<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
<TABLE>
<S> <C> <C>
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
</TABLE>
Commission file number 1-12792
SUMMIT PROPERTIES INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
MARYLAND 56-1857807
(State or other jurisdiction of (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)
</TABLE>
(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.
26,226,708 shares outstanding as of August 7, 2000
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<PAGE> 2
SUMMIT PROPERTIES INC.
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Consolidated Balance Sheets as of June 30, 2000 and December
31, 1999 (Unaudited)...................................... 3
Consolidated Statements of Earnings for the three and six
months ended June 30, 2000 and 1999 (Unaudited)........... 4
Consolidated Statement of Stockholders' Equity for the six
months ended June 30, 2000 (Unaudited).................... 5
Consolidated Statements of Cash Flows for the six months
ended June 30, 2000 and 1999 (Unaudited).................. 6
Notes to Consolidated Financial Statements (Unaudited)...... 7
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 14
Item 3 Quantitative and Qualitative Disclosure about Market Risk... 25
PART II OTHER INFORMATION
Item 4 Submission of Matters to a Vote of Security Holders......... 26
Item 6 Exhibits and Reports on Form 8-K............................ 27
Signatures.................................................. 28
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SUMMIT PROPERTIES INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
---------- ------------
<S> <C> <C>
ASSETS
Real estate assets:
Land and land improvements................................ $ 182,471 $ 174,615
Buildings and improvements................................ 939,410 893,179
Furniture, fixtures and equipment......................... 72,585 68,437
---------- ----------
1,194,466 1,136,231
Less: accumulated depreciation............................ (144,570) (129,620)
---------- ----------
Operating real estate assets...................... 1,049,896 1,006,611
Construction in progress.................................. 151,130 148,587
---------- ----------
Net real estate assets............................ 1,201,026 1,155,198
Cash and cash equivalents................................... 2,951 4,130
Restricted cash............................................. 17,705 40,080
Investments in Summit Management Company, real estate joint
ventures and other investments............................ 1,145 583
Deferred financing costs, net............................... 6,708 6,657
Mortgages receivable........................................ 8,652 3,268
Other assets................................................ 7,535 7,497
---------- ----------
Total assets................................................ $1,245,722 $1,217,413
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Notes payable............................................. $ 691,375 $ 649,632
Accounts payable and accrued expenses..................... 27,653 25,626
Dividends and distributions payable....................... 13,338 12,984
Accrued interest payable.................................. 7,088 7,018
Security deposits and prepaid rents....................... 3,900 3,850
---------- ----------
Total liabilities................................. 743,354 699,110
---------- ----------
Minority interest of common unitholders in Operating
Partnership............................................... 51,301 54,698
Minority interest of preferred unitholders in Operating
Partnership............................................... 136,269 136,270
Stockholders' equity:
Preferred stock, $.01 par value -- 25,000,000 shares
authorized, no shares issued and outstanding.......... -- --
Common stock, $.01 par value -- 100,000,000 shares
authorized, 26,215,188 and 26,374,446 shares issued
and outstanding in 2000 and 1999, respectively........ 262 264
Additional paid-in capital............................. 410,125 412,874
Accumulated deficit.................................... (82,158) (80,555)
Employee notes receivable.............................. (12,196) (4,861)
Unamortized restricted stock compensation.............. (1,235) (387)
---------- ----------
Total stockholders' equity........................ 314,798 327,335
---------- ----------
Total liabilities and stockholders' equity.................. $1,245,722 $1,217,413
========== ==========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE> 4
SUMMIT PROPERTIES INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------- -------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Rental................................. $ 42,362 $ 41,001 $ 83,604 $ 80,814
Other property income.................. 3,236 2,683 6,113 4,926
Interest............................... 664 799 1,738 1,833
Other income........................... 166 74 314 133
----------- ----------- ----------- -----------
Total revenues............... 46,428 44,557 91,769 87,706
----------- ----------- ----------- -----------
Expenses:
Property operating and maintenance:
Personnel......................... 3,263 3,359 6,119 6,433
Advertising and promotion......... 641 644 1,248 1,250
Utilities......................... 2,025 2,061 4,136 4,127
Building repairs and
maintenance..................... 2,161 2,157 4,112 4,122
Real estate taxes and insurance... 4,562 4,553 9,303 9,031
Depreciation...................... 9,384 8,604 18,284 16,857
Property supervision.............. 1,156 1,057 2,458 2,045
Other operating expenses.......... 686 690 1,361 1,509
----------- ----------- ----------- -----------
23,878 23,125 47,021 45,374
Interest............................... 9,491 9,721 18,455 19,975
Amortization of financing costs........ 227 252 475 495
General and administrative............. 1,022 962 1,962 2,042
Loss on equity investments:
Summit Management Company......... 240 292 562 609
Real estate joint ventures........ 195 5 149 13
----------- ----------- ----------- -----------
Total expenses............... 35,053 34,357 68,624 68,508
----------- ----------- ----------- -----------
Income before gain on sale of real estate
assets, minority interest of common
unitholders in Operating Partnership and
distributions to preferred unitholders in
Operating Partnership..................... 11,375 10,200 23,145 19,198
Gain on sale of real estate assets.......... 5,446 6,307 7,886 6,307
----------- ----------- ----------- -----------
Income before minority interest of common
unitholders in Operating Partnership and
distributions to preferred unitholders in
Operating Partnership..................... 16,821 16,507 31,031 25,505
Minority interest of common unitholders in
Operating Partnership..................... (1,924) (2,051) (3,492) (3,269)
Distributions to preferred unitholders in
Operating Partnership..................... (3,105) (1,317) (6,210) (1,317)
----------- ----------- ----------- -----------
Net income.................................. $ 11,792 $ 13,139 $ 21,329 $ 20,919
=========== =========== =========== ===========
Per share data:
Net income -- basic and diluted........ $ 0.45 $ 0.46 $ 0.81 $ 0.74
=========== =========== =========== ===========
Dividends declared on common stock..... $ 0.44 $ 0.42 $ 0.88 $ 0.84
=========== =========== =========== ===========
Weighted average shares -- basic....... 26,224,085 28,383,624 26,334,794 28,355,409
=========== =========== =========== ===========
Weighted average shares -- diluted..... 26,389,051 28,419,403 26,453,637 28,376,392
=========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
4
<PAGE> 5
SUMMIT PROPERTIES INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
UNAMORTIZED
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, 1999...... $264 $412,874 $(80,555) $ (387) $ (4,861) $327,335
Dividends..................... (22,932) (22,932)
Proceeds from dividend
reinvestment and stock
purchase plans............. 1 1,942 1,943
Repurchase of common stock.... (4) (6,943) (6,947)
Conversion of units to
shares..................... 676 676
Exercise of stock options..... 304 304
Issuance of restricted stock
grants..................... 1 1,328 (1,329) --
Net down of restricted stock
grants..................... (107) (107)
Amortization of restricted
stock grants............... 481 481
Adjustment for minority
interest of common
unitholders in Operating
Partnership................ 623 623
Issuance of employee notes
receivable................. (8,438) (8,438)
Repayment of notes receivable
through stock redemption... (572) 572 --
Repayment of employee notes
receivable................. 531 531
Net income.................... 21,329 21,329
---- -------- -------- ------- -------- --------
Balance, June 30, 2000.......... $262 $410,125 $(82,158) $(1,235) $(12,196) $314,798
==== ======== ======== ======= ======== ========
</TABLE>
See notes to consolidated financial statements.
5
<PAGE> 6
SUMMIT PROPERTIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-------------------
2000 1999
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income............................................. $ 21,329 $ 20,919
Adjustments to reconcile net income to net cash
provided by operating activities:
Minority interest of common unitholders in Operating
Partnership......................................... 3,492 3,269
Loss on equity investments........................... 711 622
Gain on sale of real estate assets................... (7,886) (6,307)
Depreciation and amortization........................ 19,198 17,245
Increase in restricted cash.......................... (1,872) (3,220)
Increase in other assets............................. (861)
Increase in accrued interest payable................. 70 70
Decrease in accounts payable and accrued expenses.... (871) (5,896)
Increase in security deposits and prepaid rents...... 70 145
-------- --------
Net cash provided by operating activities......... 33,380 26,443
-------- --------
Cash flows from investing activities:
Increase in mortgages receivable....................... (5,384) --
Construction of real estate assets and land
acquisitions, net of payables......................... (67,363) (65,063)
Proceeds from sale of Communities...................... 46,349 79,103
Capitalized interest................................... (4,643) (3,476)
Recurring capital expenditures......................... (2,515) (3,191)
Non-recurring capital expenditures, net of payables.... (1,338) (2,286)
-------- --------
Net cash (used in) provided by investing
activities....................................... (34,894) 5,087
-------- --------
Cash flows from financing activities:
Net repayments on line of credit....................... (9) (98,508)
Net (repayments) borrowings on unsecured bonds......... (166) 24,748
Proceeds from issuance of mortgage debt................ 47,924 --
Repayments of mortgage debt............................ (5,893) (2,539)
Repayments of tax exempt bonds......................... (745) (540)
Net proceeds from dividend reinvestment and stock
purchase plans........................................ 1,943 11,633
Dividends and distributions to unitholders............. (26,408) (26,656)
Exercise of stock options.............................. 304 79
Decrease in advance proceeds from direct stock purchase
plan.................................................. -- (9,474)
Net proceeds from preferred units in Operating
Partnership........................................... -- 82,870
Repurchase of common stock............................. (6,947) (10,501)
Acquisition of minority interest....................... (1,761) --
Repayments of employee notes receivable................ 531 --
Increase in employee notes receivable.................. (8,438) (2,093)
-------- --------
Net cash provided by (used in) financing
activities....................................... 335 (30,981)
-------- --------
Net (decrease) increase in cash and cash equivalents........ (1,179) 549
Cash and cash equivalents, beginning of period.............. 4,130 2,837
-------- --------
Cash and cash equivalents, end of period.................... $ 2,951 $ 3,386
======== ========
Supplemental disclosure of cash flow information --
Cash paid for interest, net of capitalized interest....... $ 18,385 $ 19,905
======== ========
</TABLE>
See notes to consolidated financial statements.
6
<PAGE> 7
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 three and six
months ended June 30, 2000 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, 1999 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 -- Comprehensive income is the same as net income for all
periods presented.
DERIVATIVE INSTRUMENT AND HEDGING ACTIVITIES -- On January 1, 2001, the Company
is required to adopt Statement of Financial Accounting Standard No. 133,
"Accounting for Derivative Instruments and Hedging Activities" (SFAS 133). This
statement establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for other hedging activities. It requires that an entity
recognize all derivatives as either assets or liabilities in the statement of
financial position and measure these instruments at fair value. The Company is
currently assessing the impact, if any, that the adoption of SFAS 133 will have
on the Company's financial statements.
RECLASSIFICATIONS -- Certain reclassifications have been made to the 1999
financial statements to conform to the 2000 presentation.
BUSINESS SEGMENTS -- The Company reports as a single business segment with
activities related to the operation, development and acquisition of "Class A"
luxury apartments located primarily in the southeastern, southwestern and
mid-atlantic United States. The Company develops apartments solely for its own
use and does not perform development activities for third parties.
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.
The Company owns a 49% interest in each of three joint ventures ("Joint Venture
Projects"), each of which is developing an apartment community. The Company's
joint venture partner is the same for all three Joint Venture Projects. One of
the Joint Venture Projects is under construction and two are complete and became
stabilized during the second quarter 2000. The Joint Venture Projects are
accounted for under the equity method of accounting and, therefore, the
operating results of the two Joint Venture Communities which became stabilized
are presented in "Loss on equity investments: Real estate joint ventures" in the
Company's consolidated statements of earnings. The construction costs have been
funded 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
7
<PAGE> 8
SUMMIT PROPERTIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
--------------------------------------------------------------------------------
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 in each of the joint ventures for a period of
six months after the applicable project becomes stabilized. If the Operating
Partnership does not exercise its option with respect to a Joint Venture
Project, it will be required to make a capital contribution of 25% of that
project's total construction loan amount, as such capital contribution may have
been previously reduced as described above. On August 1, 2000, the Company
exercised its option to purchase two stabilized Joint Venture Projects, Summit
Shiloh (182 apartment homes) and Summit Sweetwater (308 apartment homes) at an
aggregate purchase price of $36 million. The acquisition was primarily financed
with the issuance of 96,455 common units of limited partnership interest
("Common Units")and the payment of $ 33.7 million in cash.
The following is a condensed balance sheet and income statement for Station Hill
as of and for the six months ended June 30, 2000 (in thousands). The balance
sheet and income statement set forth below reflect the financial position and
operations of Station Hill in its entirety, not only the Company's respective
interest therein. The balance sheet and income statement information for the
Construction Projects is not material.
<TABLE>
<CAPTION>
BALANCE SHEET
------------------
JUNE 30,
------------------
2000 1999
------- -------
<S> <C> <C>
Net real estate assets...................................... $88,049 $90,320
Cash and cash equivalents................................... 2,051 1,906
Other assets................................................ 445 462
------- -------
Total assets...................................... $90,545 $92,688
======= =======
Mortgages payable........................................... $69,066 $69,842
Other liabilities........................................... 1,247 1,281
Partners' capital........................................... 20,232 21,565
------- -------
Total liabilities and partners' capital........... $90,545 $92,688
======= =======
</TABLE>
<TABLE>
<CAPTION>
INCOME STATEMENT
------------------
SIX MONTHS ENDED
JUNE 30,
------------------
2000 1999
------- -------
<S> <C> <C>
Revenues.................................................... $ 6,110 $ 5,863
Expenses:
Property operating..................................... 2,174 2,064
Interest............................................... 2,340 2,345
Depreciation and amortization.......................... 1,480 1,488
------- -------
Total expenses.................................... 5,994 5,897
------- -------
Net income (loss)........................................... $ 116 $ (34)
======= =======
</TABLE>
3. COMMUNITY DISPOSITIONS
On March 28, 2000, the Company sold an apartment community located in Hickory,
North Carolina, formerly known as Summit Creekside (118 apartment homes) for
$5.8 million. The disposition of Summit Creekside resulted in the recognition of
a gain on sale of $2.0 million. The net proceeds of $5.8 million were placed
into
8
<PAGE> 9
SUMMIT PROPERTIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
--------------------------------------------------------------------------------
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 May 24, 2000, the Company sold two apartment communities, formerly known as
Summit Eastchester (172 apartment homes) located in High Point, North Carolina,
and Summit Sherwood (190 apartment homes) located in Winston-Salem, North
Carolina, for $16.1 million in the aggregate. The disposition of these two
communities resulted in the recognition of a gain on sale of $5.7 million in the
aggregate. The aggregate net proceeds of $15.9 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. MORTGAGES RECEIVABLE
Mortgages receivable consist of three promissory notes with interest rates
ranging from 7.5% to 9.15% and various maturity dates ranging through December
2005.
5. 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"). The
Operating Partnership issued Medium-Term Notes with an aggregate principal
amount of $80 million in connection with the MTN Program as follows: (i) on July
28, 1998, the Company sold $30 million of notes which are due on July 30, 2001
and bear interest at 6.75% per year; (ii) on October 5, 1998, the Operating
Partnership sold $25 million of notes which are due on October 5, 2000 and bear
interest at 6.71% per year; and (iii) on March 18, 1999, the Operating
Partnership sold $25 million of notes which are due on March 16, 2009 and bear
interest at 7.59% per year.
On April 20, 2000, the Company commenced a new program for the sale by the
Operating Partnership of up to $250 million aggregate principal amount of
Medium-Term Notes due nine months or more from the date of issuance. The new
program was established under the Company's and the Operating Partnership's
existing shelf registration statement. The Medium-Term Notes may be issued by
the Operating Partnership from time to time in the future subject to market
conditions and other factors. On July 19, 2000, the Operating Partnership issued
Medium-Term Notes with an aggregate principal amount of $10 million which are
due on July 19, 2010 and bear interest at 8.50% per year.
6. 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 unsecured notes issued by the Operating Partnership 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 June 30, 2000
was 6.92%.
7. RESTRICTED STOCK
During the six months ended June 30, 2000 and 1999, the Company granted 72,805
and 21,581 shares, respectively, of restricted stock to employees under the
Company's 1994 Stock Option and Incentive Plan. The
9
<PAGE> 10
SUMMIT PROPERTIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
--------------------------------------------------------------------------------
market value of the restricted stock grants awarded during these six months in
2000 and 1999 totaled approximately $1.3 million and $364,000, 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 compensation cost
over the vesting periods which range from three to five years.
In January 1998, the Company agreed to award key employees of the Company
certain amounts of Common Stock under the Company's Performance Stock Award
Plan. The amount of Common Stock to be granted to the key employees is based
upon the Company's average annual return (share appreciation and distributions)
from the date of the award to the third anniversary of the award. The number of
shares to be granted under the Performance Stock Award Plan ranges from none (in
the event the Company achieves less than a 11% average annual return) to 47,350
(in the event the Company achieves a 15% or greater annual return). The starting
Common Stock price for the purposes of calculating appreciation was $21.375,
fair market value at date of award ($19.87 for one executive officer of the
Company). The Company's stock price subsequent to June 30, 2000 is above the
minimum price for calculating the number of grants. The Company has recorded
$143,000 in accrued compensation expense related to this Performance Stock Award
Plan as of June 30, 2000.
8. SUPPLEMENTAL CASH FLOW INFORMATION
Non-cash investing and financing activities for the six months ended June 30,
2000 and 1999 are as follows:
A. The Company accrued dividends and distributions payable in the amounts
of $13.3 million and $13.6 million at June 30, 2000 and 1999,
respectively.
B. The Company issued 72,805 and 21,581 shares of restricted stock valued
at approximately $1.3 million and $364,000 during the six months ended
June 30, 2000 and 1999, respectively.
C. The Company issued 35,045 shares of Common Stock (as hereinafter
defined) in exchange for 35,045 Common Units (as hereinafter defined)
during the six months ended June 30, 2000. The value of these shares of
Common Stock was approximately $676,000.
D. The Company sold three communities and two communities during the six
months ended June 30, 2000 and 1999, respectively, receiving aggregate
net proceeds of $21.7 million and $5.9 million, respectively. The net
proceeds were placed in escrow with a qualified intermediary in
accordance with like-kind exchange income tax rules and regulations.
Such proceeds are shown on the balance sheet as "Restricted cash" and
will be used to fund the future development of communities. The
respective purchasers of the two communities sold in 1999 assumed the
related outstanding debt balances associated with such communities of
$14.8 million in the aggregate.
9. MINORITY INTEREST
Minority interest of common unitholders consists of the following at June 30,
2000 and December 31, 1999 (in thousands):
<TABLE>
<CAPTION>
2000 1999
------- -------
<S> <C> <C>
Minority interest of common unitholders in Operating
Partnership............................................... $51,728 $55,065
Minority interest of one operating community................ (427) (367)
------- -------
$51,301 $54,698
======= =======
</TABLE>
As of June 30, 2000, there were 30,522,940 common units of limited partnership
interest ("Common Units") of the Operating Partnership outstanding, of which
26,215,188, or 85.9%, were owned by the Company and 4,307,752, or 14.1%, were
owned by other partners (including certain officers and directors of the
Company).
10
<PAGE> 11
SUMMIT PROPERTIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
--------------------------------------------------------------------------------
Proceeds from shares of common stock, par value $.01 per share ("Common Stock"),
issued by the Company are contributed to the Operating Partnership for an
equivalent number of Common Units. Total Common Stock issued by the Company and
the proceeds therefrom contributed to the Operating Partnership for an
equivalent number of Common Units was 129,000 and 748,000 shares valued at $2.2
million ($17.44 per share average) and $12.9 million ($17.20 per share average)
for the six months ended June 30, 2000 and 1999, 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 85.6% as of June 30, 2000 and December 31, 1999,
respectively.
Under certain circumstances, as required by the holders of Common Units, the
Company can issue shares of Common Stock in exchange for Common Units owned by
other partners on a one-for-one basis or may purchase Common Units for cash.
Shares of Common Stock exchanged for Common Units are valued based upon the
market price per share of the Company's Common Stock at the date of the
exchange. During the six month period ended June 30, 2000, 35,045 Common Units
valued at approximately $676,000 were exchanged for shares of Common Stock and
93,945 Common Units were exchanged for cash of approximately $1.8 million. No
Common Units were exchanged for Common Stock or cash during the six month period
ended June 30, 1999.
10. COMMITMENTS
The estimated cost to complete nine development projects currently under
construction was approximately $113.4 million at June 30, 2000. Anticipated
construction completion dates of the projects range from the third quarter of
2000 to the first quarter of 2002.
On January 19, 2000, the Operating Partnership entered into a Real Estate
Purchase Agreement (the "Agreement") with a third-party real estate developer
(the "Developer"). Under the terms of the Agreement, the Operating Partnership
has agreed to purchase upon completion a "Class A" mixed-use community, which
will be called Summit Brickell, and will be located in Miami, Florida. The
Operating Partnership expects to close on the purchase of Summit Brickell during
the second half of 2002 following its completion and lease-up. The final
purchase price will be determined based on actual construction plus a bonus to
the developer based on the capitalized income of the property at the time of
purchase. The purchase price is expected to be approximately $50.5 million. The
purchase of Summit Brickell by the Operating Partnership is subject to customary
closing conditions. The Operating Partnership has issued a letter of credit
("LOC") in the amount of approximately $13.0 million, which will serve as a
credit enhancement to the Developer's construction loan. In the event that any
amount under the LOC is drawn upon, the Operating Partnership shall be treated
as having issued a loan to the Developer in the amount of such draw. Any such
loan will accrue interest at a rate of eighteen percent (18%) per annum.
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 (164,966 and 118,843
shares added to weighted shares outstanding for the three and six months ended
June 30, 2000, respectively, and 35,779 and 20,983 shares added to weighted
shares outstanding for the three and six months ended June 30, 1999,
respectively).
12. PRIVATE PLACEMENT OF PREFERRED UNITS
On April 29, 1999, the Operating Partnership completed a private placement of
3.4 million of its 8.95% Series B Cumulative Redeemable Perpetual Preferred
Units (the "Series B Preferred Units") to two institutional investors at a price
of $25.00 per unit. The net proceeds of approximately $83 million were used to
repay amounts outstanding under the Company's unsecured credit facility. The
Series B Preferred Units may be exchanged by the holders into shares of 8.95%
Series B Cumulative Redeemable Perpetual Preferred Stock of the Company
11
<PAGE> 12
SUMMIT PROPERTIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
--------------------------------------------------------------------------------
("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 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. The Operating Partnership
made distributions to the holders of the Series B Preferred Units in the
aggregate amount of approximately $5.1 million during 1999 and in the aggregate
amount of approximately $3.8 million during the six months ended June 30, 2000.
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, (c) upon the occurrence of 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
Operating Partnership made distributions to the holder of the Series C Preferred
Units in the aggregate amount of approximately $1.5 million during 1999 and in
the aggregate amount of approximately $2.4 million during the six months ended
June 30, 2000.
13. COMMON STOCK REPURCHASE PROGRAM
On May 11, 1999, the Board of Directors of the Company authorized a common stock
repurchase program pursuant to which the Company was authorized to purchase up
to an aggregate of $50 million of currently issued and outstanding Common Stock
of the Company (the "$50 Million Program"). All repurchases have been made on
the open market at prevailing prices or in privately negotiated transactions.
During the three month period ended March 31, 2000, the Company completed the
$50 Million Program by repurchasing 131,900 shares of Common Stock for an
aggregate purchase price, including commissions, of approximately $2.5 million,
or an average price of $18.88 per share. The Company repurchased a total of 2.5
million shares of Common Stock under the $50 Million Program for an aggregate
purchase price, including commissions, of approximately $50 million, or an
average price of $19.63 per share.
12
<PAGE> 13
SUMMIT PROPERTIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
--------------------------------------------------------------------------------
On March 12, 2000, the Board of Directors of the Company authorized a new common
stock repurchase program pursuant to which the Company is authorized to purchase
up to an aggregate of $25 million of currently issued and outstanding Common
Stock of the Company (the "$25 Million Program"). All repurchases have and will
be made on the open market at prevailing prices or in privately negotiated
transactions. This authority may be exercised from time to time and in such
amounts as market conditions warrant. During the six months ended June 30, 2000,
the Company repurchased 229,400 shares of Common Stock under the $25 Million
Program for an aggregate purchase price, including commissions, of approximately
$4.5 million, or an average price of $19.43 per share.
13
<PAGE> 14
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, and Section 21E of the
Securities Exchange Act of 1934, as amended, including, without limitation,
statements relating to the operating performance of fully stabilized
Communities, the development, acquisition or disposition of properties,
anticipated construction completion and lease-up dates, and estimated
development costs. You can identify forward-looking statements by the use of the
words "believe," "expect," "anticipate," "intend," "estimate," "assume" and
other similar expressions which predict or indicate future events and trends and
which do not relate to historical matters. You should not rely on
forward-looking statements, because they involve known and unknown risks,
uncertainties and other factors, some of which are beyond the control of the
Company. These risks, uncertainties and other factors may cause the actual
results, performance or achievements of the Company to be materially different
from the anticipated future results, performance or achievements expressed or
implied by 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: 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, uncertainties associated with the Company's
development activities, the failure to close planned acquisitions in a timely
manner or at all, the failure of acquisitions to yield expected results,
construction delays due to unavailability of materials, weather conditions or
other delays, the failure to sell properties being marketed for sale on
favorable terms, in a timely manner or at all, competition, supply and demand
for apartment communities in the Company's current and proposed market areas,
changes in generally accepted accounting principles or policies and guidelines
applicable to REITs, and those factors discussed in the section entitled
"Development Activity--Certain Factors Affecting the Performance of Development
Communities" on page 24 of this Form 10-Q. These risks and uncertainties should
be considered in evaluating forward-looking statements and undue reliance should
not be placed on such statements.
The following discussion should be read in conjunction with the Consolidated
Financial Statements of Summit Properties Inc. and the Notes thereto appearing
elsewhere herein.
HISTORICAL RESULTS OF OPERATIONS
The Company's net income is generated primarily from operations of its apartment
communities (the "Communities"). The changes in operating results from period to
period reflect changes in existing Community performance and changes 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," "stabilized development Communities",
"Communities in lease-up" and "disposition Communities" 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 current 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 apartment companies and, accordingly, may not be comparable to
such other apartment companies.
14
<PAGE> 15
Results of Operations for the Three and Six Months Ended June 30, 2000 and 1999
For the three and six months ended June 30, 2000, income before gain on sale of
real estate assets, minority interest of common unitholders in Operating
Partnership and distributions to preferred unitholders in Operating Partnership
increased $1.2 million and $3.9 million, respectively, to $11.4 million and
$23.1 million, respectively, from the three and six months ended June 30,1999
primarily due to increased property operating income generated by the Company's
portfolio of Communities, as well as decreased interest costs attributable to
decreased average indebtedness outstanding.
OPERATING PERFORMANCE OF THE COMPANY'S PORTFOLIO OF COMMUNITIES
The operating performance of the Communities for the three and six months ended
June 30, 2000 and 1999 is summarized below (dollars in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------------- ----------------------------
2000 1999 % CHANGE 2000 1999 % CHANGE
------- ------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Property revenues:
Fully stabilized communities......... $28,040 $27,036 3.7% $55,496 $53,735 3.3%
Stabilized development communities... 13,767 11,393 20.8% 27,098 21,359 26.9%
Communities in lease-up.............. 3,430 1,516 126.3% 5,923 3,018 96.3%
Communities sold..................... 360 3,739 -90.4% 1,200 7,627 -84.3%
------- ------- ------- -------
Total property revenues................ 45,597 43,684 4.4% 89,717 85,739 4.6%
------- ------- ------- -------
Property operating and maintenance
expense:
Fully stabilized communities......... 9,211 8,944 3.0% 18,039 17,775 1.5%
Stabilized development communities... 3,903 3,510 11.2% 8,033 6,591 21.9%
Communities in lease-up.............. 1,236 592 108.8% 2,262 1,176 92.3%
Communities sold..................... 143 1,476 -90.3% 403 2,974 -86.4%
------- ------- ------- -------
Total property operating and
maintenance expense.................. 14,493 14,522 -0.2% 28,737 28,516 0.8%
------- ------- ------- -------
Property operating income.............. $31,104 $29,162 6.7% $60,980 $57,223 6.6%
======= ======= ======= =======
Apartment homes, end of period......... 18,365 17,829 3.0% 18,365 17,829 3.0%
======= ======= ======= =======
</TABLE>
A summary of the Company's apartment homes (excluding joint ventures) for the
six months ended June 30, 2000 and 1999 is as follows:
<TABLE>
<CAPTION>
2000 1999
------ ------
<S> <C> <C>
Apartment homes at January 1................................ 17,673 18,001
Developments which began rental operations during the
period.................................................... 1,172 280
Sale of apartment homes..................................... (480) (452)
------ ------
Apartment homes at June 30.................................. 18,365 17,829
====== ======
</TABLE>
15
<PAGE> 16
OPERATING PERFORMANCE OF THE COMPANY'S FULLY STABILIZED COMMUNITIES
The operating performance of the Communities stabilized prior to January 1, 1998
in each of the three and six months ended June 30, 2000 and 1999 is summarized
below (dollars in thousands except average monthly rental revenue):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------------- -----------------------------
2000 1999 % CHANGE 2000 1999 % CHANGE
------- ------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Property revenues:
Rental revenues................... $26,127 $25,370 3.0% $51,746 $50,656 2.2%
Other property revenues........... 1,913 1,666 14.8% 3,750 3,079 21.8%
------- ------- ------- -------
Total property revenues................ 28,040 27,036 3.7% 55,496 53,735 3.3%
------- ------- ------- -------
Property operating and maintenance
expenses:
Personnel......................... 1,978 2,007 -1.4% 3,609 3,888 -7.2%
Advertising and promotion......... 364 357 2.0% 717 698 2.7%
Utilities......................... 1,230 1,182 4.1% 2,471 2,368 4.3%
Building repairs and
maintenance..................... 1,476 1,407 4.9% 2,764 2,750 0.5%
Real estate taxes and insurance... 3,018 2,892 4.4% 6,060 5,783 4.8%
Property supervision.............. 710 671 5.8% 1,542 1,333 15.7%
Other operating expense........... 435 428 1.6% 876 955 -8.3%
------- ------- ------- -------
Total property operating and
maintenance expense.................. 9,211 8,944 3.0% 18,039 17,775 1.5%
------- ------- ------- -------
Property operating income.............. $18,829 $18,092 4.1% $37,457 $35,960 4.2%
======= ======= ======= =======
Average physical occupancy............. 94.8% 93.7% 1.2% 94.1% 93.7% 0.4%
======= ======= ======= =======
Average monthly rental revenue......... $ 869 $ 856 1.5% $ 868 $ 854 1.6%
======= ======= ======= =======
Number of apartment homes.............. 10,832 10,832 10,832 10,832
======= ======= ======= =======
</TABLE>
The increase in property revenues from fully stabilized Communities was
primarily the result of increases in average rental rates as well as increased
revenues from sources other than rental revenues, such as cable and water
sub-meter revenues. The higher revenues were primarily generated in the
Company's Washington, D.C., Austin, Texas, Charlotte, North Carolina, and Tampa,
Florida markets. Property supervision costs increased as a result of an increase
in the property management fee charged by the Summit Management Company (the
"Management Company") from 2.50% to 2.75% for the six month period ended June
30, 2000. This is the first increase in the amount charged by the Management
Company for its services since the Company's initial public offering in 1994.
For the six months ended June 30, 2000, the increase in property supervision
costs was offset by cost savings related primarily to personnel and other
operating expenses. As a percentage of total property revenues, total property
operating and maintenance expenses decreased for the six-month period from 33.1%
in 1999 to 32.5% in 2000.
16
<PAGE> 17
OPERATING PERFORMANCE OF THE COMPANY'S STABILIZED DEVELOPMENT COMMUNITIES
The Company had fourteen development Communities (Summit Ballantyne, Summit
Sedgebrook, Summit Governor's Village, Summit Lake, Summit Norcroft II, Summit
Stonefield, Summit Russett, Summit Westwood, Summit Plantation II, Summit New
Albany, Summit Fair Lakes, Summit Doral, Summit Las Palmas and Summit Camino
Real) which were stabilized during the entire six months ended June 30, 2000 but
were stabilized subsequent to January 1, 1998. The operating performance of
these fourteen Communities for the three and six months ended June 30, 2000 and
1999 is summarized below (dollars in thousands except average monthly rental
revenue):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ ------------------
2000 1999 2000 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
Property revenues:
Rental revenues................................ $12,770 $10,693 $25,246 $20,160
Other property revenue......................... 997 700 1,852 1,199
------- ------- ------- -------
Total property revenues............................. 13,767 11,393 27,098 21,359
Property operating and maintenance expense.......... 3,903 3,510 8,033 6,591
------- ------- ------- -------
Property operating income........................... $ 9,864 $ 7,883 $19,065 $14,768
======= ======= ======= =======
Average physical occupancy.......................... 94.4% 81.7% 93.6% 78.6%
======= ======= ======= =======
Average monthly rental revenue...................... $ 908 $ 848 $ 922 $ 825
======= ======= ======= =======
Number of apartment homes........................... 4,885 4,885 4,885 4,885
======= ======= ======= =======
</TABLE>
The unleveraged yield on investment for the stabilized development Communities,
defined as property operating income for the three and six months ended June 30,
2000 on an annualized basis over total development cost, was 10.8% and 10.4%,
respectively.
OPERATING PERFORMANCE OF THE COMPANY'S COMMUNITIES IN LEASE-UP
The Company had eight Communities in lease-up during the six months ended June
30, 2000. Six of the eight Communities in lease-up are new developments and two
of the Communities in lease-up are existing Communities that are undergoing
major renovations. A Community in lease-up is defined as one that has commenced
rental operations but was not stabilized as of the beginning of the current
year. A summary of the six development Communities in lease-up as of June 30,
2000 is as follows (dollars in thousands):
<TABLE>
<CAPTION>
TOTAL ACTUAL/ % LEASED
NUMBER OF ACTUAL/ ANTICIPATED ACTUAL/ Q2 2000 AS OF
APARTMENT ESTIMATED CONSTRUCTION ANTICIPATED AVERAGE JUNE 30,
COMMUNITY HOMES COST COMPLETION STABILIZATION OCCUPANCY 2000
--------- --------- --------- ------------ ------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Summit New Albany II -- Columbus, OH..... 127 $ 9,800 Q1 2000 Q3 2000 83.3% 89.8%
Summit Largo -- Largo, MD................ 219 18,000 Q1 2000 Q3 2000 98.0% 95.9%
Summit Hunter's Creek -- Orlando, FL..... 270 19,200 Q1 2000 Q4 2000 51.0% 74.8%
Summit Deer Creek -- Atlanta, GA......... 292 22,200 Q2 2000 Q1 2000 56.3% 84.9%
Summit Ashburn Farm -- Loudon County, VA
(1).................................... 162 14,600 Q3 2000 Q1 2001 42.4% 90.7%
Reunion Park by Summit -- Raleigh, NC
(1).................................... 248 14,300 Q1 2001 Q3 2001 8.2% 41.9%
Summit Grandview -- Charlotte, NC (1).... 266 45,500 Q4 2000 Q4 2001 0.0% 25.9%
Summit Deerfield -- Cincinnati, OH (1)... 498 41,500 Q3 2001 Q2 2002 1.2% 5.6%
----- --------
2,082 $185,100
===== ========
</TABLE>
---------------
(1) The related assets of such Communities are included in the Construction in
Progress category at June 30, 2000.
In addition to the Communities listed in the table above, Summit Fairview
located in Charlotte, North Carolina (135 apartment homes) and Summit Lenox
located in Atlanta, Georgia (431 apartment homes) are existing Communities of
the Company which are currently undergoing major renovations. The renovations
include
17
<PAGE> 18
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 renovations require that certain
apartment homes be unavailable for rental over the course of the projects. The
operations of Summit Fairview and Summit Lenox are included in lease-up
Communities results due to the renovation work. The renovation work at Summit
Fairview was substantially complete by the end of the second quarter of 2000 and
the renovation work at Summit Lenox is expected to be completed by the end of
the third quarter of 2000.
All Communities listed above were in lease-up during the three and six months
ended June 30, 2000. Only Summit Lenox and Summit Fairview had operating
activity during the three and six months ended June 30, 1999. The operating
performance of these two Communities for the three and six months ended June 30,
2000 and 1999 is summarized below (dollars in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ ----------------
2000 1999 2000 1999
------- ------- ------ ------
<S> <C> <C> <C> <C>
Property revenues:
Rental revenues............................ $3,127 $1,447 $5,471 $2,878
Other property revenue..................... 303 69 452 140
------ ------ ------ ------
Total property revenues............... 3,430 1,516 5,923 3,018
------ ------ ------ ------
Property operating and maintenance expense...... 1,236 592 2,262 1,176
------ ------ ------ ------
Property operating income....................... $2,194 $ 924 $3,661 $1,842
====== ====== ====== ======
Number of apartment homes....................... 2,648 566 2,648 566
====== ====== ====== ======
</TABLE>
OPERATING PERFORMANCE OF THE COMPANY'S DISPOSITION COMMUNITIES
Disposition communities consist of the former Summit Creekside, Summit
Eastchester and Summit Sherwood communities in 2000 (the "2000 Dispositions").
The 1999 dispositions consist of the 2000 Dispositions as well as the following
communities sold during 1999 (referred to herein using former community names):
Summit Hampton, Summit Oak, Summit Beacon Ridge, Summit McIntosh, Summit Perico,
Summit Heron's Run and Summit Eastridge. The operating performance of these
communities is summarized below (dollars in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ ----------------
2000 1999 2000 1999
------- ------- ------ ------
<S> <C> <C> <C> <C>
Property revenues:
Rental revenues............................ $ 338 $3,492 $1,142 $7,120
Other property revenue..................... 22 247 58 507
------ ------ ------ ------
Total property revenues............... 360 3,739 1,200 7,627
------ ------ ------ ------
Property operating and maintenance expense...... 143 1,476 403 2,974
------ ------ ------ ------
Property operating income....................... $ 217 $2,263 $ 797 $4,653
====== ====== ====== ======
Number of apartment homes....................... 480 1,998 480 1,998
====== ====== ====== ======
</TABLE>
18
<PAGE> 19
OPERATING PERFORMANCE OF SUMMIT MANAGEMENT COMPANY
The operating performance of the Management Company and its wholly-owned
subsidiary, Summit Apartment Builders, Inc. (the "Construction Company"), for
the three and six months ended June 30, 2000 and 1999 is summarized below (in
thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ ------------------
2000 1999 2000 1999
------ ------ ------ ------
<S> <C> <C> <C> <C>
Revenue:
Operating revenue.................... $2,464 $2,330 $5,090 $4,161
Gain on sale of land................. -- -- 238 --
------ ------ ------ ------
Total revenue............................. 2,464 2,330 5,328 4,161
------ ------ ------ ------
Expenses:
Operating............................ 2,467 2,401 5,039 4,327
Depreciation......................... 86 70 172 143
Amortization......................... 76
Interest............................. 75 75 528 150
------ ------ ------ ------
Total expenses............................ 2,704 2,622 5,890 4,770
------ ------ ------ ------
Net loss of Summit Management Company..... $ (240) $ (292) $ (562) $ (609)
====== ====== ====== ======
</TABLE>
The increase in operating revenue for the three and six month periods was
primarily the result of an increase in the management fee charged to the
Company's Communities from 2.5% to 2.75% and higher revenues from construction
activity. The increase in the management fee is the first increase since the
Company's initial public offering in 1994. The Management Company sold a parcel
of land in Raleigh, North Carolina on February 29, 2000 for $5.4 million that
resulted in a gain on sale of $238,000. 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. The
increase in interest expense for the six month period resulted from an
inter-company loan which was repaid during the first quarter of 2000.
Property management revenues included $272,000 and $328,000 of property
management fees from third parties for the three months ended June 30, 2000 and
1999, respectively, and $550,000 and $653,000 for the six months ended June 30,
2000 and 1999, respectively. Property management fees from third parties as a
percentage of total property management revenues were 16.8% and 20.6 % for the
three months ended June 30, 2000 and 1999, respectively, and 16.4% and 21.4% for
the six months ended June 30, 2000 and 1999, respectively.
All of the Construction Company's revenues are from contracts with the Company.
OTHER INCOME AND EXPENSES
Interest expense, including amortization of deferred financing costs, decreased
by approximately $255,000 and $1.5 million for the three and six months ended
June 30, 2000 compared with the same periods in 1999. This decrease was
primarily the result of a decrease in the Company's average indebtedness
outstanding. Average indebtedness outstanding decreased $16.3 million for the
three months ended June 30, 2000 as compared to the same period in 1999. Average
indebtedness outstanding decreased $53.3 million for the six months ended June
30, 2000 compared to the same period in 1999. These declines were partially
offset by an increase in the effective interest rate from 6.61% to 6.89% for the
three months ended June 30, 2000 as compared to the same period in 1999 and from
6.53 % to 6.94 % for the six months ended June 30, 2000 as compared to the same
period in 1999.
Depreciation expense increased $780,000 and $1.4 million, or 9.1% and 8.5%, for
the three and six months ended June 30, 2000, respectively, compared with the
similar periods in 1999, primarily due to depreciation on recently developed
Communities offset by a reduction in depreciation related to Communities sold.
19
<PAGE> 20
General and administrative expenses increased $60,000, or 6.2%, for the three
months ended June 30, 2000 and decreased $80,000, or 3.9%, for the six months
ended June 30, 2000, in each case as compared to the same periods in 1999. As a
percentage of total revenues, general and administrative expenses were 2.2% for
the three months ended June 30, 2000 and 1999, and 2.1% and 2.3% for the six
months ended June 30, 2000 and 1999, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity
The Company's net cash provided by operating activities increased from $26.4
million for the six months ended June 30, 1999 to $33.4 million for the same
period in 2000, primarily due to a $5.0 million decrease in the net cash used in
accounts payable and accrued expenses operating activities ($871,000 decrease
for the six months ended June 30, 2000 as compared to a $5.9 million decrease
for the six months ended June 30, 1999), a $1.3 million decrease in net
restricted cash used in operating activities ($1.9 million increase for the six
months ended June 30, 2000 as compared to a $3.2 increase for the six months
ended June 30, 1999) and a $1.5 million decrease in interest paid. The decrease
in accounts payable and accrued expenses was due to the timing of payments and
the increase in restricted cash was due to deposits placed into mortgage reserve
escrows as well as interest income earned on all restricted cash accounts during
the six months ended June 30, 2000. The decrease in cash paid for interest is
due to the decrease in average indebtedness outstanding.
Net cash used in investing activities was $34.9 million for the six months ended
June 30, 2000, while net cash provided by investing activities was $5.1 million
for the same period in 1999. The change was due to the decrease in proceeds from
the sale of Communities. Property sale proceeds in 1999 were placed in escrow in
accordance with like-kind exchange income tax rules and regulations. Proceeds
from the sale of Communities 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. The
increase in mortgages receivable was due to the acceptance of a promissory note
in June 2000 in connection with the acquisition of a development site in
Atlanta, Georgia.
Net cash provided by financing activities was $335,000 for the six months ended
June 30, 2000 while net cash used in financing activities was $31.0 million for
the same period in 1999. The change was primarily due to a decrease in net
repayments on the Unsecured Credit Facility (as defined below) of $98.5 million
($9,000 for the six months ended June 30, 2000 as compared to $98.5 million for
the same period in 1999), a decrease in net borrowings on unsecured bonds of
$24.9 million due to the absence of MTN issuances during the six months ended
June 30, 2000, a decrease in net proceeds from preferred units in Operating
Partnership of $82.9 million due to the absence of issuances of preferred units
in the six months ended June 30, 2000 and an increase in proceeds from mortgage
debt due to $48.3 million of mortgage debt obtained during the six months ended
June 30, 2000.
The ratio of earnings to fixed charges was 1.67 for the six months ended June
30, 2000 as compared to 1.86 for the six months ended June 30, 1999.
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% (90% effective for
tax years beginning after December 31, 2000) of their ordinary taxable income.
As a REIT, the Company generally will not be subject to federal income tax on
net income.
The Company's outstanding indebtedness at June 30, 2000 totaled $691.4 million.
This amount includes approximately $305.7 million of fixed rate conventional
mortgages, $37.7 million of variable rate tax-exempt bonds, $266.0 million of
unsecured notes, $4.0 million of tax-exempt fixed rate mortgages, and $78.0
million under the Unsecured Credit Facility (as defined below).
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
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<PAGE> 21
Facility (as defined below). 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 Common 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, expiring on March 27, 2001,
with two one-year extension options available with the consent of the lenders
and will initially bear interest at LIBOR+90 basis points based upon the
Company's current credit rating of BBB- by Standard & Poor's Rating Services and
Baa3 by Moody's Investors Service. The interest rate will be reduced in the
event an upgrade of the Company's unsecured credit rating is obtained. The
Unsecured Credit Facility also provides a bid option sub-facility equal to a
maximum of fifty percent of the total facility ($100 million). This sub-facility
provides the Company with the option to place borrowings in a fixed LIBOR
contract up to 180 days.
Medium Term Notes
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"). The
Operating Partnership issued Medium-Term Notes with an aggregate principal
amount of $80 million in connection with the MTN Program as follows: (i) on July
28, 1998, the Company sold $30 million of notes which are due on July 30, 2001
and bear interest at 6.75% per year; (ii) on October 5, 1998, the Operating
Partnership sold $25 million of notes which are due on October 5, 2000 and bear
interest at 6.71% per year; and (iii) on March 18, 1999, the Operating
Partnership sold $25 million of notes which are due on March 16, 2009 and bear
interest at 7.59% per year.
On April 20, 2000, the Company commenced a new program for the sale by the
Operating Partnership of up to $250 million aggregate principal amount of
Medium-Term Notes due nine months or more from the date of issuance. The new
program was established under the Company's and the Operating Partnership's
existing shelf registration statement. On July 19, 2000, the Operating
Partnership issued Medium-Term Notes with an aggregate principal amount of $10
million which are due on July 19, 2010 and bear interest at 8.50% per year.
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 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
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<PAGE> 22
quarterly at the rate of 8.95% per annum of the $25.00 original capital
contribution. The Operating Partnership made distributions to the holders of the
Series B Preferred Units in the aggregate amount of approximately $5.1 million
during the year ended December 31, 1999 and in the aggregate amount of
approximately $3.8 million during the six months ended June 30, 2000.
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, (c) upon the occurrence of 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
Operating Partnership made distributions to the holder of the Series C Preferred
Units in the aggregate amount of approximately $1.5 million during the year
ended December 31, 1999 and in the aggregate amount of approximately $2.4
million during the six months ended June 30, 2000.
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 was authorized to purchase up
to an aggregate of $50 million of currently issued and outstanding Common Stock
of the Company (the "$50 Million Program"). All repurchases have been made on
the open market at prevailing prices or in privately negotiated transactions.
During the three month period ended March 31, 2000, the Company completed the
$50 Million Program by repurchasing 131,900 shares of Common Stock for an
aggregate purchase price, including commissions, of approximately $2.5 million,
or an average price of $18.88 per share. The Company repurchased a total of 2.5
million shares of common stock under the $50 Million Program for an aggregate
purchase price, including commissions, of approximately $50 million, or an
average price of $19.63 per share.
On March 12, 2000, the Board of Directors of the Company authorized a new common
stock repurchase program pursuant to which the Company is authorized to purchase
up to an aggregate of $25 million of currently issued and outstanding Common
Stock of the Company (the "$25 Million Program"). All repurchases have and will
be made on the open market at prevailing prices or in privately negotiated
transactions. This authority may be exercised from time to time and in such
amounts as market conditions warrant. During the six months ended June 30, 2000,
the Company repurchased 229,400 shares of Common Stock under the $25 Million
Program for an aggregate purchase price, including commissions, of approximately
$4.5 million, or an average price of $19.43 per share.
Employee Loan Program
The Board of Directors of the Company believes that ownership of the Company's
Common Stock by executive officers and certain other qualified employees of the
Company and its subsidiaries will align the interests of such officers and
employees with the interests of the stockholders of the Company. To this end,
the Board of Directors approved and the Company instituted a loan program
whereby the Company may lend amounts to or on behalf of certain of the Company's
executive officers and key employees to (i) finance the purchase of Common Stock
on the open market at then-current market prices; (ii) finance an employee's
payment of the exercise price of one or
22
<PAGE> 23
more stock options to purchase shares of Common Stock granted to such employee;
or (iii) finance the annual tax liability or other expenses of an executive
officer related to the vesting of shares of Common Stock which constitute a
portion of a restricted stock award granted to such executive officer. The
Company has amended the terms of the loan program from time to time since its
inception in 1997. In December 1999, the Board of Directors increased the
maximum aggregate amounts that may be loaned to executive officers and other key
employees of the Company and its subsidiaries. The $7.3 million increase in
employee notes receivable from December 31, 1999 to June 30, 2000 represents
loans extended to certain executive officers and key employees of the Company
under the loan program. The relevant officer or employee has executed a
Promissory Note and Security Agreement ("Note") related to each loan extended by
the Company during 2000. Such ten-year Notes bear interest at the applicable
federal rate as established by the Internal Revenue Service, are full recourse
to the officers and employees and are collateralized by the shares of Common
Stock which are the subject of the loans.
Performance Stock Award Plan
In January 1998, the Company agreed to award key employees of the Company
certain amounts of Common Stock under the Company's Performance Stock Award
Plan. The amount of Common Stock to be granted to the key employees is based
upon the Company's average annual return (share appreciation and distributions)
from the date of the award to the third anniversary of the award. The number of
shares to be granted under the Performance Stock Award Plan ranges from none (in
the event the Company achieves less than a 11% average annual return) to 47,350
(in the event the Company achieves a 15% or greater annual return). The starting
Common Stock price for the purposes of calculating appreciation was $21.375,
fair market value at date of award ($19.87 for one executive officer of the
Company). The Company's stock price subsequent to June 30, 2000 is above the
minimum price for calculating the number of grants. The Company has recorded
$143,000 in accrued compensation expense related to this Performance Stock Award
Plan as of June 30, 2000.
COMMUNITY DISPOSITIONS AND ACQUISITIONS
On March 28, 2000, the Company sold an apartment community located in Hickory,
North Carolina, formerly known as Summit Creekside (118 apartment homes) for
$5.8 million. The disposition of Summit Creekside resulted in the recognition of
a gain on sale of $2.0 million. The net proceeds of $5.8 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 May 24, 2000, the Company sold two apartment communities, formerly known as
Summit Eastchester (172 apartment homes) located in High Point, North Carolina,
and Summit Sherwood (190 apartment homes) located in Winston-Salem, North
Carolina, for $16.1 million in the aggregate. The disposition of these two
communities resulted in the recognition of a gain on sale of $5.7 million in the
aggregate. The aggregate net proceeds of $15.9 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 August 1, 2000, the Company exercised its option to purchase two Communities,
Summit Shiloh (182 apartment homes) and Summit Sweetwater (308 apartment homes)
at an aggregate purchase price of $36 million. The acquisition was primarily
financed with the issuance of 96,455 Operating Partnership Units in Summit
Properties Partnership, L.P., (the "Operating Partnership"), and the payment of
$ 33.7 million in cash.
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<PAGE> 24
DEVELOPMENT ACTIVITY
The Company's construction in progress at June 30, 2000 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 Ashburn Farm -- Loudon County, VA (1)....... 162 $ 14,600 $ 13,143 $ 1,457 Q3 2000
Summit Grandview -- Charlotte, NC (1).............. 266 45,500 37,176 8,324 Q4 2000
Summit Russett II -- Laurel, MD.................... 112 9,900 6,584 3,316 Q4 2000
Reunion Park by Summit -- Raleigh, NC (1).......... 248 14,300 13,613 687 Q1 2001
Summit Deerfield -- Cincinnati, OH (1)............. 498 41,500 24,421 17,079 Q3 2001
Summit Crest -- Raleigh, NC........................ 438 30,700 8,516 22,184 Q3 2001
Summit Overlook -- Raleigh, NC..................... 320 25,500 6,352 19,148 Q3 2001
Summit Peachtree City -- Atlanta, GA............... 399 31,500 9,371 22,129 Q4 2001
Summit Grand Parc -- Washington, DC................ 105 29,400 10,279 19,121 Q1 2002
Other development and construction costs (2)....... -- -- 21,675 --
----- -------- -------- --------
2,548 $242,900 $151,130 $113,445
===== ======== ======== ========
</TABLE>
---------------
(1) These communities were in lease-up at June 30, 2000.
(2) Consists primarily of land held for development and other pre-development
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. However, 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 nine 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, or is
not available on favorable terms, or other circumstances arise 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.
FUNDS FROM OPERATIONS
The Company considers funds from operations ("FFO") to be an appropriate measure
of performance of an equity REIT. The Company computes FFO in accordance with
standards established by the National Association of Real Estate Investment
Trusts ("NAREIT"). FFO, as defined by NAREIT, represents net income (loss)
excluding gains or losses from sales of property, plus depreciation of real
estate assets, and after adjustments for unconsolidated partnerships and joint
ventures, all determined on a consistent basis in accordance with generally
accepted accounting principles ("GAAP"). Funds Available for Distribution
("FAD") is defined as FFO less capital expenditures funded by operations
(recurring capital expenditures). The Company's
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<PAGE> 25
methodology for calculating FFO and FAD may differ from the methodology for
calculating FFO and FAD utilized by other real estate companies, and
accordingly, may not be comparable to other real estate companies. FFO and FAD
do not represent amounts available for management's discretionary use because of
needed capital expenditures or expansion, debt service obligations, property
acquisitions, development, dividends and distributions or other commitments and
uncertainties. FFO and FAD 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 FFO and FAD are
helpful to investors as measures of the performance of the Company because,
along with cash flows from operating activities, financing activities and
investing activities, they provide investors with an understanding of the
ability of the Company to incur and service debt and make capital expenditures.
Funds from Operations and Funds Available for Distribution for the six months
ended June 30, 2000 and 1999 are calculated as follows (dollars in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------- -------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net income.................................. $ 11,792 $ 13,139 $ 21,329 $ 20,919
Minority interest of Common Unitholders in
Operating Partnership..................... 1,924 2,051 3,492 3,269
Gain on sale of real estate assets.......... (5,446) (6,307) (7,886) (6,307)
Gain on sale of real estate
assets -- Management Company.............. -- -- (238) --
----------- ----------- ----------- -----------
Adjusted net income.................... 8,270 8,883 16,697 17,881
Depreciation:
Real estate assets..................... 9,326 8,577 18,178 16,804
Real estate joint ventures............. 415 184 598 367
----------- ----------- ----------- -----------
Funds from Operations....................... 18,011 17,644 35,473 35,052
Recurring capital expenditures (1)..... (1,563) (2,152) (2,515) (3,191)
----------- ----------- ----------- -----------
Funds Available for Distribution............ $ 16,448 $ 15,492 $ 32,958 $ 31,861
=========== =========== =========== ===========
Non-recurring capital expenditures (1)
(2)....................................... $ (395) $ (1,395) $ (1,338) $ (2,286)
=========== =========== =========== ===========
Cash Flow Provided By (Used In):
Operating Activities................... $ 21,848 $ 13,359 $ 33,380 $ 27,760
Investing Activities................... (23,840) 19,810 (34,894) 5,087
Financing Activities................... 1,414 (33,256) 335 (32,298)
=========== =========== =========== ===========
Weighted average shares and units
outstanding -- diluted.................... 30,696,803 32,856,145 30,787,712 32,813,134
=========== =========== =========== ===========
</TABLE>
---------------
(1) Recurring capital expenditures are expected to be funded from operations and
consist primarily of interior painting, carpets, 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, therefore, are not
included in the calculation of Funds Available for Distribution.
(2) Non-recurring capital expenditures for the six months ended June 30, 2000
and 1999 primarily consist of: $1.1 million and $1.5 million for major
renovations in 2000 and 1999, respectively; $53,000 and $343,000 for access
gates and security fences in 2000 and 1999, respectively; and $80,000 and
$465,000 in other revenue enhancement expenditures in 2000 and 1999,
respectively.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES 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,
1999.
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<PAGE> 26
PART II
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 9, 2000, the Company held its 2000 Annual Meeting of Stockholders (the
"Annual Meeting"). At the Annual Meeting, stockholders of the Company were asked
to consider a proposal to elect three Class III directors of the Company to
serve until the 2003 Annual Meeting of Stockholders and until their respective
successors are duly elected and qualified. William B. McGuire, Jr., William F.
Paulsen and James M. Allwin were nominated by the Board of Directors to serve as
Class III directors of the Company. Mr. McGuire received 20,149,358 votes in
favor of his election with 185,577 votes withheld; Mr. Paulsen received
20,141,800 votes in favor of his election with 193,135 votes withheld; and Mr.
Allwin received 20,144,297 votes in favor of his election with 190,637 votes
withheld. As a result, Messrs. McGuire, Paulsen and Allwin were elected as Class
III directors of the Company to serve until the 2003 Annual Meeting of
Stockholders and until their respective successors are duly elected and
qualified.
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<PAGE> 27
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<S> <C>
4.1 Supplemental Indenture No. 4, dated as of April 20, 2000,
between the Operating Partnership and First Union National
Bank, as trustee, including a form of Floating Rate
Medium-Term Note and a form of Fixed Rate Medium-Term Note
(incorporated herein by reference to Exhibit 4.2 to the
Operating Partnership's Current Report on Form 8-K filed on
April 28, 2000, File No. 0-22411)
10.1 Amended and Restated Agreement of Limited Partnership of
Summit Properties Partnership, L.P. dated as of May 23, 2000
(incorporated herein by reference to Exhibit 3.1 to the
Operating Partnership's Current Report on Form 8-K filed on
May 30, 2000, File No. 0-22411)
*10.2 Employment Agreement, dated as of January 10, 1994, by and
between Summit Management Company and Randall M. Ell
*10.3 Executive Severance Agreement, dated as of June 1, 2000, by
and between the Company and Randall M. Ell
*10.4 Noncompetition Agreement, dated as of June 1, 2000, by and
among the Company, Summit Management Company and Randall M.
Ell
10.5 Indemnification Agreement, dated as of June 1, 2000, by and
among the Company, the Operating Partnership and Randall M.
Ell (the form of indemnification agreement with Mr. Ell is
incorporated herein by reference to Exhibit 10.3 to the
Company's Quarterly Report on Form 10-Q for the quarterly
period ended June 30, 1999, File No. 1-12792)
*10.6 Promissory Notes and Security Agreements, dated various
dates from April 1, 1998 through May 17, 2000, evidencing
loans in the aggregate amount of $358,399 to Randal M. Ell
for the purpose of purchasing shares of Common Stock of the
Company.
*12.1 Statement Regarding Calculation of Ratio of Earnings to
Fixed Charges for the Six Months ended June 30, 2000.
*27.1 Financial Data Schedule--Six Months ended June 30, 2000 (for
SEC use only)
</TABLE>
---------------
* Filed herewith
(b) Reports on Form 8-K
On April 28, 2000, the Company filed a current report on Form 8-K dated April
20, 2000, in connection with the commencement of the Operating Partnership's new
Medium-Term Note Program.
On May 30, 2000, the Company filed a Current Report on Form 8-K dated May 23,
2000, in connection with (i) an amendment to the Operating Partnership's
Agreement of Limited Partnership (the "Partnership Agreement") which eliminated
the preemptive rights of certain limited partners contained therein and (ii) the
simultaneous amendment and restatement of the Partnership Agreement.
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<PAGE> 28
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
<TABLE>
<S> <C>
SUMMIT PROPERTIES INC.
August 11, 2000 /s/ WILLIAM F. PAULSEN
-------------------------------------------- --------------------------------------------
(Date) William F. Paulsen,
Chief Executive Officer
August 11, 2000 /s/ MICHAEL L. SCHWARZ
-------------------------------------------- --------------------------------------------
(Date) Michael L. Schwarz,
Executive Vice President and
Chief Financial Officer
</TABLE>
28
