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, 1999
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 of (I.R.S. Employer
incorporation or organization) Identification No.)
212 S. TRYON STREET
SUITE 500
CHARLOTTE, NORTH CAROLINA 28281
(Address of principal executive offices) (Zip code)
(704) 334-3000
(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.
27,900,104 shares outstanding as of August 11, 1999.
====================================================
<PAGE>
SUMMIT PROPERTIES INC.
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Consolidated Balance Sheets as of June 30, 1999 and December 31, 1998 (Unaudited)....................3
Consolidated Statements of Earnings for the three and six months ended June 30, 1999 and
1998 (Unaudited).....................................................................................4
Consolidated Statement of Stockholders' Equity for the six months ended June 30,
1999 (Unaudited).....................................................................................5
Consolidated Statements of Cash Flows for the six months ended June 30, 1999 and
1998 (Unaudited).....................................................................................6
Notes to Consolidated Financial Statements (Unaudited)...............................................7
Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations...............14
Item 3 Quantitative and Qualitative Disclosure about Market Risk...........................................28
PART II OTHER INFORMATION
Item 4 Submission of Matters to a Vote of Security Holders.................................................28
Item 6 Exhibits and Reports on Form 8-K....................................................................29
Signatures..........................................................................................30
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SUMMIT PROPERTIES INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
--------- ----------
<S> <C> <C>
ASSETS
Real estate assets:
Land and land improvements .....................................................$ 177,953 $ 169,374
Buildings and improvements ..................................................... 900,777 836,054
Furniture, fixtures and equipment .............................................. 68,285 63,963
--------- ----------
1,147,015 1,069,391
Less: accumulated depreciation ................................................. (126,083) (115,128)
--------- ----------
Operating real estate assets ............................................. 1,020,932 954,263
Construction in progress ....................................................... 117,879 137,145
--------- ----------
Net real estate assets ................................................... 1,138,811 1,091,408
Cash and cash equivalents ........................................................ 3,386 2,837
Restricted cash .................................................................. 22,014 91,981
Deferred financing costs, net .................................................... 7,118 7,538
Other assets ..................................................................... 6,780 4,900
--------- ----------
Total assets ..................................................................... $ 1,178,109 $ 1,198,664
========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Notes payable .................................................................. $ 634,783 $ 726,103
Accrued interest payable ....................................................... 6,876 6,806
Accounts payable and accrued expenses .......................................... 23,428 32,745
Dividends and distributions payable ............................................ 13,551 12,713
Security deposits and prepaid rents ............................................ 4,333 4,188
--------- ----------
Total liabilities .......................................................... 682,971 782,555
--------- ----------
Commitments and contingencies
Minority interest of common unitholders in Operating Partnership ................. 55,410 57,184
Minority interest of Series B preferred unitholders in Operating Partnership ..... 82,870 -
Stockholders' equity:
Common stock, $.01 par value - 100,000,000 shares authorized,
28,019,996 and 27,805,836 shares issued and outstanding
in 1999 and 1998, respectively ........................................... 280 278
Preferred stock, $.01 par value - 25,000,000 shares authorized,
no shares issued and outstanding ......................................... - -
Additional paid-in capital ................................................... 445,060 442,132
Accumulated deficit .......................................................... (83,140) (80,281)
Unamortized restricted stock compensation .................................... (773) (728)
Employee notes receivable .................................................... (4,569) (2,476)
--------- ----------
Total stockholders' equity ............................................... 356,858 358,925
--------- ----------
Total liabilities and stockholders' equity ....................................... $ 1,178,109 $ 1,198,664
========= ==========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
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,
------------------- ---------------------
1999 1998 1999 1998
--------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues:
Rental ..................................... $41,001 $32,423 $80,814 $63,796
Other property income ...................... 2,683 1,894 4,926 3,589
Interest ................................... 799 180 1,833 278
Other income ............................... 74 74 133 147
--------- -------- ---------- ----------
Total revenues .......................... 44,557 34,571 87,706 67,810
--------- -------- ---------- ----------
Expenses:
Property operating and maintenance:
Personnel ................................. 3,359 2,681 6,433 5,110
Advertising and promotion ................. 644 595 1,250 1,106
Utilities ................................. 2,061 1,733 4,127 3,455
Building repairs and maintenance .......... 2,157 2,408 4,122 4,478
Real estate taxes and insurance ........... 4,553 3,401 9,031 6,870
Depreciation .............................. 8,604 6,861 16,857 13,401
Property supervision ...................... 1,057 842 2,045 1,641
Other operating expenses .................. 690 632 1,509 1,268
--------- -------- ---------- ----------
............................................. 23,125 19,153 45,374 37,329
Interest ................................... 9,973 7,661 20,470 14,959
General and administrative ................. 962 735 2,042 1,536
Loss (income) in equity investments:
Summit Management Company ................. 292 (115) 609 (43)
Real estate joint venture ................. 5 - 13 -
--------- -------- ---------- ----------
Total expenses ......................... 34,357 27,434 68,508 53,781
--------- -------- ---------- ----------
Income before gain on sale of real estate assets,
minority interest of unitholders in Operating
Partnership and extraordinary items ........ 10,200 7,137 19,198 14,029
Gain on sale of real estate assets ........... 6,307 8,731 6,307 8,731
Minority interest of common unitholders in
Operating Partnership ...................... (2,051) (2,315) (3,269) (3,310)
Dividends to Series B preferred unitholders .. (1,317) - (1,317) -
--------- -------- ---------- ----------
Income before extraordinary items ............ 13,139 13,553 20,919 19,450
Extraordinary items, net of minority interest
of unitholders in Operating Partnership .... - - - (158)
--------- -------- ---------- ----------
Net income ................................... $13,139 $13,553 $20,919 $19,292
========= ======== ========== ==========
Per share data:
Income before extraordinary items -
basic and diluted .......................... $ 0.46 $ 0.55 $ 0.74 $ 0.80
========= ======== ========== ==========
Extraordinary items - basic and
diluted .................................... - - - $(0.01)
========= ======== ========== ==========
Net income - basic and diluted ............. $ 0.46 $ 0.55 $ 0.74 $ 0.79
========= ======== ========== ==========
Dividends declared ......................... $ 0.42 $ 0.41 $ 0.84 $ 0.82
========= ======== ========== ==========
Weighted average common shares -
basic ...................................... 28,383,624 24,586,476 28,355,409 24,318,854
=========== =========== ========== ==========
Weighted average common shares -
diluted .................................... 28,419,403 24,611,928 28,376,392 24,347,142
=========== ============ ========== ==========
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
SUMMIT PROPERTIES INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Additional Restricted Employee
Common Paid-in Accumulated Stock Notes
Stock Capital Deficit Compensation Receivable Total
------ ------- --------- --------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1998 .............$ 278 $ 442,132 $ (80,281) $ (728) $ (2,476) $ 358,925
Dividends ............................ -- -- (23,778) -- -- (23,778)
Exercise of stock options ............ -- 79 -- -- -- 79
Issuance of restricted stock grants .. -- 364 -- (364) -- --
Amortization of restricted stock grants -- -- -- 319 -- 319
Proceeds from dividend and stock
purchase plans ...................... 7 11,626 -- -- -- 11,633
Repurchase of common stock .......... (5) (10,496) -- -- -- (10,501)
Adjustment for minority interest
in Operating Partnership ............ -- 1,355 -- -- -- 1,355
Issuance of employee notes receivable -- -- -- -- (2,295) (2,295)
Repayments of employee notes receivable 202 202
Net income .......................... -- -- 20,919 -- -- 20,919
-------- ------- --------- --------- --------- ---------
Balance, June 30, 1999 ................ $ 280 $ 445,060 $ (83,140) $ (773) $ (4,569) $ 356,858
========= ========= ========= ========= ========= =========
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
SUMMIT PROPERTIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
------------------
1999 1998
--------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income ............................................................................. 20,919 19,292
Adjustments to reconcile net income to net cash
provided by operating activities:
Extraordinary items .................................................................. -- 158
Loss (income) on equity method investments ........................................... 622 (43)
Gain on sale of real estate assets ................................................... (6,307) (8,731)
Depreciation and amortization ........................................................ 17,245 14,097
Increase in restricted cash .......................................................... (3,220) (104)
Increase in other assets ............................................................. (404) (1,494)
Increase (decrease) in accrued interest payable ...................................... 70 (190)
(Decrease) increase in accounts payable and accrued expenses ......................... (5,896) 3,428
Increase in security deposits and prepaid rents ...................................... 145 361
Dividends to Series B preferred unitholders .......................................... 1,317 --
Minority interest of unitholders in Operating Partnership ............................ 3,269 3,310
-------- --------
Net cash provided by operating activities ..................................... 27,760 30,084
-------- --------
Cash flows from investing activities:
Construction of real estate assets, net of payables .................................... (65,063) (56,921)
Proceeds from disposal of Communities .................................................. 79,103 17,619
Purchase of Communities ................................................................ -- (48,930)
Capitalized interest ................................................................... (3,476) (2,628)
Recurring capital expenditures ......................................................... (3,191) (2,761)
Non-recurring capital expenditures, net of payables .................................... (2,286) (1,487)
-------- --------
Net cash provided by (used in) investing activities ........................... 5,087 (95,108)
-------- --------
Cash flows from financing activities:
Net (repayments) borrowings on line of credit ......................................... (98,508) 78,575
Net borrowings on unsecured bonds ...................................................... 24,748 --
Repayments of mortgage debt ............................................................ (2,539) (14,060)
Repayments of tax exempt bonds ......................................................... (540) (840)
Dividends and distributions to unitholders ............................................. (26,656) (22,746)
Dividends to Series B preferred unitholders ............................................ (1,317) --
Exercise of stock options .............................................................. 79 499
Decrease in advance proceeds from direct stock purchase plan ........................... (9,474) --
Net proceeds from Series B preferred units ............................................. 82,870 --
Proceeds from dividend and stock purchase plans ........................................ 11,633 23,368
Repurchase of common stock ............................................................. (10,501) --
Issuance of employee notes receivable for purchase of Company stock ................... (2,295) (948)
Repayments of employee notes receivable ................................................ 202 --
-------- --------
Net cash (used in) provided by financing activities ........................... (32,298) 63,848
-------- --------
Net increase (decrease) in cash and cash equivalents ..................................... 549 (1,176)
Cash and cash equivalents, beginning of period ........................................... 2,837 3,563
-------- --------
Cash and cash equivalents, end of period ................................................. $ 3,386 $ 2,387
======== ========
Supplemental disclosure of cash flow
information - Cash paid for interest, net of
capitalized interest ..................................................................... $ 19,905 $ 14,637
======== ========
</TABLE>
See notes to consolidated financial statements.
6
<PAGE>
SUMMIT PROPERTIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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, 1999 are not necessarily indicative of the results that may be
expected for the full year. These financial statements should be read in
conjunction with the Company's December 31, 1998 audited financial statements
and notes thereto included in the Company's Annual Report on Form 10-K.
The Company conducts substantially all of its business through Summit
Properties Partnership, L.P. (the "Operating Partnership"). The Company is
sole general partner and majority owner of the Operating Partnership.
COMPREHENSIVE INCOME
Statement of Financial Accounting Standard No. 130 "Reporting Comprehensive
Income" (SFAS 130), presents standards for the reporting and display of
comprehensive income and its components. Besides net income, SFAS 130 requires
the reporting of other comprehensive income, defined as revenues, expenses,
gains and losses that are not included in net income under generally accepted
accounting principles. Comprehensive income is the same as net income for all
periods presented.
DERIVATIVE INSTRUMENT AND HEDGING ACTIVITIES
Statement of Financial Accounting Standard No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS 133), presents standards for
accounting for derivative instruments. SFAS 133 is effective for all fiscal
quarters of fiscal years beginning after June 15, 2000. The Company currently
holds no derivative instruments and, accordingly, does not expect SFAS 133 to
have an effect on the Company's financial position and results of operations.
CHANGE IN ACCOUNTING POLICY
Effective January 1, 1999, the Company implemented prospectively a new
accounting policy whereby expenditures for carpet are capitalized and
depreciated over their estimated useful lives. Previously, the cost of carpet
replacements had been expensed. The Company believes that the newly adopted
accounting policy is preferable as it is consistent with the standards and
practices utilized by the majority of the Company's peers and provides a better
matching of expenses with the related benefit of the expenditure. The change in
accounting policy is being treated as a change in accounting estimate. The
effect of the change in the accounting policy for carpet for the three and six
months ended June 30, 1999 was an increase in net income of $422,000 and
$733,000, respectively, or $0.01 and $0.02 per basic and diluted share,
respectively.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1998 financial statements to
conform to the 1999 presentation.
2. REAL ESTATE JOINT VENTURES
The Company obtained a 25% interest in a joint venture named Station Hill, LLC,
a North Carolina limited liability company ("Station Hill"), the membership of
which is comprised of the Company and a wholly owned subsidiary of a major
financial services company, in exchange for the contribution of two communities
in December, 1998. Station Hill also owns, and the Company thereby holds a 25%
interest in, five apartment communities previously 100% owned by the Company.
These five communities were sold by the Company to Hollow Creek, LLC on December
16, 1998 and were concurrently contributed to Station Hill by Hollow Creek, LLC
for a 75% joint venture interest. The Company's initial investment in Station
Hill was reduced to zero when the Company eliminated the portion of the gain on
disposal related to the percentage of joint venture ownership interest retained.
Station Hill is accounted for on the equity method of accounting.
The Company owns a 49% interest in each of two joint ventures ("Construction
Projects"). Each joint venture is developing an apartment community which will
be accounted for under the equity method of accounting. The projects are both
under construction and had no material operations as of June 30, 1999. The
construction costs are being funded primarily through separate loans to each
7
<PAGE>
2. REAL ESTATE JOINT VENTURES -- (Continued)
joint venture from unrelated third parties equal to 100% of the construction
costs. During the construction period, in lieu of equity contribution to each of
the respective joint ventures, the Company has under certain circumstances,
subsequent to demand by the third party lenders, agreed to make contributions
which would reduce the respective construction loan by an amount not to exceed
25% of the total construction loan amount. Any such contribution would be deemed
to be all or a portion of the equity required to be contributed by the Company
to the respective joint venture at the end of the construction and lease up
period. The Company has the right to purchase its joint venture partner's
interest after the projects are complete.
The following is a condensed balance sheet for each of the real estate joint
ventures at June 30, 1999 and an income statement for the six months ended June
30, 1999 for the Station Hill joint venture, as the Construction Projects had no
material operations during the period. The balance sheets and income statement
set forth below reflect the operations of the joint ventures in their entirety,
not only the Company's respective interests therein:
<TABLE>
<CAPTION>
Balance Sheet
(in thousands)
------------------------
Station Construction
Hill Projects
----------- -----------
<S> <C> <C>
Cash and cash equivalents ................................................... $1,906 $31
Real estate assets other than construction in progress ...................... 90,320 -
Construction in progress .................................................... - 26,006
Other assets ................................................................ 462 23
----------- -----------
Total
assets ................................................................... $92,688 $26,060
=========== ===========
Mortgage
payable ..................................................................... $69,842 $ -
Construction loan payable ................................................... - 23,971
Construction liabilities payable ............................................ - 1,960
Other
liabilities ................................................................. 1,281 212
Partners'
capital ..................................................................... 21,565 (83)
----------- -----------
Total liabilities and
partners' capital ........................................................ $92,688 $26,060
=========== ===========
Income
Statement
(in
thousands)
-----------
Station
Hill
-----------
Revenues .................................................................... $5,863
Expenses:
Property operating ....................................................... 2,064
Depreciation and amortization ............................................ 1,488
Interest ................................................................. 2,345
-----------
Total expenses ......................................................... 5,897
-----------
Net loss .................................................................... ($34)
===========
</TABLE>
3. COMMUNITY DISPOSITIONS
On June 18, 1999, the Company sold an apartment community in Bradenton, Florida,
formerly known as Summit Hampton (352 apartment homes) for $17.1 million. The
disposition of Summit Hampton resulted in the recognition of a gain on sale of
$5.4 million. The net proceeds of $4.4 million, net of tax-exempt bond
assumption of $12.3 million, were placed into escrow with a qualified
intermediary in accordance with like-kind exchange income tax rules and
regulations and are expected to be used to fund future development communities.
On June 24, 1999, the Company sold an apartment community in Goldsboro, North
Carolina, formerly known as Summit Oak (100 apartment homes) for $4.1 million.
The disposition of Summit Oak resulted in the recognition of a gain on sale of
$907,000. The net proceeds of $1.5 million, net of mortgage assumption of $2.5
million, were placed into escrow with a qualified intermediary in accordance
with like-kind exchange income tax rules and regulations and are expected to be
used to fund future development communities.
8
<PAGE>
4. NOTES PAYABLE
The Company has established a program for the sale by the Operating Partnership
of up to $95 million aggregate principal amount of Medium-Term Notes due nine
months or more from the date of issuance (the "MTN Program"). On March 18, 1999,
the Operating Partnership sold $25 million of notes under the MTN Program. Such
notes are due on March 16, 2009 and bear interest at 7.59% per year. Proceeds
from the notes issued were used to reduce the Company's unsecured line of
credit. The Operating Partnership has issued Medium-Term Notes with an aggregate
principal amount of $80 million ($55 million of which was issued during 1998) of
the $95 million aggregate principal amount of Medium-Term Notes registered in
connection with the MTN Program as of June 30, 1999. In July 1999, the Company
and the Operating Partnership filed a shelf registration statement with the
Securities and Exchange Commission pursuant to which the Operating Partnership
may issue debt securities with an aggregate public offering price of up to
$250,000,000. The shelf registration statement was declared effective by the
Securities and Exchange Commission on August 6, 1999. The Company intends to
establish a similar program for the sale of Medium-Term Notes by the Operating
Partnership under such registration statement, pursuant to which the Operating
Partnership may issue Medium-Term Notes from time to time in the future subject
to market conditions and other factors.
5. RESTRICTED STOCK
During the six months ended June 30, 1999 and 1998, the Company granted 21,581
and 5,092 shares, respectively, of restricted stock to employees under the
Company's 1994 Stock Option and Incentive Plan. The market value of the
restricted stock grants awarded in 1999 and 1998 totaled $364,000 and $106,000,
respectively, which has been recorded as unamortized restricted stock
compensation and is shown as a separate component of stockholders' equity.
Unearned compensation related to these restricted stock grants is being
amortized to expense over the vesting period which ranges from three to five
years.
6. SUPPLEMENTAL CASH FLOW INFORMATION
Non-cash investing and financing activities for the six months ended June 30,
1999 and 1998 are as follows:
A. The Company sold two communities during the six months ended June 30,
1999 receiving net proceeds of $5.9 million which were placed in escrow with
a qualified intermediary in accordance with like-kind exchange income tax
rules and regulations. Such proceeds are shown in the balance sheet caption
"Restricted cash" and will be used to fund the future development of
communities. The respective purchasers of these two communities assumed the
related outstanding debt balances associated with such communities of $14.8
million.
B. The Company purchased Summit St. Clair effective March 1, 1998 and Summit
Club at Dunwoody on May 22, 1998 by causing the issuance of 259,871 common
units of limited partnership interest in the Operating Partnership ("Units"),
assuming certain liabilities and paying cash. The recording of the purchases
is summarized as follows (in thousands):
Fixed assets.......................... $54,465
Current liabilities assumed........... (322)
Value of Units issued................. (5,213)
-------
Cash invested......................... $48,930
=======
C. The Company sold a community (formerly Summit Providence) on May 18, 1998
for net proceeds of approximately $23.9 million. A gain on sale of $8.7
million was recognized. The proceeds of the sale were used to partially fund
the acquisition of Summit Club at Dunwoody.
D. The Company accrued dividends and distributions payable in the amounts of
$13.6 million and $11.8 million at June 30, 1999 and 1998, respectively.
E. The Company issued 21,581 and 5,092 shares of restricted stock valued at
$364,000 and $106,000 during the six months ended June 30, 1999 and 1998,
respectively.
9
<PAGE>
7. MINORITY INTEREST
Minority interest consists of the following at June 30, 1999 and December 31,
1998 (in thousands):
1999 1998
Minority interest of unitholders in Operating Partnership ..$55,796 $57,587
Minority interest in one operating community ............... (386) (403)
----- -----
$55,410 $57,184
======= =======
As of June 30, 1999, there were 32,456,738 Units outstanding of which
28,019,996, or 86.5%, were owned by the Company and 4,436,742, or 13.5%, were
owned by other partners (including certain officers and directors of the
Company).
Proceeds from Common Stock issued by the Company are contributed to the
Operating Partnership for an equivalent number of Units. Total Common Stock
issued by the Company and contributed to the Operating Partnership for an
equivalent number of Units was 748,000 and 1.3 million shares valued at $12.9
million ($17.20 per share average) and $24.5 million ($19.72 per share average)
for the six months ended June 30, 1999 and 1998, respectively. No individual
transaction significantly changed the Company's ownership percentage in the
Operating Partnership. The Company's ownership percentage in the Operating
Partnership was 86.5% and 85.3% as of June 30, 1999 and 1998, respectively.
Under certain circumstances, the Company can issue shares of Common Stock in
exchange for Units owned by other partners on a one-for-one basis. Shares
exchanged are valued based upon the Company's market price per share at the date
of the exchange. No Units were exchanged for shares during the six month period
ended June 30, 1999. There were 21,380 units valued at $413,000 which were
exchanged for shares during the six month period ended June 30, 1998.
Units issued for the purchase of Summit St. Clair and Summit Club at Dunwoody in
1998 were valued based upon the Company's market value price per share of Common
Stock as the Units can be exchanged for shares on a one-for-one basis.
8. COMMITMENTS
The Company has ten development projects currently under construction
representing a total estimated cost of $189.7 million. The estimated cost to
complete the projects is $110.9 million at June 30, 1999.
9. EXTRAORDINARY ITEMS
The extraordinary items in the six months ended June 30, 1998 resulted from the
write-off of deferred financing costs in conjunction with the replacement by the
Company of its prior credit facility with a new credit facility as well as
prepayment penalties on four mortgage notes which were repaid during the period.
The extraordinary items are net of $27,000, which was allocated to the minority
interest of unitholders in the Operating Partnership, calculated on the weighted
average number of Units outstanding.
10. EARNINGS PER SHARE
The only difference between "basic" and "diluted" weighted average shares is the
dilutive effect of the Company's stock options outstanding (35,779 and 20,983
shares added to weighted shares outstanding for the three and six months ended
June 30, 1999, respectively, and 25,452 and 28,288 shares added to weighted
shares outstanding for the three and six months ended June 30, 1998,
respectively).
11. BUSINESS SEGMENTS
Effective December 31, 1998, the Company adopted Statement of Financial
Accounting Standard No. 131, "Disclosures about Segments of an Enterprise and
Related Information" (SFAS 131). SFAS 131 establishes standards for the manner
in which public enterprises report information about operating segments in
financial statements. SFAS 131 also establishes standards for related
disclosures about products and services, geographic areas and major customers.
The adoption of SFAS 131 did not affect the Company's results of operations or
financial position.
The Company reports as a single business segment with activities related to the
ownership, development, acquisition and management of "Class A" luxury
apartments primarily in the southeastern, southwestern and mid-atlantic United
States. The Company uses Funds from Operations ("FFO") as a performance measure.
The Company computes FFO in accordance with the definition approved by the
National Association of Real Estate Investment Trusts ("NAREIT").
10
<PAGE>
Information for the apartment communities for the three and six months ended
June 30, 1999 and 1998 is summarized below (dollars in thousands):
<TABLE>
<CAPTION>
Three Months Ended June 30, Three Months Ended June 30,
1999 1998
--------------------------------- -------------------------------
Apartment Corporate/ Apartment Corporate/
Operations Other Total Operations Other Total
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Rental and other
property income ..........$ 43,684 $ -- $ 43,684 $ 34,317 $ -- $ 34,317
Interest and other
income ................... -- 873 873 -- 254 254
----------- ----------- ----------- ----------- ----------- -----------
Total
revenues ................ 43,684 873 44,557 34,317 254 34,571
Operating
expenses:
Property operating
expenses ................. 14,521 -- 14,521 12,292 -- 12,292
Interest ................. -- 9,973 9,973 -- 7,661 7,661
General and
administrative ........... -- 962 962 -- 735 735
Depreciation - other ..... -- 27 27 -- 19 19
Loss (income) on equity
investments .............. 5 292 297 -- (115) (115)
---------- ----------- ----------- ----------- ----------- -----------
Total operating
expenses ................ 14,526 11,254 25,780 12,292 8,300 20,592
Dividends to Series B
preferred unitholders ...... -- (1,317) (1,317) -- -- --
Depreciation - joint
venture .................... 184 -- 184 -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Funds from Operations ...... 29,342 (11,698) 17,644 22,025 (8,046) 13,979
Depreciation - apartments .. (8,577) -- (8,577) (6,842) -- (6,842)
Depreciation - joint
venture .................... (184) -- (184) -- -- --
Gain on sale of real
estate assets .............. 6,307 -- 6,307 8,731 -- 8,731
Extraordinary
items ...................... -- -- -- -- -- --
Minority interest of
unitholders in
Operating Partnership .... -- (2,051) (2,051) -- (2,315) (2,315)
----------- ----------- ----------- ----------- ------------ ------------
Net income ................. $ 26,888 $(13,749) $ 13,139 $ 23,914 $ (10,361) $ 13,553
=========== =========== =========== =========== =========== ===========
Capital investments (1) ....$ 73,898 $ 118 $ 74,016 $ 112,647 $ 80 $ 112,727
============ =========== =========== =========== =========== ===========
Assets .....................$ 1,172,666 $ 5,443 $ 1,178,109 $ 919,357 $ 3,433 $ 922,790
=========== =========== =========== =========== =========== ===========
</TABLE>
(1) Capital investments includes investments made during the year for the
construction of new communities, acquisition of communities as well as capital
expenditures on existing properties.
11
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended June 30, Six Months Ended June 30,
1999 1998
--------------------------------- -------------------------------------
Apartment Corporate/ Apartment Corporate/
Operations Other Total Operations Other Total
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Rental and other
property income ..........$ 85,740 $ -- $ 85,740 $ 67,385 $ -- $ 67,385
Interest and other
income ................... -- 1,966 1,966 -- 425 425
----------- ----------- ----------- ----------- ----------- -----------
Total
revenues ................ 85,740 1,966 87,706 67,385 425 67,810
Operating
expenses:
Property operating
expenses ................. 28,517 -- 28,517 23,928 -- 23,928
Interest ................. -- 20,470 20,470 -- 14,959 14,959
General and
administrative ........... -- 2,042 2,042 -- 1,536 1,536
Depreciation - other ..... -- 53 53 -- 38 38
Loss (income) on equity
investments .............. 13 609 622 -- (43) (43)
----------- ----------- ----------- ----------- ----------- -----------
Total operating
expenses ................ 28,530 23,174 51,704 23,928 16,490 40,418
Dividends to Series B
preferred unitholders ...... -- (1,317) (1,317) -- -- --
Depreciation - joint
venture .................... 367 -- 367 -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Funds from Operations ...... 57,577 (22,525) 35,052 43,457 (16,065) 27,392
Depreciation - apartments .. (16,804) -- (16,804) (13,363) -- (13,363)
Depreciation - joint
venture .................... (367) -- (367) -- -- --
Gain on sale of real
estate assets .............. 6,307 -- 6,307 8,731 -- 8,731
Extraordinary
items ...................... -- -- -- -- (158) (158)
Minority interest of
unitholders in
Operating Partnership .... -- (3,269) (3,269) -- (3,310) (3,310)
=========== =========== =========== =========== =========== ===========
Net income .................$ 46,713 $ (25,794) $ 20,919 $ 38,825 $ (19,533) $ 19,292
=========== =========== =========== =========== =========== ===========
Capital investments (1) ....$ 73,898 $ 118 $ 74,016 $ 112,647 $ 80 $ 112,727
=========== =========== =========== =========== =========== ===========
Assets .....................$ 1,172,666 $ 5,443 $ 1,178,109 $ 919,357 $ 3,433 $ 922,790
=========== =========== =========== =========== =========== ===========
</TABLE>
(1) Capital investments includes investments made during the year for the
construction of new communities, acquisition of communities as well as capital
expenditures on existing properties.
12
<PAGE>
12. PRIVATE PLACEMENT OF PREFERRED UNITS
On April 29, 1999, the Operating Partnership completed a private placement of
3.4 million of its 8.95% Series B Cumulative Redeemable Perpetual Preferred
Units (the "Series B Preferred Units") to two institutional investors at a price
of $25.00 per unit. The net proceeds of approximately $83 million were used to
repay amounts outstanding under the Company's unsecured credit facility. The
Series B Preferred Units may be exchanged by the holders into shares of the
Company's 8.95% Series B Cumulative Redeemable Perpetual Preferred Stock
("Series B Preferred Shares") on a one-for-one basis. Holders of the Series B
Preferred Units may exercise their exchange right (a) at any time on or after
April 29, 2009, (b) at any time if full quarterly distributions are not made
for six quarters, or (c) upon the occurrence of particular specified events
related to the treatment of the Operating Partnership or the Series B Preferred
Units for federal income tax purposes. The Operating Partnership may redeem the
Series B Preferred Units at any time on or after April 29, 2004 for cash at a
redemption price of $25.00 per unit, plus all accumulated, accrued and unpaid
distributions or dividends. In lieu of cash, the Operating Partnership may elect
to deliver Series B Preferred Shares on a one-for-one basis, plus an amount
equal to all accumulated, accrued and unpaid distributions or dividends. The
Series B Preferred Units have no stated maturity, are not subject to any sinking
fund or mandatory redemption and are not convertible into any other securities
of the Company or the Operating Partnership. Distributions on the Series B
Preferred Units are cumulative from the date of original issuance and are
payable quarterly at the rate of 8.95% per annum of the $25.00 original capital
contribution. Holders of the Series B Preferred Units received a distribution
in the aggregate amount of approximately $1.3 million on June 30, 1999.
13. COMMON STOCK REPURCHASE PROGRAM
On May 11, 1999, the Board of Directors of the Company authorized a common stock
repurchase program pursuant to which the Company is authorized to purchase up to
$50 million of currently issued and outstanding par value $0.01 per share common
stock of the Company ("Common Stock"). All repurchases have and will be made on
the open market at prevailing prices. This authority may be exercised from time
to time and in such amounts as market conditions warrant. During the six months
ended June 30, 1999, the Company repurchased 534,300 shares of Common Stock for
an aggregate purchase price of approximately $10.5 million, an average price of
$19.64 per share.
14. SUBSEQUENT EVENTS
The Company has repurchased 730,300 shares of Common Stock at an average price
per share of $20.18, or an aggregate purchase price of approximately $14.7
million, during the period from July 1 to August 9, 1999.
On August 11, 1999, the Company sold an apartment community in Greenville, South
Carolina, formerly known as Summit Beacon Ridge (144 apartment homes), for $7.6
million. The net proceeds of $7.4 million were placed into escrow with a
qualified intermediary in accordance with like-kind exchange income tax rules
and regulations and are expected to be used to fund future development
communities. The Company does not expect to record a loss on the disposition of
this Community.
13
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This Form 10-Q contains certain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended (the "Securities Act"),
and Section 21E of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), including, without limitation, statements relating to the
operating performance of fully stabilized Communities, development activities of
the Company and the implementation of the Company's plan to address Year 2000
issues. The Company intends such forward-looking statements to be covered by the
safe harbor provisions for forward-looking statements contained in the Private
Securities Reform Act of 1995, and is including this statement for purposes of
complying with these safe harbor provisions. Forward-looking statements, which
are based on certain assumptions and describe future plans, strategies and
expectations of the Company, are generally identifiable by use of the words
"believe," "expect," "intend," "anticipate," "estimate," "project" or similar
expressions. The Company's ability to predict results or the actual effect of
future plans or strategies is inherently uncertain. 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 and the actual costs, progress and
expenses with respect to its plan to address Year 2000 issues could differ
materially from those set forth in the forward-looking statements. Factors which
could have a material adverse effect on the operations and future prospects of
the Company include, but are not limited to, changes in: economic conditions
generally and the real estate market specifically, legislative/regulatory
changes (including changes to laws governing the taxation of real estate
investment trusts ("REITs")), availability of capital, interest rates,
construction delays due to unavailability of materials, weather conditions or
other delays, competition, supply and demand for apartment communities in the
Company's current and proposed market areas, expenses of or delays in the
identification and upgrade or replacement by the Company of its non-Year 2000
compliant computer information systems and computer systems that do not relate
to information technology, but include embedded technology, the Year 2000
compliance of vendors (including vendors of the Company's computer information
systems and such as local and regional electricity, natural gas and
telecommunications providers) or third party service providers (including the
Company's primary bank and payroll processor), generally accepted accounting
principles, policies and guidelines applicable to REITs, and those factors
discussed in the section entitled "Development Activity -- Certain Factors
Affecting the Performance of Development Communities" and in the section
entitled "Year 2000" on page 24 of this Form 10-Q. These risks and uncertainties
should be considered in evaluating forward-looking statements and undue reliance
should not be placed on such statements.
The following discussion should be read in conjunction with the Consolidated
Financial Statements of Summit Properties Inc. and the Notes thereto appearing
elsewhere herein.
HISTORICAL RESULTS OF OPERATIONS
The Company's net income is generated primarily from operations of its apartment
communities (the "Communities"). The changes in operating results from period to
period reflect changes in existing Community performance and increases in the
number of apartment homes due to development and acquisition of new Communities.
Where appropriate, comparisons are made on a "fully 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 a physical
occupancy level of at least 93%. A Community which the Company has acquired is
deemed "fully stabilized" when owned by the Company for one year or more as of
the beginning of the year. A Community which the Company has developed is deemed
"fully stabilized" when stabilized for the two prior years as of the beginning
of the current year. A Community is deemed to be a "stabilized development" when
stabilized as of the beginning of the current year but not the entire two prior
years. All Communities information presented is before real estate depreciation
and amortization expense. Communities' average physical occupancy presented 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 occupancy that
existed on Sunday during each week of the period. Average monthly rental revenue
presented represents the average monthly net rental revenue per occupied
apartment home. The Company's methodology for calculating average physical
occupancy and average monthly rental revenue may differ from the methodology
used by other equity REITs and, accordingly, may not be comparable to such other
REITs.
Effective January 1, 1999, the Company implemented prospectively a new
accounting policy whereby the cost of carpet replacements is capitalized and
depreciated over their estimated useful lives. Previously, the cost of carpet
replacement had been expensed. The Company believes that the newly adopted
accounting policy is preferable as it is consistent with standards and practices
utilized by the majority of the Company's peers and provides a better matching
of expenses with the related benefit of the expenditure. The change in
accounting policy is being treated prospectively as a change in accounting
estimate. The effect of the change in the accounting policy for carpet for the
three and six months ended June 30, 1999 was an increase in net income of
$422,000 and $733,000, respectively. Comparative property operating information
for the three and six months ended June 30, 1998 has been adjusted to reflect
the 1999 change in accounting policy. Carpet replacement expenditures for the
three and six months ended June 30, 1998 for the entire portfolio of communities
were $432,000 and $770,000, respectively.
14
<PAGE>
RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1999 AND
1998
For the three and six months ended June 30, 1999, income before gain on sale of
real estate assets, minority interest and extraordinary items increased $3.1
million and $5.2 million, respectively, to approximately $10.2 million and $19.2
million, respectively, from the three and six months ended June 30, 1998.
OPERATING PERFORMANCE OF THE COMPANY'S PORTFOLIO OF COMMUNITIES
The operating performance of the Communities for the three and six months ended
June 30, 1999 and 1998 is summarized below (dollars in thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ --------------------------
% %
1999 1998 Change 1999 1998 Change
------- ------- -------- -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Property revenues:
Fully stabilized
communities ............... $23,484 $22,144 6.1% $46,601 $44,304 5.2%
Acquisition communities ... 8,985 1,325 578.1% 18,016 1,660 985.3%
Stabilized development
communities ............... 6,110 5,369 13.8% 12,092 10,241 18.1%
Communities in lease-up ... 4,425 351 1160.7% 7,510 653 1050.1%
Communities sold .......... 680 5,128 -86.7% 1,521 10,527 -85.5%
------- ------- ------- -------
Total property revenues ...... 43,684 34,31 27.3% 85,740 67,385 27.2%
------- ------- ------- -------
Property operating and
maintenance
expense:
Fully stabilized
communities ............... 7,921 7,702 2.8% 15,656 15,215 2.9%
Acquisition communities ... 3,044 336 806.0% 6,119 426 1336.4%
Stabilized development
communities ............... 1,857 1,707 8.8% 3,751 3,239 15.8%
Communities in lease-up ... 1,383 191 624.1% 2,305 310 643.5%
Communities sold .......... 316 1,953 -83.8% 686 4,022 -82.9%
------- ------- ------- -------
Total property operating and
maintenance expense ........ 14,521 11,889 22.1% 28,517 23,212 22.9%
------- ------- ------- -------
Property operating income .... $29,163 $22,428 30.0% $57,223 $44,173 29.5%
======= ======= ======= =======
Apartment homes, end of
period ....................... 17,829 16,263 9.6% 17,829 16,263 9.6%
======= ======= ======= =======
</TABLE>
A summary of the Company's apartment homes for the six months ended June 30,
1999 and 1998 is as follows:
1999 1998
-------- ---------
Apartment homes at January 1 ...................... 18,001 14,980
Developments which began rental
operations during the period ...................... 280 1,067
Sale of apartment homes ........................... (452) (444)
Acquisitions ...................................... - 660
-------- --------
Apartment homes at June 30 ........................ 17,829 16,263
======== =========
15
<PAGE>
OPERATING PERFORMANCE OF THE COMPANY'S FULLY STABILIZED COMMUNITIES
The operating performance of the 41 Communities stabilized since January 1, 1997
in each of the three and six months ended June 30, 1999 and 1998, respectively,
are summarized below (dollars in thousands except average monthly rental
revenue):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ -------------------------
% %
1999 1998 Change 1999 1998 Change
------- ------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Property revenues:
Rental ..................... $21,952 $20,939 4.8% $43,762 $42,003 4.2%
Other ...................... 1,532 1,205 27.1% 2,839 2,301 23.4%
------- ------- ------- -------
Total property revenues ...... 23,484 22,144 6.1% 46,601 44,304 5.2%
------- ------- ------- -------
Property operating and
maintenance
expense:
Personnel .................. 1,828 1,705 7.2% 3,454 3,274 5.5%
Advertising and promotion .. 306 332 -7.8% 612 635 -3.6%
Utilities .................. 1,135 1,183 -4.1% 2,269 2,380 -4.7%
Building repairs and
maintenance (1) ............ 1,345 1,315 2.3% 2,650 2,523 5.0%
Real estate taxes and
insurance .................. 2,344 2,276 3.0% 4,670 4,600 1.5%
Property supervision ....... 581 552 5.3% 1,151 1,102 4.4%
Other operating expense .... 382 339 12.7% 850 701 21.3%
------- ------- ------- -------
Total property operating
and
maintenance expense ........ 7,921 7,702 2.8% 15,656 15,215 2.9%
------- ------- ------- -------
Property operating income .... $15,563 $14,442 7.8% $30,945 $29,089 6.4%
======= ======= ======= =======
Average physical occupancy ... 94.0% 91.9% 2.2% 93.9% 92.4% 1.6%
======= ======= ======= =======
Average monthly rental
revenue ...................... $808 $794 1.8% $807 $790 2.2%
======= ======= ======= =======
Number of apartment homes .... 9,820 9,820 9,820 9,820
======= ======= ======= =======
</TABLE>
(1) Effective January 1, 1999, the Company implemented prospectively a
new accounting policy whereby expenditures for carpets are capitalized.
Previously, the cost of carpet replacement had been expensed. The
change in accounting policy has been treated as a change in accounting
estimate and, accordingly, the 1998 historical financial statements
have not been restated to reflect the change. However, for comparative
purposes only, fully stabilized Communities building repairs and
maintenance cost for the three and six months ended June 30, 1998 has
been adjusted in the table above to reflect the new policy. Carpet
replacement costs were $338,000 and $321,000 for the three months ended
June 30, 1999 and 1998, respectively, and $623,000 and $567,000 for the
six months ended June 30, 1999 and 1998, respectively.
The increase in rental revenue from fully stabilized Communities was
primarily the result of increases in average rental rates and increased
occupancy. The higher revenues were primarily in the Company's Florida,
Atlanta, Georgia, Washington D.C. metro and Richmond, Virginia markets.
Property operating and maintenance costs increased by 2.8% and 2.9% during
the three and six months ended June 30, 1999 as compared to the same periods
in 1998 primarily due to the addition of Communities during 1998 (see
"Operating Performance of the Company's Acquisition Communities" below). As
a percentage of total property revenue, property operating and maintenance
expenses decreased for the three month period from 34.8% in 1998 to 33.7% in
1999. For the six month period, property operating and maintenance expenses
as a percentage of total property revenue decreased from 34.3% in 1998 to
33.6% in 1999.
16
<PAGE>
OPERATING PERFORMANCE OF THE COMPANY'S ACQUISITION COMMUNITIES
Acquisition Communities consist of Summit St. Clair (acquired effective March 1,
1998), Summit Club at Dunwoody (acquired May 22, 1998), Summit Lenox (acquired
July 8, 1998) and a portfolio of seven Communities acquired from Ewing
Industries, Inc. and its affiliates (six of which were acquired November 3, 1998
and one of which was acquired on December 31, 1998 after certain operating
performance benchmarks were reached). The operations of these Communities for
the three and six months ended June 30, 1999 and 1998 are summarized as follows
(dollars in thousands except average monthly rental revenue):
Three Months
Ended Six Months Ended
June 30, June 30,
----------------- -----------------
1999 1998 1999 1998
------- --------- ------- --------
Property revenues:
Rental revenues .................. $8,554 $1,269 $17,213 $1,591
Other property revenue ........... 431 56 803 69
------- --------- ------- --------
Total property revenues ............. 8,985 1,325 18,016 1,660
------- --------- ------- --------
Property operating and maintenance
expense (1) ...................... 3,044 336 6,119 426
======= ========= ======= ========
Property operating income ........... $5,941 $989 $11,897 $1,234
======= ========= ======= ========
Average physical occupancy .......... 93.2% 96.5% 93.1% 96.6%
======= ========= ======= ========
Average monthly rental revenue (2) .. $872 $907 $874 $906
======= ========= ======= ========
Number of apartment homes ........... 3,557 660 3,557 660
======= ========= ======= ========
(1)Effective January 1, 1999, the Company implemented prospectively a new
accounting policy whereby expenditures for carpets are capitalized.
Previously, the cost of carpet replacement had been expensed. The
change in accounting policy has been treated as a change in accounting
estimate and, accordingly, the 1998 historical financial statements
have not been restated. However, for comparative purposes only,
acquisition Communities building repairs and maintenance cost for the
three and six months ended June 30, 1998 has been adjusted in the table
above to reflect the new policy. Carpet replacement costs were $31,000
and $1,000 for the three months ended June 30, 1999 and 1998,
respectively, and $40,000 and $2,000 for the six months ended June 30,
1999 and 1998, respectively.
(2)Average monthly rental revenue for the three and six months ended June
30, 1999 for Summit St. Clair and Summit Club at Dunwoody (the only
Communities owned as of June 30, 1998) was $955 and $951, respectively,
representing a 5.3% increase from 1998 for the three month period and a
5.0% increase from 1998 for the six month period.
The unleveraged yield on investment for the acquisition Communities, defined as
property operating income for the three and six months ended June 30, 1999 on an
annualized basis over total acquisition cost, was 8.93% and 8.91%, respectively.
17
<PAGE>
OPERATING PERFORMANCE OF THE COMPANY'S STABILIZED DEVELOPMENT COMMUNITIES
The Company had nine development Communities (Summit Ballantyne I, Summit
Sedgebrook I, Summit on the River, Summit Lake I, Summit Norcroft II, Summit
Stonefield, Summit Russett, Summit Fairways and Summit Plantation II) which were
stabilized during the entire six months ended June 30, 1999 but were stabilized
subsequent to January 1, 1997. Such Communities will be classified as fully
stabilized in the year 2000 since they will have been stabilized for two full
years as of January 1, 2000. The operating performance of these nine Communities
for the three and six months ended June 30, 1999 and 1998 is summarized below
(dollars in thousands except average monthly rental revenue):
Three Months
Ended Six Months Ended
June 30, June 30,
----------------- ------------------
1999 1998 1999 1998
-------- -------- -------- --------
Property revenues:
Rental revenues ................. $5,690 $5,070 $11,330 $9,663
Other property
revenue ......................... 420 299 762 578
-------- -------- -------- --------
Total property
revenues ........................... 6,110 5,369 12,092 10,241
-------- -------- -------- --------
Property operating and
maintenance expense(1) ............. 1,857 1,707 3,751 3,239
-------- ------- ------- --------
Property operating
income ............................. $4,253 $3,662 $8,341 $7,002
======== ======== ======== ========
Average physical occupancy ......... 93.7% 92.1% 93.7% 92.0%
======== ======== ======== ========
Average monthly rental
revenue ............................ $922 $903 $921 $896
======== ======== ======== ========
Number of apartment homes .......... 2,212 2,212 2,212 2,212
======== ======== ======== ========
(1)Effective January 1, 1999, the Company implemented prospectively a new
accounting policy whereby expenditures for carpets are capitalized.
Previously, the cost of carpet replacement had been expensed. The
change in accounting policy has been treated as a change in accounting
estimate and, accordingly, the 1998 historical financial statements
have not been restated to reflect the change. However, for comparative
purposes only, stabilized development Communities building repairs and
maintenance cost for the three and six months ended June 30, 1998 has
been adjusted in the table above to reflect the new policy. Carpet
replacement costs were $42,000 and $12,000 for the three months ended
June 30, 1999 and 1998, respectively, and $62,000 and $15,000 for the
three and six months ended June 30, 1999 and 1998, respectively.
The unleveraged yield on investment for the stabilized development Communities,
defined as property operating income for the three and six months ended June 30,
1999 on an annualized basis over total development cost, was 10.44% and 10.33%,
respectively.
OPERATING PERFORMANCE OF THE COMPANY'S COMMUNITIES IN LEASE-UP
The Company had ten Communities in lease-up during the six months ended June 30,
1999. A Community in lease-up is defined as one which has commenced rental
operations but was not stabilized as of the beginning of the current year. A
summary of the ten Communities in lease-up as of June 30, 1999 is as follows
(dollars in thousands):
<TABLE>
<CAPTION>
Total Actual/ % Leased
Number of Actual/ Anticipated Actual/ Q2 1999 as of
Apartment Estimated Construction Anticipated Average June 30,
Community Homes Cost Completion Stabilization Occupancy 1999
- ------------------------ ------------ ------- ----------------- -------------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Summit Ballantyne II -
Charlotte, NC ................. 154 $10,200 Q4 1998 Q1 1999 92.12% 94.00%
Summit New Albany I -
Fairfax, VA ................... 301 24,000 Q4 1998 Q3 1999 81.62% 93.70%
Summit Fair Lakes I -
Fairfax, VA ................... 370 32,800 Q1 1999 Q2 1999 94.66% 99.20%
Summit Governor's Village
- - Chapel Hill, NC ............. 242 16,900 Q1 1999 Q2 1999 81.08% 98.30%
Summit Lake II - Raleigh,
NC ............................ 144 10,200 Q2 1999 Q3 1999 35.48% 54.90%
Summit Doral - Miami, FL (1) .. 260 22,800 Q3 1999 Q4 1999 61.27% 80.40%
Summit Westwood -
Raleigh, NC ................... 354 24,800 Q3 1999 Q4 1999 56.07% 86.20%
Summit Sedgebrook II -
Charlotte, NC ................. 120 7,500 Q3 1999 Q1 2000 39.22% 77.50%
Summit Fair Lakes II -
Fairfax, VA (1) ............... 160 14,200 Q3 1999 Q1 2000 18.34% 87.50%
------ ------
2,105 $163,400
===== ========
</TABLE>
(1) The related assets of such properties are included in the Construction in
Progress category at June 30, 1999.
In addition to the Communities listed in the table above, Summit Fairview (135
apartment homes) is an existing property which is currently undergoing a major
renovation. The renovation includes upgrades of the interior of the apartment
homes (new cabinets, fixtures and other interior upgrades), upgrades to the
parking lots and landscaping, as well as exterior painting of buildings. The
renovation will require certain apartment homes to be unavailable for rental
over the course of the project. The operations of Summit Fairview are included
in lease-up Communities results due to the renovation work.
18
<PAGE>
All Communities listed above were in lease-up during the six months ended June
30, 1999. Of the nine Communities listed in the table above and Summit Fairview,
only Summit Fairview, Summit Ballantyne II, Summit Governor's Village, Summit
New Albany I and Summit Fair Lakes I had operating activity during the three and
six months ended June 30, 1998. The operating performance of these Communities
for the three and six months ended June 30, 1999 and 1998 is summarized below
(dollars in thousands except average monthly rental revenue):
Three Months Ended Six Months Ended
June 30, June 30,
---------------- -------------------
1999 1998 1999 1998
-------- ------- --------- ---------
Property revenues:
Rental revenues ..... $4,145 $ 319 $7,049 $ 616
Other property
revenue ............. 280 32 461 37
------ ------ ------ ------
Total property
revenues ............... 4,425 351 7,510 653
------ ------ ------ ------
Property operating and
maintenance expense(1) . 1,383 191 2,305 310
------ ------ ------ -------
Property operating
income ................. $3,042 $ 160 $5,205 $ 343
====== ====== ====== ======
Average physical
occupancy .............. 68.7% 13.6% 59.8% 13.9%
====== ====== ====== ======
Average monthly rental
revenue ................ $ 882 $ 957 $ 883 $ 956
====== ====== ====== ======
Number of
apartment homes ........ 2,240 1,202 2,240 1,202
====== ====== ====== ======
(1) Effective January 1, 1999, the Company implemented prospectively a new
accounting policy whereby expenditures for carpets are capitalized. Previously,
the cost of carpet replacement had been expensed. The change in accounting
policy has been treated as a change in accounting estimate and, accordingly, the
1998 historical financial statements have not been restated to reflect the
change. However, for comparative purposes only, lease-up Communities building
repairs and maintenance cost for the three and six months ended June 30, 1998
has been adjusted in the table above to reflect the new policy. Carpet
replacement costs were $2,000 and $4,000 for the three and six months ended June
30, 1999, respectively. There were no carpet replacement expenditures for the
Communities in lease-up during the six months ended June 30, 1998.
OPERATING PERFORMANCE OF THE COMPANY'S DISPOSITION COMMUNITIES
Disposition communities consist of the former Summit Hampton and Summit Oak
communities in 1999 (the "1999 dispositions"). The 1998 dispositions consist of
the 1999 dispositions as well as the following communities disposed during 1998
(former community names): Summit Providence, Summit Springs, Summit Old Town,
Summit Creek, Summit Green, Summit Hill, Summit Hollow and Summit Station (the
"1998 dispositions"). The operating performance of these communities is
summarized below (dollars in thousands except average monthly rental revenue):
Three Months Ended Six Months Ended
June 30, June 30,
---------------- -------------------
1999 1998 1999 1998
-------- ------- --------- ---------
Property revenues:
Rental revenues ..... $ 661 $ 5,022 $ 1,461 $10,198
Other property
revenue ............. 19 106 60 329
------- ------- ------- -------
Total property
revenues ............... 680 5,128 1,521 10,527
------- ------- ------- -------
Property operating and
maintenance
expense (1)
....................... 316 1,953 686 4,022
------- ------- ------- -------
Property operating
income ................. $ 364 $ 3,175 $ 835 $ 6,505
======= ======= ======= =======
Average physical
occupancy .............. 95.8% 92.73% 95.5% 91.68%
======= ======= ======= =======
Average monthly rental
revenue ................ $ 632 $ 691 $ 628 $ 689
======= ======= ======= =======
Number of
apartment homes ........ 452 2,813 452 2,813
======= ======= ======= =======
(1) Effective January 1, 1999, the Company implemented prospectively a new
accounting policy whereby expenditures for carpets are capitalized. Previously,
the cost of carpet replacement had been expensed. The change in accounting
policy has been treated as a change in accounting estimate and, accordingly, the
1998 historical financial statements have not been restated to reflect the
change. However, for comparative purposes only, disposition communities building
repairs and maintenance cost for the three and six months ended June 30, 1998
has been adjusted in the table above to reflect the new policy. Carpet
replacement costs were $20,000 and $98,000 for the three months ended June 30,
1999 and 1998, respectively. Carpet replacement costs for the six months ended
June 30, 1999 and 1998 were $42,000 and $186,000, respectively.
19
<PAGE>
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, 1999 and
1998 is summarized below (dollars in thousands):
Three Months Ended Six Months Ended
June 30, June 30,
------------------ -----------------
1999 1998 1999 1998
------- ------- ------- -------
Revenue ............................ $2,330 $1,597 $4,161 $3,055
Expenses
Operating ....................... 2,401 1,276 4,327 2,601
Depreciation .................... 70 59 143 118
Amortization .................... 76 72 150 143
Interest ........................ 75 75 150 150
------- ------- -------- ---------
Total expenses .................. 2,622 1,482 4,770 3,012
------- ------ -------- ---------
Net (loss) income of Summit
Management Company ................. ($292) $115 ($609) $43
======= ======= ======== =========
The increase in revenue for the three and six month periods was primarily a
result of higher revenues from managing the Company's Communities and higher
revenues from construction activity. The increase in operating expenses was a
result of increased construction activities and increased personnel at the
Management Company in order to better support the Company's growth objectives,
including improving the operating performance of its stabilized Communities. In
addition, the number of personnel dedicated to information systems at the
Management Company increased.
Property management fees include $328,000 and $357,000 of fees from third
parties for the three months ended June 30, 1999 and 1998, respectively, and
$653,000 and $658,000 of fees from third parties for the six months ended June
30, 1999 and 1998, respectively. Property management fees from third parties as
a percentage of total property management revenues were 20.6% and 21.2% for the
three months ended June 30, 1999 and 1998, respectively, and 21.4% and 21.0% for
the six months ended June 30, 1999 and 1998, 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.
All of the Construction Company's revenues are from contracts with the Company.
OTHER INCOME AND EXPENSES
Interest income increased by $619,000 and $1.6 million, respectively, to
$799,000 and $1.8 million for the three and six months ended June 30, 1999,
respectively, compared to the same periods in 1998, primarily due to interest
earned on proceeds from property sales placed in escrow in accordance with
like-kind exchange income tax regulations.
Interest expense, including amortization of deferred financing costs, increased
by $2.3 million and $5.5 million for the three and six months ended June 30,
1999, respectively, compared with the same periods in 1998. This increase was
primarily the result of an increase in the Company's average indebtedness
outstanding. Average indebtedness outstanding increased $165.6 million and
effective interest cost decreased 0.12% (6.73% to 6.61%) for the three months
ended June 30, 1999 as compared to the same period in 1998. Average indebtedness
outstanding increased $208.0 million and effective interest cost decreased 0.16%
(6.71% to 6.55%) for the six months ended June 30, 1999 as compared to the same
period in 1998.
Depreciation expense increased $1.7 million and $3.5 million, or 35.4% and
25.8%, for the three and six months ended June 30, 1999, respectively, compared
with the similar periods in 1998, primarily due to depreciation on recently
acquired or developed Communities, offset by a reduction in depreciation related
to Communities sold.
General and administrative expenses increased $227,000 and $506,000, or 30.9%
and 32.9%, for the three and six months ended June 30, 1999, respectively, as
compared to the similar periods in 1998, primarily due to increased compensation
costs and expenses related to the Company's overall growth. As a percentage of
revenues, general and administrative expenses were 2.2% and 2.1% for the three
months ended June 30, 1999 and 1998 and 2.3% for both of the six month periods
ending June 30, 1999 and 1998, respectively.
EXTRAORDINARY ITEMS
The extraordinary items in the six months ended June 30, 1998 resulted from the
write-off of deferred financing costs in conjunction with the replacement by the
Company of its prior credit facility with a new credit facility as well as
prepayment penalties on four mortgage notes which were repaid during the period.
The extraordinary items are net of $27,000, which was allocated to the minority
interest of unitholders in the Operating Partnership, calculated on the weighted
average number of Units outstanding.
20
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
LIQUIDITY
The Company's net cash provided by operating activities decreased from $30.0
million for the six months ended June 30, 1998 to $27.7 million for the same
period in 1999, primarily due to a $13.8 million increase in property operating
income and a $1.6 million increase in interest income offset by a $5.3 million
increase in interest paid and a $5.9 million decrease in accounts payable and
accrued expenses. The increase in interest income was due to interest earned on
proceeds from property sales placed in escrow in accordance with like-kind
exchange income tax regulations. The increase in interest paid was primarily due
to an increase in the average indebtedness outstanding. The decrease in accounts
payable and accrued expenses was primarily due to timing of property tax and
construction related payments and the payment of certain liabilities assumed in
conjunction with the Company's Community acquisitions during the fourth quarter
of 1998.
Net cash used in investing activities for the six months ended June 30, 1998 was
$95.1 million. Cash provided by investing activities was $32.3 million for the
same period in 1999 due to the absence of the purchase of communities during the
six months ended June 30, 1999, and an increase in proceeds from sale of
Communities, partially offset by an increase in the construction of Communities.
Property sale proceeds in 1998 were placed in escrow in accordance with
like-kind exchange income tax regulations. Proceeds from the sale of Communities
in 1999 represents funds expended from these like-kind exchange escrows. In the
event the proceeds from these property sales are not fully invested in qualified
like-kind property during the required time period, a special distribution may
be made or company level tax may be incurred.
Net cash provided by financing activities was $63.8 million for the six months
ended June 30, 1998. Net cash used in financing activities was $32.3 million for
the same period in 1999, primarily due to net repayments of $98.5 million on the
Company's Unsecured Credit Facility (as hereinafter defined) funded partially by
the use of $82.9 million of proceeds from the sale of Series B Preferred Units
during the period. Other uses of cash during the six months ended June 30, 1999
which caused an increase in cash used in financing activities were the payment
of higher dividends and distributions to unitholders, the repurchase of Common
Stock for an aggregate purchase price of approximately $10.5 million, a decrease
in repayment of mortgage debt and a decrease in equity proceeds from the
Company's dividend reinvestment and stock purchase plans, offset by increased
borrowings from unsecured bonds.
The ratio of earnings to fixed charges was 1.86 for the six months ended June
30, 1999 as compared to 2.14 for the six months ended June 30, 1998. The
decrease is primarily due to increased interest charges as discussed in
"Historical Results of Operations -- Other Income and Expenses" above.
The Company has elected to be taxed as a Real Estate Investment Trust ("REIT")
under Sections 856 and 860 of the Internal Revenue Code of 1986, as amended.
REITs are subject to a number of organizational and operational requirements,
including a requirement that they currently distribute 95% of their ordinary
taxable income. As a REIT, the Company generally will not be subject to federal
income tax on net income.
The Company's outstanding indebtedness at June 30, 1999 totaled $634.8 million.
This amount includes approximately $265.7 million in fixed rate conventional
mortgages, $39.0 million of variable rate tax-exempt bonds, $266.0 million of
unsecured notes, $9.1 million of tax-exempt fixed rate loans, and $55.0 million
under the Unsecured Credit Facility (as hereinafter defined).
During the six months ended June 30, 1999, the Company sold two communities, one
of which had an associated variable rate tax-exempt bond ($12.3 million
outstanding at the date of sale) and one of which had an associated conventional
mortgage ($2.5 million outstanding at the date of sale). Both of these debt
instruments were assumed by the respective purchasers of the communities upon
sale.
The Company repaid four mortgage notes with a balance of $11.9 million during
the first quarter of 1998. The mortgage notes had an 8% interest rate and were
repaid from borrowings under the Company's Unsecured Credit Facility (as
hereinafter defined).
The Company expects to meet its short-term liquidity requirements (i.e.,
liquidity requirements arising within 12 months) including recurring capital
expenditures relating to maintaining its existing properties, generally through
its working capital, net cash provided by operating activities and borrowings
under its Unsecured Credit Facility (as hereinafter defined). The Company
considers its cash provided by operating activities to be adequate to meet
operating requirements and payments of dividends and distributions. The Company
expects to meet its long-term liquidity requirements (i.e., liquidity
requirements arising after 12 months), such as scheduled mortgage debt
maturities, property acquisitions, financing of construction and development
activities and other non-recurring capital improvements, through the issuance of
unsecured notes and equity securities, from undistributed cash flow, from
proceeds received from the disposition of certain Communities and in connection
with the acquisition of land or improved property, through the issuance of
Units.
21
<PAGE>
CREDIT FACILITY
The Company has a syndicated unsecured line of credit (the "Unsecured Credit
Facility") in the amount of $200 million. The Unsecured Credit Facility provides
funds for new development, acquisitions and general working capital purposes.
The Unsecured Credit Facility has a three-year term with two one-year extension
options and will initially bear interest at LIBOR+90 basis points based upon the
Company's current credit rating of BBB- by Standard & Poor's Rating Services and
Baa3 by Moody's Investors Service. The interest rate will be reduced in the
event an upgrade of the Company's unsecured credit rating is obtained. The
Unsecured Credit Facility also provides a bid option sub-facility equal to a
maximum of fifty percent of the total facility ($100 million). This sub-facility
provides the Company with the option to place borrowings in a fixed LIBOR
contract up to 180 days.
MEDIUM-TERM NOTES
The Company has established a program for the sale by the Operating Partnership
of up to $95 million aggregate principal amount of Medium-Term Notes due nine
months or more from the date of issuance (the "MTN Program"). On March 18, 1999,
the Operating Partnership sold $25 million of notes under the MTN Program. Such
notes are due on March 16, 2009 and bear interest at 7.59% per year. Proceeds
from the notes issued were used to reduce the Unsecured Credit Facility. The
Operating Partnership has issued Medium-Term Notes with an aggregate principal
amount of $80 million ($55 million of which was issued during 1998) of the $95
million aggregate principal amount of Medium-Term Notes registered in connection
with the MTN Program. In July 1999, the Company and the Operating Partnership
filed a shelf registration statement with the Securities and Exchange Commission
pursuant to which the Operating Partnership may issue debt securities with an
aggregate public offering price of up to $250,000,000. The shelf registration
statement was declared effective by the Securities and Exchange Commission on
August 6, 1999. The Company intends to establish a similar program for the sale
of Medium-Term Notes by the Operating Partnership under such registration
statement, pursuant to which the Operating Partnership may issue Medium-Term
Notes from time to time in the future subject to market conditions and other
factors.
PRIVATE PLACEMENT OF PREFERRED UNITS
On April 29, 1999, the Operating Partnership completed a private placement of
3.4 million of its 8.95% Series B Cumulative Redeemable Perpetual Preferred
Units (the "Series B Preferred Units") to two institutional investors at a price
of $25.00 per unit. The net proceeds of approximately $83 million were used to
repay amounts outstanding under the Company's Unsecured Credit Facility. The
Series B Preferred Units may be exchanged by the holders into shares of the
Company's 8.95% Series B Cumulative Redeemable Perpetual Preferred Stock
("Series B Preferred Shares") on a one-for-one basis. Holders of the Series B
Preferred Units may exercise their exchange right (a) at any time on or after
April 29, 2009, (b) at any time if full quarterly distributions are not made
for six quarters, or (c) upon the occurrence of particular specified events
related to the treatment of the Operating Partnership or the Series B preferred
Units for federal income tax purposes. The Operating Partnership may redeem the
Series B Preferred Units at any time on or after April 29, 2004 for cash at a
redemption price of $25.00 per unit, plus all accumulated, accrued and unpaid
distributions or dividends. In lieu of cash, the Operating Partnership may elect
to deliver Series B Preferred Shares on a one-for-one basis, plus an amount
equal to all accumulated, accrued and unpaid distributions or dividends. The
Series B Preferred Units have no stated maturity, are not subject to any sinking
fund or mandatory redemption and are not convertible into any other securities
of the Company or the Operating Partnership. Distributions on the Series B
Preferred Units are cumulative from the date of original issuance and are
payable quarterly at the rate of 8.95% per annum of the $25.00 original capital
contribution. Holders of the Series B Preferred Units received a distribution
in the aggregate amount of approximately $1.3 million on June 30, 1999.
COMMON STOCK REPURCHASE PROGRAM
On May 11, 1999, the Board of Directors of the Company authorized a common stock
repurchase program pursuant to which the Company is authorized to purchase up to
$50 million of currently issued and outstanding par value $0.01 per share common
stock of the Company ("Common Stock"). All repurchases have and will be made on
the open market at prevailing prices. This authority may be exercised from time
to time and in such amounts as market conditions warrant. During the six months
ended June 30, 1999, the Company repurchased 534,300 shares of Common Stock for
an aggregate purchase price of approximately $10.5 million, an average price of
$19.64 per share.
22
<PAGE>
COMMUNITY DISPOSITIONS
On June 18, 1999, the Company sold an apartment community in Bradenton, Florida,
formerly known as Summit Hampton (352 apartment homes) for $17.1 million. The
disposition of Summit Hampton resulted in the recognition of a gain on sale of
$5.4 million. The net proceeds of $4.4 million, net of tax-exempt bond
assumption of $12.3 million, were placed into escrow with a qualified
intermediary in accordance with like-kind exchange income tax rules and
regulations and will be used to fund future development communities.
On June 24, 1999, the Company sold an apartment community in Goldsboro, North
Carolina, formerly known as Summit Oak (100 apartment homes) for $4.1 million.
Net proceeds of $1.5 million, net of mortgage assumption of $2.5 million, were
placed into escrow with a qualified intermediary in accordance with like-kind
exchange income tax rules and regulations. The escrow funds will be used to fund
future development communities. A gain on sale of $907,000 was recognized.
On August 11, 1999, the Company sold an apartment community in Greenville, South
Carolina, formerly known as Summit Beacon Ridge (144 apartment homes), for $7.6
million. The net proceeds of $7.4 million were placed into escrow with a
qualified intermediary in accordance with like-kind exchange income tax rules
and regulations and are expected to be used to fund future development
communities. The Company does not expect to record a loss on the disposition of
this Community.
PROPERTIES BEING MARKETED FOR SALE
At June 30, 1999, the Company had five apartment Communities for sale with a net
book value of approximately $40.9 million. The Company does not anticipate
incurring a loss on any individual apartment Community sale. The five apartment
Communities held for sale represented approximately 4.6% of property operating
income for the Company for the six months ended June 30, 1999. The Company
intends to use proceeds from these sales and future sales of Communities to fund
future development and to repurchase Common Stock under the Company's common
stock repurchase program.
DEVELOPMENT ACTIVITY
The Company's construction in progress at June 30, 1999 is 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 Doral - Miami, FL (1) ..... 260 $22,800 $20,861 $1,939 Q3 1999
Summit Fair Lakes II - Fairfax,
VA (1) ........................... 160 14,200 13,721 479 Q3 1999
Summit New Albany II- Columbus,
OH ............................... 127 9,800 3,722 6,078 Q4 1999
Summit Largo - Largo, MD ......... 217 18,000 10,014 7,986 Q1 2000
Summit Hunter's Creek -
Orlando, FL ...................... 270 19,200 5,716 13,484 Q1 2000
Summit Russett II- Laurel, MD .... 112 9,900 3,287 6,613 Q2 2000
Summit Deer Creek - Atlanta, GA .. 292 22,200 6,323 15,877 Q2 2000
Summit Ashburn Farm- Loudon
County, VA ....................... 162 13,800 3,615 10,185 Q3 2000
Summit Grandview - Charlotte, NC . 266 45,500 9,397 36,103 Q4 2000
Reunion Park by Summit- Raleigh
, NC ............................. 248 14,300 2,108 12,192 Q1 2001
---------- -------- -------- --------
2,114 189,700 78,764 110,936
Other development and
construction costs (2) ........... - - 39,115 -
---------- --------- -------- ---------
$2,114 $189,700 $117,879 $110,936
========== ======== ========= =========
</TABLE>
(1) These communities were in lease-up at June 30, 1999.
(2) Consists primarily of land held for development and other predevelopment
costs.
Estimated costs to complete the development Communities represent substantially
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.
23
<PAGE>
Other development risks include the possibility of incurring additional costs or
liabilities 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 six
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 which may 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.
YEAR 2000
YEAR 2000 INFORMATION AND READINESS DISCLOSURE ACT
The Company supports the exchange of information relating to the Year 2000 issue
and designates the following information as the Year 2000 Readiness Disclosure
within the meaning of the Year 2000 Information and Readiness Disclosure Act.
Information set forth herein regarding the Year 2000 compliance of non-Company
products and services are "republications" under the Year 2000 Information and
Readiness Disclosure Act and are based on information supplied by other
companies about the products and services they offer. The Company has not
independently verified the contents of these republications and takes no
responsibility for the accuracy or completeness of information contained in such
republications.
INTRODUCTION
The Securities and Exchange Commission has asked all public companies to provide
disclosure regarding their Year 2000 readiness. The term "Year 2000 issue" is a
general term used to describe various problems that may result from the improper
processing by computer systems of dates after 1999. These problems arise from
the inability of some hardware and software to distinguish dates before the year
2000 from dates in and after the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations. The Year 2000
issue affects virtually all companies and all organizations.
The Company's efforts to address its Year 2000 issues are focused in the
following three areas: (i) reviewing and taking any necessary steps to attempt
to correct the Company's computer information systems (i.e., software
applications and hardware platforms), (ii) evaluating and making any necessary
modifications to other computer systems that do not relate to information
technology but include embedded technology, such as telecommunications,
security, HVAC, elevator, fire and safety systems, and (iii) communicating with
certain significant third-party service providers to determine whether there
will be any interruption in their systems that could affect the Company.
THE COMPANY'S STATE OF READINESS
The Company has developed a four phase plan to address its Year 2000 issues (the
"Year 2000 Plan"). The four phases are (i) Awareness, (ii) Assessment, (iii)
Remediation and Implementation and (iv) Testing.
AWARENESS
The Company has made the relevant employees, including its property managers,
aware of the Year 2000 issue and collected information from such employees
regarding systems that the Company anticipates may be affected. Management will
oversee the Company's progress with respect to the implementation of the Year
2000 Plan. In addition, the Year 2000 Plan has been subject to review of the
Audit Committee of the Board of Directors.
24
<PAGE>
ASSESSMENT
The Company has substantially completed an assessment of its standard computer
information systems and is now taking the further necessary steps to make its
core computer information systems, in those situations in which the Company is
required to do so, Year 2000 compliant. See "Remediation and Implementation"
below. As of June 30, 1999, the Company is 100% complete with its assessment of
the Year 2000 compliance in regard to the Company's other (i.e., non-core)
standard computer information systems. Year 2000 analysis software was used to
perform this assessment and to determine the steps needed for remediation. See
"Remediation and Implementation" below.
In addition, the Company has completed the evaluation and assessment of its
other computer systems that do not relate to information technology but include
embedded technology, such as telecommunications, security, HVAC, elevator, fire
and safety systems. The assessment was completed by the end of the second
quarter of 1999 with no major deficiencies noted. The Company is aware that such
systems contain embedded chips that are difficult to identify and test and may
require complete replacement because they cannot be repaired. Failure of the
Company to identify or remediate any embedded chips (either on an individual or
aggregate basis) on which significant business operations depend, such as phone
systems, could have a material adverse impact on the Company's business,
financial condition and results of operations.
The Company rents apartments in its Communities to individuals and does not have
a single customer or group of customers who rents a significant number of
apartments. The Company's primary purchases, except utilities (e.g. electricity,
natural gas and telecommunications services), are building-related products
(e.g., carpets, paint and blinds) and services (e.g., lawn care services), all
of which are available from numerous suppliers. The Company is in the process of
attempting to obtain written verification from utility providers that they will
be Year 2000 compliant. The Company's primary financial service providers are
its primary bank and payroll processor. The primary bank has provided written
verification to the Company that it will be Year 2000 compliant. The Company
implemented the payroll processor's Year 2000 upgrade during the fourth quarter
of 1998. For the foregoing reasons, the Company does not believe that there is a
significant risk related to the failure of residents, vendors or third-party
goods or service providers to prepare for the Year 2000; however, the costs and
timing of third-party Year 2000 compliance is not within the Company's control
and no assurances can be given with respect to the cost or timing of such
efforts or the potential effects of any failure to comply.
REMEDIATION AND IMPLEMENTATION
The Company's primary uses of software systems are its corporate accounting and
property management software. The Company's corporate accounting system is
widely used in the real estate industry. A version upgrade, installed in the
second quarter of 1998, is designed to be Year 2000 compliant. The Company
completed the replacement of its current property management software in October
1998 with a new software system that is also designed to be Year 2000 compliant.
This new software is also widely used in the real estate industry. The Company
has received written verification from the vendors of each of the corporate
accounting and property management systems that the relevant software is Year
2000 compliant. The Company had previously planned both the upgrade of the
corporate accounting system and implementation of the new property management
system, and such changes would have been undertaken without regard to Year 2000
remediation issues. Accordingly, the Company has not deferred any planned
information or software projects due to such Year 2000 projects, and the Company
is not treating the costs of the above-referenced changes as Year 2000-related
expenses.
The remediation of non-core standard computer information systems and embedded
technology issues will be accomplished through a series of minor hardware
upgrades and software patches. The Company expects that the implementation of
these upgrades will be completed on or before October 31, 1999.
TESTING
To attempt to confirm that its computer systems are Year 2000 compliant, the
Company expects to perform limited testing of its computer information systems
and its other computer systems that do not relate to information technology but
include embedded technology; however, unless Year 2000 issues arise in the
course of its limited testing, the Company will rely on the written verification
received from each vendor of its computer systems that the relevant system is
Year 2000 compliant. Nevertheless, there can be no assurance that the computer
systems on which the Company's business relies will correctly distinguish dates
before the year 2000 from dates in and after the year 2000. Any such failures
could have a material adverse effect on the Company's business, financial
condition and results of operations. The Company began testing during the fourth
quarter of 1998 and completed accounting and property management systems testing
before the end of the second quarter of 1999. These tests are supplemented with
additional written representations from these key vendors.
25
<PAGE>
COSTS TO ADDRESS THE COMPANY'S YEAR 2000 ISSUES
Based on current information from its review to date, the Company budgeted
$500,000 for the cost of repairing, updating and replacing its standard computer
information systems. Because the Company's Year 2000 assessment is ongoing and
additional funds may be required as a result of future findings, the Company's
current budget amounts may increase as a result of unanticipated delays or
preparedness issues. While the Company's efforts to address its Year 2000 issues
will involve additional costs, the Company believes, based on available
information, that these costs will not have a material adverse effect on its
business, financial condition or results of operations. The Company expects to
fund the costs of addressing the Year 2000 issue from cash flows resulting from
operations. While the Company believes that it will be Year 2000 compliant by
December 31, 1999, if these efforts are not completed on time, or if the costs
associated with updating or replacing the Company's computer systems exceeds the
Company's estimates, the Year 2000 issue could have a material adverse effect on
the Company's business, financial condition and results of operations.
RISKS PRESENTED BY YEAR 2000 ISSUES
The Company is still in the process of evaluating potential disruptions or
complications that might result from Year 2000-related problems; however, at
this time the Company has not identified any specific business functions that
are likely to suffer material disruption as a result of Year-2000 related
events. It is possible, however, that the Company may identify business
functions in the future that are specifically at risk of Year 2000 disruption.
The absence of any such determination as of the date of this report represents
only the Company's current status of evaluating potential Year-2000 related
problems and facts presently known to the Company, and should not be construed
to mean that there is no risk of Year-2000 related disruption. Moreover, due to
the unique and pervasive nature of the Year 2000 issue, it is not possible to
anticipate each of the wide variety of Year 2000 events, particularly outside of
the Company, that might arise in a worst case scenario which might have a
material adverse impact on the Company's business, financial condition and
results of operations. Risks involved with not solving the Year 2000 issue
include, but are not limited to, the following: loss of local or regional
electric power, loss of telecommunications services, delays or cancellations of
shipping or transportation, general deterioration of economic conditions
resulting from Year 2000 issues, and inability of banks, vendors and other third
parties with whom the Company does business to resolve their own Year 2000
problems.
THE COMPANY'S CONTINGENCY PLANS
The Company intends to develop contingency plans for significant business risks
identified by the Company that might result from Year-2000 related events.
Because the Company has not yet identified any specific business function that
will be materially at risk of significant Year-2000 related disruptions, and
because a full assessment of the Company's risk from potential Year 2000
failures is still in process, the Company has not yet developed detailed
contingency plans specific to Year 2000 problems. The Company would develop one
or more contingency plans in the event that the Company recognized an issue that
required implementation of such a plan or plans.
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 Generally Accepted Accounting Principles),
excluding gains (or losses) from debt restructuring and sale 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 equity REITs, and accordingly, may not be
comparable to other REITs. Funds from Operations and Funds Available for
Distribution do not represent amounts available for management's discretionary
use because of needed capital replacement or expansion, debt service
obligations, property acquisitions, development, dividends and distributions or
other commitments and uncertainties. Funds from Operations and Funds Available
for Distribution should not be considered as alternatives to net income
(determined in accordance with GAAP) as an indication of the Company's financial
performance or to cash flows from operating activities (determined in accordance
with GAAP) as a measure of the Company's liquidity, nor are they indicative of
funds available to fund the Company's cash needs, including its ability to make
dividends/distributions. The Company believes Funds from Operations and Funds
Available for Distribution are helpful to investors as measures of the
performance of the Company because, along with cash flows from operating
activities, financing activities and investing activities, they provide
investors with an understanding of the ability of the Company to incur and
service debt and make capital expenditures.
26
<PAGE>
Funds from Operations and Funds Available for Distribution for the three and six
months ended June 30, 1999 and 1998 are calculated as follows (dollars in
thousands):
Three Months Ended Six Months Ended
June 30, June 30,
------------------- ------------------
1999 1998 1999 1998
--------- --------- --------- --------
Net income ......................... $ 13,139 $13,553 $20,919 $19,292
Extraordinary items, net of
minority interest - - - 158
Gain on sale of real estate assets . (6,307) (8,731) (6,307) (8,731)
Minority interest of unitholders
in Operating Partnership ....... 2,051 2,315 3,269 3,310
--------- --------- --------- --------
Subtotal ....................... 8,883 7,137 17,881 14,029
Depreciation:
Real estate assets ............... 8,577 6,842 16,804 13,363
Real estate joint venture ........ 184 - 367 -
--------- --------- --------- --------
Funds from Operations .............. 17,644 13,979 35,052 27,392
Recurring capital expenditures (1) . (2,152) (1,918) (3,191) (2,761)
--------- --------- --------- --------
Funds Available for Distribution ... $ 15,492 $ 12,061 $31,861 $24,631
========= ========= ========= ========
Non-recurring capital expenditures
(1) (2) ............................ $ 1,395 $ 724 $ 2,286 $ 1,487
========= ========= ========= ========
Cash Flow Provided By (Used In):
Operating Activities ........... $ 13,359 $15,924 $27,760 $30,084
Investing Activities ........... 19,810 (40,797) 5,087 (95,108)
Financing Activities ........... (33,256) 22,927 (32,298) 63,848
Weighted average shares and units
outstanding -diluted ............... 32,856,145 28,810,928 32,813,134 28,478,149
========= ========= ========= ========
(1)Recurring capital expenditures are expected to be funded from operations and
consist primarily of exterior painting, carpets in 1999, 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. The increase
in recurring capital expenditures for the three and six months ended June 30,
1999 and 1998 was primarily due to the Company's change in accounting policy
to capitalize carpets starting January 1, 1999. Without carpet, recurring
capital expenditures for the three and six months ended June 30, 1999 would
have been $1.7 million and $2.4 million, respectively.
(2)Non-recurring capital expenditures for the six months ended June 30, 1999
and 1998 are major renovations in the amount of $1.5 million in 1999 and
$364,000 in 1998; $343,000 for access gates and security fences in 1999;
$10,000 and $484,000 for water meters in 1999 and 1998, respectively;
$239,000 for new signage in 1998; $465,000 and $207,000 in other revenue
enhancement expenditures in 1999 and 1998, respectively and $186,000 for
improvements at Summit Norcroft I completed in conjunction with the
development of Summit Norcroft II in 1998.
27
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
There has been no material change in the Company's market risk since the filing
of the Company's Annual Report on Form 10-K for the year ended December 31,
1998.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 11, 1999, the Company held its 1999 Annual Meeting of Stockholders (the
"Annual Meeting"). At the Annual Meeting, stockholders of the Company were asked
to consider (1) a proposal to elect two Class II Directors of the Company to
serve until the 2002 annual meeting of stockholders and until their successors
are duly elected and qualified (the "Election Proposal") and (2) a proposal to
approve the Company's 1994 Stock Option and Incentive Plan, as Amended and
Restated (the "Plan") (the "Plan Proposal").
With respect to the Election Proposal, Nelson Schwab III and Steven R.
LeBlanc were nominated to serve as Class II Directors of the Company. Mr. Schwab
received 22.8 million votes in favor of his election with 0.6 million votes
withheld. Mr. LeBlanc received 22.6 million votes in favor of his election
with 0.7 million votes withheld. Mr. Schwab and Mr. LeBlanc were therefore
elected as Class II Directors of the Company to serve until the 2002 Annual
Meeting of Stockholders and until their successors are duly elected and
qualified. Other Directors of the Company whose terms of office continued
after the Annual Meeting are William B. McGuire, Jr. (Class III Director),
William F. Paulsen (Class III Director), Henry H. Fishkind (Class I
Director), James H. Hance, Jr. (Class I Director) and James M. Allwin (Class
II Director).
The stockholders also voted to approve the Plan as described in the Company's
proxy statement. The Plan Proposal received 14.4 million votes in favor and 2.4
million votes against, with 0.4 million votes abstaining.
28
<PAGE>
PART II
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Summit Properties Inc. 1994 Stock Option and Incentive Plan, as
Amended and Restated (incorporated herein by reference to Exhibit 4.5
to the Company's Registration Statement on Form S-8, Registration No.
333-79897).
*10.2 Amendment Agreement, dated as of May 1, 1999, by and among the
Company, the Management Company and William B. Hamilton.
*10.3 Indemnification Agreement, dated as of July 20, 1999, by and among
the Company, the Operating Partnership, and each director and
executive officer of the Company.
*12.1 Statement Regarding Calculation of Ratio of Earnings to Fixed
Charges for the Six Months ended June 30, 1999 (filed herewith).
*27.1 Financial Data Schedule--Six Months ended June 30, 1999 (for SEC
use only).
* Filed herewith
(b) Reports on Form 8-K
None
29
<PAGE>
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.
<TABLE>
<CAPTION>
<S> <C> <C>
SIGNATURES TITLE DATE
---------- ----- ----
/S/ WILLIAM F. PAULSEN President and Chief Executive Officer August 12, 1999
- -- ------------------
WILLIAM F. PAULSEN
/S/ MICHAEL L. SCHWARZ Executive Vice President and Chief Financial August 12 1999
- -- ------------------ Officer
MICHAEL L. SCHWARZ
</TABLE>
30
<PAGE>
EXHIBIT INDEX
(a) Exhibits
10.1 Summit Properties Inc. 1994 Stock Option and Incentive Plan, as
Amended and Restated (incorporated herein by reference to Exhibit 4.5
to the Company's Registration Statement on Form S-8, Registration No.
333-79897).
*10.2 Amendment Agreement, dated as of May 1, 1999, by and among the
Company, the Management Company and William B. Hamilton.
*10.3 Indemnification Agreement, dated as of July 20, 1999, by and among
the Company, the Operating Partnership, and each director and
executive officer of the Company.
*12.1 Statement Regarding Calculation of Ratio of Earnings to Fixed
Charges for the Six Months ended June 30, 1999 (filed herewith).
*27.1 Financial Data Schedule--Six Months ended June 30, 1999 (for SEC
use only).
* Filed herewith
31
AMENDMENT AGREEMENT
THIS AMENDMENT AGREEMENT (the "Agreement") is made and entered into as of
May 1, 1999 by and between William B. Hamilton ("Executive"), SUMMIT PROPERTIES
INC., a Maryland corporation, and SUMMIT MANAGEMENT COMPANY, a Maryland
corporation (collectively, the "Company").
W I T N E S S E T H :
---------------------
WHEREAS, Executive has been employed by the Company or its affiliates
pursuant to an Employment Agreement dated December 5, 1996 (the "Employment
Agreement"); and
WHEREAS, in connection with Executive's employment by the Company,
Executive and the Company entered into a Noncompetition Agreement dated January
13, 1994 (the "Noncompetition Agreement"); and
WHEREAS, in conjunction with Executive's employment by the Company,
Executive and the Company entered into an Executive Severance Agreement dated
April 1, 1997 (the "Severance Agreement"); and
WHEREAS, the Executive has in the past, and may in the future, participate
in the Company's Employee Loan Program (the "Loan Program"); and
WHEREAS, the Company and Executive desire to amend the Employment
Agreement in accordance with paragraph 5.8 thereof on the terms and conditions
contained in this Agreement;
NOW THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. In the event that Executive remains actively employed by the Company or
its affiliates until May 1, 2000, then as of May 1, 2000, Section 4.2
"Termination as Result of No Cause Termination or Employee-Initiated Termination
During Original Term," shall be deleted in its entirety and the following
inserted therefor:
4.2 Termination As Result of No Cause Termination or
Employee-Initiated Termination During Original Term. If
Executive's employment under this Agreement is terminated as a
result of a No Cause Termination or an Employee-Initiated
Termination during the Original Term, Executive shall be
entitled to receive (i) any Base Salary which may be owed to
Executive but is unpaid as of the date on which Executive's
employment is terminated, and (ii) his Base Salary as in
effect on the date of such termination for a twelve month
period. If Executive's employment under this agreement is
terminated as a result of a Voluntary Termination, No Cause
Termination or an Employee-Initiated Termination, subsequent
to the Original Term and on or after May 1,
<PAGE>
2000, Executive shall be entitled to receive (i) any Base
Salary which may be owed to Executive that was unpaid as of
the date on which Executive's employment is terminated, and
(ii) his Base Salary as in effect on the date of such
termination for a twelve month period. The payment of such
Base Salary pursuant to clause (ii) of the preceding sentences
shall be made at such intervals in accordance with the
Company's payroll procedures in effect from time to time with
respect to officers of the Company but no less frequently than
monthly. In addition, in the event of Executive's death
following a Voluntary Termination, No Cause Termination, or an
Employee-Initiated Termination subsequent to the Original Term
and on or after May 1, 2000, any Base Salary payable to
Executive under this Section 4.2 and not yet paid on the date
of Executive's death shall be paid to Executive's designated
beneficiary, if any, or if none, his surviving spouse, or, if
none, his estate (collectively, the "Beneficiary"). Such
payments shall be made to the Beneficiary at such times as
would otherwise have been payable to Executive under this
Section 4.2; provided, however, that the Company may in its
discretion pay such Base Salary to the Beneficiary in a lump
sum payment in an amount determined in accordance with the
methodology set forth in subsection (B) of Section 4.3.
2. Except as expressly or by necessary implication amended hereby, the
Employment Agreement, Noncompetition Agreement and Executive Severance
Agreement shall continue if full force and effect.
2
<PAGE>
IN WITNESS WHEREOF, each of the undersigned has executed this Agreement,
or caused this Agreement to be duly executed on its behalf, as of the date first
set forth above.
SUMMIT PROPERTIES INC.
By: /s/ Steven R. LeBlanc
--------------------------
Name: Steven R. LeBlanc
--------------------------
Title: President
--------------------------
SUMMIT MANAGEMENT COMPANY
By: /s/ Steven R. LeBlanc
--------------------------
Name: Steven R. LeBlanc
--------------------------
Title: Vice President
--------------------------
EXECUTIVE
/s/ William B. Hamilton
------------------------------
Name: William B. Hamilton
------------------------------
3
EXHIBIT 10.30
As of July 20, 1999, the Company and the Operating Partnership entered into the
attached indemnification agreement with each of the following directors and
officers of the Company:
William B. McGuire, Jr. Michael L. Schwarz
William F. Paulsen William B. Hamilton
Steven R. LeBlanc Michael G. Malone
James M. Allwin
Henry H. Fishkind
James H. Hance, Jr.
Nelson Schwab III
<PAGE>
INDEMNIFICATION AGREEMENT
AGREEMENT, as of July __, 1999 (the "Agreement"), by and among Summit
Properties Inc., a Maryland corporation (the "Company"), Summit Properties
Partnership, L.P., a Delaware limited partnership (the "Partnership," and
together with the Company, "Summit"), and __________ ("Indemnitee").
WHEREAS, it is essential to the success of Summit to retain and attract as
directors and officers the most capable persons available;
WHEREAS, Indemnitee has agreed to serve as a director and/or officer of
the Company;
WHEREAS, both Summit and Indemnitee recognize the increased risk of
litigation and other claims being asserted against directors and officers of
public companies in today's environment;
WHEREAS, the Amended and Restated Articles of Incorporation, as amended
(the "Articles"), and the Bylaws (the "Bylaws") of the Company require the
Company to indemnify and advance expenses to its directors and officers to the
fullest extent permitted by law, and Indemnitee has agreed to serve as a
director and/or officer of the Company in part in reliance on such provisions in
the Articles and the Bylaws;
WHEREAS, the Agreement of Limited Partnership of the Partnership, as
amended (the "Partnership Agreement"), requires the Partnership to indemnify and
advance expenses to the directors and officers of the Company, as the general
partner of the Partnership, to the fullest extent permitted by law, and
Indemnitee has agreed to serve as a director and/or officer of the Company in
part in reliance on such provisions in the Partnership Agreement;
WHEREAS, in recognition of Indemnitee's need for substantial protection
against personal liability in order to enhance Indemnitee's continued service to
the Company and its subsidiaries in an effective manner and Indemnitee's
reliance on the foregoing provisions in the Articles, the Bylaws and the
Partnership Agreement, and in part to provide Indemnitee with specific
contractual protections in addition to those protections promised Indemnitee in
the Articles, the Bylaws and the Partnership Agreement and with specific
contractual assurance that the protection promised by such provisions in the
Articles, the Bylaws and the Partnership Agreement will be available to
Indemnitee (regardless of, among other things, any amendment to or revocation of
such provisions in the Articles, the Bylaws and the Partnership Agreement or any
change in the composition of the Company's Board of Directors or any acquisition
transaction relating to Summit), Summit wishes to provide in this Agreement for
the indemnification of and the advancing of expenses to Indemnitee to the
fullest extent permitted by law, in addition to any other right to
indemnification to which Indemnitee may be entitled, and as set forth in this
Agreement and, to the extent insurance is maintained, for the continued coverage
of Indemnitee under the Company's directors' and officers' liability insurance
policies;
<PAGE>
WHEREAS, certain directors and officers of the Company are parties to that
certain Indemnification Agreement, dated as of January 29, 1994, by and among
Summit and the individuals named therein (the "Prior Agreement"); and
WHEREAS, Summit desires to replace and supersede the Prior Agreement with
a new form of agreement for the directors and officers of the Company.
NOW, THEREFORE, in consideration of the premises and of Indemnitee
agreeing to continue to serve as a director and/or officer of the Company, and
intending to be legally bound hereby, the parties agree as follows:
1. Certain Definitions.
(a) Change in Control. A Change in Control shall be deemed to have
occurred upon any of the following events:
(i) The acquisition in one or more transactions by any
"Person" (as the term person is used for purposes of Section 13(d) or 14(d) of
the Securities Exchange Act of 1934, as amended (the "1934 Act")) of "Beneficial
Ownership" (within the meaning of Rule 13d-3 promulgated under the 1934 Act) of
twenty percent (20%) or more of the combined voting power of the Company's then
outstanding Voting Securities; provided, however, that for purposes of this
Section 1(a)(i), the Voting Securities acquired directly from the Company by any
Person shall be excluded from the determination of such Person's Beneficial
Ownership of Voting Securities (but such Voting Securities shall be included in
the calculation of the total number of Voting Securities then outstanding); or
(ii) The individuals who, as of the date hereof, are members
of the Board (the "Incumbent Board"), cease for any reason to constitute at
least two-thirds of the Board; provided, however, that if the election, or
nomination for election by the Company's stockholders, of any new director is
hereafter approved by a vote of at least two-thirds of the Incumbent Board, such
new director shall, for purposes of this Agreement, be considered as a member of
the Incumbent Board; or
(iii) Approval by stockholders of the Company of (A) a merger
or consolidation involving the Company if the stockholders of the Company
immediately before such merger or consolidation do not own, directly or
indirectly immediately following such merger or consolidation, more than eighty
percent (80%) of the combined voting power of the outstanding voting securities
of the corporation resulting from such merger or consolidation in substantially
the same proportion as their ownership of the Voting Securities immediately
before such merger or consolidation or (B) a complete liquidation or dissolution
of the Company or an agreement for the sale or other disposition of all or
substantially all of the assets of the Company.
2
<PAGE>
(iv) Notwithstanding the foregoing, a Change in Control shall
not be deemed to occur solely because twenty percent (20%) or more of the then
outstanding Voting Securities is acquired by (i) a trustee or other fiduciary
holding securities under one or more employee benefit plans maintained by the
Company or any of its subsidiaries or (ii) any corporation which, immediately
prior to such acquisition, is owned directly or indirectly by the stockholders
of the Company in the same proportion as their ownership of stock in the Company
immediately prior to such acquisition. Nor shall a Change in Control be deemed
to occur solely because any Person (the "Subject Person") acquired Beneficial
Ownership of twenty percent (20%) or more of the outstanding Voting Securities
as a result of the subsequent acquisition of Voting Securities by the Company
which, by reducing the number of Voting Securities outstanding, increases the
proportional number of shares Beneficially Owned by the Subject Person; provided
that if a Change in Control would occur (but for the operation of this sentence)
as a result of the acquisition of Voting Securities by the Company, and after
such share acquisition by the Company, the Subject Person becomes the Beneficial
Owner of any additional Voting Securities which increases the percentage of the
then outstanding Voting Securities Beneficially Owned by the Subject Person,
then a Change in Control shall occur.
(b) Claim. Any threatened, pending or completed action, suit or
proceeding, or any inquiry or investigation, whether threatened, commenced or
conducted by the Company, the Partnership or any other party, that Indemnitee in
good faith believes might lead to the institution of any such action, suit or
proceeding, whether civil, criminal, administrative, investigative or other.
(c) Expenses. Expenses consist of attorneys' fees and all other
costs, charges and expenses paid or incurred in connection with investigating,
defending, settling, being a witness in or participating in (including on
appeal), or preparing to defend, be a witness in or participate in, any Claim
relating to any Indemnifiable Event.
(d) Indemnifiable Event. Any event or occurrence related to the fact
that Indemnitee is, was or has agreed to become a director, officer, employee,
agent or fiduciary of the Company, or is, is deemed to be, or was serving or has
agreed to serve in any capacity, at the request of the Company, in any other
corporation, partnership, joint venture, employee benefit plan, trust or other
enterprise, or by reason of anything done or not done by Indemnitee in any such
capacity.
(e) Potential Change in Control. A Potential Change in Control shall
be deemed to have occurred if (i) the Company enters into an agreement or
arrangement, the consummation of which would result in the occurrence of a
Change in Control; (ii) any person (including the Company) publicly announces an
intention to take or begins taking actions which if completed would constitute a
Change in Control; or (iii) the Board adopts a resolution to the effect that,
for purposes of this Agreement, a Potential Change in Control has occurred.
(f) Voting Securities. Any securities of the Company which vote
generally in the election of directors.
3
<PAGE>
2. Indemnification; Expenses; Procedure.
(a) Basic Indemnification Agreement. In the event Indemnitee was, is
or becomes a party to or witness or other participant in, or is threatened to be
made a party to or witness or other participant in, a Claim by reason of (or
arising in part out of) an Indemnifiable Event, Summit shall indemnify
Indemnitee (without regard to the negligence or other fault of Indemnitee) to
the fullest extent permitted by applicable law, as soon as practicable but in no
event later than thirty (30) days after written demand is presented to Summit,
against any and all Expenses, judgments, fines, penalties, excise taxes and
amounts paid or to be paid in settlement (including all interest, assessments
and other charges paid or payable in connection with or in respect of such
Expenses, judgments, fines, penalties, excise taxes or amounts paid or to be
paid in settlement) of or in connection with such Claim; provided, however, that
Summit shall not be required to indemnify Indemnitee for amounts paid or to be
paid in settlement unless such settlement is approved in advance by the Company,
which approval shall not be unreasonably withheld, or subsequently deemed
reasonable by the Company, a court of appropriate jurisdiction, or an
independent legal counsel chosen and approved by both the Company and
Indemnitee. Summit's obligation to indemnify Indemnitee under this paragraph
shall be deemed mandatory in all cases without regard to the fault or negligence
of Indemnitee unless it is determined, by final adjudication, that the liability
imposed upon Indemnitee was the result of Indemnitee's actual improper receipt
of a personal benefit or profit or of Indemnitee's active and deliberate
dishonesty to Summit. Summit shall indemnify Indemnitee's spouse (whether by
statute or at common law and without regard to the location of the governing
jurisdiction) and children to the same extent and subject to the same
limitations applicable to Indemnitee hereunder for claims arising out of the
status of such person as a spouse or child of Indemnitee, including claims
seeking damages from marital property (including community property) or property
held by such Indemnitee and such spouse or child or property transferred to such
spouse or child, but such indemnity shall not otherwise extend to protect the
spouse or child against liabilities caused by the spouse's or child's own acts.
If Indemnitee makes a request to be indemnified under this Agreement (which
request need not be made prior to the incurrence of any Expenses), the Board of
Directors (acting by majority vote of a quorum consisting of directors who are
not parties to the Claim with respect to the Indemnifiable Event or by majority
vote of a committee of two or more directors who are duly designated to act on
the matter by the full Board, or, if such a quorum is not obtainable and no such
committee has been designated, acting upon an opinion in writing of special
independent legal counsel selected by majority vote of the full Board of
Directors ("Board Action")) shall, as soon as practicable but in no event later
than thirty (30) days after such request, authorize such indemnification.
Notwithstanding anything in the Articles, the Bylaws or the Partnership
Agreement, each as amended from time to time, or this Agreement to the contrary,
following a Change in Control, Indemnitee shall, unless prohibited by law, be
entitled to indemnification pursuant to this Agreement in connection with any
Claim initiated by Indemnitee.
(b) Advancement of Expenses. Notwithstanding anything in the
Articles, the Bylaws, the Partnership Agreement or this Agreement to the
contrary, if so requested by
4
<PAGE>
Indemnitee, Summit shall advance (within ten (10) business days of such request)
any and all Expenses relating to a Claim to Indemnitee (an "Expense Advance"),
upon the receipt of a written undertaking by or on behalf of Indemnitee (and
without regard to any determination of Indemnitee's financial ability to repay
such Expense Advance) to repay such Expense Advance if a judgment or other final
adjudication adverse to Indemnitee establishes that Indemnitee, with respect to
such Claim, is not eligible for indemnification.
(c) Notice to Insurers. If, at the time of the receipt of a notice
of a Claim pursuant to Section 9 hereof, the Company has directors' and
officers' liability insurance in effect, the Company shall give prompt notice of
the commencement of such proceeding to the insurers in accordance with the
procedures set forth in the respective policies. The Company shall thereafter
take all necessary or desirable action to cause such insurers to pay, on behalf
of Indemnitee, all amounts payable as a result of such proceeding in accordance
with the terms of such policies.
(d) Selection of Counsel. In the event Summit shall be obligated
under Section 2(b) hereof to pay the Expenses of any proceeding against
Indemnitee, Summit, unless Indemnitee determines that a conflict of interest
exists between Indemnitee and Summit with respect to a particular Claim, shall
be entitled to assume the defense of such proceeding, with counsel approved by
Indemnitee, which approval shall not be unreasonably withheld, upon the delivery
to Indemnitee of written notice of its election to do so and of written notice
that it is so obligated. After delivery of such notice, approval of such counsel
by Indemnitee and the retention of such counsel by Summit, Summit will not be
liable to Indemnitee under this Agreement for any fees of counsel subsequently
incurred by Indemnitee with respect to the same proceeding; provided that (i)
Indemnitee shall have the right to employ his own separate counsel in any such
proceeding in addition to or in place of any counsel retained by Summit on
behalf of Indemnitee at Indemnitee's expense; and (ii) if (A) the employment of
counsel by Indemnitee has been previously authorized by the Company, (B)
Indemnitee shall have concluded that there may be a conflict of interest between
Summit and Indemnitee in the conduct of any such defense or (C) Summit shall
not, in fact, have employed counsel to assume the defense of such proceeding,
then the fees and expenses of Indemnitee's counsel shall be at the expense of
Summit.
(e) Litigation Concerning Right to Indemnification. If there has
been no Board Action or Arbitration (as defined in Section 3), or if Board
Action determines that Indemnitee would not be permitted to be indemnified, in
any respect, in whole or in part, in accordance with Section 2(a) of this
Agreement, Indemnitee shall have the right to commence litigation in the court
which is hearing the action or proceeding relating to the Claim for which
indemnification is sought or in any court having subject matter jurisdiction
thereof and in which venue is proper seeking an initial determination by the
court or challenging any Board Action or any aspect thereof, and each of the
Company and the Partnership hereby consent to service of process and to appear
in any such proceeding. Notwithstanding anything in the Articles, the Bylaws,
the Partnership Agreement or this Agreement to the contrary, if Indemnitee has
commenced legal proceedings in a court of competent jurisdiction or
5
<PAGE>
Arbitration to secure a determination that Indemnitee should be indemnified
under this Agreement, the Articles, the Bylaws, the Partnership Agreement or
applicable law, any Board Action that Indemnitee would not be permitted to be
indemnified in accordance with Section 2(a) of this Agreement shall not be
binding in the event that such legal proceedings are finally adjudicated. Any
Board Action not followed by such litigation or Arbitration shall be conclusive
and binding on Summit and Indemnitee.
3. Change in Control. Summit agrees that if there is a Change in Control,
Indemnitee, by giving written notice to Summit and the American Arbitration
Association (the "Notice"), may require that any controversy or claim arising
out of or relating to this Agreement, or the breach thereof, shall be settled by
arbitration (the "Arbitration") in Charlotte, North Carolina, in accordance with
the Rules of the American Arbitration Association (the "Rules"). The Arbitration
shall be conducted by a panel of three arbitrators selected in accordance with
the Rules within thirty (30) days of delivery of the Notice. The decision of the
panel shall be made as soon as practicable after the panel has been selected,
and the parties agree to use their reasonable efforts to cause the panel to
deliver its decision within ninety (90) days of its selection. Summit shall pay
all fees and expenses of the Arbitration. The Arbitration shall be conclusive
and binding on Summit and Indemnitee, and Summit or Indemnitee may cause
judgment upon the award rendered by the arbitrators to be entered in any court
having jurisdiction thereof.
4. Establishment of Trust. In the event of a Potential Change in Control
or a Change in Control, Summit shall, promptly upon written request by
Indemnitee to the Company, create a trust for the benefit of Indemnitee (a
"Trust") and from time to time, upon written request by or on behalf of
Indemnitee to Summit, shall fund such Trust in an amount, as set forth in such
request, sufficient to satisfy any and all Expenses reasonably anticipated at
the time of each such request to be incurred in connection with investigating,
preparing for and defending any Claim relating to an Indemnifiable Event, and
any and all judgments, fines, penalties and settlement amounts of any and all
Claims relating to an Indemnifiable Event from time to time actually paid or
claimed, reasonably anticipated or proposed to be paid. The terms of the Trust
shall provide that upon a Change in Control (i) the Trust shall not be revoked
or the principal thereof invaded, without the written consent of Indemnitee;
(ii) the trustee of the Trust (the "Trustee") shall advance, within ten (10)
business days of a request by Indemnitee, any and all Expenses to Indemnitee,
not advanced directly by Summit to Indemnitee (and Indemnitee hereby agrees to
reimburse the Trust under the circumstances under which Indemnitee would be
required to reimburse Summit under Section 2(b) of this Agreement); (iii) the
Trust shall continue to be funded by Summit in accordance with the funding
obligation set forth above; (iv) the Trustee shall promptly pay to Indemnitee
all amounts for which Indemnitee shall be entitled to indemnification pursuant
to this Agreement or otherwise; and (v) all unexpended funds in such Trust shall
revert to Summit upon a final determination by Board Action or Arbitration or a
court of competent jurisdiction, as the case may be, that Indemnitee has been
fully indemnified under the terms of this Agreement. The Trustee shall be an
independent third party chosen by Indemnitee. Nothing in this Section 4 shall
relieve Summit of any of its obligations under this Agreement.
6
<PAGE>
5. Indemnification for Additional Expenses. Summit shall indemnify
Indemnitee against any and all expenses (including, without limitation,
attorneys' fees, subject to Section 20 hereof) and, if requested by Indemnitee,
shall (within ten (10) business days of such request) advance such expenses to
Indemnitee, which are incurred by Indemnitee in connection with any claim
asserted by or action brought by Indemnitee for (i) indemnification or advance
payment of Expenses by the Company under applicable law, the Articles, the
Bylaws, the Partnership Agreement, this Agreement, or any other agreement now or
hereafter in effect relating to Claims for Indemnifiable Events and/or (ii)
recovery under any directors' and officers' liability insurance policies
maintained by the Company, regardless of whether Indemnitee ultimately is
determined to be entitled to such indemnification, advance expense payment or
insurance recovery, as the case may be.
6. Partial Indemnity, Etc. If Indemnitee is entitled under any provision
of this Agreement to indemnification by Summit for some or a portion of the
Expenses, judgments, fines, penalties, excise taxes and amounts paid or to be
paid in settlement of a Claim but not, however, for all of the total amount
thereof, Summit shall nevertheless indemnify Indemnitee for the portion thereof
to which Indemnitee is entitled. Moreover, notwithstanding any other provision
of this Agreement, to the extent that Indemnitee has been successful on the
merits or otherwise in defense of any or all Claims relating in whole or in part
to an Indemnifiable Event or in defense of any issue or matter therein,
including, without limitation, dismissal without prejudice, Indemnitee shall be
presumed to be entitled to indemnification against any and all Expenses,
judgments, fines, penalties, excise taxes and amounts paid or to be paid in
settlement of such Claim or Claims in connection with any determination made or
to be made by Board Action, Arbitration or a court of competent jurisdiction
whether and to what extent Indemnitee is entitled to be indemnified hereunder,
and the burden of proof shall be on Summit to establish that Indemnitee is not
so entitled.
7. No Presumption. For purposes of this Agreement, the termination of any
claim, action, suit or proceeding, by judgment, order, settlement (whether with
or without court approval) or conviction, or upon a plea of nolo contendere, or
its equivalent, shall not create a presumption that Indemnitee did not meet any
particular standard of conduct or have any particular belief or that a court has
determined that indemnification is not permitted by applicable law or this
Agreement.
8. Contribution. In the event that the indemnification provided for in
this Agreement is unavailable to Indemnitee for any reason whatsoever, Summit,
in lieu of indemnifying Indemnitee, shall contribute to the amount incurred by
Indemnitee, whether for judgments, fines, penalties, excise taxes, amounts paid
or to be paid in settlement and/or for Expenses, in connection with any Claim
relating to an Indemnifiable Event, in such proportion as is deemed fair and
reasonable in light of all of the circumstances of such action by Board Action
or Arbitration or by the court before which such action was brought in order to
reflect (i) the relative benefits received by Summit and Indemnitee as a result
of the event(s) and/or transaction(s) giving cause to such action; and/or (ii)
the relative fault of Summit (and its other directors, officers, employees and
agents) and Indemnitee in connection with such event(s)
7
<PAGE>
and/or transaction(s). Indemnitee's right to contribution under this Section 8
shall be determined in accordance with, pursuant to and in the same manner as,
the provisions in Sections 2 and 3 hereof relating to Indemnitee's right to
indemnification under this Agreement.
9. Notice/Cooperation by Indemnitee. Indemnitee shall, as a condition
precedent to Indemnitee's right to be indemnified under this Agreement, give
Summit notice in writing as soon as practicable of any Claim made against
Indemnitee for which indemnification will or could be sought under this
Agreement. Such notice shall contain the written affirmation of Indemnitee that
the standard of conduct necessary for indemnification hereunder has been
satisfied. Notice to Summit shall be directed to the General Counsel of the
Company in the manner provided in Section 19 hereof. Indemnitee shall give
Summit such information and cooperation with respect to such Claim as it may
reasonably require and as shall be within Indemnitee's power. A delay or defect
in the notice under this Section 9 shall not invalidate Indemnitee's right to
indemnity under this Agreement unless, and only to the extent that, such delay
or defect materially prejudices the defense of the Claim or the availability to
Summit of insurance coverage for such Claim. Failure to give notice under this
Section 9 shall not be a defense if Summit has actual notice of Indemnitee's
claim for indemnification.
10. Non-exclusivity, Etc. The rights of Indemnitee hereunder shall be in
addition to any other rights Indemnitee may have under the Articles, the Bylaws,
the Partnership Agreement or applicable law, and nothing herein shall be deemed
to diminish or otherwise restrict Indemnitee's right to indemnification under
any such other provision. To the extent applicable law or the Articles, the
Bylaws or the Partnership Agreement, as in effect on the date hereof or at any
time in the future, permit greater indemnification than as provided for in this
Agreement, the parties hereto agree that Indemnitee shall enjoy by this
Agreement the greater benefits so afforded by such law or provision of the
Articles, the Bylaws or the Partnership Agreement, and this Agreement shall be
deemed amended without any further action by Summit or Indemnitee to grant such
greater benefits. Indemnitee may elect to have Indemnitee's rights hereunder
interpreted on the basis of applicable law in effect at the time of execution of
this Agreement, at the time of the occurrence of the Indemnifiable Event giving
rise to a claim or at the time indemnification is sought.
11. Liability Insurance.
(a) To the extent that the Company maintains at any time an
insurance policy or policies providing directors' and officers' liability
insurance, Indemnitee shall be covered by such policy or policies, in accordance
with its or their terms, to the maximum extent of the coverage available for any
other director or officer under such insurance policy. The purchase and
maintenance of such insurance shall not in any way limit or affect the rights
and obligations of the parties hereto, and the execution and delivery of this
Agreement shall not in any way be construed to limit or affect the rights and
obligations of the Company and/or of the other parties under any such insurance
policy.
8
<PAGE>
(b) For seven years after Indemnitee no longer serves as a director
or officer of the Company, the Company (or its successor or successors) shall
continue to provide directors' and officers' liability insurance for events
occurring during his service with the Company on terms no less favorable in
terms of coverage and amount than such insurance maintained by the Company at
the date of Indemnitee's separation from the Company. In the event such coverage
is not available, the maximum available coverage shall be maintained pursuant to
this covenant.
12. Period of Limitations. No legal action shall be brought and no cause
of action shall be asserted by or on behalf of Summit or any affiliate of Summit
against Indemnitee, Indemnitee's spouse, heirs, executors or personal or legal
representatives after the expiration of two years from the date of accrual of
such cause of action, and any claim or cause of action of Summit or its
affiliate shall be extinguished and deemed released unless asserted by the
timely filing of a legal action within such two-year period; provided, however,
that if any shorter period of limitations is otherwise applicable to any such
cause of action such shorter period shall govern.
13. Amendments, Etc. Except as provided in Section 10 hereof, no
supplement, modification or amendment of this Agreement shall be binding unless
executed in writing by both of the parties hereto. No waiver of any of the
provisions of this Agreement shall be deemed or shall constitute a waiver of any
other provisions hereof (whether or not similar) nor shall such waiver
constitute a continuing waiver.
14. Subrogation. In the event of payment under this Agreement, Summit
shall be subrogated to the extent of such payment to all of the rights of
recovery with respect to such payment of Indemnitee, who shall execute all
papers required and shall do everything that may be necessary to secure such
rights, including the execution of such documents necessary to enable Summit
effectively to bring suit to enforce such rights.
15. No Duplication of Payments. Summit shall not be liable under this
Agreement to make any payment in connection with any Claim made against
Indemnitee to the extent Indemnitee has otherwise actually received payment
(under any insurance policy, Bylaw or otherwise) of the amounts otherwise
indemnifiable hereunder.
16. Binding Effect, Etc. This Agreement shall be binding upon and inure to
the benefit of and be enforceable against and by the parties hereto and their
respective successors, assigns (including any direct or indirect successor by
purchase, merger, consolidation or otherwise to all or substantially all of the
business and/or assets of the Company or the Partnership), spouses, heirs and
personal and legal representatives. Summit shall require and cause any successor
(whether direct or indirect by purchase, merger, consolidation or otherwise) to
all, substantially all, or a substantial part, of the business and/or assets of
the Company or the Partnership, by written agreement in form and substance
satisfactory to Indemnitee, expressly to assume and agree to perform this
Agreement in the same manner and to the same extent that the Company or the
Partnership, as the case may be, would be required
9
<PAGE>
to perform if no such succession had taken place, but the absence of any such
writing shall not be a defense to any claim for indemnity made hereunder. This
Agreement shall continue in effect regardless of whether Indemnitee continues to
serve as a director and/or officer of the Company or of any other enterprise at
the Company's request.
17. Severability. The provisions of this Agreement shall be severable in
the event that any of the provisions hereof (including any provision within a
single section, paragraph or sentence) are held by a court of competent
jurisdiction to be invalid, void or otherwise unenforceable, and the remaining
provisions shall remain enforceable to the fullest extent permitted by law.
18. Exceptions. Any other provision herein to the contrary
notwithstanding, Summit shall not be obligated pursuant to the terms of this
Agreement to indemnify Indemnitee in the following circumstances:
(a) Insured Claims. Summit shall not be obligated to indemnify
Indemnitee for expenses or liabilities of any type whatsoever (including, but
not limited to, judgments, fines, excise taxes under the Employee Retirement
Income Security Act of 1974, as amended, or penalties and amounts paid in
settlement) to the extent that Indemnitee has otherwise actually received
payment, or payments have been made on behalf of Indemnitee, with respect to
such expense or liability (under any insurance policy, provision of the
Articles, the Bylaws or the Partnership Agreement, or otherwise) of amounts
otherwise indemnifiable hereunder; or
(b) Claims Under Section 16(b). Summit shall not be obligated to
indemnify Indemnitee for expenses and the payment of profits arising from the
purchase and sale by Indemnitee of securities in violation of Section 16(b) of
the 1934 Act, or any similar successor statute.
19. Notices. All notices, requests, demands and other communications
required or permitted hereunder shall be in writing and shall be deemed to have
been duly given when delivered by hand or when mailed by certified or registered
mail, return receipt requested, with postage prepaid:
(a) If to Indemnitee, to:
-------------------
-------------------
-------------------
or to such other person or address which Indemnitee shall furnish to Summit in
writing pursuant to the above.
10
<PAGE>
(b) If to Summit, to:
Summit Properties Inc.
212 South Tryon Street, Suite 500
Charlotte, NC 28281
ATTN: General Counsel
or to such person or address as Summit shall furnish to Indemnitee in writing
pursuant to the above.
20. Attorneys' Fees. In the event that any action is instituted by
Indemnitee under this Agreement to enforce or interpret any of the terms hereof,
Indemnitee shall be entitled to be paid all court costs and expenses, including
reasonable attorneys' fees, incurred by Indemnitee with respect to such action,
unless as a part of such action, a court of competent jurisdiction determines
that each of the material assertions made by Indemnitee as a basis for such
action were not made in good faith or were frivolous. In the event of an action
instituted by or in the name of the Company and/or the Partnership under this
Agreement or to enforce or interpret any of the terms of this Agreement,
Indemnitee shall be entitled to be paid all court costs and expenses, including
attorneys' fees, incurred by Indemnitee in defense of such action (including
with respect to Indemnitee's counterclaims and cross-claims made in such
action), unless as a part of such action the court determines that each of
Indemnitee's material defenses to such action were made in bad faith or were
frivolous.
21. Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Maryland, which laws are
applicable to contracts made and to be performed in such state without giving
effect to the principles of conflicts of laws.
22. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall constitute an original and all of which
together shall constitute a single agreement.
23. Prior Agreement. This Agreement replaces and supersedes the Prior
Agreement to the extent applicable to Indemnitee.
[Remainder of Page Intentionally Left Blank]
11
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered
this Agreement as of the date first set forth above.
SUMMIT PROPERTIES INC.
By:_______________________________
Name:
Title:
SUMMIT PROPERTIES PARTNERSHIP, L.P.
By: Summit Properties Inc.
Its General Partner
By:_______________________________
Name:
Title:
INDEMNITEE:
------------------------------------
[Name]
EXHIBIT 12.1
SUMMIT PROPERTIES INC.
CALCULATION OF RATIO OF EARNINGS TO FIXED CHARGES SIX MONTHS ENDED JUNE 30,
1999
(Dollars In thousands)
Funds from operations before fixed charges:
Income (loss) before minority interest of
unitholders in Operating Partnership $24,188
Interest:
Expense incurred 19,975
Amortization of deferred financing costs 495
---
Total $44,658
=======
Fixed charges:
Interest expense $19,975
Interest capitalized 3,476
Rental fixed charges 93
Amortization of deferred financing costs 495
---
Total $24,039
=======
Ratio of earnings to fixed charges 1.86
=====
32
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000915773
<NAME> SUMMIT PROPERTIES INC.
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 3,386
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 1,264,894
<DEPRECIATION> 126,083
<TOTAL-ASSETS> 1,178,109
<CURRENT-LIABILITIES> 0
<BONDS> 634,783
0
0
<COMMON> 280
<OTHER-SE> 494,858
<TOTAL-LIABILITY-AND-EQUITY> 1,178,109
<SALES> 85,740
<TOTAL-REVENUES> 87,706
<CGS> 0
<TOTAL-COSTS> 29,139
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 20,470
<INCOME-PRETAX> 24,188
<INCOME-TAX> 0
<INCOME-CONTINUING> 24,188
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,919
<EPS-BASIC> .74
<EPS-DILUTED> .74
</TABLE>
