price
equal to the sum of the principal amount of the Notes and the make-whole amount,
if any, based upon the available reinvestment rate. The Notes are not subject to
any mandatory sinking fund and are unsecured obligations of the Company. The
related indenture contains various covenants including certain restrictions on
future indebtedness, limitations on encumbered assets and maintenance of a
minimum debt coverage ratio.
4. RESTRICTED STOCK
In the nine months ended September 30, 1997 and 1996, the Company granted 26,528
and 56,041 shares, respectively, of restricted stock to employees under the
Company's 1994 Stock Option and Incentive Plan. The market value of the
restricted stock grants in 1997 and 1996 totaled $570,000 and $1.1 million,
respectively, which has been recorded as unamortized restricted stock
compensation and is shown as a separate component of stockholders' equity.
Unearned compensation is being amortized to expense over the vesting period
which ranges from three to five years.
5. SUPPLEMENTAL CASH FLOW INFORMATION
Non-cash investing and financing activities for the nine months ended September
30, 1997 and 1996 are as follows:
A. In the nine months ended September 30, 1997, the Company purchased four
communities (Summit Mayfaire, Summit Portofino, Summit Sand Lake and Summit
Windsor II). The Company completed the purchase of the four Communities by
assuming debt, issuing 194,495 Operating Partnership Units, issuing 243,608
shares of Common Stock, assuming certain liabilities and current assets,
and the payment of cash. The recording of the purchases is summarized as
follows (in thousands):
<TABLE>
<S> <C>
Fixed assets................................................ $ 82,898
Other assets................................................ 30
Debt assumed................................................ (15,226)
Current liabilities assumed................................. (1,081)
Value of Operating Partnership Units issued................. (3,939)
Value of Common Stock issued................................ (4,933)
--------
Cash invested..................................... $ 57,749
========
</TABLE>
7
<PAGE> 9
SUMMIT PROPERTIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
B. On April 1, 1996, the Company acquired its joint venture partner's
interest in the Summit Plantation (formerly Plantation Cove) apartment
community. The Company paid $6.4 million in cash for the remaining 75%
interest in this joint venture, which is now owned entirely by the Company.
The recording of the purchase is summarized as follows (in thousands):
<TABLE>
<S> <C>
Fixed assets................................................ $ 21,913
Current assets.............................................. 202
Deferred charges............................................ 95
Debt assumed................................................ (14,347)
Current liabilities assumed................................. (288)
Equity investment........................................... (1,215)
--------
Net cash paid..................................... $ 6,360
========
</TABLE>
C. The Company issued 106,330 Operating Partnership Units, (valued at $2.1
million) for the purchase of land during the nine months ended September
30, 1996.
D. The Company accrued a dividend and distribution payable in the amount of
$10.9 million and $10.2 million at September 30, 1997 and 1996,
respectively.
E. The Company issued 26,528 and 56,041 shares, respectively, of restricted
stock valued at $570,000 and $1.1 million during the nine months ended
September 30, 1997 and 1996, respectively.
6. CHANGES IN OWNERSHIP OF OPERATING PARTNERSHIP
As of September 30, 1997, there were 27,339,016 Units outstanding of the
Operating Partnership, of which 23,306,930, or 85.3% were owned by the Company
and 4,032,086, or 14.7% were owned by other partners (including certain officers
and directors of the Company). Minority interest of unitholders in the Operating
Partnership is calculated at the balance sheet date based upon the percentage of
Units outstanding owned by partners other than the Company to the total number
of Units outstanding. Minority interest of unitholders in Operating Partnership
earnings is calculated based on the weighted average Units outstanding during
the period.
Units can be exchanged for cash, or at the option of the Company, for shares of
Common Stock on a one-to-one basis. With respect to Units issued in conjunction
with the initial formation of the Company as a REIT, the redemption of Units for
shares of Common Stock is recorded at book value. With respect to Units issued
subsequent to that date, the redemption of Units for shares of Common Stock is
accounted for as the purchase of a minority interest and, therefore, recorded at
the fair market value of the shares of Common Stock issued at the date of the
redemption.
Proceeds from Common Stock issued by the Company are contributed to the
Operating Partnership for an equivalent number of Units. The following is a
summary of significant Units issued and the Company's ownership percentage
before and after each transaction for the nine months ended September 30, 1997
and 1996:
<TABLE>
<CAPTION>
COMPANY'S
OWNERSHIP AS A
PERCENTAGE OF THE
OPERATING
PARTNERSHIP
NUMBER OF PRICE PER DOLLAR -----------------
DATE DESCRIPTION UNITS UNIT VALUE BEFORE AFTER
- ---- ----------- --------- --------- ------------ ------- ------
<S> <C> <C> <C> <C> <C> <C>
1996 Purchase of land........................ 106,330 $19.75 $ 2,100,000 80.77% 80.35%
1996 Issuance of stock....................... 5,750,000 18.00 103,500,000 80.49% 84.74%
1997 Issuance of stock....................... 315,029 21.62 6,812,500 84.81% 84.99%
1997 Summit Sand Lake purchase............... 438,103 20.25 8,871,581 85.02% 84.54%
</TABLE>
8
<PAGE> 10
SUMMIT PROPERTIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
Units issued for land and the Summit Sand Lake purchase were valued based upon
the Company's market value price per share of Common Stock as the Units can be
exchanged for shares on a one-to-one basis. In addition, of the 438,103 Units
issued for the Summit Sand Lake purchase, 243,608 Units were issued to the
Company in exchange for the Company issuing 243,608 shares of Common Stock to
the seller of Summit Sand Lake.
9
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Form 10-Q contains forward-looking statements including, without
limitation, statements relating to the operating performance of stabilized
communities and development activities of the Company within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934, as amended. Although the Company believes that the
expectations reflected in such forward-looking statements are based on
reasonable assumptions, the Company's actual results and performance of
stabilized and development communities could differ materially from those set
forth in the forward-looking statements. Certain factors that might cause such a
difference include general economic conditions, local real estate market
conditions, construction delays due to unavailability of materials, weather
conditions or other delays and those factors discussed in the last paragraph
under the heading entitled "Operating Performance of the Company's Stabilized
Communities" and in the section entitled "Development Activity -- Certain
Factors Affecting the Performance of Development Communities" on pages 12 and
19, respectively, of this Form 10-Q.
As of September 30, 1997, there were 27,339,016 Units outstanding of the
Operating Partnership, of which 23,306,930, or 85.3% were owned by the Company
and 4,032,086, or 14.7% were owned by other partners (including certain officers
and directors of the Company).
The following discussion should be read in conjunction with the Consolidated
Financial Statements of Summit Properties Inc. and the Notes thereto appearing
elsewhere herein.
HISTORICAL RESULTS OF OPERATIONS
The Company's net income is generated primarily from operations of its apartment
communities (the "Communities"). The changes in operating results from period to
period reflect changes in existing Community performance and increases in the
number of apartment homes due to development and acquisition of new Communities.
Where appropriate, comparisons are made on a "stabilized Communities,"
"acquisition Communities," "stabilized development Communities" and "Communities
in lease-up" basis in order to adjust for changes in the number of apartment
homes. A Community is deemed to be "stabilized" when it has attained either a
physical occupancy level of at least 93% or when construction has been completed
for one year in each of the comparable periods presented. A Community is deemed
to be a "stabilized development" when stabilized in the entire current period
presented but was in lease-up in the prior period presented.
Results of Operations for the Three and Nine Months Ended September 30, 1997
and 1996
For the three and nine months ended September 30, 1997, income before gain on
sale of real estate assets, minority interest and extraordinary items increased
$1.2 million and $6.4 million, respectively, to $6.9 million and $20.7 million,
respectively, from the three and nine months ended September 30, 1996.
10
<PAGE> 12
OPERATING PERFORMANCE OF THE COMPANY'S PORTFOLIO OF COMMUNITIES
The operating performance of the Communities for the three and nine months ended
September 30, 1997 and 1996 is summarized below (dollars in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------- ----------------------------
1997 1996 % CHANGE 1997 1996 % CHANGE
------- ------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Property revenues:
Stabilized communities(1)........... $21,376 $21,072 1.4% $61,115 $60,010 1.8%
Acquisition communities(2).......... 2,743 0 100.0% 8,985 1,467 512.5%
Stabilized development
communities....................... 3,137 2,773 13.1% 9,264 5,768 60.6%
Communities in lease-up............. 2,644 233 1034.8% 5,023 255 1869.8%
Community sold...................... 0 358 (100.0%) 519 1,058 (50.9%)
------- ------- ------- -------
Total property revenues............... 29,900 24,436 22.4% 84,906 68,558 23.8%
------- ------- ------- -------
Property operating and maintenance
expense(3):
Stabilized communities.............. 8,080 8,083 0.0% 23,057 22,902 0.7%
Acquisition communities............. 934 0 100.0% 3,022 515 486.8%
Stabilized development
communities....................... 933 889 4.9% 2,865 2,127 34.7%
Communities in lease-up............. 785 114 588.6% 1,675 161 940.4%
Community sold...................... 0 141 (100.0%) 211 436 (51.6%)
------- ------- ------- -------
Total property operating and
maintenance expense................. 10,732 9,227 16.3% 30,830 26,141 17.9%
------- ------- ------- -------
Property operating income............. $19,168 $15,209 26.0% $54,076 $42,417 27.5%
======= ======= ======= =======
Apartment homes, end of period........ 14,734 12,140 21.4% 14,734 12,140 21.4%
======= ======= ======= =======
</TABLE>
- ---------------
(1) Includes Communities which were stabilized for each of the comparable
periods presented. Three month results include Summit Plantation which was
acquired April 1, 1996.
(2) Three month results include the Communities acquired in 1997. Nine month
results include the Communities acquired in 1997 and Summit Plantation
acquired April 1, 1996.
(3) Before real estate depreciation expense.
A summary of the Company's apartment homes for the nine months ended September
30, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
Apartment homes at January 1................................ 12,454 11,286
Acquisitions................................................ 1,188 262
Developments which began rental operations during the
period.................................................... 1,306 592
Sale of apartment homes..................................... (214) --
------ ------
Apartment homes at September 30............................. 14,734 12,140
====== ======
</TABLE>
11
<PAGE> 13
OPERATING PERFORMANCE OF THE COMPANY'S STABILIZED COMMUNITIES
The operating performance of the 45 and 44 Communities stabilized during the
entire period in each of the three and nine months ended September 30, 1997 and
1996, respectively, are summarized below (dollars in thousands except average
monthly rental revenue):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------- ----------------------------
1997 1996 % CHANGE 1997 1996 % CHANGE
------- ------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Property revenues:
Rental....................................... $20,348 $20,004 1.7% $58,209 $57,089 2.0%
Other........................................ 1,028 1,068 (3.7%) 2,906 2,921 (0.5%)
------- ------- ------- -------
Total property revenues........................ 21,376 21,072 1.4% 61,115 60,010 1.8%
------- ------- ------- -------
Property operating and maintenance expense(1):
Personnel.................................... 1,793 1,923 (6.8%) 5,217 5,580 (6.5%)
Advertising and promotion.................... 315 254 24.0% 781 634 23.2%
Utilities.................................... 982 922 6.5% 2,719 2,669 1.9%
Building repairs and maintenance............. 1,886 1,886 0.0% 5,186 5,113 1.4%
Real estate taxes and insurance.............. 1,983 2,015 (1.6%) 5,898 5,792 1.8%
Property supervision......................... 530 523 1.3% 1,524 1,491 2.2%
Other operating expense...................... 591 560 5.5% 1,732 1,623 6.7%
------- ------- ------- -------
Total property operating and maintenance
expense...................................... 8,080 8,083 0.0% 23,057 22,902 0.7%
------- ------- ------- -------
Property operating income...................... $13,296 $12,989 2.4% $38,058 $37,108 2.6%
======= ======= ======= =======
Average physical occupancy(2).................. 93.7% 93.7% 0.0% 93.3% 93.3% 0.0%
======= ======= ======= =======
Average monthly rental revenue(3).............. $ 724 $ 712 1.8% $ 734 $ 720 2.0%
======= ======= ======= =======
Number of apartment homes...................... 10,134 10,134 9,872 9,872
======= ======= ======= =======
</TABLE>
- ---------------
(1) Before real estate depreciation expense.
(2) Average physical occupancy is defined as the number of apartment homes
occupied divided by the total number of apartment homes contained in the
Communities, expressed as a percentage. Average physical occupancy has been
calculated using the average of the midweek occupancy that existed during
each week of the period.
(3) Represents the average monthly net rental revenue per occupied apartment
home.
The increase in rental revenue from stabilized Communities for the third quarter
and the first nine months of 1997 compared to 1996 was primarily the result of
increases in average rental rates. Property operating and maintenance expenses
were stable with increases in advertising and promotion, and other operating
expense, offset by a decrease in personnel expense. As a percentage of total
property revenue, property operating and maintenance expenses decreased for the
three months ended September 30, 1996 and 1997 from 38.4% to 37.8% and for the
nine months ended September 30, 1996 and 1997 from 38.2% to 37.7%.
The 1.4% and 1.8% rates of growth in property revenues were lower than the 3.9%
and 4.1% rates of growth in property revenues achieved from the third quarter of
1995 compared to third quarter 1996 and the first nine months of 1995 compared
to the first nine months of 1996, respectively. The growth rate was lower
primarily as a result of a new supply of competing multi-family communities and
the increase in home affordability in some of the markets in which the Company
operates. This lower growth rate was especially noticeable in the Tampa and
Atlanta markets. The Company expects property growth rates for the remainder of
1997 to be similar to the first nine months of 1997 as the supply of new
multi-family communities continues to increase, balanced by the continued
strength of the local economies in which the Company operates. The Company
believes its expectations with respect to property revenue growth are based on
reasonable assumptions as to future economic conditions and the quantity of
competitive multi-family communities in the markets in which the Company does
business. There can be no assurance that actual results will not differ from
these assumptions.
12
<PAGE> 14
OPERATING PERFORMANCE OF THE COMPANY'S ACQUISITION COMMUNITIES
Acquisition communities consist of Summit Mayfaire, Summit Portofino, Summit
Sand Lake and Summit Windsor II acquired in 1997 (1,188 apartment homes) and
Summit Plantation (262 apartment homes) acquired on April 1, 1996, for the nine
month periods presented and only the four Communities acquired in 1997 for the
three month periods presented. The operations of these Communities for the three
and nine months ended September 30, 1997 and 1996 are summarized as follows
(dollars in thousands except average monthly rental revenue):
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------- -----------------
1997 1996 1997 1996
------ ---- ------ ------
<S> <C> <C> <C> <C>
Property revenues:
Rental revenues........................... $2,539 $ 0 $8,404 $1,391
Other property revenue.................... 204 0 581 76
------ ---- ------ ------
Total property revenues..................... 2,743 0 8,985 1,467
------ ---- ------ ------
Property operating and maintenance
expense(1)................................ 934 0 3,022 515
------ ---- ------ ------
Property operating income................... $1,809 $ 0 $5,963 $ 952
====== ==== ====== ======
Average physical occupancy(2)............... 93.4% 0.0% 93.2% 92.8%
====== ==== ====== ======
Average monthly rental revenue(3)........... $ 800 $ 0 $ 820 $ 985
====== ==== ====== ======
Number of apartment homes................... 1,188 0 1,450 262
====== ==== ====== ======
</TABLE>
- ---------------
(1) Before real estate depreciation expense.
(2) Average physical occupancy is defined as the number of apartment homes
occupied divided by the total number of apartment homes contained in the
communities, expressed as a percentage. Average physical occupancy has been
calculated using the average of the midweek occupancy that existed during
each week of the period.
(3) Represents the average monthly net rental revenue per occupied apartment
home.
The decrease in the average monthly rental revenue for the nine months ended
September 30, 1997 as compared to the corresponding period in 1996 is
attributable to lower average monthly rental revenue on the 1997 acquisition
communities in comparison to the 1996 acquisition community. Average monthly
rental revenue for the nine months ended September 30, 1997 for the 1997
acquisitions alone was $772.
The unleveraged yield, defined as property operating income for the three and
nine months ended September 30, 1997 for the Acquisition Communities, as defined
above, on an annualized basis over total acquisition cost, was 9.08% and 9.22%,
respectively. The unleveraged yield for only the four communities acquired in
1997 for the nine months ended September 30, 1997, was 9.17%.
13
<PAGE> 15
OPERATING PERFORMANCE OF THE COMPANY'S STABILIZED DEVELOPMENT COMMUNITIES
The Company had four development communities (Summit Aventura, Summit Hill II,
Summit Green, and Summit River Crossing), which were stabilized during the
entire three and nine months ended September 30, 1997 but were still in
lease-up/construction in the three and nine months ended September 30, 1996. The
operating performance of these four Communities for the three and nine months
ended September 30, 1997 and 1996 is summarized below (dollars in thousands
except average monthly rental revenue):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ ------------------
1997 1996 1997 1996
------- ------- ------- -------
<S> <C> <C> <C> <C>
Property revenues:
Rental revenues............................... $2,936 $2,593 $8,655 $5,377
Other property revenue........................ 201 180 609 391
------ ------ ------ ------
Total property revenues......................... 3,137 2,773 9,264 5,768
------ ------ ------ ------
Property operating and maintenance expense(1)... 933 889 2,865 2,127
------ ------ ------ ------
Property operating income....................... $2,204 $1,884 $6,399 $3,641
====== ====== ====== ======
Average physical occupancy(2)................... 92.3% 81.5% 92.3% 56.7%
====== ====== ====== ======
Average monthly rental revenue(3)............... $ 883 $ 843 $ 884 $ 860
====== ====== ====== ======
Number of apartment homes....................... 1,200 1,200 1,200 1,200
====== ====== ====== ======
</TABLE>
- ---------------
(1) Before real estate depreciation expense.
(2) Average physical occupancy is defined as the number of apartment homes
occupied divided by the total number of apartment homes contained in the
communities, expressed as a percentage. Average physical occupancy has been
calculated using the average of the midweek occupancy that existed during
each week of the period.
(3) Represents the average monthly net rental revenue per occupied apartment
home.
The unleveraged yield, defined as property operating income for the three and
nine months ended September 30, 1997 on an annualized basis over total
development cost, was 10.98% and 10.62%, respectively.
OPERATING PERFORMANCE OF THE COMPANY'S COMMUNITIES IN LEASE-UP
The Company had nine Communities in lease-up in the three and nine months ended
September 30, 1997. A Community in lease-up is defined as one which has
commenced rental operations but has not reached stabilization. A summary of the
nine Communities in lease-up as of September 30, 1997 is as follows (dollars in
thousands):
<TABLE>
<CAPTION>
NUMBER TOTAL ACTUAL/ HOMES Q3 1997 % LEASED
OF ACTUAL/ ANTICIPATED ACTUAL/ COMPLETED AVERAGE AS OF
APARTMENT ESTIMATED CONSTRUCTION ANTICIPATED AT SEPT. 30, OCCUPANCY SEPT. 30,
COMMUNITY HOMES COST COMPLETION STABILIZATION 1997 1997 1997
- --------- --------- --------- ------------ ------------- ------------ --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Summit Fairways............ 240 $ 17,775 Q4 1996 Q3 1997 240 93.88% 99.60%
Summit on the River........ 352 23,922 Q2 1997 Q4 1997 352 82.60% 93.80%
Summit Russett............. 314 23,055 Q3 1997 Q3 1997 314 77.78% 96.20%
Summit Stonefield.......... 216 18,400 Q4 1997 Q1 1998 100 21.80% 62.00%
Summit Ballantyne I........ 246 16,800 Q4 1997 Q2 1998 148 20.70% 49.20%
Summit Sedgebrook I........ 248 15,600 Q4 1997 Q2 1998 128 18.70% 46.80%
Summit Plantation II....... 240 22,000 Q4 1997 Q2 1998 152 20.90% 55.80%
Summit Norcroft II......... 54 3,800 Q4 1997 Q1 1998 12 0.30% 11.10%
Summit Lake I.............. 302 19,700 Q2 1998 Q3 1998 44 0.60% 9.60%
----- --------
2,212 $161,052
===== ========
</TABLE>
14
<PAGE> 16
Property operating income after interest expense was $457,000 and $460,000 for
the nine communities in lease-up for the three and nine months ended September
30, 1997, respectively.
OPERATING PERFORMANCE OF SUMMIT MANAGEMENT COMPANY
The operating performance of Summit Management Company (the "Management
Company") and its wholly-owned subsidiary, Summit Apartment Builders Inc. (the
"Construction Company"), for the three and nine months ended September 30, 1997
and 1996 is summarized below (dollars in thousands):
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------- ---------------
1997 1996 1997 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
Property management revenue........................ $1,213 $1,228 $3,598 $3,526
Construction company income........................ 366 148 824 324
Other management company income.................... 25 27 80 86
------ ------ ------ ------
Total revenue............................ 1,604 1,403 4,502 3,936
Property management expenses:
Operating........................................ 1,054 1,138 3,127 3,287
Depreciation..................................... 48 27 144 83
Amortization..................................... 78 70 226 208
Interest......................................... 75 75 225 225
------ ------ ------ ------
Total property management expenses....... 1,255 1,310 3,722 3,803
Construction company expenses...................... 238 159 694 294
------ ------ ------ ------
Total expenses........................... 1,493 1,469 4,416 4,097
------ ------ ------ ------
Net income (loss) of Summit Management Company..... $ 111 $ (66) $ 86 $ (161)
====== ====== ====== ======
</TABLE>
The increase in property management revenue for the nine months ended September
30, 1997 was the result of higher revenues for managing the Company's
Communities (which was due to an increase in the number of Communities managed
as a result of new developments and acquisitions), offset by a reduction in the
average number of communities managed for third parties during 1997 compared to
1996. Total apartment homes managed for third parties was 4,769 and 7,850 at
September 30, 1997 and 1996, respectively. The Company expects third party
management revenue as a percentage of total property management revenues to
continue to decline as revenues from the Company's communities continue to
increase.
Property management revenues include $415,000 and $604,000 of fees from third
parties for the three months ended September 30, 1997 and 1996, respectively,
and $1.3 million and $1.7 million of fees from third parties for the nine months
ended September 30, 1997 and 1996, respectively.
Construction Company income and expenses increased in 1997 compared to 1996
primarily due to the increased number of construction projects. The increase in
construction projects was a result of the Company's decision to expand its
in-house construction operations in the state of Florida to cover the entire
geographic area in which the Company operates. All of the Construction Company's
income is from contracts with the Company.
OTHER INCOME AND EXPENSES
Interest expense increased $1.5 million and $2.0 million or 34.9% and 15.3% for
the three and nine months ended September 30, 1997, respectively, primarily due
to interest on debt related to the Communities acquired in 1997 and interest on
Communities in lease-up, offset by the Company's repayment of debt in connection
with a public offering of 5.75 million shares of Common Stock in August 1996.
Depreciation expense increased $1.2 million and $3.2 million or 25.0% and 24.3%
for the three and nine months ended September 30, 1997, respectively, primarily
due to Communities acquired in 1997 and 1996, increased depreciation on
Communities that were in construction in 1996, but completed by 1997 and
Communities in lease-up in 1997.
15
<PAGE> 17
General and administrative expenses were relatively stable with an increase of
only $54,000 or 2.6% to $2.1 million for the nine months ended September 30,
1997 from $2.0 million for the same period in 1996. General and administrative
expenses were 2.5% and 3.0% of total revenues for the nine months ended
September 30, 1997 and 1996, respectively.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital is primarily provided by operations and an
unsecured $150 million credit facility (the "Unsecured Credit Facility"). The
Unsecured Credit Facility has a three year term and currently bears interest at
LIBOR + 110 basis points based upon the Company's credit rating of BBB- by
Standard & Poors Rating Group. The interest rate can be reduced in the event of
an upgrade of the Company's unsecured credit rating as assigned by Standard &
Poors Rating Group (which rating must be accompanied by the comparable senior
unsecured bond rating from one of Moody's, Duff & Phelps or Fitch) as follows:
<TABLE>
<CAPTION>
S & P CREDIT RATING RATE
- ------------------- -----------
<S> <C>
BBB-...................................................... LIBOR + 110
BBB....................................................... LIBOR + 95
BBB+...................................................... LIBOR + 80
</TABLE>
The Unsecured Credit Facility provides $25 million for general working capital
purposes with the remaining $125 million available to finance new development
and acquisitions.
On August 12, 1997, the Company completed a $125 million senior unsecured debt
offering comprised of three tranches. The first tranche, $25 million of 6.80%
Notes due on August 15, 2002, was priced at 99.940% to yield 6.81%, or 73 basis
points over the rate on U.S. Treasury securities with a comparable maturity. The
second tranche, $50 million of 6.95% Notes due on August 15, 2004, was priced at
99.764% to yield 6.99% or 81 basis points over the rate on U.S. Treasury
securities with a comparable maturity. The third tranche, $50 million of 7.2%
Notes due on August 15, 2007, was priced at 99.83% to yield 7.22% or 104 basis
points over the rate on U.S. Treasury securities with a comparable maturity. The
proceeds from the Notes were used to pay down the Unsecured Credit Facility.
The Company's outstanding indebtedness at September 30, 1997 totaled $438.1
million. This amount includes approximately $205.8 million in fixed rate
conventional mortgages, $53.0 million of variable rate tax-exempt bonds, $156.0
million of fixed rate unsecured notes, $9.3 million of tax exempt fixed rate
loans, and $14.0 million under the variable rate Unsecured Credit Facility.
The Company's net cash provided by operating activities increased from $30.7
million for the nine months ended September 30, 1996 to $41.9 million for the
same period in 1997 primarily due to a $11.7 million increase in property
operating income.
Net cash used in investing activities increased from $67.6 million for the nine
months ended September 30, 1996 to $127.9 million for the same period in 1997
primarily due to an increase in the acquisition of Communities and an increase
in construction of real estate assets, partially offset by the proceeds from the
sale of a Community in 1997.
Net cash provided by financing activities increased from $52.2 million for the
nine months ended September 30, 1996 to $86.2 million for the same period in
1997, primarily due to an increase in debt proceeds partially offset by lower
Common Stock issuance proceeds, by higher debt repayments and by higher
dividends and distributions to unitholders. The increase in debt proceeds was
primarily due to $125 million senior unsecured debt issued in August, 1997. The
lower Common Stock issuance proceeds were due to a public stock offering in
August, 1996. The higher debt repayments were the result of more credit facility
debt being repaid in 1997 with the proceeds of the $125 million debt offering
than credit facility debt repaid in 1996 with the proceeds of the public stock
offering.
The Company expects to meet its short-term liquidity requirements (i.e.,
liquidity requirements arising within twelve months) generally through its net
cash provided by operations and borrowings under the Unsecured Credit Facility.
The Company believes that its net cash provided by operations will be adequate
to meet its operating
16
<PAGE> 18
requirements and to satisfy applicable REIT dividend payment requirements in
both the short-term and in the long-term. Improvements and renovations at
existing Communities are expected to also be funded from property operations.
The Company expects to meet its long-term liquidity requirements (i.e.,
liquidity requirements arising after twelve months), such as current and future
developments, debt maturities, acquisitions, renovations and other non-recurring
capital expenditures, with borrowings under its Unsecured Credit Facility,
through the issuance of long-term secured and unsecured debt securities and
additional equity securities of the Company, or in connection with the
acquisition of land or improved property, through the issuance of Units of the
Operating Partnership.
On May 14, 1997, the Company sold a community in Charlotte, North Carolina known
as Summit Charleston for $9.5 million. A gain on the sale of approximately $4.4
million was recognized.
The Company purchased an apartment community known as Summit Windsor II for
$17.1 million in cash on July 18, 1997. Summit Windsor II, which was developed
by the Company in 1988, has 306 apartment homes and is located in Frederick,
Maryland. The proceeds from the sale of the Summit Charleston community and
borrowings on the Unsecured Credit Facility were used to fund the purchase. The
third quarter acquisition was in addition to the three Communities with a total
of 1,188 apartment homes acquired at a cost of $65.8 million in the first
quarter of 1997.
The following table sets forth certain information regarding debt financing as
of September 30, 1997 and December 31, 1996:
<TABLE>
<CAPTION>
PRINCIPAL OUTSTANDING
INTEREST ----------------------------
RATE AS OF MATURITY SEPTEMBER 30, DECEMBER 31,
SEPTEMBER 30, 1997 DATE(1) 1997 1996
------------------ -------- ------------- ------------
<S> <C> <C> <C> <C>
FIXED RATE DEBT
Mortgage Loan(2)(3)......................... 5.88% 2/15/01 $121,040 $122,950
Mortgage Loan(2)(3)......................... 7.71% 12/15/05 29,328 29,653
Mortgage Loan(4)............................ 8.00% 09/1/05 8,578 8,638
Mortgage Notes
Summit Hollow I........................... 8.00% 11/1/18 2,254 2,286
Summit Hollow II.......................... 7.75% 1/1/29 2,571 2,587
Summit Creekside.......................... 8.00% 6/1/22 2,847 2,877
Summit Old Town........................... 8.00% 9/1/20 3,061 3,097
Summit Eastchester........................ 8.00% 5/1/21 3,829 3,872
Summit Foxcroft........................... 8.00% 4/1/20 2,743 2,788
Summit Oak................................ 7.75% 12/1/23 2,561 2,585
Summit Sherwood........................... 7.88% 3/1/29 3,310 3,329
Summit Radbourne.......................... 9.80% 3/1/02 8,621 8,683
Summit Sand Lake.......................... 7.88% 2/15/06 15,059 --
Tax Exempt Mortgage Notes
Summit Crossing........................... 6.95% 11/1/25 4,175 4,213
Summit East Ridge......................... 7.25% 12/1/26 5,115 5,156
-------- --------
Total Mortgage Debt............... 215,092 202,714
-------- --------
Unsecured Notes
6.80% Notes due 2002...................... 6.80% 8/15/02 25,000 --
6.95% Notes due 2004...................... 6.95% 8/15/04 50,000 --
7.20% Notes due 2007...................... 7.20% 8/15/07 50,000 --
Bank Note................................. 7.85% 8/3/02 16,000 16,000
Bank Note................................. 7.61% 8/3/00 15,000 15,000
-------- --------
Total Unsecured Notes............. 156,000 31,000
-------- --------
Total Fixed Rate Debt............. 371,092 233,714
</TABLE>
17
<PAGE> 19
<TABLE>
<CAPTION>
PRINCIPAL OUTSTANDING
INTEREST ----------------------------
RATE AS OF MATURITY SEPTEMBER 30, DECEMBER 31,
SEPTEMBER 30, 1997 DATE(1) 1997 1996
------------------ -------- ------------- ------------
<S> <C> <C> <C> <C>
VARIABLE RATE DEBT
Unsecured Credit Facility................. LIBOR +110 9/30/99 14,050 22,357
Tax Exempt Bonds(5)
Summit Belmont......................... 5.55% 4/1/07 11,650 11,850
Summit Hampton......................... 5.55% 6/1/07 12,490 12,700
Summit Pike Creek...................... 5.55% 8/15/20 13,082 13,262
Summit Gateway......................... 5.55% 7/1/07 7,100 7,300
Summit Stony Point..................... 5.55% 4/1/29 8,630 8,750
-------- --------
Total Tax Exempt Bonds............ 52,952 53,862
-------- --------
Total Variable Rate Debt.......... 67,002 76,219
-------- --------
TOTAL OUTSTANDING INDEBTEDNESS.... $438,094 $309,933
======== ========
</TABLE>
- ---------------
(1) With the exception of the Mortgage Loans referred to in Note 3 below, all of
the secured debt can be prepaid at any time. Prepayment of such debt is
generally subject to penalty or premium; however, the tax exempt mortgage
notes can be prepaid at any time without penalty or premium.
(2) Mortgage Loans are secured by the following Communities:
Summit Glen Summit Blue Ash Summit Heron's Run
Summit Springs Summit Square Summit Perico
Summit Village Summit Waterford Summit Providence
Summit Highland Summit Del Ray Summit Meadow
Summit Norcroft Summit Palm Lake Summit Windsor
(3) The Company may elect to extend the maturity of each of these Mortgage Loans
for a period of up to two years by providing six months' written notice.
These Mortgage Loans generally may not be prepaid in whole or in part during
their original term, but may be prepaid in whole or in part at any time
during applicable extension periods, if any, without premium or penalty.
(4) Mortgage Loan secured by Summit Simsbury and Summit Touchstone Communities.
(5) The tax exempt bonds (the "Bonds") bear interest at various rates set by a
remarketing agent at the demand note index plus 0.50%, set weekly, or the
lowest percentage of prime which allows the resale at a price of par. The
Bonds are enhanced by letters of credit from financial institutions (the
"Credit Enhancements"), each of which Credit Enhancements will terminate
prior to the maturity dates of the related Bonds. In the event such Credit
Enhancements are not renewed or replaced upon termination, the related loan
obligations will be accelerated.
The London Interbank Offered Rate (LIBOR) at September 30, 1997 was 5.66%.
18
<PAGE> 20
DEVELOPMENT ACTIVITY
The Company's developments in process at September 30, 1997 are summarized as
follows (dollars in thousands):
<TABLE>
<CAPTION>
TOTAL ESTIMATED ANTICIPATED
APARTMENT ESTIMATED COST TO COST TO CONSTRUCTION
COMMUNITY HOMES COSTS DATE COMPLETE COMPLETION
- --------- --------- --------- -------- --------- ------------
<S> <C> <C> <C> <C> <C>
Summit Stonefield -- Yardley, PA........... 216 $ 18,400 $ 16,329 $ 2,071 Q4 1997
Summit Norcroft II -- Charlotte, NC........ 54 3,800 3,076 724 Q4 1997
Summit Sedgebrook I -- Charlotte, NC....... 248 15,600 13,830 1,770 Q4 1997
Summit Ballantyne I -- Charlotte, NC....... 246 16,800 14,001 2,799 Q4 1997
Summit Plantation II -- Plantation, FL..... 240 22,000 20,445 1,555 Q4 1997
Summit Lake I -- Raleigh, NC............... 302 19,700 13,786 5,914 Q2 1998
Summit Fair Lakes I -- Fairfax, VA......... 370 32,900 9,529 23,371 Q1 1999
Summit New Albany -- Columbus, OH.......... 301 22,600 6,581 16,019 Q1 1999
Summit Governor's Village -- Chapel Hill,
NC....................................... 242 16,400 2,065 14,335 Q4 1998
Summit Ballantyne II -- Charlotte, NC...... 154 10,100 1,626 8,474 Q1 1999
----- -------- -------- -------
2,373 178,300 101,268 77,032
Other development and construction costs... -- -- 16,840 --
----- -------- -------- -------
2,373 $178,300 $118,108 $77,032
===== ======== ======== =======
</TABLE>
In addition, the Company has a commitment to purchase a community (Summit St.
Claire) currently under construction in Atlanta, Georgia for approximately $27.5
million, subject to adjustment based on the percentage of apartment homes leased
as of the date of acquisition. The 336 apartment home community is expected to
be purchased, after reaching rental stabilization, which is currently expected
in the fourth quarter of 1998.
Estimated costs to complete the development communities and the purchase
commitment for Summit St. Claire represent all of the Company's material
commitments for capital expenditures.
Certain Factors Affecting the Performance of Development Communities
The Company is optimistic about the operating prospects of the Communities under
construction even with the increased supply of newly constructed apartment homes
of comparable quality in many of its markets. As with any development community,
there are uncertainties and risks associated with the development of the
Communities described above. While the Company has prepared development budgets
and has estimated completion and stabilization target dates based on what it
believes are reasonable assumptions in light of current conditions, there can be
no assurance that actual costs will not exceed current budgets or that the
Company will not experience construction delays due to the unavailability of
materials, weather conditions or other events.
Other development risks include the possibility of incurring additional cost or
liability resulting from defects in construction material and the possibility
that financing may not be available on favorable terms, or at all, to pursue or
complete development activities. Similarly, market conditions at the time these
Communities become available for leasing will affect the rental rates that may
be charged and the period of time necessary to achieve stabilization, which
could make one or more of the development communities unprofitable or result in
achieving stabilization later than currently anticipated. In addition, the
Company is conducting feasibility and other pre-development work for seven
Communities. The Company could abandon the development of any one or more of
these potential Communities in the event that it determines that market
conditions do not support development, financing is not available on favorable
terms or other circumstances prevent development. Similarly, there can be no
assurance that if the Company does pursue one or more of these potential
Communities that it will be able to complete construction within the currently
estimated development budgets or that construction can be started at the time
currently anticipated.
19
<PAGE> 21
CAPITALIZATION OF FIXED ASSETS AND PROPERTY IMPROVEMENTS
The Company has established a policy of capitalizing those expenditures relating
to acquiring new assets, materially enhancing the value of an existing asset, or
substantially extending the useful life of an existing asset. All expenditures
necessary to maintain a Community in ordinary operating condition (including
replacement carpets) are expensed as incurred.
The Company has a capital expenditure replacement program whereby various
physical components are replaced as necessary to maintain the Communities in
normal operating condition. Certain physical components may be replaced other
than at regular inspection intervals when extraordinary wear has occurred. The
Company also makes capital expenditures for new physical components if these
expenditures will produce sufficient revenue enhancements as to achieve
acceptable returns on invested capital. There are currently no material
commitments with respect to renovation or improvements at existing facilities.
Capitalized expenditures for the nine months ended September 30, 1997 and 1996
are summarized as follows (dollars in thousands):
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------
1997 1996
-------- -------
<S> <C> <C>
Acquisition of new Communities(1)........................... $ 82,898 $21,913
Construction of new Communities(2).......................... 74,382 59,431
Capitalized interest........................................ 4,528 2,884
Non-recurring capital expenditures:
Construction of garages................................... 233 720
Access gates.............................................. 203 133
New signage............................................... 71 113
Water meters.............................................. 19 201
Washer/dryer units........................................ 12 96
Major improvements........................................ 2,560 1,037
Other..................................................... 219 29
-------- -------
Total non-recurring capital expenditures.......... 3,317 2,329
-------- -------
Recurring capital expenditures:
Exterior painting......................................... 868 661
Other community additions and improvements................ 1,642 1,141
Corporate additions....................................... 79 3
-------- -------
Total recurring capital expenditures.............. 2,589 1,805
-------- -------
$167,714 $88,362
======== =======
</TABLE>
- ---------------
(1) Includes the issuance of Units in the Operating Partnership and shares of
Common Stock with a value of $8.9 million and assumption of debt of $15.2
million in 1997. In addition, includes the assumption of $14.3 million of
debt and conversion of equity investment into fixed assets of $1.2 million
in conjunction with the purchase of Summit Plantation in 1996.
(2) Includes issuance of $2.1 million of Units in the Operating Partnership for
the acquisition of land in 1996.
Construction of Communities was funded primarily by unsecured fixed rate debt,
equity offering proceeds and borrowing under the Company's credit facilities.
Other additions and improvements were funded primarily by Community operations
and the Company's credit facilities.
INFLATION
Substantially all of the leases at the Communities are for a term of one year or
less, which, coupled with the relatively high occupancy rates, may enable the
Company to seek increased rents upon renewal of existing leases
20
<PAGE> 22
or commencement of new leases. The short-term nature of these leases generally
serves to reduce the risk to the Company of the adverse effect of inflation.
FUNDS FROM OPERATIONS
The White Paper on Funds from Operations approved by the Board of Governors of
NAREIT in March 1995 defines Funds from Operations as net income (loss)
(computed in accordance with GAAP), excluding gains (or losses) from debt
restructuring and sales of property, plus real estate related depreciation and
amortization and after adjustments for unconsolidated partnerships and joint
ventures. The Company computes Funds from Operations in accordance with the
standards established by the White Paper, which may differ from the methodology
for calculating Funds from Operations utilized by other equity REITs, and,
accordingly, may not be comparable to such other REITs. Funds Available for
Distribution is defined as Funds from Operations less capital expenditures
funded by operations (recurring capital expenditures). The Company's methodology
for calculating Funds Available for Distribution may differ from the methodology
for calculating Funds Available for Distribution utilized by other REITs, and
accordingly, may not be comparable to other REITs. Funds from Operations and
Funds Available for Distribution do not represent amounts available for
management's discretionary use because of needed capital replacement or
expansion, debt service obligations, property acquisitions, development,
dividends and distributions or other commitments and uncertainties. Funds from
Operations and Funds Available for Distribution should not be considered as
alternatives to net income (determined in accordance with GAAP) as an indication
of the Company's financial performance or to cash flows from operating
activities (determined in accordance with GAAP) as a measure of the Company's
liquidity, nor are they indicative of funds available to fund the Company's cash
needs, including its ability to make dividends/distributions. The Company
believes Funds from Operations and Funds Available for Distribution are helpful
to investors as measures of the performance of the Company because, along with
cash flows from operating activities, financing activities and investing
activities, they provide investors with an understanding of the ability of the
Company to incur and service debt and make capital expenditures.
Funds from Operations and Funds Available for Distribution for the three and
nine months ended September 30, 1997 and 1996 are calculated as follows (dollars
in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- -----------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net income.............................. $ 5,917 $ 4,250 $ 21,286 $ 11,154
Gain on sale of real estate assets...... -- -- (4,366) --
Minority interest of Unitholders in
Operating Partnership................. 1,031 974 3,812 2,652
Extraordinary items..................... -- 516 -- 516
Depreciation:
Operating Communities................. 5,843 4,673 16,436 13,221
Summit Plantation..................... -- -- -- 33
---------- ---------- ---------- ----------
Funds from Operations................... 12,791 10,413 37,168 27,576
Recurring capital expenditures(1)....... (1,118) (402) (2,589) (1,805)
---------- ---------- ---------- ----------
Funds Available for Distribution........ $ 11,673 $ 10,011 $ 34,579 $ 25,771
========== ========== ========== ==========
Weighted average shares and units
outstanding........................... 27,369,316 24,070,632 27,252,718 21,769,807
========== ========== ========== ==========
</TABLE>
- ---------------
(1) Recurring capital expenditures are expected to be funded from operations and
consist primarily of exterior painting, new appliances, vinyl, blinds, tile,
and wallpaper. In contrast, non-recurring capital expenditures, such as
major improvements, new garages and access gates, are expected to be funded
by financing activities and are therefore not included in the calculation of
Funds Available for Distribution.
21
<PAGE> 23
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
On July 14, 1997, September 3, 1997 and September 6, 1997 the Company issued to
limited partners of the Operating Partnership 53,165, 79,834 and 27 shares of
Common Stock, respectively. The shares were valued at $2.7 million at the time
of issuance. Such shares of Common Stock were issued in reliance on an exemption
from registration under Section 4(2) of the Securities Act and rules and
regulations promulgated thereunder. In light of information obtained by the
Company in connection with the transaction, management of the Company believes
that the Company may rely on such exemption.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<S> <S> <C>
10.1 -- First Amendment to $150,000,000 Credit Agreement
10.2 -- Schedule of Executives with Executive Severance Agreements
and Executive Severance Agreement
27.1 -- Financial Data Schedule
</TABLE>
22
<PAGE> 24
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SUMMIT PROPERTIES INC.
November 7, 1997 /s/ WILLIAM F. PAULSEN
- ------------------------------- --------------------------------------------
(Date) William F. Paulsen
President and Chief Executive Officer
November 7, 1997 /s/ MICHAEL L. SCHWARZ
- ------------------------------- --------------------------------------------
(Date) Michael L. Schwarz
Executive Vice President and
Chief Financial Officer
23
<PAGE> 25
EXHIBIT INDEX
<TABLE>
<S> <C> <S>
10.1 -- First Amendment to $150,000,000 Credit Agreement
10.2 -- Schedule of Executives with Executive Severance Agreements
and Executive Severance Agreement
27.1 -- Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 10.1
FIRST AMENDMENT TO CREDIT AGREEMENT
THIS FIRST AMENDMENT TO CREDIT AGREEMENT (the "First Amendment") is
made as of this 24th day of July, 1997 by and among SUMMIT PROPERTIES
PARTNERSHIP, L.P., a Delaware limited partnership doing business in North
Carolina as SUMMIT PROPERTIES PARTNERSHIP, LIMITED PARTNERSHIP ("Borrower"),
FIRST UNION NATIONAL BANK (formerly known as First Union National Bank of North
Carolina), a national banking association ("FUNB"), WACHOVIA BANK OF NORTH
CAROLINA, N.A., a national banking association ("Wachovia") and FIRST UNION
NATIONAL BANK (formerly known as First Union National Bank of North Carolina), a
national banking association, as agent (in such capacity, "Agent").
STATEMENT OF PURPOSE
The parties hereto have entered into that certain Credit Agreement
dated November 18, 1996 whereby FUNB and Wachovia agree to lend on the terms and
conditions set forth therein up to One Hundred Fifty Million Dollars
($150,000,000.00) on a revolving basis to Borrower (the "Credit Agreement"). The
parties have discovered that one of the provisions of the Credit Agreement
imposed obligations on the Borrower which were not intended by the parties
thereto. The parties desire to correct such provision in order to properly
reflect the intention of all parties.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree to
amend the Credit Agreement in the manner set forth below:
Section 7.12 of the Credit Agreement is hereby deleted and the
following is inserted in lieu thereof:
"SECTION 7.12. NO ADDITIONAL SECURED RECOURSE DEBT. Neither the
Borrower nor the Guarantor shall incur any secured debt pursuant
to which any creditor shall have recourse against the Borrower,
the Guarantor or any Affiliate of the Borrower or the Guarantor
other than Secured Recourse Debt permitted under SECTION 8.1.5 and
Indebtedness secured by one or more the Bond Financed
Communities."
All terms beginning with capital letters not defined herein shall
have the meanings set forth for such terms in the Credit Agreement. Except as
expressly set forth herein or as may be necessary to reflect the intention of
the parties hereto as set forth herein, all other terms and provisions of the
Credit Agreement are hereby ratified and affirmed.
<PAGE> 2
IN WITNESS WHEREOF, the Borrower, the Agent and the Banks have caused
this Amendment to be executed under seal by their respective duly authorized
officers as of the date first set forth above.
BORROWER:
SUMMIT PROPERTIES PARTNERSHIP, L.P.,
doing business in North Carolina as
Summit Properties Partnership,
Limited Partnership [SEAL]
By: SUMMIT PROPERTIES INC., doing
business in North Carolina as Summit
Properties Real Estate, Inc.,
General Partner
ATTEST: By:
-------------------------------
President
----------------------
By:
-----------------------------
Secretary
--------------------
[CORPORATE SEAL]
FUNB:
FIRST UNION NATIONAL BANK
By:
-----------------------
Thomas D. Pinchak,
Senior Vice President
ATTEST:
- -------------------
Assistant Secretary
[BANK SEAL]
WACHOVIA
WACHOVIA BANK OF NORTH
CAROLINA, N.A.
By:
-----------------------
Wayne A. Osella,
Senior Vice President
ATTEST:
- -------------------
Assistant Secretary
<PAGE> 3
AGENT:
FIRST UNION NATIONAL BANK
By:
----------------------
Thomas D. Pinchak,
Senior Vice President
ATTEST:
- -------------------
Assistant Secretary
[BANK SEAL]
The undersigned, as the Guarantor referred to in the Credit Agreement,
hereby executes this First Amendment to acknowledge its consent thereto and
hereby agrees that it will continue to be bound by the provisions of the
Guaranties executed by it pursuant to the Credit Agreement.
GUARANTOR:
SUMMIT PROPERTIES INC.,
doing business in North
Carolina as Summit
Properties Real Estate, Inc.
By:
----------------------------
President
-------------------
ATTEST:
- -------------------
Assistant Secretary
[CORPORATE SEAL]
<PAGE> 1
EXHIBIT 10.2 Schedule of Executives with Executive Severance Agreements
William F. Paulsen President, Chief Executive Officer and Director
William B. McGuire, Jr. Chairman of the Board of Directors
Michael L. Schwarz Executive Vice President and Chief Financial
Officer
Raymond V. Jones Executive Vice President/Development and
Construction
William B. Hamilton Executive Vice President/Property Management
President of Summit Management Company
<PAGE> 2
EXECUTIVE SEVERANCE AGREEMENT
AGREEMENT made as of this ____ day of _________, 1997 by and between
Summit Properties Inc., a Maryland corporation with its principal place of
business in Charlotte, North Carolina (the "Company"), and of
Charlotte, NC (the "Executive").
1. Purpose. The Company considers it essential to the best interests of
its stockholders to foster the continuous employment of key management
personnel. The Board of Directors of the Company (the "Board") recognizes,
however, that, as is the case with many publicly held corporations, the
possibility of a Change in Control (as defined in Section 2 hereof) exists and
that such possibility, and the uncertainty and questions which it may raise
among management, may result in the departure or distraction of management
personnel to the detriment of the Company and its stockholders. Therefore, the
Board has determined that appropriate steps should be taken to reinforce and
encourage the continued attention and dedication of members of the Company's
management, including the Executive, to their assigned duties without
distraction in the face of potentially disturbing circumstances arising from the
possibility of a Change in Control. Nothing in this Agreement shall be construed
as creating an express or implied contract of employment or any right to be
retained in the employ of the Company. The Company and the Executive have
entered into an Employment Agreement dated December 5, 1996 (as such agreement
may be in effect from time to time, and including any replacement employment
agreement, the "Employment Agreement") that provides for compensation to the
Executive under certain circumstances in the event that the Executive's
employment is terminated. This Agreement is intended to supplement the
Employment Agreement without duplicating payments in the event of the
termination of the Executive's employment.
2. Change in Control and Combination Transactions.
(a) A "Change in Control" shall be deemed to have occurred in any one
of the following events:
(i) any "person," as such term is used in Sections 13(d)
and 14(d) of the Securities Exchange Act of 1934 (the "Act")
(other than the Company, Summit Properties Partnership, L.P.
(together with any other subsidiaries of the Company, the
"Subsidiaries"), or any trustee, fiduciary or other person or
entity holding securities under any employee benefit plan or
trust of the Company or any of its Subsidiaries), together
with all "affiliates" and "associates" (as such terms are
defined in Rule 12b-2 under the Act) of such person, shall
become the "beneficial owner" (as such term is defined in
Rule 13d-3 under the Act), directly or indirectly, of
securities of the Company representing 40% or more of either
(A) the combined voting power of the Company's then
outstanding securities having the right to vote in an election
of the Board ("Voting Securities") or (B) the then outstanding
shares of stock of the Company ("Stock"), in either such case
other than as a result of an acquisition of securities
directly from the Company; or
(ii) persons who, as of the date hereof, constitute the Board(the
"Incumbent Directors") cease for any reason, including, without
limitation, as a result of a tender
<PAGE> 3
offer, proxy contest, merger or similar transaction, to constitute at
least a majority of the Board, provided that any person becoming a
director of the Company subsequent to the date hereof whose election or
nomination for election was approved by a vote of at least a majority
of the Incumbent Directors shall, for purposes of this Agreement, be
considered an Incumbent Director; or
(iii) the stockholders of the Company shall approve (A) any
consolidation or merger of the Company or any Subsidiary where the
stockholders of the Company, immediately prior to the consolidation or
merger, would not, immediately after the consolidation or merger,
beneficially own (as such term is defined in Rule 13d-3 under the Act),
directly or indirectly, shares representing in the aggregate fifty
percent (50%) or more of the voting shares of the corporation issuing
cash or securities in the consolidation or merger (or of its ultimate
parent corporation, if any), (B) any sale, lease, exchange or other
transfer (in one transaction or a series of transactions contemplated
or arranged by any party as a single plan) of all or substantially all
of the assets of the Company or (C) any plan or proposal for the
liquidation or dissolution of the Company.
Notwithstanding the foregoing, a "Change of Control" shall not be deemed to have
occurred for purposes of the foregoing clause (i) solely as the result of an
acquisition of securities by the Company which, by reducing the number of shares
of Stock or other Voting Securities outstanding, increases (x) the proportionate
number of shares of Stock beneficially owned by any person to 40% or more of the
shares of Stock then outstanding or (y) the proportionate voting power
represented by the Voting Securities beneficially owned by any person to 40% or
more of the combined voting power of all then outstanding Voting Securities;
provided, however, that if any person referred to in clause (x) or (y) of this
sentence shall thereafter become the beneficial owner of any additional shares
of Stock or other Voting Securities (other than pursuant to a stock split, stock
dividend, or similar transaction), then a "Change of Control" shall be deemed to
have occurred for purposes of the foregoing clause (i).
(b) A "Combination Transaction" shall be deemed to have occurred if the
Company shall consummate any consolidation or merger of the company or any
Subsidiary where the stockholders of the Company, immediately prior to the
consolidation or merger, would not, immediately after the consolidation or
merger, beneficially own (as such term is defined in Rule 13d-3 under the Act),
directly or indirectly, shares representing in the aggregate 75% or more of
either (i) the combined voting power of the company's then outstanding Voting
Securities or (ii) the then outstanding shares of Stock.
(c) For purposes of determining whether a Change in Control or a
Combination Transaction has occurred, all outstanding options, warrants and
other convertible securities that are then exchangeable or convertible into
Voting Securities of the Company, including, without limitation, all partnership
units of any Subsidiary that are convertible into Voting Securities of the
Company at the option of the holder or the Company, shall be deemed to have been
converted into the applicable number of shares of Voting Securities of the
Company immediately prior to making such determination.
2
<PAGE> 4
3. Terminating Event. A "Terminating Event" shall mean any of the
following events:
(a) termination occurring subsequent to a Change of Control or a
Combination Transaction by the Company of the employment of the Executive with
the Company for any reason other than:
(i) the death of the Executive (which shall be referred to as
a "Death Termination") or total disability of the Executive
(total disability meaning the inability of the Executive to
perform his normal required services under this Agreement for
a period of six consecutive months during the term of this
agreement by reason of the Executive's mental or physical
disability, as determined by the board in good faith in its
sole discretion) (which shall be referred to as a "Disability
Termination") or the retirement of the Executive;
(ii) if the Executive is convicted of, pleads guilty to, or
confesses to any felony or any act of fraud, misappropriation
or embezzlement which has an immediate and materially adverse
effect on the Company, any Subsidiary or any affiliate of the
Company, as determined by the Board in good faith in its sole
discretion;
(iii) if the Executive engaged in a fraudulent act to the
material damage or prejudice of the Company, any Subsidiary or
any affiliate of the Company or in conduct or activities
materially damaging to the property, business or reputation of
the Company, any Subsidiary or any affiliate of the Company,
all as determined by the Board in good faith in its sole
discretion;
(iv) in the event of any material act or omission by the
Executive involving malfeasance or negligence in the
performance of the Executive's duties to the Company to the
material detriment of the Company, any Subsidiary or any
affiliate of the Company, as determined by the Board in good
faith in its sole discretion, which has not been corrected by
the Executive within thirty (30) days after written notice
from the Company of any such act or omission:
(v) failure by the Executive to comply in any material respect
with the terms of the Employment Agreement or any written
policies or directives of the Board as determined by the Board
in
3
<PAGE> 5
good faith in its sole discretion, which has not been
corrected by the Executive within thirty (30) days after
written notice from the Company of such failure; or
(vi) a material breach by the Executive of that certain
Noncompetition agreement between the Executive and the Company
dated January 13, 1994 (the "Noncompetition Agreement") as
determined by the Board in good faith in its sole discretion.
Each of the events described in the foregoing clauses (ii) through (vi) shall be
referred to individually and collectively as a "For Cause Termination."
Notwithstanding any other provision of this Section 3(a), a Terminating Event
shall not be deemed to have occurred pursuant to this Section 3(a) solely as a
result of the Executive being an employee of any direct or indirect successor to
the business or assets of the Company, rather that continuing as an employee of
the Company following a Change in Control or A Combination Transaction. For
purposes of clause (i) of this Section 3(a), "retirement" shall mean termination
of the Executive's employment in accordance with the Company's normal retirement
policy, generally applicable to its salaried employees, as in effect immediately
prior to the change in Control or Combination Transaction, or in accordance with
any retirement arrangement established with respect to the Executive with the
Executive's express written consent; or
(b) termination occurring subsequent to a Change in Control or a
Combination Transaction by the Executive of the Executive's employment with the
company for Good Reason. "Good Reason" shall mean the occurrence of any of the
following, provided that in either case the Board has not corrected such
material reduction described below within thirty (30) days after written notice
by the Executive of such material reduction: (i) there is a material reduction
in the Executive's duties, rights or responsibilities under the Employment
Agreement without his consent, or (ii) there is a material decrease in the
aggregate value of the Executive's compensation and benefits package from the
Company under the Employment Agreement without his consent, other than a
reduction in the Executive's base salary that is permitted under the Employment
Agreement and other than a reduction in compensation and/or benefits affecting a
broad group of employees of the Company as determined by the Board in good faith
in its sole discretion; (iii) there is a relocation of the Company's offices at
which the Executive is principally employed immediately prior to the date of a
Change in Control or Combination Transaction to a location more than fifty (50)
miles from such offices, or the requirement by the Company for the Executive to
be based anywhere other than the Company's offices at such location, except for
required travel on the Company's business to an extent substantially consistent
with the Executive's business travel obligations immediately prior to the Change
in Control or a Combination Transaction; or
4
<PAGE> 6
(c) termination occurring subsequent to a Change of Control by the
Executive of the Executive's employment with the Company for any reason, unless
an event that would constitute grounds for a For Cause Termination of the
Executive's employment has occurred.
4. Severance Payment. In the event that either a Terminating Event
described in Section 3(a), 3(b), or 3(c) occurs within twelve (12) months after
a Change in Control, or a Terminating Event described in Section 3(a) or 3(b)
occurs within twelve (12) months after a Combination Transaction:
(a) the Company shall pay to the Executive an amount equal to the
difference between (i) three (3) times the Executive's salary and cash bonus
paid (including amounts that were deferred by the Executive but would have been
paid in the absence of such deferral) with respect to the fiscal year
immediately preceding the year in which the Terminating Event occurred and (ii)
any amount of severance or other cash compensation paid to the Executive
pursuant to the Employment Agreement as a result of the termination of the
Executive's employment. Said amount shall be paid in one lump sum payment no
later than thirty-one (31) days following the Date of Termination (as such term
is defined in Section 8(b); and
(b) the Company shall pay to the Executive all reasonable legal and
arbitration fees and expenses incurred by the Executive in obtaining or
enforcing any right or benefit provided by this Agreement, except in cases
involving frivolous or bad faith litigation.
5. Additional Benefits.
(a) Anything in this Agreement to the contrary notwithstanding, in the
event it shall be determined that any payment or distribution by the Company to
or for the benefit of the Executive, whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise (the
"Severance Payments"), would be subject to the excise tax imposed by Section
4999 of the Internal Revenue Code of 1986, as amended, ("the Code"), or any
interest or penalties are incurred by the Executive with respect to such excise
tax (such excise tax, together with any such interest and penalties, are
hereinafter collectively referred to as the "Excise Tax"), then the Executive
shall be entitled to receive an additional payment (a "Gross-Up Payment") such
that the net amount retained by the Executive, after deduction of any Excise Tax
on the Severance Payments, any Federal, state and local income tax, employment
tax and Excise Tax upon the payment provided by this subsection, and any
interest and/or penalties assessed with respect to such Excise Tax, shall be
equal to the Severance Payments.
(b) Subject to the provisions of Section 5(c), all determinations
required to be made under this Section 5, including whether a Gross-Up Payment
is required and the amount of such Gross-Up Payment, shall be made by the
Company's independent certified public accounting firm (the "Accounting Firm"),
which shall provide detailed supporting calculations both to the Company and the
Executive within 15 business days of the Date of Termination, if applicable, or
at such earlier time as is reasonably requested by the Company or the Executive.
For purposes of
5
<PAGE> 7
determining the amount of the Gross-Up Payment, the Executive shall be deemed to
pay federal income taxes at the highest marginal rate of federal income taxation
applicable to individuals for the calendar year in which the Gross-Up Payment is
to be made and state and local income taxes at the highest marginal rates of
individual taxation in the state and locality of the Executive's residence on
the Date of Termination, net of the maximum reduction in federal income taxes
which could be obtained from deduction of such state and local taxes. The
initial Gross-Up Payment, if any, as determined pursuant to this Section 5(b),
shall be paid to the Executive within five days of the receipt of the Accounting
Firm's determination. If the Accounting Firm determines that no Excise Tax is
payable by the Executive, the Company shall furnish the Executive with an
opinion of counsel that failure to report the Excise Tax on the Executive's
applicable federal income tax return would not result in the imposition of a
negligence or similar penalty. Any determination by the Accounting Firm shall be
binding upon the Company and the Executive. As a result of the uncertainty in
the application of Section 4999 of the Code at the time of the initial
determination by the Accounting Firm hereunder, it is possible that Gross-Up
Payments which will not have been made by the Company should have been made (an
"Underpayment"). In the event that the Company exhausts its remedies pursuant to
Section 5(c) and the Executive thereafter is required to make a payment of any
Excise Tax, the Accounting Firm shall determine the amount of the Underpayment
that has occurred, consistent with the calculations required to be made
hereunder, and any such Underpayment, and any interest and penalties imposed on
the Underpayment and required to be paid by the Executive in connection with the
proceedings described in Section 5(c), shall be promptly paid by the Company to
or for the benefit of the Executive.
(c) The Executive shall notify the Company in writing of any claim by
the Internal Revenue Service that, if successful, would require the payment by
the Company of the Gross-up Payment. Such notification shall be given as soon as
practicable but no later than 10 business days after the Executive knows of such
claim and shall apprise the Company of the nature of such claim and the date on
which such claim is requested to be paid. The Executive shall not pay such claim
prior to the expiration of the 30-day period following the date on which he
gives such notice to the Company (or such shorter period ending on the date that
any payment of taxes with respect to such claim is due). If the Company notifies
the Executive in writing prior to the expiration of such period that it desires
to contest such claim, the Executive shall:
(i) give the Company any information reasonably requested by
the Company relating to such claim,
(ii) take such action in connection with contesting such claim
as the Company shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such claim by
an attorney selected by the Company,
(iii) cooperate with the Company in good faith in order
effectively to contest such claim, and
6
<PAGE> 8
(iv) permit the Company to participate in any proceedings
relating to such claim; provided, however that the Company shall bear and pay
directly all costs and expenses (including additional interest and penalties)
incurred in connection with such contest and shall indemnify and hold the
Executive harmless, on an after-tax basis, for any Excise Tax or income tax,
including interest and penalties with respect thereto, imposed as a result of
such representation and payment of costs and expenses. Without limitation on the
foregoing provisions of this Section 5(c), the Company shall control all
proceedings taken in connection with such contest and, at its sole option, may
pursue or forego any and all administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such claim and may, at its
sole option, either direct the Executive to pay the tax claimed and sue for a
refund or contest the claim in any permissible manner, and the Executive agrees
to prosecute such contest to a determination before any administrative tribunal,
in a court of initial jurisdiction and in one or more appellate courts, as the
Company shall determine; provided, however, that if the Company directs the
Executive to pay such claim and sue for a refund, the Company shall advance the
amount of such payment to the Executive on an interest-free basis and shall
indemnify and hold the Executive harmless, on an after-tax basis, from any
Excise Tax or income tax, including interest or penalties with respect thereto,
imposed with respect to such advance or with respect to any imputed income with
respect to such advance; and further provided that any extension of the statute
of limitations relating to payment of taxes for the taxable year of the
Executive with respect to which such contested amount is claimed to be due is
limited solely to such contested amount. Furthermore, the Company's control of
the contest shall be limited to issues with respect to which a Gross-Up Payment
would be payable hereunder and the Executive shall be entitled to settle or
contest, as the case may be, any other issues raised by the Internal Revenue
Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount advanced by the
Company pursuant to Section 5(c), the Executive becomes entitled to receive any
refund with respect to such claim, the Executive shall (subject to the Company's
complying with the requirements of Section 5(c)) promptly pay to the Company the
amount of such refund (together with any interest paid or credited thereon after
taxes applicable thereto). If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 5(c), a determination is made that
the Executive shall not be entitled to any refund with respect to such claim and
the Company does not notify the Executive in writing of its intent to contest
such denial of refund prior to the expiration of 30 days after such
determination, then such advance shall be forgiven and shall not be required to
be repaid and the amount of such advance shall offset, to the extent thereof,
the amount of Gross-Up Payment required to be paid.
6. Term. This Agreement shall take effect on the date first set forth
above and shall terminate upon the earlier of (a) immediately prior to a For
Cause Termination by the Company of the employment of the Executive, (b) the
termination of employment of the Executive by the Company or the Executive for
any reason prior to a Change in Control or a Combination Transaction, (c) the
resignation of the Executive other than for Good Reason after a Combination
transaction, but prior to a Change in Control, or (d) immediately prior to the
resignation of the
7
<PAGE> 9
Executive after a Change in Control if any event that would constitute grounds
for a For Cause Termination of the Executive's employment has occurred.
7. Withholding. All payments made by the Company under this Agreement
shall be net of any tax or other amounts required to be withheld by the Company
under applicable law.
8. Notice and Date of Termination; Disputes; Etc.
(a) Notice of Termination. After a Change in Control or Combination
Transaction and during the term of this Agreement, any purported termination of
the Executive's employment (other than by reason of a Death Termination) shall
be communicated by written Notice of Termination from one party hereto to the
other party hereto in accordance with this Section 8. For purposes of this
Agreement, a "Notice of Termination" shall mean a notice which shall indicate
the specific termination provision in this Agreement relied upon and the Date of
Termination.
(b) Date of Termination. "Date of Termination", with respect to any
purported termination of the Executive's employment after a Change in Control or
Combination Transaction and during the term of this Agreement, shall mean (i) if
there is a Disability Termination, thirty (30) days after Notice of Termination
is given (provided that the Executive shall not have returned to the full-time
performance of the Executive's duties during such thirty (30) day period) and
(ii) if the Executive's employment is terminated for any other reason, the date
specified in the Notice of Termination. In the case of a termination by the
Company other than a For Cause Termination (which may be effective immediately),
the Date of Termination shall not be less than thirty (30) days after the Notice
of Termination is given. In the case of a termination by the Executive, the Date
of Termination shall not be less than fifteen (15) days from the date such
Notice of Termination is given. Notwithstanding Section 3(a) of this Agreement,
in the event that the Executive gives a Notice of Termination to the Company,
the Company may unilaterally accelerate the Date of Termination and such
acceleration shall not result in a Terminating Event for purposes of Section
3(a) of this Agreement.
(c) No Mitigation. The Company agrees that, if the Executive's
employment by the Company is terminated during the term of this Agreement, the
Executive is not required to seek other employment or to attempt in any way to
reduce any amounts payable to the Executive by the Company pursuant to Sections
4(a) and (b) hereof. Further, the amount of any payment provided for in this
Agreement shall not be reduced by any compensation earned by the Executive as
the result of employment by another employer, but shall be subject to reduction
by certain amounts received under the Employment Agreement as provided in
Section 4(a) hereof.
(d) Settlement and Arbitration of Disputes. Any controversy or claim
arising out of or relating to this Agreement or the breach thereof shall be
settled exclusively by arbitration in accordance with the laws of the State of
North Carolina by three arbitrators, one of whom shall be appointed by the
Company, one by the Executive and the third by the first two arbitrators. If
8
<PAGE> 10
the first two arbitrators cannot agree on the appointment of a third arbitrator,
then the third arbitrator shall be appointed by the American Arbitration
Association in the City of Charlotte, North Carolina. Such arbitration shall be
conducted in the City of Charlotte, North Carolina in accordance with the rules
of the American Arbitration Association for commercial arbitrations, except with
respect to the selection of arbitrators which shall be as provided in this
Section 8(d). Judgment upon the award rendered by the arbitrators may be entered
in any court having jurisdiction thereof.
9. Assignment; Prior Agreements. Neither the Company nor the Executive
may make any assignment of this Agreement or any interest herein, by operation
of law or otherwise, without the prior written consent of the other party, and
without such consent any attempted transfer shall be null and void and of no
effect. This Agreement shall inure to the benefit of and be binding upon the
Company and the Executive, their respective successors, executors,
administrators, heirs and permitted assigns. In the event of the Executive's
death after a Terminating Event but prior to the completion by the Company of
all payments due him under Section 4(a) and (b) of this Agreement, the Company
shall continue such payments to the Executive's beneficiary designated in
writing to the Company prior to his death (or to his estate, if the Executive
fails to make such designation).
10. Enforceability. If any portion or provision of this Agreement shall
to any extent be declared illegal or unenforceable by a court of competent
jurisdiction, then the remainder of this Agreement, or the application of such
portion or provision in circumstances other than those as to which it is so
declared illegal or unenforceable, shall not be affected thereby, and each
portion and provision of this Agreement shall be valid and enforceable to the
fullest extent permitted by law.
11. Waiver. No waiver of any provision hereof shall be effective unless
made in writing and signed by the waiving party. The failure of any party to
require the performance of any term or obligation of this Agreement, or the
waiver by any party of any breach of this Agreement, shall not prevent any
subsequent enforcement of such term or obligation or be deemed a waiver of any
subsequent breach.
12. Notices. Any notices, requests, demands and other communications
provided for by this Agreement shall be sufficient if in writing and delivered
in person or sent by registered or certified mail, postage prepaid, to the
Executive at the last address the Executive has filed in writing with the
Company, or to the Company at its main office, attention of the Board.
13. Effect on Other Plans. An election by the Executive to resign after
a Change in Control under the provisions of this Agreement shall not be deemed a
voluntary termination of employment by the Executive for the purpose of
interpreting the provisions of any of the Company's benefit plans, programs or
policies. Nothing in this Agreement shall be construed to limit the rights of
the Executive under the Company's benefit plans, programs or policies except as
otherwise provided in Section 5 hereof, and except that the Executive shall have
no rights to
9
<PAGE> 11
any severance benefits under any severance pay plan other than cash amounts
specifically set forth in the Employment Agreement or this Agreement.
14. Amendment. This Agreement may be amended or modified only by a
written instrument signed by the Executive and by a duly authorized
representative of the Company.
15. Governing Law. This Agreement shall be construed under and be
governed in all respects by the laws of the State of North Carolina.
16. Obligations of Successors. In addition to any obligations imposed
by law upon any successor to the Company, the Company will use its best efforts
to require any successor (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the business or
assets of the Company to expressly assume and agree to perform this Agreement in
the same manner and to the same extent that the Company would be required to
perform if no such succession had taken place.
17. Confidential Information. The Executive shall never use, publish or
disclose in a manner adverse to the Company's interests, any proprietary or
confidential information relating to (a) the business, operations or properties
of the Company or any Subsidiary or other affiliate of the Company, or (b) any
materials, processes, business practices, technology, know-how, research,
programs or other information used in the business of the Company or any
Subsidiary or other affiliate of the Company, provided, however, that no breach
or alleged breach of this Section 17 shall entitle the Company to fail to comply
fully and in a timely manner with any other provision hereof. Nothing in this
Agreement shall preclude the Company from seeking money damages, or equitable
relief by injunction or otherwise without the necessity of proving actual damage
to the Company, for any breach by the Executive hereunder.
IN WITNESS WHEREOF, this Agreement has been executed as a sealed
instrument by the Company by its duly authorized officer, and by the Executive,
as of the date first above written.
COMPANY:
SUMMIT PROPERTIES INC.
By:
---------------------------------
Name: Michael G. Malone
Title: Senior Vice President
Secretary & General Counsel
EXECUTIVE:
------------------------------
10
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 3,930
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 865,256
<DEPRECIATION> 99,789
<TOTAL-ASSETS> 786,210
<CURRENT-LIABILITIES> 0
<BONDS> 438,094
0
0
<COMMON> 233
<OTHER-SE> 313,173
<TOTAL-LIABILITY-AND-EQUITY> 786,210
<SALES> 84,906
<TOTAL-REVENUES> 85,420
<CGS> 0
<TOTAL-COSTS> 30,744
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,382
<INCOME-PRETAX> 25,098
<INCOME-TAX> 0
<INCOME-CONTINUING> 25,098
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 25,098
<EPS-PRIMARY> .92
<EPS-DILUTED> 0
</TABLE>
