<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 June 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)
Maryland 56-1857807
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
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.
23,218,803 shares outstanding as of July 28, 1997.
<PAGE> 2
SUMMIT PROPERTIES INC.
INDEX
PART I FINANCIAL INFORMATION PAGE
Item 1 Financial Statements
Consolidated Balance Sheets as of June 30,
1997 (Unaudited) and December 31, 1996. . . . . . . . . . 3
Consolidated Statements of Earnings for the
three months and six months ended June 30,
1997 and 1996 (Unaudited) . . . . . . . . . . . . . . . . 4
Consolidated Statement of Stockholders' Equity (Unaudited). . 5
Consolidated Statements of Cash Flows for the
six months ended June 30, 1997 and 1996
(Unaudited) . . . . . . . . . . . . . . . . . . . . . . . 6
Notes to Consolidated Financial Statements . . . . . . . . . 7
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . 11
PART II OTHER INFORMATION
Item 2 Changes in Securities . . . . . . . . . . . . . . . . . . . . 25
Item 4 Submission of Matters to a Vote of Security Holders . . . . . 25
Item 6 Exhibits Index and Reports on Form 8-K . . . . . . . . . . . 26
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Page 2 of 28
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SUMMIT PROPERTIES INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
--------- ---------
(Unaudited)
<S> <C> <C>
ASSETS
Real estate assets:
Land and land improvements $ 113,681 $ 102,605
Buildings and improvements 543,475 472,996
Furniture, fixtures and equipment 46,779 43,021
--------- ---------
703,935 618,622
Less: accumulated depreciation (93,936) (85,651)
--------- ---------
Operating real estate assets 609,999 532,971
Construction in progress 111,006 86,157
--------- ---------
Net real estate assets 721,005 619,128
Cash and cash equivalents 5,346 3,665
Restricted cash 14,052 4,121
Deferred financing costs, net 4,215 4,675
Other assets 4,304 3,402
--------- ---------
Total assets $ 748,922 $ 634,991
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Notes payable $ 398,890 $ 309,933
Accrued interest payable 1,861 1,318
Accounts payable and accrued expenses 16,741 7,257
Dividends and distributions payable 10,856 10,244
Security deposits and prepaid rents 3,581 3,196
--------- ---------
Total liabilities 431,929 331,948
--------- ---------
Commitments
Minority interest 48,011 45,829
--------- ---------
Stockholders' equity:
Common stock, $.01 par value - 100,000,000 authorized,
23,144,614 and 22,409,638 shares issued and outstanding
in 1997 and 1996, respectively 231 224
Additional paid-in capital 358,144 342,872
Accumulated deficit (88,165) (85,068)
Unamortized restricted stock compensation (1,228) (814)
--------- ---------
Total stockholders' equity 268,982 257,214
--------- ---------
Total liabilities and stockholders' equity $ 748,922 $ 634,991
========= =========
</TABLE>
See notes to consolidated financial statements.
Page 3 of 28
<PAGE> 4
SUMMIT PROPERTIES INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(Dollars in Thousands except for Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------- -------------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Rental $ 26,328 $ 21,764 $ 52,108 $ 41,954
Other property income 1,577 1,154 2,898 2,168
Interest 132 79 208 155
Other income 66 65 138 215
------------ ------------ ------------ ------------
Total revenues 28,103 23,062 55,352 44,492
------------ ------------ ------------ ------------
Expenses:
Property operating and maintenance:
Personnel 2,306 2,119 4,472 4,124
Advertising and promotion 442 295 822 581
Utilities 1,144 1,001 2,311 1,980
Building repairs and maintenance 2,113 1,884 4,056 3,434
Real estate taxes and insurance 2,843 2,309 5,538 4,486
Depreciation 5,430 4,437 10,611 8,567
Property supervision 678 552 1,340 1,056
Other operating expenses 758 630 1,559 1,253
------------ ------------ ------------ ------------
15,714 13,227 30,709 25,481
Interest 5,042 4,905 9,592 9,054
General and administrative 596 656 1,242 1,281
Loss (income) in equity investments:
Summit Management Company (105) (71) 25 95
Real estate joint venture -- -- -- (1)
------------ ------------ ------------ ------------
Total expenses 21,247 18,717 41,568 35,910
------------ ------------ ------------ ------------
Income before gain on sale of real estate
assets and minority interest of
unitholders in Operating Partnership 6,856 4,345 13,784 8,582
Gain on sale of real estate assets 4,366 -- 4,366 --
Minority interest of unitholders in
Operating Partnership (1,729) (850) (2,781) (1,678)
------------ ------------ ------------ ------------
Net income $ 9,493 $ 3,495 $ 15,369 $ 6,904
============ ============ ============ ============
Per share data:
Net income $ 0.41 $ 0.21 $ 0.67 $ 0.42
============ ============ ============ ============
Dividends declared $ 0.40 $ 0.39 $ 0.80 $ 0.78
============ ============ ============ ============
Weighted average common shares 23,122,778 16,594,560 23,031,445 16,592,638
============ ============ ============ ============
</TABLE>
See notes to consolidated financial statements.
Page 4 of 28
<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 and distributions to unitholders -- -- (18,466) -- (18,466)
Issuance of stock 6 11,740 -- -- 11,746
Exercise of stock options -- 718 -- -- 718
Conversion of units to shares -- 494 -- -- 494
Issuance of restricted stock grants -- 565 -- (565) --
Amortization of restricted stock grants -- -- -- 151 151
Proceeds from Dividend Reinvestment
and Employee Stock Purchase Plans 1 1,196 -- -- 1,197
Costs of shelf registrations -- (173) -- -- (173)
Adjustment for minority interest
in Operating Partnership -- 732 -- -- 732
Net income -- -- 15,369 -- 15,369
---- --------- -------- ------- ---------
Balance, June 30, 1997 $231 $ 358,144 ($88,165) ($1,228) $ 268,982
==== ========= ======== ======= =========
</TABLE>
See notes to consolidated financial statements.
Page 5 of 28
<PAGE> 6
SUMMIT PROPERTIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended,
June 30
-----------------------
1997 1996
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 15,369 $ 6,904
Adjustments to reconcile net income to net cash
provided by operating activities:
Loss on equity method investments 25 94
Gain on sale of real estate assets (4,366) --
Depreciation and amortization 11,130 9,075
Increase in restricted cash (660) (200)
Increase in other assets (773) (1,492)
Increase in accrued interest payable 526 127
Increase in accounts payable and accrued expenses 3,185 2,657
Increase (decrease) in security deposits and prepaid rents (56) 467
Increase in minority interest of unitholders
in Operating Partnership 2,781 1,678
-------- --------
Net cash provided by operating activities 27,161 19,310
-------- --------
Cash flows from investing activities:
Construction of real estate assets, net of payables (39,562) (34,497)
Purchase of Communities (40,408) (6,360)
Capitalized interest (2,948) (1,927)
Recurring capital expenditures (1,471) (1,403)
Non-recurring capital expenditures (2,147) (1,839)
-------- --------
Net cash used in investing activities (86,536) (46,026)
-------- --------
Cash flows from financing activities:
Debt proceeds 76,429 44,442
Debt repayments (2,698) (1,716)
Dividends and distributions to unitholders (21,199) (15,726)
Payments of financing costs (31) (175)
Issuance of stock 6,813 --
Exercise of stock options 718 --
Proceeds from Dividend Reinvestment and Employee Stock
Purchase Plans 1,197 289
Costs of shelf registrations (173) (138)
-------- --------
Net cash provided by financing activities 61,056 26,976
-------- --------
Net increase in cash and cash equivalents 1,681 260
Cash and cash equivalents, beginning of period 3,665 2,881
-------- --------
Cash and cash equivalents, end of period $ 5,346 $ 3,141
======== ========
Supplemental disclosure of cash flow
information - Cash paid for interest, net of capitalized interest $ 8,573 $ 8,390
======== ========
</TABLE>
See notes to consolidated financial statements.
Page 6 of 28
<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 six months ended June 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 at the Company's 1997 fiscal year end.
SFAS No. 128 will change the method for calculating earnings per share.
Had the Company applied SFAS No. 128 for the three and six months ended
June 30, 1997, the effect on reported earnings per share would not be
significant.
2. ACQUISITIONS AND DISPOSITIONS
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., (the "Operating
Partnership"), and the payment of $40.4 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.
Page 7 of 28
<PAGE> 8
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 six months ended
June 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>
SIX MONTHS ENDED
JUNE 30,
---------------------------
1997 1996
---------- -----------
<S> <C> <C>
Net Revenues $ 55,974 $ 47,277
========== ===========
Income before gain on sale of real estate assets and
minority interest of unitholders in Operating $ 13,793 $ 8,472
Partnership
========== ===========
Net income $ 15,359 $ 6,808
========== ===========
Net income per share $ 0.66 $ 0.40
========== ===========
Weighted average shares 23,111,367 17,151,275
========== ===========
Weighted average shares and units 27,326,508 21,371,816
========== ===========
</TABLE>
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 an apartment home community on
July 18, 1997 (See Note 6).
Page 8 of 28
<PAGE> 9
3. RESTRICTED STOCK
In the six months ended June 30, 1997 and 1996, the Company granted
26,278 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
$565,000 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.
4. SUPPLEMENTAL CASH FLOW INFORMATION
Non-cash investing and financing activities for the six months ended
June 30, 1997 and 1996 are as follows:
A. In the six months ended June 30, 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 sold a community on May 14, 1997 for net proceeds
of approximately $9.3 million. The proceeds of the sale were
put in escrow to fund the acquisition of an apartment home
community on July 18, 1997 (See Note 6). The escrow funds are
shown in the balance sheet caption "Restricted Cash".
C. 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>
D. 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 six months ended June 30,
1996.
Page 9 of 28
<PAGE> 10
E. The Company accrued a dividend and distribution payable in the
amount of $10.9 million and $8.0 million at June 30, 1997 and
1996, respectively.
F. The Company issued 26,278 and 56,041 shares of restricted
stock valued at $565,000 and $1.1 million during the six
months ended June 30, 1997 and 1996, respectively.
5. CHANGES IN OWNERSHIP OF OPERATING PARTNERSHIP
As of June 30, 1997, there were 27,309,726 Units outstanding of the
Operating Partnership, of which 23,144,614, or 84.7% were owned by the
Company and 4,165,112, or 15.3% 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 six months ended
June 30, 1997 and 1996:
<TABLE>
<CAPTION>
COMPANY'S OWNERSHIP
AS A PERCENTAGE OF THE
NUMBER OF PRICE PER DOLLAR OPERATING PARTNERSHIP
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%
1997 Issuance of stock 315,029 21.62 6,812,500 84.81% 84.99%
1997 Summit Sand Lake 438,103 20.25 8,871,581 85.02% 84.54%
purchase
</TABLE>
Units issued for land and the Summit Sand Lake purchase were valued
based upon the Company's market value price per share 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.
Page 10 of 28
<PAGE> 11
6. SUBSEQUENT EVENT
The Company purchased an apartment home community to be 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 a
community (See Note 2) and borrowings on the Company's line of credit
were used to fund the purchase.
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 13 and 21,
respectively, of this Form 10-Q.
As of June 30, 1997, there were 27,309,726 Units outstanding of the Operating
Partnership, of which 23,144,614, or 84.7% were owned by the Company and
4,165,112, or 15.3% 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.
Page 11 of 28
<PAGE> 12
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 Six Months Ended June 30, 1997 and 1996
For the three and six months ended June 30, 1997, income before gain on sale of
real estate assets and minority interest increased $2.5 million and $5.2
million, respectively, to $6.9 million and $13.8 million, respectively, from the
three and six months ended June 30, 1996.
OPERATING PERFORMANCE OF THE COMPANY'S PORTFOLIO OF COMMUNITIES
The operating performance of the Communities for the three and six months ended
June 30, 1997 and 1996 is summarized below (dollars in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------------ ------------------------------------
1997 1996 % CHANGE 1997 1996 % CHANGE
---------- ---------- ----------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Property revenues:
Stabilized communities (1) $21,027 $20,677 1.7% $40,506 $39,674 2.1%
Acquisition communities (2) 2,205 0 100.0% 5,475 731 649.0%
Stabilized development communities 3,059 1,869 63.7% 6,127 2,995 104.6%
Communities in lease-up 1,451 22 6495.5% 2,379 22 10713.6%
Community sold 163 350 -53.4% 519 700 -25.9%
---------- --------- ---------- ----------
Total property revenues 27,905 22,918 21.8% 55,006 44,122 24.7%
---------- --------- ---------- ----------
Property operating and maintenance
expense (3):
Stabilized communities 7,915 7,875 0.5% 15,251 15,074 1.2%
Acquisition communities 742 0 100.0% 1,814 260 597.7%
Stabilized development communities 1,009 715 41.1% 1,932 1,238 56.1%
Communities in lease-up 543 47 1055.3% 890 47 1793.6%
Community sold 75 153 -51.0% 211 295 -28.5%
---------- --------- ---------- ----------
Total property operating and
maintenance expense 10,284 8,790 17.0% 20,098 16,914 18.8%
---------- --------- ---------- ----------
Property operating income $17,621 $14,128 24.7% $34,908 $27,208 28.3%
========== ========= ========== ==========
Apartment homes, end of period 14,072 11,900 18.3% 14,072 11,900 18.3%
========== ========= ========== ==========
</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 1997 Acquisition Communities. Six month
results include the 1997 Acquisition Communities and Summit Plantation
acquired April 1, 1996.
(3) Before real estate depreciation expense.
Page 12 of 28
<PAGE> 13
A summary of the Company's apartment homes for the six months ended June 30,
1997 and 1996 is as follows:
<TABLE>
<CAPTION>
1997 1996
------- ------
<S> <C> <C>
Apartment homes at the beginning of period 12,454 11,286
Acquisitions 882 262
Developments which began rental
operations during the period 950 352
Sale of apartment home community (214) --
------- ------
Apartment homes at the end of the period 14,072 11,900
======= ======
</TABLE>
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 six months ended June 30, 1997 and 1996,
respectively, are summarized below (dollars in thousands except average monthly
rental revenue):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------------------- ---------------------------------
1997 1996 % CHANGE 1997 1996 % CHANGE
---------- --------- ----------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Property revenues:
Rental $19,967 $19,667 1.5% $38,576 $37,780 2.1%
Other 1,060 1,010 5.0% 1,930 1,894 1.9%
--------- --------- --------- ----------
Total property revenues 21,027 20,677 1.7% 40,506 39,674 2.1%
--------- --------- --------- ----------
Property operating and maintenance
expense (1):
Personnel 1,815 1,900 -4.5% 3,457 3,703 -6.6%
Advertising and promotion 270 213 26.8% 491 391 25.6%
Utilities 890 917 -2.9% 1,773 1,778 -0.3%
Building repairs and maintenance 1,759 1,790 -1.7% 3,349 3,263 2.6%
Real estate taxes and insurance 2,090 1,998 4.6% 4,010 3,868 3.7%
Property supervision 529 520 1.7% 1,014 986 2.8%
Other operating expense 562 537 4.7% 1,157 1,085 6.6%
--------- --------- --------- ----------
Total property operating and
maintenance expense 7,915 7,875 0.5% 15,251 15,074 1.2%
--------- --------- --------- ----------
Property operating income $13,112 $12,802 2.4% $25,255 $24,600 2.7%
========= ========= ========= ==========
Average physical occupancy (2) 92.8% 92.8% 0.0% 93.0% 93.0% 0.0%
========= ========= ========= ==========
Average monthly rental revenue (3) $721 $707 2.0% $713 $697 2.3%
========= ========= ========= ==========
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.
Page 13 of 28
<PAGE> 14
The increase in rental revenue from stabilized Communities for the second
quarter and the first six months of 1997 compared to 1996 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, real estate taxes and insurance offset by a decrease in personnel
expense. As a percentage of total property revenue, property operating and
maintenance expenses decreased for the three month period from 38.1% in 1996 to
37.6% in 1997 and for the six month period from 38.0% in 1996 to 37.7% in 1997.
The 1.7% and 2.1% rates of growth in property revenues was lower than the 3.8%
and 4.4% rates of growth in property revenues achieved from the first quarter of
1995 compared to first quarter 1996 and the first six months of 1995 compared to
the first six 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 six 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.
OPERATING PERFORMANCE OF THE COMPANY'S ACQUISITION COMMUNITIES
Acquisition communities consist of the 1997 Acquisitions (882 apartment homes)
and Summit Plantation (262 apartment homes) acquired on April 1, 1996, for the
six month periods presented and the 1997 Acquisitions for the three month
periods presented. The operations of these Communities for the three and six
months ended June 30, 1997 are summarized as follows (dollars in thousands
except average monthly rental revenue):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
------------------ -----------------
1997 1996 1997 1996
------ ---- ------ ----
<S> <C> <C> <C> <C>
Property revenues:
Rental revenues $2,048 $ 0 $5,149 $696
Other property revenue 157 0 326 35
------ --- ------ ----
Total property revenues 2,205 0 5,475 731
------ --- ------ ----
Property operating and maintenance
expense (1) 742 0 1,814 260
------ --- ------ ----
Property operating income $1,463 $ 0 $3,661 $471
====== === ====== ====
Average physical occupancy (2) 92.8% 0.0% 93.9% 90.2%
====== === ====== ====
Average monthly rental revenue (3) $ 848 0 $ 892 $998
====== === ====== ====
Number of apartment homes 882 0 1,144 262
====== === ====== ====
</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.
Page 14 of 28
<PAGE> 15
(3) Represents the average monthly net rental revenue per occupied
apartment home. Average monthly rental revenue for the six months ended
June 30, 1997 for the 1997 Acquisitions only was $846.
The unleveraged yield, defined as property operating income for the three and
six months ended June 30, 1997 for the acquisition communities, as defined
above, on an annualized basis over total acquisition cost, was 9.0% and 9.4%,
respectively. The unleveraged yield for the 1997 Acquisitions only for the six
months ended June 30, 1997, was 9.3%.
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 six months ended June 30, 1997 but were still in
lease-up/construction in the three and six months ended June 30, 1996. The
operating performance of these four Communities for the three and six months
ended June 30, 1997 and 1996 is summarized below (dollars in thousands except
average monthly rental revenue):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
------------------- -------------------
1997 1996 1997 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
Property revenues:
Rental revenues $2,878 $1,743 $5,802 $2,785
Other property revenue 181 126 325 210
------ ------ ------ ------
Total property revenues 3,059 1,869 6,127 2,995
------ ------ ------ ------
Property operating and maintenance
expense (1) 1,009 715 1,932 1,238
------ ------ ------ ------
Property operating income $2,050 $1,154 $4,195 $1,757
====== ====== ====== ======
Average physical occupancy (2) 91.7% 55.9% 92.3% 44.3%
====== ====== ====== ======
Average monthly rental revenue (3) $ 908 $ 878 $ 910 $ 890
====== ====== ====== ======
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
six months ended June 30, 1997 on an annualized basis over total development
cost, was 10.2% and 10.4%, respectively.
Page 15 of 28
<PAGE> 16
OPERATING PERFORMANCE OF THE COMPANY'S COMMUNITIES IN LEASE-UP
The Company had seven Communities in lease-up in the three and six months ended
June 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 seven
Communities in lease-up as of June 30, 1997 is as follows (dollars in
thousands):
<TABLE>
<CAPTION>
TOTAL ACTUAL/ HOMES % LEASED
NUMBER OF ACTUAL/ ANTICIPATED COMPLETED Q2 1997 AS OF
APARTMENT ESTIMATED CONSTRUCTION ANTICIPATED AT JUNE 30, AVERAGE JUNE 30,
COMMUNITY HOMES COST COMPLETION STABILIZATION 1997 OCCUPANCY 1997
- --------------------- ------------ ----------- -------------- -------------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Summit Fairways 240 $17,900 Q4 1996 Q3 1997 240 76.30% 94.20%
Summit on the River 352 24,300 Q2 1997 Q3 1997 352 58.20% 76.40%
Summit Russett 314 23,100 Q3 1997 Q3 1997 250 42.50% 72.60%
Summit Stonefield 216 18,400 Q4 1997 Q1 1998 36 1.10% 19.90%
Summit Ballantyne I 246 16,800 Q4 1997 Q2 1998 42 1.50% 16.70%
Summit Sedgebrook I 248 15,600 Q4 1997 Q2 1998 32 0.60% 12.10%
Summit Plantation II 240 22,000 Q4 1997 Q2 1998 32 0.00% 15.00%
============ ===========
1,856 $138,100
============ ===========
</TABLE>
Property operating income after interest expense was $117,000 and $67,000 for
the seven communities in lease-up for the three and six months ended June 30,
1997, respectively.
Page 16 of 28
<PAGE> 17
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 six months ended June 30, 1997 and
1996 is summarized below (dollars in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- ----------------------
1997 1996 1997 1996
------ ------ ------- -------
<S> <C> <C> <C> <C>
Property management revenue $1,203 $1,166 $ 2,385 $ 2,298
Construction Company income 266 112 458 176
Other Management Company income 31 33 55 59
------ ------ ------- -------
Total revenue 1,500 1,311 2,898 2,533
Property management expenses:
Operating 1,042 997 2,073 2,149
Depreciation 48 28 96 56
Amortization 76 69 148 138
Interest 75 75 150 150
------ ------ ------- -------
Total property management expenses 1,241 1,169 2,467 2,493
Construction Company expenses 154 71 456 135
------ ------ ------- -------
Total expenses 1,395 1,240 2,923 2,628
------ ------ ------- -------
Net income (loss) of the
Management Company $ 105 $ 71 ($ 25) ($ 95)
====== ====== ======= =======
</TABLE>
The increase in property management revenue 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 5,398 and 7,925 at June 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 fees include $432,000 and $568,000 of fees from third
parties for the three months ended June 30, 1997 and 1996, respectively, and
$906,000 and $1.1 million of fees from third parties for the six months ended
June 30, 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.
Page 17 of 28
<PAGE> 18
OTHER INCOME AND EXPENSES
Interest expense increased $137,000 and $538,000 or 2.8% and 5.9% for the three
and six months ended June 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 $993,000 and $2.0 million or 22.4% and 23.9% for
the three and six months ended June 30, 1997, respectively, primarily due to the
1997 and 1996 Acquisitions, increased depreciation on Communities that were in
construction in 1996, but completed by 1997 and Communities in lease-up in 1997.
General and administrative expense decreased $39,000 or 3.0% to $1.24 million
for the six months ended June 30, 1997 from $1.28 million for the same period in
1996 primarily due to decreased compensation costs.
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:
S & P CREDIT RATING RATE
------------------- ----
BBB-.................................... LIBOR + 110
BBB..................................... LIBOR + 95
BBB+.................................... LIBOR + 80
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 June 30, 1997 totaled $398.9 million.
This amount includes approximately $206.7 million in fixed rate conventional
mortgages, $53.1 million of variable rate tax-exempt bonds, $31.0 million of
unsecured notes, $9.3 million of tax exempt fixed rate loans, and $98.8 million
under the variable rate Unsecured Credit Facility.
The Company and the Operating Partnership have filed a Form S-3 Registration
Statement under which the Company can issue up to $250 million of common stock
and preferred stock, and the Operating Partnership can issue up to $250 million
of debt securities.
The Company's net cash provided by operating activities increased from $19.3
million for the six months ended June 30, 1996 to $27.2 million for the same
period in 1997 primarily due to a $7.7 million increase in property operating
income.
Net cash used in investing activities increased from $46.0 million for the six
months ended June 30, 1996 to $86.5 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.
Page 18 of 28
<PAGE> 19
Net cash provided by financing activities increased from $27.0 million for the
six months ended June 30, 1996 to $61.1 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 increase in debt proceeds was primarily due to borrowings to finance the
1997 Acquisitions.
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 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 to be 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 a community and borrowings
on the Unsecured Credit Facility were used to fund the purchase.
Page 19 of 28
<PAGE> 20
The following table sets forth certain information regarding debt financing as
of June 30, 1997 and December 31, 1996:
<TABLE>
<CAPTION>
PRINCIPAL OUTSTANDING
INTEREST ----------------------------
RATE AS OF MATURITY JUNE 30, DECEMBER 31,
JUNE 30, 1997 DATE 1997 1996
--------------- -------- ----------- --------------
<S> <C> <C> <C> <C>
FIXED RATE DEBT (1)
MORTGAGE LOAN (2) (3) 5.88% 2/15/01 $121,673 $122,950
MORTGAGE LOAN (2) (3) 7.71% 12/15/05 29,434 29,653
MORTGAGE LOAN (4) 8.00% 09/1/05 8,598 8,638
MORTGAGE NOTES
Summit Hollow I 8.00% 11/1/18 2,265 2,286
Summit Hollow II 7.75% 1/1/29 2,577 2,587
Summit Creekside 8.00% 6/1/22 2,857 2,877
Summit Old Town 8.00% 9/1/20 3,073 3,097
Summit Eastchester 8.00% 5/1/21 3,843 3,872
Summit Foxcroft 8.00% 4/1/20 2,759 2,788
Summit Oak 7.75% 12/1/23 2,569 2,585
Summit Sherwood 7.88% 3/1/29 3,316 3,329
Summit Radbourne 9.80% 3/1/02 8,642 8,683
Summit Sand Lake 7.88% 2/15/06 15,128 -
TAX EXEMPT MORTGAGE NOTES
Summit Crossing 6.95% 11/1/25 4,188 4,213
Summit East Ridge 7.25% 12/1/26 5,129 5,156
------------- --------------
TOTAL MORTGAGE DEBT 216,051 202,714
------------- --------------
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 247,051 233,714
VARIABLE RATE DEBT
UNSECURED CREDIT FACILITY LIBOR + 110 9/30/99 98,786 22,357
TAX EXEMPT BONDS(5)
Summit Belmont 5.70% 4/1/07 11,650 11,850
Summit Hampton 5.70% 6/1/07 12,490 12,700
Summit Pike Creek 5.70% 8/15/20 13,143 13,262
Summit Gateway 5.70% 7/1/07 7,100 7,300
Summit Stony Point 5.70% 4/1/29 8,670 8,750
------------- --------------
TOTAL TAX EXEMPT BONDS 53,053 53,862
------------- --------------
TOTAL VARIABLE RATE DEBT 151,839 76,219
------------- --------------
TOTAL OUTSTANDING INDEBTEDNESS $398,890 $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 Park Summit Square Summit Perico
Summit Village Summit Waterford Summit Providence
Summit Highland Summit Del Ray Summit Meadow
Summit Norcroft Summit Palm Lake Summit Windsor
Page 20 of 28
<PAGE> 21
(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") 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 June 30, 1997 was 5.69%
DEVELOPMENT ACTIVITY
The Company's developments in process at June 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 Russett-Laurel, MD 314 $ 23,100 $ 22,005 $ 1,095 Q3 1997
Summit Stonefield-Yardley, PA 216 18,400 13,817 4,583 Q4 1997
Summit Norcroft II-Charlotte, NC 54 3,750 1,704 2,046 Q4 1997
Summit Sedgebrook I-Charlotte, NC 248 15,600 10,950 4,650 Q4 1997
Summit Ballantyne I-Charlotte, NC 246 16,800 10,855 5,945 Q4 1997
Summit Plantation II-Plantation, FL 240 22,000 16,145 5,855 Q4 1997
Summit Lake I-Raleigh, NC 302 19,700 8,700 11,000 Q2 1998
Summit Fair Lakes I-Fairfax, VA 370 32,900 8,750 24,150 Q4 1998
Summit New Albany-Columbus, OH 301 22,600 4,507 18,093 Q1 1999
------------ ----------- ----------- -----------
2,291 174,850 97,433 77,417
Other development and construction costs - - 13,573 -
------------ ----------- ----------- -----------
2,291 $ 174,850 $ 111,006 $ 77,417
============ =========== =========== ===========
</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.
Page 21 of 28
<PAGE> 22
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 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.
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 six months ended June 30, 1997 and 1996 are
summarized as follows (dollars in thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
---------------------
1997 1996
-------- -------
<S> <C> <C>
Acquisition of new Communities (1) $ 65,170 $21,913
Construction of new Communities (2) 44,950 37,617
Capitalized interest 2,948 1,927
Non-recurring capital expenditures:
Construction of garages 13 720
Access gates 68 65
New signage 76 52
Water meters 19 173
Washer/dryer units 18 58
Major improvements 1,949 758
Other 4 13
-------- -------
Total non-recurring capital expenditures 2,147 1,839
-------- -------
Recurring capital expenditures:
Exterior painting 558 465
Other community additions and improvements 852 935
Corporate additions 61 3
-------- -------
Total recurring capital expenditures 1,471 1,403
-------- -------
$116,686 $64,699
======== =======
</TABLE>
Page 22 of 28
<PAGE> 23
(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 six months ended June 30, 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 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 an
alternative 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 is 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.
Page 23 of 28
<PAGE> 24
Funds from Operations and Funds Available for Distribution for the three and six
months ended June 30, 1997 and 1996 are calculated as follows (dollars in
thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------- -------------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net income $ 9,493 $ 3,495 $ 15,369 $ 6,904
Gain on sale of real estate assets (4,366) -- (4,366) --
Minority interest of Unitholders
in Operating Partnership 1,729 850 2,781 1,678
Depreciation:
Operating Communities 5,421 4,428 10,593 8,549
Summit Plantation -- -- -- 33
------------ ------------ ------------ ------------
Funds from Operations 12,277 8,773 24,377 17,164
Recurring capital expenditures (1) (1,016) (842) (1,471) (1,403)
------------ ------------ ------------ ------------
Funds Available for Distribution $ 11,261 $ 7,931 $ 22,906 $ 15,761
============ ============ ============ ============
Weighted average shares outstanding 23,122,778 16,594,560 23,031,445 16,592,638
============ ============ ============ ============
Weighted average shares and units
outstanding 27,333,968 20,624,614 27,192,559 20,618,684
============ ============ ============ ============
</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.
Page 24 of 28
<PAGE> 25
PART II. OTHER INFORMATION
ITEM 2 CHANGES IN SECURITIES
On June 18, 1997, the Company issued to a limited partner of the Operating
Partnership 53,165 shares of Common Stock (valued at $463,300 at the time of
issuance) in exchange for 53,165 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
On May 13, 1997, the Company held its 1997 Annual Meeting of Stockholders (the
"Annual Meeting"). At the Annual Meeting, Stockholders of the Company were asked
to consider a proposal (the "Proposal") to elect two Class III Directors of the
Company to serve until the 2000 annual meeting of stockholders or until their
successors are duly elected and qualified.
With respect to the election of Directors, William B. McGuire, Jr. and William
F. Paulsen were nominated to serve as Class III Directors of the Company until
the 2000 annual meeting; the other Directors of the Company whose terms of
office as directors continued after the Annual Meeting are as follows: James H.
Hance, Jr. (Class I Director), Henry H. Fishkind (Class I Director), Nelson
Schwab III (Class II Director) and John Crosland, Jr. (Class II Director).
With respect to the Proposal, the stockholders of the Company voted at the
Annual Meeting as hereinafter described. By a vote of 15.2 million votes of
Common Stock in favor of William B. McGuire, Jr. and William F. Paulsen, in
excess of a majority of the eligible votes, with no votes against each of
Messrs. McGuire and Paulsen, respectively, each of William B. McGuire, Jr. and
William F. Paulsen was elected as a Class III Director of the Company.
Page 25 of 28
<PAGE> 26
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Amendment No. 10 to the Limited Partnership Agreement of the
Operating Partnership
27.1 Financial Data Schedule
(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. In addition, a Form 8-K/A-2 was filed with the SEC on June 5,
1997 to revise certain pro forma financial information.
Page 26 of 28
<PAGE> 27
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.
July 29, 1997 /s/ William F. Paulsen
- ------------------------ -------------------------------------------
(Date) William F. Paulsen, President
and Chief Executive Officer
July 29, 1997 /s/ Michael L. Schwarz
- ------------------------ -------------------------------------------
(Date) Michael L. Schwarz, Executive
Vice President and Chief Financial Officer
Page 27 of 28
<PAGE> 28
EXHIBIT INDEX
10.1 Amendment No. 10 to the Limited Partnership Agreement of the Operating
Partnership
27.1 Financial Data Schedule
Page 28 of 28
<PAGE> 1
EXHIBIT 10.1
TENTH AMENDMENT TO AGREEMENT OF
LIMITED PARTNERSHIP OF SUMMIT PROPERTIES PARTNERSHIP, L.P.
THIS TENTH AMENDMENT TO AGREEMENT OF LIMITED PARTNERSHIP OF SUMMIT
PROPERTIES PARTNERSHIP, L.P. (the "Amendment") is dated as of June 18, 1997, and
entered into by and among Summit Properties Inc., a Maryland corporation (the
"Company"), and the persons whose names are set forth on Exhibit A attached
hereto (the "Limited Partners").
WHEREAS, the Company and the Limited Partners are partners of Summit
Properties Partnership, L.P., a Delaware limited partnership (the
"Partnership"), pursuant to an Agreement of Limited Partnership dated as of
January 29, 1994, as previously amended (as previously amended, the
"Agreement"); and
WHEREAS, in accordance with Section 14.1 of the Agreement, the Partners
have approved this Amendment by written consent.
NOW, THEREFORE, in accordance with the provisions of Section 14.1 of
the Agreement and for other good and valuable consideration the Partners hereby
amend the Agreement by adding the following Article 16 to the end of the
Agreement.
ARTICLE 16
CONSOLIDATION, MERGER OR SALE OF ASSETS OF THE COMPANY
Section 16.1 Triggering Events
For the purposes of this Article 16, each of the following events shall
be deemed to be a "Triggering Event": (w) if the Company consolidates with, or
merges into, any other Person, and the Company is not the continuing or
surviving corporation of such consolidation or merger, (x) if any Person
consolidates with, or merges into, the Company, and the Company is the
continuing or surviving corporation of such consolidation or merger and, in
connection with such consolidation or merger, all or part of the outstanding
REIT Shares are converted into stock or other securities of any other Person or
cash or any other property, (y) if any Person becomes the Beneficial Owner (as
hereinafter defined) of 33.3% or more of the outstanding REIT Shares or (z) if
the Company sells or otherwise transfers (or one or more of its Subsidiaries
sells or otherwise transfers) to any Person or Persons, in one or more
transactions, assets aggregating more than 50% of the value of the assets (based
on either the fair market value of the assets or cash flow generated by the
assets) of the Company or the Partnership. "Beneficial Owner" means any Person
who, together with such Person's Affiliates (as defined in Rule 12b-2 of the
Securities Exchange Act of 1934 as in effect on the date this Article 16 shall
be adopted (including any rules and regulations thereunder) (the "Exchange
Act")) and associates (as defined in Rule 12b-2 of the Exchange Act), (i) would
be considered a "beneficial owner" under Rule 13d-3 of the
<PAGE> 2
Exchange Act, other than (A) as a result of a revocable proxy given in response
to a proxy or consent solicitation made pursuant to, and in accordance with, the
Exchange Act or (B) as would not be reportable by such Person on Schedule 13D
under the Exchange Act, (ii) has entered into any agreement, arrangement or
understanding (whether or not in writing), for the purpose of acquiring, owning,
voting (except pursuant to a revocable proxy or consent solicitation made
pursuant to, and in accordance with, the Exchange Act) or disposing of REIT
Shares or (iii) has the right to acquire (whether such right is exercisable
immediately or only after the passage of time or upon the satisfaction of
conditions) REIT Shares pursuant to any agreement, arrangement or understanding
(whether or not in writing) or upon the exercise of conversion rights, exchange
rights, rights, warrants or options or otherwise.
Section 16.2 From and After the Occurrence of a Triggering Event
Effective on the date of each Triggering Event, the Redemption Right
shall be adjusted as provided in this Section 16.2.
A. From and after the occurrence of a Triggering Event (each such
occurrence, a "Trigger Occurrence") and until the occurrence, if any, of a
subsequent Triggering Event (in which case a further adjustment shall be made
pursuant to this Section 16.2), each and every reference contained in this
Agreement to a "REIT Share" or "REIT Shares" shall be deemed to be a reference
to a share or shares, respectively (each, a "Replacement Share"; collectively,
"Replacement Shares"), of: (i) if, as a result of any Triggering Event, all of
the REIT Shares are converted solely into Registered Common Stock (as
hereinafter defined), such Registered Common Stock and (ii) in all other cases,
the common stock, or, if such Person shall have no common stock, the equity
securities or other equity interests having power to control or direct the
management (the "Common Stock") of (a) in the event of a Triggering Event
described in clause (w) or (x) of the first sentence of Section 16.1, (1) the
Person that is the issuer of any securities into which the REIT Shares are
converted in such merger or consolidation, or, if there is more than one such
issuer, the issuer who has the highest Market Capitalization (as hereinafter
defined) and (2) if no securities are so issued, the Person that is the other
party to such merger or consolidation, or if there is more than one such Person,
the Person who has the highest Market Capitalization or (b) in the event of a
Triggering Event described in clause (y) or (z) of the first sentence of Section
16.1, the Person that is the party becoming the Beneficial Owner of the largest
percentage of the outstanding REIT Shares or receiving the largest portion of
the value of assets (with such value determined based on either the fair market
value of the assets or the cash flow generated by the assets) transferred
pursuant to such transaction or transactions, or, if each Person that is a party
to such transaction or transactions or if the Person becoming the Beneficial
Owner of the largest portion of the REIT Shares or receiving the largest portion
of the assets cannot be determined, whichever Person has the highest Market
Capitalization; provided, however, that in any such case, (1) if the Common
Stock of such Person is not at such time and has not been continuously over the
preceding twelve-month period registered ("Registered Common Stock") under
<PAGE> 3
Section 12 of the Exchange Act, or such Person is not a corporation, and such
Person is a direct or indirect Subsidiary of another Person that has Registered
Common Stock outstanding, "Replacement Shares" shall mean shares of the Common
Stock of such other Person; (2) if the Common Stock of such Person is not
Registered Common Stock or such Person is not a corporation, and such Person is
a direct or indirect Subsidiary of another Person but is not a direct or
indirect Subsidiary of another Person which has Registered Common Stock
outstanding, "Replacement Shares" shall mean shares of the Common Stock of the
ultimate parent entity of such first-mentioned Person; (3) if the Common Stock
of such Person is not Registered Common Stock or such Person is not a
corporation, and such Person is directly or indirectly controlled by more than
one Person, and one of such other Persons has Registered Common Stock
outstanding, "Replacement Shares" shall mean shares of the Common Stock of
whichever of such other Persons is the issuer having the highest Market
Capitalization; and (4) if the Common Stock of such Person is not Registered
Common Stock or such Person is not a corporation, and such Person is directly or
indirectly controlled by more than one Person, and none of such other Persons
have Registered Common Stock outstanding, "Replacement Shares" shall mean shares
of the Common Stock of whichever ultimate parent entity is the corporation
having the highest aggregate shareholders' equity or, if no such ultimate parent
entity is a corporation, shall be deemed to refer to shares of the Common Stock
of whichever ultimate parent entity is the entity having the greatest net
assets. Any issuer of "Replacement Shares" shall be referred to as an "Issuer".
"Market Capitalization" means the dollar figure equal to the product of the
number of shares of Common Stock issued and outstanding on the date of the
Trigger Occurrence in question, on a fully diluted basis, not held by Affiliates
(as defined under the Exchange Act) multiplied by the Average Trading Price (as
hereinafter defined). The holders of a majority of the Partnership Units held by
the Limited Partners (excluding the Partnership Units held by the General
Partner) may, within 90 days after the occurrence of a Triggering Event
described in clause (y) of the first sentence of Section 16.1, waive, in
writing, the adjustment to the Redemption Right provided for in this Section
16.2; provided, that (i) the Redemption Right shall remain in full force and
effect as provided in Section 8.6, (ii) such election shall be binding on all of
the Limited Partners and (iii) if the adjustment to the Redemption Right has
previously been waived pursuant to this sentence, a new Triggering Event shall
be deemed to occur each time a Person who is the Beneficial Owner of at least
33.3% of the outstanding REIT Shares becomes the Beneficial Owner of an
additional 2% or more of the outstanding REIT Shares.
B. From and after a Trigger Occurrence, the "Conversion Factor" shall
be adjusted by multiplying the "Conversion Factor" existing on the day
immediately prior to such Trigger Occurrence as follows: (i) if the REIT Shares,
as a result of the Trigger Occurrence, have been converted solely into the right
to receive Registered Common Stock, by the number of shares of Registered Common
Stock which the holder of a single REIT Share was entitled to receive as a
result of the Trigger Occurrence or (ii) in all other cases, by a fraction, the
numerator of which shall be the Average Trading Price of a REIT Share as of such
Trigger Occurrence and the
<PAGE> 4
denominator of which shall be the Average Trading Price of a Replacement Share
as of such Trigger Occurrence. Following a Trigger Occurrence, the Conversion
Factor shall be further adjusted as set forth in the definition of "Conversion
Factor" contained in Article 1 of this Agreement and as provided in this Section
16.2.
C. For the purpose of any computation hereunder, the "Average Trading
Price" per share of Common Stock on any date shall be deemed to be the average
of the daily closing prices per share of such shares for the ten consecutive
trading days immediately prior to the third trading day prior to such date;
provided, however, in the event the Triggering Event occurs as part of a series
of related transactions which also includes a tender offer, the ten trading day
period shall be the ten consecutive trading day period immediately prior to the
day REIT Shares are accepted for payment pursuant to such tender offer;
provided, however, further, if prior to the expiration of such requisite ten
trading day period the issuer announces either (A) a dividend or distribution on
such shares payable in such shares or securities convertible into such shares or
(B) any subdivision, combination or reclassification of such shares, then,
following the ex-dividend date for such dividend or the record date for such
subdivision, as the case may be, the "Average Trading Price" shall be properly
adjusted to take into account such event. The closing price for each day shall
be, if the shares are listed and admitted to trading on a national securities
exchange, as reported in the principal consolidated transaction reporting system
with respect to securities listed on the principal national securities exchange
on which such shares are listed or admitted to trading or, if such shares are
not listed or admitted to trading on any national securities exchange, the last
quoted price or, if not so quoted, the high bid price in the over-the-counter
market, as reported by the NASDAQ National Market System or such other system
then in use, or, if on any such date such shares are not quoted by any such
organization, the average of the closing bid and asked prices as furnished by a
professional market maker making a market in such shares selected by the holders
of a majority of the Partnership Units held by the Limited Partners (excluding
the Partnership Units held by the General Partner). If such shares are not
publicly held or not so listed or traded or if, for the ten days prior to such
date, no market maker is making a market in such shares, the Average Trading
Price of such shares on such date shall be deemed to be the fair value of such
shares as determined as set forth in Section 16.2.D. The term "trading day"
shall mean, if such shares are listed or admitted to trading on any national
securities exchange, a day on which the principal national securities exchange
on which such shares are listed or admitted to trading is open for the
transaction of business or, if such shares are not so listed or admitted, a
Business Day.
D. In the event that on the date of a Trigger Occurrence, the shares of
a Person are not publicly held or not so listed or traded or if, for the ten
days prior to such date, no market maker is making a market in the shares of a
Person, the Average Trading Price of the shares of such Person shall be the fair
value of the shares as determined in good faith by the holders of a majority of
the Partnership Units held by the Limited Partners (excluding the Partnership
Units held by the General Partner) and
<PAGE> 5
by the General Partner, which determination shall be binding on all of the
Limited Partners. If the holders of a majority of the Partnership Units held by
the Limited Partners (excluding the Partnership Units held by the General
Partner) and General Partner have not agreed on the fair value of the shares and
executed and delivered between them an agreement setting forth the same within
twenty (20) days after the Trigger Occurrence in question, then either the
General Partner or the holders of a majority of the Partnership Units held by
the Limited Partners (excluding the Partnership Units held by the General
Partner) may notify the other that they or it desire to invoke the following
arbitration procedure:
(1) Notice of the holders of a majority of the Partnership
Units held by the Limited Partners (excluding the Partnership Units
held by the General Partner) or by the General Partner of such parties'
intention to seek arbitration shall be delivered to the other parties
within ten (10) days, after which all parties shall, in good faith,
attempt to agree on a single arbitrator to determine the fair value of
the shares (the "Arbitrator"). If the holders of a majority of the
Partnership Units held by the Limited Partners (excluding the
Partnership Units held by the General Partner) and the General Partner
have not agreed on the Arbitrator within ten (10) days after the giving
of the Arbitration Notice, then either party, on behalf of both, may
apply to the local office of the American Arbitration Association or
any organization which is the successor thereof (the "AAA") for
appointment of the Arbitrator, or, if the AAA shall not then exist or
shall fail, refuse or be unable to act such that the Arbitrator is not
appointed by the AAA within ten (10) days after application therefor,
then either party may apply to any court of competent jurisdiction in
the State of North Carolina (the "Court") for the appointment of the
Arbitrator and the other party shall not raise any question as to the
Court's full power and jurisdiction to entertain the application and
make the appointment. The date on which the Arbitrator is appointed, by
the agreement of the parties, by appointment by the AAA or by
appointment by the Court, is referred to herein as the "Appointment
Date". If any Arbitrator appointed hereunder shall be unwilling or
unable, for any reason, to serve, or continue to serve, a replacement
arbitrator shall be appointed in the same manner as the original
Arbitrator.
(2) The arbitration shall be conducted in accordance with the
then prevailing commercial arbitration rules of the AAA, modified as
follows:
(i) To the extent that any statute imposes
requirements different than those of the AAA in order for the
decision of the Arbitrator to be enforceable in the courts of
the State of North Carolina, such requirements shall be
complied with in the arbitration.
(ii) The Arbitrator shall be disinterested and
impartial, shall not be affiliated with the Limited Partners,
the General Partner or their
<PAGE> 6
Affiliates and shall have at least ten (10) years experience
in the market in which the applicable Person transacts the
majority of its business.
(iii) Before hearing any testimony or receiving any
evidence, the Arbitrator shall be sworn to hear and decide the
controversy faithfully and fairly by an officer authorized to
administer an oath and a written copy thereof shall be
delivered to each of the Limited Partners and the General
Partner.
(iv) Within twenty (20) days after the Appointment
Date, the holders of a majority of the Partnership Units held
by the Limited Partners (excluding the Partnership Units held
by the General Partner) and the General Partner shall deliver
to the Arbitrator two (2) copies of their respective written
determinations of the fair value of the shares (each, a
"Determination") together with such affidavits, appraisals,
reports and other written evidence relating thereto as the
submitting party deems appropriate. After the submission of
any Determination, the submitting party may not make any
additions to or deletions from, or otherwise change, such
Determination or the affidavits, appraisals, reports and other
written evidence delivered therewith. If either party fails to
so deliver its Determination within such time period, time
being of the essence with respect thereto, such party shall be
deemed to have irrevocably waived its right to deliver a
Determination and the Arbitrator, without holding a hearing,
shall accept the Determination of the submitting party as the
fair value of the shares. If each party submits a
Determination with respect to the fair value of the shares
within the twenty (20) day period described above, the
Arbitrator shall, promptly after its receipt of the second
Determination, deliver a copy of each party's Determination to
the other party.
(v) Not less than ten (10) days nor more than twenty
(20) days after the earlier to occur of (x) the expiration of
the twenty (20) day period provided for in clause (iv) of this
subparagraph or (y) the Arbitrator's receipt of both of the
Determinations from the parties (such earlier date is referred
to herein as the "Submission Date") and upon not less than
five (5) days notice to the parties, the Arbitrator shall hold
one or more hearings with respect to the determination of the
fair value of the shares. The hearings shall be held in the
Charlotte metropolitan area of North Carolina at such location
and time as shall be specified by the Arbitrator. Each of the
parties shall be entitled to present all relevant evidence and
to cross-examine witnesses at the hearings. The Arbitrator
shall have the authority to adjourn any hearing to such later
date as the Arbitrator shall specify, provided that in all
events all hearings with respect to the determination of the
fair value of the shares shall be concluded not later than
thirty (30) days after the Submission Date.
<PAGE> 7
(vi) The Arbitrator shall be instructed, and shall be
empowered only, to select as the fair value of the shares that
one of the Determinations which the Arbitrator believes is the
more accurate determination of the Average Trading Price of
the shares. Without limiting the generality of the foregoing,
in rendering his or her decision, the Arbitrator shall not add
to, subtract from or otherwise modify the provisions of this
Agreement or either of the Determinations.
(vii) The Arbitrator shall render his or her
determination as to the selection of a Determination in a
signed and acknowledged written instrument, original
counterparts of which shall be sent simultaneously to Limited
Partners and the General Partner, within ten (10) days after
the conclusion of the hearing(s) required by clause (v) of
this Section.
(3) This provision shall constitute a written agreement to
submit any dispute regarding the determination of the Average Trading
Price of the shares of a Person to arbitration.
(4) The arbitration decision, determined as provided in this
Article, shall be conclusive and binding on the parties, shall
constitute an "award" by the Arbitrator within the meaning of the AAA
rules and applicable law, and judgment may be entered thereon in any
court of competent jurisdiction.
(5) The Partnership shall pay all fees and expenses relating
to the arbitration (including, without limitation, the reasonable fees
and expenses of one counsel chosen by the holders of a majority of the
Partnership Units held by the Limited Partners (excluding the
Partnership Units held by the General Partner) and of experts and
witnesses retained or called by the Limited Partners). The Limited
Partners' counsel chosen as set forth in the preceding sentence shall
represent the interests of all of the Limited Partners and the choice
of counsel shall be binding on all of the Limited Partners.
E. From and after a Trigger Occurrence, each and every reference to the
"Company" in Section 8.6 shall be deemed to be a reference to the Issuer of the
Replacement Shares. From and after a Trigger Occurrence, the Issuer shall assume
or unconditionally guaranty the performance of the General Partner's obligations
under this Agreement pursuant to an instrument in form and substance
satisfactory to the holders of a majority of the Partnership Units held by the
Limited Partners (excluding the Partnership Units held by the General Partner).
From and after a Trigger Occurrence, the "Average Trading Price" of a REIT Share
or a Replacement Share, as applicable shall be substituted for the "Value" of
the same for the purposes of determining the Cash Amount.
<PAGE> 8
Section 16.3 Additional Issuer Covenants
The General Partner shall (i) not enter into an agreement with
any Person which would result in a Triggering Event unless such agreement
provides for each of the following and (ii) from and after any Trigger
Occurrence, comply with each of the following:
A. If, on the day immediately prior to a Trigger Occurrence, the Issuer
is qualified as a REIT, then, substantially contemporaneously with such Trigger
Occurrence, the General Partner, the Issuer and its Affiliates shall enter into
such mergers, combinations, conveyances or other transactions as shall be
required to cause substantially all of the assets of the General Partner and the
Issuer and its Affiliates to be owned, leased or held directly or indirectly by
a single operating partnership in which the Limited Partners shall hold
partnership units having the rights specified by this Agreement. The agreement
governing the resulting operating partnership shall be in a form substantially
no less favorable to each of the Limited Partners than is this Agreement.
B. From and after a Trigger Occurrence, the General Partner shall not
take any action (other than (i) paying a dividend or distribution in respect of
all of the Partnership Units that complies with Articles 5 and 13, (ii)
purchasing or disposing of any real property or other assets provided that any
single disposition of assets does not represent 10% or more of the total gross
book value of the Partnership's assets at the time of such disposition and the
Partnership shall use reasonable efforts to structure any dispositions of assets
to comply with the requirements of Section 1031 of the Code, (iii) financing,
refinancing or other repayment of any indebtedness or entering into or
terminating any guaranty of indebtedness, (iv) issuing any Units to the Company
or the General Partner in connection with a sale of securities by the Company or
the General Partner or selling any Units, including, without limitation, in
connection with a purchase of assets by the Partnership, or (v) redeeming any
Units pursuant to this Agreement), or fail to take any action, if such action or
failure to take action, would result in any Limited Partner realizing a taxable
gain, without the prior written consent of the holders of a majority of the
Partnership Units held by the Limited Partners (excluding the Partnership Units
held by the General Partner). Notwithstanding the previous sentence, if the
Issuer or the General Partner, or both, shall agree, in writing, to indemnify
each of the Limited Partners against any taxes that the Limited Partners might
incur a result of an action, or failure to take action, on the part of the
General Partner, such action, or failure to take action, shall not require the
consent of any of the Limited Partners. Further, if the General Partner is a
REIT, the General Partner shall be permitted to take any action required by the
Code or the IRS to allow the General Partner to remain a REIT without the
consent of any of the Limited Partners.
C. From and after a Trigger Occurrence, in the event a dividend or
distribution consisting of cash or property (other than Replacement Shares) or
both is paid by the Issuer in respect of the Replacement Shares, the General
Partner shall
<PAGE> 9
cause the Partnership to distribute, in respect of each Partnership Unit, the
same amount of cash or property the holder of a Partnership Unit would have
received had such holder exercised its Redemption Right and received Replacement
Shares prior to such dividend or distribution.
Section 16.4 Application to Later Transactions
This Article 16 shall apply to the initial Triggering Event and shall
continue to apply to each subsequent Triggering Event.
Section 16.5 Waivers and Amendments
A. The provisions of this Article 16 may be waived only upon the
written consent of the holders of a majority of the Partnership Units held by
the Limited Partners (excluding the Partnership Units held by the General
Partner and its Affiliates).
B. This Article 16 shall only be amended as provided in Section 14.1.D
of this Agreement and shall be deemed included in such section for all purposes.
Except as expressly amended by the foregoing Article 16, or as may be
necessary to effect the intent of the parties hereto as evidenced by this
Amendment, all other terms of the Agreement are hereby ratified and confirmed
and shall remain in full force and effect.
[Remainder of page intentionally left blank]
<PAGE> 10
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date first above written.
GENERAL PARTNER:
SUMMIT PROPERTIES INC.
By: /s/ Michael G. Malone
---------------------------------------
Michael G. Malone
Senior Vice President
LIMITED PARTNERS:
Those Persons listed on Exhibit A attached
hereto
By: Summit Properties Inc., their attorney-
in-fact
By: /s/ Michael G. Malone
---------------------------------------
Michael G. Malone
Senior Vice President
<PAGE> 11
EXHIBIT A
John & Patricia Ackerman Patrick Bailey, Jr.
1818 Manor Hill 352 Eastover Road
St. Louis, MO 63141 Charlotte, NC 28207
Kenneth M. Barnes Jr. Trustee JH Barnhardt
3516 Brunswick Court 2331 Rock Creek Drive
Winston-Salem, NC 27104 Charlotte, NC 28226
Sadler H. Barnhardt Thomas M. Barnhardt
2123 Hastings Drive 600 Llewellyn Place
Charlotte, NC 28207 Charlotte, NC 28207
James H. & Sybil Blumenberg Charles C. Bollinger
2 Kehrsboro Court Northwest Boulevard
Chesterfield, MO 63017 Newton, NC 28658
Douglas L. Boone David R. Boozer
4508 Grandfather's Lane 107 Shoreline Drive
Charlotte, NC 28226 Stanley, NC 28164-9750
Timothy A. Braswell Eugene E. Brucker
17925 Southeast Village Circle 4 Clayprice Court
Tequesta, FL 33469 St. Louis, MO 63124
Dr. Andrew P. Collins John Crosland, Jr.
3115 Academy Road 301 Colville Road
Durham, NC 27707 Charlotte, NC 28207
<PAGE> 12
Carl T. Dedmon Robert W. Donaldson, Jr.
P.O. Box 1146 2531 Forest Drive
Shelby, NC 28151 Charlotte, NC 28211
James H. Donnewald Estate of Raymond Donnewald
1220 Walnut Street 1071 Randolph
Breese, IL 62230 Carlyle, IL 62231
B. D. Farmer, III M.D. James S. Forrester
3810 Silver Bell Drive P.O. Box 457
Charlotte, NC 28211 Stanley, NC 28164
William A. & Cornelia D. Frank Harvey & Cynthia P. Frohlichstein
7 Chatfield Place 140 Executive Estates
St. Louis, MO 63141 St. Louis, MO 63141
Robert H. Gaither John C. Golding
602 East Street 3913 Beresford Road
Albemarle, NC 28001 Charlotte, NC 28211
Rebecca H. Gordon Charles H. Griffin
9219 Hampton Oaks Lane P.O. Box 206
Charlotte, NC 28270-0452 Marshville, NC 28103
<PAGE> 13
David E. Harrold William M. Herndon
209 East Lake Shore Drive 112 Herndon Farm Road
Studio E Kings Mountain, NC 28086
Chicago, IL 60611
M.D. Richard D. Hill K. Reid Hotaling
8405 Rego Street 6231 Floridian Court
Charlotte, NC 28216 Lake Worth, FL 33463
Francis J. Intagliata Ruthanne Jones
10666 Mentz Hill Acres 407 Yachtclub Drive
St. Louis, MO 63128 Rockwall, TX 75087
Donald H. Jones Dr. Duncan A. Killen
3101 Valencia Terrace 1909 W. 70th Street
Charlotte, NC 28211 Shawnee Mission, KS 66208
Richard E. Killough Jack Krause
16112 Weatherly Way 433 Baker Avenue
Huntersville, NC 28078 Webster Groves, MO 63119
Jean H. Lamb Paul R. Leonard, Jr.
P.O. Box 23177 150 Prestwood Lane
Charlotte, NC 28227 Mooresville, NC 28115
Roger M. Lewis Terry G. Link
125 Scaleybark Road 421 Hempstead Place
Charlotte, NC 28209 Charlotte, NC 28207
<PAGE> 14
Justin F. Little Daniel P. McCabe
4211 Chevington Road 2862 Glenwood Springs Drive
Charlotte, NC 28226 Glenwood, MD 21738
Susan H. McDowell Mark L. Messerly
6009 Robin Hollow Drive 4310 North Park Drive
Charlotte, NC 28227 Tampa, FL 33624
Roy H. Michaux, Jr. Jack R. Miller
1929 Queens Road 114 Inwood Drive
Charlotte, NC 28207 Aiken, SC 29803-5614
Kenneth M. Murphy J. Frank Newton
1603 N. Mattis 5241 Haynes Hall Place
Champaign, IL 61820 Charlotte, NC 28270
Gordon L. Pfefferkorn Eugene V. Rankin
333 Pine Valley Drive 230 Pebble Acres Drive
Winston-Salem, NC 27104 St. Louis, MO 63141
Leroy Robinson Sam J. Rosenbloom
2127 Cortelyou Road 14241 Forest Crest Drive
Charlotte, NC 28211 Chesterfield, MO 63017
<PAGE> 15
Raymond Edgar Rowland, Jr. Albert F. Sloan
30 Clermont Lane 3826 Silverbell Road
St. Louis, MO 63124 Charlotte, NC 28211
Brant R. Snavely, Jr. Eloise Y. Spangler
633 W. Fourth Street 926 Elizabeth Road
Winston-Salem, NC 27104 Shelby, NC 28150
Emil A. Stange Dr. John B. Summers
2346 S. Farm Road 237 12658 Alswell Lane
Rogersville, MO 65742-9106 St. Louis, MO 63178
Roberta K. Symonds Nick Tacony
2495 W. Highway 161 9433 Firebush Drive
Nelleville, IL 62221 St. Louis, MO 63126
Edward D. Trevillian Raymond E. Rowland Revocable Trust
6816-A2 Fisher's Farm Lame 710 S. Hamley, #21A
Charlotte, NC 28226 Clayton, MO 63105
Robert W. Sauer Grantor Trust Owen H. Whitfield
14300 Conway Meadows Court, East 2523 Red Fox Trail
Chesterfield, MO 63107 Charlotte, NC 28211
<PAGE> 16
Gerald S. Workman Bernard A. Zimmer
P.O. Box 1325 1324 Waxhaw-Marvin Road
Manteo, NC 27954 Waxhaw, NC 28173
Franz J. Zimmer Frederick C. Hines
12033 Lazy Willow Lane Allen Tate Company
Charlotte, NC 28217 6618 Fairview Road
Charlotte, NC 28210
Charles W. Brown III Ned Curran
Altman Development Corporation Estate of E. R. Street
115-F Venetian Drive 2115 Rexford Road
Delray Beach, FL 33483 Suite 100
Charlotte, NC 28211
c/o Audrey F. Smith Thomas Mannausa
Estate of W.H.L. Smith Neal & Mannausa
P.O. Box 14737 1343 Main Street
St. Louis, MO 63178 5th Floor
Sarasota, FL 34236
Phil Larmon John Gray
P.K. Partners Summit Properties
9000 Keystone Crossing
Suite 560
Indianapolis, IN 46240
Ray Jones Michael Malone
Summit Properties Summit Properties
Mary Beth Marshall Bill McGuire
Summit Properties Summit Properties
<PAGE> 17
John Moore Bill Paulsen
Summit Properties Summit Properties
Jim Smith Steve Wylie
Summit Properties Summit Properties
Keith Downey Keith H. Kuhlman
Summit Properties Inc. Summit Properties Inc.
777 S. Harbour Island Blvd., #980
Tampa, FL 33602
Stephen F. Smoak Michael A. Underwood
Summit Properties Inc. Summit Properties Inc.
Charles Teal
The Crosland Group, Inc.
125 Scaleybark Road
Charlotte, NC 28209
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 5,346
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 814,941
<DEPRECIATION> 93,936
<TOTAL-ASSETS> 748,922
<CURRENT-LIABILITIES> 0
<BONDS> 398,890
0
0
<COMMON> 231
<OTHER-SE> 316,762
<TOTAL-LIABILITY-AND-EQUITY> 748,922
<SALES> 55,006
<TOTAL-REVENUES> 55,352
<CGS> 0
<TOTAL-COSTS> 20,123
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,592
<INCOME-PRETAX> 18,150
<INCOME-TAX> 0
<INCOME-CONTINUING> 15,369
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,369
<EPS-PRIMARY> .67
<EPS-DILUTED> 0
</TABLE>
