<PAGE> 1
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
---------------------
FORM 10-Q
<TABLE>
<C> <C> <C>
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 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
</TABLE>
---------------------
SUMMIT PROPERTIES INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
MARYLAND 56-1857807
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
</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.
23,079,203 shares outstanding as of May 9, 1997.
================================================================================
<PAGE> 2
SUMMIT PROPERTIES INC.
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Consolidated Balance Sheets as of March 31, 1997 (Unaudited)
and December 31, 1996..................................... 2
Consolidated Statements of Earnings for the three months
ended
March 31, 1997 and 1996 (Unaudited)....................... 3
Consolidated Statement of Stockholders' Equity
(Unaudited)............................................... 4
Consolidated Statements of Cash Flows for the three months
ended March 31, 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................................. 8
PART II OTHER INFORMATION
Item 2 Changes in Securities.......................................
18
Item 6 Exhibits Index and Reports on Form 8-K......................
18
SIGNATURES........................................................... 19
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SUMMIT PROPERTIES INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Real estate assets:
Land and land improvements................................ $111,565 $102,605
Buildings and improvements................................ 526,963 472,996
Furniture, fixtures and equipment......................... 46,076 43,021
-------- --------
684,604 618,622
Less: accumulated depreciation............................ (90,832) (85,651)
-------- --------
Operating real estate assets........................ 593,772 532,971
Construction in progress.................................. 103,568 86,157
-------- --------
Net real estate assets............................ 697,340 619,128
Cash and cash equivalents................................... 3,378 3,665
Restricted cash............................................. 4,809 4,121
Deferred financing costs, net............................... 4,436 4,675
Other assets................................................ 3,040 3,402
-------- --------
Total assets................................................ $713,003 $634,991
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Notes payable............................................. $368,562 $309,933
Accrued interest payable.................................. 1,700 1,318
Accounts payable and accrued expenses..................... 11,736 7,257
Dividends and distributions payable....................... 10,757 10,244
Security deposits and prepaid rents....................... 3,685 3,196
-------- --------
Total liabilities................................. 396,440 331,948
-------- --------
Commitments
Minority interest........................................... 48,572 45,829
-------- --------
Stockholders' equity:
Common stock, $.01 par value -- 100,000,000 authorized,
23,078,821 and 22,409,638 shares issued and outstanding
in 1997 and 1996, respectively......................... 231 224
Additional paid-in capital................................ 357,419 342,872
Accumulated deficit....................................... (88,463) (85,068)
Unamortized restricted stock compensation................. (1,196) (814)
-------- --------
Total stockholders' equity........................ 267,991 257,214
-------- --------
Total liabilities and stockholders' equity.................. $713,003 $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 MARCH 31,
----------------------------
1997 1996
------------ ------------
<S> <C> <C>
Revenues:
Rental.................................................... $ 25,780 $ 20,190
Other property income..................................... 1,321 1,014
Interest.................................................. 76 76
Other income.............................................. 72 150
----------- -----------
Total revenues......................................... 27,249 21,430
----------- -----------
Expenses:
Property operating and maintenance:
Personnel.............................................. 2,166 2,005
Advertising and promotion.............................. 380 286
Utilities.............................................. 1,167 979
Building repairs and maintenance....................... 1,943 1,550
Real estate taxes and insurance........................ 2,695 2,177
Depreciation........................................... 5,181 4,130
Property supervision................................... 662 504
Other operating expenses............................... 801 623
----------- -----------
14,995 12,254
Interest.................................................. 4,550 4,149
General and administrative................................ 646 625
Loss (income) in equity investments:
Summit Management Company.............................. 130 166
Real estate joint venture.............................. -- (1)
----------- -----------
Total expenses.................................... 20,321 17,193
----------- -----------
Income before minority interest of unitholders in Operating
Partnership............................................... 6,928 4,237
Minority interest of unitholders in Operating Partnership... (1,052) (828)
----------- -----------
Net income................................................ $ 5,876 $ 3,409
=========== ===========
Per share data:
Net income................................................ $ 0.26 $ 0.21
=========== ===========
Dividends declared........................................ $ 0.40 $ 0.39
=========== ===========
Weighted average common shares............................ 22,946,310 16,593,937
=========== ===========
</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.......................... -- -- (9,271) -- (9,271)
Issuance of stock.................. 6 11,740 -- -- 11,746
Exercise of stock options.......... 718 718
Conversion of units to shares...... -- 30 -- -- 30
Issuance of restricted stock
grants.......................... -- 456 -- (456) --
Amortization of restricted stock
grants.......................... -- -- -- 74 74
Proceeds from Dividend Reinvestment
and Employee Stock Purchase
Plans........................... 1 1,056 -- -- 1,057
Adjustment for minority interest in
Operating Partnership........... -- 547 -- -- 547
Net income......................... -- -- 5,876 -- 5,876
---- -------- -------- ------- --------
Balance, March 31, 1997.............. $231 $357,419 $(88,463) $(1,196) $267,991
==== ======== ======== ======= ========
</TABLE>
See notes to consolidated financial statements.
4
<PAGE> 6
SUMMIT PROPERTIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
1997 1996
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 5,876 $ 3,409
Adjustments to reconcile net income to net cash provided
by operating activities:
Loss on equity method investments...................... 130 165
Depreciation and amortization.......................... 5,437 4,377
Increase in restricted cash............................ (688) (30)
Increase (decrease) in other assets.................... 324 (1,023)
Increase in accrued interest payable................... 365 26
Increase in accounts payable and accrued expenses...... 1,528 1,431
Increase in security deposits and prepaid rents........ 44 53
Increase in minority interest of unitholders in
Operating Partnership................................. 1,052 828
-------- --------
Net cash provided by operating activities......... 14,068 9,236
-------- --------
Cash flows from investing activities:
Construction of real estate assets, net of payables....... (12,768) (16,400)
Purchase of Communities................................... (40,408) --
Capitalized interest...................................... (1,340) (970)
Recurring capital expenditures............................ (455) (561)
Non-recurring capital expenditures........................ (922) (721)
-------- --------
Net cash used in investing activities............. (55,893) (18,652)
-------- --------
Cash flows from financing activities:
Debt proceeds............................................. 44,648 17,284
Debt repayments........................................... (1,245) (574)
Dividends and distributions to unitholders................ (10,447) (7,747)
Payments of financing costs............................... (5) (108)
Issuance of stock......................................... 6,812 --
Exercise of stock options................................. 718 --
Proceeds from Dividend Reinvestment and Employee Stock
Purchase Plans......................................... 1,057 144
Costs of shelf registrations.............................. -- (138)
-------- --------
Net cash provided by financing activities......... 41,538 8,861
-------- --------
Net increase in cash and cash equivalents................... (287) (555)
Cash and cash equivalents, beginning of period.............. 3,665 2,881
-------- --------
Cash and cash equivalents, end of period.................... $ 3,378 $ 2,326
======== ========
Supplemental disclosure of cash flow information -- Cash
paid for interest, net of capitalized interest............ $ 3,939 $ 3,848
======== ========
</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 three months
ended March 31, 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.
2. ACQUISITIONS
During the first quarter of 1997, the Company completed the acquisition of three
Communities: Summit Mayfaire, Summit Portofino and Summit Sand Lake (the "1997
Acquisitions"). The 1997 Acquisitions added a total of 882 apartment homes to
the Company's portfolio at an aggregate purchase price of $64.5 million. The
1997 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., and the
payment of $40.3 million in cash. In addition, the Company sold 315,029 shares
of Common Stock to the public for $6.8 million in cash to partially fund the
cash purchase price of the Summit Portofino community.
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 1997 Acquisitions and the Summit Plantation
acquisition had occurred at the beginning of each period presented. The pro
forma information for the three months ended March 31, 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>
1997 1996
----------- -----------
<S> <C> <C>
Net revenues.............................................. $ 27,871 $ 24,215
=========== ===========
Expenses:
Property operating and maintenance...................... $ 10,069 $ 9,063
Depreciation............................................ 5,311 4,763
Interest................................................ 4,778 5,472
Income before minority interest of unitholders in
Operating Partnership................................... $ 6,937 $ 4,127
=========== ===========
Net income................................................ $ 5,866 $ 3,313
=========== ===========
Net income per share...................................... $ 0.25 $ 0.19
=========== ===========
Weighted average shares................................... 23,106,150 17,152,574
=========== ===========
Weighted average shares and units......................... 27,325,244 21,369,055
=========== ===========
</TABLE>
6
<PAGE> 8
SUMMIT PROPERTIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
3. RESTRICTED STOCK
In January, 1997 and 1996 the Company granted 20,858 and 56,041, respectively,
shares 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 $456,000 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 five year vesting period.
4. SUPPLEMENTAL CASH FLOW INFORMATION
Non-cash investing and financing activities for the three months ended March 31,
1997 and 1996 are as follows:
A. In the three months ended March 31, 1997, the Company purchased three
communities (Summit Mayfaire, Summit Portofino and Summit Sand Lake). The
Company completed the purchase of the three 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 purchase is summarized as follows (in
thousands):
<TABLE>
<S> <C>
Fixed assets................................................ $ 65,170
Other assets................................................ 30
Debt assumed................................................ (15,226)
Current liabilities assumed................................. (694)
Value of Operating Partnership Units issued................. (3,939)
Value of Common Stock issued................................ (4,933)
--------
Cash invested..................................... $(40,408)
========
</TABLE>
B. The Company issued 106,330 Operating Partnership Units in Summit
Properties Partnership, L.P. (valued at $2.1 million) for the purchase of
land during the three months ended March 31, 1996.
C. The Company accrued a dividend and distribution payable in the amount of
$10.8 million and $8.0 million at March 31, 1997 and 1996, respectively.
D. The Company issued 20,858 and 56,041 shares of restricted stock valued
at $456,000 and $1.1 million during the three months ended March 31, 1997
and 1996, respectively.
7
<PAGE> 9
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 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. 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
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 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 10 and 15, respectively, of
this Form 10-Q.
OVERVIEW
The following discussion should be read in conjunction with the Consolidated
Financial Statements of Summit Properties Inc. and the Notes thereto appearing
elsewhere herein.
As of March 31, 1997, there were 27,297,098 Units outstanding of the Operating
Partnership, of which 23,078,821, or 84.5% were owned by the Company and
4,218,277, or 15.5% were owned by other partners (including certain officers and
directors of the Company).
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. A summary of the
Company's apartment homes for the three months ended March 31, 1997 and 1996 is
as follows:
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
Apartment homes at the beginning of the period.............. 12,454 11,286
Acquisitions................................................ 882 --
Developments which began rental operations during the
period.................................................... -- --
------ ------
Apartment homes at the end of the period.................... 13,336 11,286
====== ======
</TABLE>
Results of Operations for the Three Months Ended March 31, 1997 and 1996
For the three months ended March 31, 1997, income before minority interest
increased $2.7 million to $6.9 million, from $4.2 million for the three months
ended March 31, 1996.
8
<PAGE> 10
OPERATING PERFORMANCE OF THE COMPANY'S PORTFOLIO OF COMMUNITIES
The operating performance of the Communities for the three months ended March
31, 1997 and 1996 is summarized below (dollars in thousands):
<TABLE>
<CAPTION>
1997 1996 % CHANGE
------- ------- --------
<S> <C> <C> <C>
Property revenues:
Stabilized communities......................... $20,610 $20,078 2.6%
Acquisition communities........................ 2,495 -- 100.0%
Stabilized development communities............. 3,068 1,126 172.5%
Communities in lease-up........................ 928 -- 100.0%
------- -------
Total property revenues.......................... 27,101 21,204 27.8%
------- -------
Property operating and maintenance expense(1):
Stabilized communities......................... 7,739 7,601 1.8%
Acquisition communities........................ 806 -- 100.0%
Stabilized development communities............. 921 523 76.1%
Communities in lease-up........................ 348 -- 100.0%
------- -------
Total property operating and
maintenance expense.................. 9,814 8,124 20.8%
------- -------
Property operating income........................ $17,287 $13,080 32.2%
======= =======
Apartment homes, end of period................... 13,336 11,286 18.2%
======= =======
</TABLE>
- ---------------
(1) Before real estate depreciation and amortization expense.
OPERATING PERFORMANCE OF THE COMPANY'S STABILIZED COMMUNITIES
The operating performance of the 46 Communities, containing 10,086 apartment
homes, stabilized during the entire period in each of the three months ended
March 31, 1997 and 1996 is summarized below (dollars in thousands except average
monthly rental revenue):
<TABLE>
<CAPTION>
1997 1996 % CHANGE
------- ------- --------
<S> <C> <C> <C>
Property revenues:
Rental......................................... $19,684 $19,148 2.8%
Other.......................................... 926 930 (-0.4)%
------- -------
Total property revenues.......................... 20,610 20,078 2.6%
------- -------
Property operating and maintenance expense(1):
Personnel...................................... 1,732 1,904 (-9.0)%
Advertising and promotion...................... 240 192 25.0%
Utilities...................................... 928 906 2.4%
Building repairs and maintenance............... 1,667 1,540 8.2%
Real estate taxes and insurance................ 2,037 1,985 2.6%
Property supervision........................... 514 499 3.0%
Other operating expense........................ 621 575 8.0%
------- -------
Total property operating and maintenance
expense........................................ 7,739 7,601 1.8%
------- -------
Property operating income........................ $12,871 $12,477 3.2%
======= =======
Average physical occupancy(2).................... 93.1% 93.2% (-0.1)%
======= =======
Average monthly rental revenue(3)................ $ 709 $ 692 2.5%
======= =======
Number of apartment homes........................ 10,086 10,086
======= =======
</TABLE>
- ---------------
(1) Before real estate depreciation and amortization expense.
9
<PAGE> 11
(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 was primarily the
result of increases in average rental rates. Property operating and maintenance
expense increases were due primarily to an increase in advertising and
promotion, building repair and maintenance offset by a decrease in personnel
expense. Building repairs and maintenance includes a $42,000 or 13.5% increase
in the cost of replacement carpets. As a percentage of total property revenue,
property operating and maintenance expenses decreased from 37.9% in 1996 to
37.5% in 1997.
The 2.6% rate of growth in property revenues was lower than the 5% rate of
growth in property revenues achieved from the first quarter of 1995 compared to
first quarter 1996. 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 the markets in which the Company operates. The Company expects
property growth rates for the remainder of 1997 to be similar to the first
quarter 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 relative 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.
OPERATING PERFORMANCE OF THE COMPANY'S ACQUISITION COMMUNITIES
Acquisition communities consist of Summit Plantation (262 apartment homes)
acquired on April 1, 1996, and Summit Mayfaire, Summit Portofino and Summit Sand
Lake acquired in the first quarter of 1997. The operations of these Communities
for the three months ended March 31, 1997 are summarized as follows (dollars in
thousands except average monthly rental revenue):
<TABLE>
<CAPTION>
1997
------
<S> <C>
Property revenues:
Rental revenues........................................... $2,370
Other property revenue.................................... 125
------
Total property revenues..................................... 2,495
------
Property operating and maintenance expense(1)............... 806
------
Property operating income................................... $1,689
======
Average physical occupancy(2)............................... 95.2%
======
Average monthly rental revenue(3)........................... $ 746
======
Number of apartment homes................................... 1,144
======
</TABLE>
- ---------------
(1) Before real estate depreciation and amortization 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 months
ended March 31, 1997 on an annualized basis over total acquisition cost, was
9.6%.
10
<PAGE> 12
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 months ended March 31, 1997 but were still in lease-up/construction
in the three months ended March 31, 1996. The operating performance of these
four Communities for the three months ended March 31, 1997 and 1996 is
summarized below (dollars in thousands except average monthly rental revenue):
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
Property revenues:
Rental revenues........................................... $2,870 $1,042
Other property revenue.................................... 198 84
------ ------
Total property revenues..................................... 3,068 1,126
------ ------
Property operating and maintenance expense(1)............... 921 523
------ ------
Property operating income................................... $2,147 $ 603
====== ======
Average physical occupancy(2)............................... 93.1% 32.8%
====== ======
Average monthly rental revenue(3)........................... $ 933 $ 903
====== ======
Number of apartment homes................................... 1,200 1,200
====== ======
</TABLE>
- ---------------
(1) Before real estate depreciation, amortization and interest 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 months
ended March 31, 1997 on an annualized basis over total development cost, was
10.7%.
OPERATING PERFORMANCE OF THE COMPANY'S COMMUNITIES IN LEASE-UP
The Company had three Communities in lease-up in the three months ended March
31, 1997. A Community in lease-up is defined as one which has commenced rental
operations but has not reached stabilization (all communities in lease-up for
the three months ended March 31, 1996 are currently classified as stabilized
development communities). A summary of the three Communities in lease-up as of
March 31, 1997 is as follows:
<TABLE>
<CAPTION>
NUMBER TOTAL ACTUAL/ % LEASED
OF ACTUAL/ ANTICIPATED AVERAGE AS OF
APARTMENT ESTIMATED CONSTRUCTION ANTICIPATED OCCUPANCY MARCH 31,
COMMUNITY HOMES COST COMPLETION STABILIZATION 1997 1997
- --------- --------- --------- ------------ ------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Summit Fairways................. 240 $17,661 Q4 1996 Q3 1997 57.80% 67.10%
Summit on the River............. 352 23,900 Q2 1997 Q3 1997 48.90% 57.70%
Summit Russett.................. 314 22,100 Q2 1997 Q3 1997 16.80% 43.60%
--- -------
906 $63,661
=== =======
</TABLE>
A total of 382 of the 666 apartment homes had been completed at Summit on the
River and Summit Russett as of March 31, 1997. Property operating loss after
interest expense was $50,000 for the three communities in lease-up.
11
<PAGE> 13
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., for
the three months ended March 31, 1997 and 1996 is summarized below (dollars in
thousands):
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
Property management revenue................................. $1,182 $1,132
Construction company income................................. 192 64
Other management company income............................. 24 26
------ ------
Total revenue..................................... 1,398 1,222
Property management expenses:
Operating................................................. 1,031 1,152
Depreciation.............................................. 48 28
Amortization.............................................. 72 69
Interest.................................................. 75 75
------ ------
Total property management expenses................ 1,226 1,324
Construction company expenses............................... 302 64
------ ------
Total expenses.................................... 1,528 1,388
------ ------
Net loss of Summit
Management Company........................................ $ (130) $ (166)
====== ======
</TABLE>
The increase in property management revenue was the result of higher revenues
for managing the Company's Communities offset by a reduction in the average
number of communities managed for third parties during 1997 compared to 1996.
Total third party apartment homes managed for third parties was 5,787 and 7,926
at March 31, 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 fees include $474,000 and $568,000 of fees from third
parties in 1997 and 1996, respectively.
Construction Company revenues 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 $401,000 or 9.7% to $4.5 million for the three months
ended March 31, 1997, from $4.1 million for the same period in 1996, primarily
due to interest on debt related to the Communities acquired in 1997 and interest
on Communities under construction, 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.
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
12
<PAGE> 14
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.
The Company's outstanding indebtedness at March 31, 1997 totaled $368.6 million.
This amount includes approximately $207.7 million in fixed rate conventional
mortgages, $53.6 million of variable rate tax-exempt bonds, $31.0 million of
unsecured notes, $9.3 million of tax exempt fixed rate loans, and $67.0 million
under the variable rate Unsecured Credit Facility.
The Company's net cash provided by operating activities increased from $9.2
million for the three months ended March 31, 1996 to $14.1 million for the same
period in 1997 primarily due to a $4.2 million increase in property operating
income.
Net cash used in investing activities increased from $18.7 million for the three
months ended March 31, 1996 to $55.9 million for the same period in 1997
primarily due to an increase in the acquisition of Communities.
Net cash provided by financing activities increased from $8.9 million for the
three months ended March 31, 1996 to $41.5 million for the same period in 1997,
primarily due to an increase in debt proceeds and Common Stock issuance
proceeds, partially offset by higher dividends and distributions to unitholders.
The Company expects to meet its short-term liquidity requirements 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 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, such as 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.
13
<PAGE> 15
The following table sets forth certain information regarding debt financing as
of March 31, 1997 and December 31, 1996:
<TABLE>
<CAPTION>
PRINCIPAL OUTSTANDING
INTEREST ------------------------
RATE AS OF MATURITY MARCH 31, DECEMBER 31,
MARCH 31, 1997 DATE 1997 1996
-------------- -------- --------- ------------
<S> <C> <C> <C> <C>
FIXED RATE DEBT
Mortgage Loan(1)................................ 5.88% 2/15/01 $122,297 $122,950
Mortgage Loan(1)................................ 7.71 12/15/05 29,538 29,653
Mortgage Loan(2)................................ 8.00 09/1/05 8,618 8,638
Mortgage Notes
Summit Hollow I............................... 8.00 11/1/18 2,276 2,286
Summit Hollow II.............................. 7.75 1/1/29 2,582 2,587
Summit Creekside.............................. 8.00 6/1/22 2,867 2,877
Summit Old Town............................... 8.00 9/1/20 3,085 3,097
Summit Eastchester............................ 8.00 5/1/21 3,858 3,872
Summit Foxcroft............................... 8.00 4/1/20 2,773 2,788
Summit Oak.................................... 7.75 12/1/23 2,577 2,585
Summit Sherwood............................... 7.88 3/1/29 3,323 3,329
Summit Radbourne.............................. 9.80 3/1/02 8,663 8,683
Summit Sand Lake.............................. 7.88 2/15/06 15,195 --
Tax Exempt Mortgage Notes
Summit Crossing............................... 6.95 11/1/25 4,201 4,213
Summit East Ridge............................. 7.25 12/1/26 5,142 5,156
-------- --------
Total Mortgage Debt................... 216,995 202,714
-------- --------
Unsecured Notes
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................. 31,000 31,000
-------- --------
Total Fixed Rate Debt................. 247,995 233,714
VARIABLE RATE DEBT
Unsecured Credit Facility..................... LIBOR + 110 11/18/99 $ 67,005 $ 22,357
Tax Exempt Bonds
Summit Belmont............................. 5.00% 4/1/07 11,650 11,850
Summit Hampton............................. 5.00 6/1/07 12,700 12,700
Summit Pike Creek.......................... 5.00 8/15/20 13,202 13,262
Summit Gateway............................. 5.00 7/1/07 7,300 7,300
Summit Stony Point......................... 5.00 4/1/29 8,710 8,750
-------- --------
Total Tax Exempt Bonds................ 53,562 53,862
-------- --------
Total Variable Rate................... 120,567 76,219
-------- --------
TOTAL OUTSTANDING INDEBTEDNESS........ $368,562 $309,933
======== ========
</TABLE>
- ---------------
(1) Mortgage Loans secured by fifteen communities
(2) Mortgage Loan secured by two communities
The London Interbank Offered Rate (LIBOR) at March 31, 1997 was 5.79%.
14
<PAGE> 16
DEVELOPMENT ACTIVITY
The Company's developments in process at March 31, 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 on the River -- Atlanta, GA......... 352 $ 23,900 $ 21,979 $ 1,921 Q2 1997
Summit Russett -- Laurel, MD............... 314 22,100 19,894 2,206 Q2 1997
Summit Stonefield -- Yardley, PA........... 216 18,400 9,696 8,704 Q4 1997
Summit Norcroft II -- Charlotte, NC........ 54 3,750 623 3,127 Q4 1997
Summit Sedgebrook I -- Charlotte, NC....... 248 15,600 6,545 9,055 Q4 1997
Summit Ballantyne I -- Charlotte, NC....... 246 16,800 6,706 10,094 Q4 1997
Summit Plantation II -- Plantation, FL..... 240 22,000 9,335 12,665 Q4 1997
Summit Lake I -- Raleigh, NC............... 302 19,700 4,405 15,295 Q2 1998
Summit Fair Lakes I -- Fairfax, VA......... 370 32,900 7,074 25,826 Q4 1998
Summit New Albany -- Columbus, OH.......... 428 30,100 4,065 26,035 Q1 1999
Other development and construction......... -- -- 13,246 --
----- -------- -------- --------
2,770 $205,250 $103,568 $114,928
===== ======== ======== ========
</TABLE>
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 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 eight 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.
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.
15
<PAGE> 17
Capitalized expenditures for the three months ended March 31, 1997 and 1996 are
summarized as follows (dollars in thousands):
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Acquisition of new Communities(1)........................... $65,170 $ 0
Construction of new Communities(2).......................... 15,506 18,970
Capitalized interest........................................ 1,340 970
Non-recurring capital expenditures:
Construction of garages................................... 3 473
New signage............................................... 48 --
Major improvements........................................ 871 187
Other..................................................... -- 61
------- -------
Total non-recurring............................... 922 721
------- -------
Recurring capital expenditures:
Exterior painting......................................... 105 123
Other..................................................... 350 438
------- -------
Total recurring................................... 455 561
------- -------
$83,393 $21,222
======= =======
</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 the three months ended March 31, 1997.
(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 development loans, 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 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 Company generally considers Funds from Operations to be an appropriate
measure of performance of an equity REIT. The Company computes Funds from
Operations in accordance with standards established by the White Paper on Funds
from Operations adopted by the Board of Governors of the National Association of
Real Estate Investment Trusts (NAREIT) in March 1995. Funds from Operations, as
defined by NAREIT in the White Paper, represents net income (loss) determined in
accordance with generally accepted accounting principles (GAAP), excluding gains
or losses from sales of assets and debt restructuring, plus certain non-cash
items, primarily real estate depreciation, and after adjustments for
unconsolidated partnerships and joint ventures. Adjustments to the Company's
Funds from Operations for all periods consisted only of real estate
depreciation. Funds Available for Distribution is defined as Funds from
Operations less recurring capital expenditures funded by operations. Funds from
Operations and Funds Available for Distribution should not be considered as an
alternative to net income (determined in accordance with GAAP), as an indication
of the Company's financial performance, or to cash flow from operating
activities (determined in accordance with GAAP) as a measure of liquidity, nor
is it indicative of funds available to fund the Company's cash needs, including
the ability to make distributions.
16
<PAGE> 18
Funds from Operations and Funds Available for Distribution for the three months
ended March 31, 1997 and 1996 are calculated as follows (dollars in thousands):
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Net income.................................................. $ 5,876 $ 3,409
Minority Interest of Unitholders in Operating Partnership... 1,052 828
Depreciation:
Operating Communities..................................... 5,172 4,121
Summit Plantation......................................... -- 33
----------- -----------
Funds from Operations....................................... 12,100 8,391
Recurring capital expenditures.............................. (455) (561)
----------- -----------
Funds Available for Distribution............................ $ 11,645 $ 7,830
=========== ===========
Weighted average shares outstanding......................... 22,946,310 16,593,937
=========== ===========
Weighted average shares and units outstanding............... 27,057,351 20,615,923
=========== ===========
</TABLE>
17
<PAGE> 19
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
In connection with the purchase of Summit Sand Lake in February 1997, the
Company issued 243,608 shares of Common Stock (valued at approximately $4.9
million at the time of the acquisition) to one of the sellers of Summit Sand
Lake in partial consideration of their interest in the property. Such shares of
Common Stock were issued in reliance on an exemption from registration under
Section 4(2) of the Securities Act of 1933, as amended (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.
On February 19, 1997, the Company issued to a limited partner of Summit
Properties Partnership L.P. (the "Operating Partnership") 1,500 shares of Common
Stock (valued at $30,375 at the time of the issuance) in exchange for 1,500
units of limited partnership interest in the Operating Partnership. 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
27.1 Financial Data Schedule (For SEC use only)
(b) Reports on Form 8-K
A Form 8-K was filed with the Securities and Exchange Commission (the
"SEC") on March 6, 1997 in connection with the acquisition of Summit
Mayfaire, Summit Portofino and Summit Sand Lake and a Form 8-K/A-1 was
filed with the SEC on May 1, 1997 to amend the Form 8-K to include
financial statements, pro forma financial information and certain exhibits.
18
<PAGE> 20
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.
<TABLE>
<S> <C>
SUMMIT PROPERTIES INC.
May 14, 1997 /s/ WILLIAM F. PAULSEN
- ----------------------------------------------------- -----------------------------------------------------
(Date) William F. Paulsen
President and Chief Executive Officer
May 14, 1997 /s/ MICHAEL L. SCHWARZ
- ----------------------------------------------------- -----------------------------------------------------
(Date) Michael L. Schwarz
Executive Vice President and Chief Financial Officer
</TABLE>
19
<PAGE> 21
EXHIBIT INDEX
27.1 Financial Data Schedule (For SEC use only)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 3,378
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 788,172
<DEPRECIATION> 90,832
<TOTAL-ASSETS> 713,003
<CURRENT-LIABILITIES> 0
<BONDS> 368,562
0
0
<COMMON> 231
<OTHER-SE> 316,332
<TOTAL-LIABILITY-AND-EQUITY> 713,003
<SALES> 27,101
<TOTAL-REVENUES> 27,249
<CGS> 0
<TOTAL-COSTS> 9,944
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,550
<INCOME-PRETAX> 6,928
<INCOME-TAX> 0
<INCOME-CONTINUING> 5,876
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,876
<EPS-PRIMARY> .26
<EPS-DILUTED> 0
</TABLE>
