<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
---
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED MARCH 31, 1996
OR
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE PERIOD FROM TO
COMMISSION FILE NUMBER: 1934 ACT FILE NUMBER: 1-13174
CHARLES E. SMITH RESIDENTIAL REALTY, INC.
(Exact name of registrant as specified in its charter)
MARYLAND 54-1681655
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2345 CRYSTAL DRIVE
CRYSTAL CITY, VA
(Address of principal 22202
executive offices) (Zip Code)
Registrant's telephone number including area code: (703) 920-8500
____________________
Securities registered pursuant to Section 12(b) of the Act: None
SHARES OF COMMON STOCK
(Title of Class)
Securities registered pursuant to Section 12(g) of the Act:
Indicate by check mark 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 ___
---
As of May 10, 1996, there were 9,866,042 Shares of Common Stock of the
Registrant issued and outstanding.
1
<PAGE>
CHARLES E. SMITH RESIDENTIAL REALTY, INC.
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
Pages
-----
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1: Financial Statements
Charles E. Smith Residential Realty, Inc.
Financial Statements as of March 31, 1996,
and December 31, 1995, Filed as a Part
of This Report
Consolidated Balance Sheets 3
Consolidated Statements of Operations 4
Consolidated Statements of Shareholders' Equity 5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 7
Item 2: Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
PART II - OTHER INFORMATION 17
SIGNATURES 18
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CHARLES E. SMITH RESIDENTIAL REALTY, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
March 31, 1996 December 31, 1995
--------------- -----------------
(Unaudited)
ASSETS
<S> <C> <C>
Rental property, at predecessor cost,
net of accumulated depreciation $ 273,243 $ 276,269
Rental property, acquired and developed, net of
accumulated depreciation 155,395 138,221
Cash and cash equivalents 2,005 9,478
Tenants' security deposits 3,618 3,634
Escrow funds 7,035 5,371
Investment in and advances to Property Service Businesses
and other 11,030 8,348
Deferred charges, net of accumulated amortization 18,852 18,782
Other assets 10,317 9,219
----------- ------------
$ 481,495 $ 469,322
=========== ============
LIABILITIES AND EQUITY
Liabilities
Mortgage loans $ 413,799 $ 413,973
Notes payable 87,136 69,204
Accounts payable and accrued expenses 11,711 12,693
Tenants' security deposits 3,618 3,634
Due to related parties 227 1,441
----------- ------------
Total liabilities 516,491 500,945
----------- ------------
Interest of Other Operating Partnership Unitholders - -
Commitments and Contingencies
Shareholders'equity
Common stock - $.01 par value; 95,000,000 shares
authorized; 9,845,726 and 9,708,123 shares issued
and outstanding at March 31, 1996 and
December 31, 1995, respectively 98 97
Additional paid-in capital - includes contributed
deficit of $244,208 (25,930) (26,585)
Retained deficit (9,164) (5,135)
----------- ------------
Total shareholders' equity (34,996) (31,623)
----------- ------------
$ 481,495 $ 469,322
=========== ============
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
CHARLES E. SMITH RESIDENTIAL REALTY, INC. CONSOLIDATED STATEMENTS OF
OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
(Unaudited)
For the Three Months
Ended March 31,
-----------------------------
1996 1995
----------- ----------
(Restated)
<S> <C> <C>
RENTAL PROPERTIES
Revenues $ 39,541 $34,102
Expenses
Operating 16,672 13,544
Real estate taxes 2,442 2,028
Depreciation and amortization 4,392 3,930
----------- ---------
Total expenses 23,506 19,502
----------- ---------
Operating profit - rental properties 16,035 14,600
----------- ---------
PROPERTY SERVICE BUSINESSES
Equity in income of Property Service Businesses 1,548 561
----------- ---------
General & administrative expenses (745) (653)
Interest income 269 308
Interest expense (10,411) (8,663)
----------- ---------
Net income of the Operating Partnership 6,696 6,153
Interest of Other Operating Partnership Unitholders 3,687 3,545
Distributions in excess of earnings allocated to
Other Operating Partnership Unitholders 2,268 2,263
----------- ---------
Net income $ 741 $ 345
=========== =========
Net income per share $ 0.08 $ 0.04
=========== =========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
CHARLES E. SMITH RESIDENTIAL REALTY, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS'EQUITY
<TABLE>
<CAPTION>
Common Additional Retained
Stock Common Paid-in Earnings
Outstanding (Dollars in Thousands, Except for Per Share Amounts) Stock Capital (Deficit) Total
- - ----------- ---------------------------------------------------- ------ ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
Balancing, June 29, 1994 $ - $ - $ - $ -
Contribution by Predecessors of assets,
at historical cost, net of liabilities - (244,208) - (244,208)
Proceeds of Offerings,
9,049,667 net of underwriting discount
and offering costs of $15,813 90 201,284 - 202,374
Adjustment for Unit Grants 285 285
Earnings in Excess of Distributions to
Other Operating Partnership Unitholders - - 2,841 2,841
Net income - - 6,532 6,532
Dividends ($0.48 per share) - - (4,344) (4,344)
- - ----------- ------ ---------- --------- ---------
9,049,667 Balance, December 31, 1994 90 (42,639) 5,029 (37,520)
Operating Partnership equity
exchanged for acquisitions - 15,491 - 15,491
Conversion of Operating Partnership units
658,456 to common stock 7 (7) - -
Adjustment for Unit Grants - 570 - 570
Net income - - 7,529 7,529
Dividends ($1.915 per share) - - (17,693) (17,693)
- - ----------- ------ ---------- --------- ---------
9,708.123 Balance, December 31, 1995 97 (26,585) (5,135) (31,623)
Operating Partnership equity
exchanged for acquisitions - 513 - 513
Conversion of Operating Partnership units
137,603 to common stock 1 (1) - -
Adjustment for Unit Grants - 143 - 143
Net income - - 741 741
Dividends ($0.49 per share) - - (4,770) (4,770)
- - ----------- ------ ---------- --------- ---------
9,845,726 Balance, March 31, 1996 (Unaudited) $ 98 $ (25,930) $ (9,164) $ (34,996)
=========== ====== ========== ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
CHARLES E. SMITH RESIDENTIAL REALTY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
(Unaudited)
For the Three Months
Ended March 31,
-------------------------
1996 1995
----------- -----------
(Restated)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 741 $ 345
Interest of Other Operating Partnership Unitholders 3,687 3,545
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 5,164 4,698
Distributions in excess of earnings allocated to
Other Operating Partnership Unitholders 2,268 2,263
Increase in other assets (98) (580)
Decrease in accounts payable and accrued expenses (982) (1,149)
-------- --------
Net cash provided by operating activities 10,780 9,122
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions and development of rental property (17,131) (3,981)
Additions to rental property (824) (738)
Decrease in related party payables:
Property Service Businesses (589) (10,150)
Predecessor (625)
Increase in investment in and advances
to Property Service Businesses and other (2,682) (2,171)
Other (3,435) -
-------- --------
Net cash used by investing activities (25,286) (17,040)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITES:
Repayments of mortgage debt (174) (78)
Lines of credit:
Proceeds from draws 30,000 1,275
Repayments (13,100) -
Proceeds from construction loans 1,032 -
Dividends and distributions to shareholders and
predecessor partners (10,725) (10,106)
-------- --------
Net cash provided by (used in) financing activities 7,033 (8,909)
-------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS (7,473) (16,827)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 9,478 18,350
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 2,005 $ 1,523
======== ========
SUPPLEMENTAL INFORMATION:
Cash paid during the period for interest $ 9,784 $ 8,223
Purchase of property in exchange for Operating
Partnership units 513 6,342
Capitalized interest - 210
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE>
CHARLES E. SMITH RESIDENTIAL REALTY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying interim financial statements include all of the accounts of
Charles E. Smith Residential Realty, Inc. (the "Company") and Charles E. Smith
Residential Realty, L.P. (the "Operating Partnership") and its subsidiary
financing partnerships. The Company consolidates the Operating Partnership due
to the Company's control as sole general partner. All significant intercompany
balances and transactions have been eliminated. The financial information
furnished is unaudited and reflects all normal, recurring adjustments which
management believes are necessary for a fair presentation of financial position
as of March 31, 1996 and the results of operations for the interim periods ended
March 31, 1996 and 1995. Such interim results are not necessarily indicative of
the operating results for a full year. The accompanying financial statements
should be read in conjunction with the audited financial statements and related
footnotes appearing in the Company's Annual Report on Form 10-K. As discussed
in the Form 10-K, 1995 results were restated to reflect a change in accounting
for the Property Service Businesses from the cost to the equity method in
compliance with the Emerging Issues Task Force consensus "Accounting by a Real
Estate Investment Trust for an Investment in a Service Corporation". As a
result, the Company's net income for the three months ended March 31, 1995
decreased by $2.4 million ($0.26 per share) while the Operating Partnership's
net income decreased by $325,000. The change had no effect on Funds from
Operations of the Company or of the Operating Partnership.
The Company, through the Operating Partnership and its subsidiaries, is
engaged in the ownership, operation, management, leasing, acquisition, expansion
and development of real estate properties, primarily residential multifamily
properties. As of March 31, 1996, the Operating Partnership owns 40 existing
multifamily properties containing 14,460 apartment units, and owns and operates
two free-standing community retail shopping centers, aggregating 436,000 square
feet. Additionally, the Operating Partnership owns substantially all of the
economic interest in entities which provide multifamily and retail property
management, leasing and development services, interior construction and
renovation, building engineering and technical services, and financial advisory
services (collectively the "Property Service Businesses"). The Operating
Partnership uses the equity method of accounting for its investment in the
Property Service Businesses.
7
<PAGE>
2. ACQUISITIONS
In March, 1996, the Company, through the Operating Partnership, acquired 309
apartment units through the purchase of two properties in northern Virginia. A
262-unit garden-style community in Reston, Virginia was acquired for
approximately $13.7 million in cash and 22,059 limited partnership units of the
Operating Partnership valued at $0.5 million based on the market price of the
Company's stock on the date of acquisition. A 47-unit community in Old Town,
Alexandria was purchased for approximately $2.8 million in cash.
As a result of acquisitions and the conversion of units into shares, the
Company's weighted average ownership percentage for the Operating Partnership
increased from 42.4% for the three months ended March 31, 1995, to 44.9% for the
three months ended March 31, 1996.
3. NEW ACCOUNTING PRONOUNCEMENTS
On January 1, 1996, the Company implemented SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of"
which provides guidance on the carrying value of long-lived assets.
Implementation of the standard had no effect on the consolidated financial
statements.
On January 1, 1996, the Company also implemented SFAS No. 123, "Accounting
for Stock-Based Compensation," which requires entities to measure compensation
costs related to awards of stock-based compensation using either the fair value
method or the intrinsic value method. The Company has elected to account for
stock-based compensation programs using the intrinsic value method consistent
with existing accounting policies and, therefore, implementation of the standard
had no effect on the consolidated financial statements.
4. PER SHARE DATA
Earnings per share of the Company for the three months ended March 31, 1996
and 1995 is computed based on 9,822,256 and 9,064,267 shares, respectively,
which represents the weighted average number of shares outstanding during the
period. Weighted average Operating Partnership units not held by the Company
(12,037,970 and 12,295,949 units for the periods ended March 31, 1996 and 1995,
respectively) may be redeemed for shares of common stock of the Company on a
one-for-one basis, or the cash equivalent thereof, at the option of the Company;
such redemption does not have a dilutive effect. During the three months ended
March 31, 1996, 137,603 units were redeemed for shares of stock.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following discussion should be read in conjunction with the accompanying
financial statements and notes thereto. The results of operations for the three
months ended March 31, 1996 and 1995 presented in the Consolidated Statements of
Operations and discussed below represent the operations of Charles E. Smith
Residential Realty L.P. (the "Operating Partnership") and its subsidiary
financing partnerships. The Company consolidates the Operating Partnership due
to its control as sole general partner.
RENTAL PROPERTIES
Revenues, expenses and operating income before interest and
general/administrative expenses from the multifamily and retail properties for
the three months ended March 31, 1996 and 1995 were as follows:
9
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended March 31,
------------------------------
1996 1995
------------ ------------
<S> <C> <C>
(Dollars in Thousands)
Multifamily Properties - Core
Revenues $ 32,735 $ 31,457
Expenses (15,907) (14,549)
--------- ---------
Operating income before
depreciation $ 16,828 $ 16,908
========= =========
Multifamily Properties -
Acquisitions and development
Revenues $ 4,364 $ 248
Expenses ( 2,259) (187)
--------- ---------
Operating income before
depreciation $ 2,105 $ 61
========= =========
Retail Properties
Revenues $ 2,442 $ 2,397
Expenses ( 948) ( 836)
--------- ---------
Operating income before
depreciation $ 1,494 $ 1,561
========= =========
Total Rental Properties
Revenues $ 39,541 $ 34,102
Expenses ( 19,114) (15,572)
--------- ---------
Operating income before
depreciation 20,427 18,530
Depreciation and amortization ( 4,392) $ (3,930)
--------- ---------
Operating income before interest
and general/administrative
expenses $ 16,035 $ 14,600
========= =========
</TABLE>
PROPERTY SERVICE BUSINESSES
The Operating Partnership's 99% interest in the revenues, expenses and
operating income before depreciation and amortization from the various Property
Service Businesses for the three months ended March 31, 1996 and 1995 were as
follows:
10
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------
1996 1995
-------- --------
<S> <C> <C>
(Dollars in Thousands)
Multifamily and Retail Property
Management and Other
Revenues $ 3,107 $ 2,309
Expenses/1/ (2,192) (1,947)
-------- --------
Operating income before depreciation
and amortization $ 915 $ 362
======== ========
Interior Construction and Renovation
Services
Revenues $ 1,031 $ 1,129
Expenses/1/ (1,167) (1,269)
--------- --------
Operating loss before depreciation
and amortization $ ( 136) $ (140)
========= ========
Engineering and Technical Services
(including reimbursed costs)
Revenues $ 9,679 $ 10,026
Expenses/1/ (9,026) (9,273)
--------- --------
Operating income before depreciation
and amortization $ 653 $ 753
========= ========
Financing Services
Revenues $ 669 $ 235
Expenses/1/ (287) (324)
--------- --------
Operating income (loss) before depreciation
and amortization $ 382 $ (89)
========= ========
Total Property Services
Revenues $ 14,486 $ 13,699
Expenses/1/ (12,672) (12,813)
--------- --------
Operating income before depreciation
and amortization $ 1,814 $ 886
Depreciation and amortization ( 266) ( 325)
--------- --------
Equity in income of Property Service Businesses $ 1,548 $ 561
========= ========
</TABLE>
/1/ Includes general and administrative costs.
11
<PAGE>
RESULTS OF OPERATIONS
COMPARISON OF THREE MONTHS ENDED MARCH 31, 1996 TO THREE MONTHS ENDED MARCH 31,
1995.
SUMMARY. Net income of the Operating Partnership before interest of Other
Operating Partnership Unitholders increased $0.5 million, or 8.8%, from $6.2
million for the three months ended March 31, 1995 to $6.7 million for the three
months ended March 31, 1996. Funds from Operations ("FFO") of the Operating
Partnership increased $1.0 million, or 10%, from $10.1 million to $11.1 million,
during the same period. Net income of the Company increased from $0.3 million,
or $.04 per share, for the three months ended March 31, 1995 to $0.7 million, or
$0.8 per share, for the three months ended March 31, 1996. FFO of the Company
increased from $4.3 million to $5.0 million during the same period. The
increases in net income and FFO are attributable to increases in operating
income from the residential properties, primarily the acquisition and
development properties, and from the Property Service Businesses. These
increases were partially offset by increases in interest expense and general
and administrative expenses.
Results for the quarter reflect the effect of several non-recurring events -
higher operating expenses due to an abnormally severe winter, a contract
termination fee related to the sale of a hotel managed by one of the Property
Service Businesses, and a fee for reimbursement of previously expended repair
and maintenance costs. Together, these events reduced FFO of the Company
by approximately $0.3 million, or 2.9%, for the three months ended
March 31, 1996.
The Washington, D.C. region experienced a combination of record cold
temperatures and snowfall during the first quarter of 1996 which unfavorably
impacted earnings by an estimated $1.1 million. This was primarily due to
higher operating expenses for snow removal and utilities, particularly fuel
consumption, at the residential properties. Partially offsetting the effects of
the weather, however, was a contract termination fee of $0.6 million, net of
tax, earned in connection with a related party's sale of a hotel managed by one
of the Property Service Businesses. Also, the Company recognized a $0.2 million
fee for reimbursement of costs associated with ongoing rental property
operations.
RENTAL PROPERTIES. Revenue from rental properties increased $5.4 million, or
15.9%, from $34.1 million for the three months ended March 31, 1995 to $39.5
million for the three months ended March 31, 1996. The acquisition and
development properties (defined as properties with less than one full calendar
year of operation after stabilization and consisting of 1,998 apartment units,
309 of which were added during the first quarter) contributed $4.1 million to
the rental revenue increase reflecting the acquisition/development of seven
properties subsequent to the first quarter of 1995. Two properties purchased in
1994 totaling 627 apartment units were transferred into the core portfolio on
January 1, 1996. Revenue from the core portfolio increased $1.3 million, or 4.1%
for the three months ended
12
<PAGE>
March 31, 1996 compared to the three months ended March 31, 1995 with average
monthly revenue per apartment unit increasing to $876 from $841. Average
occupancy for the core portfolio, typically lowest during the first quarter, was
97.1% for the three months ended March 31, 1996 compared to 96.9% for the
comparable prior year quarter. Although the improvement in occupancy was fairly
modest, it is significant in comparison to the prior year's softening demand
experienced late in the first quarter and throughout the second quarter of 1995.
PROPERTY SERVICE BUSINESSES. The Company's 99% equity in the earnings of the
Property Service Businesses increased from $0.6 million during the first quarter
of 1995 to $1.5 million for the first quarter of 1996 as operating income before
interest and depreciation from the Property Service Businesses increased $.9
million, or 100%, from $.9 million to $1.8 million. The Company uses the equity
method of accounting for investments in the Property Service Businesses.
The increase in revenue and operating income before depreciation and
amortization for Multifamily and Retail Property Management results primarily
from the impact of the non-recurring fee related to the termination of a
management agreement with a hotel owned by a related party. The hotel was sold
during the first quarter of 1996.
Operating income from Engineering and Technical Services decreased $.1
million, or 13.3%, due to a decrease in revenue of $.3 million, or 3.5%. The
decrease was primarily attributable to the adverse weather experienced during
the first quarter as well as a decrease in HVAC projects as compared to the
prior year quarter.
Revenue from Financing Services increased $.4 million due to the acceleration
of a refinancing which was expected to occur in the second quarter of 1996, and
a refinancing fee earned in connection with the termination of a management
agreement with a hotel owned by a related party which was sold during the first
quarter. Approximately $51 million of refinancings were closed in the first
quarter of 1996 compared to $20 million during the comparable quarter in the
prior year.
The operating loss from Interior Construction and Renovation, which typically
incurs losses in the first quarter, improved slightly during the three months
ended March 31, 1996 compared to the three months ended March 31, 1995 despite a
$0.1 million decrease in operating revenues. Although revenues decreased due
primarily to the delay of several projects with affiliated partnerships, the
decreases were offset by decreased operating expenses.
OTHER. General and administrative expenses increased $.09 million, or 14.1%,
due primarily to legal and other costs incurred in connection with the Company's
ongoing acquisition and development efforts. Interest expense increased $1.7
million, or 20%, due
13
<PAGE>
to additional borrowings under the line of credit for completed acquisitions and
development. Distributions in excess of earnings allocated to Other Operating
Partnership Unitholders of $2.3 million for the three months ended March 31,
1996 and 1995 have no effect on FFO and represent regular quarterly
distributions paid to Other (non-REIT) Operating Partnership Unitholders in
excess of net income attributed to these unitholders because their partnership
interests are carried at zero on the balance sheet.
FUNDS FROM OPERATIONS. Industry analysts generally consider Funds from
Operations ("FFO") an appropriate measure of performance of an equity REIT. In
prior years, the Company computed FFO as net income (in accordance with
generally accepted accounting principles) excluding gains (or losses) from debt
restructuring and distributions in excess of earnings allocated to Other
Operating Partnership Unitholders, plus depreciation and amortization of assets,
including depreciation of non-real estate assets and amortization of deferred
financing costs. In 1996, the Company has revised its definition of FFO to
exclude depreciation of non-real estate assets and amortization of deferred
financing costs in accordance with the revised definition adopted by the
National Association of Real Estate Investment Trusts. Prior year FFO has been
restated to conform to the revised definition. The Company believes that to
facilitate a clear understanding of its operating results, FFO should be
examined in conjunction with net income as presented in the financial statements
and notes thereto included elsewhere in this report. FFO does not represent cash
flow from operations as defined by generally accepted accounting principles and
should not be considered as an alternative to net income as an indicator of the
Operating Partnership's operating performance, or as an alternative to cash flow
from operations as a measure of liquidity or ability to pay dividends.
Funds from Operations for the three months ended March 31, 1996 and 1995 are
computed as follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------
1996 1995
---- ----
(Dollars in Thousands)
- - -------------------------------
<S> <C> <C>
Net Income of the Operating Partnership $ 6,696 $ 6,153
Depreciation of Real Property 4,392 3,930
-------- -------
Funds from Operations of the
Operating Partnership $11,088 $10,083
Interest of Other Operating Partnership
Unitholders 6,106 5,804
-------- -------
Attributable to Shareholders 4,982 4,279
======== =======
</TABLE>
14
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
SUMMARY. The Company's primary sources of liquidity are cash
flows from operating activities and proceeds from lines of credit and
construction loans. Secondary sources of liquidity include proceeds from
mortgage debt and issuances of additional shares of stock. A summary of the
sources of liquidity follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------
(Dollars in Thousands) 1996 1995
- - ---------------------- ------ ------
<S> <C> <C>
Cash from operating activities $10,780 $ 9,122
Proceeds from lines of credit and
construction loans, net 17,932 1,275
</TABLE>
The primary uses of liquidity are (i) property operating expenses, general and
administrative expenses and interest expense, (ii) acquisition and development
of rental property, (iii) dividends and distributions, (iv) capital
improvements, and (v) payment on mortgage debt. A summary of the uses of
liquidity are as follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------
(Dollars in Thousands) 1996 1995
- - ---------------------- ------ ------
<S> <C> <C>
Acquisition and development of
rental properties $17,131 $ 3,981
Dividends and distributions 10,725 10,106
Capital improvements 824 738
Principal payments on mortgage debt 174 78
</TABLE>
In March 1996, the Company acquired two apartment properties in northern
Virginia totaling 309 units, including a 262-unit garden apartment complex in
Reston and a 47-unit community in Old Town Alexandria. These properties bring
the Company's total acquisitions to nine properties with over 2,300 units
acquired since its initial public offering in mid-1994. The Reston property was
acquired for approximately $13.7 million cash, and an exchange of 22,059
Operating Partnership Units valued at $0.5 million based on the market price of
the Company's stock on the date of acquisition. The Old Town property was
acquired for approximately $2.8 million cash. The acquisitions were funded
through borrowings of $16.9 million against the Company's lines of
credit.
15
<PAGE>
DEBT
As of March 31, 1996, the Operating Partnership had mortgage indebtedness and
borrowings under the lines of credit and construction loan as follows:
<TABLE>
<CAPTION>
Dollars in % of
Thousands Total
---------- ------
<S> <C> <C>
Long-term mortgage debt
(maturities greater than 1 year)
Fixed rate $ 365,367 72.9%
Variable rate 17,377 3.5%
Short-term mortgage debt
(maturities less than 1 year)
Fixed rate 31,055 6.2%
Variable rate - -
$100M Acquisition Line of Credit 39,450 7.9%
$83M Acquisition Line of Credit 30,000 6.0%
Construction loan 17,686 3.5%
---------- -----
Total Debt $ 500,935 100%
========== =====
</TABLE>
As of March 31, 1996, the Company's Debt to Total Market Capitalization Ratio
was 49%, based on 9,845,726 shares and 12,089,895 partnership units outstanding
at a stock price of $23.75. The Company's Debt Coverage Ratio for the three
months ended March 31, 1996 was 2.24:1.
DIVIDENDS AND DISTRIBUTIONS
During the three months ended March 31, 1996, the Company and the Operating
Partnership paid dividends/distributions of $10.7 million, or $.49 per
share/unit representing an annual rate of $1.96 per share/unit.
OTHER
For the three months ended March 31, 1996, total capital improvements were
$0.8 million, of which $0.7 million, or $56 per apartment unit, was for the core
portfolio.
16
<PAGE>
PART II
ITEM 1. LEGAL PROCEEDINGS.
Regarding the suit filed against Smith Realty Company on November 8, 1995,
alleging sexual harassment and employment discrimination based on sexual
preference pursuant to Title VII of the Civil Rights Act of 1964, the
company's motion for partial summary judgement was granted, resulting in a
dismissal of the claim alleging the intentional infliction of emotional
distress. Discovery has been completed on the remaining alegations, but no
trial date has been set. The Company reaffirms its belief that an adverse
outcome in the remaining litigation would not have a material adverse impact
on the Company's financial condition or results of operations.
ITEM 2. CHANGES IN SECURITIES.
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
None
ITEM 5. OTHER INFORMATION.
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
None
(b) Reports on Form 8-K
None
17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CHARLES E. SMITH RESIDENTIAL REALTY, INC.
Date: May 10, 1996 By: /s/ Anthony J. LoPinto
-----------------------
Anthony J. LoPinto
Executive Vice President, Chief
Financial Officer and Treasurer of
Charles E. Smith Residential Realty,
Inc. (on behalf of the Registrant and
as Principal Financial Officer)
18
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<PAGE>
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<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
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0
0
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