UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 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.
28,711,970 shares outstanding as of November 4, 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 September 30, 1999 and December 31, 1998 (Unaudited)...........3
Consolidated Statements of Earnings for the three and nine months ended September 30, 1999 and
1998 (Unaudited).................................................................................4
Consolidated Statement of Stockholders' Equity for the nine months ended September 30,
1999 (Unaudited).................................................................................5
Consolidated Statements of Cash Flows for the nine months ended September 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...........15
Item 3 Quantitative and Qualitative Disclosure about Market Risk.......................................31
PART II OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K................................................................32
Signatures......................................................................................33
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SUMMIT PROPERTIES INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
--------------- ---------------
<S> <C> <C>
ASSETS
Real estate assets:
Land and land improvements $ 179,700 $ 169,374
Buildings and improvements 908,130 836,054
Furniture, fixtures and equipment 70,434 63,963
--------------- ---------------
1,158,264 1,069,391
Less: accumulated depreciation (132,770) (115,128)
--------------- ---------------
Operating real estate assets 1,025,494 954,263
Construction in progress 137,584 137,145
--------------- ---------------
Net real estate assets 1,163,078 1,091,408
Cash and cash equivalents 3,249 2,837
Restricted cash 12,867 91,981
Deferred financing costs, net 6,966 7,538
Other assets 10,441 4,900
--------------- ---------------
Total assets $ 1,196,601 $ 1,198,664
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Notes payable $ 620,149 $ 726,103
Accrued interest payable 4,603 6,806
Accounts payable and accrued expenses 29,001 32,745
Dividends and distributions payable 13,117 12,713
Security deposits and prepaid rents 4,199 4,188
--------------- ---------------
Total liabilities 671,069 782,555
--------------- ---------------
Commitments and contingencies
Minority interest of common unitholders in Operating Partnership 52,747 57,184
Minority interest of preferred unitholders in Operating Partnership 136,342
-
Stockholders' equity:
Common stock, $.01 par value - 100,000,000 shares authorized,
26,985,031 and 27,805,836 shares issued and outstanding
in 1999 and 1998, respectively 270 278
Preferred stock, $.01 par value - 25,000,000 shares authorized,
no shares issued and outstanding - -
Additional paid-in capital 426,458 442,132
Accumulated deficit (84,614) (80,281)
Unamortized restricted stock compensation (633) (728)
Employee notes receivable (5,038) (2,476)
--------------- ---------------
Total stockholders' equity 336,443 358,925
Total liabilities and stockholders' equity $ 1,196,601 $ 1,198,664
=============== ===============
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
SUMMIT PROPERTIES INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------- -------------------------------
1999 1998 1999 1998
------------ ------------- -------------- ---------------
<S> <C> <C> <C> <C>
Revenues:
Rental $ 41,623 $ 35,333 $ 122,437 $ 99,279
Other property income 2,923 2,062 7,847 5,501
Interest 380 233 2,213 511
Other income 84 628 217 775
------------ ------------- -------------- ---------------
Total revenues 45,010 38,256 132,714 106,066
------------ ------------- -------------- ---------------
Expenses:
Property operating and maintenance:
Personnel 3,507 2,993 9,940 8,103
Advertising and promotion 680 625 1,930 1,731
Utilities 2,236 1,934 6,363 5,389
Building repairs and maintenance 2,313 2,738 6,438 7,216
Real estate taxes and insurance 4,114 3,381 13,146 10,251
Depreciation 8,824 7,373 25,682 20,774
Property supervision 1,068 904 3,112 2,545
Other operating expenses 683 696 2,191 1,964
------------ ------------- -------------- ---------------
23,425 20,644 68,802 57,973
Interest 9,237 8,392 29,707 23,351
General and administrative 870 1,190 2,912 2,726
Loss in equity investments:
Summit Management Company 354 138 961 95
Real estate joint venture 12 - 26 -
------------ ------------- -------------- ---------------
Total expenses 33,898 30,364 102,408 84,145
Income before gain on sale of real estate assets,
minority interest of unitholders in Operating
Partnership and extraordinary items 11,112 7,892 30,306 21,921
Gain on sale of real estate assets 2,487 - 8,793 8,731
Minority interest of common unitholders in
Operating Partnership (1,571) (1,129) (4,843) (4,439)
Dividends to preferred unitholders in
Operating Partnership (2,276) - (3,593) -
------------ ------------- -------------- ---------------
Income before extraordinary items 9,752 6,763 30,663 26,213
Extraordinary items, net of minority interest
of common unitholders in Operating Partnership - - - (158)
------------ ------------- -------------- ---------------
Net income $ 9,752 $ 6,763 $ 30,663 $ 26,055
============ ============= ============== ===============
Per share data:
Income before extraordinary items - basic and diluted $ 0.35 $ 0.27 $ 1.09 $ 1.06
============ ============= ============== ===============
Net income - basic and diluted $ 0.35 $ 0.27 $ 1.09 $ 1.06
============ ============= ============== ===============
Dividends declared $ 0.42 $ 0.41 $ 1.25 $ 1.23
============ ============= ============== ===============
Weighted average common shares - basic 27,484,627 25,269,269 28,065,166 24,635,658
============ ============= ============== ===============
Weighted average common shares - diluted 27,549,780 25,274,868 28,094,143 24,652,423
============ ============= ============== ===============
</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 (35,004) (35,004)
Exercise of stock options 182 182
Issuance of restricted stock grants 398 (398) -
Amortization of restricted stock grants 493 493
Proceeds from dividend reinvestment -
and stock purchase plans 9 14,614 14,623
Repurchase of common stock (17) (34,597) (34,614)
Adjustment for minority interest -
in Operating Partnership 3,737 3,737
Issuance of employee notes receivable (3,077) (3,077)
Repayments of employee notes receivable 515 515
Net income 30,663 30,663
--------- ---------- ------------- -------------- ------------ -----------
Balance, September 30, 1999 $ 270 $ 426,466 $ (84,622) $ (633) $(5,038) $336,443
========= ========== ============= ============== ============ ===========
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
SUMMIT PROPERTIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------------
1999 1998
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 30,663 $ 26,055
Adjustments to reconcile net income to net cash
provided by operating activities:
Extraordinary items - 158
Loss on equity method investments 987 95
Gain on sale of real estate assets (8,793) (8,731)
Depreciation and amortization 26,248 21,778
Increase in restricted cash (3,807) (586)
Increase in other assets (1,278) (775)
Decrease in accrued interest payable (2,203) (1,439)
(Decrease) increase in accounts payable and accrued expenses (6,723) 6,156
Increase in security deposits and prepaid rents 11 301
Minority interest of unitholders
in Operating Partnership 4,843 4,439
------------- -------------
Net cash provided by operating activities 39,948 47,451
------------- -------------
Cash flows from investing activities:
Construction of real estate assets, net of payables (94,089) (92,946)
Proceeds from disposal of Communities 96,246 19,996
Purchase of Communities - (73,654)
Capitalized interest (5,383) (4,352)
Recurring capital expenditures (5,083) (3,372)
Non-recurring capital expenditures, net of payables (3,916) (3,279)
------------- -------------
Net cash used in investing activities (12,225) (157,607)
------------- -------------
Cash flows from financing activities:
Net (repayments) borrowings on line of credit (111,508) 103,627
Net borrowings on unsecured bonds 24,638 29,510
Repayments of mortgage debt (3,833) (14,873)
Repayments of tax exempt bonds (920) (945)
Dividends and distributions to unitholders (40,177) (34,724)
Exercise of stock options 182 841
Decrease in advance proceeds from direct stock purchase plan (9,474) -
Proceeds from the sale of preferred units 136,342 -
Proceeds from dividend reinvestment and stock purchase plans 14,615 30,500
Repurchase of common stock (34,614) -
Issuance of employee notes receivable (3,077) (2,520)
Repayments of employee notes receivable 515 -
------------- -------------
Net cash (used in) provided by financing activities (27,311) 111,416
------------- -------------
Net increase in cash and cash equivalents 412 1,260
Cash and cash equivalents, beginning of period 2,837 3,563
------------- -------------
Cash and cash equivalents, end of period $ 3,249 $ 4,823
============= =============
Supplemental disclosure of cash flow information - Cash paid for
interest, net of capitalized interest $ 31,166 $ 24,066
============= =============
</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 nine months
ended September 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. In addition to 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 the Company
beginning after January 1, 2001. The Company is in the process of determining
what impact, if any, the adoption of SFAS 133 will have on the Company's
financial statements.
CHANGE IN ACCOUNTING POLICY
Effective January 1, 1999, the Company implemented prospectively a new
accounting policy whereby expenditures for carpet replacement 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 estimate for carpet for the three and
nine months ended September 30, 1999 was an increase in net income of $435,000
and $1.2 million, respectively, or $0.01 and $0.04 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 that were 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.
7
<PAGE>
2. REAL ESTATE JOINT VENTURES -- (CONTINUED)
The Company owns a 49% interest in each of two other 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
September 30, 1999. The construction costs are being funded primarily through
separate loans to each joint venture from unrelated third parties equal to 100%
of the construction costs. During the construction period, in lieu of equity
contributions 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 loans 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 September 30, 1999 and an income statement for the nine months ended
September 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 $2,468 $135
Real estate assets other than construction in progress 89,866 -
Construction in progress - 30,704
Other assets 430 32
---------------- ----------------
Total assets $92,764 $30,871
================ ================
Mortgage payable $69,652 $ -
Construction loan payable - 29,633
Construction liabilities payable - 1,014
Other liabilities 1,452 396
Partners' capital 21,660 (172)
---------------- ----------------
Total liabilities and partners' capital $92,764 $30,871
================ ================
<CAPTION>
Income
Statement
(in thousands)
----------------
Station Hill
----------------
<S> <C>
Revenues $8,871
Expenses:
Property operating 3,208
Depreciation and amortization 2,232
Interest 3,513
----------------
Total expenses 8,953
----------------
Net loss ($82)
================
</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>
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 disposition of Summit Beacon Ridge resulted in the recognition of a
gain on sale of $2.5 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.
4. NOTES PAYABLE
On May 29, 1998, the Company 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 issued Medium-Term Notes with an
aggregate principal amount of $80 million ($55 million of which was issued
during 1998) 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
million. 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 conditions and other factors.
5. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
While the Company has historically had limited involvement with derivative
financial instruments, the Company may utilize such instruments in certain
situations to hedge interest rate exposure by modifying the interest rate
characteristics of related balance sheet instruments and prospective financing
transactions. The Company does not utilize derivative financial instruments for
trading purposes. On September 16, 1999, the Company entered into an interest
rate swap agreement with a notional amount of $30 million, relating to $30
million of notes issued by the Operating Partnership under the MTN Program which
carry a fixed interest rate of 6.625% per annum (the "Fixed Rate"). Under the
interest rate swap agreement, through the maturity date of such notes of
December 15, 2003, (i) the Company has agreed to pay to the counterparty the
interest that would have been incurred on the $30 million principal amount of
the notes at a floating interest rate of LIBOR plus 11 basis points (the
"Floating Rate"), and (ii) the counterparty has agreed to pay to the Company the
interest incurred on the same principal amount at the Fixed Rate. The Floating
Rate at September 30, 1999 was 5.62%.
6. RESTRICTED STOCK
During the nine months ended September 30, 1999 and 1998, the Company granted
23,331 and 6,592 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 $398,000 and $135,000,
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.
7. SUPPLEMENTAL CASH FLOW INFORMATION
Non-cash investing and financing activities for the nine months ended September
30, 1999 and 1998 are as follows:
A. The Company sold three communities during the nine months ended September
30, 1999 and, in connection with such sales, received net proceeds of $13.3
million, all of 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 are
expected to be used to fund the future development of communities. The
respective purchasers of two of the communities assumed the related
outstanding debt balances associated with such communities of $14.8 million.
9
<PAGE>
B. The Company purchased Summit St. Clair effective March 1, 1998, Summit
Club at Dunwoody on May 22, 1998 and Summit Lenox on July 8, 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............................................ $88,298
Current liabilities assumed............................. (681)
Value of Units issued................................... (5,213)
Mortgage note assumed................................... (8,750)
--------
Cash invested........................................... $73,654
=======
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
$13.1 million and $12.1 million at September 30, 1999 and 1998,
respectively.
E. The Company issued 23,331 and 6,592 shares of restricted stock valued at
$398,000 and $135,000 during the nine months ended September 30, 1999 and
1998, respectively.
8. MINORITY INTEREST
Minority interest of common unitholders consists of the following at September
30, 1999 and December 31, 1998 (in thousands):
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Minority interest of unitholders in Operating Partnership.............. $53,133 $57,587
Minority interest in one operating community............................ (386) (403)
-------- ---------
$52,747 $57,184
========= =========
</TABLE>
As of September 30, 1999, there were 31,421,773 Units outstanding of which
26,985,031, or 85.9%, were owned by the Company and 4,436,742, or 14.1%, 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 the proceeds therefrom contributed to the Operating
Partnership for an equivalent number of Units was 873,000 and 2.0 million shares
valued at $15.3 million ($17.58 per share average) and $38.5 million ($19.17 per
share average) for the nine months ended September 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 85.9% and 85.7% as of September 30,
1999 and 1998, respectively.
Under certain circumstances, as required by the holders of units, 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 nine month period ended September 30, 1999. There were 28,993
units valued at $555,000 which were exchanged for shares during the nine month
period ended September 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.
9. COMMITMENTS
The Company has eleven development projects currently under construction
representing a total estimated cost of $248.5 million. As of September 30, 1999,
the estimated cost to complete the projects was $144.4 million.
10
<PAGE>
10. EXTRAORDINARY ITEMS
The extraordinary items in the nine months ended September 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 such period. The extraordinary items are net of $27,000, which was
allocated to the minority interest of unitholders in the Operating Partnership,
calculated based on the weighted average number of Units outstanding.
11. EARNINGS PER SHARE
The only difference between "basic" and "diluted" weighted average shares is the
dilutive effect of the Company's stock options outstanding (65,153 and 28,977
shares added to weighted shares outstanding for the three and nine months ended
September 30, 1999, respectively, and 5,599 and 16,765 shares added to weighted
shares outstanding for the three and nine months ended September 30, 1998,
respectively).
12. 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.
11
<PAGE>
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").
Information for the apartment communities for the three and nine months ended
September 30, 1999 and 1998 is summarized below (dollars in thousands):
<TABLE>
<CAPTION>
Three Months Ended September 30, Three Months Ended September 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 $ 44,546 $ - $ 44,546 $ 37,395 $ - $ 37,395
Interest and other income 464 464 861 861
----------------------------- ------------- ------------- --------------- -------------
Total income 44,546 464 45,010 37,395 861 38,256
Operating expenses:
Property operating expenses 14,601 - 14,601 13,271 - 13,271
Interest 9,237 9,237 - 8,392 8,392
General and administrative 870 870 - 1,190 1,190
Depreciation - other - 27 27 - 35 35
Loss (income) on equity investments 12 354 366 - 138 138
----------------------------- ------------- ------------- --------------- -------------
Total operating expenses 14,613 10,488 25,101 13,271 9,755 23,026
Dividends to Series B preferred unitholders - (2,276) (2,276) - - -
Depreciation - joint venture 184 - 184 - - -
----------------------------- ------------- ------------- --------------- -------------
Funds from Operations 30,117 (12,300) 17,817 24,124 (8,894) 15,230
Depreciation - apartments (8,797) - (8,797) (7,338) - (7,338)
Depreciation - joint venture (184) - (184) -
Gain on sale of real estate assets - 2,487 2,487 0
Extraordinary items -
Minority interest of unitholders in
Operating Partnership - (1,571) (1,571) - (1,129) (1,129)
-------------- -------------- -------------- -------------- -------------- -------------
Net income $ 21,136 $ (11,384) $ 9,752 $ 16,786 $ (10,023) $ 6,763
================ ============= ============= ============= =============== =============
Capital investments (1) $ 108,333 $ 138 $ 108,471 $ 177,309 $ 294 $ 177,603
================ ============ ============= ============= =============== =============
Assets $ 1,188,976 $ 7,625 $1,196,601 $ 983,784 $ 5,797 $ 989,581
================ ============ ============= ============= =============== =============
</TABLE>
(1) Capital investments includes investments made during the nine months ended
September 30, 1999 for the construction of new communities and the acquisition
of communities, as well as capital expenditures on existing properties.
12
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended September 30, Nine Months Ended September 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 $ 130,284 $ - $ 130,284 $ 104,780 $ - $ 104,780
Interest and other income 2,430 2,430 1,286 1,286
-------------- --------------- ------------- ---------------------------- --------------
Total income 130,284 2,430 132,714 104,780 1,286 106,066
Operating expenses:
Property operating expenses 43,120 - 43,120 37,199 - 37,199
Interest - 29,707 29,707 - 23,351 23,351
General and administrative - 2,912 2,912 - 2,726 2,726
Depreciation - other - 80 80 - 73 73
Loss (income) on equity investments 26 961 987 - 95 95
-------------- --------------- ------------- ---------------------------- --------------
Total operating expenses 43,146 33,660 76,806 37,199 26,245 63,444
Dividends to Series B preferred unitholders - (3,593) (3,593) - - -
Depreciation - joint venture 550 - 550 - - -
-------------- --------------- ------------- ---------------------------- --------------
Funds from Operations 87,688 (34,823) 52,865 67,581 (24,959) 42,622
Depreciation - apartments (25,602) - (25,602) (20,701) - (20,701)
Depreciation - joint venture (550) - (550) -
Gain on sale of real estate assets - 8,793 8,793 - 8,731 8,731
Extraordinary items - (158) (158)
Minority interest of unitholders in
Operating Partnership - (4,843) (4,843) - (4,439) (4,439)
-------------- -------------- -------------- -------------- -------------- --------------
Net income $ 61,536 $ (30,873) $ 30,663 $ 46,880 $ (20,825) $ 26,055
============== =============== ============= ================ ============ ==============
Capital investments (1) $ 108,333 $ 138 $ 108,471 $ 177,309 $ 294 $ 177,603
============== =============== ============= ================ ============ ==============
Assets $ 1,188,976 $ 7,625 $1,196,601 $ 983,784 $ 5,797 $ 989,581
============== =============== ============= ================ ============ ==============
</TABLE>
(1) Capital investments includes investments made during the nine months ended
September 30, 1999 for the construction of new communities and the acquisition
of communities, as well as capital expenditures on existing properties.
13
<PAGE>
13. 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 8.95%
Series B Cumulative Redeemable Perpetual Preferred Stock of the Company ("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 equal to the redeemed holder's capital account (initially $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 distributions in the aggregate amount of approximately
$3.2 million as of September 30, 1999.
On September 3, 1999, the Operating Partnership completed a private placement of
2.2 million of its 8.75% Series C Cumulative Redeemable Perpetual Preferred
Units (the "Series C Preferred Units") to an institutional investor at a price
of $25.00 per unit. The net proceeds of approximately $54 million were used to
repay amounts outstanding under the Company's unsecured credit facility. The
Series C Preferred Units may be exchanged by the holder into shares of 8.75%
Series C Cumulative Redeemable Perpetual Preferred Stock of the Company ("Series
C Preferred Shares") on a one-for-one basis. The holder of the Series C
Preferred Units may exercise its exchange right (a) at any time on or after
September 3, 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 C Preferred
Units for federal income tax purposes, or (d) at any time that such
institutional investor's holdings in the Operating Partnership exceed 18% of the
total profits of or capital interests in the Operating Partnership for a taxable
year. The Operating Partnership may redeem the Series C Preferred Units at any
time on or after September 3, 2004 for cash at a redemption price equal to the
redeemed holder's capital account (initially $25.00 per unit), plus all
accumulated, accrued and unpaid distributions or dividends. The Series C
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 C Preferred
Units are cumulative from the date of original issuance and are payable
quarterly at the rate of 8.75% per annum of the $25.00 original capital
contribution. The holder of the Series C Preferred Units received a distribution
in the aggregate amount of approximately $374,000 on September 30, 1999.
14. 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
an aggregate of $50 million of currently issued and outstanding common stock,
par value $0.01 per share, 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 three and nine month periods ended September 30, 1999, the Company
repurchased 1,197,700 and 1,732,000 shares of Common Stock for an aggregate
purchase price, including commissions, of approximately $24.1 million and $34.6
million, respectively, and at an average price of $20.12 and $19.97 per share,
respectively.
15. SUBSEQUENT EVENTS
On October 5, 1999, the Company sold three apartment communities in Sarasota,
Florida, formerly known as Summit Heron's Run, Summit McIntosh and Summit Perico
(an aggregate of 742 apartment homes). The disposition of these properties
resulted in the recognition of an aggregate gain on sale of $7.6 million. The
aggregate net proceeds of approximately $38.1 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 has repurchased 385,400 shares of Common Stock at an average price
of $19.42, or approximately $7.5 million, during the period from October 1 to
November 4, 1999.
14
<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 Litigation 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 27 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
or the disposition of 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 currrent 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.
15
<PAGE>
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 estimate for carpet for the
three and nine months ended September 30, 1999 was an increase in net income of
$435,000 and $1.2 million, respectively. Comparative property operating
information for the three and nine months ended September 30, 1998 has been
adjusted to reflect the 1999 change in accounting policy. Carpet replacement
expenditures for the three and nine months ended September 30, 1998 for the
entire portfolio of communities were $515,000 and $1.3 million, respectively.
RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999 AND
1998
For the three and nine months ended September 30, 1999, income before gain on
sale of real estate assets, minority interest and extraordinary items increased
$3.2 million and $8.4 million, respectively, to approximately $11.1 million and
$30.3 million, respectively, from the three and nine months ended September 30,
1998.
OPERATING PERFORMANCE OF THE COMPANY'S PORTFOLIO OF COMMUNITIES
The operating performance of the Communities for the three and nine months ended
September 30, 1999 and 1998 is summarized below (dollars in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------------------- ---------------------------------------
1999 1998 % CHANGE 1999 1998 % CHANGE
------------- ------------- --------------- ------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Property revenues:
Fully stabilized communities $23,405 $22,677 3.2% $69,382 $66,429 4.4%
Acquisition communities 9,061 2,886 214.0% 27,077 4,546 495.6%
Stabilized development communities 6,184 5,876 5.2% 18,302 16,118 13.6%
Communities in lease-up 5,787 900 543.0% 13,316 1,554 756.9%
Communities sold 109 5,056 -97.8% 2,207 16,133 -86.3%
------------- ------------- ------------- ------------
Total property revenues 44,546 37,395 19.1% 130,284 104,780 24.3%
------------- ------------- ------------- ------------
Property operating and maintenance expense:
Fully stabilized communities 7,859 8,023 -2.0% 23,327 23,013 1.4%
Acquisition communities 3,256 789 312.7% 9,377 1,215 671.8%
Stabilized development communities 1,882 1,721 9.4% 5,612 4,960 13.1%
Communities in lease-up 1,564 365 328.5% 3,862 662 483.4%
Communities sold 40 1,858 -97.8% 942 6,064 -84.5%
------------- ------------- ------------- ------------
Total property operating and
maintenance expense 14,601 12,756 14.5% 43,120 35,914 20.1%
------------- ------------- ------------- ------------
Property operating income $29,945 $24,639 21.5% $87,164 $68,866 26.6%
============= ============= ============= ============
Apartment homes, end of period 17,685 16,695 5.9% 17,685 16,695 5.9%
============= ============= ============= ============
A summary of the Company's apartment homes for the nine months ended September
30, 1999 and 1998 is as follows:
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Apartment homes at January 1 18,001 14,980
Developments which began rental operations during the period 280 1,067
Sale of apartment homes (596) (444)
Acquisitions - 1,092
------------ ------------
Apartment homes at September 30 17,685 16,695
============ ============
</TABLE>
16
<PAGE>
OPERATING PERFORMANCE OF THE COMPANY'S FULLY STABILIZED COMMUNITIES
The operating performance of the 40 Communities stabilized since January 1, 1997
in each of the three and nine months ended September 30, 1999 and 1998,
respectively, are summarized below (dollars in thousands except average monthly
rental revenue):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------------------- ------------------------------------
1999 1998 % CHANGE 1999 1998 % CHANGE
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Property revenues:
Rental $21,784 $21,416 1.7% $64,948 $62,888 3.3%
Other 1,621 1,261 28.5% 4,434 3,541 25.2%
----------- ----------- ----------- -----------
Total property revenues 23,405 22,677 3.2% 69,382 66,429 4.4%
----------- ----------- ----------- -----------
Property operating and maintenance expense:
Personnel 1,867 1,739 7.4% 5,255 4,942 6.3%
Advertising and promotion 312 341 -8.5% 915 969 -5.6%
Utilities 1,165 1,149 1.4% 3,403 3,350 1.6%
Building repairs and maintenance (1) 1,411 1,441 -2.1% 4,044 3,938 2.7%
Real estate taxes and insurance 2,157 2,368 -8.9% 6,785 6,909 -1.8%
Property supervision 581 559 3.9% 1,727 1,647 4.9%
Other operating expense 366 426 -14.1% 1,198 1,258 -4.8%
----------- ----------- ----------- -----------
Total property operating and
maintenance expense 7,859 8,023 -2.0% 23,327 23,013 1.4%
----------- ----------- ----------- -----------
Property operating income $15,546 $14,654 6.1% $46,055 $43,416 6.1%
=========== =========== =========== ===========
Average physical occupancy 93.9% 94.6% -0.8% 93.9% 93.1% 0.9%
=========== =========== =========== ===========
Average monthly rental revenue $817 $803 1.7% $812 $796 2.0%
=========== =========== =========== ===========
Number of apartment homes 9,676 9,676 0.0% 9,676 9,676 0.0%
=========== =========== =========== ===========
</TABLE>
(1) Effective January 1, 1999, the Company implemented prospectively a
new accounting policy whereby expenditures for carpet replacement
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 nine months ended September 30, 1998 has been
adjusted in the table above to reflect the new policy. Carpet
replacement costs were $364,000 and $393,000 for the three months
ended September 30, 1999 and 1998, respectively, and $973,000 and
$934,000 for the nine months ended September 30, 1999 and 1998,
respectively.
The increase in rental revenue from fully stabilized Communities was
primarily the result of increases in average rental rates. The higher
revenues were primarily generated in the Company's Florida, Atlanta,
Georgia, Washington D.C. metro and Richmond, Virginia markets. Property
operating and maintenance costs decreased by 2.0% for the three months
ended September 30, 1999 as compared to the same period in 1998 primarily
due to favorable property tax assessments in 1999 and increased 1.4% during
the nine months ended September 30, 1999 as compared to the same period 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 35.4% in 1998 to 33.6%
in 1999. For the nine month period, property operating and maintenance
expenses as a percentage of total property revenue decreased from 34.6% in
1998 to 33.6% in 1999.
17
<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 nine months ended September 30, 1999 and 1998 are summarized as
follows (dollars in thousands except average monthly rental revenue):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------ -------------------------
1999 1998 1999 1998
---------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Property revenues:
Rental revenues $8,581 $2,765 $25,795 $4,356
Other property revenue 480 121 1,282 190
---------- ------------ ----------- ------------
Total property revenues 9,061 2,886 27,077 4,546
---------- ------------ ----------- ------------
Property operating and maintenance
expense (1) 3,256 789 9,377 1,215
---------- ------------ ----------- ------------
Property operating income $5,805 $2,097 $17,700 $3,331
========== ============ =========== ============
Average physical occupancy 92.7% 95.8% 92.9% 96.3%
========== ============ =========== ============
Average monthly rental revenue (2) $878 $931 $872 $926
========== ============ =========== ============
Number of apartment homes 3,557 1,092 3,557 1,092
========== ============ =========== ============
</TABLE>
(1) Effective January 1, 1999, the Company implemented prospectively a
new accounting policy whereby expenditures for carpet replacement
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 nine months ended
September 30, 1998 has been adjusted in the table above to reflect
the new policy. Carpet replacement costs were $87,000 and $1,000
for the three months ended September 30, 1999 and 1998,
respectively, and $127,000 and $3,000 for the nine months ended
September 30, 1999 and 1998, respectively.
(2) Average monthly rental revenue for the three and nine months ended
September 30, 1999 for Summit St. Clair, Summit Club at Dunwoody
and Summit Lenox (the only Communities owned as of September 30,
1998) was $973 and $964, respectively, representing a 6.8%
increase from 1998 for the three month period and a 10.6% increase
from 1998 for the nine month period.
Summit at Lenox (432 apartment homes) is currently undergoing a major
renovation. Improvements include renovations to the interior and exterior of
units, construction of a new office, clubhouse and fitness center, and ground
improvements. The renovation will require certain apartment homes to be
unavailable for rental over the course of the project. The renovation work at
Summit at Lenox is expected to be completed by the end of the third quarter
2000.
The unleveraged yield on investment for the acquisition Communities, defined as
property operating income for the three and nine months ended September 30, 1999
on an annualized basis over total acquisition cost, was 8.62% and 8.76%,
respectively.
18
<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 nine months ended September 30, 1999 but were
stabilized subsequent to January 1, 1997. Six of these Communities (Summit
Ballantyne I, Summit Sedgebrook I, Summit on the River, Summit Lake I, Summit
Russett and Summit Fairways) 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 nine
months ended September 30, 1999 and 1998 is summarized below (dollars in
thousands except average monthly rental revenue):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- ---------------------------
1999 1998 1999 1998
---------- ----------- ------------- -------------
<S> <C> <C> <C> <C>
Property revenues:
Rental revenues $5,738 $5,496 $17,093 $15,159
Other property revenue 446 380 1,209 959
---------- ----------- ------------- -------------
Total property revenues 6,184 5,876 18,302 16,118
---------- ----------- ------------- -------------
Property operating and maintenance
expense (1) 1,882 1,721 5,612 4,960
---------- ----------- ------------- -------------
Property operating income $4,302 $4,155 $12,690 $11,158
========== =========== ============= =============
Average physical occupancy 94.3% 94.2% 93.9% 86.6%
========== =========== ============= =============
Average monthly rental revenue $931 $905 $923 $899
========== =========== ============= =============
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 carpet replacement 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 nine months ended September 30, 1998 has been
adjusted in the table above to reflect the new policy. Carpet replacement
costs were $50,000 and $26,000 for the three months ended September 30,
1999 and 1998, respectively, and $112,000 and $41,000 for the nine months
ended September 30, 1999 and 1998, respectively.
The unleveraged yield on investment for the stabilized development Communities,
defined as property operating income for the three and nine months ended
September 30, 1999 on an annualized basis over total development cost, was
10.54% and 10.36%, respectively.
OPERATING PERFORMANCE OF THE COMPANY'S COMMUNITIES IN LEASE-UP
The Company had ten Communities in lease-up during the nine months ended
September 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 nine of the ten Communities in lease-up as of
September 30, 1999 is as follows (dollars in thousands):
<CAPTION>
TOTAL ACTUAL/ % LEASED
NUMBER OF ACTUAL/ ANTICIPATED ACTUAL/ Q3 1999 AS OF
APARTMENT ESTIMATED CONSTRUCTION ANTICIPATED AVERAGE SEPTEMBER 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 92.58% 91.56%
Summit New Albany I - Fairfax, VA 301 24,000 Q4 1998 Q3 1999 94.53% 96.68%
Summit Fair Lakes I - Fairfax, VA 370 32,800 Q1 1999 Q2 1999 97.88% 100.00%
Summit Governor's Village - Chapel Hill, NC 242 16,900 Q1 1999 Q2 1999 94.82% 97.11%
Summit Lake II - Raleigh, NC 144 10,200 Q2 1999 Q3 1999 65.45% 87.50%
Summit Fair Lakes II - Fairfax, VA 160 14,200 Q3 1999 Q1 2000 80.98% 100.00%
Summit Westwood - Raleigh, NC 354 24,800 Q3 1999 Q4 1999 88.87% 99.44%
Summit Sedgebrook II - Charlotte, NC 120 7,500 Q3 1999 Q1 2000 82.62% 91.67%
Summit Doral - Miami, FL (1) 260 22,800 Q4 1999 Q4 1999 71.55% 79.23%
------------ -----------
2,105 $163,400
============ ===========
</TABLE>
(1) The related assets of such properties are included in the Construction in
Progress category at September 30, 1999.
19
<PAGE>
In addition to the Communities listed in the table above, Summit Fairview (135
apartment homes) is an existing property of the Company 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. The
renovation work at Summit Fairview is expected to be completed by the end of the
first quarter of 2000.
All communities listed above were in lease-up during the nine months ended
September 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 nine months ended September 30, 1998. The operating performance of
these Communities for the three and nine months ended September 30, 1999 and
1998 is summarized below (dollars in thousands except average monthly rental
revenue):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- ---------------------------
1999 1998 1999 1998
----------- ---------- ------------ -------------
<S> <C> <C> <C> <C>
Property revenues:
Rental revenues $5,416 $824 $12,485 $1,441
Other property revenue 371 76 831 113
----------- ---------- ------------ -------------
Total property revenues 5,787 900 13,316 1,554
----------- ---------- ------------ -------------
Property operating and maintenance
expense (1) 1,564 365 3,862 662
----------- ---------- ------------ -------------
Property operating income $4,223 $535 $9,454 $892
=========== ========== ============ =============
Average physical occupancy 87.6% 28.1% 70.4% 23.5%
=========== ========== ============ =============
Average monthly rental revenue $891 $869 $824 $890
=========== ========== ============ =============
Number of apartment homes 2,240 1,202 2,240 1,202
=========== ========== ============ =============
</TABLE>
(1) Effective January 1, 1999, the Company implemented prospectively a new
accounting policy whereby expenditures for carpet replacement 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 nine months ended
September 30, 1998 has been adjusted in the table above to reflect the new
policy. Carpet replacement costs were $5,000 and $4,000 for the three months
ended September 30, 1999 and 1998, respectively, and $9,000 and $17,000 for the
nine months ended September 30, 1999 and 1998, respectively.
20
<PAGE>
OPERATING PERFORMANCE OF THE COMPANY'S DISPOSITION COMMUNITIES
Disposition communities consist of the former Summit Hampton, Summit Oak and
Summit Beacon Ridge communities in 1999 (the "1999 Dispositions"). The 1998
dispositions consist of the 1999 Dispositions as well as the following
communities disposed during 1998 (referred to herein using former community
names): Summit Providence, Summit Springs, Summit Old Town, Summit Creek, Summit
Green, Summit Hill, Summit Hollow and Summit Station. The operating performance
of these communities is summarized below (dollars in thousands except average
monthly rental revenue):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- ---------------------------
1999 1998 1999 1998
---------- ----------- ------------- -------------
<S> <C> <C> <C> <C>
Property revenues:
Rental revenues $105 $4,711 $2,116 $15,438
Other property revenue 4 345 91 695
---------- ----------- ------------- -------------
Total property revenues 109 5,056 2,207 16,133
---------- ----------- ------------- -------------
Property operating and maintenance
expense (1) 40 1,858 942 6,064
---------- ----------- ------------- -------------
Property operating income $69 $3,198 $1,265 $10,069
========== =========== ============= =============
Number of apartment homes 596 596 596 596
========== =========== ============= =============
(1) Effective January 1, 1999, the Company implemented prospectively a new
accounting policy whereby expenditures for carpet replacement 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 nine months
ended September 30, 1998 has been adjusted in the table above to reflect the new
policy. Carpet replacement costs were $4,000 and $91,000 three months ended
September 30, 1999 and 1998, respectively. Carpet replacement costs for the nine
months ended September 30, 1999 and 1998 were $60,000 and $289,000,
respectively.
OPERATING PERFORMANCE OF SUMMIT MANAGEMENT COMPANY
The operating performance of Summit Management Company (the "Management
Company") and its wholly-owned subsidiary, Summit Apartment Builders, Inc. (the
"Construction Company"), for the three and nine months ended September 30, 1999
and 1998 is summarized below (dollars in thousands):
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- --------------------
1999 1998 1999 1998
----------- ------ --------- ---------
<S> <C> <C> <C> <C>
Revenue $2,346 $1,609 $6,507 $4,664
Expenses
Operating 2,484 1,539 6,810 4,140
Depreciation 70 61 213 179
Amortization 71 72 220 215
Interest 75 75 225 225
----------- ------ --------- ---------
Total expenses 2,700 1,747 7,468 4,759
----------- ------ --------- ---------
Net (loss) of Summit Management Company ($354) ($138) ($961) ($95)
=========== ====== ========= =========
</TABLE>
The increase in revenue for the three and nine 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 revenues include $313,000 and $276,000 of property
management fees from third parties for the three months ended September 30, 1999
and 1998, respectively, and $966,000 and $934,000 of fees from third parties for
the nine months ended September 30, 1999 and 1998, respectively. Property
management fees from third parties as a percentage of total property management
revenues were 19.4% and 14.6% for the three months ended September 30, 1999 and
1998, respectively, and 20.7% and 18.6% for the nine months ended September 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.
21
<PAGE>
OTHER INCOME AND EXPENSES
Interest income increased by $147,000 and $1.7 million, respectively, to
$380,000 and $2.2 million for the three and nine months ended September 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 rules and regulations.
Interest expense, including amortization of deferred financing costs, increased
by $845,000 and $6.4 million for the three and nine months ended September 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 $139.6 million and
effective interest cost decreased 0.24% (6.79% to 6.55%) for the three months
ended September 30, 1999 as compared to the same period in 1998. Average
indebtedness outstanding increased $155.6 million and effective interest cost
decreased 0.19% (6.74% to 6.55%) for the nine months ended September 30, 1999 as
compared to the same period in 1998.
Depreciation expense increased $1.4 million and $4.9 million, or 19.7% and
23.6%, for the three and nine months ended September 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 decreased $320,000 and increased $186,000,
or 26.9% and 6.8%, for the three and nine months ended September 30, 1999,
respectively, as compared to the similar periods in 1998. The decrease for the
three months ended September 30, 1999 was the result of timing differences
related to compensation and the increase for the nine months ended September 30,
1999 was 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 1.9% and 3.1% for the three months ended September
30, 1999 and 1998, and 2.2% and 2.6% for the nine months ended September 30,
1999 and 1998, respectively.
EXTRAORDINARY ITEMS
The extraordinary items in the nine months ended September 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 based on the weighted average number of Units outstanding.
LIQUIDITY AND CAPITAL RESOURCES
LIQUIDITY
The Company's net cash provided by operating activities decreased from $47.5
million for the nine months ended September 30, 1998 to $39.9 million for the
same period in 1999, primarily due to a $19.6 million increase in property
operating income and a $1.7 million increase in interest income offset by a $7.1
million increase in interest paid and a $6.7 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 rules and 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 nine months ended September 30,
1998 was $157.6 million. Cash used by investing activities was $12.2 million for
the same period in 1999 due to the absence of the purchase of communities during
the nine months ended September 30, 1999, and an increase in proceeds from the
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 rules and regulations. Proceeds from the sale
of Communities in 1999 represent 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.
22
<PAGE>
Net cash provided by financing activities was $111.4 million for the nine months
ended September 30, 1998. Net cash used in financing activities was $27.3
million for the same period in 1999, primarily due to net repayments of $111.5
million on the Company's Unsecured Credit Facility (as hereinafter defined)
funded partially by the use of $136.3 million of proceeds from the sale of
Series B and Series C Preferred Units by the Operating Partnership during the
period. Other uses of cash during the nine months ended September 30, 1999 which
caused an increase in cash used in financing activities as compared to the same
period in 1998 were the payment of higher dividends and distributions to
unitholders, the repurchase of Common Stock for an aggregate purchase price of
approximately $34.6 million and a decrease in equity proceeds from the Company's
dividend reinvestment and stock purchase plans.
The ratio of earnings to fixed charges was 1.85 for the nine months ended
September 30, 1999 as compared to 1.94 for the nine months ended September 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 September 30, 1999 totaled $620.1
million. This amount includes approximately $264.4 million in fixed rate
conventional mortgages, $38.6 million of variable rate tax-exempt bonds, $266.0
million of unsecured notes, $9.1 million of tax-exempt fixed rate loans, and
$42.0 million under the Unsecured Credit Facility (as hereinafter defined).
During the nine months ended September 30, 1999, the Company sold three
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.
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.
23
<PAGE>
MEDIUM-TERM NOTES
On May 29, 1998, the Company 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 issued Medium-Term Notes with an aggregate
principal amount of $80 million ($55 million of which was issued during 1998 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 million. 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 8.95%
Series B Cumulative Redeemable Perpetual Preferred Stock of the Company ("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 equal to the redeemed holder's capital account (initially $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 distributions in the aggregate amount of approximately
$3.2 million as of September 30, 1999.
On September 3, 1999, the Operating Partnership completed a private placement of
2.2 million of its 8.75% Series C Cumulative Redeemable Perpetual Preferred
Units (the "Series C Preferred Units") to an institutional investor at a price
of $25.00 per unit. The net proceeds of approximately $54 million were used to
repay amounts outstanding under the Company's unsecured credit facility. The
Series C Preferred Units may be exchanged by the holder into shares of 8.75%
Series C Cumulative Redeemable Perpetual Preferred Stock of the Company ("Series
C Preferred Shares") on a one-for-one basis. The holder of the Series C
Preferred Units may exercise its exchange right (a) at any time on or after
September 3, 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 C Preferred
Units for federal income tax purposes, or (d) at any time that such
institutional investor's holdings in the Operating Partnership exceed 18% of the
total profits of or capital interests in the Operating Partnership for a taxable
year. The Operating Partnership may redeem the Series C Preferred Units at any
time on or after September 3, 2004 for cash at a redemption price equal to the
redeemed holder's capital account (initially $25.00 per unit), plus all
accumulated, accrued and unpaid distributions or dividends. The Series C
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 C Preferred
Units are cumulative from the date of original issuance and are payable
quarterly at the rate of 8.75% per annum of the $25.00 original capital
contribution. The holder of the Series C Preferred Units received a distribution
in the aggregate amount of approximately $374,000 on September 30, 1999.
24
<PAGE>
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
an aggregate of $50 million of currently issued and outstanding common stock,
par value $0.01 per share, 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 three and nine month periods ended September 30, 1999, the Company
repurchased 1,197,700 and 1,732,000 shares of Common Stock for an aggregate
purchase price, including commissions, of approximately $24.1 and $34.6 million,
respectively, and at an average price of $20.12 and $19.97 per share,
respectively.
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 disposition of Summit Beacon Ridge resulted in the recognition of a
gain on sale of $2.5 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.
On October 5, 1999, the Company sold three apartment communities in Sarasota,
Florida, formally known as Summit Heron's Run, Summit McIntosh and Summit Perico
(an aggregate of 742 apartment homes). The disposition of these properties
resulted in the recognition of an aggregate gain on sale of $7.6 million. The
aggregate net proceeds of approximately $38.1 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.
PROPERTIES BEING MARKETED FOR SALE
At September 30, 1999, the Company had four Communities for sale with a net book
value of approximately $35.8 million (including the three apartment communities
sold on October 5, 1999). The Company does not anticipate incurring a loss on
any individual apartment Community sale. The four Communities held for sale
represented approximately 3.8% of property operating income for the Company for
the nine months ended September 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.
25
<PAGE>
DEVELOPMENT ACTIVITY
The Company's construction in progress at September 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 $22,714 $86 Q4 1999
Summit New Albany II- Columbus, OH (1) 127 9,800 6,120 3,680 Q4 1999
Summit Largo - Largo, MD (1) 219 18,000 14,435 3,565 Q1 2000
Summit Hunter's Creek - Orlando, FL 270 19,200 10,530 8,670 Q1 2000
Summit Deer Creek - Atlanta, GA 292 22,200 10,868 11,332 Q2 2000
Summit Russett II- Laurel, MD 112 9,900 3,970 5,930 Q2 2000
Summit Ashburn Farm- Loudon County, VA 162 14,600 5,261 9,339 Q3 2000
Summit Grandview - Charlotte, NC 266 45,500 13,787 31,713 Q4 2000
Reunion Park by Summit- Raleigh , NC 248 14,300 4,715 9,585 Q1 2001
Summit Deerfield-Cincinnati, OH 498 41,500 8,059 33,441 Q3 2001
Summit Crest-Raleigh, NC 438 30,700 3,646 27,054 Q3 2001
------------- ----------- ------------ ------------
2,892 248,500 104,105 144,395
Other development and construction costs (2) - - 33,479 -
------------- ----------- ------------ ------------
2,892 $248,500 $ 137,584 $ 144,395
============= =========== ============ ============
</TABLE>
(1) These communities were in lease-up at September 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.
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.
26
<PAGE>
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.
27
<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 September 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 complaint. 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 has been accomplished through a series of minor hardware
upgrades and software patches. The Company had completed substantially all of
these upgrades as of October 31, 1999 and expects that the remaining upgrades
will be completed by December 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. Testing of core and
non-core standard computer information systems and embedded technology will
continue through forth quarter to validate remediation and implementation of
Year 2000 compliance.
28
<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
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
Though the probability of Year 2000 issues affecting property computer systems
is considered to be remote, the company is implementing contingency plans for
the manual management of certain property operations including resident rent
collections, security deposits, lease renewals, apartment access and community
access systems. Because the Company has not yet identified any specific business
function that will be materially at risk of significant Year-2000 related
disruptions, the Company has not yet developed additional detailed contingency
plans specific to Year 2000 problems. The Company will develop one or more
contingency plans in the event that the Company identifies 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 and 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.
29
<PAGE>
Funds from Operations and Funds Available for Distribution for the three and
nine months ended September 30, 1999 and 1998 are calculated as follows (dollars
in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------- ---------------------------
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net income $ 9,752 $ 6,763 $ 30,663 $ 26,055
Extraordinary items, net of minority interest - 158
Gain on sale of real estate assets (2,487) - (8,793) (8,731)
Minority interest of unitholders
in Operating Partnership 1,571 1,129 4,843 4,439
------------- ------------- ------------- -------------
Adjusted net income 8,836 7,892 26,713 21,921
Depreciation:
Real estate assets 8,797 7,338 25,602 20,701
Real estate joint venture 184 - 550 -
------------- ------------- ------------- -------------
Funds from Operations 17,817 15,230 52,865 42,622
Recurring capital expenditures (1) (1,899) (611) (5,083) (3,372)
------------- ------------- ------------- -------------
Funds Available for Distribution $ 15,918 $ 14,619 $ 47,782 $ 39,250
============= ============= ============= =============
Non-recurring capital expenditures (1) (2) $ 1,630 $ 1,792 $ 3,916 $ 3,279
============= ============= ============= =============
Cash Flow Provided By (Used In):
Operating Activities $ 12,188 $ 17,367 $ 39,948 $ 47,451
Investing Activities (17,312) (62,499) (12,225) (157,607)
Financing Activities 4,987 47,568 (27,311) 111,416
Weighted average shares and units outstanding -diluted 31,986,522 29,468,032 32,530,885 28,825,095
============= ============= ============= =============
</TABLE>
(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 nine months ended September 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 nine months ended September 30, 1999 would have been $1.4 million
and $3.8 million, respectively.
(2) Non-recurring capital expenditures for the nine months ended September 30,
1999 and 1998 primarily consisted of major renovations in the amount of
$2.3 million in 1999 and $442,000 in 1998; $526,000 and $421,000 for access
gates and security fences in 1999 and 1998 respectively; $10,000 and
$765,000 for water meters in 1999 and 1998, respectively; $1.0 million and
$414,000 in other revenue enhancement expenditures in 1999 and 1998,
respectively; and $191,000 for improvements at Summit Norcroft I completed
in conjunction with the development of Summit Norcroft II in 1998.
30
<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
except as set forth below.
While the Company has historically had limited involvement with derivative
financial instruments, the Company may utilize such instruments in certain
situations to hedge interest rate exposure by modifying the interest rate
characteristics of related balance sheet instruments and prospective financing
transactions. The Company does not utilize derivative financial instruments for
trading purposes. On September 16, 1999, the Company entered into an interest
rate swap agreement with a notional amount of $30 million, relating to $30
million of notes issued by the Operating Partnership under the MTN Program which
carry a fixed interest rate of 6.625% per annum (the "Fixed Rate"). Under the
interest rate swap agreement, through the maturity date of such notes of
December 15, 2003, (i) the Company has agreed to pay to the counterparty the
interest that would have been incurred on the $30 million principal amount of
the notes at a floating interest rate of LIBOR plus 11 basis points (the
"Floating Rate"), and (ii) the counterparty has agreed to pay to the Company the
interest incurred on the same principal amount at the Fixed Rate. The Floating
Rate at September 30, 1999 was 5.62%. Under the interest rate swap agreement, an
increase in LIBOR will increase the amount of interest that the Company will be
required to pay, and a decrease in LIBOR will decrease the amount of interest
that the Company will be required to pay. A 1% increase in LIBOR would increase
interest expense of the Company by $300,000 per annum under the terms of the
interest rate swap agreement.
31
<PAGE>
PART II
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 Articles Supplementary to the Articles of Amendment and Restatement of
Summit Properties Inc. designating 8.75% Series C Cumulative Redeemable
Perpetual Preferred Stock, dated September 3, 1999 (incorporated herein
by reference to Exhibit 99.1 to Summit Properties Partnership,
L.P.'s Current Report on Form 8-K filed on September 17, 1999, File No.
000-22411).
10.1 Amendment, dated as of September 3, 1999, to Agreement of Limited
Partnership of Summit Properties Partnership, L.P., designating 8.75%
Series C Cumulative Redeemable Perpetual Preferred Units (incorporated
herein by reference to Exhibit 3.1 to Summit Properties Partnership,
L.P.'s Current Report on Form 8-K filed on September 17, 1999, File No.
000-22411).
*12.1 Statement Regarding Calculation of Ratio of Earnings to Fixed Charges
for the Nine Months ended September 30, 1999 (filed herewith).
*27.1 Financial Data Schedule--Nine Months ended September 30, 1999 (for SEC
use only).
* Filed herewith
(b) Reports on Form 8-K
A Form 8-K was filed with the Securities and Exchange Commission on
September 17, 1999 in connection with Summit Properties Partnership,
L.P.'s private placement of 2,200,000 8.75% Series C Cumulative
Redeemable Perpetual Preferred Units on September 3, 1999.
32
<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.
November 12, 1999 /s/ William F. Paulsen
- ------------------------------ ---------------------------------------
(Date) William F. Paulsen,
PRESIDENT AND CHIEF EXECUTIVE OFFICER
November 12, 1999 /s/ Michael L. Schwarz
- ------------------------------ ---------------------------------------
(Date) Michael L. Schwarz,
EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
33
<PAGE>
EXHIBIT INDEX
(a) Exhibits
3.1 Articles Supplementary to the Articles of Amendment and Restatement of
Summit Properties Inc. designating 8.75% Series C Cumulative Redeemable
Perpetual Preferred Stock, dated September 3, 1999 (incorporated herein
by reference to Exhibit 99.1 to Summit Properties Partnership,
L.P.'s Current Report on Form 8-K filed on September 17, 1999, File No.
000-22411).
10.1 Amendment, dated as of September 3, 1999, to Agreement of Limited
Partnership of Summit Properties Partnership, L.P., designating 8.75%
Series C Cumulative Redeemable Perpetual Preferred Units (incorporated
herein by reference to Exhibit 3.1 to Summit Properties Partnership,
L.P.'s Current Report on Form 8-K filed on September 17, 1999, File No.
000-22411).
*12.1 Statement Regarding Calculation of Ratio of Earnings to Fixed Charges
for the Nine Months ended September 30, 1999 (filed herewith).
*27.1 Financial Data Schedule--Nine Months ended September 30, 1999 (for SEC
use only).
* Filed herewith
34
EXHIBIT 12.1
<TABLE>
<CAPTION>
SUMMIT PROPERTIES INC.
CALCULATION OF RATIO OF EARNINGS TO FIXED CHARGES NINE MONTHS ENDED SEPTEMBER 30, 1999
(Dollars In thousands)
<S> <C>
Funds from operations before fixed charges:
Income (loss) before minority interest of unitholders in Operating Partnership $35,506
Interest:
Expense incurred 28,963
Amortization of deferred financing costs 744
-----
Total $65,213
=======
Fixed charges:
Interest expense $28,963
Interest capitalized 5,383
Rental fixed charges 120
Amortization of deferred financing costs 744
---
Total $35,210
=======
Ratio of earnings to fixed charges 1.85
=====
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000915773
<NAME> SUMMIT PROPERTIES INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 3,249
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 1,295,848
<DEPRECIATION> 132,770
<TOTAL-ASSETS> 1,196,601
<CURRENT-LIABILITIES> 0
<BONDS> 620,149
0
0
<COMMON> 270
<OTHER-SE> 525,262
<TOTAL-LIABILITY-AND-EQUITY> 1,196,601
<SALES> 130,284
<TOTAL-REVENUES> 132,714
<CGS> 0
<TOTAL-COSTS> 44,107
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 29,707
<INCOME-PRETAX> 35,506
<INCOME-TAX> 0
<INCOME-CONTINUING> 35,506
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 30,663
<EPS-BASIC> 1.09
<EPS-DILUTED> 1.09
</TABLE>
