<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 MARCH 31, 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>
MARCH 31, DECEMBER 31,
2000 1999
----------------- ----------------
<S> <C> <C>
ASSETS
Investment in real estate
Land $ 1,547,929 $ 1,550,378
Depreciable property 10,677,391 10,670,550
Construction in progress 23,507 18,035
----------------- ----------------
12,248,827 12,238,963
Accumulated depreciation (1,166,702) (1,070,487)
----------------- ----------------
Investment in real estate, net of accumulated depreciation 11,082,125 11,168,476
Real estate held for disposition 29,183 12,868
Cash and cash equivalents 72,510 29,117
Investment in mortgage notes, net 83,290 84,977
Rents receivable 1,226 1,731
Deposits - restricted 165,952 111,270
Escrow deposits - mortgage 72,210 75,328
Deferred financing costs, net 33,437 33,968
Other assets 244,233 197,954
----------------- ----------------
TOTAL ASSETS $ 11,784,166 $ 11,715,689
================= ================
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Mortgage notes payable $ 3,076,211 $ 2,883,583
Notes, net 2,289,982 2,290,285
Line of credit - 300,000
Accounts payable and accrued expenses 104,995 102,955
Accrued interest payable 62,701 44,257
Rents received in advance and other liabilities 74,860 74,196
Security deposits 40,037 39,687
Distributions payable 125,275 18,813
----------------- ----------------
TOTAL LIABILITIES 5,774,061 5,753,776
----------------- ----------------
COMMITMENTS AND CONTINGENCIES
Minority Interests - Partially Owned Properties 1,073 -
----------------- ----------------
Partners' capital:
Junior Convertible Preference Units 7,896 7,896
----------------- ----------------
Cumulative Convertible Redeemable Preference Interests 106,000 40,000
----------------- ----------------
Cumulative Convertible or Redeemable Preference Units 1,307,041 1,310,266
----------------- ----------------
General Partner 4,186,291 4,194,668
Limited Partners 401,804 409,083
----------------- ----------------
Total General Partner and Limited Partners capital 4,588,095 4,603,751
----------------- ----------------
TOTAL PARTNERS' CAPITAL 6,009,032 5,961,913
----------------- ----------------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 11,784,166 $ 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>
QUARTER ENDED MARCH 31,
------------------------------
2000 1999
------------------------------
<S> <C> <C>
REVENUES
Rental income $ 473,547 $ 406,062
Fee and asset management 1,298 1,234
Interest income - investment in mortgage notes 2,762 2,895
Interest and other income 7,803 5,946
------------- ------------
Total revenues 485,410 416,137
------------- ------------
EXPENSES
Property and maintenance 113,868 97,047
Real estate taxes and insurance 48,334 42,048
Property management 18,914 14,201
Fee and asset management 1,066 867
Depreciation 111,886 96,901
Interest:
Expense incurred 95,111 79,197
Amortization of deferred financing costs 1,341 845
General and administrative 6,698 5,767
------------- ------------
Total expenses 397,218 336,873
------------- ------------
Income before gain on disposition of properties, net and
allocation to Minority Interests 88,192 79,264
Gain on disposition of properties, net 19,998 21,416
Allocation to Minority Interests - Partially Owned
Properties 45 -
------------- ------------
Net income $ 108,235 $ 100,680
============= ============
ALLOCATION OF NET INCOME:
Junior Convertible Preference Units $ 108 $ -
============= ============
Cumulative Convertible Redeemable Preference Interests $ 1,169 $ -
============= ============
Cumulative Convertible or Redeemable Preference Units $ 27,111 $ 29,377
============= ============
General Partner $ 72,751 $ 64,177
Limited Partners 7,096 7,126
------------- ------------
Net income available to OP Unit holders $ 79,847 $ 71,303
============= ============
Weighted average OP Units outstanding 140,264 132,165
============== =============
Net income per OP Unit - basic $ 0.57 $ 0.54
============== =============
Net income per OP Unit - diluted $ 0.57 $ 0.54
============== =============
</TABLE>
SEE ACCOMPANYING NOTES
3
<PAGE>
ERP OPERATING LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED MARCH 31,
----------------------------------
2000 1999
----------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 108,235 $ 100,680
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY
OPERATING ACTIVITIES:
Allocation to Minority Interests - Partially Owned Properties (45) -
Depreciation 111,886 96,901
Amortization of deferred financing costs 1,341 845
Amortization of discounts and premiums on debt (576) (608)
Amortization of deferred settlements on interest rate
protection agreements 201 257
Gain on disposition of properties, net (19,998) (21,416)
Compensation paid with Company Common Shares 1,422 -
CHANGES IN ASSETS AND LIABILITIES:
Decrease in rents receivable 723 2,661
(Increase) in deposits - restricted (2,802) (3,465)
(Increase) decrease in other assets (2,025) 4,362
Increase (decrease) in accounts payable and accrued expenses 1,944 (12,627)
Increase in accrued interest payable 16,683 14,509
(Decrease) increase in rents received in advance and other liabilities (2,652) 12,687
Increase (decrease) in security deposits 80 (531)
--------------- ---------------
Net cash provided by operating activities 214,417 194,255
--------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in real estate, net (18,307) (107,058)
Improvements to real estate (27,193) (24,922)
Additions to non-real estate property (1,038) (2,450)
Interest capitalized for real estate under construction (236) (609)
Proceeds from disposition of real estate, net 92,241 75,997
Decrease in investment in mortgage notes 1,687 1,128
(Increase) decrease in deposits on real estate acquisitions, net (51,948) 24,527
Decrease in mortgage deposits 4,596 1,864
Investment in joint ventures, net (46,149) (15,847)
Investment in limited partnerships and other, net (588) -
Proceeds from disposition of Unconsolidated Properties, net 4,400 -
Purchase of management contract rights (779) (285)
Costs related to Mergers (3,472) (2,612)
Other investing activities (772) (355)
--------------- ---------------
Net cash (used for) investing activities (47,558) (50,622)
--------------- ---------------
</TABLE>
SEE ACCOMPANYING NOTES
4
<PAGE>
ERP OPERATING LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED MARCH 31,
-----------------------------------
2000 1999
-----------------------------------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Loan and bond acquisition costs $ (574) $ (52)
MORTGAGE NOTES PAYABLE:
Proceeds, net 147,683 -
Lump sum payoffs (12,801) -
Scheduled principal payments (7,509) (4,161)
LINES OF CREDIT:
Proceeds 48,000 298,000
Repayments (348,000) (423,000)
Proceeds from settlement of interest rate protection agreements 7,055 -
Capital contributions from General Partner, net 6,868 17,389
Proceeds from sale of preference units/interests, net 64,350 -
Distributions paid to partners (28,597) (29,764)
Principal receipts on employee notes, net 59 47
Principal receipts on other notes receivable, net - 4,681
--------------- ---------------
Net cash (used for) financing activities (123,466) (136,860)
--------------- ---------------
Net increase in cash and cash equivalents 43,393 6,773
Cash and cash equivalents, beginning of period 29,117 3,965
--------------- ---------------
Cash and cash equivalents, end of period $ 72,510 $ 10,738
=============== ===============
SUPPLEMENTAL INFORMATION:
Cash paid during the period for interest $ 78,961 $ 65,648
=============== ===============
Transfers to real estate held for disposition $ 29,183 $ -
=============== ===============
Net real estate contributed in exchange for OP Units
or Junior Convertible Preference Units $ 636 $ 8,929
=============== ===============
Mortgage loans assumed and/or entered into
through acquisitions of real estate $ - $ 16,903
=============== ===============
Mortgage loans assumed through consolidation of Partially Owned
Properties $ 65,095 $ -
=============== ===============
Net (assets acquired) 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 March 31,
2000, the Operating Partnership owned or had interests in a portfolio of 1,052
multifamily properties containing 223,724 apartment units (individually a
"Property" and collectively the "Properties") consisting of the following:
<TABLE>
<CAPTION>
Number of
Properties Number of Units
---------------------------------- ---------------- -----------------
<S> <C> <C>
Wholly Owned Properties 975 212,414
Partially Owned Properties 14 2,995
Unconsolidated Properties 63 8,315
---------------- -----------------
Total Properties 1,052 223,724
================ =================
</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 quarter ended March 31, 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 quarter ended March 31, 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 778
Conversion of Series H Preferred Shares 60,958
Conversion of Series J Preferred Shares 26,628
Employee Share Purchase Plan 79,720
Dividend Reinvestment - DRIP Plan 193
Share Purchase - DRIP Plan 4,303
Exercise of options 52,779
Restricted share grants, net 235,002
ISSUED TO LIMITED PARTNERS:
Issuance through acquisitions 17,088
- --------------------------------------------------------------------- --------------
OPERATING PARTNERSHIP'S OP UNITS OUTSTANDING AT MARCH 31, 140,411,989
- --------------------------------------------------------------------- --------------
</TABLE>
As of March 31, 2000, OP Units outstanding totaled 140,411,989. The
limited partners of the Operating Partnership as of March 31, 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 12,465,971 OP Units. As of March 31, 2000, EQR
(as the general partner) had an approximate 91.12% interest and the Limited
Partners had an approximate 8.88% 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 March 31, 2000 and
December 31, 1999:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
AMOUNTS ARE IN THOUSANDS
-------------------------
ANNUAL
DIVIDEND
RATE PER MARCH DECEMBER
UNIT (1) 31, 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 March 31, 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 March 31, 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 (also 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 (also known as "Preference Interests")
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.
The following table presents Lexford Properties, L.P.'s issued and
outstanding Preference Interests as of March 31, 2000 and December 31, 1999:
8
<PAGE>
ERP OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
AMOUNTS ARE IN THOUSANDS
-------------------------
ANNUAL
DIVIDEND
RATE PER MARCH 31, DECEMBER 31,
UNIT (1) 2000 1999
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Preference Interests:
8.00% Series A Cumulative Convertible Redeemable Preference $4.00 $ 40,000 $ 40,000
Interests; liquidation value $50 per unit; 800,000 units
issued and outstanding at March 31, 2000 and December 31, 1999
8.50% Series B Cumulative Convertible Redeemable Preference $4.25 55,000 -
Units; liquidation value $50 per unit; 1,100,000 units issued
and outstanding at March 31, 2000
8.50% Series C Cumulative Convertible Redeemable Preference $4.25 11,000 -
Units; liquidation value $50 per unit; 220,000 units issued
and outstanding at March 31, 2000
- -------------------------------------------------------------------------------------------------------
$106,000 $ 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 March
31, 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 MARCH DECEMBER
UNIT (1) 31, 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
March 31, 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
March 31, 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 March 31, 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 March 31, 2000 and December 31, 1999
Series E Cumulative Convertible Preference Units; liquidation value $1.75000 99,815 99,850
$25 per unit; 3,992,600 and 3,994,000 units issued and
outstanding at March 31, 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
March 31, 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
March 31, 2000 and December 31, 1999
7.00% Series H Cumulative Convertible Preference Units; liquidation $1.75000 1,581 3,686
value $25 per unit; 63,252 and 147,452 units issued and
outstanding at March 31, 2000 and December 31, 1999,
respectively
8.60% Series J Cumulative Convertible Preference Units; liquidation $2.15000 113,895 114,980
value $25 per unit; 4,555,800 and 4,599,200 units issued and
outstanding at March 31, 2000 and December 31, 1999,
respectively
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
March 31, 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
March 31, 2000 and December 31, 1999
- ------------------------------------------------------------------------------------------------------------
$1,307,041 $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.
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 March 31, 2000 and 1999 (AMOUNTS ARE IN THOUSANDS):
<TABLE>
<CAPTION>
QUARTER ENDED MARCH 31,
-------------------------------
2000 1999
-------------------------------
<S> <C> <C>
ALLOCATION OF NET INCOME:
9 3/8% Series A Cumulative Redeemable
Preference Units $ 3,586 $ 3,586
9 1/8% Series B Cumulative Redeemable
Preference Units 2,852 2,852
9 1/8% Series C Cumulative Redeemable
Preference Units 2,623 2,623
8.60% Series D Cumulative Redeemable
Preference Units 3,763 3,763
Series E Cumulative Convertible Preference Units 1,747 1,749
9.65% Series F Cumulative Redeemable
Preference Units 1,387 1,387
7 1/4% Series G Convertible Cumulative
Preference Units 5,732 5,732
7.00% Series H Cumulative Convertible
Preference Units 28 66
8.82% Series I Cumulative Convertible
Preference Units - 2,205
8.60% Series J Cumulative Convertible
Preference Units 2,451 2,472
8.29% Series K Cumulative Redeemable
Preference Units 1,036 1,036
7.625% Series L Cumulative Redeemable
Preference Units 1,906 1,906
============= ==============
Cumulative Convertible or Redeemable Preference Units $ 27,111 $ 29,377
============= ==============
</TABLE>
4. REAL ESTATE ACQUISITIONS
On January 19, 2000, the Operating Partnership acquired Windmont
Apartments, a 178-unit multifamily property located in Atlanta, GA, from an
unaffiliated party for a purchase price of approximately $10.3 million. The cash
portion of this transaction was partially funded from proceeds received from the
disposition of one property and the remainder from working capital.
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 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 quarter ended March 31, 2000, the Operating Partnership
disposed of the nine properties listed below to unaffiliated parties. The
Operating Partnership recognized a net gain for financial reporting purposes of
approximately $20 million.
11
<PAGE>
ERP OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------
DISPOSITION
NUMBER PRICE
DATE 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
-------------------------------------------------------------------------------------------------------
1,824 $93,525
-------------------------------------------------------------------------------------------------------
</TABLE>
In addition, during the quarter ended March 31, 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 March 31, 2000, in addition to the Property that was subsequently
acquired as discussed in Note 14 of the Notes to Consolidated Financial
Statements, the Operating Partnership entered into a separate agreement to
acquire one multifamily property containing 332 units from an unaffiliated
party. The Operating Partnership expects a purchase price of approximately $33.5
million.
As of March 31, 2000, in addition to the Properties that were
subsequently disposed of as discussed in Note 14 of the Notes to Consolidated
Financial Statements, the Operating Partnership entered into separate agreements
to dispose of thirteen multifamily properties containing 4,141 units to
unaffiliated parties. The Operating Partnership expects a combined disposition
price of approximately $207.4 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 March 31, 2000 primarily included the
following:
- a deposit in the amount of $25 million held in a third party
escrow account to provide collateral for third party
construction financing in connection with two separate joint
venture agreements;
- approximately $96.3 million held in third party escrow
accounts, representing proceeds received in connection with
the Operating Partnership's disposition of nine properties and
earnest money deposits made for four additional acquisitions;
- a good faith deposit in the amount of $4.5 million held in a
third party escrow account for a mortgage financing
transaction that closed during the quarter. These funds were
refunded in April 2000;
- approximately $34 million for tenant security, utility
deposits, and other deposits for certain of the Operating
Partnership's Properties; and
- approximately $6.1 million of other deposits.
12
<PAGE>
ERP OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
8. MORTGAGE NOTES PAYABLE
As of March 31, 2000, the Operating Partnership had outstanding
mortgage indebtedness of approximately $3.1 billion encumbering 567 of the
Properties. The carrying value of such Properties (net of accumulated
depreciation of $486.5 million) was approximately $4.9 billion. The mortgage
notes payables are generally due in monthly installments of principal and
interest.
During the quarter ended March 31, 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 three Properties
in the aggregate amount of $12.8 million;
- obtained new mortgage financing on eleven previously
unencumbered properties in the amount of $148.3 million on
March 20, 2000; and
- 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.
As of March 31, 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 3.15% to 10.13% at March 31, 2000. During the quarter ended March 31,
2000, the weighted average interest rate on the Operating Partnership's mortgage
debt was 6.77%.
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 quarter ended March 31, 2000:
<TABLE>
<CAPTION>
Weighted
March 31, 2000 Net Principal Average Maturity Date
(AMOUNTS ARE IN THOUSANDS) Balance Interest Rate Ranges Interest Rate Ranges
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fixed Rate Public Notes $ 2,062,438 6.150% - 9.375% 7.07% 2000 - 2026
Floating Rate Public Notes 99,764 (1) 7.00% 2003
Fixed Rate Tax-Exempt Bonds 127,780 4.750% - 5.200% 5.11% 2024 - 2029
----------------
Totals $ 2,289,982
===============
</TABLE>
(1) As of March 31, 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 March 31, 2000 (reset annually in
August).
As of March 31, 2000, the Operating Partnership had outstanding
unsecured notes of approximately $2.3 billion net of a $4.3 million discount and
including a $6.5 million premium.
As of March 31, 2000, the remaining unamortized balance of deferred
settlement receipts and payments from treasury locks and interest rate
protection agreements was $9.3 million and $3.3 million, respectively.
13
<PAGE>
ERP OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
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 March 31, 2000 no amounts were outstanding under this facility
and $51.3 million was restricted on the line of credit. During the quarter ended
March 31, 2000, the weighted average interest rate on the Operating
Partnership's line of credit was 6.56%.
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>
QUARTER ENDED MARCH 31,
----------------------------------
2000 1999
----------------------------------
(Amounts in thousands except per
OP Unit amounts)
<S> <C> <C>
NUMERATOR:
Income before gain on disposition of properties, net
and allocation to Minority Interests and $ 88,192 $ 79,264
preference unit/interest distributions
Allocation to Minority Interests - Partially Owned Properties 45 -
Allocation to Junior Convertible Preference Units (108) -
Allocation to Cumulative Convertible Redeemable
Preference Interests (1,169) -
Allocation to Redeemable Preference Units (27,111) (29,377)
----------------------------------
Income before gain on disposition of properties, net 59,849 49,887
Gain on disposition of properties, net 19,998 21,416
----------------------------------
Numerator for net income per OP Unit - basic 79,847 71,303
Effect of dilutive securities - -
----------------------------------
Numerator for net income per OP Unit - diluted $ 79,847 $ 71,303
==================================
DENOMINATOR:
Denominator for net income per OP Unit - basic 140,264 132,165
Effect of dilutive securities:
Dilution for OP Units issuable upon assumed exercise
of the Company's stock options 422 568
----------------------------------
Denominator for net income per OP Unit - diluted 140,686 132,733
==================================
Net income per OP Unit - basic $ 0.57 $ 0.54
==================================
Net income per OP Unit - diluted $ 0.57 $ 0.54
==================================
</TABLE>
15
<PAGE>
ERP OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED MARCH 31,
-----------------------------------
2000 1999
-----------------------------------
(Amounts in thousands except per
OP Unit amounts)
<S> <C> <C>
NET INCOME PER OP UNIT - BASIC:
Income before gain on disposition of properties, net
per OP Unit - basic $ 0.43 $ 0.38
Gain on disposition of properties, net 0.14 0.16
-----------------------------------
Net income per OP Unit - basic $ 0.57 $ 0.54
===================================
NET INCOME PER OP UNIT - DILUTED:
Income before gain on disposition of properties, net
per OP Unit - diluted $ 0.43 $ 0.38
Gain on disposition of properties, net 0.14 0.16
-----------------------------------
Net income per OP Unit - diluted $ 0.57 $ 0.54
===================================
</TABLE>
CONVERTIBLE PREFERENCE UNITS THAT COULD BE CONVERTED INTO 10,643,083
AND 13,123,062 WEIGHTED COMMON SHARES (WHICH WOULD BE CONTRIBUTED TO
THE OPERATING PARTNERSHIP IN EXCHANGE FOR OP UNITS) FOR THE QUARTERS
ENDED MARCH 31, 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 $48.4
million during the quarter ended March 31, 2000. During the remainder of 2000,
the Operating
16
<PAGE>
ERP OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Partnership expects to fund approximately $71.9 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 $20 million to
guarantee third party construction financing.
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 March 31, 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
quarters ended March 31, 2000 and 1999.
<TABLE>
<CAPTION>
RENTAL REAL CORPORATE/
MARCH 31, 2000 (AMOUNTS IN THOUSANDS) ESTATE (1) OTHER (2) CONSOLIDATED
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Rental income $ 473,547 $ - $ 473,547
Property and maintenance expense (113,868) - (113,868)
Real estate tax and insurance expense (48,334) - (48,334)
Property management expense (18,914) - (18,914)
-------------------------------------------------
Net operating income 292,431 - 292,431
Fee and asset management income - 1,298 1,298
Interest income - investment in mortgage notes - 2,762 2,762
Interest and other income - 7,803 7,803
Fee and asset management expense - (1,066) (1,066)
Depreciation expense on non-real estate assets - (1,567) (1,567)
Interest expense:
Expense incurred - (95,111) (95,111)
Amortization of deferred financing costs - (1,341) (1,341)
General and administrative expense - (6,698) (6,698)
Allocation to preference unit/interest holders - (28,388) (28,388)
Allocation to Minority Interests - Partially Owned
Properties - 45 45
Adjustment for depreciation expense related
to Unconsolidated and Partially Owned
Properties - (238) (238)
------------------------------------------------
Funds from operations available to OP Units 292,431 (122,501) 169,930
Depreciation expense on real estate assets (110,319) - (110,319)
Gain on disposition of properties, net 19,998 - 19,998
Adjustment for depreciation expense related
to Unconsolidated and Partially Owned
Properties - 238 238
-------------------------------------------------
Net income available to OP Unit holders $ 202,110 $(122,263) $ 79,847
=================================================
Investment in real estate, net of
accumulated depreciation $ 11,065,344 $ 16,781 $ 11,082,125
=================================================
Total assets $ 11,094,527 $ 689,639 $ 11,784,166
=================================================
</TABLE>
17
<PAGE>
ERP OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
RENTAL REAL CORPORATE/
MARCH 31, 1999 (AMOUNTS IN THOUSANDS) ESTATE (1) OTHER (2) CONSOLIDATED
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Rental income $ 406,062 $ - $ 406,062
Property and maintenance expense (97,047) - (97,047)
Real estate tax and insurance expense (42,048) - (42,048)
Property management expense (14,201) - (14,201)
-----------------------------------------------------
Net operating income 252,766 - 252,766
Fee and asset management income - 1,234 1,234
Interest income - investment in mortgage notes - 2,895 2,895
Interest and other income - 5,946 5,946
Fee and asset management expense - (867) (867)
Depreciation expense on non-real estate assets - (1,705) (1,705)
Interest expense:
Expense incurred - (79,197) (79,197)
Amortization of deferred financing costs - (845) (845)
General and administrative expense - (5,767) (5,767)
Allocation to preference unit/interest holders - (29,377) (29,377)
Adjustment for depreciation expense related
to Unconsolidated Properties - 276 276
-----------------------------------------------------
Funds from operations available to OP Units 252,766 (107,407) 145,359
Depreciation expense on real estate assets (95,196) - (95,196)
Gain on disposition of properties, net 21,416 - 21,416
Adjustment for depreciation expense related
to Unconsolidated Properties - (276) (276)
-----------------------------------------------------
Net income available to OP Unit holders $ 178,986 $(107,683) $ 71,303
=====================================================
</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 April 5, 2000, the Operating Partnership acquired Alborada
Apartments, a 442-unit multifamily property located in Fremont, CA, from an
unaffiliated party for a total purchase price of $83.5 million.
18
<PAGE>
ERP OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
On April 20, 2000, the Operating Partnership disposed of Village of
Sycamore Ridge Apartments, a 114-unit multifamily property located in Memphis,
TN, to an unaffiliated party for a total sales price of $5.2 million.
On April 28, 2000, the Operating Partnership disposed of Towne Centre
III & IV Apartments, 220-unit and 342-unit multifamily properties, respectively,
located in Laurel, MD, to an unaffiliated party for a total sales price of $29.2
million. Mortgage debt on these two properties totaling $15.2 million ($5.9
million on Towne Centre III and $9.3 million on Towne Centre IV) was fully paid
off using a portion of the proceeds from the disposition of both properties.
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 (also known as "Preference Interests") 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 EQR.
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.
On May 1, 2000, the Operating Partnership repaid the outstanding
mortgage balances on 51 separate Properties totaling $76.4 million.
On May 2, 2000, EQR announced that it will redeem all of its issued and
outstanding Series J Cumulative Convertible Preferred Shares of Beneficial
Interest on June 2, 2000. At that time, the preferred shares will be redeemed
for such number of common shares as are issuable at a conversion rate of 0.6136
of a common share of EQR for each Series J Preferred Share. At the same time,
the Series J Preference Units will be redeemed for OP Units.
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 an aggregate
principal amount of $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.
During the second quarter of 2000, the Company expects to close 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 will receive $13.00 per
share upon closing, which would approximate $62.4 million in cash based on the
4.8 million Globe shares currently outstanding. In addition, the Operating
Partnership will assume approximately $66.4 million in debt. The acquisition
does not require approval of the Company's shareholders but does require Globe
shareholder approval.
19
<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
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 1 178 9 1,824
</TABLE>
In addition, during the quarter ended March 31, 2000, the Operating
Partnership sold its entire interest in two Unconsolidated Properties containing
338 units for approximately $4.4 million.
20
<PAGE>
ERP OPERATING LIMITED PARTNERSHIP
PART 1
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
quarters ended March 31, 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, partially offset by the disposition of the 1999 Disposed Properties
and the 2000 Disposed Properties. The impact of the 1999 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 the quarter
ended March 31, 2000 and March 31, 1999 (the "First Quarter 2000 Same Store
Properties"), which represented 174,261 units, also impacted the Operating
Partnership's results of operations and are discussed as well in the following
paragraphs.
COMPARISON OF QUARTER ENDED MARCH 31, 2000 TO QUARTER ENDED MARCH 31, 1999
For the quarter ended March 31, 2000, income before gain on disposition
of properties, net and allocation to Minority Interests increased by $8.9
million when compared to the quarter ended March 31, 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 First Quarter 2000 Same Store Properties, total
revenues increased by approximately $14.4 million to $398.0 million or 3.75%
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 $2.6 million or 1.83%. 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 $4.7 million primarily due to the property management
business obtained through the LFT Merger.
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 an $813.5 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 March 31, 2000 was 7.15% as
compared to 7.04% for the quarter ended March 31, 1999.
21
<PAGE>
ERP OPERATING LIMITED PARTNERSHIP
PART 1
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
General and administrative expenses, which include corporate operating
expenses, increased approximately $0.9 million between the periods under
comparison. This increase was primarily due to recording higher compensation
expense related to the issuance of the Company's restricted shares. However, by
gaining certain economies of scale with a much larger operation, these expenses
as a percentage of total revenues were 1.38% for the quarter ended March 31,
2000 compared to 1.39% of total revenues for the quarter ended March 31, 1999.
LIQUIDITY AND CAPITAL RESOURCES
As of January 1, 2000, the Operating Partnership had approximately
$29.1 million of cash and cash equivalents and $400 million available on its
line of credit, 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 March 31, 2000 was
approximately $72.5 million and the amount available on the Operating
Partnership's line of credit was $700 million, of which $51.3 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 three 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 eleven properties (including the sale of the Operating
Partnership's entire interest in two Unconsolidated Properties) and
received net proceeds of $96.6 million;
- issued approximately 0.1 million Common Shares and received net
proceeds of $6.9 million; and
- issued the 8.50% Series B and C Cumulative Convertible Redeemable
Preference Units and received net proceeds of $64.3 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 one additional property.
During the quarter ended March 31, 2000, the Operating Partnership:
- repaid approximately $12.8 million of mortgage indebtedness on three
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
22
<PAGE>
ERP OPERATING LIMITED PARTNERSHIP
PART 1
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
for the eleven previously unencumbered Properties that occurred in
March 2000;
- funded $48.4 million related to the development, earnout and joint
venture agreements;
- purchased one Property for a total purchase price of approximately
$10.3 million; and
- funded $1.25 million to acquire an additional ownership interest in
LFT's Guilford portfolio.
As of March 31, 2000, the Operating Partnership had total indebtedness
of approximately $5.4 billion, which included mortgage indebtedness of $3.1
billion (including premiums of $3.1 million), of which $837.4 million
represented tax-exempt bond indebtedness, and unsecured debt of $2.3 billion
(including net discounts and premiums in the amount of $2.2 million), of which
$127.8 million represented tax-exempt bond indebtedness.
Subsequent to March 31, 2000 and through May 10, 2000, the Operating
Partnership:
- repaid the outstanding mortgage balances on 53 Properties totaling
approximately $91.6 million;
- disposed of three properties for a total sales price of $34.4 million;
- acquired one property containing 442 units for a total purchase price
of approximately $83.5 million; and
- issued the 8.375% Series D Cumulative Convertible Redeemable Preference
Units and received net proceeds of $20.5 million.
During the remainder of 2000, the Operating Partnership expects to fund
$71.9 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 $20 million to guarantee third party
construction financing.
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 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 quarter ended March 31, 2000, total capital expenditures for
the Operating Partnership approximated $28.2 million. Of this amount,
approximately $5.2 million, or $58 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 $6.6 million, or $53 per unit. Capital spent for replacement-type
items approximated $12.1 million, or $57 per unit. In addition, approximately
$2.7 million was spent on nine specific assets related to major renovations and
repositioning of these assets. Also included in total capital expenditures was
approximately $1.0 million expended for non-real estate additions such as
computer software, computer equipment, and furniture
23
<PAGE>
ERP OPERATING LIMITED PARTNERSHIP
PART 1
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
and fixtures and leasehold improvements for the Operating Partnership's property
management offices and its corporate headquarters, $0.3 million spent on
commercial/other assets and $0.3 million spent on the Partially Owned
Properties. 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
$90.0 million.
Total distributions paid in April 2000 amounted to approximately $128.0
million, which included distributions declared for the quarter ended March 31,
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 the
issuance of unsecured notes and equity securities including additional OP Units
as well as from undistributed FFO and proceeds received from the disposition of
certain Properties. 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 May 10, 2000, $50.0 million was outstanding under this facility
bearing interest at a weighted average interest rate of 6.42%.
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 May 10, 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 an aggregate
principal amount of $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.
24
<PAGE>
ERP OPERATING LIMITED PARTNERSHIP
PART 1
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
FUNDS FROM OPERATIONS
Funds from Operations ("FFO") represents net income (loss) (computed in
accordance with generally accepted accounting principles ("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.
Net income per OP Unit and FFO per OP Unit are presented giving affect
to the Statement of Financial Accounting Standards No. 128 "Earnings Per Share".
For the quarter ended March 31, 2000, FFO available to OP Units
increased by $24.6 million, or 16.9%, and FFO per OP Unit - diluted increased by
$0.11, or 10.2%, when compared to the quarter ended March 31, 1999.
The following is a reconciliation of net income to FFO available to OP
Units for the quarters ended March 31, 2000 and 1999:
25
<PAGE>
ERP OPERATING LIMITED PARTNERSHIP
PART 1
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
QUARTER ENDED
MARCH 31,
------------------------------
2000 1999
------------------------------
<S> <C> <C>
STATEMENTS OF FUNDS FROM OPERATIONS
Net income $ 108,235 $ 100,680
Adjustments:
Depreciation on real estate assets* 110,081 95,472
Gain on disposition of properties, net (19,998) (21,416)
------------ -----------
FFO 198,318 174,736
Allocation to preference unit/interest holders (28,388) (29,377)
------------ -----------
FFO available to OP Units $ 169,930 $ 145,359
============ ===========
Weighted average OP Units outstanding - basic 140,264 132,165
============ ===========
FFO per OP Unit - basic $ 1.21 $ 1.10
============ ===========
FFO per OP Unit - diluted $ 1.19 $ 1.08
============ ===========
</TABLE>
* Includes $105,000 and $276,000 related to the Operating Partnership's share of
depreciation from Unconsolidated Properties for the quarters ended March 31,
2000 and 1999, respectively. Excludes $343,000 related to the minority
interests' share of depreciation from Partially Owned Properties for the quarter
ended March 31, 2000.
26
<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.
27
<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: May 12, 2000 By: /s/ Bruce C. Strohm
------------ ---------------------------------------
Bruce C. Strohm
Executive Vice President, General Counsel
and Secretary
Date: May 12, 2000 By: /s/ Michael J. McHugh
------------- ---------------------------------------
Michael J. McHugh
Executive Vice President, Chief Accounting
Officer and Treasurer
28
<PAGE>
EXHIBIT 12
ERP OPERATING LIMITED PARTNERSHIP
Consolidated Historical
Earnings to Combined Fixed Charges and Preferred Distributions Ratio
<TABLE>
<CAPTION>
HISTORICAL
---------------------------------------------------
3/31/00 3/31/99 12/31/99
---------------------------------------------------
<S> <C> <C> <C>
REVENUES
Rental income $ 473,547 406,062 $ 1,711,738
Fee income - outside managed 1,298 1,234 4,970
Interest income - investment in mortgage notes 2,762 2,895 12,559
Interest and other income 7,803 5,946 23,851
-------------- ---------- ------------
Total revenues 485,410 416,137 1,753,118
-------------- ---------- ------------
EXPENSES
Property and maintenance 113,868 97,047 414,026
Real estate taxes and insurance 48,334 42,048 171,289
Property management 18,914 14,201 61,626
Fee and asset management 1,066 867 3,587
Depreciation 111,886 96,901 408,688
Interest:
Expense incurred 95,111 79,197 337,189
Amortization of deferred financing costs 1,341 845 4,084
General and administrative 6,698 5,767 22,296
-------------- ---------- ------------
Total expenses 397,218 336,873 1,422,785
-------------- ---------- ------------
Income before extraordinary items $ 88,192 $ 79,264 $ 330,333
============== ========== ============
Combined Fixed Charges and Preferred Distributions:
Interest and other financing costs $ 95,111 $ 79,197 $ 337,189
Amortization of deferred financing costs 1,341 845 4,084
Preferred distributions 28,388 29,377 113,196
-------------- ---------- ------------
TOTAL COMBINED FIXED CHARGES
AND PREFERRED DISTRIBUTIONS $ 124,840 $ 109,419 $ 454,469
============== ========== ============
EARNINGS BEFORE COMBINED FIXED CHARGES
AND PREFERRED DISTRIBUTIONS $ 184,644 $ 159,306 $ 671,606
============== ========== ============
FUNDS FROM OPERATIONS BEFORE COMBINED FIXED
CHARGES AND PREFERRED DISTRIBUTIONS (1)(2)(3) $ 294,725 $ 254,778 $ 1,074,072
============== ========== ============
RATIO OF EARNINGS BEFORE COMBINED FIXED CHARGES
AND PREFERRED DISTRIBUTIONS TO COMBINED FIXED CHARGES
AND PREFERRED DISTRIBUTIONS 1.48 1.46 1.48
============== ========== ============
RATIO OF FUNDS FROM OPERATIONS BEFORE COMBINED FIXED
CHARGES AND PREFERRED DISTRIBUTIONS TO COMBINED FIXED
CHARGES AND PREFERRED DISTRIBUTIONS 2.36 2.33 2.36
============== ========== ============
(1) Includes the Company's share of depreciation
from Unconsolidated Properties $ 105 $ 276 $ 1,009
============== ========== ============
(2) Excludes non-real estate depreciation $ (1,567) $ (1,705) $ (7,231)
============== ========== ============
(3) Excludes the minority interests' share of depreciation
from Partially Owned Properties $ (343) $ - $ -
============== ========== ============
<CAPTION>
HISTORICAL
-----------------------------------------------------------------
12/31/98 12/31/97 12/31/96 12/31/95
-----------------------------------------------------------------
(Amounts in thousands)
<S> <C> <C> <C> <C>
REVENUES
Rental income $ 1,293,560 $ 707,733 $ 454,412 $ 373,919
Fee income - outside managed 5,622 5,697 6,749 7,030
Interest income - investment in mortgage notes 18,564 20,366 12,819 4,862
Interest and other income 19,250 13,282 4,405 4,573
-------------- ---------- ------------ ---------
Total revenues 1,336,996 747,078 478,385 390,384
-------------- ---------- ------------ ---------
EXPENSES
Property and maintenance 326,733 176,075 127,172 112,186
Real estate taxes and insurance 126,009 69,520 44,128 37,002
Property management 53,101 26,793 17,512 15,213
Fee and asset management 4,279 3,364 3,837 3,887
Depreciation 301,869 156,644 93,253 72,410
Interest:
Expense incurred 246,585 121,324 81,351 78,375
Amortization of deferred financing costs 2,757 2,523 4,242 3,444
General and administrative 20,631 14,821 9,857 8,129
-------------- ---------- ------------ ---------
Total expenses 1,081,964 571,064 381,352 330,646
-------------- ---------- ------------ ---------
Income before extraordinary items $ 255,032 $ 176,014 $ 97,033 $ 59,738
============== ========== ============ =========
Combined Fixed Charges and Preferred Distributions:
Interest and other financing costs $ 246,585 $ 121,324 $ 81,351 $ 78,375
Amortization of deferred financing costs 2,757 2,523 4,242 3,444
Preferred distributions 92,917 59,012 29,015 10,109
-------------- ---------- ------------ ---------
TOTAL COMBINED FIXED CHARGES
AND PREFERRED DISTRIBUTIONS $ 342,259 $ 182,859 $ 114,608 $ 91,928
============== ========== ============ =========
EARNINGS BEFORE COMBINED FIXED CHARGES
AND PREFERRED DISTRIBUTIONS $ 504,374 $ 299,861 $ 182,626 $ 141,557
============== ========== ============ =========
FUNDS FROM OPERATIONS BEFORE COMBINED FIXED
CHARGES AND PREFERRED DISTRIBUTIONS (1)(2)(3) $ 801,065 $ 453,387 $ 273,800 $ 212,138
============== ========== ============ ===========
RATIO OF EARNINGS BEFORE COMBINED FIXED CHARGES
AND PREFERRED DISTRIBUTIONS TO COMBINED FIXED CHARGES
AND PREFERRED DISTRIBUTIONS 1.47 1.64 1.59 1.54
============== ========== ============ ===========
RATIO OF FUNDS FROM OPERATIONS BEFORE COMBINED FIXED
CHARGES AND PREFERRED DISTRIBUTIONS TO COMBINED FIXED
CHARGES AND PREFERRED DISTRIBUTIONS 2.34 2.48 2.39 2.31
============== ========== ============ ===========
- ------------------------------------------------------------------------------------------------------------------------
(1) Includes the Company's share of depreciation
from Unconsolidated Properties $ 183 $ - $ - $ -
=============== ========== ============ ===========
(2) Excludes non-real estate depreciation $ (5,361) $ (3,118) $ (2,079) $ (1,829)
=============== ========== ============ ===========
(3) Excludes the minority interests' share of depreciation
from Partially Owned Properties $ - $ - $ - $ -
=============== ========== ============ ===========
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
BALANCE SHEETS AND STATEMENTS OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 72,510
<SECURITIES> 0
<RECEIVABLES> 1,226
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 423,616
<PP&E> 12,248,827
<DEPRECIATION> 1,166,702
<TOTAL-ASSETS> 11,784,166
<CURRENT-LIABILITIES> 407,868
<BONDS> 5,366,193
0
1,307,041
<COMMON> 0
<OTHER-SE> 4,701,991
<TOTAL-LIABILITY-AND-EQUITY> 11,784,166
<SALES> 477,607
<TOTAL-REVENUES> 485,410
<CGS> 0
<TOTAL-COSTS> 182,182
<OTHER-EXPENSES> 6,698
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 96,452
<INCOME-PRETAX> 88,192
<INCOME-TAX> 0
<INCOME-CONTINUING> 88,192
<DISCONTINUED> 19,998
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 79,847
<EPS-BASIC> 0.57
<EPS-DILUTED> 0.57
</TABLE>
