<PAGE>
FORM 10-Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 0-24920
ERP OPERATING LIMITED PARTNERSHIP
(Exact Name of Registrant as Specified in Its Charter)
ILLINOIS 36-3894853
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
TWO NORTH RIVERSIDE PLAZA, CHICAGO, ILLINOIS 60606
(Address of Principal Executive Offices) (Zip Code)
(312) 474-1300
(Registrant's Telephone Number, Including Area Code)
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
-- --
<PAGE>
ERP OPERATING LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
----------- -----------
<S> <C> <C>
ASSETS
Investment in real estate
Land $ 1,534,812 $ 1,550,378
Depreciable property 10,462,309 10,670,550
Construction in progress 28,755 18,035
----------- -----------
12,025,876 12,238,963
Accumulated depreciation (1,208,331) (1,070,487)
----------- -----------
Investment in real estate, net of accumulated depreciation 10,817,545 11,168,476
Real estate held for disposition 55,997 12,868
Cash and cash equivalents 237,066 29,117
Investment in mortgage notes, net 81,777 84,977
Rents receivable 1,408 1,731
Deposits - restricted 150,579 111,270
Escrow deposits - mortgage 73,008 75,328
Deferred financing costs, net 31,784 33,968
Other assets 297,579 197,954
----------- -----------
TOTAL ASSETS $11,746,743 $11,715,689
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Mortgage notes payable $ 2,987,921 $ 2,883,583
Notes, net 2,289,680 2,290,285
Line of credit - 300,000
Accounts payable and accrued expenses 119,214 102,955
Accrued interest payable 47,182 44,257
Rents received in advance and other liabilities 71,509 74,196
Security deposits 39,077 39,687
Distributions payable 127,594 18,813
----------- -----------
TOTAL LIABILITIES 5,682,177 5,753,776
----------- -----------
COMMITMENTS AND CONTINGENCIES
Minority Interests - Partially Owned Properties 2,891 -
----------- -----------
Partners' capital:
Junior Convertible Preference Units 7,896 7,896
----------- -----------
Cumulative Convertible Redeemable Preference Interests 127,000 40,000
----------- -----------
Cumulative Convertible or Redeemable Preference Units 1,193,053 1,310,266
----------- -----------
General Partner 4,334,632 4,194,668
Limited Partners 399,094 409,083
----------- -----------
Total General Partner and Limited Partners capital 4,733,726 4,603,751
----------- -----------
TOTAL PARTNERS' CAPITAL 6,061,675 5,961,913
----------- -----------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $11,746,743 $11,715,689
=========== ===========
</TABLE>
SEE ACCOMPANYING NOTES
2
<PAGE>
ERP OPERATING LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS EXCEPT PER OP UNIT DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED QUARTER ENDED
JUNE 30, JUNE 30,
-------------------------- --------------------------
2000 1999 2000 1999
-------------------------- --------------------------
<S> <C> <C> <C> <C>
REVENUES
Rental income $952,740 $819,178 $479,193 $413,116
Fee and asset management 2,632 2,414 1,334 1,180
Interest income-investment in mortgage notes 5,499 5,644 2,737 2,749
Interest and other income 17,652 11,123 9,849 5,177
-------- -------- -------- --------
Total revenues 978,523 838,359 493,113 422,222
-------- -------- -------- --------
EXPENSES
Property and maintenance 227,845 196,865 113,977 99,818
Real estate taxes and insurance 95,001 84,515 46,667 42,467
Property management 37,760 27,973 18,846 13,772
Fee and asset management 2,102 1,624 1,036 757
Depreciation 224,512 197,134 112,626 100,233
Interest:
Expense incurred 190,263 158,499 95,152 79,302
Amortization of deferred financing costs 2,703 1,661 1,362 816
General and administrative 13,216 10,714 6,518 4,947
-------- -------- -------- --------
Total expenses 793,402 678,985 396,184 342,112
-------- -------- -------- --------
Income before gain on disposition of properties, net,
extraordinary item and allocation to Minority Interests 185,121 159,374 96,929 80,110
Gain on disposition of properties, net 87,652 45,807 67,654 24,391
Loss on early extinguishment of debt - (451) - (451)
Allocation to Minority Interests - Partially
Owned Properties 157 - 112 -
-------- -------- -------- --------
Net income $272,930 $204,730 $164,695 $104,050
======== ======== ======== ========
ALLOCATION OF NET INCOME:
Junior Convertible Preference Units $ 218 $ - $ 110 $ -
======== ======== ======== ========
Cumulative Convertible Redeemable Preference Interests $ 3,667 $ - $ 2,498 $ -
======== ======== ======== ========
Cumulative Convertible or Redeemable Preference Units $ 51,769 $ 57,111 24,658 $ 27,734
======== ======== ======== ========
General Partner $198,144 $133,105 $125,393 $ 68,928
Limited Partners 19,132 14,514 12,036 7,388
-------- -------- -------- --------
Net income available to OP Unit holders $217,276 $147,619 $137,429 $ 76,316
======== ======== ======== ========
Weighted average OP Units outstanding - basic 140,850 132,826 141,436 133,478
======== ======== ======== ========
Net income per OP Unit - basic $ 1.54 $ 1.11 $ 0.97 $ 0.57
======== ======== ======== ========
Net income per OP Unit - diluted $ 1.54 $ 1.11 $ 0.96 $ 0.57
======== ======== ======== ========
</TABLE>
SEE ACCOMPANYING NOTES
3
<PAGE>
ERP OPERATING LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
----------------------------------
2000 1999
----------------------------------
<S> <C> <C>
Net income $ 272,930 $ 204,730
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY
OPERATING ACTIVITIES:
Allocation to Minority Interests - Partially Owned Properties (157) -
Depreciation 224,512 197,134
Amortization of deferred financing costs 2,703 1,661
Amortization of discounts and premiums on debt (1,153) (1,172)
Amortization of deferred settlements on interest rate protection
agreements 246 513
Gain on disposition of properties, net (87,652) (45,807)
Compensation paid with Company Common Shares 2,845 -
CHANGES IN ASSETS AND LIABILITIES:
Decrease in rents receivable 535 3,428
(Increase) in deposits - restricted (3,510) (4,342)
(Increase) decrease in other assets (1,808) 51,052
Increase in accounts payable and accrued expenses 16,769 6,936
Increase (decrease) in accrued interest payable 818 (1,176)
(Decrease) increase in rents received in advance and other liabilities (5,378) 6,411
(Decrease) in security deposits (803) (1,577)
--------- ---------
Net cash provided by operating activities 420,897 417,791
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in real estate, net (143,680) (200,613)
Improvements to real estate (58,360) (55,783)
Additions to non-real estate property (2,399) (3,640)
Interest capitalized for real estate under construction (480) (943)
Proceeds from disposition of real estate, net 219,409 125,150
Principal receipts on investment in mortgage notes 3,200 2,159
(Increase) decrease in deposits on real estate acquisitions, net (35,854) 2,961
Decrease in mortgage deposits 2,461 131
Investment in joint ventures, net (84,875) (44,314)
Investment in limited partnerships and other, net (449) -
Proceeds from disposition of Unconsolidated Properties, net 4,400 -
Purchase of management contract rights (779) (285)
Costs related to Mergers (4,261) (4,002)
Other investing activities, net (11,827) 603
--------- ---------
Net cash (used for) investing activities (113,494) (178,576)
--------- ---------
</TABLE>
SEE ACCOMPANYING NOTES
4
<PAGE>
ERP OPERATING LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-----------------------------------
2000 1999
-----------------------------------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Loan and bond acquisition costs $ (2,005) $ (2,055)
MORTGAGE NOTES PAYABLE:
Proceeds, net 378,318 62,885
Lump sum payoffs (104,484) (54,231)
Scheduled principal payments (14,126) (8,400)
NOTES, NET:
Proceeds - 298,014
Payoffs - (125,000)
LINES OF CREDIT:
Proceeds 162,000 689,000
Repayments (462,000) (894,000)
Loss on early extinguishment of debt - 451
Proceeds from settlement of interest rate protection agreements 7,055 -
Capital contributions from General Partner, net 13,983 29,619
Proceeds from sale of preference units/interests, net 84,825 -
DISTRIBUTIONS:
General and Limited Partners (107,078) (94,326)
Preference units/interests (55,444) (57,111)
Minority Interests - Partially Owned Properties (617) -
Principal receipts on employee notes, net 119 95
Principal receipts on other notes receivable, net - 7,375
--------- ---------
Net cash (used for) financing activities (99,454) (147,684)
--------- ---------
Net increase in cash and cash equivalents 207,949 91,531
Cash and cash equivalents, beginning of period 29,117 3,965
--------- ---------
Cash and cash equivalents, end of period $ 237,066 $ 95,496
========= =========
SUPPLEMENTAL INFORMATION:
Cash paid during the period for interest $ 190,854 $ 161,277
========= =========
Transfers to real estate held for disposition $ 55,997 $ 32,844
========= =========
Net real estate contributed in exchange for OP Units or Junior
Convertible Preference Units $ 636 $ 14,183
========= =========
Mortgage loans assumed and/or entered into through acquisitions of real estate $ - $ 58,320
========= =========
Mortgage loans assumed by purchaser in real estate dispositions $(220,000) $ -
========= =========
Refinancing of mortgage notes payable in favor of notes, net $ - $ 75,790
========= =========
Mortgage loans assumed through consolidation of Partially Owned Properties $ 65,095 $ -
========= =========
Net liabilities assumed through consolidation of Partially Owned Properties $ 792 $ -
========= =========
</TABLE>
SEE ACCOMPANYING NOTES
5
<PAGE>
ERP OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
DEFINITION OF SPECIAL TERMS:
Capitalized terms used but not defined in this Quarterly Report on Form 10-Q
are as defined in the Operating Partnership's Annual Report on Form 10-K for
the year ended December 31, 1999 ("Form 10-K").
1. BUSINESS
ERP Operating Limited Partnership (the "Operating Partnership"), an
Illinois limited partnership, was formed to conduct the multifamily
residential property business of Equity Residential Properties Trust ("EQR").
EQR is a Maryland real estate investment trust ("REIT") formed on March 31,
1993 and is the general partner of the Operating Partnership. As used herein,
the term "Company" means EQR, and its subsidiaries, as the survivor of the
mergers between EQR and each of Wellsford Residential Property Trust
("Wellsford") (the "Wellsford Merger"), Evans Withycombe Residential, Inc.
("EWR") (the "EWR Merger"), Merry Land & Investment Company, Inc ("MRY") (the
"MRY Merger") and Lexford Residential Trust ("LFT") ("the LFT Merger").
The Operating Partnership is engaged in the acquisition,
disposition, ownership, management and operation of multifamily properties.
As of June 30, 2000, the Operating Partnership owned or had interests in a
portfolio of 1,053 multifamily properties containing 224,383 apartment units
(individually a "Property" and collectively the "Properties") consisting of
the following:
<TABLE>
<CAPTION>
Number of Number of
Properties Units
---------------------------------- ---------------- -----------------
<S> <C> <C>
Wholly Owned Properties 951 206,783
Partially Owned Properties 14 2,995
Unconsolidated Properties 88 14,605
---------------- -----------------
Total Properties 1,053 224,383
================ =================
</TABLE>
The "Partially Owned Properties" are controlled and partially owned by
the Operating Partnership but have partners with minority interests (see further
discussion in Notes 3 and 4). The "Unconsolidated Properties" are partially
owned but not controlled by the Operating Partnership and consist of investments
in partnership interests and/or subordinated mortgages. The Properties are
located in 35 states throughout the United States.
2. BASIS OF PRESENTATION
The balance sheet and statements of operations and cash flows as of
and for the six months and quarter ended June 30, 2000 represent the
consolidated financial information of the Operating Partnership and its
subsidiaries.
Due to the Operating Partnership's ability to control either through
ownership or by contract a series of management limited partnerships and
companies (collectively, the "Management Partnerships" or the "Management
Companies"), the Financing Partnerships, the LLC's, and certain other
entities, each such entity has been consolidated with the Operating
Partnership for financial reporting purposes. In regard to the Management
Companies, the Operating Partnership does not have legal control; however,
these entities are consolidated for financial reporting purposes, the effects
of which are immaterial. Certain reclassifications have been made to the
prior year's financial statements in order to conform to the current year
presentation.
6
<PAGE>
ERP OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Minority interests represented by EQR's indirect 1% interest in
various Financing Partnerships and LLCs are immaterial and have not been
accounted for in the Consolidated Financial Statements. In addition, certain
amounts due from EQR for its 1% interest in the Financing Partnerships has
not been reflected in the Consolidated Balance Sheets since such amounts are
immaterial to the Consolidated Balance Sheets.
These unaudited Consolidated Financial Statements of the Operating
Partnership have been prepared pursuant to the Securities and Exchange
Commission ("SEC") rules and regulations and should be read in conjunction
with the Financial Statements and Notes thereto included in the Operating
Partnership's Annual Report on Form 10-K. The following Notes to Consolidated
Financial Statements highlight significant changes to the notes included in
the Form 10-K and present interim disclosures as required by the SEC. The
accompanying Consolidated Financial Statements reflect, in the opinion of
management, all adjustments necessary for a fair presentation of the interim
financial statements. All such adjustments are of a normal and recurring
nature.
3. PARTNERS' CAPITAL
The following table presents the changes in the Operating Partnership's
issued and outstanding OP Units for the six months ended June 30, 2000:
<TABLE>
<CAPTION>
------------------------------------------------------------------------ ---------------
2000
------------------------------------------------------------------------ ---------------
<S> <C>
Operating Partnership's OP Units outstanding at January 1, 139,934,540
ISSUED TO GENERAL PARTNER:
Conversion of Series E Preferred Shares 2,333
Conversion of Series H Preferred Shares 61,628
Conversion of Series J Preferred Shares 2,822,012
Employee Share Purchase Plan 110,373
Dividend Reinvestment - DRIP Plan 9,917
Share Purchase - DRIP Plan 7,778
Exercise of options 240,886
Restricted share grants, net 232,161
ISSUED TO LIMITED PARTNERS:
Issuance through acquisitions 17,088
------------------------------------------------------------------------ ---------------
OPERATING PARTNERSHIP'S OP UNITS OUTSTANDING AT JUNE 30, 143,438,716
------------------------------------------------------------------------ ---------------
</TABLE>
As of June 30, 2000, OP Units outstanding totaled 143,438,716. The
limited partners of the Operating Partnership as of June 30, 2000 include
various individuals and entities that contributed their properties to the
Operating Partnership in exchange for a partnership interest (the "Limited
Partners") and are represented by 12,258,530 OP Units. As of June 30, 2000,
EQR (as the general partner) had an approximate 91.45% interest and the
Limited Partners had an approximate 8.55% interest in the Operating
Partnership.
In regards to the general partner, net proceeds from the various
equity offerings of EQR have been contributed by EQR to the Operating
Partnership in return for an increased ownership percentage. Due to the
Limited Partners' ability to convert their interest into an ownership
interest in the general partner, the net offering proceeds are allocated
between EQR (as general partner) and the Limited Partners (to the extent
represented by OP Units) to account for the change in their respective
percentage ownership of the equity of the Operating Partnership.
7
<PAGE>
ERP OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
The Guilford portfolio properties (see further discussion in Note 4)
are controlled and partially owned by the Operating Partnership but have
partners with minority interests. Effective January 1, 2000, the Operating
Partnership has included 100% of the financial condition and results of
operations of these Partially Owned Properties in the Consolidated Financial
Statements due to an increased ownership interest in these properties. The
equity interests of the unaffiliated partners are reflected as Minority
Interests - Partially Owned Properties.
The following table presents the Operating Partnership's issued and
outstanding Junior Convertible Preference Units as of June 30, 2000 and
December 31, 1999:
<TABLE>
<CAPTION>
-------------------------------------------------------------- ------------ ---------------------------
AMOUNTS ARE IN THOUSANDS
---------------------------
ANNUAL
DIVIDEND
RATE PER JUNE DECEMBER
UNIT (1) 30, 2000 31, 1999
-------------------------------------------------------------- ------------ ------------ --------------
<S> <C> <C> <C>
Junior Convertible Preference Units:
Series A Junior Convertible Preference Units; liquidation $5.469344 $ 7,712 $ 7,712
value $100 per unit; 77,123 units issued and outstanding
at June 30, 2000 and December 31, 1999
Series B Junior Convertible Preference Units; liquidation $2.000000 184 184
value $25 per unit; 7,367 units issued and outstanding at
June 30, 2000 and December 31, 1999
-------------------------------------------------------------- ------------ ------------ --------------
$ 7,896 $ 7,896
-------------------------------------------------------------- ------------ ------------ --------------
</TABLE>
(1) Dividends on both series of Junior Convertible Preference Units are
payable quarterly at various pay dates.
On March 3, 2000, Lexford Properties, L.P., a subsidiary of the
Operating Partnership, issued 1.1 million units of 8.50% Series B Cumulative
Convertible Redeemable Preference Units (collectively known as "Preference
Interests") with an equity value of $55.0 million. Lexford Properties, L.P.
received $53.6 million in net proceeds from this transaction. The liquidation
value of these units is $50 per unit. The 1.1 million units are exchangeable
into 1.1 million shares of 8.50% Series M-1 Cumulative Redeemable Preferred
Shares of Beneficial Interest of the Company. The Series M-1 Preferred Shares
are not convertible into EQR Common Shares. Dividends for the Series B
Preference Interests or the Series M-1 Preferred Shares are payable quarterly
at the rate of $4.25 per unit/share per year.
On March 23, 2000, Lexford Properties, L.P., a subsidiary of the
Operating Partnership, issued 220,000 units of 8.50% Series C Cumulative
Convertible Redeemable Preference Units with an equity value of $11.0
million. Lexford Properties, L.P. received $10.7 million in net proceeds from
this transaction. The liquidation value of these units is $50 per unit. The
220,000 units are exchangeable into 220,000 shares of 8.50% Series M-1
Cumulative Redeemable Preferred Shares of Beneficial Interest of the Company.
The Series M-1 Preferred Shares are not convertible into EQR Common Shares.
Dividends for the Series C Preference Interests or the Series M-1 Preferred
Shares are payable quarterly at the rate of $4.25 per unit/share per year.
On May 1, 2000, Lexford Properties, L.P., a subsidiary of the
Operating Partnership, issued 420,000 units of 8.375% Series D Cumulative
Convertible Redeemable Preference Units with an equity value of $21.0
million. Lexford Properties, L.P. received $20.5 million in net proceeds from
this transaction. The liquidation value of these units is $50 per unit. The
420,000 units are exchangeable into 420,000 shares of 8.375% Series M-2
Cumulative Redeemable Preferred Shares of Beneficial Interest of
8
<PAGE>
ERP OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
the Company. The Series M-2 Preferred Shares are not convertible into EQR
Common Shares. Dividends for the Series D Preference Interests or the Series
M-2 Preferred Shares are payable quarterly at the rate of $4.1875 per
unit/share per year.
The following table presents Lexford Properties, L.P.'s issued and
outstanding Preference Interests as of June 30, 2000 and December 31, 1999:
<TABLE>
<CAPTION>
------------------------------------------------------------------- ------------- --------------------------
AMOUNTS ARE IN THOUSANDS
--------------------------
ANNUAL
DIVIDEND
RATE PER JUNE DECEMBER
UNIT (1) 30, 2000 31, 1999
------------------------------------------------------------------- ------------- ------------ -------------
<S> <C> <C> <C>
Preference Interests:
8.00% Series A Cumulative Convertible Redeemable Preference $4.0000 $ 40,000 $ 40,000
Interests; liquidation value $50 per unit; 800,000 units issued
and outstanding at June 30, 2000 and December 31, 1999
8.50% Series B Cumulative Convertible Redeemable Preference $4.2500 55,000 -
Units; liquidation value $50 per unit; 1,100,000 units issued
and outstanding at June 30, 2000
8.50% Series C Cumulative Convertible Redeemable Preference $4.2500 11,000 -
Units; liquidation value $50 per unit; 220,000 units issued
and outstanding at June 30, 2000
8.375% Series D Cumulative Convertible Redeemable Preference
Units; liquidation value $50 per unit; 420,000
units issued and outstanding at June 30, 2000 $4.1875 21,000 -
------------------------------------------------------------------- ------------- ------------ -------------
$127,000 $ 40,000
------------------------------------------------------------------- ------------- ------------ -------------
</TABLE>
(1) Dividends on all series of Preference Interests are payable quarterly at
various pay dates.
The following table presents the Operating Partnership's issued and
outstanding Cumulative Convertible or Redeemable Preference Units as of June 30,
2000 and December 31, 1999:
9
<PAGE>
ERP OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
-------------------------------------------------------------------- ------------- -------------------------
AMOUNTS ARE IN THOUSANDS
-------------------------
ANNUAL
DIVIDEND
RATE PER JUNE DECEMBER
UNIT (1) 30, 2000 31, 1999
-------------------------------------------------------------------- ------------- ------------ ------------
<S> <C> <C> <C>
Cumulative Convertible or Redeemable Preference Units:
9 3/8% Series A Cumulative Redeemable Preference Units; liquidation $2.34375 $ 153,000 $ 153,000
value $25 per unit; 6,120,000 units issued and outstanding at
June 30, 2000 and December 31, 1999
9 1/8% Series B Cumulative Redeemable Preference Units; liquidation $22.81252 125,000 125,000
value $250 per unit; 500,000 units issued and outstanding at
June 30, 2000 and December 31, 1999
9 1/8% Series C Cumulative Redeemable Preference Units; liquidation $22.81252 115,000 115,000
value $250 per unit; 460,000 units issued and outstanding
at June 30, 2000 and December 31, 1999
8.60% Series D Cumulative Redeemable Preference Units; liquidation $21.50000 175,000 175,000
value $250 per unit; 700,000 units issued and outstanding
at June 30, 2000 and December 31, 1999
Series E Cumulative Convertible Preference Units; liquidation value $1.75000 99,745 99,850
$25 per unit; 3,989,800 and 3,994,000 units issued and
outstanding at June 30, 2000 and December 31, 1999, respectively
9.65% Series F Cumulative Redeemable Preference Units; liquidation $2.41250 57,500 57,500
value $25 per unit; 2,300,000 units issued and outstanding at
June 30, 2000 and December 31, 1999
7 1/4% Series G Convertible Cumulative Preference Units; liquidation $18.12500 316,250 316,250
value $250 per unit; 1,265,000 units issued and outstanding at
June 30, 2000 and December 31, 1999
7.00% Series H Cumulative Convertible Preference Units; liquidation $1.75000 1,558 3,686
value $25 per unit; 62,324 and 147,452 units issued and outstanding
at June 30, 2000 and December 31, 1999, respectively
8.60% Series J Cumulative Convertible Preference Units; liquidation $2.15000 - 114,980
value $25 per unit; 0 and 4,599,200 units issued and outstanding
at June 30, 2000 and December 31, 1999, respectively (2)
8.29% Series K Cumulative Redeemable Preference Units; liquidation $4.14500 50,000 50,000
value $50 per unit; 1,000,000 units issued and outstanding at
June 30, 2000 and December 31, 1999
7.625% Series L Cumulative Redeemable Preference Units; liquidation $1.90625 100,000 100,000
value $25 per unit; 4,000,000 units issued and outstanding at
June 30, 2000 and December 31, 1999
-------------------------------------------------------------------- ------------- ------------ ------------
$1,193,053 $1,310,266
-------------------------------------------------------------------- ------------- ------------ ------------
</TABLE>
(1) Dividends on all series of preference units are payable quarterly at
various pay dates. Dividend rates listed for Series B, C, D and G are
preference unit rates and the equivalent depositary unit annual dividend
rates are $2.281252, $2.281252, $2.15 and $1.8125, respectively.
(2) On June 2, 2000, the Operating Partnership redeemed all of its remaining
issued and outstanding Series J Cumulative Convertible Preference Units
in conjunction with the conversion of the Series J Preferred Shares of
EQR.
10
<PAGE>
ERP OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
The following table presents the Operating Partnership's allocation of
net income among Cumulative Convertible or Redeemable Preference Units for the
quarters ended June 30, 2000 and 1999 (AMOUNTS ARE IN THOUSANDS):
<TABLE>
<CAPTION>
SIX MONTHS ENDED QUARTER ENDED
JUNE 30, JUNE 30,
-------------------------- ---------------------------
2000 1999 2000 1999
-------------------------- ---------------------------
<S> <C> <C> <C> <C>
ALLOCATION OF NET INCOME:
9 3/8% Series A Cumulative Redeemable
Preference Units $ 7,172 $ 7,172 $ 3,586 $ 3,586
9 1/8% Series B Cumulative Redeemable
Preference Units 5,703 5,703 2,851 2,852
9 1/8% Series C Cumulative Redeemable
Preference Units 5,247 5,247 2,624 2,623
8.60% Series D Cumulative Redeemable
Preference Units 7,526 7,526 3,763 3,763
Series E Cumulative Convertible Preference Units 3,491 3,497 1,744 1,749
9.65% Series F Cumulative Redeemable
Preference Units 2,774 2,774 1,387 1,387
7 1/4% Series G Convertible Cumulative
Preference Units 11,464 11,464 5,732 5,732
7.00% Series H Cumulative Convertible
Preference Units 55 131 27 66
8.82% Series I Cumulative Convertible
Preference Units - 2,767 - 562
8.60% Series J Cumulative Convertible
Preference Units 2,451 4,944 - 2,472
8.29% Series K Cumulative Redeemable
Preference Units 2,073 2,073 1,037 1,036
7.625% Series L Cumulative Redeemable
Preference Units 3,813 3,813 1,907 1,906
------- ------- ------- -------
Cumulative Convertible or Redeemable
Preference Units $51,769 $57,111 $24,658 $27,734
======= ======= ======= =======
</TABLE>
4. REAL ESTATE ACQUISITIONS
During the six months ended June 30, 2000 the Operating Partnership
acquired the three Properties listed below from unaffiliated parties. The cash
portion of these transactions was funded from proceeds received from the
disposition of properties and working capital.
<TABLE>
<CAPTION>
--------------- --------------------------------- ------------------------------ -------------- ------------------
PURCHASE
DATE NUMBER OF PRICE
ACQUIRED PROPERTY LOCATION UNITS (IN THOUSANDS)
--------------- --------------------------------- ------------------------------ -------------- ------------------
<S> <C> <C> <C> <C>
01/19/00 Windmont Atlanta, GA 178 $ 10,310
04/05/00 Alborada Fremont, CA 442 83,500
06/30/00 Jefferson at Wyndham Lakes Coral Springs, FL 332 33,340
--------------- --------------------------------- ------------------------------ -------------- ------------------
952 $127,150
--------------- --------------------------------- ------------------------------ -------------- ------------------
</TABLE>
On January 19, 2000, the Operating Partnership paid $1.25 million to
acquire an additional ownership interest in LFT's Guilford portfolio (14
properties containing 2,995 units located in four states). The transaction was
effective on January 1, 2000. Prior to January 1, 2000, the Operating
Partnership
11
<PAGE>
ERP OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
accounted for this portfolio under the equity method of accounting. As a
result of this additional ownership acquisition, the Operating Partnership
acquired a controlling interest, and as such, now consolidates these
properties for financial reporting purposes. The Operating Partnership
recorded additional investments in real estate totaling $69.4 million in
connection with this transaction.
5. REAL ESTATE DISPOSITIONS
During the six months ended June 30, 2000, the Operating Partnership
disposed of the fourteen properties listed below to unaffiliated parties. The
Operating Partnership recognized a net gain for financial reporting purposes of
approximately $38.1 million.
<TABLE>
<CAPTION>
--------------- --------------------------------- ------------------------- ----------- -------------------
DISPOSITION
DATE NUMBER PRICE
DISPOSED PROPERTY LOCATION OF UNITS (IN THOUSANDS)
--------------- --------------------------------- ------------------------- ----------- -------------------
<S> <C> <C> <C> <C>
02/04/00 Lakeridge at the Moors Miami, FL 175 $ 10,000
02/09/00 Sonnet Cove I & II Lexington, KY 331 12,300
02/25/00 Yuma Court Colorado Springs, CO 40 2,350
02/25/00 Indigo Plantation Daytona Beach, FL 304 14,200
02/25/00 The Oaks of Lakebridge Ormond Beach, FL 170 7,800
03/23/00 Tanglewood Lake Oswego, OR 158 10,750
03/30/00 Preston Lake Tucker, GA 320 17,325
03/31/00 Cypress Cove Melbourne, FL 326 18,800
04/20/00 Village of Sycamore Ridge Memphis, TN 114 5,200
04/28/00 Towne Centre III & IV Laurel, MD 562 29,244
05/11/00 3000 Grand Des Moines, IA 186 9,625
06/14/00 Villa Madeira Scottsdale, AZ 332 17,500
--------------- --------------------------------- ------------------------- ----------- -------------------
3,018 $155,094
--------------- --------------------------------- ------------------------- ----------- -------------------
</TABLE>
Also, on June 30, 2000, the Operating Partnership entered into two
separate joint ventures with an unaffiliated party. At closing, the Company sold
and/or contributed twenty-one wholly owned properties containing 5,211 units in
eight states valued at $303.4 million to the joint ventures encumbered with $220
million in mortgage loans obtained on June 26, 2000 (see further discussion in
Note 8). The unaffiliated party acquired a 75% interest in the joint ventures
while the Operating Partnership retained a 25% interest along with the right to
manage the properties. The Operating Partnership will account for its 25%
interest in the joint ventures under the equity method of accounting. The
Operating Partnership recognized a net gain for financial reporting purposes of
approximately $49.6 million.
In addition, during the six months ended June 30, 2000, the Operating
Partnership sold its entire interest in two Unconsolidated Properties containing
338 units for approximately $4.4 million.
6. COMMITMENTS TO ACQUIRE/DISPOSE OF REAL ESTATE
As of June 30, 2000, in addition to the Properties that were
subsequently acquired as discussed in Note 14 of the Notes to Consolidated
Financial Statements, the Operating Partnership entered into separate agreements
to acquire two multifamily property containing 560 units from unaffiliated
parties. The Operating Partnership expects a combined purchase price of
approximately $35.3 million, including the assumption of mortgage indebtedness
of approximately $27.1 million.
As of June 30, 2000, in addition to the Properties that were
subsequently disposed of as discussed in
12
<PAGE>
ERP OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Note 14 of the Notes to Consolidated Financial Statements, the Operating
Partnership entered into separate agreements to dispose of eighteen
multifamily properties containing 4,414 units to unaffiliated parties. The
Operating Partnership expects a combined disposition price of approximately
$222.5 million.
The closings of these pending transactions are subject to certain
contingencies and conditions; therefore, there can be no assurance that these
transactions will be consummated or that the final terms thereof will not
differ in material respects from those summarized in the preceding paragraph.
7. DEPOSITS - RESTRICTED
Deposits-restricted as of June 30, 2000 primarily included the
following:
- deposits in the amount of $29.5 million held in third party
escrow accounts to provide collateral for third party
construction financing in connection with two separate joint
venture agreements;
- approximately $76.0 million held in third party escrow
accounts, representing proceeds received in connection with
the Operating Partnership's disposition of sixteen properties
and earnest money deposits made for nine additional
acquisitions;
- approximately $32.9 million for tenant security, utility
deposits, and other deposits for certain of the Operating
Partnership's Properties; and
- approximately $12.2 million of other deposits.
8. MORTGAGE NOTES PAYABLE
As of June 30, 2000, the Operating Partnership had outstanding
mortgage indebtedness of approximately $3.0 billion encumbering 514 of the
Properties. The carrying value of such Properties (net of accumulated
depreciation of $525.9 million) was approximately $4.7 billion. The mortgage
notes payables are generally due in monthly installments of principal and
interest.
During the six months ended June 30, 2000 the Operating Partnership:
- recorded additional third-party mortgage debt totaling $65.1
million in connection with the consolidation of the Guilford
portfolio on January 1, 2000 (see Note 4);
- repaid the outstanding mortgage balances on fifty-six
Properties in the aggregate amount of $104.5 million;
- obtained new mortgage financing on eleven previously
unencumbered properties in the amount of $148.3 million on
March 20, 2000;
- settled on a $100 million forward starting swap and received
$7.1 million. This amount is being amortized over the life of
the financing for the eleven previously unencumbered
Properties that occurred in March 2000; and
- obtained new mortgage financings on twenty-one previously
unencumbered properties in the amount of $220 million on June
26, 2000. These mortgage loans were assumed by the joint
ventures that closed on June 30, 2000 (see Note 5).
As of June 30, 2000, scheduled maturities for the Operating
Partnership's outstanding mortgage indebtedness are at various dates through
October 1, 2033. The interest rate range on the Operating Partnership's
mortgage debt was 4.00% to 10.67% at June 30, 2000. During the six months
ended June 30, 2000, the weighted average interest rate on the Operating
Partnership's mortgage debt was 7.33%.
13
<PAGE>
ERP OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
9. NOTES
The following tables summarize the Operating Partnership's unsecured
note balances and certain interest rate and maturity date information as of and
for the six months ended June 30, 2000:
<TABLE>
<CAPTION>
Weighted
June 30, 2000 Net Principal Interest Rate Average Maturity Date
(AMOUNTS ARE IN THOUSANDS) Balance Ranges Interest Rate Ranges
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fixed Rate Public Notes $ 2,062,118 6.150% - 9.375% 7.07% 2000 - 2026
Floating Rate Public Notes 99,782 (1) 7.09% 2003
Fixed Rate Tax-Exempt Bonds 127,780 4.750% - 5.200% 5.10% 2024 - 2029
------------------- ---------------
Totals $ 2,289,680 6.97%
=================== ===============
</TABLE>
(1) As of June 30, 2000, floating rate public notes consisted of
one note. The interest rate on this note was LIBOR (reset
quarterly) plus a spread equal to 0.75% at June 30, 2000
(reset annually in August).
As of June 30, 2000, the Operating Partnership had outstanding
unsecured notes of approximately $2.3 billion net of a $4.1 million discount and
including a $6.0 million premium.
As of June 30, 2000, the remaining unamortized balance of deferred
settlement receipts and payments from treasury locks and interest rate
protection agreements was $9.1 million and $2.9 million, respectively.
10. LINE OF CREDIT
The Operating Partnership has a revolving credit facility with Bank of
America Securities LLC and Chase Securities Inc. acting as joint lead arrangers
to provide the Operating Partnership with potential borrowings of up to $700
million. As of June 30, 2000, no amounts were outstanding under this facility
and $51.4 million was restricted on the line of credit. During the six months
ended June 30, 2000, the weighted average interest rate on the Operating
Partnership's line of credit was 6.58%.
11. CALCULATION OF NET INCOME PER WEIGHTED AVERAGE OP UNIT
The following tables set forth the computation of net income per OP
Unit - basic and net income per OP Unit - diluted.
14
<PAGE>
ERP OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, QUARTER ENDED JUNE 30,
--------------------------------- -----------------------------
2000 1999 2000 1999
--------------------------------- -----------------------------
(AMOUNTS IN THOUSANDS EXCEPT PER OP UNIT AMOUNTS)
<S> <C> <C> <C> <C>
NUMERATOR:
Income before gain on disposition of properties, net,
extraordinary item, allocation to Minority
Interests and preference $ 185,121 $ 159,374 $ 96,929 $ 80,110
unit/interest distributions
Allocation to Minority Interests - Partially Owned
Properties 157 - 112 -
Allocation to Junior Convertible Preference Units (218) - (110) -
Allocation to Cumulative Convertible Redeemable
Preference Interests (3,667) - (2,498) -
Allocation to Redeemable Preference Units (51,769) (57,111) (24,658) (27,734)
--------- --------- ---------- ---------
Income before gain on disposition of properties, net
and extraordinary item 129,624 102,263 69,775 52,376
Gain on disposition of properties, net 87,652 45,807 67,654 24,391
Loss on early extinguishment of debt - (451) - (451)
--------- --------- ---------- ---------
Numerator for net income per OP Unit - basic 217,276 147,619 137,429 76,316
Effect of dilutive securities:
Distributions to convertible preference
units/interests 267 - 3,526 -
--------- --------- ---------- ---------
Numerator for net income per OP Unit - diluted $ 217,543 $ 147,619 $ 140,955 $ 76,316
========= ========= ========= =========
DENOMINATOR:
Denominator for net income per OP Unit - basic 140,850 132,826 141,436 133,478
Effect of dilutive securities:
Dilution for OP Units issuable upon assumed
exercise of the Company's stock options 579 742 770 908
Convertible preference units/interests 204 - 4,304 -
--------- --------- ---------- ---------
Denominator for net income per OP Unit - diluted 141,633 133,568 146,510 134,386
========= ========= ========== =========
Net income per OP Unit - basic $ 1.54 $ 1.11 $ 0.97 $ 0.57
========= ========= ========== =========
Net income per OP Unit - diluted $ 1.54 $ 1.11 $ 0.96 $ 0.57
========= ========= ========== =========
</TABLE>
15
<PAGE>
ERP OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, QUARTER ENDED JUNE 30,
------------------------- -----------------------
2000 1999 2000 1999
------------------------- -----------------------
(AMOUNTS IN THOUSANDS EXCEPT PER OP UNIT AMOUNTS)
<S> <C> <C> <C> <C>
NET INCOME PER OP UNIT - BASIC:
Income before gain on disposition of properties, net
and extraordinary item per OP Unit - basic $0.92 $0.77 $0.49 $0.39
Gain on disposition of properties, net 0.62 0.34 0.48 0.18
Loss on early extinguishment of debt - - - -
----- ----- ----- -----
Net income per OP Unit - basic $1.54 $1.11 $0.97 $0.57
===== ===== ===== =====
NET INCOME PER OP UNIT - DILUTED:
Income before gain on disposition of properties, net
and extraordinary item per OP Unit - diluted $0.92 $0.77 $0.50 $0.39
Gain on disposition of properties, net 0.62 0.34 0.46 0.18
Loss on early extinguishment of debt - - - -
----- ----- ----- -----
Net income per OP Unit - diluted $1.54 $1.11 $0.96 $0.57
===== ===== ===== =====
</TABLE>
CONVERTIBLE PREFERENCE UNITS THAT COULD BE CONVERTED INTO 9,970,878 AND
12,761,757 WEIGHTED COMMON SHARES (WHICH WOULD BE CONTRIBUTED TO THE OPERATING
PARTNERSHIP IN EXCHANGE FOR OP UNITS) FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND
1999, RESPECTIVELY, AND 5,402,779 AND 12,404,422 WEIGHTED COMMON SHARES FOR THE
QUARTERS ENDED JUNE 30, 2000 AND 1999, RESPECTIVELY, WERE OUTSTANDING BUT WERE
NOT INCLUDED IN THE COMPUTATION OF DILUTED EARNINGS PER OP UNIT BECAUSE THE
EFFECTS WOULD BE ANTI-DILUTIVE.
12. COMMITMENTS AND CONTINGENCIES
The Operating Partnership, as an owner of real estate, is
subject to various environmental laws of Federal and local governments.
Compliance by the Operating Partnership with existing laws has not had
a material adverse effect on the Operating Partnership's financial
condition and results of operations. However, the Operating Partnership
cannot predict the impact of new or changed laws or regulations on its
current Properties or on properties that it may acquire in the future.
The Operating Partnership does not believe there is any
litigation threatened against the Operating Partnership other than
routine litigation arising out of the ordinary course of business, some
of which is expected to be covered by liability insurance, none of
which is expected to have a material adverse effect on the consolidated
financial statements of the Operating Partnership.
In regards to the funding of Properties in the development
and/or earnout stage and the joint venture agreements with two
multifamily residential real estate developers, the Operating
Partnership funded a total of $91.7 million during the six months ended
June 30, 2000. During the remainder of 2000, the Operating Partnership
expects to fund approximately $63.8 million in connection with these
Properties. In connection with one joint venture agreement, the
Operating Partnership has an obligation to fund up to an additional
$17.5 million to guarantee third party construction financing.
Pursuant to the terms of a Stock Purchase Agreement with
Wellsford Real Properties, Inc. ("WRP Newco"), the Operating
Partnership had agreed to purchase up to 1,000,000 shares of WRP Newco
Series A
16
<PAGE>
ERP OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Preferred at $25.00 per share on a standby basis over a three-year period
ending on May 31, 2000. This agreement was terminated on May 5, 2000, and, as
such, the Operating Partnership has no further obligations under this
agreement.
In connection with the Wellsford Merger, the Operating Partnership
provided a $14.8 million credit enhancement with respect to certain
tax-exempt bonds issued to finance certain public improvements at a
multifamily development project. As of June 30, 2000, this enhancement was
still in effect.
13. REPORTABLE SEGMENTS
The following tables set forth the reconciliation of net income and
total assets for the Operating Partnership's reportable segments for the six
months and quarter ended June 30, 2000 and net income for the six months and
quarter ended June 30, 1999.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 2000 RENTAL REAL CORPORATE/
(AMOUNTS IN THOUSANDS) ESTATE (1) OTHER (2) CONSOLIDATED
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Rental income $ 952,740 $ - $ 952,740
Property and maintenance expense (227,845) - (227,845)
Real estate tax and insurance expense (95,001) - (95,001)
Property management expense (37,760) - (37,760)
------------ ------------ ------------
Net operating income 592,134 - 592,134
Fee and asset management income - 2,632 2,632
Interest income - investment in mortgage notes - 5,499 5,499
Interest and other income - 17,652 17,652
Fee and asset management expense - (2,102) (2,102)
Depreciation expense on non-real estate assets - (3,157) (3,157)
Interest expense:
Expense incurred - (190,263) (190,263)
Amortization of deferred financing costs - (2,703) (2,703)
General and administrative expense - (13,216) (13,216)
Allocation to preference unit/interest holders - (55,654) (55,654)
Allocation to Minority Interests - Partially Owned
Properties - 157 157
Adjustment for depreciation expense related to
Unconsolidated and Partially Owned Properties - (491) (491)
------------ ------------ ------------
Funds from operations available to OP Units 592,134 (241,646) 350,488
Depreciation expense on real estate assets (221,355) - (221,355)
Gain on disposition of properties, net 87,652 - 87,652
Adjustment for depreciation expense related
to Unconsolidated and Partially Owned Properties - 491 491
------------ ------------ ------------
Net income available to OP Unit holders $ 458,431 $ (241,155) $ 217,276
============ ============ ============
Investment in real estate, net of accumulated
depreciation $ 10,801,004 $ 16,541 $ 10,817,545
============ ============ ============
Total assets $ 10,857,001 $ 889,742 $ 11,746,743
============ ============ ============
</TABLE>
17
<PAGE>
ERP OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1999 RENTAL REAL CORPORATE/
(AMOUNTS IN THOUSANDS) ESTATE (1) OTHER (2) CONSOLIDATED
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Rental income $ 819,178 $ - $ 819,178
Property and maintenance expense (196,865) - (196,865)
Real estate tax and insurance expense (84,515) - (84,515)
Property management expense (27,973) - (27,973)
------------ ------------ ------------
Net operating income 509,825 - 509,825
Fee and asset management income - 2,414 2,414
Interest income - investment in mortgage notes - 5,644 5,644
Interest and other income - 11,123 11,123
Fee and asset management expense - (1,624) (1,624)
Depreciation expense on non-real estate assets - (3,423) (3,423)
Interest expense:
Expense incurred - (158,499) (158,499)
Amortization of deferred financing costs - (1,661) (1,661)
General and administrative expense - (10,714) (10,714)
Allocation to preference unit/interest holders - (57,111) (57,111)
Adjustment for depreciation expense related to
Unconsolidated Properties - 551 551
------------ ------------ ------------
Funds from operations available to OP Units 509,825 (213,300) 296,525
Depreciation expense on real estate assets (193,711) - (193,711)
Gain on disposition of properties, net 45,807 - 45,807
Loss on early extinguishment of debt (451) (451)
Adjustment for depreciation expense related to
Unconsolidated Properties - (551) (551)
------------ ------------ ------------
Net income available to OP Unit holders $ 361,921 $ (214,302) $ 147,619
============ ============ ============
</TABLE>
18
<PAGE>
ERP OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED JUNE 30, 2000 RENTAL REAL CORPORATE/
(AMOUNTS IN THOUSANDS) ESTATE (1) OTHER (2) CONSOLIDATED
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Rental income $ 479,193 $- $ 479,193
Property and maintenance expense (113,977) - (113,977)
Real estate tax and insurance expense (46,667) - (46,667)
Property management expense (18,846) - (18,846)
------------ ------------ ------------
Net operating income 299,703 - 299,703
Fee and asset management income - 1,334 1,334
Interest income - investment in mortgage notes - 2,737 2,737
Interest and other income - 9,849 9,849
Fee and asset management expense - (1,036) (1,036)
Depreciation expense on non-real estate assets - (1,590) (1,590)
Interest expense:
Expense incurred - (95,152) (95,152)
Amortization of deferred financing costs - (1,362) (1,362)
General and administrative expense - (6,518) (6,518)
Allocation to preference unit/interest holders - (27,266) (27,266)
Allocation to Minority Interests - Partially Owned
Properties - 112 112
Adjustment for depreciation expense related to
Unconsolidated and Partially Owned Properties - (253) (253)
------------ ------------ ------------
Funds from operations available to OP Units 299,703 (119,145) 180,558
Depreciation expense on real estate assets (111,036) - (111,036)
Gain on disposition of properties, net 67,654 - 67,654
Adjustment for depreciation expense related to
Unconsolidated and Partially Owned Properties - 253 253
------------ ------------ ------------
Net income available to OP Unit holders $ 256,321 $ (118,892) $ 137,429
============ ============ ============
</TABLE>
19
<PAGE>
ERP OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED JUNE 30, 1999 RENTAL REAL CORPORATE/
(AMOUNTS IN THOUSANDS) ESTATE (1) OTHER (2) CONSOLIDATED
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Rental income $ 413,116 $ - $ 413,116
Property and maintenance expense (99,818) - (99,818)
Real estate tax and insurance expense (42,467) - (42,467)
Property management expense (13,772) - (13,772)
------------ ----------- ------------
Net operating income 257,059 - 257,059
Fee and asset management income - 1,180 1,180
Interest income - investment in mortgage notes - 2,749 2,749
Interest and other income - 5,177 5,177
Fee and asset management expense - (757) (757)
Depreciation expense on non-real estate assets - (1,719) (1,719)
Interest expense:
Expense incurred - (79,302) (79,302)
Amortization of deferred financing costs - (816) (816)
General and administrative expense - (4,947) (4,947)
Allocation to preference unit/interest holders - (27,734) (27,734)
Adjustment for depreciation expense related to Unconsolidated
Properties - 276 276
------------ ----------- ------------
Funds from operations available to OP Units 257,059 (105,893) 151,166
Depreciation expense on real estate assets (98,514) - (98,514)
Gain on disposition of properties, net 24,391 - 24,391
Loss on early extinguishment of debt - (451) (451)
Adjustment for depreciation expense related to Unconsolidated
Properties - (276) (276)
------------ ----------- ------------
Net income available to OP Unit holders $ 182,936 $ (106,620) $ 76,316
============ ============ ============
</TABLE>
(1) The Operating Partnership has one primary reportable business segment,
which consists of investment in rental real estate. The Operating
Partnership's primary business is owning, managing, and operating
multifamily residential properties which includes the generation of rental
and other related income through the leasing of apartment units to tenants.
(2) The Operating Partnership has a segment for corporate level activity
including such items as interest income earned on short-term investments,
interest income earned on investment in mortgage notes, general and
administrative expenses, and interest expense on mortgage notes payable and
unsecured note issuances. In addition, the Operating Partnership has a
segment for third party management activity that is immaterial and does not
meet the threshold requirements of a reportable segment as provided for in
Statement No. 131. Interest expense on debt is not allocated to individual
Properties, even if the Properties secure such debt.
14. SUBSEQUENT EVENTS
On July 11, 2000, the Company closed on its acquisition, in an all cash
and debt transaction, of Globe Business Resources, Inc. ("Globe"), one of the
nation's largest providers of temporary corporate housing and furniture rental.
Shareholders of Globe received $13.00 per share, which approximated $58.7
million in cash based on the Globe shares outstanding. In addition, the
Operating Partnership assumed approximately $70.8 million in debt.
20
<PAGE>
ERP OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
On July 6, 2000, the Operating Partnership disposed of Idlewood
Apartments, a 320-unit multifamily property located in Indianapolis, IN, to
an unaffiliated party for a total sales price of $15.6 million.
On July 11, 2000, the Operating Partnership repaid the outstanding
mortgage balance on one Property totaling $5.9 million.
On July 12, 2000, the Operating Partnership acquired Ambergate
Villas Apartments, a 72-unit multifamily property located in West Palm Beach,
FL, from an unaffiliated party for a total purchase price of approximately
$2.4 million, which included the issuance of approximately $0.4 million of OP
Units.
On July 12, 2000, the Operating Partnership acquired Greengate
Villas Apartments, a 120-unit multifamily property located in West Palm
Beach, FL, from an unaffiliated party for a total purchase price of
approximately $4.0 million, which included the assumption of mortgage
indebtedness of approximately $2.7 million and the issuance of approximately
$1.2 million of OP Units.
On July 12, 2000, the Operating Partnership acquired Jupiter Sound
Villas Apartments, a 61-unit multifamily property located in Juno Beach, FL,
from an unaffiliated party for a total purchase price of approximately $1.7
million, which included the assumption of mortgage indebtedness of
approximately $1.6 million and the issuance of approximately $10,000 of OP
Units.
On July 12, 2000, the Operating Partnership acquired Oakland Hills
Apartments, a 189-unit multifamily property located in Margate, FL, from an
unaffiliated party for a total purchase price of approximately $7.8 million,
which included the assumption of mortgage indebtedness of approximately $5.0
million and the issuance of approximately $2.4 million of OP Units.
On July 12, 2000, the Operating Partnership acquired Summit Center
Apartments, a 87-unit multifamily property located in West Palm Beach, FL,
from an unaffiliated party for a total purchase price of approximately $2.4
million, which included the assumption of mortgage indebtedness of
approximately $2.3 million and the issuance of approximately $10,000 of OP
Units.
On July 12, 2000, the Operating Partnership acquired Whispering
Pines Apartments, a 64-unit multifamily property located in Fort Pierce, FL,
from an unaffiliated party for a total purchase price of approximately $1.0
million, which included the issuance of approximately $0.1 million of OP
Units.
On July 17, 2000, the Company announced that it has entered into a
definitive agreement and plan of merger with Grove Property Trust ("Grove").
Grove's portfolio of 60 properties contains 7,296 units located in three New
England states. The transaction values Grove at approximately $461 million,
including the assumption of approximately $244 million in debt. This merger
is expected to close during the fourth quarter of 2000 and does not require
EQR shareholder approval.
On July 25, 2000, the Operating Partnership acquired Harbour Town
Apartments, a 392-unit multifamily property located in Boca Raton, FL, from
an unaffiliated party for a total purchase price of approximately $31.9
million.
On July 25, 2000, the Operating Partnership disposed of Sabal Palms
Apartments, a 416-unit multifamily property located in Pompano Beach, FL, to
an unaffiliated party for a total sales price of $27.2 million.
21
<PAGE>
ERP OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
On July 27, 2000, the Operating Partnership disposed of Lake in the
Woods Apartments, a 1,028-unit multifamily property located in Ypsilanti, MI,
to an unaffiliated party for a total sales price of $57.0 million.
On July 28, 2000, the Operating Partnership disposed of Lamplight
Court Apartments, a 53-unit multifamily property located in London, OH, to an
unaffiliated party for a total sales price of $0.7 million.
On July 28, 2000, the Operating Partnership disposed of Cheyenne
Crest Apartments, a 208-unit multifamily property located in Colorado
Springs, CO, to an unaffiliated party for a total sales price of $12.3
million.
On July 28, 2000, the Operating Partnership disposed of Windmill
Apartments, a 304-unit multifamily property located in Colorado Springs, CO,
to an unaffiliated party for a total sales price of $12.4 million.
On July 28, 2000, the Operating Partnership sold its entire interest
in an Unconsolidated Property containing 39 units for approximately $0.2
million.
22
<PAGE>
ERP OPERATING LIMITED PARTNERSHIP
PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The following discussion and analysis of the results of operations
and financial condition of the Operating Partnership should be read in
conjunction with the Consolidated Financial Statements and Notes thereto. Due
to the Operating Partnership's ability to control the Management Partnerships
and Management Companies, the Financing Partnerships, the LLC's, and certain
other entities, each entity has been consolidated with the Operating
Partnership for financial reporting purposes. Capitalized terms used herein
and not defined are as defined in the Operating Partnership's Annual Report
on Form 10-K for the year ended December 31, 1999.
Forward-looking statements in this report are intended to be made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. The words "believes", "expects" and "anticipates" and
other similar expressions which are predictions of or indicate future events
and trends and which do not relate solely to historical matters identify
forward-looking statements. Such forward-looking statements are subject to
risks and uncertainties, which could cause actual results, performance, or
achievements of the Operating Partnership to differ materially from
anticipated future results, performance or achievements expressed or implied
by such forward-looking statements. Factors that might cause such differences
include, but are not limited to, the following:
- alternative sources of capital to the Operating Partnership
are higher than anticipated;
- occupancy levels and market rents may be adversely affected by
local economic and market conditions, which are beyond the
Operating Partnership's control; and
- additional factors as discussed in Part I of the Annual Report
on Form 10-K.
Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof. The
Operating Partnership undertakes no obligation to publicly release any
revisions to these forward-looking statements, which may be made to reflect
events or circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
RESULTS OF OPERATIONS
The acquired properties are presented in the Consolidated Financial
Statements of the Operating Partnership from the date of each acquisition or
the closing dates of the Mergers. The following table summarizes the number
of Wholly Owned Acquired and Disposed Properties and related units for the
periods presented:
<TABLE>
<CAPTION>
ACQUISITIONS DISPOSITIONS
--------------------------- -----------------------------
Number of Number of Number of Number of
YEAR Properties Units Properties Units
------- ------------ ------------- ----------- -----------
<S> <C> <C> <C> <C>
1999 366 35,450 36 7,886
2000 3 952 35 8,229
</TABLE>
In addition, during the quarter ended June 30, 2000, the Operating
Partnership sold its entire interest in two Unconsolidated Properties containing
338 units for approximately $4.4 million.
23
<PAGE>
ERP OPERATING LIMITED PARTNERSHIP
PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
The Operating Partnership's overall results of operations for the
six months ended June 30, 2000 and 1999 have been significantly impacted by
the Operating Partnership's acquisition and disposition activity. The
significant changes in rental revenues, property and maintenance expenses,
real estate taxes and insurance, depreciation expense, property management
and interest expense can all primarily be attributed to the acquisition of
the 1999 Acquired Properties and the 2000 Acquired Properties, partially
offset by the disposition of the 1999 Disposed Properties and the 2000
Disposed Properties. The impact of the 1999 Acquired Properties and the 2000
Acquired Properties, the 1999 Disposed Properties and the 2000 Disposed
Properties are discussed in greater detail in the following paragraphs.
Properties that the Operating Partnership owned for all of both the
six-month periods ended June 30, 2000 and June 30, 1999 (the "Six-Month 2000
Same Store Properties"), which represented 167,210 units, also impacted the
Operating Partnership's results of operations. Properties that the Operating
Partnership owned for all of both the quarters ended June 30, 2000 and June
30, 1999 (the "Second-Quarter 2000 Same Store Properties"), which represented
168,634 units, also impacted the Operating Partnership's results of
operations. Both the Six-Month 2000 Same Store Properties and Second-Quarter
2000 Same Store Properties are discussed in the following paragraphs.
COMPARISON OF SIX MONTHS ENDED JUNE 30, 2000 TO SIX MONTHS ENDED JUNE 30, 1999
For the six months ended June 30, 2000, income before gain on
disposition of properties, net, extraordinary item and allocation to Minority
Interests increased by approximately $25.7 million when compared to the six
months ended June 30, 1999. This increase was primarily due to the
acquisition of the 1999 Acquired Properties as well as increases in rental
revenues net of increases in property and maintenance expenses, real estate
taxes and insurance, property management expenses, depreciation expense,
interest expense and general and administrative expenses.
In regard to the Six-Month 2000 Same Store Properties, total
revenues increased by approximately $29.0 million to $770.5 million or 3.92%
primarily as a result of higher rental rates charged to new tenants and
tenant renewals and an increase in income from billing tenants for their
share of utility costs as well as other ancillary services provided to
tenants. Overall, property operating expenses, which include property and
maintenance, real estate taxes and insurance and an allocation of property
management expenses, increased approximately $5.3 million or 1.96%. This
increase was primarily the result of higher expenses for on-site compensation
costs and an increase in real estate taxes on certain properties, but was
partially offset by lower leasing and advertising, administrative,
maintenance, building and insurance costs.
Property management represents expenses associated with the
self-management of the Operating Partnership's Properties. These expenses
increased by approximately $9.8 million primarily due to the operations of
the property management business obtained through the LFT Merger and a
current year compensation charge associated with the issuance of restricted
shares to our property management personnel.
Fee and asset management revenues and fee and asset management
expenses are associated with the management of properties not owned by the
Operating Partnership that are managed for affiliates. These revenues and
expenses increased slightly.
Interest expense, including amortization of deferred financing costs,
increased by approximately
24
<PAGE>
ERP OPERATING LIMITED PARTNERSHIP
PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
$32.8 million. This increase was primarily the result of a $719.2 million
increase in the Operating Partnership's average indebtedness outstanding. The
effective interest cost on all of the Operating Partnership's indebtedness
for the six months ending June 30, 2000 was 7.26% as compared to 6.98% for
the six months ended June 30, 1999.
General and administrative expenses, which include corporate
operating expenses, increased approximately $2.5 million between the periods
under comparison. This increase was primarily due to recording higher
compensation expense associated with the issuance of restricted shares. These
expenses as a percentage of total revenues were 1.35% for the six months
ended June 30, 2000 compared to 1.28% of total revenues for the six months
ended June 30, 1999.
COMPARISON OF QUARTER ENDED JUNE 30, 2000 TO QUARTER ENDED JUNE 30, 1999
For the quarter ended June 30, 2000, income before gain on
disposition of properties, net, extraordinary item and allocation to Minority
Interests increased by approximately $16.8 million when compared to the
quarter ended June 30, 1999. This increase was primarily due to the
acquisition of the 1999 Acquired Properties as well as increases in rental
revenues net of increases in property and maintenance expenses, real estate
taxes and insurance, property management expenses, depreciation expense,
interest expense and general and administrative expenses.
In regard to the Second-Quarter 2000 Same Store Properties, total
revenues increased by approximately $15.3 million or 4.08% primarily as a
result of higher rental rates charged to new tenants and tenant renewals and
an increase in income from billing tenants for their share of utility costs
as well as other ancillary services provided to tenants. Overall, property
operating expenses, which include property and maintenance, real estate taxes
and insurance and an allocation of property management expenses, increased
approximately $3.1 million or 2.24%. This increase was primarily the result
of higher expenses for on-site compensation costs and an increase in real
estate taxes on certain properties, but was partially offset by lower
administrative, building and insurance costs.
Property management represents expenses associated with the
self-management of the Operating Partnership's Properties. These expenses
increased by approximately $5.1 million primarily due to the operations of
the property management business obtained through the LFT Merger and a
current year compensation charge associated with the issuance of restricted
shares to our property management personnel.
Fee and asset management revenues and fee and asset management
expenses are associated with the management of properties not owned by the
Operating Partnership that are managed for affiliates. These revenues and
expenses increased slightly.
Interest expense, including amortization of deferred financing
costs, increased by approximately $16.4 million. This increase was primarily
the result of a $625.0 million increase in the Operating Partnership's
average indebtedness outstanding. The effective interest cost on all of the
Operating Partnership's indebtedness for the quarter ending June 30, 2000 was
7.37% as compared to 6.92% for the quarter ended June 30, 1999.
General and administrative expenses, which include corporate operating
expenses, increased
25
<PAGE>
ERP OPERATING LIMITED PARTNERSHIP
PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
approximately $1.6 million between the periods under comparison. This
increase was primarily due to recording higher compensation expense
associated with the issuance of restricted shares. These expenses as a
percentage of total revenues were 1.32% for the quarter ended June 30, 2000
compared to 1.17% of total revenues for the quarter ended June 30, 1999.
LIQUIDITY AND CAPITAL RESOURCES
As of January 1, 2000, the Operating Partnership had approximately
$29.1 million of cash and cash equivalents and the amount available on the
Operating Partnership's line of credit was $400 million, of which $65.8
million was restricted. After taking into effect the various transactions
discussed in the following paragraphs, the Operating Partnership's cash and
cash equivalents balance at June 30, 2000 was approximately $237.1 million
and the amount available on the Operating Partnership's line of credit was
$700 million, of which $51.4 million was restricted. The following discussion
also explains the changes in net cash provided by operating activities, net
cash (used for) investing activities and net cash (used for) financing
activities, all of which are presented in the Operating Partnership's
Statements of Cash Flows.
Part of the Operating Partnership's strategy in funding the purchase
of multifamily properties, funding its Properties in the development and/or
earnout stage and the funding of the Operating Partnership's investment in
two joint ventures with multifamily real estate developers is to utilize its
line of credit and to subsequently repay the line of credit from the
disposition of Properties or the issuance of additional equity or debt
securities. Utilizing this strategy during the first six months of 2000, the
Operating Partnership:
- obtained new mortgage financing on eleven previously
unencumbered properties and received net proceeds of $147.7
million;
- disposed of sixteen properties (including the sale of the
Operating Partnership's entire interest in two Unconsolidated
Properties) and received net proceeds of $159.5 million;
- sold and/or contributed twenty-one properties to two separate
joint ventures and received net proceeds of $60.5 million;
- issued approximately 0.4 million OP Units and received net
proceeds of $14.1 million;
- issued the Series B, C and D Cumulative Convertible Redeemable
Preference Units and received net proceeds of $84.8 million;
and
- obtained new mortgage financing on twenty-one previously
unencumbered properties and received net proceeds of $217.2
million.
All of these proceeds were utilized to either:
- repay the line of credit;
- repay mortgage indebtedness on certain Properties;
- provide funding for properties in the development and/or
earnout stage including the joint venture agreements; and/or
- purchase additional properties.
26
<PAGE>
ERP OPERATING LIMITED PARTNERSHIP
PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
During the six months ended June 30, 2000, the Operating Partnership:
- repaid approximately $104.5 million of mortgage indebtedness
on fifty six Properties;
- settled on a $100 million interest rate protection agreement
and received approximately $7.1 million in connection
therewith. This amount is being amortized over the life of the
financing for the eleven previously unencumbered Properties
that occurred in March 2000;
- funded $91.7 million related to the development, earnout and
joint venture agreements;
- purchased three Properties for a total purchase price of
approximately $127.2 million;
- funded $1.25 million to acquire an additional ownership
interest in LFT's Guilford portfolio; and
- acquired $25.0 million of 8.25% preferred securities of WRP
Convertible Trust I, an affiliate of WRP Newco.
As of June 30, 2000, the Operating Partnership had total
indebtedness of approximately $5.3 billion, which included mortgage
indebtedness of $3.0 billion (including premiums of $2.9 million), of which
$837.1 million represented tax-exempt bond indebtedness, and unsecured debt
of $2.3 billion (including net discounts and premiums in the amount of $1.9
million), of which $127.8 million represented tax-exempt bond indebtedness.
Subsequent to June 30, 2000 and through August 9, 2000, the Company and/or
the Operating Partnership:
- repaid the outstanding mortgage balance on one Property
totaling approximately $5.9 million;
- disposed of seven properties (including the sale of the
Operating Partnership's entire interest in one Unconsolidated
Property) for a total sales price of $125.4 million;
- acquired seven properties containing 985 units for a total
purchase price of approximately $51.1 million, including the
assumption of mortgage indebtedness of approximately $11.5
million and the issuance of OP Units with a value of
approximately $4.1 million; and
- acquired Globe Business Resources, Inc. ("Globe") for cash of
approximately $58.7 million, plus the assumption of mortgage
indebtedness of approximately $70.8 million.
During the remainder of 2000, the Operating Partnership expects to
fund $63.8 million related to the development, earnout and joint venture
agreements. In connection with one joint venture agreement, the Operating
Partnership has an obligation to fund up to an additional $17.5 million to
guarantee third party construction financing.
In addition, during the remainder of 2000, the Company and/or the Operating
Partnership expects to fund the:
- repayment of total indebtedness related to scheduled unsecured
note and mortgage note maturities in the amount of
approximately $215.0 million; and
- acquisition of Grove Property Trust for cash of approximately
$210.0 million.
The Operating Partnership has a policy of capitalizing expenditures
made for new assets, including newly acquired properties and the costs
associated with placing these assets into service. Expenditures for
improvements and renovations that significantly enhance the value of existing
assets or substantially extend the useful life of an asset are also
capitalized. Expenditures for in-the-unit replacement-type items such as
27
<PAGE>
ERP OPERATING LIMITED PARTNERSHIP
PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
appliances, draperies, carpeting and floor coverings, mechanical equipment
and certain furniture and fixtures are also capitalized. Expenditures for
ordinary maintenance and repairs are expensed to operations as incurred. With
respect to acquired properties, the Operating Partnership has determined that
it generally spends $1,000 per unit during its first three years of ownership
to fully improve and enhance these properties to meet the Operating
Partnership's standards. In regard to replacement-type items described above,
the Operating Partnership generally expects to spend $250 per unit on an
annual recurring basis.
During the six months ended June 30, 2000, total capital
expenditures for the Operating Partnership approximated $60.7 million. Of
this amount, approximately $12.5 million, or $137 per unit, related to
capital improvements and major repairs for the 1998, 1999 and 2000 Acquired
Properties. Capital improvements and major repairs for all of the Operating
Partnership's pre-EQR IPO properties and 1993, 1994, 1995, 1996 and 1997
Acquired Properties approximated $14.7 million, or $122 per unit. Capital
spent for replacement-type items approximated $25.4 million, or $119 per
unit. In addition, approximately $4.4 million was spent on nine specific
assets related to major renovations and repositioning of these assets. Also
included in total capital expenditures was approximately $2.4 million
expended for non-real estate additions such as computer software, computer
equipment, and furniture and fixtures and leasehold improvements for the
Operating Partnership's property management offices and its corporate
headquarters, $0.4 million spent on commercial/other assets, $0.8 million
spent on the Partially Owned Properties and $0.1 million was spent on
properties that were sold prior to 2000. Such capital expenditures were
primarily funded from working capital reserves and from net cash provided by
operating activities. Total capital expenditures for the remaining portion of
2000 are estimated to be approximately $61.3 million.
Total distributions paid in July 2000 amounted to approximately
$130.4 million, which included distributions declared for the quarter ended
June 30, 2000.
The Operating Partnership expects to meet its short-term liquidity
requirements, including capital expenditures related to maintaining its
existing Properties and certain scheduled unsecured note and mortgage note
repayments, generally through its working capital, net cash provided by
operating activities and borrowings under its line of credit. The Operating
Partnership considers its cash provided by operating activities to be
adequate to meet operating requirements and payments of distributions. The
Operating Partnership also expects to meet its long-term liquidity
requirements, such as scheduled unsecured note and mortgage debt maturities,
property acquisitions, financing of construction and development activities
and capital improvements, through undistributed FFO and proceeds received
from the disposition of certain Properties and/or through the issuance of
unsecured notes and equity securities including additional OP Units. In
addition, the Operating Partnership has certain uncollateralized Properties
available for additional mortgage borrowings in the event that the public
capital markets are unavailable to the Operating Partnership or the cost of
alternative sources of capital to the Operating Partnership is too high.
The Operating Partnership has a revolving credit facility with Bank
of America Securities LLC and Chase Securities Inc. acting as joint lead
arrangers to provide the Operating Partnership with potential borrowings of
up to $700 million. As of August 9, 2000, no amounts were outstanding under
this facility.
In connection with the Globe merger, the Operating Partnership
assumed a revolving credit facility with Fifth Third Bank with potential
borrowings of up to $55.0 million. This line of credit matures on May 31,
2003. As of August 9, 2000, $40.3 million was outstanding under this facility.
28
<PAGE>
ERP OPERATING LIMITED PARTNERSHIP
PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
In connection with the Wellsford Merger, the Operating Partnership
provided a $14.8 million credit enhancement with respect to certain
tax-exempt bonds issued to finance certain public improvements at a
multifamily development project. As of August 9, 2000, this enhancement was
still in effect.
Pursuant to the terms of a Stock Purchase Agreement with Wellsford
Real Properties, Inc. ("WRP Newco"), the Operating Partnership had agreed to
purchase up to 1,000,000 shares of WRP Newco Series A Preferred at $25.00 per
share on a standby basis over a three-year period ending on May 30, 2000.
This agreement was terminated on May 5, 2000, and, as such, the Operating
Partnership has no further obligations under this agreement.
On May 5, 2000, the Operating Partnership acquired $25.0 million of
8.25% preferred securities of WRP Convertible Trust I, an affiliate of WRP
Newco. These preferred securities are indirectly convertible into WRP Newco
common shares under certain circumstances.
FUNDS FROM OPERATIONS
Funds from Operations ("FFO") represents net income (loss) (computed
in accordance with accounting principles generally accepted in the United
States ("GAAP")), excluding gains or losses from sales of property, plus
depreciation and amortization, and after adjustments for unconsolidated
partnerships and joint ventures. Adjustments for unconsolidated partnerships
and joint ventures will be calculated to reflect funds from operations on the
same basis. This definition of FFO is in accordance with the National
Association of Real Estate Investment Trust's ("NAREIT") recommended
definition. NAREIT modified this definition effective January 1, 2000.
However, as a result of this modification, no changes were required to the
Operating Partnership's calculation of FFO for either the current or prior
periods presented.
The Operating Partnership believes that FFO is helpful to investors
as a supplemental measure of the operating performance of a real estate
company because, along with cash flows from operating activities, financing
activities and investing activities, it provides investors an understanding
of the ability of the Operating Partnership to incur and service debt and to
make capital expenditures. FFO in and of itself does not represent cash
generated from operating activities in accordance with GAAP and therefore
should not be considered an alternative to net income as an indication of the
Operating Partnership's performance or to net cash flows from operating
activities as determined by GAAP as a measure of liquidity and is not
necessarily indicative of cash available to fund cash needs. The Operating
Partnership's calculation of FFO may differ from the methodology for
calculating FFO utilized by other real estate companies and may differ as a
result of differences between the Operating Partnership's and other real
estate company's accounting policies for replacement type items and,
accordingly, may not be comparable to such other real estate companies.
FFO per OP Unit is presented giving affect to the Statement of
Financial Accounting Standards No. 128 "Earnings Per Share".
29
<PAGE>
ERP OPERATING LIMITED PARTNERSHIP
PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
For the six months ended June 30, 2000, FFO available to OP Units
increased by $54.0 million, or 18.2%, and FFO per OP Unit - diluted increased by
$0.25, or 11.4%, when compared to the six months ended June 30, 1999.
For the quarter ended June 30, 2000, FFO available to OP Units
increased by $29.4 million, or 19.4%, and FFO per OP Unit - diluted increased
by $0.14, or 12.6%, when compared to the quarter ended June 30, 1999.
The following is a reconciliation of net income to FFO available to
OP Units for the six months and quarters ended June 30, 2000 and 1999:
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, QUARTER ENDED JUNE 30,
------------------------- ----------------------
2000 1999 2000 1999
------------------------------------------------------
(AMOUNTS IN THOUSANDS, EXCEPT PER OP UNIT AMOUNTS)
<S> <C> <C> <C> <C>
STATEMENTS OF FUNDS FROM OPERATIONS
Net income $272,930 $204,730 $164,695 $104,050
Adjustments:
Depreciation on real estate assets* 220,864 194,262 110,783 98,790
Loss on early extinguishment of debt - 451 - 451
Gain on disposition of properties, net (87,652) (45,807) (67,654) (24,391)
-------- -------- -------- --------
FFO 406,142 353,636 207,824 178,900
Allocation to preference unit/interest holders (55,654) (57,111) (27,266) (27,734)
-------- -------- -------- --------
FFO available to OP Units $350,488 $296,525 $180,558 $151,166
======== ======== ======== ========
Weighted average OP Units outstanding - basic 140,850 132,825 141,436 133,478
======== ======== ======== ========
FFO per OP Unit - basic $ 2.49 $ 2.23 $ 1.28 $ 1.13
======== ======== ======== ========
FFO per OP Unit - diluted $ 2.44 $ 2.19 $ 1.25 $ 1.11
======== ======== ======== ========
</TABLE>
* INCLUDES $210,000 AND $551,000 FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND
1999, RESPECTIVELY, AND $105,000 AND $276,000 FOR THE QUARTERS ENDED JUNE 30,
2000 AND 1999, RESPECTIVELY, RELATED TO THE OPERATING PARTNERSHIP'S SHARE OF
DEPRECIATION FROM UNCONSOLIDATED PROPERTIES. EXCLUDES $701,000 FOR THE SIX
MONTHS ENDED JUNE 30, 2000 AND $358,000 FOR THE QUARTER ENDED JUNE 30, 2000
RELATED TO THE MINORITY INTERESTS' SHARE OF DEPRECIATION FROM PARTIALLY OWNED
PROPERTIES.
30
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There have been no new or significant developments related to the
legal proceedings that were discussed in Part I, Item III of the Operating
Partnership's Form 10-K for the year ended December 31, 1999.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits:
12 Computation of Ratio of Earnings to Fixed Charges
27 Financial Data Schedule
(B) Reports on Form 8-K:
None.
31
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ERP OPERATING LIMITED PARTNERSHIP
BY: EQUITY RESIDENTIAL PROPERTIES TRUST,
ITS GENERAL PARTNER
Date: AUGUST 9, 2000 By: /s/ Bruce C. Strohm
------------------------------------------
Bruce C. Strohm
Executive Vice President, General Counsel
and Secretary
Date: AUGUST 9, 2000 By: /s/ Michael J. McHugh
------------------------------------------
Michael J. McHugh
Executive Vice President, Chief Accounting
Officer and Treasurer
32
