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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended DECEMBER 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 1-12252
EQUITY RESIDENTIAL PROPERTIES TRUST
(Exact Name of Registrant as Specified in Its Charter)
MARYLAND 13-3675988
(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)
Securities registered pursuant to Section 12(b) of the Act:
Common Shares of Beneficial Interest, New York Stock Exchange
$0.01 Par Value (Name of Each Exchange
(Title of Class) on Which Registered)
Preferred Shares of Beneficial Interest, New York Stock Exchange
$0.01 Par Value (Name of Each Exchange
(Title of Class) on Which Registered)
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of voting and non-voting shares held by
non-affiliates of the Registrant was approximately $6.9 billion based upon
the closing price on February 6, 2001 of $51.80 using beneficial ownership of
shares rules adopted pursuant to Section 13 of the Securities Exchange Act of
1934 to exclude voting shares owned by Trustees and Officers, some of whom
may not be held to be affiliates upon judicial determination.
At February 1, 2001, 132,790,407 of the Registrant's Common Shares of
Beneficial Interest were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Part III incorporates by reference information to be contained in the Company's
definitive proxy statement, which the Company anticipates will be filed no later
than April 30, 2001, and thus these items have been omitted in accordance with
General Instruction G(3) to Form 10-K.
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EQUITY RESIDENTIAL PROPERTIES TRUST
TABLE OF CONTENTS
PAGE
----
PART I.
Item 1. Business 4
Item 2. The Properties 26
Item 3. Legal Proceedings 30
Item 4. Submission of Matters to a Vote of Security Holders 30
PART II.
Item 5. Market for Registrant's Common Equity and Related
Shareholder Matters 30
Item 6. Selected Financial Data 30
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 33
Item 7A. Quantitative and Qualitative Disclosure about Market Risk 43
Item 8. Financial Statements and Supplementary Data 43
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure 43
PART III.
Item 10. Trustees and Executive Officers of the Registrant 43
Item 11. Executive Compensation 43
Item 12. Security Ownership of Certain Beneficial Owners and Management 43
Item 13. Certain Relationships and Related Transactions 43
PART IV.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 44
3
PART I
ITEM 1. BUSINESS
GENERAL
Equity Residential Properties Trust ("EQR") is a self-administered
and self-managed equity real estate investment trust ("REIT"). EQR was
organized in March 1993 and commenced operations on August 18, 1993 upon
completion of its initial public offering (the "EQR IPO") of 13,225,000
common shares of beneficial interest, $0.01 par value per share ("Common
Shares"). EQR was formed to continue the multifamily property business
objectives and acquisition strategies of certain affiliated entities
controlled by Mr. Samuel Zell, Chairman of the Board of Trustees of EQR.
These entities had been engaged in the acquisition, ownership and operation
of multifamily residential properties since 1969. As used herein, the term
"Company" includes EQR and those entities owned or controlled by it, 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") (collectively, the "Mergers"). The term "Company"
also includes Globe Business Resources, Inc. ("Globe"), Temporary Quarters,
Inc. ("TQ") and Grove Property Trust ("Grove"). The Company has elected to be
taxed as a REIT under Section 856(c) of the Internal Revenue Code of 1986, as
amended (the "Code").
The Company has formed a series of partnerships (the "Financing
Partnerships") which beneficially own certain Properties (see definition
below) that may be encumbered by mortgage indebtedness. In general, these are
structured so that ERP Operating Limited Partnership (the "Operating
Partnership"), a subsidiary of EQR, owns a 1% limited partner interest and a
98% general partner interest in each, with the remaining 1% general partner
interest in each Financing Partnership owned by various qualified REIT
subsidiaries wholly owned by the Company (each a "QRS Corporation"). Rental
income from the Properties that are beneficially owned by a Financing
Partnership is used first to service the applicable mortgage debt and pay
other operating expenses and any excess is then distributed 1% to the
applicable QRS Corporation, as the general partner of such Financing
Partnership, and 99% to the Operating Partnership, as the sole 1% limited
partner and as the 98% general partner. The Company has also formed a series
of limited liability companies that own certain Properties (collectively, the
"LLCs"). The Operating Partnership is a 99% managing member of each LLC and a
QRS Corporation is a 1% member of each LLC.
The Company's subsidiaries include the Operating Partnership, 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.
As of December 31, 2000, the Company owned or had interests in 1,104
multifamily properties containing 227,704 apartment units (individually, a
"Property" and collectively, the "Properties") consisting of the following:
NUMBER OF NUMBER OF
PROPERTIES UNITS
- -------------------------------------------------------------------------------
WHOLLY OWNED PROPERTIES 998 207,610
PARTIALLY OWNED PROPERTIES 15 3,067
UNCONSOLIDATED PROPERTIES 91 17,027
----------------------------------
TOTAL PROPERTIES 1,104 227,704
==================================
The "Partially Owned Properties" are controlled and partially owned
by the Company but have partners with minority interests and are accounted
for under the consolidation method of accounting. The "Unconsolidated
Properties" are partially owned but not controlled by the Company and consist
of investments in partnership interests and/or subordinated mortgages that
are accounted for under the equity method of accounting
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The Company is one of the largest publicly traded REIT's (based on the
aggregate market value of its outstanding Common Shares) and is the largest
publicly traded REIT owner of multifamily properties (based on the number of
apartment units wholly owned and total revenues earned). The Company's
Properties are located in 36 states with it's corporate headquarters located in
Chicago, Illinois as well as over thirty management offices throughout The
United States.
The Company has approximately 7,400 employees. An on-site manager, who
supervises the on-site employees and is responsible for the day-to-day
operations of the Property, directs each of the Company's Properties. A leasing
administrator and/or property administrator generally assists the manager. In
addition, a maintenance director at each Property supervises a maintenance staff
whose responsibilities include a variety of tasks, including responding to
service requests, preparing vacant apartments for the next resident and
performing preventive maintenance procedures year-round.
BUSINESS OBJECTIVES AND OPERATING STRATEGIES
The Company seeks to maximize both current income and long-term growth
in income, thereby increasing:
- the value of the Properties;
- distributions on a per Common Share basis; and
- shareholders' value.
The Company's strategies for accomplishing these objectives are:
- maintaining and increasing Property occupancy while increasing rental
rates;
- controlling expenses, providing regular preventive maintenance, making
periodic renovations and enhancing amenities;
- maintaining a ratio of consolidated debt-to-total market
capitalization of less than 50%;
- strategically acquiring and disposing of properties; and
- purchasing newly developed, as well as co-investing in the development
of, multifamily communities.
- entering into joint ventures related to the ownership of established
properties.
- strategically investing in various businesses that will enhance
services for the properties.
The Company is committed to tenant satisfaction by striving to
anticipate industry trends and implementing strategies and policies
consistent with providing quality tenant services. In addition, the Company
continuously surveys rental rates of competing properties and conducts
satisfaction surveys of residents to determine the factors they consider most
important in choosing a particular apartment unit.
ACQUISITION STRATEGIES
The Company anticipates that future property acquisitions will be
located in the continental United States. Management will continue to use
market information to evaluate acquisition opportunities. The Company's
market database allows it to review the primary economic indicators of the
markets where the Company currently manages Properties and where it expects
to expand its operations. Acquisitions may be financed from various sources
of capital, which may include retained cash flow, issuance of additional
equity securities, sales of Properties and collateralized and
uncollateralized borrowings. In addition, the Company may acquire additional
multifamily properties in transactions that include the issuance of limited
partnership interests in the Operating Partnership ("OP Units") as
consideration for the acquired properties. Such transactions may, in certain
circumstances, partially defer the sellers' tax consequences.
When evaluating potential acquisitions, the Company will consider:
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- the geographic area and type of community;
- the location, construction quality, condition and design of the
property;
- the current and projected cash flow of the property and the ability to
increase cash flow;
- the potential for capital appreciation of the property;
- the terms of resident leases, including the potential for rent
increases;
- the potential for economic growth and the tax and regulatory
environment of the community in which the property is located;
- the occupancy and demand by residents for properties of a similar type
in the vicinity (the overall market and submarket);
- the prospects for liquidity through sale, financing or refinancing of
the property;
- the benefits of integration into existing operations; and
- competition from existing multifamily properties and the potential for
the construction of new multifamily properties in the area.
The Company expects to purchase multifamily properties with physical
and market characteristics similar to the Properties.
DEVELOPMENT STRATEGIES
The Company seeks to make investments towards the development of
properties in markets where it discerns strong demand, which will enable it
to achieve superior rates of return. The Company's current communities under
development and future developments are in markets or will be in markets
where certain market demographics justify the development of high quality
multifamily communities. In evaluating whether to develop an apartment
community in a particular location, the Company analyzes relevant
demographic, economic and financial data. Specifically, the Company considers
the following factors, among others, in determining the viability of a
potential new apartment community:
- income levels and employment growth trends in the relevant market;
- uniqueness of location;
- household growth and net migration of the relevant market's
population;
- supply/demand ratio, competitive housing alternatives, sub-market
occupancy and rent levels;
- barriers to entry that would limit competition; and
- purchase prices and yields of available existing stabilized
communities, if any.
DISPOSITION STRATEGIES
Management will use market information to evaluate dispositions.
Factors the Company considers in deciding whether to dispose of its
Properties include the following:
- potential increases in new construction;
- areas where the economy is expected to decline substantially; and
- markets where the Company does not intend to establish long-term
concentrations.
The Company will reinvest the proceeds received from property
dispositions primarily to fund property acquisitions as well as fund
development activities. In addition, when feasible the Company may structure
these transactions as tax deferred exchanges.
FINANCING STRATEGIES
The Company intends to maintain a ratio of consolidated debt-to-total
market capitalization of 50% or less. At December 31, 2000, the Company had a
ratio of approximately 37.8% based on the market
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value of equity equal to the closing price of the Company's Common Shares on
the New York Stock Exchange and assuming conversion of all OP Units plus the
liquidation preference of the Company's preferred shares of beneficial
interest, $0.01 par value per share ("Preferred Shares") and the Operating
Partnership's preference units and interests. It is the Company's policy that
all indebtedness (other than short-term trade, employee compensation or
similar indebtedness that will be paid in the ordinary course of business) be
incurred by the Operating Partnership to the extent necessary to fund the
business activities conducted by the Operating Partnership and its
subsidiaries.
The Operating Partnership filed a Form S-3 Registration Statement on
August 25, 2000 to register $1 billion of debt securities. The SEC declared
this registration statement effective on September 8, 2000. In addition, the
Operating Partnership carried over $430 million related to the registration
statement effective on February 27, 1998. As of December 31, 2000, $1.43
billion in debt securities remained available for issuance under this
registration statement.
The Company filed with the SEC on February 3, 1998 a Form S-3
Registration Statement to register $1 billion of equity securities. The SEC
declared this registration statement effective on February 27, 1998. In
addition, the Company carried over $272 million related to the registration
statement which was declared effective on August 4, 1997. As of December 31,
2000, $1.1 billion in equity securities remained available for issuance under
this registration statement.
EQUITY OFFERINGS FOR THE YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000
During 1998, the Company:
- Issued 93,521 Common Shares pursuant to its Employee Share Purchase
Plan and received net proceeds of approximately $3.7 million.
- Issued 1,023,184 Common Shares pursuant to its Share Purchase Plan and
received net proceeds of approximately $50.7 million.
- Issued 10,230 Common Shares pursuant to its Dividend Reinvestment Plan
and received net proceeds of approximately $0.4 million.
- Completed an offering on January 27, 1998 of 4,000,000 publicly
registered Common Shares and received net proceeds of approximately
$195.3 million.
- Completed two offerings, on February 18, 1998 and February 23, 1998,
respectively, for 988,340 and 1,000,000 publicly registered Common
Shares. The Company received net proceeds from these offerings of
approximately $95 million.
- Completed an offering on March 30, 1998 of 495,663 publicly registered
Common Shares and received net proceeds of approximately $23.7
million.
- Completed an offering on April 29, 1998 of 946,565 publicly registered
Common Shares and received net proceeds of approximately $44.1
million.
- Completed its repurchase on September 20, 1998 of 2,367,400 of its
Common Shares of beneficial interest, on the open market, for an
average price of $40 per share. The Company paid approximately $94.7
million and subsequently retired the shares.
During 1999, the Company:
- Issued 147,885 Common Shares pursuant to its Employee Share Purchase
Plan and received net proceeds of approximately $5.2 million.
- Issued 22,534 Common Shares pursuant to its Share Purchase Plan and
received net proceeds of approximately $1.0 million.
- Issued 36,132 Common Shares pursuant to its Dividend Reinvestment Plan
and received net proceeds of approximately $1.5 million.
- Repurchased and retired on October 12, 1999 148,453 Common Shares
previously issued in
7
connection with the LFT Merger. These Common Shares were owned by
various LFT employees and trustees. The Company paid approximately
$6.3 million in connection therewith.
During 2000, the Company:
- Issued 149,790 Common Shares pursuant to its Employee Share Purchase
Plan and received net proceeds of approximately $5.4 million.
- Issued 13,187 Common Shares pursuant to its Share Purchase Plan and
received net proceeds of approximately $0.6 million.
- Issued 34,752 Common Shares pursuant to its Dividend Reinvestment Plan
and received net proceeds of approximately $1.7 million.
During 2000 and 1999, the Company, through a subsidiary of the Operating
Partnership, issued the following with an equity value totaling $186 million
receiving net proceeds of $181.4 million:
- 800,000 units of 8.00% Series A Cumulative Convertible Redeemable
Preference Interests (collectively known as "Preference Interests")
with an equity value of $40 million on September 27, 1999 receiving $39
million in net proceeds. The liquidation value of these units is $50
per unit. The 800,000 units are exchangeable into 800,000 shares of
8.00% Series M Cumulative Redeemable Preferred Shares of Beneficial
Interest of the Company. Dividends for the Series A Preference
Interests or the Series M Preferred Shares are payable quarterly at the
rate of $4.00 per unit/share per year.
- 1.1 million units of 8.50% Series B Cumulative Convertible Redeemable
Preference Units with an equity value of $55.0 million on March 3, 2000
receiving $53.6 million in net proceeds. 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. 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.
- 220,000 units of 8.50% Series C Cumulative Convertible Redeemable
Preference Units with an equity value of $11.0 million on March 23,
2000 receiving $10.7 million in net proceeds. 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. 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.
- 420,000 units of 8.375% Series D Cumulative Convertible Redeemable
Preference Units with an equity value of $21.0 million on May 1, 2000
receiving $20.5 million in net proceeds. 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 the Company. 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.
- 1,000,000 units of 8.50% Series E Cumulative Convertible Redeemable
Preference Units with an equity value of $50.0 million on August 11,
2000 receiving $48.8 million in net proceeds. The liquidation value of
these units is $50 per unit. The 1,000,000 units are exchangeable into
1,000,000 shares of 8.50% Series M-3 Cumulative Redeemable Preferred
Shares of Beneficial Interest of the Company. Dividends for the Series
E Preference Interests or the Series M-3 Preferred Shares are payable
quarterly at the rate of $4.25 per unit/share per year.
- 180,000 units of 8.375% Series F Cumulative Convertible Redeemable
Preference Units with an equity value of $9.0 million on December 8,
2000 receiving $8.775 million in net proceeds. The liquidation value of
these units is $50 per unit. The 180,000 units are exchangeable into
180,000 shares of 8.375% Series M-2 Cumulative Redeemable Preferred
Shares of the Company. Dividends for the Series F Preference interests
or the Series M-2 Preferred Shares are payable quarterly at the rate of
$4.1875 per unit/share per year.
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The value of these Preference Interests are included in Minority
Interests - Operating Partnership in the Consolidated Balance Sheets and the
distributions incurred are included in preferred distributions in the
Consolidated Statements of Operations. The Series M-1, M-2 and M-3 Preferred
Shares are not convertible into EQR Common Shares.
DEBT OFFERINGS FOR THE YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000
During 1998:
- The Operating Partnership issued $300 million of unsecured fixed rate
notes (the "2015 Notes") in April 1998 in a public debt offering
which are due April 13, 2015, subject to a mandatory tender to the
remarketing agent on April 13, 2005.
- The Operating Partnership issued $100 million of Remarketed Reset Notes
(the "August 2003 Notes") in a public debt offering in August 1998. The
August 2003 Notes were issued at a discount, which is being amortized
over the life of the notes on a straight-line basis. The August 2003
Notes are due August 21, 2003. During the period from and including
August 21, 1998 to but excluding August 23, 1999 (the "Initial Spread
Period") the interest rate on the August 2003 Notes was LIBOR plus
0.45%. The interest rate for the period from August 23, 1999 to August
22, 2000 was LIBOR plus 0.75%. Subsequent to August 22, 2000 the rate
is LIBOR plus 0.65%. The Operating Partnership is entitled to redeem
the August 2003 Notes on certain dates and in certain circumstances.
The Operating Partnership received net proceeds of approximately
$99.7 million in connection with this issuance.
- The Operating Partnership issued $145 million of unsecured fixed rate
notes (the "2000 Notes") in a public debt offering in September 1998
which were subsequently paid off in 2000 on the maturity date.
During 1999:
- The Operating Partnership issued $300 million of redeemable unsecured
fixed rate notes (the "June 2004 Notes") in a public debt offering in
June 1999. The June 2004 Notes were issued at a discount, which is
being amortized over the life of the notes on a straight-line basis.
The June 2004 Notes are due June 23, 2004. The annual interest rate on
the June 2004 Notes is 7.10%, which is payable semiannually in arrears
on December 23 and June 23, commencing December 23, 1999. The Operating
Partnership received net proceeds of approximately $298.0 million in
connection with this issuance.
9
The Operating Partnership did not issue new debt during the year
ended December 31, 2000.
CREDIT FACILITIES
The Company 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. This line
of credit matures in August 2002. As of February 15, 2001, $200 million was
outstanding under this facility at a weighted average interest rate of 6.34%.
In connection with its acquisition of Globe, the Company assumed a revolving
credit facility with Fifth Third Bank with potential borrowings of up to $55.0
million. This line of credit matures in May, 2003. As of February 15, 2001, no
amounts were outstanding under this facility.
BUSINESS COMBINATIONS
On October 19, 1998, the Company completed the acquisition of the
multifamily property business of MRY through the MRY Merger. The transaction was
valued at approximately $2.2 billion and included 108 Properties containing
32,315 units, three Properties under construction and/or expansion anticipated
to contain 872 units and six Additional Properties containing 1,297 units that
were contributed to six joint ventures. The purchase price consisted of:
- 21.8 million Common Shares issued by the Company with a market value
of approximately $1 billion;
- liquidation value of $369.1 million for the following:
a) MRY Series A Cumulative Convertible Preferred Shares of Beneficial
Interest;
b) MRY Series B Cumulative Convertible Preferred Shares of Beneficial
Interest;
c) MRY Series C Cumulative Convertible Preferred Shares of Beneficial
Interest;
d) MRY Series D Cumulative Redeemable Preferred Shares of Beneficial
Interest;
e) MRY Series E Cumulative Redeemable Preferred Shares of Beneficial
Interest;
- assumption of MRY's minority interest with a market value of
approximately $40.2 million.
- assumption of mortgage indebtedness, unsecured notes and the
outstanding balance under a line of credit in the amount of $723.5
million;
- assumption of other liabilities of approximately $46.5 million; and
- other merger related costs of approximately $51.9 million.
In the MRY Merger, each outstanding common share of beneficial
interest of MRY was converted into .53 of a Common Share. In addition, MRY
spun-off certain assets and liabilities to Merry Land Properties, Inc. ("MRYP
Spinco"). In connection with this spin-off, each holder of MRY common shares
received one share of MRYP Spinco for each twenty shares of MRY common held.
As partial consideration for the transfer, the Company extended a $25
million, one year, non-revolving loan to MRYP Spinco pursuant to a Senior
Debt Agreement. As additional consideration, the Company extended an
additional $20 million of indebtedness to MRYP Spinco under a 15-year
Subordinated Debt Agreement, bearing interest payable quarterly. The Company
also entered into the Preferred Stock Agreement and received 5,000 shares of
MRYP Spinco Preferred Stock with a liquidation preference of $1,000 per
share. In June 1999, MRYP Spinco repaid the entire outstanding Senior Note
balance of $18.3 million and the Subordinated Debt Agreement balance of $20.0
million and repurchased all 5,000 shares of the preferred stock for $2.7
million. There is no further obligation by either party in connection with
these agreements.
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In addition, MRY Series A Cumulative Convertible Preferred Shares of
Beneficial Interest were redesignated as the Company's 164,951 Series H
Cumulative Convertible Preferred Shares of Beneficial Interest, $0.01 par
value per share (the "Series H Preferred Shares"), the MRY Series B
Cumulative Convertible Preferred Shares of Beneficial Interest were
redesignated as the Company's 4,000,000 Series I Cumulative Convertible
Preferred Shares of Beneficial Interest, $0.01 par value per share (the
"Series I Preferred Shares"), the MRY Series C Cumulative Convertible
Preferred Shares of Beneficial Interest were redesignated as the Company's
4,599,400 Series J Cumulative Convertible Preferred Shares of Beneficial
Interest, $0.01 par value per share (the "Series J Preferred Shares"), the
MRY Series D Cumulative Redeemable Preferred Shares of Beneficial Interest
were redesignated as the Company's 1,000,000 Series K Cumulative Redeemable
Preferred Shares of Beneficial Interest, $0.01 par value per share (the
"Series K Preferred Shares") and the MRY Series E Cumulative Redeemable
Preferred Shares of Beneficial Interest were redesignated as the Company's
4,000,000 Series L Cumulative Redeemable Preferred Shares of Beneficial
Interest, $0.01 par value per share (the "Series L Preferred Shares"). During
1999, all of the Series I Preferred Shares were converted into 2,566,797
Common Shares of the Company. During 2000, all of the remaining Series J
Preferred Shares were converted into 2,822,012 Common Shares of the Company.
On August 23, 1999, the Company sold its entire interest in the six
joint venture properties to MRYP Spinco and received $54.1 million. There is
no further obligation by either party in connection with the joint venture
agreements.
On October 1, 1999, the Company completed the acquisition of the
multifamily property business of LFT through the LFT Merger. The transaction
was valued at approximately $738 million and included 402 Properties of LFT
containing 36,609 units. The purchase price consisted of:
- 4.0 million Common Shares issued by the Company (each outstanding
common share of beneficial interest of LFT was converted into .463 of
a Common Share) with a market value of approximately $181.1 million;
- assumption of mortgage indebtedness and unsecured notes in the amount
of $528.3 million;
- acquisition of other assets of approximately $40.9 million and
assumption of other liabilities of approximately $25.3 million; and
- other merger related costs of approximately $24.5 million.
On July 11, 2000, the Company acquired Globe in an all cash and debt
transaction valued at approximately $163.2 million. Globe provides fully
furnished short-term housing through an inventory of leased housing units to
transferring or temporarily assigned corporate personnel, new hires,
trainees, consultants and individual customers throughout the United States.
Additionally, Globe rents and sells furniture to a diversified base of
commercial and residential customers throughout the United States.
Shareholders of Globe received $13.00 per share, which approximated $58.7
million in cash based on the 4.5 million Globe shares outstanding. In
addition, the Company:
- Acquired $94.8 million in other Globe assets and assumed $29.6 million
in other Globe liabilities.
- Allocated $68.4 million to goodwill;
- Recorded acquisition costs of $4.5 million; and
- Assumed $70.4 million in debt, which included $1.4 million in mortgage
debt, $39.5 million in unsecured notes, and Globe's line of credit
totaling $29.5 million;
On July 21, 2000, the Company, through its Globe subsidiary,
acquired TQ, the leading corporate housing provider in Atlanta, Georgia, in a
$3.3 million all cash transaction.
On October 31, 2000 the Company acquired Grove, which included 60
properties containing 7,308 units for a total purchase price of $463.2
million. The Company:
- Paid $17.00 per share or $141.6 million in cash to purchase the 8.3
million outstanding common
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shares of Grove.
- Paid $17.00 per unit or $12.4 million in cash to purchase 0.7 million
Grove OP Units outstanding at the merger date.
- Converted 2.1 million Grove OP Units to 0.8 of the Operating
Partnership's OP units using the conversion ratio of 0.3696 (after
cash-out of fractional units). The value of these converted OP units
totaled $37.2 million.
- Assumed $241.3 million in Grove debt, which included first and second
mortgages totaling $203.4 million and Grove's line of credit totaling
$38.0 million. Grove's line of credit and two mortgage loans totaling
$7.8 million were paid off immediately after the closing.
- Acquired $20.1 million in Grove assets and assumed $11.2 million in
other Grove liabilities, including an earnout note payable liability
totaling $1.5 million. This amount represents the estimated additional
cash or OP Units required to be funded to the previous owners of Glen
Meadow Apartments upon the transition of this property from subsidized
to market rents.
- Recorded acquisition costs of $19.5 million.
The Company accounted for the Mergers and acquisitions as purchases
in accordance with Accounting Principals Board Opinion No. 16. The fair value
of the consideration given by the Company was used as the valuation basis for
each of the combinations.
COMPETITION
All of the Properties are located in developed areas that include
other multifamily properties. The number of competitive multifamily
properties in a particular area could have a material effect on the Company's
ability to lease units at the Properties or at any newly acquired properties
and on the rents charged. The Company may be competing with other entities
that have greater resources than the Company and whose managers have more
experience than the Company's officers and trustees. In addition, other forms
of multifamily properties, including multifamily properties and manufactured
housing controlled by Mr. Zell, and single-family housing, provide housing
alternatives to potential residents of multifamily properties.
RISK FACTORS
THE FOLLOWING RISK FACTORS OMIT THE USE OF DEFINED TERMS USED ELSEWHERE
HEREIN AND CONTAIN DEFINED TERMS THAT ARE DIFFERENT FROM THOSE USED IN THE
OTHER SECTIONS OF THIS REPORT. UNLESS OTHERWISE INDICATED, WHEN USED IN THIS
SECTION, THE TERMS "WE" AND "US" REFER TO EQUITY RESIDENTIAL PROPERTIES TRUST
AND ITS SUBSIDIARIES, INCLUDING ERP OPERATING LIMITED PARTNERSHIP.
Set forth below are the risks that we believe are important to
investors who purchase or own our common shares of beneficial interest or
preferred shares of beneficial interest (which we refer to collectively as
"Shares") or units of limited partnership interest ("Units") of ERP Operating
Limited Partnership, our operating partnership, which are redeemable on a
one-for-one basis for common shares or their cash equivalent. In this
section, we refer to the Shares and the Units together as our "securities,"
and the investors who own Shares and/or Units as our "security holders."
DEBT FINANCING AND PREFERRED SHARES COULD ADVERSELY AFFECT OUR PERFORMANCE
12
GENERAL
The Company's total debt summary, as of December 31, 2000, included:
- --------------------------------------------------------------------------------
Debt Summary as of 12/31/00
- --------------------------------------------------------------------------------
Weighted
Average
$ Millions Interest Rate
----------- -------------
Secured $3,231 6.91%
Unsecured $2,475 7.07%
----------- -------------
Total $5,706 6.98%
Fixed Rate $4,885 7.13%
Floating Rate $821 6.09%
----------- -------------
Total $5,706 6.98%
Above Totals Include:
Total Tax Exempt $966 5.19%
Unsecured Revolving Credit Facility $355 7.19%
- --------------------------------------------------------------------------------
In addition to debt, we have issued preferred shares of beneficial
interest. Our use of debt and preferred equity financing creates certain
risks, including the following.
SCHEDULED DEBT PAYMENTS COULD ADVERSELY AFFECT OUR FINANCIAL CONDITION
In the future, our cash flow could be insufficient to meet required
payments of principal and interest or to pay distributions on our securities
at expected levels. We may not be able to refinance existing debt (which in
virtually all cases requires substantial principal payments at maturity) and,
if we can, the terms of such refinancing might not be as favorable as the
terms of existing indebtedness. If principal payments due at maturity cannot
be refinanced, extended or paid with proceeds of other capital transactions,
such as new equity capital, our cash flow will not be sufficient in all years
to repay all maturing debt. As a result, we may be forced to postpone capital
expenditures necessary for the maintenance of our properties and may have to
dispose of one or more properties on terms that would otherwise be
unacceptable to us.
FINANCIAL COVENANTS COULD ADVERSELY AFFECT THE COMPANY'S FINANCIAL
CONDITION
If a property we own is mortgaged to secure payment of indebtedness
and we are unable to meet the mortgage payments, the holder of the mortgage
could foreclose on the property, resulting in loss of income and asset value.
Foreclosure on mortgaged properties or an inability to refinance existing
indebtedness would likely have a negative impact on our financial condition
and results of operations. A foreclosure could also result in our recognition
of taxable income without our actually receiving cash proceeds from the
disposition of the property with which to pay the tax. This could adversely
affect our cash flow and could make it more difficult for us to meet our
distribution requirements as a real estate investment trust (a "REIT").
The mortgages on our properties may contain customary negative
covenants that, among other things, limit our ability, without the prior
consent of the lender, to further mortgage the property and to discontinue
insurance coverage. In addition, our credit facilities contain certain
customary restrictions,
13
requirements and other limitations on our ability to incur indebtedness. The
indentures under which a substantial portion of our debt was issued contain
certain financial and operating covenants including, among other things,
maintenance of certain financial ratios, as well as limitations on our
ability to incur secured and unsecured indebtedness (including acquisition
financing), sell all or substantially all of our assets and engage in
mergers, consolidations and certain acquisitions. Accordingly, in the event
that we are unable to raise additional equity or borrow money because of
these restrictions, our ability to acquire additional properties may be
limited. If we are unable to acquire additional properties, our ability to
increase the distributions to security holders, as we have done in the past,
will be limited to management's ability to increase funds from operations,
and thereby cash available for distributions, from the existing properties in
our portfolio at such time.
Some of the properties were financed with tax-exempt bonds that
contain certain restrictive covenants or deed restrictions. We have retained
an independent outside consultant to monitor compliance with the restrictive
covenants and deed restrictions that affect these properties. If these bond
compliance requirements require us to lower our rental rates to attract low
or moderate income tenants, or eligible/qualified tenants, then our income
from these properties may be limited.
OUR DEGREE OF LEVERAGE COULD LIMIT OUR ABILITY TO OBTAIN ADDITIONAL
FINANCING
Our debt to market capitalization ratio (total debt as a percentage
of total debt plus the market value of the outstanding common and preferred
shares and units) was approximately 37.8% as of December 31, 2000. We have a
policy of incurring indebtedness for borrowed money only through the
Operating Partnership and its subsidiaries and only if upon such incurrence
our debt to market capitalization ratio would be approximately 50% or less.
Our degree of leverage could have important consequences to security holders.
For example, the degree of leverage could affect our ability to obtain
additional financing in the future for working capital, capital expenditures,
acquisitions, development or other general corporate purposes, making us more
vulnerable to a downturn in business or the economy generally.
RISING INTEREST RATES COULD ADVERSELY AFFECT CASH FLOW
Advances under our credit facility bear interest at variable rates
based upon LIBOR available at various interest periods, plus a certain spread
dependent upon the Company's credit rating. Certain of our senior unsecured
debt instruments also, from time to time, bear interest at floating rates. We
may also borrow additional money with variable interest rates in the future.
Increases in interest rates would increase our interest expenses under these
debt instruments and would increase the costs of refinancing existing
indebtedness and of issuing new debt. Accordingly, higher interest rates
would adversely affect cash flow and our ability to service our debt and to
make distributions to security holders.
CONTROL AND INFLUENCE BY SIGNIFICANT SHAREHOLDERS COULD BE EXERCISED IN A
MANNER ADVERSE TO OTHER SHAREHOLDERS
GENERAL
As of February 1, 2001, (1) Samuel Zell and certain of the current
holders of Units issued to affiliates of Mr. Zell, who contributed 33
properties to the Company at the time of our initial public offering, owned
in the aggregate approximately 2.7% of our common shares (Mr. Zell and these
affiliates are described herein as the "Zell Original Owners"); and (2) our
executive officers and trustees, excluding Mr. Zell (see disclosure above),
owned approximately 4.7% of our common shares. These percentages assume all
options are exercised for common shares and all Units are converted to common
shares. In addition, the consent of certain affiliates of Mr. Zell is
required for certain amendments to the Fifth Amended and Restated ERP
Operating Limited Partnership Agreement of Limited Partnership (the
14
"Partnership Agreement"). As a result of their security ownership and rights
concerning amendments to the Partnership Agreement, Mr. Zell may have
substantial influence over the Company. Although these security holders have
not agreed to act together on any matter, they would be in a position to
exercise even more influence over the Company's affairs if they were to act
together in the future. This influence might be exercised in a manner that is
inconsistent with the interests of other security holders.
MR. ZELL AND OTHERS ARE EXEMPT FROM THE 5% OWNERSHIP LIMIT GENERALLY
APPLICABLE TO SECURITIES HOLDERS
In order to maintain its qualification as a REIT under the Internal
Revenue Code of 1986, as amended (the "Code"), not more than 50% of the value
of the outstanding Shares may be owned, directly or indirectly, by five or
fewer individuals (as defined in the Code to include certain entities). To
assure compliance with this test, our Declaration of Trust restricts the
ownership of more than 5% of the lesser of the number or value of the
outstanding Shares by any single security holder, subject to certain
exceptions. These restrictions do not apply to the ownership of common shares
that may be acquired by the holders of Units issued to the Zell Original
Owners and the Starwood owners. Additionally, our Declaration of Trust
exempts any transferees of such common shares from the 5% ownership limit,
provided such transfers do not result in an increased concentration in the
ownership.
ENVIRONMENTAL PROBLEMS ARE POSSIBLE AND CAN BE COSTLY
Federal, state and local laws and regulations relating to the
protection of the environment may require a current or previous owner or
operator of real estate to investigate and clean up hazardous or toxic
substances or petroleum product releases at such property. The owner or
operator may have to pay a governmental entity or third parties for property
damage and for investigation and clean-up costs incurred by such parties in
connection with the contamination. These laws typically impose clean-up
responsibility and liability without regard to whether the owner or operator
knew of or caused the presence of the contaminants. Even if more than one
person may have been responsible for the contamination each person covered by
the environmental laws may be held responsible for all of the clean-up costs
incurred. In addition, third parties may sue the owner or operator of a site
for damages and costs resulting from environmental contamination emanating
from that site.
Environmental laws also govern the presence, maintenance and removal
of asbestos. These laws require that owners or operators of buildings
containing asbestos properly manage and maintain the asbestos, that they
notify and train those who may come into contact with asbestos and that they
undertake special precautions, including removal or other abatement, if
asbestos would be disturbed during renovation or demolition of a building.
These laws may impose fines and penalties on building owners or operators who
fail to comply with these requirements and may allow third parties to seek
recovery from owners or operators for personal injury associated with
exposure to asbestos fibers.
Substantially all of our properties have been the subject of
environmental assessments completed by qualified independent environmental
consultant companies. These environmental assessments have not revealed, nor
are we aware of, any environmental liability that our management believes
would have a material adverse effect on our business, results of operations,
financial condition or liquidity.
We cannot assure you that existing environmental assessments of our
properties reveal all environmental liabilities, that any prior owner of any
of our properties did not create a material environmental condition not known
to us, or that a material environmental condition does not otherwise exist as
to any one or more of our properties.
OUR PERFORMANCE AND SHARE VALUE ARE SUBJECT TO RISKS ASSOCIATED WITH THE REAL
ESTATE INDUSTRY
15
GENERAL
Real property investments are subject to varying degrees of risk and
are relatively illiquid. Several factors may adversely affect the economic
performance and value of our properties. These factors include changes in the
national, regional and local economic climate, local conditions such as an
oversupply of multifamily properties or a reduction in demand for our
multifamily properties, the attractiveness of our properties to tenants,
competition from other available multifamily property owners and changes in
market rental rates. Our performance also depends on our ability to collect
rent from tenants and to pay for adequate maintenance, insurance and other
operating costs, including real estate taxes, which could increase over time.
Also, the expenses of owning and operating a property are not necessarily
reduced when circumstances such as market factors and competition cause a
reduction in income from the property.
WE MAY BE UNABLE TO RENEW LEASES OR RELET SPACE AS LEASES EXPIRE
When our tenants decide not to renew their leases upon expiration,
we may not be able to relet their space. Even if the tenants do renew or we
can relet the space, the terms of renewal or reletting may be less favorable
than current lease terms. If we are unable to promptly renew the leases or
relet the space, or if the rental rates upon renewal or reletting are
significantly lower than expected rates, then our results of operations and
financial condition will be adversely affected. Consequently, our cash flow
and ability to service debt and make distributions to security holders would
be reduced.
NEW ACQUISITIONS OR DEVELOPMENTS MAY FAIL TO PERFORM AS EXPECTED AND
COMPETITION FOR ACQUISITIONS MAY RESULT IN INCREASED PRICES FOR
PROPERTIES
We intend to continue to actively acquire or develop multifamily
properties. Newly acquired or developed properties may fail to perform as
expected. We may underestimate the costs necessary to bring an acquired
property up to standards established for its intended market position or to
develop a property. Additionally, we expect that other major real estate
investors with significant capital will compete with us for attractive
investment opportunities. This competition has increased prices for
multifamily properties. We may not be in a position or have the opportunity
in the future to make suitable property acquisitions on favorable terms.
BECAUSE REAL ESTATE INVESTMENTS ARE ILLIQUID, WE MAY NOT BE ABLE TO
SELL PROPERTIES WHEN APPROPRIATE
Real estate investments generally cannot be sold quickly. We may not
be able to vary our portfolio promptly in response to economic or other
conditions. This inability to respond promptly to changes in the performance
of our investments could adversely affect our financial condition and ability
to make distributions to our security holders.
CHANGES IN LAWS COULD AFFECT OUR BUSINESS
We are generally not able to pass through to our tenants under
existing leases increases in real estate taxes, income taxes and service or
other taxes. Consequently, any such increases may adversely affect our
financial condition and limit our ability to make distributions to our
security holders. Similarly, changes that increase our potential liability
under environmental laws or our expenditures on environmental compliance
would adversely affect our cash flow and ability to make distributions on our
securities.
SHAREHOLDERS' ABILITY TO EFFECT CHANGES IN CONTROL OF THE COMPANY IS LIMITED
16
PROVISIONS OF OUR DECLARATION OF TRUST AND BYLAWS COULD INHIBIT
CHANGES IN CONTROL
Certain provisions of our Declaration of Trust and Bylaws may delay
or prevent a change in control of the Company or other transactions that
could provide the security holders with a premium over the then-prevailing
market price of their securities or which might otherwise be in the best
interest of our security holders. These include a staggered Board of Trustees
and the 5% Ownership Limit described below. See "-We Have a Share Ownership
Limit for REIT Tax Purposes." Also, any future series of preferred shares of
beneficial interest may have certain voting provisions that could delay or
prevent a change of control or other transactions that might otherwise be in
the interest of our security holders.
WE HAVE A SHARE OWNERSHIP LIMIT FOR REIT TAX PURPOSES
To remain qualified as a REIT for federal income tax purposes, not
more than 50% in value of our outstanding Shares may be owned, directly or
indirectly, by five or fewer individuals at any time during the last half of
any year. To facilitate maintenance of our REIT qualification, our
Declaration of Trust, subject to certain exceptions, prohibits ownership by
any single shareholder of more than 5% of the lesser of the number or value
of the outstanding class of common or preferred shares. See "-Control and
Influence by Significant Shareholders-Mr. Zell and Others are Exempt from the
5% Ownership Limit Generally Applicable to Securities Holders." We refer to
this restriction as the "Ownership Limit." Absent any exemption or waiver,
securities acquired or held in violation of the Ownership Limit will be
transferred to a trust for the exclusive benefit of a designated charitable
beneficiary, and the security holder's rights to distributions and to vote
would terminate. A transfer of Shares may be void if it causes a person to
violate the Ownership Limit. The Ownership Limit could delay or prevent a
change in control and, therefore, could adversely affect our security
holders' ability to realize a premium over the then-prevailing market price
for their Shares.
OUR PREFERRED SHARES OF BENEFICIAL INTEREST MAY AFFECT CHANGES IN
CONTROL
Our Declaration of Trust authorizes the Board of Trustees to issue
up to 100 million preferred shares of beneficial interest, and to establish
the preferences and rights (including the right to vote and the right to
convert into common shares) of any preferred shares issued. The Board of
Trustees may use its powers to issue preferred shares and to set the terms of
such securities to delay or prevent a change in control of the Company, even
if a change in control were in the interest of security holders. As of
December 31, 2000, 20,003,166 preferred shares were issued and outstanding.
INAPPLICABILITY OF MARYLAND LAW LIMITING CERTAIN CHANGES IN CONTROL
Certain provisions of Maryland law applicable to real estate
investment trusts prohibit "business combinations" (including certain
issuances of equity securities) with any person who beneficially owns ten
percent or more of the voting power of outstanding securities, or with an
affiliate who, at any time within the two-year period prior to the date in
question, was the beneficial owner of ten percent or more of the voting power
of the trust's outstanding voting securities (an "Interested Shareholder"),
or with an affiliate of an Interested Shareholder. These prohibitions last
for five years after the most recent date on which the Interested Shareholder
became an Interested Shareholder. After the five-year period, a business
combination with an Interested Shareholder must be approved by two
super-majority shareholder votes unless, among other conditions, the trust's
holders of common shares receive a minimum price for their shares and the
consideration is received in cash or in the same form as previously paid by
the Interested Shareholder for its common shares. As permitted by Maryland
law, however, the Board of Trustees of the Company has opted out of these
restrictions with respect to any business combination involving the Zell
Original Owners and persons acting in concert with any of the Zell Original
Owners. Consequently, the five-year prohibition and the super-majority vote
requirements
17
will not apply to a business combination involving us and any of them. Such
business combinations may not be in the best interest of our security holders.
OUR SUCCESS AS A REIT IS DEPENDENT ON COMPLIANCE WITH FEDERAL INCOME TAX
REQUIREMENTS
OUR FAILURE TO QUALIFY AS A REIT WOULD HAVE SERIOUS ADVERSE
CONSEQUENCES TO OUR SECURITY HOLDERS
We believe that we have qualified for taxation as a REIT for federal
income tax purposes since our taxable year ended December 31, 1992. We plan
to continue to meet the requirements for taxation as a REIT. Many of these
requirements, however, are highly technical and complex. We cannot,
therefore, guarantee that we have qualified or will qualify in the future as
a REIT. The determination that we are a REIT requires an analysis of various
factual matters that may not be totally within our control. For example, to
qualify as a REIT, at least 95% of our gross income must come from sources
that are itemized in the REIT tax laws. We are also required to distribute to
security holders at least 95% of our REIT taxable income excluding capital
gains. The fact that we hold our assets through ERP Operating Limited
Partnership and its subsidiaries further complicates the application of the
REIT requirements. Even a technical or inadvertent mistake could jeopardize
our REIT status. Furthermore, Congress and the IRS might make changes to the
tax laws and regulations, and the courts might issue new rulings that make it
more difficult, or impossible, for us to remain qualified as a REIT. We do
not believe, however, that any pending or proposed tax law changes would
jeopardize our REIT status.
If we fail to qualify as a REIT, we would be subject to federal
income tax at regular corporate rates. Also, unless the IRS granted us relief
under certain statutory provisions, we would remain disqualified as a REIT
for four years following the year we first failed to qualify. If we fail to
qualify as a REIT, we would have to pay significant income taxes. We,
therefore, would have less money available for investments or for
distributions to security holders. This would likely have a significant
adverse affect on the value of our securities. In addition, we would no
longer be required to make any distributions to security holders.
WE COULD BE DISQUALIFIED AS A REIT OR HAVE TO PAY TAXES IF OUR
MERGER PARTNERS DID NOT QUALIFY AS REIT'S
If any of our recent merger partners had failed to qualify as a REIT
throughout the duration of their existence, then they might have had
undistributed "C corporation earnings and profits" at the time of their
merger with us. If that was the case and we did not distribute those earnings
and profits prior to the end of the year in which the merger took place, we
might not qualify as a REIT. We believe that each of our merger partners
qualified as a REIT and that, in any event, none of them had any
undistributed "C corporation earnings and profits" at the time of their
merger with us. If any of our merger partners failed to qualify as a REIT, an
additional concern would be that they would have recognized taxable gain at
the time they were merged with us. We would be liable for the tax on such
gain. In this event, we would have to pay corporate income tax on any gain
existing at the time of the applicable merger on assets acquired in the
merger if the assets are sold within ten years of the merger. Finally, we
could be precluded from electing REIT status for up to four years after the
year in which the predecessor entity failed to qualify for REIT status.
OTHER TAX LIABILITIES
Even if we qualify as a REIT, we will be subject to certain federal,
state and local taxes on our income and property. In addition, our
third-party management operations, which are conducted through subsidiaries,
generally will be subject to federal income tax at regular corporate rates.
18
WE DEPEND ON OUR KEY PERSONNEL
We depend on the efforts of the Chairman of our Board of Trustees,
Samuel Zell, and our executive officers, particularly Douglas Crocker II and
Gerald A. Spector. If they resign, our operations could be temporarily
adversely effected. Mr. Crocker and Mr. Spector have entered into Deferred
Compensation Agreements with the Company which provide both with a salary
benefit after their respective termination of employment with the Company. In
addition, Mr. Zell, Mr. Crocker and Mr. Spector have entered into
Noncompetition Agreements with the Company.
COMPLIANCE WITH REIT DISTRIBUTION REQUIREMENTS MAY AFFECT OUR FINANCIAL
CONDITION
DISTRIBUTION REQUIREMENTS MAY INCREASE THE INDEBTEDNESS OF THE COMPANY
We may be required from time to time, under certain circumstances,
to accrue as income for tax purposes interest and rent earned but not yet
received. In such event, or upon our repayment of principal on debt, we could
have taxable income without sufficient cash to enable us to meet the
distribution requirements of a REIT. Accordingly, we could be required to
borrow funds or liquidate investments on adverse terms in order to meet these
distribution requirements.
WE ARE DEPENDENT ON EXTERNAL SOURCES OF CAPITAL
Because of our annual REIT distribution requirements, we may not be
able to fund all future capital needs, including for acquisitions and
developments, from income generated by operations and the disposition of
certain assets. We therefore may have to rely on third-party sources of
capital, which may or may not be available on favorable terms or at all. Our
access to third-party sources of capital depends on a number of things,
including the market's perception of our growth potential and our current and
potential future earnings. Moreover, additional equity offerings, if pursued,
may result in dilution of security holders' interests, and additional debt
financing may increase our leverage.
FEDERAL INCOME TAX CONSIDERATIONS
GENERAL
The following discussion summarizes all of the federal income tax
considerations material to a holder of common shares. It is not exhaustive of
all possible tax considerations. For example, it does not give a detailed
discussion of any state, local or foreign tax considerations. The following
discussion also does not address all tax matters that may be relevant to
prospective shareholders in light of their particular circumstances.
Moreover, it does not address all tax matters that may be relevant to
shareholders who are subject to special treatment under the tax laws, such as
insurance companies, tax-exempt entities, financial institutions or
broker-dealers, foreign corporations and persons who are not citizens or
residents of the United States.
The specific tax attributes of a particular shareholder could have a
material impact on the tax considerations associated with the purchase,
ownership and disposition of common shares. Therefore, it is essential that
each prospective shareholder consult with his or her own tax advisors with
regard to the application of the federal income tax laws to the shareholder's
personal tax situation, as well as any tax consequences arising under the
laws of any state, local or foreign taxing jurisdiction.
OUR TAXATION
We elected REIT status beginning with the year that ended December
31, 1992. In any year in which we qualify as a REIT, we generally will not be
subject to federal income tax on the portion of our
19
REIT taxable income or capital gain that we distribute to our shareholders.
This treatment substantially eliminates the double taxation that applies to
most corporations, which pay a tax on their income and then distribute
dividends to shareholders who are in turn taxed on the amount they receive.
However, we will be subject to federal income tax at regular corporate rates
upon our REIT taxable income or capital gain that we do not distribute to our
shareholders. We also may be subject to the corporate "alternate minimum tax"
on items of preference under this alternative tax regime. In addition, we
will be subject to a 4% excise tax if we do not satisfy specific REIT
distribution requirements. Moreover, we may be subject to taxes in certain
situations and on certain transactions that we do not presently contemplate.
If we fail to qualify for taxation as a REIT in any taxable year, we
will be subject to tax on our taxable income at regular corporate rates. We
also may be subject to the corporate "alternate minimum tax." As a result,
our failure to qualify as a REIT would significantly reduce the cash we have
available to distribute to our shareholders. Unless entitled to statutory
relief, we would be disqualified from qualification as a REIT for the four
taxable years following the year during which qualification was lost. It is
not possible to state whether we would be entitled to statutory relief.
Our qualification and taxation as a REIT depend on our ability to
satisfy various requirements under the Internal Revenue Code. We are required
to satisfy these requirements on a continuing basis through actual annual
operating and other results. These requirements relate to the sources of our
gross income, the composition of our assets, the amount of dividends we pay
to shareholders, the diversity of our share ownership, and other aspects of
our operations. The purpose of these requirements is to allow the tax benefit
of REIT status only to companies that:
(a) primarily own, and primarily derive income from, real
estate-related assets and certain other assets which are
passive in nature, and
(b) distribute 95% of the taxable income, 90% for taxable years
beginning January 1, 2001, computed without regard to net
capital gain, to shareholders.
On December 17, 1999, as part of a larger bill, the President signed
into law the REIT Modernization Act ("RMA"). Effective beginning January 1,
2001, the RMA has amended the tax rules relating to the composition of a
REIT's assets. Under prior law, a REIT was precluded from owning more than
10% of the outstanding voting securities of any one issuer, other than a
wholly owned subsidiary or another REIT. Beginning in 2001, a REIT will
remain subject to this current restriction and will also be precluded from
owning more than 10% of the value of all classes of any one issuer.
There is an exception to this prohibition. A REIT will be allowed to
own up to 100% of the securities of a taxable REIT subsidiary ("TRS") that
can provide services to REIT tenants and others without disqualifying the
rents that a REIT receives from its tenants. However, no more than 20% of the
value of a REIT's total assets can be represented by securities of one or
more TRS's. The amount of debt and rental payments from a TRS to a REIT will
be limited to ensure that a TRS is subject to an appropriate level of
corporate tax. The new 10% asset test will not apply to certain arrangements
(including third party subsidiaries) in place on July 12, 1999, provided that
a subsidiary does not engage in a "substantial" new line of business, its
existing business does not increase, and a REIT does not acquire any new
securities in the subsidiary. Under the RMA, a third party subsidiary will be
able to convert tax free into a TRS.
In addition to the above legislative changes, effective January 1,
2001, the distribution of taxable income requirement of a REIT has been
reduced from 95% to 90%. Further, effective January 1, 2001, the 15% personal
property test (which generally requires that a REIT's personal property not
exceed 15% of its real and personal property in order for income to be
considered rents from real property) will be based on fair market values
instead of adjusted tax basis.
20
We believe that we have qualified as a REIT for all of our taxable
years beginning with 1992. We also believe that our current structure and
method of operation is such that we will continue to qualify as a REIT.
However, we cannot guarantee that the actual results of our operations have
satisfied or will satisfy the requirements under the Internal Revenue Code.
Piper, Marbury, Rudnick & Wolfe, our special tax counsel, will
provide an opinion to the effect that we were organized and have operated in
conformity with the requirements for qualification and taxation as a REIT
under the Internal Revenue Code for each of our taxable years beginning in
1992. The opinion will also provide that our current organization and method
of operation should enable us to continue to meet the requirements for
qualification and taxation as a REIT. It must be emphasized that the opinion
will be based on various assumptions and factual representations relating to
our organization and our prior and expected operations. In each case, these
representations include representations about our predecessors. Piper,
Marbury, Rudnick & Wolfe will not review our compliance with these
requirements on a continuing basis.
TAXATION OF TAXABLE DOMESTIC SHAREHOLDERS
General. If we qualify as a REIT, distributions made to our taxable
domestic shareholders with respect to their common shares, other than capital
gain distributions, will be treated as ordinary income to the extent that the
distributions come out of earnings and profits. These distributions will not
be eligible for the dividends received deduction for shareholders that are
corporations. In determining whether distributions are out of earnings and
profits, we will allocate our earnings and profits first to preferred shares
and second to the common shares. We cannot guarantee that we will have
sufficient earnings and profits to cover distributions on the preferred
shares.
To the extent we make distributions to our taxable domestic
shareholders in excess of our earnings and profits, such distributions will
be considered a return of capital. Such distributions will be treated as a
tax free distribution and will reduce the tax basis of a shareholder's common
shares by the amount of the distribution so treated. To the extent that such
distributions cumulatively exceed a taxable domestic shareholder's tax basis,
such distributions are taxable as a gain from the sale of his shares.
Shareholders may not include in their individual income tax returns any of
our net operating losses or capital losses.
Distributions made by us that we properly designate as capital gain
dividends will be taxable to taxable domestic shareholders as gain from the
sale or exchange of a capital asset held for more than one year. This
treatment applies only to the extent that the designated distributions do not
exceed our actual net capital gain for the taxable year. It applies
regardless of the period for which a domestic shareholder has held his or her
common shares. Despite this general rule, corporate shareholders may be
required to treat up to 20% of certain capital gain dividends as ordinary
income.
Generally, we will classify a portion of our designated capital
gains dividend as a 20% rate gain distribution and the remaining portion as
an unrecaptured Section 1250 gain distribution. As the names suggest, a 20%
rate gain distribution would be taxable to taxable domestic shareholders that
are individuals, estates or trusts at a maximum rate of 20%. An unrecaptured
Section 1250 gain distribution would be taxable to taxable domestic
shareholders that are individuals, estates or trusts at a maximum rate of 25%.
If, for any taxable year, we elect to designate as capital gain
dividends any portion of the dividends paid or made available for the year to
holders of all classes of shares of beneficial interest, then the portion of
the capital gains dividends that will be allocable to the holders of common
shares will be the total capital gain dividends multiplied by a fraction. The
numerator of the fraction will be the total dividends paid or made available
to the holders of the common shares for the year. The denominator of
21
the fraction will be the total dividends paid or made available to holders of
all classes of shares of beneficial interest.
In general, a shareholder will recognize gain or loss for federal
income tax purposes on the sale or other disposition of common shares in an
amount equal to the difference between:
(a) the amount of cash and the fair market value of any property
received in the sale or other disposition, and
(b) the shareholder's adjusted tax basis in the common shares.
The gain or loss will be capital gain or loss if the common shares
were held as a capital asset. Generally, the capital gain or loss will be
long-term capital gain or loss if the common shares were held for more than
one year. The Taxpayer Relief Act of 1997 allows the IRS to issue regulations
relating to the manner in which capital gain rates will apply to sales of
capital assets by REIT's and to sales of interests in REIT's. The IRS has not
issued these regulations. However, if the IRS does issue these regulations,
they could affect the taxation of gain and loss realized on the disposition
of common shares. Shareholders are urged to consult with their own tax
advisors with respect to the rules contained in the Taxpayer Relief Act.
In general, a loss recognized by a shareholder upon the sale of
common shares that were held for six months or less, determined after
applying certain holding period rules, will be treated as long-term capital
loss to the extent that the shareholder received distributions that were
treated as long-term capital gains. For shareholders who are individuals,
trusts and estates, the long-term capital loss will be apportioned among the
applicable long-term capital gain rates to the extent that distributions
received by the shareholder were previously so treated.
We may elect to retain (rather than distribute as is generally
required) net capital gain for a taxable year and pay the income tax on that
gain. If we make this election, shareholders must include in income, as
long-term capital gain, their proportionate share of the undistributed net
capital gain. Shareholders will be treated as having paid their proportionate
share of the tax paid by us on these gains. Accordingly, they will receive a
credit or refund for the amount. Shareholders will increase the basis in
their common shares by the difference between the amount of capital gain
included in their income and the amount of the tax they are treated as having
paid. Our earnings and profits will be adjusted appropriately.
TAXATION OF TAX-EXEMPT SHAREHOLDERS
Most tax-exempt organizations are not subject to federal income tax
except to the extent of their unrelated business taxable income, which is
often referred to as UBTI. Unless a tax-exempt shareholder holds its common
shares as debt financed property or uses the common shares in an unrelated
trade or business, distributions to the shareholder should not constitute
UBTI. Similarly, if a tax-exempt shareholder sells common shares, the income
from the sale should not constitute UBTI unless the shareholder held the
shares as debt financed property or used the shares in a trade or business.
However, for tax-exempt shareholders that are social clubs,
voluntary employee benefit associations, supplemental unemployment benefit
trusts, and qualified group legal services plans, income from owning or
selling common shares will constitute UBTI unless the organization is able to
properly deduct amounts set aside or placed in reserve so as to offset the
income generated by its investment in common shares. These shareholders
should consult their own tax advisors concerning these set aside and reserve
requirements which are set forth in the Internal Revenue Code.
In addition, certain pension trusts that own more than 10% of a
pension-held REIT must report a
22
portion of the distributions that they receive from the REIT as UBTI. We have
not been and do not expect to be treated as a pension-held REIT for purposes
of this rule.
TAXATION OF FOREIGN SHAREHOLDERS
The following is a discussion of certain anticipated United States
federal income tax consequences of the ownership and disposition of common
shares applicable to a foreign shareholder. It is based on current law and is
for general information only. A "foreign shareholder" is any person other
than:
(a) a citizen or resident of the United States,
(b) a corporation or partnership created or organized in the
United States or under the laws of the United States or of any
state thereof, or
(c) an estate or trust whose income is includable in gross income
for United States federal income tax purposes regardless of
its source.
Distributions by Us. Distributions by us to a foreign shareholder
that are neither attributable to gain from sales or exchanges by us of United
States real property interests nor designated by us as capital gains
dividends will be treated as dividends of ordinary income to the extent that
they are made out of our earnings and profits. These distributions ordinarily
will be subject to withholding of United States federal income tax on a gross
basis at a 30% rate, or a lower treaty rate, unless the dividends are treated
as effectively connected with the conduct by the foreign shareholder of a
United States trade or business. Please note that under certain treaties
lower withholding rates generally applicable to dividends do not apply to
dividends from REIT's. Dividends that are effectively connected with a United
States trade or business will be subject to tax on a net basis at graduated
rates, and are generally not subject to withholding. Certification and
disclosure requirements must be satisfied before a dividend is exempt from
withholding under this exemption. A foreign shareholder that is a corporation
also may be subject to an additional branch profits tax at a 30% rate or a
lower treaty rate.
We expect to withhold United States income tax at the rate of 30% on
any distributions made to a foreign shareholder unless:
(a) a lower treaty rate applies and any required form or
certification evidencing eligibility for that reduced rate is
filed with us, or
(b) the foreign shareholder files an IRS Form 4224 with us
claiming that the distribution is effectively connected
income.
A distribution in excess of our current or accumulated earnings and
profits will not be taxable to a foreign shareholder to the extent that the
distribution does not exceed the adjusted basis of the shareholder's common
shares. Instead, the distribution will reduce the adjusted basis of the
common shares. To the extent that the distribution exceeds the adjusted basis
of the common shares, it will give rise to gain from the sale or exchange of
the shareholder's common shares. The tax treatment of this gain is described
below.
As a result of a legislative change made by the Small Business Job
Protection Act of 1996, it appears that we will be required to withhold 10%
of any distribution in excess of our earnings and profits. Consequently,
although we intend to withhold at a rate of 30%, or a lower applicable treaty
rate, on the entire amount of any distribution, to the extent that we do not
do so, distributions will be subject to withholding at a rate of 10%.
However, a foreign shareholder may seek a refund of the withheld amount from
the IRS if it subsequently determined that the distribution was, in fact, in
excess of our earnings and profits, and the amount withheld exceeded the
foreign shareholder's United States tax liability with respect to the
distribution.
23
Distributions to a foreign shareholder that we designate at the time
of the distributions as capital gain dividends, other than those arising from
the disposition of a United States real property interest, generally will not
be subject to United States federal income taxation unless:
(a) the investment in the common shares is effectively connected with
the foreign shareholder's United States trade or business, in
which case the foreign shareholder will be subject to the same
treatment as domestic shareholders, except that a shareholder
that is a foreign corporation may also be subject to the branch
profits tax, as discussed above, or
(b) the foreign shareholder is a nonresident alien individual who is
present in the United States for 183 days or more during the
taxable year and has a "tax home" in the United States, in which
case the nonresident alien individual will be subject to a 30%
tax on the individual's capital gains.
Under the Foreign Investment in Real Property Tax Act, which is
known as FIRPTA, distributions to a foreign shareholder that are attributable
to gain from sales or exchanges of United States real property interests will
cause the foreign shareholder to be treated as recognizing the gain as income
effectively connected with a United States trade or business. This rule
applies whether or not a distribution is designated as a capital gain
dividend. Accordingly, foreign shareholders generally would be taxed on these
distributions at the same rates applicable to U.S. shareholders, subject to a
special alternative minimum tax in the case of nonresident alien individuals.
In addition, a foreign corporate shareholder might be subject to the branch
profits tax discussed above. We are required to withhold 35% of these
distributions. The withheld amount can be credited against the foreign
shareholder's United States federal income tax liability.
Although the law is not entirely clear on the matter, it appears
that amounts we designate as undistributed capital gains in respect of the
common shares held by U.S. shareholders would be treated with respect to
foreign shareholders in the same manner as actual distributions of capital
gain dividends. Under that approach, foreign shareholders would be able to
offset as a credit against the United States federal income tax liability
their proportionate share of the tax paid by us on these undistributed
capital gains. In addition, foreign shareholders would be able to receive
from the IRS a refund to the extent their proportionate share of the tax paid
by us were to exceed their actual United States federal income tax liability.
SALES OF COMMON SHARES. Gain recognized by a foreign shareholder
upon the sale or exchange of common shares generally will not be subject to
United States taxation unless the shares constitute a "United States real
property interest" within the meaning of FIRPTA. The common shares will not
constitute a United States real property interest so long as we are a
domestically controlled REIT. A domestically controlled REIT is a REIT in
which at all times during a specified testing period less than 50% in value
of its stock is held directly or indirectly by foreign shareholders. We
believe that we are a domestically controlled REIT. Therefore, we believe
that the sale of common shares will not be subject to taxation under FIRPTA.
However, because common shares and preferred shares are publicly traded, we
cannot guarantee that we will continue to be a domestically controlled REIT.
In any event, gain from the sale or exchange of common shares not otherwise
subject to FIRPTA will be taxable to a foreign shareholder if either:
(a) the investment in the common shares is effectively connected with
the foreign shareholder's United States trade or business, in
which case the foreign shareholder will be subject to the same
treatment as domestic shareholders with respect to the gain, or
(b) the foreign shareholder is a nonresident alien individual who is
present in the United States for 183 days or more during the
taxable year and has a tax home in the United States, in which
case the nonresident alien individual will be subject to a 30%
tax on the individual's
24
capital gains.
Even if we do not qualify as or cease to be a domestically
controlled REIT, gain arising from the sale or exchange by a foreign
shareholder of common shares still would not be subject to United States
taxation under FIRPTA as a sale of a United States real property interest if:
(a) the class or series of shares being sold is "regularly traded,"
as defined by applicable IRS regulations, on an established
securities market such as the New York Stock Exchange, and
(b) the selling foreign shareholder owned 5% or less of the value of
the outstanding class or series of shares being sold throughout
the five-year period ending on the date of the sale or exchange.
If gain on the sale or exchange of common shares were subject to
taxation under FIRPTA, the foreign shareholder would be subject to regular
United States income tax with respect to the gain in the same manner as a
taxable U.S. shareholder, subject to any applicable alternative minimum tax,
a special alternative minimum tax in the case of nonresident alien
individuals and the possible application of the branch profits tax in the
case of foreign corporations. The purchaser of the common shares would be
required to withhold and remit to the IRS 10% of the purchase price.
OUR MANAGEMENT COMPANY AND OTHER SUBSIDIARIES. A small portion of
the cash to be used by the Operating Partnership to fund distributions to us
is expected to come from payments of dividends on non-voting stock of
management companies and other companies held by the Operating Partnership.
These companies pay federal and state income tax at the full applicable
corporate rates. They will attempt to minimize the amount of these taxes, but
we cannot guarantee whether or the extent to, which measures taken to
minimize these taxes, will be successful. To the extent that these companies
are required to pay taxes, the cash available for distribution from these
management companies by us to shareholders will be reduced accordingly.
STATE AND LOCAL TAXES. We and our shareholders may be subject to
state or local taxation in various jurisdictions, including those in which it
or they transact business or reside. The state and local tax treatment of us
and our shareholders may not conform to the federal income tax consequence
discussed above. It is our belief that all the states will eventually conform
with the RMA as described above. Consequently, prospective shareholders
should consult their own tax advisors regarding the effect of state and local
tax laws on an investment in common shares.
25
ITEM 2. THE PROPERTIES
As of December 31, 2000, the Company owned or had interests in a
portfolio of 1,104 multifamily Properties located in 36 states containing
227,704 apartment units. The Company has:
AVERAGE AVERAGE AVERAGE
NUMBER OF NUMBER OCCUPANCY MONTHLY RENT
TYPE PROPERTIES OF UNITS PERCENTAGE POSSIBLE
--------------------------------------------------------------------------
GARDEN 698 267 94.8% $825
MID/HIGH-RISE 27 314 95.0% $1,364
RANCH 379 86 92.8% $481
----------
TOTAL 1,104
==========
Tenant leases are generally year-to-year and require security
deposits. The garden-style properties are generally defined as properties
with two and/or three floors while the mid-rise/high-rise properties are
defined as properties greater than three floors. These two property types
typically provide residents with amenities, which may include a clubhouse,
swimming pool, laundry facilities and cable television access. Certain of
these properties offer additional amenities such as saunas, whirlpools, spas,
sports courts and exercise rooms or other amenities. The ranch-style
properties, which are defined as single story properties, generally do not
provide additional amenities for residents other than common laundry
facilities and cable television access.
It is management's role to monitor compliance with Property policies
and to provide preventive maintenance of the Properties including common
areas, facilities and amenities. The Company holds periodic meetings of its
Property management personnel for training and implementation of the
Company's strategies. The Company believes that, due in part to this
strategy, the Properties historically have had high occupancy rates.
The distribution of the Properties throughout the United States
reflects the Company's belief that geographic diversification helps insulate
the portfolio from regional and economic influences. At the same time, the
Company has sought to create clusters of Properties within each of its
primary markets in order to achieve economies of scale in management and
operation; however, the Company may acquire additional multifamily properties
located anywhere in the United States.
The Company beneficially owns fee simple title to 991 of the 998
controlled properties and holds a remaining 66-year leasehold interest with
respect to one Property (Mallgate). In addition, with respect to two
Properties, the Company owns the debt collateralized by such Properties and
with respect to four Properties, the Company owns an interest in the debt
collateralized by the Properties. The remaining 106 properties represent
Partially Owned and Unconsolidated Properties containing 20,094 units.
Direct fee simple title for certain of the Properties is owned by
single-purpose nominee corporations, LLC's or land trusts that engage in no
business other than holding title to the Property for the benefit of the
Company. Holding title in such a manner is expected to make it less costly to
transfer such Property in the future in the event of a sale and should
facilitate financing, since lenders often require title to a Property to be
held in a single purpose entity in order to isolate that Property from
potential liabilities of other Properties. Direct fee simple title for
certain other Properties is owned by a single LLC.
The Company also leases (under operating leases) various management,
regional and corporate offices throughout the United States.
26
The following tables set forth certain information by type and state
relating to the Properties at December 31, 2000.
GARDEN-STYLE PROPERTIES
DECEMBER 31, 2000
-----------------------------
AVERAGE
AVERAGE MONTHLY RENT
NUMBER OF NUMBER PERCENTAGE OF OCCUPANCY POSSIBLE PER
STATE PROPERTIES OF UNITS TOTAL UNITS PERCENTAGE UNIT
- -----------------------------------------------------------------------------------------------------
Alabama 12 2,483 1.09 % 90.7 % $513
Arizona 58 16,866 7.41 94.6 754
California 84 21,112 9.27 94.6 1,192
Colorado 29 7,989 3.51 95.5 813
Connecticut 24 2,670 1.17 96.2 806
Florida 81 23,541 10.34 94.3 755
Georgia 41 13,325 5.85 95.7 809
Illinois 7 2,360 1.04 93.8 1,036
Iowa 1 200 0.09 96.0 636
Kansas 6 2,392 1.05 95.6 739
Kentucky 5 1,610 0.71 92.4 592
Maine 5 672 0.30 96.7 809
Maryland 23 5,419 2.38 96.1 830
Massachusetts 34 4,779 2.10 96.7 968
Michigan 10 3,056 1.34 93.9 859
Minnesota 17 3,641 1.60 94.0 946
Missouri 8 1,590 0.70 96.3 678
Nevada 8 2,445 1.07 92.1 679
New Hampshire 1 390 0.17 98.7 929
New Jersey 3 1,276 0.56 96.0 1,137
New Mexico 4 1,073 0.47 95.8 669
North Carolina 38 10,358 4.55 94.9 661
Ohio 1 827 0.36 97.3 843
Oklahoma 8 2,036 0.89 95.1 574
Oregon 10 3,290 1.44 94.5 698
Rhode Island 5 778 0.34 96.6 841
South Carolina 6 1,021 0.45 95.6 554
Tennessee 17 4,967 2.18 92.5 676
Texas 85 26,442 11.61 94.9 737
Utah 4 1,426 0.63 90.7 628
Virginia 16 4,837 2.12 92.8 841
Washington 43 10,367 4.55 96.0 832
Wisconsin 4 1,281 0.56 93.9 931
------ --------- ------
TOTAL GARDEN-STYLE 698 186,519 81.9 %
------ --------- ------ ------ ------
AVERAGE GARDEN-STYLE 267 94.8 % $825
--------- ------ ------
27
MID-RISE/HIGH-RISE PROPERTIES
DECEMBER 31, 2000
----------------------------
AVERAGE
AVERAGE MONTHLY RENT
NUMBER OF NUMBER PERCENTAGE OF OCCUPANCY POSSIBLE PER
STATE PROPERTIES OF UNITS TOTAL UNITS PERCENTAGE UNIT
- -----------------------------------------------------------------------------------------------------
California 1 164 0.07 % 94.6 % $2,300
Connecticut 2 407 0.18 97.8 2,111
Florida 2 457 0.20 96.5 1,006
Illinois 1 1,420 0.62 94.8 844
Massachusetts 9 2,806 1.23 97.5 1,346
Minnesota 1 162 0.07 98.2 1,297
New Jersey 2 684 0.30 97.8 2,172
Ohio 1 765 0.34 67.5 954
Oregon 1 525 0.23 94.1 983
Texas 2 333 0.15 91.2 1,063
Virginia 1 277 0.12 97.8 1,169
Washington 4 472 0.21 93.3 1,117
------ -------- ------
TOTAL MID-RISE/HIGH-RISE 27 8,472 3.7 %
------ -------- ------ ------- -------
AVERAGE MID-RISE/HIGH-RISE 314 95.0 % $1,364
-------- ------- -------
RANCH-STYLE PROPERTIES
- -----------------------------------------------------------------------------------------------------
Alabama 2 159 0.07 % 89.2 % 392
Florida 102 9,453 4.15 91.9 490
Georgia 60 4,964 2.18 92.8 513
Indiana 51 4,415 1.94 92.5 457
Kentucky 23 1,808 0.79 92.1 444
Maryland 4 413 0.18 96.3 561
Michigan 21 1,720 0.76 95.5 563
Ohio 96 8,120 3.57 93.1 457
Pennsylvania 7 580 0.25 93.7 553
South Carolina 3 269 0.12 89.1 453
Tennessee 5 348 0.15 95.2 462
Texas 1 67 0.03 99.0 486
West Virginia 4 397 0.17 91.3 423
------ -------- ------
TOTAL RANCH-STYLE 379 32,713 14.4 %
------ -------- ------ ------- -------
AVERAGE RANCH-STYLE 86 92.8 % $481
-------- ------- -------
------ -------- ------
TOTAL EQR RESIDENTIAL 1,104 227,704 100 %
PORTFOLIO ====== ======= ======
28
The properties currently under development are included in the following table.
DEVELOPMENT PROJECTS
DEVELOPMENT ESTIMATED EQR TOTAL EQR
ESTIMATED COST FUNDED FUTURE FUNDING FUNDING
DEVELOPMENT AT 12/31/2000 OBLIGATION OBLIGATION ESTIMATED
DEVELOPMENT NUMBER OF NUMBER COST (IN (IN (IN (IN COMPLETION
PROJECT NAME LOCATION PROPERTIES OF UNITS MILLIONS) MILLIONS)(1) MILLIONS)(1) MILLIONS)(1) DATE
- -----------------------------------------------------------------------------------------------------------------------------------
EXPANSION PROJECTS
La Mirage IV (2) San Diego, CA 1 340 $54.4 $21.1 $33.3 $54.4 Q3 2001
Prospect
Towers II (2) Hackensack, NJ 1 203 43.1 5.8 37.3 43.1 Q1 2002
---------- -------- ----------- ------------- -------------- ------------
Total 2 543 $97.5 $26.9 $70.6 $97.5
---------- -------- ----------- ------------- -------------- ------------
LINCOLN PROPERTY COMPANY JOINT
VENTURE PROJECTS
Braintree Woods Braintree, MA 1 202 $27.4 $6.8 $0.0 $6.8 Q1 2001
Eden Village Loudon County, VA 1 290 29.4 6.1 1.3 7.4 Q2 2002
Fairfax Corners Fairfax, VA 1 652 63.9 16.0 0.0 16.0 Q3 2001
Lakeside Park (3) Tampa, FL 1 264 17.7 4.4 0.0 4.4 Completed
Potomac Yard Alexandria, VA 1 588 67.5 16.9 0.0 16.9 Q3 2001
Regents Court San Diego, CA 1 251 37.1 9.3 0.0 9.3 Q3 2001
Renaissance on
Peidmont Atlanta, GA 1 322 36.2 9.1 0.0 9.1 Q3 2001
Savannah at
Park Place Atlanta, GA 1 416 43.9 11.0 0.0 11.0 Q1 2001
The Landings (3) Lake Zurich, IL 1 206 20.9 5.2 0.0 5.2 Completed
Waltham Terrace Waltham, MA 1 192 27.0 0.0 6.8 6.8 Q4 2001
---------- -------- ----------- ------------- -------------- ------------
Total 10 3,383 $371.0 $84.8 $8.1 $92.9
---------- -------- ----------- ------------- -------------- ------------
LEGACY PARTNERS JOINT VENTURE PROJECTS
Hampden Town Center Aurora, CO 1 444 $44.8 $11.2 $0.0 $11.2 Q3 2001
Homestead at
Canyon Park Bothell, WA 1 200 22.4 5.6 0.0 5.6 Q3 2001
Legacy Towers Seattle, WA 1 327 87.7 21.9 0.0 21.9 Q1 2002
Warner Ridge Woodland Hills, CA 1 579 111.2 27.8 0.0 27.8 Q3 2002
---------- -------- ----------- ------------- -------------- ------------
Total 4 1,550 $266.1 $66.5 $0.0 $66.5
---------- -------- ----------- ------------- -------------- ------------
EARNOUT PROJECTS
Parkfield (3) Denver, CO 1 476 $37.9 $33.4 $4.5 $37.9 Completed
---------- -------- ----------- ------------- -------------- ------------
Total 1 476 $37.9 $33.4 $4.5 $37.9
---------- -------- ----------- ------------- -------------- ------------
TOTAL PROJECTS UNDER DEVELOPMENT 17 5,952 $772.5 $211.6 $83.2 $294.8
===============================================================================
(1) The Company's funding of Lincoln Property Company Joint Venture and
Legacy Partners Joint Venture Projects is limited to 25% of the total
development cost.
(2) Estimated development cost does not include the cost of land previously
acquired by the Company.
(3) Properties were substantially complete as of December 31, 2000. As such,
these properties are also included in the outstanding property and unit
counts.
29
ITEM 3. LEGAL PROCEEDINGS
Only ordinary routine litigation incidental to the business, which is
not deemed material, was initiated during the year ended December 31, 2000. As
of December 31, 2000, the Company does not believe there is any other litigation
threatened against the Company 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 Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The following table sets forth, for the periods indicated, the high and
low sales prices for and the distributions paid on the Company's Common Shares
which trade on the New York Stock Exchange under the trading symbol EQR.
SALES PRICE
--------------------
HIGH LOW DISTRIBUTIONS
---- --- -------------
FISCAL YEAR 1999
Fourth Quarter Ended December 31, 1999 $43.25 $38.25 $0.76
Third Quarter Ended September 30, 1999 $45.25 $40.6875 $0.76
Second Quarter Ended June 30, 1999 $48.375 $40.25 $0.71
First Quarter Ended March 31, 1999 $41.9375 $39.875 $0.71
SALES PRICE
-------------------------
HIGH LOW DISTRIBUTIONS
---- --- -------------
FISCAL YEAR 2000
Fourth Quarter Ended December 31, 2000 $57.25 $44.50 $0.815
Third Quarter Ended September 30, 2000 $51.1875 $46.75 $0.815
Second Quarter Ended June 30, 2000 $48.50 $40.00 $0.76
First Quarter Ended March 31, 2000 $44.50 $38.6875 $0.76
The number of beneficial holders of Common Shares at February 1, 2001,
was approximately 61,000. The number of outstanding Common Shares as of February
1, 2001 was 132,790,407.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial and operating
information on a historical basis for the Company. The following information
should be read in conjunction with all of the financial statements and notes
thereto included elsewhere in this Form 10-K. The historical operating and
balance sheet data have been derived from the historical Financial Statements of
the Company audited by Ernst & Young LLP, independent auditors. Certain
capitalized terms as used herein, are defined in the Notes to the Consolidated
Financial Statements.
30
EQUITY RESIDENTIAL PROPERTIES TRUST
CONSOLIDATED HISTORICAL FINANCIAL INFORMATION
(FINANCIAL INFORMATION IN THOUSANDS EXCEPT FOR PER SHARE AND PROPERTY DATA)
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------
2000 1999 1998 1997 1996
------------ ------------ ------------- ------------- -----------
OPERATING DATA:
Total revenues $ 2,030,340 $ 1,742,627 $ 1,333,891 $ 747,078 $ 478,385
============ ============ ============= ============= ===========
Income before allocation to Minority Interests,
income from investments in unconsolidated
entities, net gain on sales of real estate,
and extraordinary items $ 380,613 $ 319,842 $ 251,927 $ 176,014 $ 97,033
============ ============ ============= ============= ===========
Net income $ 549,451 $ 393,881 $ 258,206 $ 176,592 $ 101,624
============ ============ ============= ============= ===========
Net income available to Common Shares $ 437,510 $ 280,685 $ 165,289 $ 117,580 $ 72,609
============ ============ ============= ============= ===========
Net income per share - basic $ 3.38 $ 2.30 $ 1.65 $ 1.79 $ 1.70
============ ============ ============= ============= ===========
Net income per share - diluted $ 3.34 $ 2.29 $ 1.63 $ 1.76 $ 1.69
============ ============ ============= ============= ===========
Weighted average Common Shares outstanding - basic 129,507 122,175 100,370 65,729 42,586
============ ============ ============= ============= ===========
Weighted average Common Shares outstanding - diluted 145,633 135,655 112,578 74,281 51,102
============ ============ ============= ============= ===========
Distributions declared per Common Share outstanding $ 3.15 $ 2.94 $ 2.72 $ 2.55 $ 2.40
============ ============ ============= ============= ===========
BALANCE SHEET DATA (at end of period):
Real estate, before accumulated depreciation $ 12,591,460 $ 12,238,963 $ 10,942,063 $ 7,121,435 $ 2,983,510
Real estate, after accumulated depreciation $ 11,239,224 $ 11,168,476 $ 10,223,572 $ 6,676,673 $ 2,681,998
Total assets $ 12,263,966 $ 11,715,689 $ 10,700,260 $ 7,094,631 $ 2,986,127
Total debt $ 5,706,152 $ 5,473,868 $ 4,680,527 $ 2,948,323 $ 1,254,274
Minority Interests $ 612,618 $ 456,979 $ 431,374 $ 273,404 $ 150,637
Shareholders' equity $ 5,619,547 $ 5,504,934 $ 5,330,447 $ 3,689,991 $ 1,458,830
OTHER DATA:
Total properties (at end of period) 1,104 1,062 680 489 218
Total apartment units (at end of period) 227,704 225,708 191,689 140,467 67,705
Funds from operations available to Common
Shares and OP Units (1) $ 726,172 $ 619,603 $ 458,806 $ 270,763 $ 160,267
Cash flow provided by (used for):
Operating activities $ 834,503 $ 781,853 $ 542,147 $ 348,997 $ 210,930
Investing activities $ (561,653) $ (520,185) $ (1,046,308) $ (1,552,390) $ (635,655)
Financing activities $ (278,195) $ (236,516) $ 474,831 $ 1,089,417 $ 558,568
31
ITEM 6. SELECTED FINANCIAL DATA (CONSOLIDATED HISTORICAL (CONTINUED))
(1) 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, adjustments for
unconsolidated entities and extraordinary items. 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. Nevertheless, this modification
had no impact upon the Company's calculation of FFO for either the
current or prior periods presented.
The Company believes that FFO