<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the fiscal year ended DECEMBER 31, 1995, 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: 0-25968
CHARLES E. SMITH RESIDENTIAL REALTY L.P.
(Exact name of registrant as specified in its charter)
DELAWARE 54-1681657
(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:
CLASS A UNITS OF LIMITED PARTNERSHIP INTEREST
(Title of Class)
Securities registered pursuant to Section 12(g) of the Act: None
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 [ ]
---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the proxy statement of Charles E. Smith Residential Realty,
Inc. for the annual shareholders' meeting to be held in 1996, included as an
exhibit hereto, are incorporated by reference into Part III.
<PAGE>
PART II
ITEM 6. SELECTED FINANCIAL DATA.
The following table sets forth selected financial and operating information
on a historical basis for the Operating Partnership and the Predecessor (as
hereinafter defined in the Notes to Consolidated Financial Statements). The
following information should be read in conjunction with all of the financial
statements and notes thereto included elsewhere in this Form 10-K. The
historical operating data for the years ended December 31, 1995, 1994, 1993,
1992 and 1991 have been derived from the Financial Statements of the Operating
Partnership and the Predecessor audited by Arthur Andersen LLP, independent
accountants.
<PAGE>
Charles E. Smith Residential Realty L.P. and CES Group
Selected Financial Data
<TABLE>
<CAPTION>
Charles E. Smith Residential Realty L.P. (1)
-------------------------------------------------------------
Historical Pro Forma (2)
--------------------------------------- -------------------
Year Ended June 30, 1994 to Year Ended
(Dollars in Thousands except per unit/share data) December 31, 1995 December 31, 1994 December 31, 1994
- --------------------------------------------------------------------------------------------------------- -------------------
<S> <C> <C> <C>
OPERATING DATA
Rental properties
Revenues (3) $144,909 $67,391 $130,887
Expenses 81,885 38,197 74,838
Equity in income of Property Service Businesses 6,868 3,785 6,181
Corporate general & administrative expenses 2,842 1,171 2,211
Interest income 1,424 825 1,738
Interest expense 37,421 17,392 34,356
Income/(loss) before extraordinary items 31,053 15,241 27,401
Net income/(loss) 31,053 15,241 27,401
Net income per unit (4) $ 1.44 $ 0.72 $ 0.66
OTHER DATA
Funds from Operations (5)
Net Income $31,053 $15,241 $27,401
Plus
Depreciation and amortization of rental property 16,258 7,738 15,365
--------------------------------------- -------------------
Funds from Operations $47,311 $22,979 $42,766
======================================= ===================
Net cash flows provided by (used in):
Operating activities $51,751 $26,341
Investing activities (66,995) (34,115)
Financing activities 6,372 26,124
Cash dividends per unit $ 1.915 $ 0.48
Average residential occupancy rate (6) 97.2% 97.8%
Average monthly revenue per apartment unit (7) $ 862 $ 845
Number of apartment units - core portfolio (6) (7) 11,834 11,834
BALANCE SHEET DATA
Rental properties - net (8) $414,490 $315,213
Total assets 469,322 391,189
Mortgage loans 413,973 383,821
Other Operating Partnership Unitholders' interest -
at redemption value (9) 288,663 310,247
Partners' Equity
General Partner's General and Limited Partnership
Interest - at redemption value (9) (320,286) (347,767)
<CAPTION>
CES Group Historical
--------------------------------------------------------
Year Ended December 31,
January 1, 1994 -------------------------------------
(Dollars in Thousands except per unit/share data) to June 29, 1994 1993 1992 1991
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATING DATA
Rental properties
Revenues (3) $63,496 $124,187 $122,815 $119,958
Expenses 36,039 70,681 69,766 71,173
Equity in income of Property Service Businesses 2,798 7,098 3,482 2,932
Corporate general & administrative expenses 1,550 3,137 3,014 2,459
Interest income 970 1,940 1,711 3,030
Interest expense 24,798 46,815 46,281 49,771
Income/(loss) before extraordinary items (10,700) 12,592 8,947 2,517
Net income/(loss) (25,895) 14,691 8,947 2,435
Net income per unit (4)
OTHER DATA
Funds from Operations (5)
Net Income
Plus
Depreciation and amortization of rental property
Funds from Operations
Net cash flows provided by (used in):
Operating activities
Investing activities
Financing activities
Cash dividends per unit
Average residential occupancy rate (6) 97.8% 97.2% 96.2%
Average monthly revenue per apartment unit (7) $ 818 $ 802 $ 768
Number of apartment units - core portfolio (6) (7) 11,834 11,587 10,831
BALANCE SHEET DATA
Rental properties - net (8) $295,544 $303,545 $308,870
Total assets 357,861 366,430 372,784
Mortgage loans 573,867 549,060 543,944
Other Operating Partnership Unitholders' interest -
at redemption value (9) - - -
Partners' Equity
General Partner's General and Limited Partnership
Interest (9) (216,006) (182,630) (171,160)
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
FOOTNOTES TO SELECTED FINANCIAL DATA
1. Amounts have been restated to reflect the equity method of accounting for
the Property Service Businesses. The AICPA recently concluded that REIT
investments in service businesses should be accounted for using the equity
method or the consolidation method rather than the cost method, which the
Operating Partnership had been using. Consequently, the Operating
Partnership adopted the equity method and was required to restate its
financial statements. (See footnote 2 to the Financial Statements.)
2. Pro forma adjustments consist principally of reflecting the Property Service
Businesses using the equity method, a reduction in interest income to
reflect the change in funds available for investment, additional general and
administrative costs of the Operating Partnership offset by allocations to
the Property Service Businesses, adjustments to amortization of deferred
financing costs, reduction of interest costs to reflect the effect of debt
repayments and refinancings at lower rates, and Federal and state income
taxes incurred by the Property Service Businesses. 1994 amounts do not
include consolidation costs of $15,577 or the extraordinary item of $15,195.
(See footnote 14 to the Financial Statements).
3. Rental income includes revenues from the two retail properties of $10,418 in
1995, $9,078 in 1994, $8,048 in 1993, $8,827 in 1992, and $8,376 in 1991.
4. Per unit amounts are based on weighted average units outstanding of
21,602,995 in 1995, and 21,229,796 in 1994 and 1993.
5. Funds from Operations (FFO) is defined under the revised definition adopted
by the National Association of Real Estate Investment Trusts (NAREIT) as net
income (loss) (computed in accordance with generally accepted accounting
principles) excluding gains (or losses) from debt restructuring, plus
depreciation/amortization of assets unique to the real estate industry.
Depreciation/amortization of assets not unique to the industry, such as
amortization of deferred financing costs and non-real estate assets, is not
added back. FFO does not represent cash flow from operating activities in
accordance with generally accepted accounting principles (which, unlike
Funds from Operations, generally reflects all cash effects of transactions
and other events in the determination of net income) and should not be
considered an alternative to net income as an indication of the Operating
Partnership's performance or to cash flow as a measure of liquidity or
ability to make distributions. The Operating Partnership considers FFO a
meaningful, additional measure of operating performance because it primarily
excludes the assumption that the value of real estate assets diminishes
predictably over time, and because industry analysts have accepted it as a
performance measure. Comparison of the Operating Partnership's presentation
of FFO, using the NAREIT definition, to similarly titled measures for other
REITs may not necessarily be meaningful due to possible differences in the
application of the NAREIT definition used by such REITs.
6. Average occupancy is defined as gross potential rent less vacancy allowance
divided by gross potential rent for the period, expressed as percentage.
Average occupancy and rental information for 1991 to 1993 exclude Columbia
Crossing because this property was not managed by the Smith Companies until
March 1993.
7. Average monthly revenue per apartment unit consists of total residential
property revenue for the core portfolio divided by the respective number of
apartment units divided by the number of months in the period.
8. At the formation of the Operating Partnership, all rental properties were
recorded at Other Operating Partnership Unitholders' historical cost basis
which is significantly less than current value and, therefore, results in
dilution of partners' book value. Partners' equity of $(320,286) and
$(347,767) as of December 31, 1995 and 1994, respectively, is net of
$(244,208) contribution by Other Operating Partnership Unitholders of assets
at historical cost, net of liabilities.
9. Limited partnership units of the Other Operating Partnership Unitholders may
be redeemed at the unitholder's discretion. Consequently, the Other
Operating Partnership Unitholders Interest, measured at redemption value, is
not included in partners' equity. Partners equity has been adjusted to
reflect the redemption value of Other Operating Partnership Unitholders'
interest. (See footnote 13 to the Financial Statements.)
22
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
BACKGROUND
The following discussion should be read in conjunction with the "Selected
Financial Data," and all of the financial statements and notes thereto included
elsewhere in this annual report. The results of operations presented in the
Consolidated Statements of Operations and discussed below for the year ended
December 31, 1995 and for the period from June 30, 1994 to December 31, 1994
represent the results of operations of Charles E. Smith Residential Realty L.P.
(the "Operating Partnership"). The results presented in the Financial Statements
for the CES Group (the "Predecessor") cover the period from January 1, 1994 to
June 29, 1994 and the year ended December 31, 1993.
Amounts as of and for the year ended December 31, 1995 and the six months
ended December 31, 1994 have been restated to reflect a change in accounting
method used to report the Operating Partnership's investments in the Property
Service Businesses. The Operating Partnership had previously selected the cost
method to account for its investment in its Property Service Businesses in order
to comply with a previous interpretation of the Securities and Exchange
Commission ("SEC"). However, during the year ended December 31, 1995 in response
to the Emerging Issues Task Force ("EITF") consensus, "Accounting by a Real
Estate Investment Trust for an Investment in a Service Corporation", the
Operating Partnership changed its method of accounting for its investments in
its Property Service Businesses from the cost method to the equity method to
comply with the EITF directive.
Management believes the most meaningful comparison of the results of
operations for the years ended December 31, 1995 and 1994 is on a pro forma
basis rather than an historical basis because of the significant changes brought
about by the initial public offering, refinancing, and the revision in the
presentation of the operating subsidiaries (the "Property Service Businesses")
of the Operating Partnership. Therefore, the following discussion compares the
historical activities of the Operating Partnership for the year ended December
31, 1995 to the pro forma results for the year ended December 31, 1994. The pro
forma adjustments made to the period ended June 29, 1994 consist of adjustments
to (1) reflect the Property Service Businesses using the equity method, (2)
reflect the effect of debt repayment and refinancings on interest expense,
including amortization of deferred financing costs, (3) reflect additional
general and administrative costs as a public company, offset by allocations to
the Property Service Businesses, (4) reduce interest income to reflect changes
in funds available for investment, and (5) reflect Federal and state income
taxes on earnings and profits of the Property Service Businesses. The discussion
also includes a comparison to the historical results for the years ended
December 31, 1995, 1994 and 1993. In analyzing the results for 1994, management
has summarized the Operating Partnership's and CES Group's results of operations
for 1994.
23
<PAGE>
THE OPERATING PARTNERSHIP
On June 30, 1994, Charles E. Smith Residential Realty, Inc. (the "Company")
made a $201.4 million capital contribution to the Operating Partnership for a 1%
general partnership interest and a 41.7% limited partnership interest in the
Operating Partnership. The Company is the sole general partner of the Operating
Partnership.
In addition, simultaneous with the above transaction, the Operating
Partnership, through the financing partnerships, borrowed approximately $352.4
million of mortgage debt secured by 29 properties. The Operating Partnership
applied the $201.4 million capital contribution, together with the $352.4
million of proceeds from the mortgage loans, to repay $454.0 million of mortgage
indebtedness and related prepayment penalties of $13.8 million, pay
approximately $26.2 million of notes payable and related interest payable to
related parties, pay $11.1 million of notes payable to a bank, pay transfer
taxes and other costs associated with the combination of the properties' assets,
and pay other expenses associated with the mortgage loans.
The Operating Partnership and its subsidiaries, owns residential and retail
properties (the "Properties") which are located in the Washington, D.C.
metropolitan area. The residential properties consist of the following as of
December 31, 1995.
<TABLE>
<CAPTION>
Number of
---------------------
Type Properties Units
---------------------------- ---------- ---------
<S> <C> <C>
Core Portfolio
Highrise 15 5,123
Mid-Rise 6 1,356
Garden/Townhomes 9 5,355
-- ------
30 11,834
-- ------
Acquisitions & Development
Highrise 3 1,039
Garden/Townhomes 5 1,277
-- ------
8 2,316
-- ------
38 14,150
== ======
</TABLE>
In addition, the Operating Partnership owns two free standing retail
properties which total approximately 436,000 square feet.
The Operating Partnership, through the Property Service Businesses,
provides a range of services to the Properties on essentially a cost basis and
on a fee basis to third party clients and affiliated partnerships as follows:
24
<PAGE>
. Multifamily and Retail Property Management provides property management
and leasing services for residential and retail properties.
. Interior Construction and Renovation Services provides construction and
project management services for capital improvement and tenant renovation
projects of office, retail and multifamily properties.
. Engineering and Technical Services provides on-site building systems
operations and maintenance; engineering and technical consulting;
automated environmental monitoring and controls; preventive maintenance;
management of building environmental systems; and repair and replacement
of mechanical/electrical systems. This business also provides facilities
management services for outside parties including condominium
associations, banks, universities, and government agencies.
. Financing Services provides negotiation, administration and execution of
debt refinancing including sourcing funding alternatives, soliciting
prospective lenders, monitoring, analyzing and negotiating changes in
loan status and/or structure, and satisfying reporting requirements of
lenders.
RENTAL PROPERTIES
Revenue, expenses and income from the multifamily and retail properties
were as follows (in thousands):
<TABLE>
<CAPTION>
CES Residential Realty L.P. CES Group
-------------------------------------- ----------------
Year Ended December 31,
------------------------
Pro Historical Historical
Historical Forma/1/ ---------- --------------------------
---------- --------- 6/30/94 to 1/1/94 to Year ended
1995 1994 12/31/94 6/29/94 12/31/93
---- ---- -------- ------- --------
<S> <C> <C> <C> <C> <C>
Multifamily Properties - Core
Revenues $122,470 $119,937 $ 60,397 $ 59,628 $ 116,139
Expenses (55,935) (55,084) (28,138) (26,867) (53,610)
-------- -------- --------- -------- ----------
Income before depreciation $ 66,535 $ 64,853 $ 32,259 $ 32,761 $ 62,529
======== ======== ========= ======== ==========
Multifamily Properties -
Acquisitions & Development
Revenues $ 12,021 $ 1,872 $ 1,872 $ - $ -
Expenses (6,245) (956) (899) - -
-------- -------- --------- -------- ----------
Income before depreciation $ 5,776 $ 916 $ 973 $ - $ -
======== ======== ========= ======== ==========
Retail Properties
Revenues $ 10,418 $ 9,078 $ 5,122 $ 3,868 $ 8,048
Expenses (3,447) (3,433) (1,422) (1,546) (2,738)
-------- -------- --------- -------- ----------
Income before depreciation $ 6,971 $ 5,645 $ 3,700 $ 2,322 $ 5,310
======== ======== ========= ======== ==========
Total Rental Properties
Revenues $144,909 $130,887 $ 67,391 $ 63,496 $ 124,187
Expenses (65,627) (59,473) (30,459) (28,413) (56,348)
Depreciation and amortization (16,258) (15,365) (7,738) (7,626) (14,333)
-------- -------- --------- -------- ----------
Income from rental properties $ 63,024 $ 56,049 $ 29,194 $ 27,457 $ 53,506
======== ======== ========= ======== ==========
</TABLE>
/1/ Pro forma adjustments consist principally of expense adjustments to reflect
management fees.
25
<PAGE>
All of the Operating Partnership's properties are located in developed areas
that include other residential and retail properties. The number of competitive
residential properties in a particular area could have a material effect on the
Operating Partnership' ability to lease apartment units and on the rents
charged. In addition, other forms of single and multifamily residential
properties provide housing alternatives to tenants and potential tenants of the
Operating Partnership's residential properties. The Operating Partnership's
retail properties face similar competition with other retail properties with
respect to tenant leases. The Operating Partnership believes that the properties
are well located in their markets and are well constructed and designed. In the
opinion of management, the Operating Partnership's properties are adequately
covered by insurance.
Occupancy Rates
Average occupancy of the Operating Partnership's multifamily properties
compares favorably with the Washington, D.C. metropolitan area market-wide
average occupancy, based on annual surveys of approximately 1,000 comparable
investment grade apartment properties conducted by The REIS Reports, Inc. as
follows:
<TABLE>
<CAPTION>
Occupancy Percent
----------------------------------------
Company Washington DC Market
--------- ---------------------
<S> <C> <C>
1995 97.2% /1/ 95.8%
1994 97.8% /1/ 95.2%
1993 97.8% /2/ 95.2%
1992 97.2% /2/ 94.6%
</TABLE>
/1/ Includes 30 properties containing 11,834 apartment units
/2/ Includes 29 properties containing 11,587 apartment units
Market-wide data from the surveys conducted by The REIS Reports, Inc. are
determined on a physical occupancy basis, whereas the Operating Partnership's
occupancy data is calculated on an economic basis. Physical occupancy data
commonly yields a slightly higher percentage than economic occupancy because
apartment units are considered physically rented when a rental applicant's
deposit is received, a point in time generally prior to the actual rent
commencement date used in computing economic occupancy.
Rental Revenue
Average revenue per apartment unit for the Operating Partnership's core
multifamily portfolio properties increased approximately 2.1% in 1995 as
compared with 1994, 3.3% in 1994 as compared with 1993, and 2.0% in 1993 as
compared with 1992. These increases compare favorably to the market area average
increases determined by the REIS Reports' surveys over these time periods.
A schedule of portfolio statistics follows:
26
<PAGE>
CHARLES E. SMITH RESIDENTIAL REALTY L.P.
RESIDENTIAL PORTFOLIO STATISTICS
For the Twelve Months Ended December 31, 1995
<TABLE>
<CAPTION>
Number of Average Monthly Average
Property Type/ Property Apartment Sq. Ft. Revenue Economic
Property Name Location Units Per Unit Per Unit Occupancy
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Core Residential Portfolio
High-Rise
Albemarle Washington, DC 235 1,097 $1,086 99.0%
Calvert-Woodley Washington, DC 135 1,008 1,001 99.5%
Cleveland House Washington, DC 216 894 960 98.4%
Corcoran House Washington, DC 138 464 723 99.0%
Courthouse Plaza Arlington, VA 396 772 1,068 98.3%
Crystal House I Arlington, VA 426 917 891 97.0%
Crystal House II Arlington, VA 402 938 872 96.6%
Crystal Place Arlington, VA 180 894 1,184 98.1%
Crystal Square Arlington, VA 378 1,121 1,049 99.0%
Gateway Place Arlington, VA 162 826 1,937 93.8%
Marbury Plaza Washington, DC 672 997 628 97.0%
Skyline Towers Fairfax Co., VA 940 1,221 922 96.5%
Statesman Washington, DC 281 593 712 99.3%
2501 Porter Street Washington, DC 202 760 1,311 98.3%
Water Park Towers Arlington, VA 360 881 1,415 98.3%
--- --- ----- -----
Subtotal 5,123 956 983 97.6%
Mid-Rise
Berkeley Arlington, VA 138 891 677 97.5%
Columbian Stratford Arlington, VA 227 942 690 97.7%
Executive Central Arlington, VA 230 903 720 97.8%
Executive North Arlington, VA 215 892 727 98.0%
Executive South Arlington, VA 266 842 705 98.3%
Windsor Towers Arlington, VA 280 1,025 734 95.9%
--- ----- --- -----
Subtotal/Average 1,356 920 712 97.5%
Garden
Bedford Village Fairfax Co., VA 752 1,070 813 96.0%
Car Barn Washington, DC 196 1,311 794 95.4%
Columbia Crossing Arlington, VA 247 976 1,081 98.7%
Concord Village Arlington, VA 531 1,025 756 95.5%
Fort Chaplin Washington, DC 549 983 589 97.6%
Newport Village Alexandria, VA 937 1,115 825 97.5%
Orleans Village Fairfax Co., VA 851 1,061 770 96.1%
Oxford Manor Washington, DC 227 1,005 589 94.7%
Patriot Village Fairfax Co., VA 1,065 1,162 828 97.0%
----- ----- --- -----
Subtotal/Average 5,355 1,083 785 96.7%
------ ----- --- -----
Subtotal/Average 11,834 1,010 862 97.2%
====== ===== === =====
Residential Acquisition/Development Portfolio
Potomac View (acquired 8/94) Loudoun Co., VA 192 965 676 96.8%
The Manor (acquired 8/94) Montgomery Co., MD 435 999 712 94.6%
Suburban Tower (acquired 1/95) Montgomery Co., MD 172 677 N/A N/A
Boulevard of Old Town (acquired 4/95) Alexandria, VA 112 650 N/A N/A
Connecticut Heights (acquired 6/95) Washington, DC 519 536 N/A N/A
The Bennington (acquired 9/95) Arlington, VA 348 804 N/A N/A
Oakwood (acquired 12/95) Vienna, VA 218 968 N/A N/A
Westerly at Worldgate (opened 5/95) Fairfax Co., VA 320 921 N/A N/A
--- ---- --- -----
Subtotal/Average 2,316 809 701 95.2%
----- ---- --- -----
All Residential Properties 14,150 977 $ 854 97.1%
====== ==== ===== =====
</TABLE>
27
<PAGE>
PROPERTY SERVICE BUSINESSES
Revenues, expenses and income from the various Property Service
Businesses were as follows (in thousands):
<TABLE>
<CAPTION>
CES Residential Realty L.P. CES Group
-------------------------------------- ------------------------
Year Ended December 31,
------------------------
Pro Historical Historical
Historical Forma/1/ ---------- ------------------------
---------- --------- 6/30/94 to 1/1/94 to Year ended
1995 1994 12/31/94 6/29/94 12/31/93
---- ---- -------- ------- --------
<S> <C> <C> <C> <C> <C>
Multifamily and Retail Property
Management and Other
Revenues $ 9,672 $ 9,731 $ 5,238 $ 2,095 $ 4,263
Expenses (7,664) (7,601) (4,149) (1,004) (1,874)
------- ------- ------- ------- -------
Income before
depreciation/amortization $ 2,008 $ 2,130 $ 1,089 $ 1,091 $ 2,389
======= ======= ======= ======= =======
Interior Construction and Renovation
Services
Revenues $ 5,901 $ 4,847 $ 2,712 $ 1,987 $ 4,149
Expenses (4,795) (4,299) (1,990) (1,987) (2,786)
------- ------- ------- ------- -------
Income before
depreciation/amortization $ 1,106 $ 548 $ 722 $ - $ 1,363
======= ======= ======= ======= =======
Engineering and Technical Services
(including reimbursed costs)
Revenues $ 40,186 $ 35,662 $ 18,667 $ 18,341 $ 21,718
Expenses (36,701) (32,274) (17,310) (15,919) (20,289)
------- ------- ------- ------- -------
Income before
depreciation/amortization $ 3,485 $ 3,388 $ 1,357 $ 2,422 $ 1,429
======= ======= ======= ======= =======
Financing Services
Revenues $ 3,018 $ 2,252 $ 1,668 $ 441 $ 4,187
Expenses (1,439) (1,029) (497) (393) (841)
------- ------- ------- ------- -------
Income before
depreciation/amortization $ 1,579 $ 1,223 $ 1,171 $ 48 $ 3,346
======= ======= ======= ======= =======
Total Property Services
Revenues $ 58,777 $52,492 $28,285 $22,864 $34,317
Expenses (50,599) (45,203) (23,946) (19,303) (25,790)
Depreciation & amortization (1,310) (1,108) (554) (763) (1,429)
------- ------- ------- ------- -------
Income from Property
Service Businesses $ 6,868 $ 6,181 $ 3,785 $ 2,798 $ 7,098
======= ======= ======= ======= =======
</TABLE>
Multifamily and Retail Property Management provide management services
to the Operating Partnership at cost plus 10% in accordance with the
management agreement; pro forma revenue
28
<PAGE>
for 1994 is reflected on this basis. In 1995, management services were provided
to 18 third-party owned multifamily properties which own approximately 6,400
apartment units pursuant to contracts that generally provide for management fees
of 4.5% of monthly gross income, and to three retail properties which own
approximately 292,000 square feet of retail space pursuant to contracts that
provide for management fees of 3% and leasing fees of 2% of monthly gross
income. Of the 21 management agreements, 14 are with affiliated partnerships and
seven are with unaffiliated property owners. The management agreements with
affiliated partnerships are for initial terms of three years or more and the
multifamily management agreements with unaffiliated owners generally have one-
year terms. The average term for which the Operating Partnership and its
predecessors have managed these properties is 19 years.
Interior Construction and Renovation provided oversight to over $45 million of
construction activity in 1995 and approximately $40 million in 1994. Services
are provided to the Operating Partnership at cost (including overhead) and at
cost plus a fee to affiliated partnerships and third parties.
Engineering and Technical Services provides on-site building systems
operations, maintenance and inspection to affiliated partnerships at cost,
including overhead, and to third parties at cost, including overhead, plus a
fee. During 1995, services were provided to approximately 28 million square feet
of facilities and to approximately 25 million square feet in 1994.
Financing Services performed $261 million of refinancings in 1995, up from
$168 million of refinancings in 1994.
RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1995
Comparison to Year Ended December 31, 1994 (Pro Forma)
Summary. Net income increased 13.3%, or $3.7 million, from $27.4 million for
the year ended December 31, 1994 to $31.1 million for the year ended December
31, 1995. Funds from Operations ("FFO") increased $4.5 million, or 10.6%,
during the same period. The increase in FFO results from the increases in net
income.
Rental Properties. Revenue from rental properties increased $14.0 million, or
10.7%, from $130.9 million for 1994 to $144.9 million for 1995. The acquisition
properties (consisting of 1,996 apartment units, 627 of which were added in
1994, 172 of which were added in the first quarter of 1995, 631 in the second
quarter of 1995, 348 in the third quarter of 1995, and 218 in the fourth quarter
of 1995), contributed $9.2 million to the rental revenue increase. The Westerly
at Worldgate, a 320-unit garden apartment property developed by the Operating
Partnership, opened in May, 1995 and was completed in December, 1995. As of
December 31, 1995, it was 75.6% occupied and contributed approximately $.9
million in revenues in 1995. Revenue from the core portfolio increased $2.5
million, or 2.1%, from 1994 to 1995. The lower than expected
29
<PAGE>
level of core portfolio rental increase was caused by higher economic vacancies
and increased time between vacancy and subsequent lease-up in garden apartments
in certain submarkets of northern Virginia and the southeast section of the
Washington, D.C. submarket, especially in the second quarter of 1995. As a
consequence of this slower demand in these submarkets, occupancy in the core
portfolio decreased from 97.8% for 1994 to 97.2% for 1995, and average monthly
revenue per apartment unit increased 2.0%, from $845 in 1994 to $862 in 1995.
Expenses from rental properties (including depreciation) increased $7.0
million, or 9.4%, from $74.8 million for pro forma 1994 to $81.9 million for
1995. The increase resulted primarily from the acquisition of 1,996 units and
the development of 320 units since August 1994 which together added $5.3 million
in operating costs, primarily payroll and utility expenses, as well as
depreciation expense. Expenses from the core residential portfolio increased $.9
million from $55.1 million for 1994 to $55.9 million for 1995.
Property Service Businesses. Income from the Property Service Businesses
increased from $6.2 million for 1994 to $6.9 million for 1995.
Income before depreciation/amortization from Engineering and Technical
Services increased $.1 million, or 2.9%, while revenue increased $4.5 million,
or 12.7% compared to 1994. These results are attributed to more HVAC systems
operations and preventative maintenance contracts, which carry lower margins.
Additionally, 1994 included an unusually high level of incremental repair and
replacement services for mechanical and electrical systems associated with third
party contracts, which typically earn higher margins.
Income before depreciation/amortization from Financing Services increased $.3
million in 1995 compared to 1994 due to an increase in finance fee revenues.
Revenue from Financing Services increased $.8 million as $261 million of
refinancings were closed in 1995, versus $168 million in 1994, and an affiliate
was billed $.3 million for financial advisory services. Income before
depreciation/amortization from Interior Construction and Renovation increased
$.5 million compared to pro forma 1994 due to increased activity in tenant
build-out and renovation projects at office buildings owned by affiliated
partnerships and by increases in a major third party contract.
Other. Corporate general and administrative expenses increased $.6 million, or
29%, due to fees and expenses incurred in connection with the preparation of the
Company's initial annual report, 10-K and proxy, two 8-Ks, the registration with
the SEC of the dividend reinvestment plan, and the Company's shelf registration.
Interest expense increased $3.1 million, or 8.9%, due to additional borrowings
for acquisitions and development.
Comparison to Year Ended December 31, 1994 (Historical)
Net income of the Operating Partnership increased $ 41.8 million from a loss
in 1994 of $10.7
30
<PAGE>
million to income of $31.1 million due primarily to consolidation costs of $15.6
million and debt extinguishment costs of $15.2 million in 1994 in conjunction
with the Offerings. In addition, interest expense was $4.8 million lower in 1995
due to lower rates achieved through the Offerings, and income from rental
properties was $6.4 million higher than 1994 primarily due to property
acquisitions.
RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1994
Comparison to Year Ended December 31, 1993
Summary. On an historical basis, net income decreased $25.3 million from net
income of $14.7 million for the year ended December 31, 1993 to a net loss of
$10.6 million for the year ended December 31, 1994. The decrease is due
primarily to consolidation costs of $15.6 million and debt extinguishment costs
of $15.2 million in 1994 in conjunction with the Offerings and a $2.1 million
debt extinguishment gain in 1993 offset by $4.6 million in lower interest
expense in 1994, an increase of $3.1 million in income from rental properties
and a $0.5 million decrease in income from the Property Service Businesses.
Rental Properties. Revenue from rental properties increased $6.7 million, or
5.4%, from $124.2 million for the year ended December 31, 1993, to $130.9
million for the year ended December 31, 1994 due to increased revenue from the
multifamily properties of $5.8 million and a $0.9 million increase from the
retail properties. Multifamily revenue increased due to a 3.3% increase in
average monthly revenue per apartment unit from $818 for the year ended December
31, 1993 to $845 for the year ended December 31, 1994 and from the acquisition
of an additional 627 multifamily units in August, 1994. Occupancy levels
remained stable at approximately 98%. Retail revenues increased $0.9 million
primarily as a result of straight line base rent increases from new leases,
including the Worldgate Health Club lease, and a decrease in vacancy.
Expenses from rental properties (including depreciation) increased $3.5
million, or 5.0%, from $70.7 million for the year ended December 31, 1993, to
$74.2 million for the year ended December 31, 1994. This increase was due
primarily to (1) the acquisition of 627 multifamily units in August, 1994 which
added $0.9 million, (2) an increase in expenses of the core residential and
retail portfolios of $1.6 million, and (3) an increase in depreciation expense
of $1.0 million due primarily to the property acquisitions and the $10 million
of capital improvements to the rental properties during 1993 and 1994. The core
portfolio expenses increased 2.9% from 1993 to 1994 due to normal inflationary
increases in payroll and related benefits and other operating expenses. There
was virtually no increase in three major cost categories - utilities, repairs
and maintenance, and real estate taxes. Significant cost increases in utilities
due to unusually cold weather in the first quarter of 1994 were offset by cost
decreases due to an exceptionally mild summer and fall. Repair and maintenance
projects were completed as planned with no significant unplanned projects. Real
estate taxes did not increase in 1994 from 1993 as 1993 included a one time $.5
million increase related to the change in tax year by the District of Columbia.
31
<PAGE>
Property Service Businesses. Income from the Property Service Businesses
decreased $.5 million from $7.1 million for the year ended December 31, 1993 to
$6.6 million for the year ended December 31, 1994 due primarily to a $2.1
million decrease from Financing Services and a $.6 million decrease from
Interior Construction and Renovation, partially offset by a $2.4 million
increase from Engineering and Technical Services.
Financing Services revenues for the year ended December 31, 1993 included an
unusually high level of fees related to refinancing of debt on properties owned
by affiliated partnerships. Interior Construction and Renovation income before
depreciation/amortization decreased due to lower margins experienced on a major
contract with an unaffiliated third party in 1994. Engineering and Technical
Services revenues increased by $15.3 million due primarily to four new contracts
and expansion of existing contracts with unaffiliated third parties for building
systems operations and maintenance of office buildings, university facilities
and banking centers. These contracts also resulted in additional revenues from
incremental repair and replacement services for mechanical/electrical systems.
Expenses from Engineering and Technical Services increased $12.9 million due
primarily to increased payroll expenses associated with the new and expanded
contracts and from additional subcontractor costs for security, cleaning and
other services under these contracts.
Other. Interest expense was $4.6 million lower in 1994 due to the lower
interest rates achieved through the Offerings.
Funds from Operations. Funds from Operations (FFO) is defined under the
revised definition adopted by the National Association of Real Estate Investment
Trusts (NAREIT) as net income (loss) (computed in accordance with generally
accepted accounting principles) excluding gains (or losses) from debt
restructuring, plus depreciation/amortization of assets unique to the real
estate industry. Depreciation/amortization of assets not unique to the industry,
such as amortization of deferred financing costs and non-real estate assets, is
not added back. FFO does not represent cash flow from operating activities in
accordance with generally accepted accounting principles (which, unlike Funds
from Operations, generally reflects all cash effects of transactions and other
events in the determination of net income) and should not be considered an
alternative to net income as an indication of the Operating Partnership's
performance or to cash flow as a measure of liquidity or ability to make
distributions. The Operating Partnership considers FFO a meaningful, additional
measure of operating performance because it primarily excludes the assumption
that the value of real estate assets diminishes predictably over time, and
because industry analysts have accepted it as a performance measure. Comparison
of the Operating Partnership's presentation of FFO, using the NAREIT definition,
to similarly titled measures for other REITs may not necessarily be meaningful
due to possible differences in the application of the NAREIT definition used by
such REITs.
The calculation of FFO under the revised definition by quarter for 1995 and
1994 follows.
32
<PAGE>
CHARLES E. SMITH RESIDENTIAL REALTY L.P.
Revised Definition of Funds From Operations
<TABLE>
<CAPTION>
1995
Revised Definition
------------------------------------------------------
3 Months 3 Months 3 Months 3 Months 12 Months
Ended Ended Ended Ended Ended
(dollars in thousands) 3/31/95 6/30/95 9/30/95 12/31/95 12/31/95
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Income of the Operating Partnership $ 6,153 $ 7,447 $ 8,105 $ 9,348 $31,053
Depreciation and amortization of
Rental Property 3,930 3,918 4,067 4,343 16,258
------- ------- ------- ------- -------
Funds From Operations $10,083 $11,365 $12,172 $13,691 $47,311
======= ======= ======= ======= =======
<CAPTION>
1994
Revised Definition
------------------------------------------------------
Pro Forma Pro Forma
----------------- ---------
3 Months 3 Months 3 Months 3 Months 12 Months
Ended Ended Ended Ended Ended
(dollars in thousands) 3/31/94 6/30/94 9/30/94 12/31/94 12/31/94
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Income of the Operating Partnership $ 5,452 $ 6,709 $ 8,248 $ 6,992 $27,401
Depreciation and amortization of
Rental Property 3,713 3,913 3,770 3,969 15,365
------- ------- ------- ------- -------
Funds From Operations $ 9,165 $10,622 $12,018 $10,961 $42,766
======= ======= ======= ======= =======
</TABLE>
33
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Summary. Net cash flow provided by operating activities was $51.8 million for
1995 compared to $41.2 million for 1994. The increase was primarily a result of
acquisitions made by the Operating Partnership as well as a full year of reduced
interest expense due to the Offerings in June 1994.
Net cash flow used by the Operating Partnership for investing activities
increased $36.1 million in 1995, from $30.9 million in 1994 to $67 million in
1995. Approximately $15.8 million of the increase was attributable to the
Operating Partnership's acquisitions and property enhancements during the year.
The balance is primarily due to net cash inflows in 1994 from predecessors and
related parties compared to net cash outflows in 1995.
Net cash flows provided by financing activities was $6.4 million in 1995
compared to $11.0 million in 1994. In 1995, the Operating Partnership borrowed
$48 million to fund acquisitions and development compared to borrowings of $21.1
million in 1994. However, quarterly dividends and distributions totaled $41.2
million (four quarters) and $10.2 million (one quarter) in 1995 and 1994,
respectively. Net cash flow from the Offerings and issuance of mortgage debt was
primarily used to repay outstanding debt and transaction costs.
Acquisitions and Development
The Operating Partnership acquired and developed the following properties
during 1995 and the six months ended December 31, 1994.
<TABLE>
<CAPTION>
Total Cost (Dollars in Thousands) 1995 1994
--------------------------------- ---- ----
<S> <C> <C>
Acquisitions
192-unit garden apartment $ - $ 8,700
435-unit garden apartment - 20,300
172-unit high rise apartment 6,500 -
112-unit garden apartment 5,895 -
519-unit high rise apartment 24,900 -
348-unit high rise apartment 29,000 -
218-unit garden apartment 16,000 -
Development of 320-unit garden apartment 16,700 10,400
--------- ---------
$ 98,995 $ 39,400
========= =========
<CAPTION>
The 1995 and 1994 acquisitions and development were funded as follows:
1995 1994
---- ----
<S> <C> <C>
Line of credit/construction loan draws $48,054 $ 21,150
Assumption of mortgage debt 30,618 -
Issuance of Operating Partnership units 13,727 -
Proceeds of stock offering - 18,250
Cash on hand 6,596 -
--------- ---------
$ 98,995 $ 39,400
========= =========
</TABLE>
34
<PAGE>
The Operating Partnership continues to aggressively pursue acquisition and
development opportunities. In March 1996, the Operating Partnership acquired two
apartment properties totaling 309 apartment units at a total cost of $17.1
million. In addition, contracts have been executed on the acquisition of two
additional apartment properties totaling 740 apartment units. Closings are
subject to satisfaction of tenants' rights. These acquisitions, if consummated,
will require approximately $45 million of cash, the assumption of $3.3 million
of debt, and the issuance of approximately 80,000 Operating Partnership Units at
$25 per unit. The cash portion will be financed by draws under the Company's
credit facilities or a public offering of debt or stock as discussed below.
Development of the 320-unit garden apartment complex at Worldgate was
completed in December, 1995. In addition, the Operating Partnership has under
contract a site, the purchase of which is subject to final zoning, near the new
Springfield, Virginia, metro station for development of an apartment project.
Numerous other acquisition and development projects are being investigated.
Debt
As of December 31, 1995, 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 $ 365,413 75.7%
Variable Rate 17,419 3.6%
Short-term mortgage debt
(maturities less than 1 year)
Fixed Rate 31,141 6.4%
Variable Rate - -
$100M Acquisition Line of Credit 52,550 10.9%
$83M Acquisition Line of Credit/1/ - -
Construction Loan 16,654 3.4%
---------- --------
Total Debt $ 483,177 100.0%
========== ========
</TABLE>
/1/ In January 1996, the Operating Partnership secured a new $83M
acquisition/permanent line of credit from Northwestern Mutual Life.
As of December 31, 1995, the Operating Partnership's Debt to Total Market
Capitalization Ratio was 48.3%, based on 21,913,562 partnership units
outstanding measured at the Company's stock price of $23.625. The Operating
Partnership's Debt Coverage Ratio for the year ended December 31, 1995 was
2.44:1. The indebtedness carries a blended average annual interest rate of
8.01%, an average maturity of 6.5 years, and is collateralized by 38 of the
Properties.
35
<PAGE>
An objective of the Operating Partnership during 1996 is to increase the debt
coverage ratio and to reduce the debt-to-market capitalization ratio. To
achieve this objective, the Operating Partnership completed three significant
debt financing activities in January, 1996 and filed a $200 million shelf
registration for general corporate purposes. The debt financing activities are
summarized as follows:
. A new $83 million acquisition/permanent line of credit from Northwestern
Mutual Life ("NML"). This credit facility has an eight and one half year
term with an interest rate that is fixed at the time of each acquisition at
a spread over 10-year T-Bills;
. An extension until mid-1997 and a rate reduction of 62.5 basis points to
162.5 basis points over LIBOR to the Company's existing $100 million line of
credit; and
. A five year extension of an existing $117 million, ten year permanent loan
from NML.
Principal payments on outstanding debt as of December 31, 1995 are due in
the following years:
<TABLE>
<CAPTION>
Dollars
in Millions
-----------
<S> <C>
1996 $ 31.1
1997 86.6
1998 -
1999 111.1
2000 1.6
2001 127.0
2002 1.9
2003 2.1
2004 1.1
2009 107.5
2020 13.1
--------
$ 483.1
========
</TABLE>
The Operating Partnership anticipates meeting these principal repayment
requirements through long-term borrowings, public or private issuances of debt
securities or public or private equity offerings.
Dividends and Distributions
In 1995, the Operating Partnership paid distributions of $41.2 million, or
$1.915 per unit representing three quarters of distributions at $.475 per unit
and one quarter at $.49, representing a 3% increase.
36
<PAGE>
Other Operating Partnership Unitholders Interest
The limited partnership units of the Other Operating Partnership Unitholders
may be redeemed at the unitholder's discretion. The Company, as the general
partner of the Operating Partnership, has the option to make the redemption for
cash, at the then fair value of the Company's stock, or for shares of common
stock of the Company on a one-for-one basis. During the year ended December 31,
1995, 658,456 units were redeemed for shares of common stock of the Company. It
has been, and continues to be, the Company's preference to satisfy redemption
requests with stock.
Other
In 1995, total capital improvements were $5.3 million, of which $4.7 million,
or $396 per apartment unit, was for the core portfolio. Capital improvements are
expected to be approximately $6.5 million in 1996, of which $4.7 million is
expected to be for core property, non-revenue enhancing projects.
The Property Service Businesses are taxable corporations, and thus, pay
Federal and state income taxes on their net income. The accrual for such taxes
amounted to $621 for 1995 and $412 in the aggregate for the period from June 30,
1994 to December 31, 1994.
Effect of Inflation. Substantially all of the leases at the multifamily
properties are for a term of one year or less, which enables the Operating
Partnership to seek increased rents upon renewal or reletting of apartments.
Retail tenant leases provide for pass-through of common area maintenance, real
estate taxes and other operating costs to tenants, which reduces the impact of
inflation.
37
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See Index to Consolidated and Combined Financial Statements on Page F-1 of
this Form 10-K.
PART IV
ITEM 14. EXHIBITS, FINANCIAL SCHEDULES, AND REPORTS ON FORM 8-K.
14(A)(1) FINANCIAL STATEMENTS
Reference is made to the Index to Financial Statements and Schedule on
Page F-1 of this Form 10-K.
14(A)(2) FINANCIAL STATEMENT SCHEDULES
Reference is made to the Index to Financial Statements and Schedule on
Page F-1 of this Form 10-K.
All other schedules have been omitted because the required information
of such other schedules is not present in amounts sufficient to
require submission of the schedule or because the required
information is included in the consolidated and combined financial
statements.
14(A)(3) EXHIBITS
**2.1 Third Party Management and Leasing, Hotel Asset Management and
Corporate Services Business Transfer Agreement by and between
Charles E. Smith Residential Realty, Inc. and Smith Property
Management, Inc.
**2.2 REIT Properties Management and Leasing Business Transfer
Agreement by and between Charles E. Smith Management, Inc. and
Charles E. Smith Residential Realty L.P.
**2.3 Assignment by Robert H. Smith, Clarice R. Smith, Robert P.
Kogod and Arlene R. Kogod to Charles E. Smith Management, Inc.
of 99% of all Partnership Interests of Residential Associates
Limited Partnership
**2.4 Assignment and Assumption Agreement by Residential Associates
Limited Partnership and Charles E. Smith Residential Realty
L.P.
**2.5 Debt Assumption Agreement and Accord and Satisfaction of Debt
by Charles E. Smith Management, Inc. and Charles E. Smith
Residential Realty L.P.
**2.6 Debt Contribution Agreement between Charles E. Smith
Management, Inc. and Charles E. Smith Residential Realty L.P.
(the "Operating Partnership")
<PAGE>
**3.1 First Amended and Restated Agreement of Limited Partnership of
the Operating Partnership, as amended
**3.2 Certificate of Limited Partnership of the Operating
Partnership
*4.1 Amended and Restated Articles of Incorporation of Charles E.
Smith Residential Realty, Inc. (the "Company")
4.2 Amended and Restated Bylaws of the Company (Incorporated by
reference to the same titled and numbered exhibit in the
Company's Registration Statement on Form S-3 (File No. 33-
93986).
**10.1 Noncompetition Agreement by and among the Company, the
Operating Partnership and Robert P. Kogod
**10.2 Registration Rights and Lock-up Agreement
**10.3 Pledge Agreement
**10.4 First Amended and Restated 1994 Employee Stock and Unit Option
Plan
**10.5 First Amended and Restated 1994 Employee Restricted Stock and
Restricted Unit Plan
**10.6 Non-Employee Directors Stock Option Plan
**10.7 Subscription Agreement
**10.8 Voting Stock Partnership Agreement for Smith Property
Management Partnership
**10.9 Voting Stock Partnership Agreement for Smith Management
Construction Partnership
**10.10 Voting Stock Partnership Agreement for Consolidated
Engineering Services Partnership
**10.11 Amended and Restated Articles of Incorporation of Smith
Realty Company
*10.12 By-Laws of Smith Property Management, Inc.
*10.13 Articles of Incorporation of Smith Management Construction,
Inc.
*10.14 By-Laws of Smith Management Construction, Inc.
*10.15 Articles of Incorporation of Consolidated Engineering
Services, Inc.
*10.16 By-Laws of Consolidated Engineering Services, Inc.
*10.17 Certificate of Incorporation of Smith One, Inc.
*10.18 By-Laws of Smith One, Inc.
**10.19 Agreement of Limited Partnership of Smith Property Holdings
One L.P.
**10.20 Agreement of Limited Partnership of Smith Property Holdings
One (D.C.) L.P.
*10.21 Certificate of Incorporation of Smith Two, Inc.
*10.22 By-Laws of Smith Two, Inc.
**10.23 Agreement of Limited Partnership of Smith Property Holdings
Two L.P.
**10.24 Agreement of Limited Partnership of Smith Property Holdings
Two (D.C.) L.P.
*10.25 Certificate of Incorporation of Smith Three, Inc.
*10.26 By-Laws of Smith Three, Inc.
**10.27 Agreement of Limited Partnership of Smith Property Holdings
Three L.P.
**10.28 Agreement of Limited Partnership of Smith Property Holdings
Three (D.C.) L.P.
<PAGE>
*10.29 Certificate of Incorporation of Smith Four, Inc.
*10.30 By-Laws of Smith Four, Inc.
**10.31 Agreement of Limited Partnership of Smith Property Holdings
Four L.P.
**10.32 Amended and Restated Certificate of Incorporation of Smith
Five, Inc.
*10.33 By-Laws of Smith Five, Inc.
**10.34 Agreement of Limited Partnership of Smith Property Holdings
Five (D.C.) L.P.
**10.35 License Agreement between Charles E. Smith Management, Inc.
and the Company
**10.36 License Agreement between Charles E. Smith Management, Inc.
and the Operating Partnership
10.37 Agreement of Limited Partnership of Smith Property Holdings
Five L.P. (Incorporated by reference to Exhibit No. 10.0 of
the Operating Partnership's Quarterly Report on Form 10-Q
for the Quarter Ended September 30, 1994)
**10.38 Certificate of Limited Partnership of Smith Property Holdings
Five L.P.
***10.39 Amended and Restated Credit Agreement by and between the
Operating Partnership and PNC Bank, National Association,
et al.
10.40 Deed of Trust and Security Agreement between Smith property
Holdings Three L.P. ("Smith Three") and The Northwestern
Mutual Life Insurance Company ("Northwestern") (Incorporated
by reference to Exhibit No. 10.2 of the Operating
Partnership's Quarterly Report on Form 10-Q for the Quarter
Ended June 30, 1994)
10.41 Guarantee of Recourse Obligations by Smith Three and the
Operating Partnership (Incorporated by reference to Exhibit
No. 10.3 of the Operating Partnership's Quarterly Report on
Form 10-Q for the Quarter Ended June 30, 1994)
10.42 Absolute Assignment of Leases and Rents between Smith Three
and Northwestern (Incorporated by reference to Exhibit
No. 10.4 of the Operating Partnership's Quarterly Report on
Form 10-Q for the Quarter Ended June 30, 1994)
10.43 Promissory Note of Smith Three to Northwestern (Incorporated
by reference to Exhibit No. 10.5 of the Operating
Partnership's Quarterly Report on Form 10-Q for the Quarter
Ended June 30, 1994)
10.44 Purchase Money Deed of Trust and Security Agreement between
Smith Property Holdings Three (D.C.) L.P. ("Smith Three
D.C.") and Northwestern (Incorporated by reference to
Exhibit No. 10.6 of the Operating Partnership's Quarterly
Report on Form 10-Q for the Quarter Ended June 30, 1994)
10.45 Guarantee of Recourse Obligations by Smith Three D.C. and the
Operating Partnership (Incorporated by reference to Exhibit
No. 10.7 of the Operating Partnership's Quarterly Report on
Form 10-Q for the Quarter Ended June 30, 1994)
10.46 Absolute Assignment of Leases and Rents between Smith Three
D.C. and Northwestern (Incorporated by reference to Exhibit
No. 10.8 of the Operating Partnership's Quarterly Report on
Form 10-Q for the Quarter Ended June 30, 1994)
<PAGE>
10.47 Purchase Money Promissory Note of Smith Three D.C. to
Northwestern (Incorporated by reference to Exhibit No. 10.9 of
the Operating Partnership's Quarterly Report on Form 10-Q for
the Quarter Ended June 30, 1994)
10.48 Supplemental Loan Agreement by and among Smith Property
Holdings Two L.P. ("Smith Two"), Smith Property Holdings Two
(D.C.) L.P. ("Smith Two D.C.") and GMAC Mortgage Corporation
of PA ("GMAC") (Incorporated by reference to Exhibit No. 10.10
of the Operating Partnership's Quarterly Report on Form 10-Q
for the Quarter Ended June 30, 1994)
10.49 Multifamily Note of Smith Two to GMAC (Incorporated by
reference to Exhibit No. 10.11 of the Operating Partnership's
Quarterly Report on Form 10-Q for the Quarter Ended June 30,
1994)
10.50 Multifamily Note of Smith Two D.C. to GMAC (Incorporated by
reference to Exhibit No. 10.12 of the Operating Partnership's
Quarterly Report on Form 10-Q for the Quarter Ended June 30,
1994)
10.51 Supplemental Loan Agreement by and among Smith Property
Holdings One L.P. ("Smith One"), Smith Property Holdings One
(D.C.) L.P. ("Smith One D.C.") and GMAC (Incorporated by
reference to Exhibit No. 10.13 of the Operating Partnership's
Quarterly Report on Form 10-Q for the Quarter Ended June 30,
1994)
10.52 Multifamily Note of Smith One to GMAC (Incorporated by
reference to Exhibit No. 10.14 of the Operating Partnership's
Quarterly Report on Form 10-Q for the Quarter Ended June 30,
1994)
10.53 Multifamily Note of Smith One D.C. to GMAC (Incorporated by
reference to Exhibit No. 10.15 of the Operating Partnership's
Quarterly Report on Form 10-Q for the Quarter Ended June 30,
1994)
10.54 Absolute Assignment of Leases and Rents by Smith One D.C. to
GMAC (Incorporated by reference to Exhibit No. 10.16 of the
Operating Partnership's Quarterly Report on Form 10-Q for the
Quarter Ended June 30, 1994)
10.55 Property Management Agreement by and between Smith One and
the Operating Partnership (Incorporated by reference to
Exhibit No. 10.17 of the Operating Partnership's Quarterly
Report on Form 10-Q for the Quarter Ended June 30, 1994)
10.56 Multifamily Deed of Trust, Assignment of Rents and Security
Agreement between Smith One D.C. and GMAC (Incorporated by
reference to Exhibit No. 10.18 of the Operating Partnership's
Quarterly Report on Form 10-Q for the Quarter Ended June 30,
1994)
10.57 Commercial Leasing and Property Management Agreement between
Smith Three and the Operating Partnership (Incorporated by
reference to Exhibit No. 10.19 of the Operating Partnership's
Quarterly Report on Form 10-Q for the Quarter Ended June 30,
1994)
**10.58 Agreement of Limited Partnership of Smith Employment
Services L.P.
**10.59 Certificate of Limited Partnership of Smith Employment
Services L.P.
10.60 Second Restated and Amended Agreement of Limited Partnership
of First Herndon Associates Limited Partnership (Incorporated
by reference to Exhibit 10.1 of the Operating Partnership's
Quarterly Report on Form 10-Q for the Quarter Ended June 30,
1995)
<PAGE>
10.61 Second Amendment to the Certificate of Limited Partnership
of First Herndon Associates Limited Partnership (Incorporated
by reference to Exhibit 10.2 of the Operating Partnership's
Quarterly Report on Form 10-Q for the Quarter Ended June 30,
1995)
10.62 Certificate of Incorporation of Smith Six, Inc. (Incorporated
by reference to Exhibit No. 10.1 of the Operating
Partnership's Quarterly Report on Form 10-Q for the Quarter
Ended March 31, 1995)
10.63 By-Laws of Smith Six, Inc. (Incorporated by reference to
Exhibit No. 10.2 of the Operating Partnership's Quarterly
Report on Form 10-Q for the Quarter Ended March 31, 1995)
10.64 Agreement of Limited Partnership of Smith Property Holdings
Six L.P. (Incorporated by reference to Exhibit No. 10.3 of
the Operating Partnership's Quarterly Report on Form 10-Q
for the Quarter Ended March 31, 1995)
10.65 Agreement of Limited Partnership of Smith Property Holdings
Six (D.C.) L.P. (Incorporated by reference to Exhibit
No. 10.4 of the Operating Partnership's Quarterly Report on
Form 10-Q for the Quarter Ended March 31, 1995)
***10.66 Certificate of Incorporation of Smith Seven, Inc.
***10.67 By-Laws of Smith Seven, Inc.
***10.68 Agreement of Limited Partnership of Smith Property Holdings
Seven L.P.
***10.69 Commitment for Mortgage Loan to the Operating Partnership
from Northwestern Mutual Life Insurance Company
***21 Subsidiaries of the Registrant
23.1 Consent of Arthur Andersen LLP
***99.1 Proxy Statement for Annual Meeting of Shareholders of the
Company
-------------------------
*Incorporated by reference to the same titled and numbered exhibit in
the Company's Registration Statement on Form S-11, No. 33-75288.
**Incorporated by reference to the same titled and numbered exhibit in
the Operating Partnership's Form 10-K for the year ended December 31,
1994.
*** Incorporated by reference to the same titled and numbered exhibit
in the Operating Partnership's Form 10-K for the year ended December 31,
1995 filed on March 29, 1996.
14(b) REPORTS ON FORM 8-K
Reports of the Operating Partnership on Form 8-K were filed on
November 1, 1995, and December 22, 1995. The first filing announced
the intention of the Operating Partnership to change its method of
accounting for its investments in the Property Service Businesses from
the cost method to the equity method, effective with the
<PAGE>
financial statements for the year ended December 31, 1995, in
conformity with the consensus reached by the Emerging Issues Task
Force of the AICPA, and measured the impact of such change. The second
filing provided information on the five Properties acquired by the
Operating Partnership during 1995, including certain unaudited
balance sheets and statements of operations of the Operating
Partnership reflecting the acquisitions, and statements of revenue and
certain expenses for the Connecticut Heights, Bennington, and Oakwood
Properties for the year ending in December, 1994, and applicable
subsequent periods.
14(c) EXHIBITS
The list of Exhibits filed with this report is set forth in response
to Item 14(a)(3). The required exhibit index has been filed with the
exhibits.
14(d) FINANCIAL STATEMENTS
See Index to Financial Statements and Schedules on Page F-1 of this
Form 10-K.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized, on this
28th day of January, 1997.
CHARLES E. SMITH RESIDENTIAL REALTY L.P.
BY: CHARLES E. SMITH RESIDENTIAL REALTY, INC.,
ITS GENERAL PARTNER
By: /s/ Charles R. Hagen
-----------------------------------
Charles R. Hagen, Chief Financial Officer and
Chief Accounting Officer
<PAGE>
CHARLES E. SMITH RESIDENTIAL REALTY L.P.
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
-------------------------------------------
CHARLES E. SMITH RESIDENTIAL REALTY L.P. AND CES GROUP
FINANCIAL STATEMENTS FILED AS A PART OF THIS REPORT
Pages
-----
Report of Independent Public Accountants F-2
Consolidated Balance Sheets F-3
Consolidated Statements of Operations and
Combined Statements of Revenues and Expenses F-4
Consolidated Statement of Shareholders' Equity and
Combined Statement of Partners' Deficit F-5
Consolidated and Combined Statements of Cash Flows F-6
Notes to Consolidated and Combined Financial Statements F-7 to F-25
SCHEDULES FILED AS PART OF THIS REPORT
Schedule III - Real Estate and Accumulated Depreciation S-1 to S-2
All other Schedules have been omitted because the required information of
such other Schedules is not present in amounts sufficient to require
submission of the schedule or because the required information is included
in the consolidated and combined financial statements.
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Unitholders of
Charles E. Smith Residential Realty L.P.:
We have audited the accompanying consolidated balance sheets of Charles E. Smith
Realty L.P. (a Maryland limited partnership) and subsidiaries as of December 31,
1995 and 1994, and the related consolidated statements of operations, partners'
deficit and cash flows for the year ended December 31, 1995 and the period from
June 30, 1994 to December 31, 1994, and the combined statements of revenues and
expenses, partners' deficit and cash flows of CES Group for the period from
January 1, 1994 to June 29, 1994, and for the year ended December 31, 1993.
These consolidated and combined financial statements and the schedule referred
to below are the responsibility of the management of Charles E. Smith
Residential Realty L.P. Our responsibility is to express an opinion on these
consolidated and combined financial statements and the schedule based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Charles E. Smith
Residential Realty L.P. and subsidiaries as of December 31, 1995 and 1994, and
the consolidated results of operations and cash flows for the year ended
December 31, 1995 and for the period from June 30, 1994 to December 31, 1994,
and the combined statements of revenues and expenses and cash flows of CES group
for the period from January 1, 1994 to June 29, 1994, and for the year ended
December 31, 1993, in conformity with generally accepted accounting principles.
As explained in Notes 2 and 13 to the consolidated financial statements,
Charles E. Smith residential Realty L.P. has given retroactive effect to the
change in accounting for its investment in the property service businesses and
to reclassify the Other Operating Partnership Unitholder's interest in Charles
E. Smith Residential Realty L.P., respectively.
Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The schedule listed in the index to financial
statements is presented for purposes of complying with the Securities and
Exchange Commission's rules and is not part of the basic financial statements.
This schedule has been subject to the auditing procedures applied in our audits
of the basic financial statements and, in our opinion, is fairly stated in all
material respects in relation to the basic financial statements taken as a
whole.
/s/ Arthur Andersen L.L.P.
Arthur Andersen L.L.P.
Washington, D.C.
January 21, 1997
<PAGE>
CHARLES E. SMITH RESIDENTIAL REALTY L.P.
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31,
(Dollars in Thousands as Restated)
<TABLE>
<CAPTION>
1995 1994
--------------------- -------------------
<S> <C> <C>
ASSETS
Rental property, at predecessor cost,
net of accumulated depreciation $ 276,269 $ 285,850
Rental property, acquired and developed, net of
accumulated depreciation 138,221 29,363
Rental property under development - 10,440
Cash and cash equivalents 9,478 18,350
Tenants' security deposits 3,634 3,271
Escrow funds 5,371 7,478
Investment in and advances to Property Service Businesses
and other 8,348 8,523
Deferred charges, net of accumulated amortization 18,782 20,416
Other assets 9,219 7,498
--------------------- -------------------
$ 469,322 $ 391,189
===================== ===================
LIABILITIES AND EQUITY
Liabilities
Mortgage loans $ 413,973 $ 383,821
Notes payable 69,204 21,150
Accounts payable and accrued expenses 12,693 9,821
Tenants' security deposits 3,634 3,271
Due to related parties 1,441 10,646
--------------------- -------------------
Total liabilities 500,945 428,709
--------------------- -------------------
Commitments and Contingencies
Other Operating Partnership Unitholders' Interest
12,205,439 and 12,226,292 units issued and
outstanding at December 31, 1995 and 1994,
respectively, at redemption value 288,663 310,247
--------------------- -------------------
Partners' Equity
General Partner's General and Limited Partnership Interest
9,708,123 and 9,049,667 units issued and outstanding at
December 31, 1995 and 1994, respectively, at
redemption value (320,286) (347,767)
--------------------- -------------------
$ 469,322 $ 391,189
===================== ===================
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
CHARLES E. SMITH RESIDENTIAL REALTY L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
AND
CES GROUP
COMBINED STATEMENTS OF REVENUES AND EXPENSES
(Dollars in Thousands, Except for Per Unit Amounts)
<TABLE>
<CAPTION>
Charles E. Smith Residential Realty L.P.
----------------------------------------------------------------
(Restated) (Restated)
Year Ended June 30, 1994 to
December 31, 1995 December 31, 1994
------------------- -------------------
<S> <C> <C>
RENTAL PROPERTIES
Revenues $ 144,909 $ 67,391
Expenses
Property operating expenses 57,007 26,633
Real estate taxes 8,620 3,826
Depreciation and amortization 16,258 7,738
------------------- -------------------
Total expenses 81,885 38,197
PROPERTY SERVICE BUSINESSES
Revenues - -
Expenses
Operating costs - -
Depreciation and amortization - -
------------------- -------------------
Total expenses - -
Equity in income of Property Service Businesses 6,868 3,785
Corporate general and administrative expenses (2,842) (1,171)
Interest income 1,424 825
Interest expense (37,421) (17,392)
Consolidation costs - -
------------------- -------------------
Income (loss) before extraordinary item 31,053 15,241
Extraordinary item - (loss) gain on extinguishment
of debt - -
------------------- -------------------
Net income (loss) $ 31,053 $ 15,241
=================== ===================
Net income per unit $ 1.44 $ 0.72
=================== ===================
<CAPTION>
CES Group
----------------------------------------------------------------
January 1, 1994 Year Ended
to June 29, 1994 December 31, 1993
------------------- -------------------
<S> <C> <C>
RENTAL PROPERTIES
Revenues $ 63,496 $ 124,187
Expenses
Property operating expenses 24,682 48,995
Real estate taxes 3,731 7,353
Depreciation and amortization 7,626 14,333
------------------- -------------------
Total expenses 36,039 70,681
PROPERTY SERVICE BUSINESSES
Revenues 27,792 42,718
Expenses
Operating costs 24,231 34,191
Depreciation and amortization 763 1,429
------------------- -------------------
Total expenses 24,994 35,620
Equity in income of Property Service Businesses - -
Corporate general and administrative expenses (1,550) (3,137)
Interest income 970 1,940
Interest expense (24,798) (46,815)
Consolidation costs (15,577) -
------------------- -------------------
Income (loss) before extraordinary item (10,700) 12,592
Extraordinary item - (loss) gain on extinguishment
of debt (15,195) 2,099
------------------- -------------------
Net income (loss) $ (25,895) $ 14,691
=================== ===================
Net income per unit
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
CHARLES E. SMITH RESIDENTIAL REALTY L.P.
CONSOLIDATED STATEMENTS OF PARTNERS' DEFICIT
AND
CES GROUP
COMBINED STATEMENTS OF PARTNERS' DEFICIT
(Dollars in Thousands, Except for Per Unit Amounts)
<TABLE>
<CAPTION>
Partners' Deficit
---------------------
<S> <C>
CES GROUP
Balance, December 31, 1992 $ (182,630)
Investments in and advances, net (9,363)
Contributions 193
Distributions (38,897)
Revenues in excess of expenses 14,691
---------------------
Balance, December 31, 1993 (216,006)
Investments in and advances, net (221)
Contributions 565
Distributions (7,133)
Liabilities retained by predecessor partnerships 2,268
Expenses in excess of revenues (25,895)
---------------------
Balance, June 29, 1994 $ (246,422)
=====================
<CAPTION>
General Partner's - Other Operating
General and Limited Partnership Unitholders'
Interest Interest
----------------------- ----------------------------
<S> <C> <C>
CHARLES E. SMITH RESIDENTIAL REALTY L.P.
Balance, June 29, 1994, as restated $ - $ -
Contribution by Predecessors of assets,
at historical cost, net of liabilities - (244,208)
Contribution by Charles E. Smith
Residential Realty, Inc. 201,374 -
Unit grants - 2,280
Deferred compensation - unit grants - (1,995)
Net income 6,532 8,709
Distributions ($.48 per unit) (4,344) (5,868)
Adjustment to reflect Other Operating Partnership
Unitholders' interests at redemption value (551,329) 551,329
----------------------- ----------------------------
Balance, December 31, 1994 (347,767) 310,247
Units exchanged for acquisitions - 15,491
Amortization of deferred compensation - unit grants - 570
Net income 13,405 17,648
Distributions ($1.915 per unit) (17,693) (23,524)
Adjustment to reflect Other Operating Partnership
Unitholders' interests at redemption value 31,769 (31,769)
----------------------- ----------------------------
Balance, December 31, 1995 $ (320,286) $ 288,663
======================= ============================
Units issued and outstanding at December 31, 1995 9,708,123 12,205,439
======================= ============================
Units issued and outstanding at December 31, 1994 9,049,667 12,226,292
======================= ============================
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
CHARLES E. SMITH RESIDENTIAL REALTY L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
AND
CES GROUP
COMBINED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
<TABLE>
<CAPTION>
Charles E. Smith Residential Realty L.P.
----------------------------------------
(Restated) (Restated)
Year Ended June 30, 1994 to
December 31, 1995 December 31, 1994
----------------- -----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 31,053 $ 15,241
Adjustments to reconcile net income
to net cash provided by operating activities:
Extraordinary item - -
Consolidation costs - -
Depreciation and amortization 19,547 9,257
(Increase) decrease in other assets (1,721) (1,656)
Increase in accounts payable and
accrued expenses 2,872 3,499
Increase in other liabilities - -
----------------- -----------------
Net cash provided by operating activities 51,751 26,341
----------------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions and development of rental property (55,152) (40,005)
Additions to rental property (5,257) (2,601)
Decrease (increase) in notes receivable,
related parties - -
(Decrease) increase in related party payables:
Property Service Businesses (8,535) 9,171
Affiliates (703) 1,172
Predecessor 33 (681)
Cash transferred from predecessors - 15,395
Decrease (increase) in investment in and advances
to Property Service Businesses and other 1,939 (9,117)
Other 680 (7,449)
----------------- -----------------
Net cash (used in) provided by investing activities (66,995) (34,115)
----------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital contribution of the Company - 201,374
Proceeds from mortgages and notes payable - 352,354
Repayments of debt including prepayment penalties (466) (479,075)
Repayment of notes payable, related parties - (26,232)
Financing fees and consolidation costs - (33,235)
Proceeds from notes payable, related parties - -
Proceeds from line of credit draws 31,400 21,150
Proceeds from construction loan 16,654 -
Distributions to unitholders (41,216) (10,212)
Distributions to partners - -
Other, net - -
----------------- -----------------
Net cash provided by (used in) financing activities 6,372 26,124
----------------- -----------------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (8,872) 18,350
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 18,350 -
----------------- -----------------
CASH AND CASH EQUIVALENTS
END OF PERIOD $ 9,478 $ 18,350
================= =================
SUPPLEMENTAL INFORMATION:
Cash paid during the period for interest $ 35,376 $ 16,457
Capitalized interest 675 200
Contribution of properties to the Operating Partnership - (244,208)
Purchase of property in exchange for Operating
Partnership units 15,491 -
Assumption of debt on acquisitions 30,618 -
Change in redemption value of Other Operating
Partnership Unitholders' interest (31,769) 551,329
<CAPTION>
CES Group
--------------------------------------
January 1, 1994 Year Ended
to June 29, 1994 December 31, 1993
---------------- -----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (25,895) $ 14,691
Adjustments to reconcile net income
to net cash provided by operating activities:
Extraordinary item 15,195 (2,099)
Consolidation costs 15,577
Depreciation and amortization 8,847 17,028
(Increase) decrease in other assets (5,738) 2,360
Increase in accounts payable and
accrued expenses 5,526 2,736
Increase in other liabilities 1,323 1,435
---------------- -----------------
Net cash provided by operating activities 14,835 36,151
---------------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions and development of rental property - -
Additions to rental property (2,012) (6,065)
Decrease (increase) in notes receivable,
related parties 6,247 (1,032)
(Decrease) increase in related party payables:
Property Service Businesses - -
Affiliates - -
Predecessor - -
Cash transferred from predecessors - -
Decrease (increase) in investment in and advances - -
to Property Service Businesses and other - -
Other (999) 1,372
---------------- -----------------
Net cash (used in) provided by investing activities 3,236 (5,725)
---------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital contribution of the Company - -
Proceeds from mortgages and notes payable - 46,754
Repayments of debt including prepayment penalties (2,699) (45,665)
Repayment of notes payable, related parties (2,351) (1,683)
Financing fees and consolidation costs (6,891) (5,311)
Proceeds from notes payable, related parties 3,593 22,095
Proceeds from line of credit draws - -
Proceeds from construction loan - -
Distributions to unitholders - -
Distributions to partners (5,583) (38,897)
Other, net (1,206) (9,363)
---------------- -----------------
Net cash provided by (used in) financing activities (15,137) (32,070)
---------------- -----------------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS 2,934 (1,644)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 13,663 15,307
---------------- -----------------
CASH AND CASH EQUIVALENTS
END OF PERIOD $ 16,597 $ 13,663
================ =================
SUPPLEMENTAL INFORMATION:
Cash paid during the period for interest $ 26,536 $ 43,359
Capitalized interest - 106
Contribution of properties to the Operating Partnership - -
Purchase of property in exchange for Operating
Partnership units - -
Assumption of debt on acquisitions - -
Change in redemption value of Other Operating
Partnership Unitholders' interest - -
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
CHARLES E. SMITH RESIDENTIAL REALTY L.P.
AND CES GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands)
1. ORGANIZATION AND FORMATION OF COMPANY
Charles E. Smith Residential Realty L.P. (the "Operating Partnership") was
organized in Maryland on June 10, 1993. The Operating Partnership had no
operations prior to the completion of the business combination (discussed below)
which occurred on June 30, 1994. Charles E. Smith Residential Realty, Inc. (the
"Company") was formed in June, 1993 with the intent of qualifying as a real
estate investment trust ("REIT") under the Internal Revenue Code of 1986, as
amended. In connection with the business combination, the Company, on June 30,
1994, raised equity through an initial public offering and a private placement
(the "Offerings"), and issued debt in a series of concurrent private financing
transactions. The proceeds from the Offerings were used to acquire the 1.0% sole
general partnership and a 41.7% limited partnership interest in the Operating
Partnership. The Operating Partnership is the successor entity to CES Group (the
"Predecessor").
Simultaneous with the Offerings, the entities that owned the properties and
the related service businesses included in the CES Group transferred the
properties (the "Properties"), the management, development, leasing, interior
construction and renovation, engineering and technical services, and financing
services business segments of the Predecessor to the Operating Partnership (or
corporations in which the Operating Partnership owns substantially all of the
equity) and received in exchange, directly or indirectly, units of limited
partnership in the Operating Partnership. (The transferring entities and their
owners, which include Robert H. Smith and Robert P. Kogod and their families,
and other former owners of indirect interests in the Properties, are referred to
collectively as the "Other Operating Partnership Unitholders").
The Operating Partnership and its subsidiaries are engaged in the
ownership, operation, management, leasing, acquisition, expansion and
development of real estate properties, primarily residential multifamily
properties. As of December 31, 1995, the Operating Partnership owned 38 existing
multifamily properties containing 14,150 apartment units, and owned and operated
two free-standing community retail shopping centers, aggregating 436,000 square
feet. All properties are located in the Washington, D.C. metropolitan area.
Additionally, the Operating Partnership owned substantially all of the equity in
entities which provide multifamily and retail property management and leasing,
interior construction and renovation, building engineering and technical
services, and financial advisory services (collectively the "Property Service
Businesses").
The following is a summary of the assets and liabilities contributed by the
Predecessor on June 30, 1994 (at historical net book value) for a 57.3% limited
partnership interest in the Operating Partnership (dollar amounts in millions):
F-7
<PAGE>
<TABLE>
<S> <C>
Rental and other properties, at historical cost, net
of accumulated depreciation and amortization $ 293.9
Mortgage and other debt (565.1)
Other assets, net 24.8
--------
Net deficit of CES Group (246.4)
Property Service Businesses
accounted for using the equity method 2.2
--------
Net carry-over deficit transferred to the
Operating Partnership $ (244.2)
========
</TABLE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated balance sheets as of December 31, 1995 and
December 31, 1994 and the related consolidated statements of operations,
shareholders' equity and cash flows for the year ended December 31, 1995 and for
the period from June 30, 1994 to December 31, 1994 of the Operating Partnership
include all of the accounts of the Operating Partnership and its subsidiary
financing partnerships.
The Operating Partnership had previously selected the cost method to account
for its investment in its Property Service Businesses in order to comply with a
previous interpretation of the Securities and Exchange Commission. However,
during the year ended December 31, 1995, in compliance with the Emerging Issues
Task Force consensus, "Accounting by a Real Estate Investment Trust for an
Investment in a Service Corporation", the Operating Partnership changed its
accounting from the cost method to the equity method. As a result, the
Operating Partnership's net income for the year ended December 31, 1995 was
approximately $1.3 million ($.06 per unit) lower than it would have been had the
change not been made. Financial statements for the period ended December 31,
1994 have been retroactively restated for this change, which decreased the
Operating Partnership's previously reported net income and the beginning balance
of partner's equity by $554 ($.03 per unit) and $46.8 million, respectively.
The accompanying combined statements of revenue and expenses, and cash flows
of the CES Group for the period from January 1, 1994 to June 29, 1994, and for
the year ended December 31, 1993 include all of the accounts of the CES Group.
The CES Group financial statements have been presented on a combined basis
(including the Property Service Businesses) because the majority of the entities
which owned the Properties and the Property Service Businesses had certain
common general or limited partners and/or stockholders.
F-8
<PAGE>
All significant intercompany balances and transactions have been eliminated.
Rental Property
The assets (including the Properties) that were merged or transferred were
recorded at Predecessor cost. The Operating Partnership records acquired or
developed rental property at cost, which includes cost of acquisition,
development, construction and interest and real estate taxes incurred during the
original construction period. Ordinary repairs and maintenance are expensed as
incurred; major improvements are capitalized when they extend the useful life,
increase capacity or improve the efficiency of the asset. Depreciation on
buildings and improvements is computed using the straight-line method over
estimated useful asset lives as follows:
Base building 40 years
Land improvements 20 years
Building components 7 to 20 years
Tenant improvements Remaining terms of lease or useful life,
(whichever is shorter)
Furniture, fixtures and
equipment 5 to 10 years
Deferred Charges
Deferred charges of the Operating Partnership consist primarily of permanent
loan fees, which are being amortized over the term of the notes which
approximates the effective interest rate method, and retail lease acquisition
costs, which are being amortized over the term of the related lease.
Revenue Recognition
Rental income attributable to residential leases is recognized when due from
tenants. The Operating Partnership requires tenants to initially execute a one-
year lease. At the expiration of the lease term, the lease converts to a month-
to-month basis.
Minimum rental income attributable to retail leases is recognized on a
straight-line basis over the term of the lease regardless of when payments are
due. Minimum rental income recognized in excess of payments due was $5.9 million
and $4.8 million at December 31, 1995 and 1994, respectively, and is included in
other assets. The lease agreements contain provisions that provide for
additional rentals based on the tenants' sales volume and reimbursement from the
tenants for their share of real estate taxes and certain common area maintenance
costs. Additional rentals are recognized on the accrual basis.
F-9
<PAGE>
The future minimum lease payments to be received by the Operating Partnership
under noncancelable retail leases as of December 31, 1995, are as follows
(dollar amounts in thousands):
<TABLE>
<CAPTION>
Year Ending
December 31,
------------
<S> <C>
1996 $ 6,827
1997 7,233
1998 7,155
1999 6,831
2000 6,667
Thereafter 77,814
--------
$112,527
========
</TABLE>
Income Taxes
These financial statements contain no provision for Federal income taxes
since the entity is partnership and, therefore, all Federal income tax
liabilities and/or tax benefits are passed through to the individual partners in
accordance with the partnership agreement and the Internal Revenue Code. The
Operating Partnerships' income tax basis in its assets and liabilities was
$476.4 million and $403.7 million, respectively, at December 31, 1995 and $389.7
million and $334.6 million, respectively, at December 31, 1994.
Per Unit Data
Net income per unit of the Operating Partnership for the year ended
December 31, 1995 and the period from June 30, 1994 to December 31, 1994 is
computed based on 21,602,995 and 21,229,796 units, respectively, which
represents the weighted average number of units outstanding during the period.
Historical per unit data for periods prior to the public offering is not
relevant.
Cash and Cash Equivalents
Cash and cash equivalents include all cash and cash equivalent investments
with original maturities of three months or less.
Consolidation Costs and Extraordinary Items
Although the Predecessor was ultimately reimbursed for all costs incurred
related to the transfer of the Properties just prior to the initial public
offering, such costs have been reflected by the Predecessor as an expense in the
Combined Statement of Revenues and Expenses for the period from January 1, 1994
to June 29, 1994, and the reimbursement has been treated as a distribution.
Additionally, the extraordinary item of $15,195, which represents the prepayment
penalties required by the lenders in retiring the mortgage debt, is reflected by
the Predecessor as an expense in the Combined Statement of Revenues and Expenses
as such debt retirement was
F-10
<PAGE>
required to transfer the Properties to the Operating Partnership.
Use of Estimates in the Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions related to the net realizable value of rental property, the
collectibility of accounts and notes receivable, and the outcome of asserted and
unasserted claims that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
New Accounting Pronouncements
In March 1995, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to be Disposed Of." This standard provides guidance on the carrying
value of long-lived assets and is effective January 1, 1996. Management assesses
for impairment any property whenever events or circumstances indicate that the
carrying amount may not be recoverable. An impairment loss is recognized when
the estimated future net cash flows from the property are less than its carrying
value. Management believes that adopting the new standard will not have a
material effect on the consolidated financial statements.
In October 1995, the FASB issued 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. Under the fair value method, compensation expense is
measured at the grant date based on the fair value of the award. Under the
intrinsic value method, compensation expense is equal to the excess, if any, of
the quoted market price of the stock at the grant date over the amount the
employee must pay to acquire the stock. Entities electing to measure
compensation costs using the intrinsic value method must make pro forma
disclosures, beginning after the effective date of January 1, 1996, of net
income and earnings per share as if the fair value method had been applied. The
Operating Partnership has elected to account for stock-based compensation
programs using the intrinsic value method consistent with existing accounting
policies and, therefore, the standard will not have an effect on the
consolidated financial statements.
F-11
<PAGE>
3. RENTAL PROPERTY AND ACQUISITIONS
Rental Property
Rental property consists of the following as of December 31 (dollar amounts
in thousands):
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Land, at Predecessor cost $ 25,452 $ 25,452
Land, acquired 34,325 8,329
Buildings and improvements,
at Predecessor cost 421,577 416,905
Buildings and improvements,
acquired or developed 105,760 21,234
-------- --------
587,114 471,920
Less: Accumulated depreciation 172,624 156,707
-------- --------
$414,490 $315,213
======== ========
</TABLE>
Depreciation expense of the Operating Partnership was $15,917 for the year
ended December 31, 1995 and $7,673 for the period from June 30, 1994 to
December 31, 1994. Depreciation expense of the CES Group was $7,494 for the
period from January 1, 1994 to June 29, 1994 and $14,053 for the year ended
December 31, 1993. Repairs and maintenance expense of the Operating Partnership
was $13,892 for the year ended December 31, 1995 and $7,172 for the period from
June 30, 1994 to December 31, 1994. Repairs and maintenance expense of the CES
Group was $6,854 for the period from January 1, 1994 to June 29, 1994 and
$14,100 for the year ended December 31, 1993.
Acquisitions
During 1995, the Operating Partnership acquired five properties for $82.3
million, adding 1,369 apartment units. In two of the transactions, the
Operating Partnership issued a total of approximately 561,000 Operating
Partnership units valued at $13.7 million. In two of the transactions, the
Operating Partnership assumed a total of $30.6 million in mortgage loans.
F-12
<PAGE>
4. DEFERRED CHARGES
Deferred charges consist of the following as of December 31 (dollar amounts in
thousands):
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Permanent loan fees $20,257 $19,206
Retail lease acquisition costs 3,579 3,472
Other 454 186
------- -------
24,290 22,864
Less: Accumulated amortization 5,508 2,448
------- -------
$18,782 $20,416
======= =======
</TABLE>
Amortization expense of the Operating Partnership was $3,060 for the year
ended December 31, 1995, and $1,338 for the period from June 30, 1994 to
December 31, 1994. Amortization expense for the CES Group was $711 for the
period from January 1, 1994 to June 29, 1994 and $1,785 for the year ended
December 31, 1993.
5. INVESTMENT IN AND ADVANCES TO PROPERTY SERVICE BUSINESSES AND OTHER
The Operating Partnership uses the equity method of accounting for its
investment in the Property Service Businesses, which include Smith Realty
Company, Consolidated Engineering Services, Inc., and Smith Management
Construction, Inc. These companies provide services which include property
management, leasing, engineering and technical, financing and interior
construction and renovation. Under the equity method, the investment's carrying
amount is adjusted for the investor's proportionate share of earnings or losses
of the investee and by dividends received. The Operating Partnership recognized
its 99% interest in the earnings of each of the Property Service Businesses
which aggregated $6,868 and $3,785 for the year ended December 31, 1995 and for
the period from June 30, 1994 to December 31, 1994, respectively. The Operating
Partnership received distributions aggregating $8,178 and $4,340 for the year
ended December 31, 1995 and for the period from June 30, 1994 to
December 31, 1994, respectively.
The Property Service Businesses provide services to the Operating Partnership
under one-year agreements which are automatically renewable. Such services are
generally provided at cost (including a proportionate share of total overhead)
except property management and leasing services which are provided at cost plus
ten percent. Total fees charged to the Operating Partnership by the Property
Service Businesses were $9,506 and $6,084 for the year ended December 31, 1995
and for the period from June 30, 1994 to December 31, 1994, respectively. The
Property Service Businesses also provide services to certain partnerships which
own commercial office buildings and have Messrs. Smith and Kogod as the general
partners
F-13
<PAGE>
("Affiliates"). Such services are generally provided at cost and overhead plus a
mark-up, except for certain engineering and technical services which are
provided at cost and overhead. Total fees charged to Affiliates by the Property
Service Businesses were $50,524 and $19,252 for the year ended December 31, 1995
and for the period from June 30, 1994 to December 31, 1994, respectively.
In addition to the above, Smith Realty Company provided administrative
services such as accounting, systems and human resources services to the
Operating Partnership and Affiliates totaling $8,090 and $4,948, respectively,
for the year ended December 31, 1995 and $3,333 and $2,862, respectively, for
the period from June 30, 1994 to December 31, 1994 at cost and overhead in
accordance with cost and executive sharing agreements. In management's opinion,
the allocation methods provide reasonable estimates of the costs that would have
been incurred had the services been provided by the Operating Partnership.
Additionally, an Affiliate was charged $280 for financial advisory services
based upon estimated time incurred.
At December 31, 1995 and 1994, the Operating Partnership had net payables to
the Property Service Businesses of $635 and $9,170, respectively. These amounts
are included in due to related parties.
Combined summarized balance sheet information for the Property Service
Businesses follows (dollar amounts in thousands):
<TABLE>
<CAPTION>
As of December 31,
1995 1994
------ ------
<S> <C> <C>
Assets
Accounts receivable $ 14,628 $ 14,495
Property, net 3,651 3,704
Other, net 2,496 2,088
--------- ---------
$ 20,775 $ 20,287
========= =========
Liabilities
Accounts payable $ 9,000 $ 7,455
Deferred revenue 3,912 5,897
Other 4,821 2,566
Equity 3,042 4,369
-------- ---------
$ 20,775 $ 20,287
======== =========
</TABLE>
These balance sheets exclude $44.5 million of notes due to the Operating
Partnership which, under the equity method, are eliminated for purposes of carry
over basis accounting.
F-14
<PAGE>
Combined summarized income statement information for the Property Service
Businesses follows (dollar amounts in thousands):
<TABLE>
<CAPTION>
Year Ended June 30, 1994 to
December 31, December 31,
1995 1994
------------ ----------------
<S> <C> <C>
Revenues $ 58,777 $ 28,245
Operating expense 49,925 23,469
Depreciation/amortization 1,325 560
Other expense, net 647 418
------------ ----------------
Net income/1/ $ 6,880 $ 3,798
============ ================
</TABLE>
/1/ Represents 100% of the Property Service Businesses' net income, of which the
Operating Partnership's share amounted to $6,868 and $3,785, respectively, for
the year ended December 31, 1995 and the period from June 30, 1994 to December
31, 1994.
During 1995, the Operating Partnership acquired an additional minority
interest in a rental property partnership through the issuance of Operating
Partnership units valued at $1,764. The Operating Partnership uses the cost
method to account for this investment.
6. MORTGAGE LOANS
The Operating Partnership, through its subsidiary financing partnerships, has
mortgage loans which require monthly interest and, where applicable, principal
payments, consisting of the following as of December 31 (dollar amounts in
thousands):
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Mortgage Pool One $110,140 $110,140
Mortgage Pool Two 125,214 125,214
Mortgage Pool Three 117,000 117,000
Mortgage Pool Four 31,141 31,467
Acquisition Mortgages 30,478 -
-------- --------
$413,973 $383,821
======== ========
</TABLE>
These loans are collateralized by non-recourse first lien mortgages or deeds
of trust on 32 of the 40 Properties, bear interest at a weighted average
interest rate of 8.13% and 8.17% as of December 31, 1995 and 1994, respectively,
and have an average maturity of 6.5 years.
The loan for Mortgage Pool One bears interest at 8.0% and is due June 30,
1999. The loan for Mortgage Pool Two bears interest at 8.3% and is due June 30,
2001. Both loans are interest only
F-15
<PAGE>
and require the Operating Partnership to establish escrows to fund capital
improvements and repairs, and to maintain minimum cash balances for interest and
ground rent payments. The loans for Mortgage Pools One and Two contain cross
collateral and cross default provisions among the separate financing partnership
borrowers.
The loan for Mortgage Pool Three is interest only, at a fixed rate of 7.99%
paid monthly, through June 30, 1999, at which time amortization begins over 25
years with a balloon payment due June 30, 2004. The loan requires a capital and
repair escrow. Certain Predecessor partners executed guarantees for $42 million
of the mortgage loan secured by Mortgage Pool Three.
The loan for Mortgage Pool Four represents the portion assumed by the
Operating Partnership of an original loan of $42.5 million, of which $10.2
million was allocated to the landlord (see Note 8). The Operating Partnership
and the landlord are jointly and severally liable for the entire amount of this
non-recourse loan ($40.9 and $41.4 million outstanding at December 31, 1995 and
1994, respectively). The loan bears interest at the rate of 9.63% and is due
September 1, 1996.
In connection with two of the acquisitions discussed in Note 3, the Operating
Partnership assumed an interest-only mortgage loan of $17.5 million with an
interest rate of LIBOR plus 170 basis points (7.76% as of December 31, 1995) due
March 31, 1997, and a $13.1 million mortgage loan with a fixed interest rate of
7.50% with principal amortized over 25 years with a final payment due October
31, 2020. Both mortgage loans are collateralized by the respective properties.
The scheduled principal payments for all of the mortgage loans are as follows
(dollar amounts in thousands):
<TABLE>
<CAPTION>
Year Ending
December 31,
--------------
<S> <C>
1996 $ 31,141
1997 17,419
1998 -
1999 111,149
2000 1,618
Thereafter 252,646
--------
$413,973
========
</TABLE>
Subsequent to December 31, 1995, the loan for Mortgage Pool Three was extended
for an additional five years, to June 30, 2009. The extension is reflected in
the scheduled principal payments above.
F-16
<PAGE>
7. NOTES PAYABLE
In connection with the development of the Westerly at Worldgate apartments,
the Operating Partnership obtained an interest-only construction loan in 1995
with interest at LIBOR plus a fixed spread (7.57% at December 31, 1995), payable
monthly, due June 1, 1997. The outstanding balance of $16,654 at December 31,
1995 is collateralized by the property. Construction of the 320-unit community
was completed in December, 1995.
The Operating Partnership also has a $100 million revolving line of credit on
which $52,550 and $21,150 were outstanding at December 31, 1995 and 1994,
respectively, and which represent the maximum amounts outstanding during 1995
and the period from June 30, 1994 through December 31, 1994, respectively. The
amount outstanding at December 31, 1994 had a fixed interest rate through August
1995 of 8.07%. Additional borrowings under the line of credit bear interest at
the one year LIBOR rate plus 2.25% (7.58% at December 31, 1995). The Operating
Partnership pays a fee of .125% on any unused portions of the line of credit.
Borrowings under the line of credit are collateralized by certain rental
property. The line of credit agreement contains certain restrictive covenants,
including maintenance of minimum net worth, debt to equity ratios and cash flow
coverage requirements.
Subsequent to December 31, 1995, this line of credit agreement was extended to
June 30, 1997 with two one-year extension options and the interest rate was
lowered to LIBOR rate plus 1.625%. In addition, a new $83 million credit
facility was obtained for property acquisitions with a term of eight and one
half years. The loan provides for an interest rate that is fixed at the time of
each acquisition at a fixed spread over a pre-determined index and is cross-
collateralized with Mortgage Pool Three (Note 6). This facility allows for 100%
debt financing for the first three years, and it also allows the Operating
Partnership the option to convert $50 million to unsecured debt with the release
of the related collateral, upon receipt of an investment grade-credit rating.
The agreement contains certain restrictive covenants including a limit on debt
to asset value and maintenance of debt service coverage ratios.
8. COMMITMENTS AND CONTINGENCIES
Land Leases
Nine of the Properties have ground leases expiring at various dates between
December, 2032 and July, 2064. Six of the ground leases are with parties who own
Operating Partnership units. Generally, each ground lease provides for a nominal
annual rental and an additional rental calculated from the results of Property
operations after capital expenditures.
The base rental expense to the Operating Partnership under the ground leases
was $491 for the year ended December 31, 1995 and $246 for the period from June
30, 1994 to December 31, 1994. The base rental expense for the CES Group was
approximately $220 for the period from
F-17
<PAGE>
January 1, 1994 to June 29, 1994, and $412 during the year ended December 31,
1993. The additional rental expense to the Operating Partnership under the
ground leases was $1,831 for the year ended December 31, 1995 and $1,384 for the
period from June 30, 1994 to December 31, 1994. Additional rental expense to
the CES Group was approximately $1,354 for the period from January 1, 1994 to
June 29, 1994, and $2,678 for the year ended December 31, 1993. At the
expiration of the ground leases, the land and all of the improvements thereon
will revert to the land owner. In most cases, the leases are subordinated to the
mortgage debt on the related rental property.
The future nominal base annual rentals as of December 31, 1995 for the ground
leases are as follows (dollar amounts in thousands):
<TABLE>
<CAPTION>
Year Ending
December 31,
--------------
<S> <C>
1996 $ 491
1997 491
1998 491
1999 491
2000 491
Thereafter 22,782
--------
$ 25,237
========
</TABLE>
Litigation
Neither the Operating Partnership nor the Property Service Businesses is
presently subject to any material litigation nor, to the Operating Partnership's
knowledge, is any material litigation threatened against the Operating
Partnership or the Property Service Businesses other than routine litigation
arising in the ordinary course of business and which is expected to be covered
by liability insurance.
Building Employees Retirement Plan
Substantially all of the personnel employed at the residential Properties are
eligible and participate in the Charles E. Smith Building Employees Retirement
Plan, a defined contribution plan (the "Plan"). These personnel are employed by
Smith Employment Services, L.P. ("Employment Services"), a limited partnership
owned by the Operating Partnership, which is the primary employer in the Plan.
Employment Services is required to contribute 4% of employee-qualified earnings.
The total contributions were $286 in 1995 and $118 for the six months ended
December 31, 1994. Prior to the business combination, these employees were
employed by the partnerships that owned the Properties. Employees of the
Property Service Businesses are covered by a separate defined contribution tax-
qualified retirement savings plan.
F-18
<PAGE>
9. RELATED-PARTY TRANSACTIONS
The Operating Partnership conducts business with entities in which Messrs.
Smith and Kogod exercise control. The following is a description of these
transactions.
.In connection with the development of the Westerly at Worldgate apartments,
the Operating Partnership purchased the land for $4.7 million from an affiliate
controlled by Messrs. Smith and Kogod pursuant to an agreement with the
Operating Partnership at the time of the Offerings. Also, a contract was
executed with an entity controlled by Messrs. Smith and Kogod to manage the
construction of the apartments at a fee of 4% of hard construction costs.
Construction management fees were $519 for the year ended December 31, 1995 and
$175 for the period from June 30, 1994 to December 31, 1994. The project was
completed in December, 1995 at a total cost, excluding land, of $19.2 million.
.The two retail properties lease health club facilities to entities
controlled by Messrs. Smith and Kogod. Rental income earned under these leases
approximated $4,795, $1,895, $1,863 and $3,677 for the year ended December 31,
1995, and the period from June 30, 1994 to December 31, 1994, the period from
January 1, 1994 to June 29, 1994, and for the year ended December 31, 1993,
respectively. The leases expire on December 31, 2015. Messrs. Smith and Kogod
have guaranteed that the tenant for one of the facilities leased in 1991 will
pay all minimum annual rent and expense pass-throughs in accordance with the
terms of the agreement through June 10, 1999. In addition, one of the retail
properties also leases health club equipment to the affiliated tenant under a
capital lease. As of December 31, 1995 and 1994, the present value of the future
minimum rental receivables approximated $263 and $305, respectively, and are
included in other assets in the accompanying consolidated balance sheet.
At December 31, 1995 and 1994, approximately $806 and $1,475 were reflected in
due to related parties for amounts due to Affiliates and Predecessor Partners.
In February 1996, approximately $466 of the balance due was paid by the
Operating Partnership.
10. FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107 requires disclosure about
fair value for all financial instruments. Based on the borrowing rates currently
available to the Operating Partnership for mortgages with similar terms and
remaining maturities, the fair value of mortgages payable was approximately
$459,000 and $370,000 at December 31, 1995 and 1994, respectively. The fair
value of notes payable is assumed to be equal to carrying value.
F-19
<PAGE>
11. INCENTIVE PLANS
Option Plan
The Company, with the Operating Partnership, maintains an employee stock and
unit option plan designed for executive officers and other key employees of the
Company, the Operating Partnership and the Property Service Businesses. Messrs.
Smith and Kogod are not eligible to participate under the plan. The plan
authorizes the issuance of up to 1,750,000 shares of common stock and/or units
pursuant to options granted under this plan. Options were granted to purchase
895,000 shares of common stock and units at the initial public offering price of
$24.00 to certain executive officers and other key employees at the time of the
public offering. Options outstanding as of December 31, 1995 and 1994 are as
follows:
<TABLE>
<CAPTION>
Option Amount
----------------------
Number Per Share Total
------- --------- -----------
<S> <C> <C> <C>
Shares under option,
December 31, 1994 895,000 $24 $21,480,000
Options granted - - -
Options canceled - - -
------- --------- -----------
Shares under option,
December 31, 1995 895,000 $24 $21,480,000
======= ========= ===========
</TABLE>
Options granted under the plan have a maximum term of ten years and vest
generally in three to five equal annual installments beginning on the first
anniversary of the date of grant. As of December 31, 1995, 183,002 options had
vested. Generally, options terminate three months after the optionee's
termination of employment. The Executive Compensation Committee of the Board of
Directors of the Company may provide, however, that an option may be exercised
over a longer period following termination of employment, but in no event beyond
the expiration date of the option.
The exercise price of options granted under the plan may not be less than the
fair market value of the common stock on the date of grant. Payment for shares
and/or units granted under the plan may be made either in cash, or, if permitted
by the option agreement, by exchanging shares of common stock or Operating
Partnership units having a fair market value equal to the option exercise price.
On June 30, 1994, pursuant to the Company's Directors Stock Option Plan, each
member of the Company's Board of Directors who was not an employee of the
Company received an option, which vested upon grant, to purchase 5,000 shares
(20,000 shares in the aggregate for all Directors) of Common Stock at $24.00 per
share (equal to the initial public offering price). This plan also provides for
automatic grants of options, exercisable for 5,000 shares of Common Stock, to
newly appointed non-employee directors.
F-20
<PAGE>
Restricted Stock and Unit Plan
The Company, with the Operating Partnership, maintains a restricted stock and
unit plan for executive officers and other key employees of the Company, the
Operating Partnership and the Property Service Businesses. Messrs. Smith and
Kogod are not eligible to participate under the plan. A maximum of 300,000
shares of common stock and/or units may be issued under the plan. Restricted
shares and/or units that have not vested at the time of an employee's
termination of employment with the Operating Partnership will be forfeited,
except where such termination occurs by reason of death or disability. Any
restricted shares and/or units forfeited pursuant to the vesting provisions of
the plan will again be available for award under the plan. In July 1994, 95,000
restricted units were awarded to certain executive officers and key employees.
These grants vest in four equal annual installments beginning on the first
anniversary of the date of grant, subject to acceleration of vesting upon a
change of control of the Company. No grants were canceled and 23,750 units
vested during the year ended December 31, 1995. No grants were canceled or
vested during the period from June 30, 1994 to December 31, 1994. For the year
ended December 31, 1995 and the period from June 30, 1994 to December 31, 1994,
compensation expense relating to the plan was $570 and $285, respectively, which
was based on the market value of the stock at the date of grant.
12. SEGMENT OPERATIONS
The CES Group financial statements combine the results of operations of the
Properties (the rental operations) and the Property Service Businesses
(multifamily and retail property management and leasing, engineering and
technical, interior construction and renovation, financing services, and other
services). Consequently, the following table presents operating and other
information divided between the two segments of the CES Group's business (dollar
amounts in thousands).
F-21
<PAGE>
<TABLE>
<CAPTION>
Property
Rental Service Combined
Operations Businesses Eliminations Total
---------- ---------- ------------ --------
YEAR ENDED DECEMBER 31, 1993:
<S> <C> <C> <C> <C>
Revenue $124,187 $42,718 $ - $166,905
Interest income 1,477 463 - 1,940
Intersegment revenue - 3,159 (3,159) -
-------- ------- ------- --------
Total revenue $125,664 $46,340 $(3,159) $168,845
======== ======= ======= ========
Depreciation and amortization $ 14,884 $ 1,429 $ (551) $ 15,762
======== ======= ======= ========
Operating profit $ 54,180 $ 9,181 $ (817) $ 62,544
Intersegment expense (revenue) 803 (1,620) 817 -
-------- ------- ------- --------
Net profit $ 54,983 $ 7,561 $ - $ 62,544
======== ======= ======= ========
Identifiable assets at
December 31, 1993 $347,536 $12,643 $(2,318) $357,861
======== ======= ======= ========
Capital expenditures $ 6,216 $ 304 $ (151) $ 6,369
======== ======= ======= ========
PERIOD FROM JANUARY 1, 1994 TO
JUNE 29, 1994:
Revenue $ 63,496 $27,792 $ - $ 91,288
Interest income 663 307 - 970
Intersegment revenue - 1,791 (1,791) -
-------- ------- ------- --------
Total revenue $ 64,159 $29,890 $(1,791) $ 92,258
======== ======= ======= ========
Depreciation and amortization $ 7,897 $ 763 $ (271) $ 8,389
======== ======= ======= ========
Operating profit $ 27,171 $ 4,173 $ (119) $ 31,225
Intersegment expense (revenue) 947 (1,066) 119 -
-------- ------- ------- --------
Net profit $ 28,118 $ 3,107 $ - $ 31,225
======== ======= ======= ========
Capital expenditures $ 1,913 $ 306 $ (98) $ 2,121
======== ======= ======= ========
</TABLE>
The revenue recognition policies of the Property Service Businesses are as
follows.
.Property management and leasing fees are generally a fixed percentage of
gross monthly revenue of managed properties and are recognized as revenue when
earned.
.Interior construction and renovation revenues are recognized as earned under
the percentage-of-completion method.
.Engineering and technical services provided to related parties were billed at
the actual costs incurred, including overhead. Revenues from third party
engineering and technical services are typically based on a fixed price contract
and recognized as earned.
.Fees related to negotiation, settlement and administration of debt financings
for affiliated entities are recognized on the closing date of the related
financing.
F-22
<PAGE>
13. OTHER OPERATING PARTNERSHIP UNITHOLDERS' INTEREST
Limited partnership units of the Other Operating Partnership Unitholders may
be redeemed at the unitholders' discretion. At the option of the Company, such
redemption may be made for cash, at the then fair value of the Company's stock,
or for shares of common stock of the Company on a one-for-one basis. The Company
has reserved approximately 19.3 million shares of common stock for possible
issuance upon redemption of limited partnership units.
The Other Limited Partnership Unitholders' redemption rights are not to be
included in partners' equity. Consequently, the accompanying consolidated
balance sheets and statements of partners' deficit have been retroactively
reclassified to reflect the Other Operating Partnership Unitholders' interests
in the Operating Partnership, measured at redemption value. This
reclassification results in a reduction of partners' equity of $288,663 and
$310,247 as of December 31, 1995 and 1994, respectively.
14. PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
The following unaudited Pro Forma Condensed Consolidated Statement of
Operations is presented as if the consummation of the Offerings and Mortgage
Loans had occurred prior to January 1, 1994. Such pro forma information is based
upon the historical consolidated statements of operations of the Operating
Partnership, the combined statements of the CES Group, and the application of
the proceeds of the Offerings and Mortgage Loans as set forth above. The
statement should be read in conjunction with the financial statements and notes
thereto of the Operating Partnership included elsewhere herein. In management's
opinion, all adjustments necessary to reflect the effects of these transactions
have been made.
The unaudited Pro Forma Condensed Consolidated Statement of Operations is not
necessarily indicative of what actual results of operations of the Operating
Partnership would have been assuming such transactions had been completed prior
to January 1, 1994, nor does it purport to represent the results of operations
of future periods.
F-23
<PAGE>
CHARLES E. SMITH RESIDENTIAL REALTY L.P.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (a)
(Unaudited and dollar amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
For the Year Ended December 31, 1994
------------------------------------
Pro Forma
Historical Adjustments Pro Forma
----------- ------------ ----------
<S> <C> <C> <C>
Rental Properties
Revenue $ 130,887 $ - $ 130,887
Expenses (74,236) (602) (74,838)
Equity in Income of
Property Service Businesses 6,583 (402) 6,181
Other Income and Expenses
Interest Income 1,795 (57) 1,738
Corporate General and
Administrative Expenses (2,721) 510 (2,211)
Interest Expense (42,190) 7,834 (34,356)
Consolidation Costs (15,577) 15,577 -
----------- ------------ ----------
Income before Extraordinary item 4,541 22,860 27,401
Extraordinary item - Loss on
Extinguishment of debt (15,195) 15,195 -
----------- ------------ ----------
Net (Loss) Income $(10,654) $38,055 $ 27,401
=========== ============ ==========
Net Income Per Unit (b) $ 1.29
==========
</TABLE>
Notes:
(a) Pro forma adjustments consist principally of reflecting the Property Service
Businesses using the equity method, a reduction in interest income to reflect
the change in funds available for investment, additional general and
administrative cost of the Operating Partnership offset by allocations to the
Property Service Businesses, adjustments to amortization of deferred financing
costs, reduction of interest costs to reflect the effect of debt repayments and
refinancings at lower rates and Federal and state income taxes incurred by the
Property Service Businesses.
(b) Pro forma net income per unit is based upon 21,229,796 units.
F-24
<PAGE>
15. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Restated quarterly financial information for 1994 and 1995 is as follows
(dollar amounts in thousands except per share data):
<TABLE>
<CAPTION>
Period from
June 30, 1994 to Three Months Ended
September 30, 1994 December 31, 1994
------------------ ------------------
<S> <C> <C>
Revenues $ 33,810 $ 34,406
Rental property expenses (including depreciation) (18,888) (19,309)
Equity in income of Property Service Businesses 2,632 1,153
Interest expense (8,694) (8,698)
Corporate general and administrative expense (611) (560)
-------- --------
Net Income $ 8,249 $ 6,992
======== ========
Net income per unit $ .39 $ .33
======== ========
<CAPTION>
Three Months Ended
---------------------------------------------------------------------------------
March 31, 1995 June 30, 1995 September 30, 1995 December 31, 1995
-------------- ------------- ------------------ -----------------
<S> <C> <C> <C> <C>
Revenues $ 34,410 $ 35,069 $ 37,616 $ 39,238
Rental property expenses
(including depreciation) (19,470) (19,512) (21,322) (21,581)
Equity in income of Property
Service Businesses 561 1,586 1,994 2,727
Interest expense (8,695) (8,926) (9,572) (10,228)
Corporate general and
administrative expense (653) (770) (611) (808)
-------------- ------------- ------------------ -----------------
Net Income $ 6,153 $ 7,447 $ 8,105 $ 9,348
============== ============= ================== =================
Net Income per unit $ .29 $ .35 $ .37 $ .43
============== ============= ================== =================
</TABLE>
F-25
<PAGE>
CHARLES E. SMITH RESIDENTIAL REALTY L.P.
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1995
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
Capitalized Costs Before
Costs Accumulated Depreciation at
Encumbrances/ Initial Cost Capitalized December 31, 1995
----------------------------- ---------------------------
Collateral Building and Subsequent To Building and
Properties Pools (1) Land Improvements Acquisition Land Improvements Total
- -------------------------- -------------- ----------------------------- -------------------------------------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Albemarle LOC $418 $ - 4,633 $418 $4,633 $5,051
Bedford Village Two 1,062 - 12,572 1,062 12,572 13,634
Bennington $13,059 6,922 22,645 20 6,922 22,665 29,587
Berkeley Three 108 - 1,875 108 1,875 1,983
Boulevard of Old Town - 1,784 4,269 27 1,784 4,296 6,080
Calvert-Woodley Three 172 - 2,265 172 2,265 2,437
Car Barn Two 3,576 - 13,313 3,576 13,313 16,889
Cleveland House Three 325 - 3,955 325 3,955 4,280
Columbia Crossing Three 4,701 - 18,284 4,701 18,284 22,985
Columbian-Stratford One 242 - 4,145 242 4,145 4,387
Concord Village Two - - 8,175 - 8,175 8,175
Connecticut Heights (2) $17,419 6,956 18,695 244 6,956 18,939 25,895
Corcoran House One 230 - 1,824 230 1,824 2,054
Courthouse Plaza Three - - 44,083 - 44,083 44,083
Crystal House I One - - 10,072 - 10,072 10,072
Crystal House II One - - 8,734 - 8,734 8,734
Crystal Place Two 1,245 - 18,662 1,245 18,662 19,907
Crystal Square Two - - 14,351 - 14,351 14,351
Executive Central Two 262 - 4,162 262 4,162 4,424
Executive North One 245 - 3,659 245 3,659 3,904
Executive South Two 303 - 4,749 303 4,749 5,052
Fort Chaplin Two 97 - 7,705 97 7,705 7,802
Gateway Place Three 1,660 - 17,453 1,660 17,453 19,113
Manor LOC 5,809 14,807 1,170 5,809 15,977 21,786
Marbury Plaza One - - 10,012 - 10,012 10,012
Newport Village Two/Three 281 - 15,048 281 15,048 15,329
Oakwood - 3,819 12,551 - 3,819 12,551 16,370
Orleans Village Two 700 - 12,782 700 12,782 13,482
Oxford Manor One 290 - 2,958 290 2,958 3,248
Patriot Village $31,141 - - 27,723 - 27,723 27,723
Potomac View LOC 2,520 6,393 205 2,520 6,598 9,118
Skyline Mall Three 482 - 14,262 482 14,262 14,744
Skyline Towers One 360 - 24,404 360 24,404 24,764
Statesman One 600 - 4,165 600 4,165 4,765
Suburban Tower (2) LOC 1,815 5,239 5 1,815 5,244 7,059
2501 Porter Street Three 1,126 - 18,163 1,126 18,163 19,289
Water Park Towers One 2,500 - 41,643 2,500 41,643 44,143
Westerly (3) $16,654 4,700 19,244 186 4,700 19,430 24,130
Windsor Towers One 362 - 5,260 362 5,260 5,622
Worldgate Centre LOC 4,105 - 40,547 4,105 40,547 44,652
----------------------------- -------------------------------------------- ------------
$59,777 $103,843 $423,494 $59,777 $527,337 $587,114
============================= ============================================ ============
<CAPTION>
Accumulated Net Date of Date Depreciable
Properties Depreciation Property Construction Acquired Lives
- -------------------------- --------------- ------------ -------------- --------- --------------
<S> <C> <C> <C> <C> <C>
Albemarle ($3,144) $1,907 1966 - 5 - 40 years
Bedford Village (7,633) 6,001 1967 - 5 - 40 years
Bennington (141) 29,446 - 1995 5 - 40 years
Berkeley (1,373) 610 1961 - 5 - 40 years
Boulevard of Old Town (80) 6,000 - 1995 5 - 40 years
Calvert-Woodley (1,651) 786 1962 - 5 - 40 years
Car Barn (4,469) 12,420 1982/1986 - 5 - 40 years
Cleveland House (2,678) 1,602 1962 - 5 - 40 years
Columbia Crossing (3,055) 19,930 1990/1991 - 5 - 40 years
Columbian-Stratford (3,005) 1,382 1959 - 5 - 40 years
Concord Village (5,140) 3,035 1967 - 5 - 40 years
Connecticut Heights (2) (234) 25,661 - 1995 5 - 40 years
Corcoran House (1,473) 581 1961 - 5 - 40 years
Courthouse Plaza (8,497) 35,586 1988/1990 - 5 - 40 years
Crystal House I (5,558) 4,514 1969 - 5 - 40 years
Crystal House II (5,381) 3,353 1964 - 5 - 40 years
Crystal Place (5,438) 14,469 1986 - 5 - 40 years
Crystal Square (7,356) 6,995 1975 - 5 - 40 years
Executive Central (3,061) 1,363 1960 - 5 - 40 years
Executive North (2,785) 1,119 1960 - 5 - 40 years
Executive South (3,593) 1,459 1960 - 5 - 40 years
Fort Chaplin (5,372) 2,430 1963 - 5 - 40 years
Gateway Place (4,307) 14,806 1987 - 5 - 40 years
Manor (537) 21,249 - 1994 5 - 40 years
Marbury Plaza (6,859) 3,153 1966 - 5 - 40 years
Newport Village (8,066) 7,263 1971 - 5 - 40 years
Oakwood - 16,370 - 1995 5 - 40 years
Orleans Village (8,153) 5,329 1965/1966 - 5 - 40 years
Oxford Manor (2,056) 1,192 1967 - 5 - 40 years
Patriot Village (13,132) 14,591 1973/1975/1977 - 5 - 40 years
Potomac View (232) 8,886 - 1994 5 - 40 years
Skyline Mall (6,835) 7,909 1977 - 5 - 40 years
Skyline Towers (13,882) 10,882 1972 - 5 - 40 years
Statesman (3,218) 1,547 1961 - 5 - 40 years
Suburban Tower (2) (120) 6,939 - 1995 5 - 40 years
2501 Porter Street (3,948) 15,341 1987/1988 - 5 - 40 years
Water Park Towers (8,693) 35,450 1989 - 5 - 40 years
Westerly (3) (121) 24,009 1995 - 5 - 40 years
Windsor Towers (3,590) 2,032 1965 - 5 - 40 years
Worldgate Centre (7,758) 36,894 1990 - 5 - 40 years
--------------- ------------
($172,624) $414,490
=============== ============
</TABLE>
(1) Encumbrances include $352.4 million of mortgage loans collateralized by
three separate pools, and $52.6 million drawn on the Company's line of
credit ("LOC") collateralized by the properties noted. As of December 31,
1995, the mortgage loan balances relating to Mortgage Pool One ("One"),
Mortgage Pool Two ("Two"), and Mortgage Pool Three ("Three") are $110,140,
$125,214, and $117,000 respectively.
(2) Connecticut Heights was acquired in exchange for Operating Partnership
units valued at $7,400 and the assumption of an existing mortgage of
approximately $17,500. Suburban Tower was acquired in exchange for
Operating Partnership units valued at $6,500.
(3) Encumbrance represents the balance at December 31, 1995 of a construction
loan collateralized by the property.
S-1
<PAGE>
The aggregate cost for Federal income tax purposes of the Operating
Partnership's investment in real estate was approximately $577,613 and $486,040
at December 31, 1995 and 1994, respectively. The changes in total real estate
and accumulated depreciation for the three years ended December 31, 1995 are as
follows:
<TABLE>
<CAPTION>
Total Real Estate Assets
---------------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
BALANCE, beginning of year $ 471,920 $ 437,019 $ 431,577
Acquisitions 110,487 29,394 -
Improvements 4,709 5,507 6,065
Retirements and write-offs (2) - (623)
------------ ----------- -------------
BALANCE, end of year $ 587,114 $ 471,920 $ 437,019
============ =========== =============
<CAPTION>
Accumulated Depreciation
--------------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
BALANCE, beginning of year $ 156,707 $ 141,475 $ 128,032
Depreciation for the year 15,917 15,232 14,053
Retirements and write-offs - - (610)
------------ ----------- -------------
BALANCE, end of year $ 172,624 $ 156,707 $ 141,475
============ =========== =============
</TABLE>
S-2
<PAGE>
EXHIBIT INDEX
(If filed herewith)
EXHIBIT NO. EXHIBIT PAGE
- ----------- ------- -----
**2.1 Third Party Management and Leasing, Hotel Asset Management and
Corporate Services Business Transfer Agreement by and between
Charles E. Smith Residential Realty, Inc. and Smith Property
Management, Inc.
**2.2 REIT Properties Management and Leasing Business Transfer Agreement
by and between Charles E. Smith Management, Inc. and Charles E.
Smith Residential Realty L.P.
**2.3 Assignment by Robert H. Smith, Clarice R. Smith, Robert P. Kogod
and Arlene R. Kogod to Charles E. Smith Management, Inc. of 99% of
all Partnership Interests of Residential Associates Limited
Partnership
**2.4 Assignment and Assumption Agreement by Residential Associates
Limited Partnership and Charles E. Smith Residential Realty L.P.
**2.5 Debt Assumption Agreement and Accord and Satisfaction of Debt by
Charles E. Smith Management, Inc. and Charles E. Smith Residential
Realty L.P.
**2.6 Debt Contribution Agreement between Charles E. Smith Management,
Inc. and Charles E. Smith Residential Realty L.P. (the "Operating
Partnership")
**3.1 First Amended and Restated Agreement of Limited Partnership of the
Operating Partnership, as amended
**3.2 Certificate of Limited Partnership of the Operating Partnership
*4.1 Amended and Restated Articles of Incorporation of Charles E. Smith
Residential Realty, Inc. (the "Company")
4.2 Amended and Restated Bylaws of the Company (Incorporated by
reference to the same titled and numbered exhibit in the Company's
Registration Statement on Form S-3 (File No. 33-93986).
**10.1 Noncompetition Agreement by and among the Company, the Operating
Partnership and Robert P. Kogod
**10.2 Registration Rights and Lock-up Agreement
**10.3 Pledge Agreement
**10.4 First Amended and Restated 1994 Employee Stock and Unit Option Plan
**10.5 First Amended and Restated 1994 Employee Restricted Stock and
Restricted Unit Plan
**10.6 Non-Employee Directors Stock Option Plan
**10.7 Subscription Agreement
**10.8 Voting Stock Partnership Agreement for Smith Property Management
Partnership
**10.9 Voting Stock Partnership Agreement for Smith Management
Construction Partnership
<PAGE>
**10.10 Voting Stock Partnership Agreement for Consolidated Engineering
Services Partnership
**10.11 Amended and Restated Articles of Incorporation of Smith Realty
Company
*10.12 By-Laws of Smith Property Management, Inc.
*10.13 Articles of Incorporation of Smith Management Construction, Inc.
*10.14 By-Laws of Smith Management Construction, Inc.
*10.15 Articles of Incorporation of Consolidated Engineering
Services, Inc.
*10.16 By-Laws of Consolidated Engineering Services, Inc.
*10.17 Certificate of Incorporation of Smith One, Inc.
*10.18 By-Laws of Smith One, Inc.
**10.19 Agreement of Limited Partnership of Smith Property Holdings
One L.P.
**10.20 Agreement of Limited Partnership of Smith Property Holdings
One (D.C.) L.P.
*10.21 Certificate of Incorporation of Smith Two, Inc.
*10.22 By-Laws of Smith Two, Inc.
**10.23 Agreement of Limited Partnership of Smith Property Holdings
Two L.P.
**10.24 Agreement of Limited Partnership of Smith Property Holdings
Two (D.C.) L.P.
*10.25 Certificate of Incorporation of Smith Three, Inc.
*10.26 By-Laws of Smith Three, Inc.
**10.27 Agreement of Limited Partnership of Smith Property Holdings
Three L.P.
**10.28 Agreement of Limited Partnership of Smith Property Holdings
Three (D.C.) L.P.
*10.29 Certificate of Incorporation of Smith Four, Inc.
*10.30 By-Laws of Smith Four, Inc.
**10.31 Agreement of Limited Partnership of Smith Property Holdings
Four L.P.
**10.32 Amended and Restated Certificate of Incorporation of Smith
Five, Inc.
*10.33 By-Laws of Smith Five, Inc.
**10.34 Agreement of Limited Partnership of Smith Property Holdings
Five (D.C.) L.P.
**10.35 License Agreement between Charles E. Smith Management, Inc.
and the Company
**10.36 License Agreement between Charles E. Smith Management, Inc.
and the Operating Partnership
10.37 Agreement of Limited Partnership of Smith Property Holdings Five
L.P. (Incorporated by reference to Exhibit No. 10.0 of the
Operating Partnership's Quarterly Report on Form 10-Q for the
Quarter Ended September 30, 1994)
**10.38 Certificate of Limited Partnership of Smith Property Holdings Five
L.P.
***10.39 Amended and Restated Credit Agreement by and between the Operating
Partnership and PNC Bank, National Association, et al.
10.40 Deed of Trust and Security Agreement between Smith property
Holdings Three L.P. ("Smith Three") and The Northwestern Mutual
Life Insurance Company ("Northwestern") (Incorporated by reference
to Exhibit No. 10.2 of the Operating Partnership's Quarterly Report
on Form 10-Q for the Quarter Ended June 30, 1994)
<PAGE>
10.41 Guarantee of Recourse Obligations by Smith Three and the Operating
Partnership (Incorporated by reference to Exhibit No. 10.3 of the
Operating Partnership's Quarterly Report on Form 10-Q for the
Quarter Ended June 30, 1994)
10.42 Absolute Assignment of Leases and Rents between Smith Three and
Northwestern (Incorporated by reference to Exhibit No. 10.4 of the
Operating Partnership's Quarterly Report on Form 10-Q for the
Quarter Ended June 30, 1994)
10.43 Promissory Note of Smith Three to Northwestern (Incorporated by
reference to Exhibit No. 10.5 of the Operating Partnership's
Quarterly Report on Form 10-Q for the Quarter Ended June 30, 1994)
10.44 Purchase Money Deed of Trust and Security Agreement between Smith
Property Holdings Three (D.C.) L.P. ("Smith Three D.C.") and
Northwestern (Incorporated by reference to Exhibit No. 10.6 of the
Operating Partnership's Quarterly Report on Form 10-Q for the
Quarter Ended June 30, 1994)
10.45 Guarantee of Recourse Obligations by Smith Three D.C. and the
Operating Partnership (Incorporated by reference to Exhibit No.
10.7 of the Operating Partnership's Quarterly Report on Form 10-Q
for the Quarter Ended June 30, 1994)
10.46 Absolute Assignment of Leases and Rents between Smith Three D.C.
and Northwestern (Incorporated by reference to Exhibit No. 10.8 of
the Operating Partnership's Quarterly Report on Form 10-Q for the
Quarter Ended June 30, 1994)
10.47 Purchase Money Promissory Note of Smith Three D.C. to Northwestern
(Incorporated by reference to Exhibit No. 10.9 of the Operating
Partnership's Quarterly Report on Form 10-Q for the Quarter Ended
June 30, 1994)
10.48 Supplemental Loan Agreement by and among Smith Property Holdings
Two L.P. ("Smith Two"), Smith Property Holdings Two (D.C.) L.P.
("Smith Two D.C.") and GMAC Mortgage Corporation of PA ("GMAC")
(Incorporated by reference to Exhibit No. 10.10 of the Operating
Partnership's Quarterly Report on Form 10-Q for the Quarter Ended
June 30, 1994)
10.49 Multifamily Note of Smith Two to GMAC (Incorporated by reference to
Exhibit No. 10.11 of the Operating Partnership's Quarterly Report
on Form 10-Q for the Quarter Ended June 30, 1994)
10.50 Multifamily Note of Smith Two D.C. to GMAC (Incorporated by
reference to Exhibit No. 10.12 of the Operating Partnership's
Quarterly Report on Form 10-Q for the Quarter Ended June 30, 1994)
10.51 Supplemental Loan Agreement by and among Smith Property Holdings
One L.P. ("Smith One"), Smith Property Holdings One (D.C.) L.P.
("Smith One D.C.") and GMAC (Incorporated by reference to Exhibit
No. 10.13 of the Operating Partnership's Quarterly Report on Form
10-Q for the Quarter Ended June 30, 1994)
<PAGE>
10.52 Multifamily Note of Smith One to GMAC (Incorporated by reference to
Exhibit No. 10.14 of the Operating Partnership's Quarterly Report
on Form 10-Q for the Quarter Ended June 30, 1994)
10.53 Multifamily Note of Smith One D.C. to GMAC (Incorporated by
reference to Exhibit No. 10.15 of the Operating Partnership's
Quarterly Report on Form 10-Q for the Quarter Ended June 30, 1994)
10.54 Absolute Assignment of Leases and Rents by Smith One D.C. to GMAC
(Incorporated by reference to Exhibit No. 10.16 of the Operating
Partnership's Quarterly Report on Form 10-Q for the Quarter Ended
June 30, 1994)
10.55 Property Management Agreement by and between Smith One and the
Operating Partnership (Incorporated by reference to Exhibit No.
10.17 of the Operating Partnership's Quarterly Report on Form 10-Q
for the Quarter Ended June 30, 1994)
10.56 Multifamily Deed of Trust, Assignment of Rents and Security
Agreement between Smith One D.C. and GMAC (Incorporated by
reference to Exhibit No. 10.18 of the Operating Partnership's
Quarterly Report on Form 10-Q for the Quarter Ended June 30, 1994)
10.57 Commercial Leasing and Property Management Agreement between Smith
Three and the Operating Partnership (Incorporated by reference to
Exhibit No. 10.19 of the Operating Partnership's Quarterly Report
on Form 10-Q for the Quarter Ended June 30, 1994)
**10.58 Agreement of Limited Partnership of Smith Employment Services L.P.
**10.59 Certificate of Limited Partnership of Smith Employment Services
L.P.
10.60 Second Restated and Amended Agreement of Limited Partnership of
First Herndon Associates Limited Partnership (Incorporated by
reference to Exhibit 10.1 of the Operating Partnership's Quarterly
Report on Form 10-Q for the Quarter Ended June 30, 1995)
10.61 Second Amendment to the Certificate of Limited Partnership of First
Herndon Associates Limited Partnership (Incorporated by reference
to Exhibit 10.2 of the Operating Partnership's Quarterly Report on
Form 10-Q for the Quarter Ended June 30, 1995)
10.62 Certificate of Incorporation of Smith Six, Inc. (Incorporated by
reference to Exhibit No. 10.1 of the Operating Partnership's
Quarterly Report on Form 10-Q for the Quarter Ended March 31, 1995)
10.63 By-Laws of Smith Six, Inc. (Incorporated by reference to Exhibit
No. 10.2 of the Operating Partnership's Quarterly Report on
Form 10-Q for the Quarter Ended March 31, 1995)
10.64 Agreement of Limited Partnership of Smith Property Holdings Six
L.P. (Incorporated by reference to Exhibit No. 10.3 of the
Operating Partnership's Quarterly Report on Form 10-Q for the
Quarter Ended March 31, 1995)
10.65 Agreement of Limited Partnership of Smith Property Holdings Six
(D.C.) L.P. (Incorporated by reference to Exhibit No. 10.4 of the
Operating Partnership's Quarterly Report on Form 10-Q for the
Quarter Ended March 31, 1995)
<PAGE>
***10.66 Certificate of Incorporation of Smith Seven, Inc.
***10.67 By-Laws of Smith Seven, Inc.
***10.68 Agreement of Limited Partnership of Smith Property Holdings Seven
L.P.
***10.69 Commitment for Mortgage Loan to the Operating Partnership
from Northwestern Mutual Life Insurance Company
***21 Subsidiaries of the Registrant
23.1 Consent of Arthur Andersen LLP
***99.1 Proxy Statement for Annual Meeting of Shareholders of the
Company
___________________________________
*Incorporated by reference to the same titled and numbered exhibit in
the Company's Registration Statement on Form S-11, No. 33-75288.
**Incorporated by reference to the same titled and numbered exhibit in
the Operating Partnership's Form 10-K for the year ended December 31,
1994.
***Incorporated by reference to the same titled and numbered exhibit
in the Operating Partnership's Form 10-K for the year ended December
31, 1995 filed on March 29, 1996.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our report included in this Form 10-K/A, into Charles E. Smith
Residential Realty L.P.'s previously filed Registration Statement No. 33-82382.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Washington, D.C.
January 21, 1997
