Back to GetFilings.com
1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999 Commission file number 1-12792
SUMMIT PROPERTIES INC.
(Exact name of registrant as specified in its charter)
---------------------
MARYLAND 56-1857807
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
212 SOUTH TRYON STREET
SUITE 500
CHARLOTTE, NORTH CAROLINA 28281
(Address of principal executive offices) (Zip Code)
(704) 334-3000
(Registrant's telephone number, including area code)
---------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
COMMON STOCK, PAR VALUE $.01 PER SHARE NEW YORK STOCK EXCHANGE
PREFERRED STOCK PURCHASE RIGHTS NEW YORK STOCK EXCHANGE
(Title of each class) (Name of each exchange 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 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 the voting stock held by nonaffiliates of the
Registrant, as of March 10, 2000 was $483,696,393.
The number of shares of the Registrant's Common Stock, par value $.01 per share,
outstanding as of March 10, 2000 was 26,429,884.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 1999 Proxy Statement for the Registrant's Annual Meeting of
Stockholders, to be filed with the Securities and Exchange Commission within 120
days after the end of the year covered by this Form 10-K, are incorporated by
reference herein as portions of Part III of this Form 10-K.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2
TABLE OF CONTENTS
ITEM PAGE
---- ----
PART I
1. Business.................................................... 3
2. Properties.................................................. 8
3. Legal Proceedings........................................... 11
4. Submission of Matters to a Vote of Security Holders......... 11
PART II
5. Market for Registrant's Common Equity and Related
Stockholder Matters....................................... 12
6. Selected Financial Data..................................... 13
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 15
7A. Quantitative and Qualitative Disclosure about Market Risk... 33
8. Financial Statements and Supplementary Data................. 33
9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................. 33
PART III
10. Directors and Executive Officers of Registrant.............. 34
11. Executive Compensation...................................... 34
12. Security Ownership of Certain Beneficial Owners and
Management................................................ 34
13. Certain Relationships and Related Transactions.............. 34
PART IV
14. Exhibits, Financial Statement Schedules and Reports on Form
8-K....................................................... 35
2
3
PART I
This Form 10-K contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. The Company's actual results could differ
materially from those set forth in the forward-looking statements. Certain
factors that might cause such a difference are discussed in the section entitled
"Forward-Looking Statements" on page 15 and elsewhere in this Form 10-K.
ITEM 1. BUSINESS
THE COMPANY
Summit Properties Inc. (the "Company") is an established leader in the
development, acquisition, and management of luxury apartment communities. It has
received numerous national awards including "Management Company of the Year"
from the National Association of Home Builders in 1993 and the "National Award
for Service" from CEL & Associates in 1998 and 1999. The Company currently owns
or holds an ownership interest in 70 Communities comprised of 18,198 apartment
homes with an additional 2,952 apartment homes under construction in 11 new
Communities (collectively, the "Communities"). The Company is a fully integrated
organization with multifamily development, construction, acquisition and
management expertise which employs approximately 650 individuals.
The Company's business is conducted principally through Summit Properties
Partnership, L.P., a Delaware limited partnership (the "Operating Partnership"),
of which the Company is the sole general partner and an 85.6% economic owner as
of December 31, 1999. The Company's third party management, certain
construction, and other businesses are conducted through its subsidiaries,
Summit Management Company, a Maryland corporation (the "Management Company"),
and Summit Apartment Builders, Inc., a Florida corporation (the "Construction
Company"). Except where otherwise explicitly noted, the "Company" shall also
hereinafter refer to the Operating Partnership, the Management Company and the
Construction Company.
The Company, operating throughout the Southeast, Southwest, Midwest, and
Mid-Atlantic states, has chosen to focus its current efforts in its six largest
high growth markets: Atlanta, Washington DC, Southeast Florida, Raleigh,
Charlotte, and Dallas. In keeping with this strategy, the Company has
established city operating offices in each of these cities. These city offices
have direct responsibility for development, construction, and management of the
Communities in their geographic markets. The Company believes that this
decentralized structure provides it with superior local knowledge and experience
in each market.
OPERATING PHILOSOPHY
The Company views customer service as its driving force and seeks to provide its
residents with experienced, well-trained and attentive management staffs. Every
Community associate enters into a comprehensive training program called "Ask for
Action" when he or she is hired. This training program ensures that all
associates have a clear understanding of their job responsibilities, the high
standards of performance expected of them, and the importance of excellent
customer service. The Company has also developed five classes focusing on
excellence in property management to provide on-going training and to further
enhance associate productivity. The Company believes that this training regimen,
along with a proprietary hiring process called "Success by Selection", is
providing a higher quality management staff, evidenced by higher resident
satisfaction at the Communities and lower associate turnover.
The Company has long stressed the importance of developing strong customer
relationships with its residents. The Company's commitment to resident
satisfaction is evidenced by its Peak Services. Peak Services include: a 30 Day
Happiness Guarantee where residents can move from the Company's property without
any lease break penalties if they are not satisfied with their home; Same Day
Service and 24 Hour Emergency Maintenance; Business Services; Package Acceptance
and Delivery; Loaner Living Accessories where the Company provides convenience
tools for the residents' use; No Nonsense Transfer Policy where residents can
easily move from one Summit Community to another; and a free Video Library.
3
4
This excellence in service, in addition to upscale features and premium
locations in high growth markets, has allowed the Company to charge
market-leading rents to its residents while maintaining high occupancy rates.
The Company's geographic market focus and decentralized city office structure
further promote income growth.
GROWTH STRATEGIES
The Company's objective is to create long term value through four strategies:
Maximizing Internal Growth, Enhancing Operational Efficiency, Deploying Capital
Strategically, and Optimizing Size and Diversity.
Maximizing Internal Growth. The Company seeks to maximize internal growth by
operating in a select number of high growth markets throughout the Southeast,
Southwest, Midwest, and Mid-Atlantic states. These markets have typically
experienced stronger upswings and recovered from downturns more quickly. The
Company believes that by operating in these markets it has a better opportunity
to maximize the economic return from its Communities by optimizing the trade-off
between increasing rental rates and maintaining high occupancy levels.
Consistent with this strategy, the Company is typically among the rental rate
leaders in its markets. The Company's affluent resident profile, well-trained
property management staff, and management information systems support this
strategy.
For the year ended December 31, 1999, average rent per occupied apartment home
for the Company's fully stabilized Communities increased 2.2%, and property
operating income from these Communities increased 6.0% for the same period.
Average occupancy, rental revenue, and property operating income levels for the
Company's fully stabilized Communities are as follows for the years set forth
below:
YEAR ENDED DECEMBER 31,
-----------------------
1999 1998 1997
----- ----- -----
Average Physical Occupancy(1)............................... 93.9% 93.3% 93.2%
Average Monthly Rental Revenue per Occupied Apartment
Home...................................................... $831 $763 $717
Average Monthly Rental Revenue per Apartment Home Growth
Rate...................................................... 2.2% 3.3% 2.1%
Property Operating Income Growth Rate(2).................... 6.0% 3.6% 2.4%
Number of Communities(1).................................... 36 39 44
(1) The Company also has ten acquisition Communities, nine stabilized
development Communities (i.e., stabilized after January 1, 1997) and
fourteen Communities in lease-up. In 1999, average physical occupancy rates
were 91.9% and 93.6% and average monthly rental revenue were $876 and $928
per occupied apartment home for acquisition Communities and stabilized
development Communities, respectively. Annual averages for Communities in
lease-up are not meaningful as the Communities were in various stages of
construction/lease-up during the year.
(2) Property Operating Income is defined as total rental and other property
revenues less property operating and maintenance expense (excluding
depreciation and amortization).
Enhancing Operational Efficiency. The Company has successfully integrated
property management, development, and construction and will continue to leverage
its strengths in each of these areas to enhance operational efficiency and
increase brand recognition. As a result, the Company believes that it will be
able to select the best sites in its markets, build high quality communities
both in terms of architecture and construction techniques, and operate the
communities to generate market leading rents while maintaining high occupancies.
The Company believes this integrated approach will create premium quality
communities with increased customer satisfaction.
Furthermore, the Company is actively seeking ways to reduce operational
expenses. The Management Company is constantly exploring new ways to manage
costs and share best practices across the Company. The Company's development
organization has moved to using a consistent design across all garden style
communities, which the Company believes will eliminate many expenses realized by
designing each new community as a unique entity and will help achieve economies
of scale. The Construction Company is also actively seeking methods to cut costs
through more competitive bidding and on-line purchasing of commodities.
4
5
Deploying Capital Strategically. Since its initial public offering in 1994, the
Company has increased the size of its property portfolio by almost 150% to
16,765 apartment homes. Development of new Communities has been the foundation
of the Company's growth. Of its 65 completed Communities, 40 have been developed
by the Company or its predecessors. The Company attributes much of its
historical cash flow growth to the quality of the apartment Communities it has
developed over the years.
The Company maintains an active development program which provides it with a
predictable and consistent stream of new revenues. Focusing on development
allows the Company to build desirable properties that generate premium rents. It
also provides returns which generally exceed those achieved on acquisitions.
The Company employs a combination of local autonomy and centralized oversight in
its development process. Development officers live in their respective markets,
so that critical decision-making is kept local. Development officers report to a
corporate development executive, a process that is designed to ensure
consistency in design, building materials and quality.
The Company utilizes the Construction Company in addition to third-party general
contractors to build its new Communities. Of the 2,952 apartment homes in
development at December 31, 1999, 91% are being built by the Construction
Company, which has resulted in higher quality construction, improved timeliness
and cost savings.
In 1999, the Company completed development of seven Communities, adding 1,650
apartment homes to the Company's portfolio. These seven Communities represent a
total investment of approximately $130.9 million. The Communities completed in
1999 are Summit Fair Lakes I, Summit Governor's Village, Summit Fair Lakes II,
Summit Westwood, Summit Lake II, Summit Sedgebrook II and Summit Doral.
As of December 31, 1999, the Company had eleven apartment Communities under
construction (four of which are also in lease-up) containing 2,952 apartment
homes, with a budgeted cost of $251.2 million. The following provides summary
information regarding the Communities under construction as of December 31, 1999
(dollars in thousands):
TOTAL ESTIMATED ANTICIPATED
APARTMENT ESTIMATED COST TO COST TO CONSTRUCTION
COMMUNITY HOMES COSTS DATE COMPLETE COMPLETION
- --------------------------------------- --------- --------- -------- --------- ------------
Summit Largo -- Largo, MD.............. 219 $ 18,000 $ 17,021 $ 979 Q1 2000
Summit New Albany II -- Columbus, OH... 127 9,800 8,323 1,477 Q1 2000
Summit Hunter's Creek -- Orlando, FL... 270 19,200 16,609 2,591 Q1 2000
Summit Deer Creek -- Atlanta, GA....... 292 22,200 16,409 5,791 Q2 2000
Summit Russett II -- Laurel, MD........ 112 9,900 4,367 5,533 Q2 2000
Summit Ashburn Farm -- Loudon County,
VA................................... 162 14,600 9,235 5,365 Q3 2000
Summit Grandview -- Charlotte, NC...... 266 45,500 16,821 28,679 Q4 2000
Reunion Park by Summit -- Raleigh,
NC................................... 248 14,300 7,963 6,337 Q1 2001
Summit Deerfield -- Cincinnati, OH..... 498 41,500 14,845 26,655 Q3 2001
Summit Crest -- Raleigh, NC............ 438 30,700 3,727 26,973 Q3 2001
Summit Overlook -- Raleigh, NC......... 320 25,500 8,046 17,454 Q3 2001
Other development and construction
costs................................ -- -- 25,221 --
-------- -------- -------- --------
2,952 $251,200 $148,587 $127,834
======== ======== ======== ========
The Company is optimistic about the operating prospects of the Communities under
construction even with the increased supply of newly constructed apartment homes
of comparable quality in many of its markets. As with any development project,
there are uncertainties and risks associated with the development of the
Communities described above. While the Company has prepared development budgets
and has estimated completion and stabilization target dates based on what it
believes are reasonable assumptions in light of current conditions, there can be
no assurance that actual costs will not exceed current budgets or that the
Company will not experience construction delays due to the unavailability of
materials, weather conditions or other events. Similarly, market conditions at
the time these Communities become available for leasing will
5
6
affect rental rates and the period of time necessary to achieve stabilization,
and could result in achieving stabilization later than currently anticipated.
While the Company has emphasized development of new apartment communities as one
of its strategies for growth, it also has successfully capitalized in the past
on expansion opportunities through the strategic acquisition of properties that
meet the Company's investment criteria. The Company has acquired more than 8,612
apartment homes since its formation in 1994. Acquisitions have generally been
concentrated in the Company's targeted core markets in order to further
strengthen brand identity and operational efficiencies. The Company's extensive
local-market knowledge and development expertise give it an advantage in
identifying and underwriting acquisition opportunities which the Company
believes will create shareholder value. In 1999, escalating purchase prices for
acquisitions would have resulted in economic performance that was unattractive
when compared to the potential economic performance of the Company's development
program. As a result, the Company made no such acquisitions in 1999. However,
this pricing dynamic also created an opportunity for the Company to increase its
disposition activity.
During 1999, the Company disposed of seven communities for over $76 million.
These Communities did not align with the Company's overall long term strategic
plan and growth objectives. This is part of a strategy that the Company calls
"Capital Recycling" whereby the proceeds of these dispositions are reinvested
into new communities that the Company believes will yield higher returns.
The prices realized for the 1999 dispositions represent a source of capital with
a cost below what could have been achieved through other capital sources, such
as common equity. As long as this remains the case, the Company anticipates
continuing to use property dispositions as a source of capital to fund its
development program, as well as for general corporate purposes.
Optimizing Size and Diversity. The Company's strategy is to be the
market-leading operator of luxury apartment homes in a carefully selected group
of markets. Decisions are based on maintaining a diverse portfolio whereby the
economic factors of the aggregate pool mitigates the risks of placing too much
of the Company's portfolio in one or two markets.
The Company is currently in the process of exiting its smaller markets and
reinvesting the sale proceeds into new communities in its larger core markets.
The Company believes this strategy will improve financial performance by
improving economies of scale, concentrating market knowledge, and increasing
brand awareness.
Furthermore, the Company is seeking opportunities to diversify its product type.
The Company is shifting toward increasing the percentage of urban in-fill
communities in its portfolio by concentrating on urban development
opportunities, particularly in Washington DC, Atlanta, and Southeast Florida.
This strategic shift reflects an emerging trend where many residents desire to
avoid traffic congestion and live closer to work, shopping, and entertainment.
COMPANY HISTORY
The Company was formed in 1993 to continue and expand the multifamily
development, construction, acquisition, operation, management and leasing
businesses of the predecessor entities through which the Company historically
conducted operations prior to the Initial Offering (as defined below) (the
"Summit Entities"). The Summit Entities were founded by the Company's
Co-Chairman of the Board, William B. McGuire, Jr., in 1972. In 1981, William F.
Paulsen joined the predecessor to the Company as Chief Executive Officer and
shepherded the growth of its multifamily development and management activities.
The Company organized itself as a real estate investment trust (a "REIT") and
completed its initial public offering (the "Initial Offering") of 10,000,000
shares of common stock, par value $0.01 per share (the "Common Stock"), on
February 15, 1994 and sold an additional 1,500,000 shares upon exercise of the
underwriters' over-allotment option on March 4, 1994. On June 2, 1995, the
Company completed a follow-on public offering (the "1995 Offering") of 4,000,000
shares of Common Stock. A second follow-on public offering (the "1996 Offering")
of 5,000,000 shares of the Company's Common Stock was completed on August 7,
1996, with an additional 750,000 shares sold upon exercise of the underwriters'
over-allotment
6
7
option on August 12, 1996. In addition, the Company has adopted a dividend
reinvestment and stock purchase program for the sale of up to 2,500,000 shares
of Common Stock, pursuant to which it sells Common Stock from time to time.
On May 11, 1999, the Company adopted a common stock repurchase program pursuant
to which the Company is authorized to purchase up to an aggregate of $50 million
of outstanding Common Stock. During 1999, the Company repurchased 2,414,300
shares of Common Stock for an aggregate purchase price of approximately $47.5
million.
On August 12, 1997, the Company completed a $125 million senior unsecured debt
offering. On December 12, 1997, the Company completed an additional $30 million
senior unsecured debt offering. On May 29, 1998, the Company established a
program for the sale of up to $95 million aggregate principal amount of
Medium-Term Notes due nine months or more from the date of issuance (the "MTN
Program"). During 1998 and 1999, the Company issued notes with an aggregate
principal amount of $80 million in connection with the MTN Program. The Company
intends to establish a similar program for the sale of Medium-Term Notes under a
shelf registration statement filed with the Securities and Exchange Commission
in July 1999, pursuant to which the Company may sell debt securities with an
aggregate public offering price of up to $250 million.
The Company, a Maryland corporation, is a self-administered and self-managed
REIT. The Company's Common Stock is listed on the New York Stock Exchange (the
"NYSE") under the symbol "SMT". The executive offices of the Company are located
at 212 South Tryon Street, Suite 500, Charlotte, North Carolina 28281. The
Company's telephone number is (704) 334-3000 and its facsimile number is (704)
333-8340. The Company also maintains offices in Atlanta, Georgia; Tampa,
Florida; Bethesda, Maryland; Ft. Lauderdale, Florida; Dallas, Texas and Raleigh,
North Carolina.
THE OPERATING PARTNERSHIP
The Operating Partnership was formed on January 14, 1994, and is the entity
through which principally all of the Company's business is conducted. The
Company controls the Operating Partnership as the sole general partner and as
the holder of 85.6% of the common units of limited partnership interest in the
Operating Partnership ("Units")as of December 31, 1999. As the sole general
partner of the Operating Partnership, the Company has the exclusive power to
manage and conduct the business of the Operating Partnership, subject to certain
voting rights of holders (including the Company) of the Units, including the
consent of holders (including the Company) of 85% of the Units in connection
with a sale, transfer or other disposition of all or substantially all of the
assets of the Operating Partnership, or any other transaction which would result
in the recognition of a significant taxable gain to the holders of Units, and
subject to certain voting rights of holders of the preferred units of limited
partnership interest discussed below. Subject to the rights and preferences of
the outstanding preferred units, the Company's general and limited partnership
interests in the Operating Partnership as of December 31, 1999, entitle it to
share in 85.6% of the cash distributions from, and in the profits and losses of,
the Operating Partnership.
Each Unit may be redeemed by the holder thereof for cash equal to the fair
market value of a share of the Company's Common Stock or, at the option of the
Company, an equivalent number of shares of Common Stock. The Company presently
determines on a case-by-case basis whether it will elect to issue shares of
Common Stock in connection with a redemption of Units rather than paying cash.
With each redemption of Units for Common Stock, the Company's percentage
ownership interest in the Operating Partnership will increase. Similarly, when
the Company acquires a share of Common Stock under its common stock repurchase
program or otherwise, it simultaneously disposes of one Unit of the Operating
Partnership. In addition, whenever the Company issues shares of Common Stock for
cash, the Company will contribute any net proceeds therefrom to the Operating
Partnership and the Operating Partnership will issue an equivalent number of
Units to the Company.
On April 29, 1999, the Operating Partnership completed a private placement of
3.4 million of its 8.95% Series B Cumulative Redeemable Perpetual Preferred
Units to two institutional investors. On September 3,
7
8
1999, the Operating Partnership completed a private placement of 2.2 million of
its 8.75% Series C Cumulative Redeemable Perpetual Preferred Units to an
institutional investor.
The Operating Partnership cannot be terminated, except in connection with a sale
of all or substantially all of the assets of the Company, for a period of 99
years from the date of formation without a vote of the limited partners of the
Operating Partnership.
ITEM 2. PROPERTIES
THE COMMUNITIES
The Company owns and operates through the Operating Partnership 65 completed
Communities and four Communities which are currently under construction and in
lease-up, for a total of 17,673 apartment homes. Forty-six of the Communities
have been completed since January 1, 1990 and, as of December 31, 1999, the
average age of the completed Communities was approximately 7.6 years. The
following is a summary of Communities by market:
NUMBER OF % OF TOTAL
NUMBER OF APARTMENT APARTMENT
COMMUNITIES HOMES HOMES
----------- --------- ----------
Washington, DC.................................... 10 2,922 16.5%
Atlanta, Georgia.................................. 7 2,302 13.0%
South Florida..................................... 7 2,019 11.4%
Charlotte, North Carolina......................... 13 1,980 11.2%
Raleigh, North Carolina........................... 7 1,720 9.7%
Dallas, Texas..................................... 4 1,359 7.7%
Orlando, Florida.................................. 3 926 5.2%
Richmond, Virginia................................ 3 862 4.9%
Austin, Texas..................................... 2 856 4.9%
Cincinnati, Ohio.................................. 2 559 3.2%
Central North Carolina............................ 3 480 2.7%
Tampa, Florida.................................... 3 480 2.7%
Columbus, Ohio.................................... 2 428 2.4%
Indianapolis, Indiana............................. 1 314 1.8%
San Antonio, Texas................................ 1 250 1.4%
Philadelphia, Pennsylvania........................ 1 216 1.3%
----------- ------ ---------
69 17,673 100.0%
=========== ====== =========
All of the Communities target middle to upper income apartment renters as
customers and have amenities, apartment home sizes and mixes consistent with the
desires of this resident population. The Communities are owned in fee simple and
are located in six states throughout the southeastern, southwestern and
mid-atlantic United States (Florida, Georgia, Maryland, North Carolina, Texas,
Virginia, as well as in Delaware, Ohio, Indiana and Pennsylvania. The following
table highlights certain information regarding the Communities:
8
9
AVERAGE AVERAGE
AVERAGE AVERAGE MONTHLY MONTHLY
AVERAGE PHYSICAL PHYSICAL RENTAL RENTAL
NUMBER OF YEAR APARTMENT OCCUPANCY OCCUPANCY REVENUE REVENUE
MARKET AREA/COMMUNITY LOCATION APARTMENTS COMPLETED SIZE 1999(1) 1998(1) 1999(2) 1998(2)
--------------------- ------------------- ---------- --------- --------- --------- --------- ------- -------
ATLANTA
Summit Glen................... Atlanta, GA 242 1992 983 93.7 94.9 $ 936 $ 886
Summit Village................ Marietta, GA 323 1991 984 93.8 94.2 771 747
---------- --------- --------- --------- ------- -------
ATLANTA WEIGHTED AVERAGE........................... 565 984 93.8 94.5 842 806
CENTRAL NORTH CAROLINA
Summit Creekside.............. Hickory, NC 118 1981 1,006 94.5 94.9 624 612
Summit Eastchester............ High Point, NC 172 1981 947 94.0 94.8 635 618
Summit Sherwood............... Winston-Salem, NC 190 1968 1,028 93.3 92.3 588 594
---------- --------- --------- --------- ------- -------
CENTRAL NORTH CAROLINA
WEIGHTED AVERAGE.................................. 480 994 93.8 93.9 614 607
CINCINNATI
Summit Blue Ash............... Blue Ash, OH 242 1992 1,158 94.8 92.7 886 883
Summit Park................... Forest Park, OH 317 1989 963 93.6 92.8 683 661
---------- --------- --------- --------- ------- -------
CINCINNATI WEIGHTED AVERAGE........................ 559 1,047 94.1 92.8 771 757
CHARLOTTE
Summit Arbors................. Charlotte, NC 120 1986 944 94.6 96.4 890 833
Summit Crossing............... Charlotte, NC 128 1985 978 93.1 94.1 707 678
Summit Foxcroft(4)............ Charlotte, NC 156 1979 940 90.5 92.2 702 686
Summit Norcroft............... Charlotte, NC 162 1991 1,112 91.5 93.1 807 788
Summit Radbourne.............. Charlotte, NC 225 1991 1,006 90.9 92.8 793 777
Summit Simsbury............... Charlotte, NC 100 1985 874 90.1 93.7 793 776
Summit Touchstone............. Charlotte, NC 132 1986 899 90.6 93.8 715 707
---------- --------- --------- --------- ------- -------
CHARLOTTE WEIGHTED AVERAGE......................... 1,023 975 91.5 93.6 772 750
INDIANAPOLIS
Summit River Crossing......... Indianapolis, IN 314 1996 1,060 91.8 92.5 884 863
ORLANDO
Summit Sand Lake.............. Orlando, FL 416 1995 1,035 92.8 93.1 824 797
RALEIGH
Summit Highland............... Raleigh, NC 172 1987 986 95.1 95.0 723 712
Summit Mayfaire............... Raleigh, NC 144 1995 1,047 95.4 93.2 773 783
Summit Square................. Durham, NC 362 1990 925 92.0 91.7 785 786
---------- --------- --------- --------- ------- -------
RALEIGH WEIGHTED AVERAGE........................... 678 966 93.5 92.9 767 766
RICHMOND
Summit Breckenridge........... Glen Allen, VA 300 1987 928 95.4 91.8 753 747
Summit Stony Point............ Richmond, VA 250 1986 1,045 94.3 93.8 799 786
Summit Waterford.............. Midlothian, VA 312 1990 995 93.8 92.9 742 732
---------- --------- --------- --------- ------- -------
RICHMOND WEIGHTED AVERAGE.......................... 862 986 94.5 92.8 762 753
SOUTH FLORIDA
Summit Aventura............... Aventura, FL 379 1995 1,106 95.5 91.1 1,087 1,076
Summit Del Ray................ Delray Beach, FL 252 1993 968 92.9 92.0 882 893
Summit Palm Lake.............. W. Palm Beach, FL 304 1992 919 93.5 93.4 809 796
Summit Plantation I........... Plantation, FL 262 1995 1,283 92.6 92.3 1,045 1,040
Summit Portofino.............. Broward County, FL 322 1995 1,307 93.4 93.7 1,000 985
---------- --------- --------- --------- ------- -------
SOUTH FLORIDA WEIGHTED AVERAGE..................... 1,519 1,119 93.7 92.5 972 964
TAMPA
Summit Gateway................ St. Petersburg, FL 212 1987 828 96.7 94.9 683 671
Summit Lofts.................. Palm Harbour, FL 200 1990 1,045 93.9 93.4 762 737
Summit Walk................... Tampa, FL 68 1993 1,614 94.0 92.9 1,119 1,133
---------- --------- --------- --------- ------- -------
TAMPA WEIGHTED AVERAGE............................. 480 1,030 95.2 94.0 778 764
WASHINGTON, D.C
Summit Belmont................ Fredricksburg, VA 300 1987 881 95.5 95.4 700 675
Summit Fair Oaks.............. Fairfax, VA 246 1990 938 98.2 95.8 1,012 938
Summit Meadow................. Columbia, MD 178 1990 1,020 94.7 94.2 971 928
Summit Reston................. Reston, VA 418 1987 854 97.1 93.3 1,044 1,014
Summit Windsor................ Frederick, MD 453 1989 903 92.7 93.6 763 727
---------- --------- --------- --------- ------- -------
WASHINGTON, D.C. WEIGHTED AVERAGE.................. 1,595 905 95.4 94.3 886 847
WILMINGTON/NEWARK, DE
Summit Pike Creek............. Newark, DE 264 1988 899 95.2 94.3 860 842
---------- --------- --------- --------- ------- -------
TOTAL WEIGHTED AVERAGE OF COMMUNITIES STABILIZED IN
1999 AND 1998..................................... 8,755 1,000 93.9 93.4 831 813
---------- --------- --------- --------- ------- -------
MORTGAGE
NOTES
PAYABLE AT
DECEMBER 31,
1999
MARKET AREA/COMMUNITY (IN THOUSANDS)
--------------------- --------------
ATLANTA
Summit Glen................... (3)
Summit Village................ (3)
ATLANTA WEIGHTED AVERAGE......
CENTRAL NORTH CAROLINA
Summit Creekside.............. --
Summit Eastchester............ --
Summit Sherwood............... $3,244
CENTRAL NORTH CAROLINA
WEIGHTED AVERAGE.............
CINCINNATI
Summit Blue Ash............... (3)
Summit Park................... --
CINCINNATI WEIGHTED AVERAGE...
CHARLOTTE
Summit Arbors................. --
Summit Crossing............... 4,048
Summit Foxcroft(4)............ 2,594
Summit Norcroft............... (3)
Summit Radbourne.............. 8,405
Summit Simsbury............... (5)
Summit Touchstone............. (5)
CHARLOTTE WEIGHTED AVERAGE....
INDIANAPOLIS
Summit River Crossing......... (3)
ORLANDO
Summit Sand Lake.............. 14,348
RALEIGH
Summit Highland............... (3)
Summit Mayfaire............... --
Summit Square................. (3)
RALEIGH WEIGHTED AVERAGE......
RICHMOND
Summit Breckenridge........... --
Summit Stony Point............ (6)
Summit Waterford.............. (3)
RICHMOND WEIGHTED AVERAGE.....
SOUTH FLORIDA
Summit Aventura............... --
Summit Del Ray................ (3)
Summit Palm Lake.............. (3)
Summit Plantation I........... --
Summit Portofino.............. --
SOUTH FLORIDA WEIGHTED AVERAGE
TAMPA
Summit Gateway................ (6)
Summit Lofts.................. --
Summit Walk................... --
TAMPA WEIGHTED AVERAGE........
WASHINGTON, D.C
Summit Belmont................ (6)
Summit Fair Oaks.............. --
Summit Meadow................. (3)
Summit Reston................. --
Summit Windsor................ (3)
WASHINGTON, D.C. WEIGHTED AVER
WILMINGTON/NEWARK, DE
Summit Pike Creek............. (6)
TOTAL WEIGHTED AVERAGE OF COMM
1999 AND 1998................
9
10
AVERAGE AVERAGE
AVERAGE AVERAGE MONTHLY MONTHLY
AVERAGE PHYSICAL PHYSICAL RENTAL RENTAL
NUMBER OF YEAR APARTMENT OCCUPANCY OCCUPANCY REVENUE REVENUE
MARKET AREA/COMMUNITY LOCATION APARTMENTS COMPLETED SIZE 1999(1) 1998(1) 1999(2) 1998(2)
--------------------- ------------------- ---------- --------- --------- --------- --------- ------- -------
DEVELOPED COMMUNITIES(7)
Summit Ballantyne I........... Charlotte, NC 246 1997 1,049 90.4 83.6 877 852
Summit Fairways............... Orlando, FL 240 1996 1,302 94.1 91.9 901 919
Summit Lake I................. Raleigh, NC 302 1998 1,048 93.1 73.3 877 861
Summit Norcroft II............ Charlotte, NC 54 1997 1,168 91.7 91.9 807 788
Summit Plantation II.......... Plantation, FL 240 1997 1,173 92.5 87.9 1,045 1,051
Summit on the River........... Atlanta, GA 352 1997 1,103 93.5 93.9 868 844
Summit Russett................ Laurel, MD 314 1997 958 95.6 96.1 973 912
Summit Sedgebrook I........... Charlotte, NC 248 1997 1,017 92.4 83.3 788 763
Summit Stonefield............. Yardley, PA 216 1998 1,022 98.0 96.8 1,183 1,110
---------- ---------
2,212 1,082
ACQUISITION COMMUNITIES
1998 Acquisitions
Summit St. Clair.............. Atlanta, GA 336 1997 969 90.5 95.2 1,003 968
Summit Club at Dunwoody....... Atlanta, GA 324 1997 1,007 94.4 96.6 925 879
Summit Lenox.................. Atlanta, GA 433 1965 963 88.1 94.9 970 955
Summit Belcourt............... Dallas, TX 180 1994 875 95.4 97.7 1,112 N/A
Summit Buena Vista............ Dallas, TX 467 1996 925 90.6 92.1 850 N/A
Summit Camino Real............ Dallas, TX 364 1998 850 92.0 91.7 776 N/A
Summit Turtle Cove............ Dallas, TX 348 1996 869 91.0 89.2 785 N/A
Summit Arboretum.............. Austin, TX 408 1996 847 92.9 92.7 822 N/A
Summit Las Palmas(8).......... Austin, TX 448 1998 890 93.1 N/A 854 N/A
Summit Turtle Rock............ San Antonio, TX 250 1995 857 94.3 97.8 757 N/A
---------- ---------
3,558 907
---------- ---------
TOTAL WEIGHTED AVERAGE OF
STABILIZED COMMUNITIES....... 14,525 990
---------- ---------
COMMUNITIES IN LEASE-UP(9)
Summit Ballantyne II.......... Charlotte, NC 154 1998 1,057 90.7 46.1 877 802
Summit Deer Creek............. Atlanta, GA 292 2000 1,187 8.1 N/A 235 N/A
Summit Doral.................. Miami, FL 260 1999 1,172 63.1 8.0 825 N/A
Summit Fair Lakes I........... Fairfax, VA 370 1999 996 90.3 20.3 1,075 1,108
Summit Fair Lakes II.......... Fairfax, VA 160 1999 996 71.7 N/A 960 N/A
Summit Fairview............... Charlotte, NC 135 1983 1,036 87.5 92.1 818 797
Summit Governor's Village..... Raleigh, NC 242 1999 1,134 83.7 28.3 854 714
Summit Hunter's Creek......... Orlando, FL 270 2000 1,082 8.1 N/A 97 N/A
Summit Lake II................ Raleigh, NC 144 1999 1,101 51.6 N/A 815 N/A
Summit Largo.................. Largo, MD 219 2000 1,042 42.5 N/A 563 N/A
Summit New Albany I........... Columbus, OH 301 1998 1,235 83.2 27.8 821 915
Summit New Albany II.......... Columbus, OH 127 2000 1,235 17.9 N/A 230 N/A
Summit Sedgebrook II.......... Charlotte, NC 120 1999 1,017 59.7 N/A 693 N/A
Summit Westwood............... Raleigh, NC 354 1999 1,112 68.3 13.7 624 N/A
---------- ---------
3,148 1,105
---------- ---------
TOTAL COMMUNITIES.................................. 17,673 1,011
========== =========
MORTGAGE
NOTES
PAYABLE AT
DECEMBER 31,
1999
MARKET AREA/COMMUNITY (IN THOUSANDS)
--------------------- --------------
DEVELOPED COMMUNITIES(7)
Summit Ballantyne I........... --
Summit Fairways............... --
Summit Lake I................. --
Summit Norcroft II............ (3)
Summit Plantation II.......... --
Summit on the River........... --
Summit Russett................ --
Summit Sedgebrook I........... --
Summit Stonefield............. --
ACQUISITION COMMUNITIES
1998 Acquisitions
Summit St. Clair.............. (3)
Summit Club at Dunwoody....... --
Summit Lenox.................. --
Summit Belcourt............... 9,552
Summit Buena Vista............ 25,393
Summit Camino Real............ --
Summit Turtle Cove............ 16,806
Summit Arboretum.............. 19,915
Summit Las Palmas(8).......... --
Summit Turtle Rock............ 10,824
TOTAL WEIGHTED AVERAGE OF
STABILIZED COMMUNITIES.......
COMMUNITIES IN LEASE-UP(9)
Summit Ballantyne II.......... --
Summit Deer Creek............. --
Summit Doral.................. --
Summit Fair Lakes I........... --
Summit Fair Lakes II.......... --
Summit Fairview............... --
Summit Governor's Village..... --
Summit Hunter's Creek......... --
Summit Lake II................ --
Summit Largo.................. --
Summit New Albany I........... --
Summit New Albany II.......... --
Summit Sedgebrook II.......... --
Summit Westwood............... --
TOTAL COMMUNITIES.............
(1) Average physical occupancy is defined as the number of apartment homes
occupied divided by the total number of apartment homes contained in the
Communities, expressed as a percentage. Average physical occupancy has been
calculated using the average occupancy that existed on Sunday during each
week of the period.
(2) Represents the average monthly net rental revenue per occupied apartment
home.
(3) Collateral for fixed rate mortgage of $143.7 million.
(4) Summit Foxcroft is held by a partnership in which the Company is a 75%
managing general partner.
(5) Collateral for a fixed rate mortgage of $8.4 million.
(6) Collateral for letters of credit in an aggregate amount of $39.5 million
which serve as collateral for $38.4 million in tax exempt bonds.
(7) Communities that were stabilized in 1999 but were stabilized subsequent to
January 1, 1997.
(8) Summit Las Palmas was acquired effective December 31, 1998 and, accordingly,
no average occupancy or average rent information is available for 1998.
(9) Communities that were in lease-up during 1999. These Communities have, and
are, leasing at a rate consistent with the Company's expectations. As with
any community in lease-up, there are uncertainties
10
11
and risks associated with the Company's communities in lease-up. While the
Company has estimated completion and stabilization budgets and target dates
based on what it believes are reasonable assumptions in light of current
conditions, there can be no assurance that actual costs will not exceed
current budgets or that the Company will not experience delays in reaching
stabilization of such Communities.
Information with respect to total debt secured by thirty of the Company's
Communities having an aggregate net book value of $410.3 million as of December
31, 1999, is as follows (in thousands):
FIXED RATE VARIABLE RATE
-------------- -------------
Total principal.................................. $ 267,244 $ 38,388
Interest rates range from........................ 6.24% to 9.80% 6.90%(1)
Weighted average interest rate................... 6.70% 6.90%(1)
Annual debt service.............................. $ 23,080 $ 2,950(2)
Scheduled annual maturities of secured debt is as follows:
2000........................................................ $ 6,497
2001........................................................ 6,698
2002........................................................ 15,186
2003........................................................ 7,424
2004........................................................ 7,857
Thereafter.................................................. 261,970
--------
Total....................................................... $305,632
========
(1) Interest rate as of December 31, 1999.
(2) Annual debt service for variable rate loans represents 1999 costs and
includes letter of credit fees and other bond related costs.
Each Community has many of the following features: swimming pools, tennis
courts, racquetball courts, volleyball courts, saunas, whirlpools, fitness
facilities, picnic areas, large clubhouses and convenient parking facilities.
Most of the apartment homes offer amenities that include spacious open living
areas, sunrooms, patios or balconies, sunken living rooms, fireplaces, built-in
shelves or entertainment centers, large storage areas or walk-in closets,
vaulted ceilings, ceiling fans and separate in-home laundry facilities or
laundry hook-ups. In addition to these physical amenities, each Community has
its own highly-trained and experienced on-site management and maintenance staff
to ensure that courteous and responsive service is provided to its residents.
COMMUNITY MANAGEMENT
Each of the Communities is operated by the Company's property management staff.
The management team for each Community includes supervision by a regional
vice-president and regional property manager, as well as on-site management,
maintenance personnel and an off-site support staff. Community management teams
perform leasing and rent collection functions and coordinate resident services.
All personnel are extensively trained and experienced and are encouraged to
continue their education through both Company-designed and outside courses.
ITEM 3. LEGAL PROCEEDINGS
Neither the Company nor any of the Communities is presently subject to any
material litigation nor, to the Company's knowledge, is any litigation
threatened against the Company or any of the Communities, other than routine
actions for negligence or other claims and administrative proceedings arising in
the ordinary course of business, some of which are expected to be covered by
liability insurance and all of which collectively are not expected to have a
material adverse effect on the business or financial condition or results of
operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NONE
11
12
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock began trading on the NYSE on February 8, 1994 under
the symbol "SMT". The following table sets forth the quarterly high and low
sales prices per share reported on the NYSE:
1999 1998
--------------- ---------------
QUARTER HIGH LOW HIGH LOW
------- ------ ------ ------ ------
January 1 through March 31.................................. $18.50 $16.00 $22.00 $19.75
April 1 through June 30..................................... 20.25 16.50 21.31 18.88
July 1 through September 30................................. 20.63 18.94 19.56 16.50
October 1 through December 31............................... 19.94 16.50 19.38 16.81
On March 10, 2000, the last reported sale price of the Common Stock on the NYSE
was $19.0625. On March 10, 2000, there were 1,528 holders of record of
26,429,884 shares of the Company's Common Stock.
The Company declared a dividend of $0.4175 per share of Common Stock for each of
the four quarters in 1999, which was paid on May 13, 1999 for the first quarter,
August 14, 1999 for the second quarter, November 12, 1999 for the third quarter
and February 14, 2000 for the fourth quarter.
The Company declared a dividend of $0.4075 per share of Common Stock for each of
the four quarters in 1998, which was paid on May 15, 1998 for the first quarter,
August 14, 1998 for the second quarter, November 16, 1998 for the third quarter,
and February 15, 1999 for the fourth quarter.
The Company intends to continue to make regular quarterly dividends to holders
of shares of Common Stock. Future dividends will be declared at the discretion
of the Board of Directors and will depend on actual cash flow of the Company,
its financial condition, capital requirements, the annual distribution
requirements under the REIT provisions of the Internal Revenue Code (see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Recently Enacted Legislation" on page 33), and such other factors
as the Board of Directors may deem relevant. The Board of Directors may modify
the Company's dividend policy from time to time.
In connection with the purchase on November 4, 1998 of a portfolio of
multifamily properties in Texas (the "Ewing Portfolio") consisting of seven
Communities located in Dallas, Austin and San Antonio, the Company issued
2,074,615 shares of Common Stock (valued at approximately $37.3 million at the
time of the acquisition) to the sellers of the Ewing Portfolio in partial
consideration of their interest in the Communities. Such shares of Common Stock
were issued in reliance on an exemption from registration under Section 4(2) of
the Securities Act of 1933, as amended (the "Securities Act"), and rules and
regulations promulgated thereunder. In light of information obtained by the
Company in connection with the transaction, management of the Company believes
that the Company may rely on such exemption.
12
13
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected consolidated financial and other
information on a consolidated historical basis for the Company as of and for
each of the years in the five-year period ended December 31, 1999. This table
should be read in conjunction with the Consolidated Financial Statements of
Summit Properties Inc. and the Notes thereto included elsewhere herein.
SELECTED FINANCIAL DATA
SUMMIT PROPERTIES INC. (HISTORICAL)
YEARS ENDED DECEMBER 31,
----------------------------------------------------------
1999 1998 1997 1996 1995
---------- ---------- --------- --------- --------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AND PROPERTY
INFORMATION)
OPERATING INFORMATION:
Revenue
Rental............................... $ 162,859 $ 137,961 $ 110,105 $ 89,093 $ 70,950
Interest and other................... 13,989 9,608 6,572 5,396 4,044
---------- ---------- --------- --------- --------
Total........................ 176,848 147,569 116,677 94,489 74,994
---------- ---------- --------- --------- --------
Property operating and maintenance
expense (before depreciation and
amortization)........................ 57,318 51,550 42,032 35,226 28,012
Interest expense....................... 38,274 33,506 21,959 17,138 14,802
Depreciation and amortization.......... 34,432 28,997 22,652 18,208 15,141
General and administrative expense..... 3,876 3,861 2,740 2,557 1,949
(Income) loss from equity
investments.......................... 615 328 (274) 173 39
---------- ---------- --------- --------- --------
Total........................ 134,515 118,242 89,109 73,302 59,943
---------- ---------- --------- --------- --------
Income before gain on sale of real
estate assets, extraordinary items
and minority interest of unitholders
in Operating Partnership............. 42,333 29,327 27,568 21,187 15,051
Gain on sale of real estate assets..... 17,427 37,148 4,366 -- --
---------- ---------- --------- --------- --------
Income before extraordinary items,
minority interest of unitholders in
Operating Partnership and dividends
to preferred unitholders in Operating
Partnership.......................... $ 59,760 $ 66,475 $ 31,934 $ 21,187 $ 15,051
========== ========== ========= ========= ========
Net Income............................. $ 45,745 $ 56,375 $ 27,116 $ 16,948 $ 11,819
========== ========== ========= ========= ========
Income per share before extraordinary
items -- basic and diluted........... $ 1.65 $ 2.28 $ 1.17 $ 0.92 $ 0.83
========== ========== ========= ========= ========
Net income per share -- basic and
diluted.............................. $ 1.65 $ 2.26 $ 1.17 $ 0.90 $ 0.80
========== ========== ========= ========= ========
Dividends per share.................... $ 1.67 $ 1.63 $ 1.59 $ 1.55 $ 1.51
========== ========== ========= ========= ========
Weighted average shares
outstanding -- basic................. 27,698 24,935 23,146 18,888 14,750
========== ========== ========= ========= ========
Weighted average shares and units
outstanding -- basic................. 32,135 29,141 27,258 22,914 18,112
========== ========== ========= ========= ========
BALANCE SHEET INFORMATION:
Real estate, before accumulated
depreciation......................... $1,284,818 $1,206,536 $ 913,033 $ 704,779 $586,264
Total assets........................... 1,217,413 1,198,664 825,293 634,991 533,252
Total long-term debt................... 649,632 726,103 474,673 309,933 297,010
Stockholders' equity................... 327,335 358,925 265,839 257,214 175,454
13
14
YEARS ENDED DECEMBER 31,
----------------------------------------------------------
1999 1998 1997 1996 1995
---------- ---------- --------- --------- --------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AND PROPERTY
INFORMATION)
OTHER INFORMATION:
Cash flow provided by (used in):
Operating activities................. $ 55,754 $ 63,808 $ 55,947 $ 41,176 $ 30,994
Investing activities................. (36,484) (219,170) (175,907) (103,971) (63,734)
Financing activities................. (17,977) 154,636 119,858 63,579 34,440
Funds from Operations(1)............... 70,707 58,242 50,201 39,391 30,148
Total completed communities (at end of
period).............................. 65 66 61 51 46
Total apartment homes developed(2)..... 1,650 973 1,454 1,061 379
Total apartment homes acquired......... -- 3,557 1,434 262 2,025
Total apartment homes (at end of
period)(3)........................... 16,765 16,631 14,462 11,788 10,465
Ratio of earnings to fixed
charges(4)........................... 1.85 2.52 1.93 1.79 1.66
(1) The Company considers funds from operations ("FFO") to be an appropriate
measure of performance of an equity REIT. The Company computes FFO in
accordance with standards established by the National Association of Real
Estate Investment Trusts ("NAREIT"). FFO, as defined by NAREIT, represents
net income (loss) excluding gains or losses from sales of property, plus
depreciation of real estate assets, and after adjustments for unconsolidated
partnerships and joint ventures, all determined on a consistent basis in
accordance with generally accepted accounting principles ("GAAP"). The
Company believes that Funds from Operations is helpful to investors as a
measure of the performance of an equity REIT because, along with cash flows
from operating activities, financing activities and investing activities, it
provides investors with an understanding of the ability of the Company to
incur and service debt and to make capital expenditures. FFO should not be
considered as an alternative to net income (determined in accordance with
GAAP) as an indication of the Company's financial performance or to cash
flows from operating activities (determined in accordance with GAAP) as a
measure of the Company's liquidity, nor is it indicative of funds available
to fund the Company's cash needs, including its ability to make dividend or
distribution payments. FFO is calculated as follows (dollars in thousands):
YEARS ENDED DECEMBER 31,
-----------------------------------------------
1999 1998 1997 1996 1995
------- ------- ------- ------- -------
Income before gain on sale of real estate
assets, minority interest of unitholders in
Operating Partnership and extraordinary
items...................................... $35,635 $29,327 $27,568 $21,187 $15,051
Real estate depreciation..................... 35,072 28,915 22,633 18,204 15,097
------- ------- ------- ------- -------
Funds from Operations........................ $70,707 $58,242 $50,201 $39,391 $30,148
======= ======= ======= ======= =======
(2) Represents the total number of apartment homes in Communities completed and
owned by the Company during the period.
(3) Represents the total number of apartment homes in Communities completed and
owned by the Company at the end of the period.
(4) The ratios of earnings to fixed charges were computed by dividing earnings
by fixed charges. For this purpose, earnings consist of pre-tax income from
continuing operations (including gains on sale of real estate) plus fixed
charges (excluding capitalized interest). Fixed charges consist of interest
expense (whether expensed or capitalized), dividends to preferred
unitholders in the Operating Partnership, the estimated interest component
of rent expense, and the amortization of debt issuance costs. To date, the
Company has not issued any preferred stock; therefore, the ratios of
earnings to combined fixed charges and preferred stock dividend requirements
are the same as the ratios of earnings to fixed charges presented.
14
15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD-LOOKING STATEMENTS
This Form 10-K contains certain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, including, without limitation,
statements relating to the operating performance of fully stabilized
Communities, the development, acquisition or disposition of properties,
estimated net asset value, anticipated construction completion and lease-up
dates, and estimated development costs, as well as the costs, timing and
effectiveness of Year 2000 compliance. You can identify forward-looking
statements by the use of the words "believe," "expect," "anticipate," "intend,"
"estimate," "assume" and other similar expressions which predict or indicate
future events and trends and which do not relate to historical matters. You
should not rely on forward-looking statements, because they involve known and
unknown risks, uncertainties and other factors, some of which are beyond the
control of the Company. These risks, uncertainties and other factors may cause
the actual results, performance or achievements of the Company to be materially
different from the anticipated future results, performance or achievements
expressed or implied by the forward-looking statements. Factors which could have
a material adverse effect on the operations and future prospects of the Company
include, but are not limited to: economic conditions generally and the real
estate market specifically, legislative/regulatory changes (including changes to
laws governing the taxation of real estate investment trusts ("REITs")),
availability of capital, interest rates, uncertainties associated with the
Company's development activities, the failure of acquisitions to yield expected
results, construction delays due to unavailability of materials, weather
conditions or other delays, competition, supply and demand for apartment
communities in the Company's current and proposed market areas, expenses of or
issues related to Year 2000 compliance, changes in generally accepted accounting
principles, or policies and guidelines applicable to REITs, and those factors
discussed in the second paragraph under the heading "Operating Performance of
the Company's Fully Stabilized Communities," in the section entitled "Net Asset
Value," in the section entitled "Development Activity -- Certain Factors
Affecting the Performance of Development Communities," and in the section
entitled "Year 2000" on pages 17, 28, 30 and 31 respectively, of this Form 10-K.
These risks and uncertainties should be considered in evaluating forward-looking
statements and undue reliance should not be placed on such statements.
The following discussion should be read in conjunction with the Consolidated
Financial Statements of Summit Properties Inc. and the Notes thereto appearing
elsewhere herein.
HISTORICAL RESULTS OF OPERATIONS
The Company's net income is generated primarily from operations of its
Communities. The changes in operating results from period to period reflect
changes in existing Community performance and changes in the number of apartment
homes due to development, acquisition and disposition of Communities. Where
appropriate, comparisons are made on a "fully stabilized Communities,"
"acquisition Communities," "stabilized development Communities", "Communities in
lease-up" and "disposition Communities" basis in order to adjust for changes in
the number of apartment homes. A Community is deemed to be "stabilized" when it
has attained a physical occupancy level of at least 93%. A Community that the
Company has acquired is deemed "fully stabilized" when owned by the Company for
one year or more as of the beginning of the year. A Community that the Company
has developed is deemed "fully stabilized" when stabilized for the two prior
years as of the beginning of the current year. A Community is deemed to be a
"stabilized development" when stabilized as of the beginning of the current year
but not the entire two prior years. All Communities information presented is
before real estate depreciation and amortization expense. Communities' average
physical occupancy presented is defined as the number of apartment homes
occupied divided by the total number of apartment homes contained in the
Communities, expressed as a percentage. Average physical occupancy has been
calculated using the average of the occupancy that existed on Sunday during each
week of the period. Average monthly rental revenue presented represents the
average monthly net rental revenue per occupied apartment home. The Company's
methodology for calculating average physical occupancy and
15
16
average monthly rental revenue may differ from the methodology used by other
apartment companies, and accordingly, may not be comparable to such other
apartment companies.
Effective January 1, 1999, the Company implemented prospectively a new
accounting policy whereby the cost of carpet replacements is capitalized and
depreciated over their estimated useful lives. Previously, the cost of carpet
replacement had been expensed. The Company believes that the newly adopted
accounting policy is preferable as it is consistent with standards and practices
utilized by the majority of the Company's peers and provides a better matching
of expenses with the related benefit of the expenditure. The change in
accounting policy is being treated prospectively as a change in accounting
principle inseparable from a change in accounting estimate. The effect of this
change for the year ended December 31, 1999 was a net increase in net income of
$1.4 million. Comparative property operating information included in this
section for the years ended December 31, 1998 and 1997 has been adjusted to
reflect the 1999 change in accounting policy. Carpet replacement expenditures
for the entire portfolio of communities for the years ended December 31, 1999,
1998 and 1997 were $1.8 million, $1.7 million and $1.7 million, respectively.
Results of Operations for the Years Ended December 31, 1999, 1998 and 1997
Income before minority interest of common unitholders in the Operating
Partnership, gain on sale of real estate assets and extraordinary items
increased from 1997 ($27.6 million) to 1998 ($29.3 million) and from 1998 to
1999 ($42.3 million) primarily due to increased property operating income at
stabilized Communities, as well as new sources of income associated with
acquisition Communities and Communities in lease-up, partially offset by a
decrease in property income due to disposition of Communities and an increase in
depreciation and interest expense.
OPERATING PERFORMANCE OF THE COMPANY'S PORTFOLIO OF COMMUNITIES
The operating performance of the Communities is summarized below (dollars in
thousands):
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
------------------------------ ------------------------------
1999 1998 % CHANGE 1998 1997 % CHANGE
-------- -------- -------- -------- -------- --------
Property revenues:
Stabilized Communities(1)......... $ 85,499 $ 82,127 4.1% $ 74,018 $ 72,013 2.8%
Acquisition Communities(2)........ 36,038 10,873 231.4% 23,709 8,137 191.4%
Stabilized Development
Communities.................... 24,166 22,013 9.8% 17,269 14,509 19.0%
Communities in lease-up........... 19,711 3,482 466.1% 14,865 2,293 548.3%
Communities sold.................. 8,115 27,161 -70.1% 15,795 19,054 -17.1%
-------- -------- -------- --------
Total property revenues............. 173,529 145,656 19.1% 145,656 116,006 25.6%
-------- -------- -------- --------
Property operating and maintenance
expense:
Stabilized Communities............ 28,216 28,096 0.4% 25,785 25,394 1.5%
Acquisition Communities........... 12,873 3,256 295.4% 7,885 2,716 190.3%
Stabilized Development
Communities.................... 7,157 6,545 9.4% 5,614 4,430 26.7%
Communities in lease-up........... 5,758 1,337 330.7% 4,728 954 395.6%
Communities sold.................. 3,314 10,572 -68.6% 5,794 6,876 -15.7%
-------- -------- -------- --------
Total property operating and
maintenance expense............... 57,318 49,806 15.1% 49,806 40,370 23.4%
-------- -------- -------- --------
Property operating income........... $116,211 $ 95,850 21.2% $ 95,850 $ 75,636 26.7%
======== ======== ======== ========
Apartment homes, end of period...... 17,673 18,003 -1.8% 18,003 14,981 20.2%
======== ======== ======== ========
(1) Includes Communities which were stabilized during the entire period for each
of the comparable periods presented.
(2) The 1999 and 1998 comparison includes the Communities acquired in 1998. The
1998 and 1997 comparison includes Communities acquired in 1998 and 1997.
16
17
A summary of the Company's apartment homes for the years ended December 31,
1999, 1998 and 1997 is as follows:
1999 1998 1997
------ ------ ------
Apartment homes at the beginning of the year................ 18,003 14,981 12,455
Acquisitions................................................ -- 3,558 1,434
Developments which began rental operations during the
year...................................................... 1,188 1,825 1,306
Sale of apartment homes..................................... (1,518) (2,361) (214)
------ ------ ------
Apartment homes at the end of the year...................... 17,673 18,003 14,981
====== ====== ======
OPERATING PERFORMANCE OF THE COMPANY'S FULLY STABILIZED COMMUNITIES
The operating performance of the Communities stabilized during the entire period
in both of the comparable periods presented is summarized below (dollars in
thousands except average monthly rental revenue):
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
---------------------------- ----------------------------
1999 1998 % CHANGE 1998 1997 % CHANGE
------- ------- -------- ------- ------- --------
Property revenues:
Rental................................ $80,163 $77,800 3.0% $70,111 $68,558 2.3%
Other................................. 5,336 4,327 23.3% 3,907 3,455 13.1%
------- ------- ------- -------
Total property revenues................. 85,499 82,127 4.1% 74,018 72,013 2.8%
------- ------- ------- -------
Property operating and maintenance
expense:
Personnel............................. 6,539 6,185 5.7% 5,911 5,882 0.5%
Advertising and promotion............. 1,154 1,179 -2.1% 1,057 1,030 2.6%
Utilities............................. 3,976 3,919 1.5% 3,216 3,123 3.0%
Building repairs and maintenance(1)... 4,877 4,780 2.0% 4,525 4,651 -2.7%
Real estate taxes and insurance....... 8,117 8,495 -4.4% 7,058 6,849 3.1%
Property supervision.................. 2,134 2,012 6.1% 1,772 1,739 1.9%
Other operating expense............... 1,419 1,526 -7.0% 2,246 2,120 5.9%
------- ------- ------- -------
Total property operating and maintenance
expense............................... 28,216 28,096 0.4% 25,785 25,394 1.5%
------- ------- ------- -------
Property operating income............... $57,283 $54,031 6.0% $48,233 $46,619 3.5%
======= ======= ======= =======
Average physical occupancy.............. 93.9% 93.4% 0.5% 93.3% 93.3% 0.0%
======= ======= ======= =======
Average monthly rental revenue.......... $ 831 $ 813 2.2% $ 763 $ 739 3.2%
======= ======= ======= =======
Number of apartment homes............... 8,755 8,755 8,424 8,424
======= ======= ======= =======
Number of apartment communities......... 36 36 39 39
======= ======= ======= =======
(1) Effective January 1, 1999, the Company implemented prospectively a new
accounting policy whereby expenditures for carpet replacement are
capitalized. Previously, the cost of carpet replacement had been expensed.
While the 1998 and 1997 historical financial statements have not been
restated to reflect the change, for comparative purposes only, fully
stabilized Communities' building repairs and maintenance cost for the years
ended December 31, 1998 and 1997 has been adjusted in the table above to
reflect the new policy. Carpet replacement costs for comparison of the years
ended December 31, 1999 and 1998 were $1.3 million and $1.1 million,
respectively. Carpet replacement costs for comparison of the years ended
December 31, 1998 and 1997 were $1.3 million and $1.3 million, respectively.
Rental and other revenue increased from 1998 to 1999 due to higher rental rates,
higher occupancy rates and increased revenue from sources other than rental
income such as telephone, cable and water submeter income. The 4.1% property
revenue growth rate was higher than the prior year rate of growth primarily as a
result of a stronger demand in the markets in which the Company operates. The
higher growth rate was especially noticeable in the Washington, DC, Atlanta and
South Florida markets. In 2000, the Company expects the rate of growth to
decline due to more difficult year over year comparisons and a different fully
stabilized portfolio
17
18
composition. The Company believes its expectations relative to property revenue
growth are based on reasonable assumptions as to future economic conditions and
the quantity of competitive multi-family apartment communities in the markets in
which the Company does business. However, there can be no assurance that actual
results will not differ from these assumptions, which could result in a lower
property revenue growth rate.
Property operating and maintenance expenses were relatively stable from 1998 to
1999, increasing by 0.4%. As a percentage of total property revenues, property
operating and maintenance expense decreased to 33.0% from 34.2% for the years
ended December 31, 1999 and 1998, respectively.
Rental and other revenue increased from 1997 to 1998 primarily due to higher
rental rates. Property operating and maintenance expenses were relatively stable
from 1997 to 1998, increasing by 1.5%. As a percentage of total property
revenues, property operating and maintenance expenses decreased to 34.8% from
35.3% for the years ended December 31, 1998 and 1997, respectively.
OPERATING PERFORMANCE OF THE COMPANY'S ACQUISITION COMMUNITIES
Acquisition Communities for the year ended December 31, 1999 consist of the
following: Summit St. Clair, Summit Club at Dunwoody, Summit Lenox (representing
a total of 1,093 apartment homes) and seven communities (2,465 apartment homes)
which were owned by Ewing Industries and its affiliates in 1998 (the "Texas
Acquisition Communities") (a total of 3,558 apartment homes). Summit Las Palmas
(448 apartment homes), one of the seven Communities acquired from Ewing
Industries, was acquired effective December 31, 1998 and, accordingly, its
rental operations for 1998 are not reflected in the Company's financial
statements. The operations of these Communities are summarized as follows
(dollars in thousands except average monthly rental revenue):
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
------------------------ -----------------------
1999 1998 1998 1997
-------- -------- -------- -------
Property revenues:
Rental................................. $34,116 $10,427 $22,514 $7,564
Other.................................. 1,922 446 1,195 573
------- ------- ------- ------
Total property revenues.................. 36,038 10,873 23,709 8,137
Property operating and maintenance
expense(1)............................. 12,873 3,256 7,885 2,716
------- ------- ------- ------
Property operating income................ $23,165 $ 7,617 $15,824 $5,421
======= ======= ======= ======
Average physical occupancy............... 91.9% 95.6% 93.8% 92.5%
======= ======= ======= ======
Average monthly rental revenue........... $ 876 $ 936 $ 859 $ 813
======= ======= ======= ======
Number of apartment homes:
1997 Acquisitions...................... -- -- 1,290 1,044
1998 Acquisitions...................... 3,558 3,558 3,109 --
------- ------- ------- ------
Total number of apartment homes.......... 3,558 3,558 4,399 1,044
======= ======= ======= ======
(1) Effective January 1, 1999, the Company implemented prospectively a new
accounting policy whereby expenditures for carpet replacement are
capitalized. Previously, the cost of carpet replacement had been expensed.
While the 1998 and 1997 historical financial statements have not been
restated to reflect the change, for comparative purposes only, acquisition
Communities' property operating and maintenance expense for the years ended
December 31, 1998 and 1997 has been adjusted in the table above to reflect
the new policy. Carpet replacement costs for comparison of the years ended
December 31, 1999 and 1998 were $217,000 and $3,000, respectively. Carpet
replacement costs for comparison of the years ended December 31, 1998 and
1997 were $178,000 and $113,000, respectively.
18
19
(2) Since the Ewing properties were acquired mid-fourth quarter 1998, their
impact on average monthly rental revenue for the year ended December 31,
1998 were minimal. Average monthly rental revenue for the years ended
December 31, 1999 and 1998 for Summit St. Clair, Summit Club at Dunwoody and
Summit Lenox were $967 and $936, respectively.
Summit Lenox (433 apartment homes) is currently undergoing a major renovation.
Improvements include renovations to the interior and exterior of the apartment
homes, construction of a new office, clubhouse and fitness center, and ground
improvements. The renovation will require certain apartment homes to be
unavailable for rental over the course of the project. The renovation work at
Summit Lenox is expected to be completed by the end of the third quarter 2000.
As of December 31, 1999, 130 apartment homes were out of service due to the
renovation.
The unleveraged yield on investment for acquisition Communities, defined as
property operating income on an annualized basis divided by total acquisition
cost, for the year ended December 31, 1999 was 8.54%.
OPERATING PERFORMANCE OF THE COMPANY'S STABILIZED DEVELOPMENT COMMUNITIES
The Company had nine Communities with 2,212 apartment homes (Summit Ballantyne
I, Summit Fairways, Summit Lake I, Summit Norcroft II, Summit Plantation II,
Summit on the River, Summit Russett, Summit Sedgebrook I and Summit Stonefield)
which were stabilized during the entire year ended December 31, 1999 but were
stabilized subsequent to January 1, 1997. The comparison of the years ended
December 31, 1998 and 1997 represents 1,599 apartment homes (Summit Aventura,
Summit Fairways, Summit on the River, Summit River Crossing and Summit Russett).
The operating performance of these stabilized development Communities is
summarized below (dollars in thousands except average monthly rental revenue):
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
------------------------ ------------------------
1999 1998 1998 1997
-------- -------- -------- --------
Property revenues:
Rental................................ $22,557 $20,722 $16,024 $13,402
Other................................. 1,609 1,291 1,245 1,107
------- ------- ------- -------
Total property revenues................. 24,166 22,013 17,269 14,509
Property operating and maintenance
expense(1)............................ 7,157 6,545 5,614 4,430
------- ------- ------- -------
Property operating income............... $17,009 $15,468 $11,655 $10,079
======= ======= ======= =======
Average physical occupancy.............. 93.6% 88.4% 93.1% 79.5%
======= ======= ======= =======
Average monthly rental revenue.......... $ 928 $ 903 $ 927 $ 898
======= ======= ======= =======
Number of apartment homes............... 2,212 2,212 1,599 1,599
======= ======= ======= =======
(1) Effective January 1, 1999, the Company implemented prospectively a new
accounting policy whereby expenditures for carpet replacement are
capitalized. Previously, the cost of carpet replacement had been expensed.
While the 1998 and 1997 historical financial statements have not been
restated to reflect the change, for comparative purposes only, stabilized
development Communities' property operating and maintenance expense for the
years ended December 31, 1998 and 1997 has been adjusted in the table above
to reflect the new policy. Carpet replacement costs for comparison of the
years ended December 31, 1999 and 1998 were $167,000 and $79,000,
respectively. Carpet replacement costs for comparison of the years ended
December 31, 1998 and 1997 were $155,000 and $73,000, respectively.
The unleveraged yield on stabilized development Communities, defined as property
operating income divided by total development cost, for the year ended December
31, 1999 was 10.34%.
19
20
OPERATING PERFORMANCE OF THE COMPANY'S COMMUNITIES IN LEASE-UP
The Company had fourteen Communities in lease-up during the year ended December
31, 1999. A Community in lease-up is defined as one that has commenced rental
operations during the current year but was not stabilized as of the beginning of
the current year. The following is a summary of thirteen of the fourteen
Communities in lease-up during 1999 (dollars in thousands):
TOTAL ACTUAL/ % LEASED
NUMBER OF ACTUAL/ ANTICIPATED ACTUAL/ AVERAGE AS OF
APARTMENT ESTIMATED CONSTRUCTION ANTICIPATED OCCUPANCY DECEMBER 31,
COMMUNITY HOMES COST COMPLETION STABILIZATION 1999 1999
- ------------------------------------------ --------- --------- ------------ ------------- --------- ------------
Summit Ballantyne II -- Charlotte,
NC(1)................................... 154 $ 10,200 Q4 1998 Q1 1999 90.7% 94.16%
Summit New Albany I -- Columbus, OH(1).... 301 24,000 Q4 1998 Q3 1999 83.2% 97.34%
Summit Fair Lakes I -- Fairfax, VA(1)..... 370 32,800 Q1 1999 Q2 1999 90.3% 99.46%
Summit Governor's Village -- Chapel Hill,
NC(1)................................... 242 16,900 Q1 1999 Q2 1999 83.7% 92.98%
Summit Lake II -- Raleigh, NC............. 144 10,200 Q2 1999 Q3 1999 51.6% 92.36%
Summit Westwood -- Raleigh, NC(1)......... 354 24,800 Q3 1999 Q4 1999 68.3% 96.05%
Summit Sedgebrook II -- Charlotte,
NC(1)................................... 120 7,500 Q3 1999 Q1 2000 59.7% 95.45%
Summit Fair Lakes II -- Fairfax, VA(1).... 160 14,200 Q3 1999 Q1 2000 71.7% 98.75%
Summit Doral -- Miami, FL................. 260 22,800 Q4 1999 Q4 1999 63.1% 93.08%
Summit New Albany II -- Columbus, OH(2)... 127 9,800 Q1 2000 Q3 2000 17.9% 42.52%
Summit Largo -- Largo, MD(2).............. 219 18,000 Q1 2000 Q3 2000 42.5% 87.67%
Summit Hunter's Creek -- Orlando, FL(2)... 270 19,200 Q1 2000 Q4 2000 8.1% 20.74%
Summit Deer Creek -- Alpharetta, GA(2).... 292 22,200 Q2 2000 Q1 2001 8.1% 18.49%
--------- --------
3,013 $232,600
========= ========
(1) These properties stabilized during 1999.
(2) These properties are included in the Construction in Progress category at
December 31, 1999.
In addition to the Communities listed in the table above, Summit Fairview (135
apartment homes) is an existing property of the Company which is currently
undergoing a major renovation. The renovation includes upgrades of the interior
of the apartment homes (new cabinets, fixtures and other interior upgrades),
upgrades to the parking lots and landscaping, as well as exterior painting of
buildings. The renovation will require certain apartment homes to be unavailable
for rental over the course of the project. The operations of Summit Fairview are
included in lease-up Communities results due to the renovation work. The
renovation work at Summit Fairview is expected to be completed by the end of the
first quarter of 2000.
The Company had thirteen Communities with 3,131 apartment homes in lease up
during the year ended December 31, 1998 (Summit Ballantyne I, Summit Sedgebrook,
Summit Plantation II, Summit Norcroft II, Summit Stonefield, Summit Lake I,
Summit Ballantyne II, Summit New Albany I, Summit Fair Lakes I, Summit
Governor's Village, Summit Doral, Summit Westwood, and Summit Lake II).
The operating performance of the Company's lease-up Communities is summarized as
follows (dollars in thousands):
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
----------------------- -----------------------
1999 1998 1998 1997
--------- -------- --------- --------
Property revenues:
Rental revenues............................... $18,507 $3,231 $13,955 $2,096
Other property revenue........................ 1,204 251 910 197
------- ------ ------- ------
Total property revenues......................... 19,711 3,482 14,865 2,293
------- ------ ------- ------
Property operating and maintenance expense(1)... 5,758 1,337 4,728 954
------- ------ ------- ------
Property operating income....................... $13,953 $2,145 $10,137 $1,339
======= ====== ======= ======
Number of apartment homes....................... 3,148 3,148 3,131 3,131
======= ====== ======= ======
20
21
(1) Effective January 1, 1999, the Company implemented prospectively a new
accounting policy whereby expenditures for carpet replacement are
capitalized. Previously, the cost of carpet replacement had been expensed.
While the 1998 and 1997 historical financial statements have not been
restated to reflect the change, for comparative purposes only, lease-up
Communities' property operating and maintenance expense for the years ended
December 31, 1998 and 1997 has been adjusted in the table above to reflect
the new policy. Carpet replacement costs for comparison of the years ended
December 31, 1999 and 1998 were $16,000 and $21,000, respectively. Carpet
replacement costs for comparison of the years ended December 31, 1998 and
1997 were $33,000 and $1,000, respectively.
OPERATING PERFORMANCE OF THE COMPANY'S DISPOSITION COMMUNITIES
Disposition communities consist of Summit Hampton, Summit Oak, Summit Beacon
Ridge, Summit Heron's Run, Summit McIntosh, Summit Perico and Summit East Ridge
in 1999 (the "1999 Dispositions") (referred to herein using former community
names). The 1999 Dispositions resulted in the Company receiving net proceeds on
sale of $54.4 million. The 1999 to 1998 comparison below consists of the 1999
Dispositions as well as the following communities disposed during 1998 (referred
to herein using former community names): Summit Providence, Summit Springs,
Summit Old Town, Summit Creek, Summit Green, Summit Hill, Summit Hollow and
Summit Station (the "1998 Dispositions"). The 1998 to 1997 comparison below
consists of the 1998 Dispositions as well as Summit Charleston which was
disposed during 1997. The operating performance of these communities is
summarized below (dollars in thousands):
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
----------------------- ------------------------
1999 1998 1998 1997
-------- --------- --------- ---------
Property revenues:
Rental revenues.............................. $7,518 $25,782 $15,054 $18,225
Other property revenue....................... 597 1,379 741 829
------ ------- ------- -------
Total property revenues........................ 8,115 27,161 15,795 19,054
------ ------- ------- -------
Property operating and maintenance
expense(1)................................... 3,314 10,572 5,794 6,876
------ ------- ------- -------
Property operating income...................... $4,801 $16,589 $10,001 $12,178
====== ======= ======= =======
Number of apartment homes...................... 1,518 3,879 2,361 2,575
====== ======= ======= =======
(1) Effective January 1, 1999, the Company implemented prospectively a new
accounting policy whereby expenditures for carpet replacement are
capitalized. Previously, the cost of carpet replacement had been expensed.
While the 1998 and 1997 historical financial statements have not been
restated to reflect the change, for comparative purposes only, disposition
communities' property operating and maintenance expense for the years ended
December 31, 1998 and 1997 has been adjusted in the table above to reflect
the new policy. Carpet replacement costs for comparison of the years ended
December 31, 1999 and 1998 were $155,000 and $504,000, respectively. Carpet
replacement costs for comparison of the years ended December 31, 1998 and
1997 were $82,000 and $149,000, respectively.
21
22
OPERATING PERFORMANCE OF SUMMIT MANAGEMENT COMPANY
The Management Company is accounted for under the equity method of accounting.
The operating performance of the Management Company and its wholly owned
subsidiary, the Construction Company, is summarized below (dollars in
thousands):
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
-------------------------- --------------------------
1999 1998 % CHANGE 1998 1997 % CHANGE
------ ------ -------- ------ ------ --------
Revenue..................................... $8,853 $6,396 38.4% $6,396 $6,102 4.8%
Expenses:
Operating................................. 8,699 5,893 47.6 5,893 5,039 16.9
Depreciation.............................. 284 244 16.4 244 185 31.9
Amortization.............................. 289 286 1.0 286 304 (5.9)%
Interest.................................. 300 300 0.0 300 300 0.0
------ ------ ------ ------
Total expenses............................ 9,572 6,723 42.4 6,723 5,828 15.4
------ ------ ------ ------
Net income (loss) of Summit Management
Company................................... $ (719) $ (327) 119.9 $ (327) $ 274 (219.3)%
====== ====== ====== ======
The change in revenue was a result of higher revenues from managing an increased
weighted average number of the Company's Communities and higher revenues from
construction activity in 1997 compared to 1998 and in 1998 compared to 1999. The
increase in operating expenses was a result of higher construction activity and
increased personnel at the Management Company in order to better support the
Company's growth objectives, including improving the operating performance of
its stabilized Communities.
Total average third party apartment homes under management were 2,435, 3,310 and
5,164 during the years ended December 31, 1999, 1998 and 1997, respectively.
Property management fees include $1.3 million, $1.2 million and $1.7 million of
fees from third parties for the years ended December 31, 1999, 1998 and 1997,
respectively. Property management fees from third parties as a percentage of
total property management revenues were 20.3%, 23.3% and 35.2% for the years
ended December 31, 1999, 1998 and 1997, respectively. The Company expects third
party management revenue as a percentage of total property management revenues
to continue to decline.
All of the Construction Company's revenues are from contracts with the Company.
OTHER INCOME AND EXPENSES
Interest income increased by $1.9 million to $3.0 million in 1999 compared to
1998, primarily due to interest earned on proceeds from property sales placed in
escrow in accordance with like-kind exchange income tax regulations. Interest
income increased by $672,000 to $1.1 million in 1998 compared to 1997, primarily
due to interest earned in 1998 on the proceeds from property sales placed in
escrow in accordance with like-kind exchange income tax regulations.
Other income decreased $560,000 to $289,000 in 1999 compared to 1998, primarily
as a result of an incentive fee earned in connection with a property that the
Company had developed and managed for a third party in 1998.
Depreciation expense increased $5.4 million or 18.7% to $34.4 million in 1999
compared to 1998, primarily due to depreciation expense related to the Company's
1998 acquisitions and increased depreciation of Communities in lease-up.
Depreciation expense increased $6.3 million or 28.0% to $29.0 million in 1998
compared to 1997 due to an increase in depreciation expense related to the 1998
and 1997 acquisitions and Communities in lease-up.
Interest expense, including amortization of deferred financing costs, increased
by $4.8 million for the year ended December 31, 1999 compared to the year ended
December 31, 1998. The increase was primarily the result of an increase of
$104.7 million in the Company's average indebtedness outstanding offset by a
decrease in the effective interest rate of .07% (6.72% to 6.65%) in 1999 as
compared to the same period in 1998.
22
23
Interest expense, including amortization of deferred financing costs, increased
by $11.5 million during the year ended December 31, 1998 as compared to the year
ended December 31, 1997. The increase was primarily the result of an increase of
$174.8 million in the Company's average indebtedness outstanding and an increase
in the effective interest rate of .04% (6.68% to 6.72%) in 1998 as compared to
the same period in 1997.
General and administrative expenses have remained relatively stable as a
percentage of total revenues. As a percentage of total revenues, general and
administrative expenses were 2.2%, 2.6% and 2.3% in 1999, 1998 and 1997,
respectively.
The $17.4 million gain on sale of assets in 1999 resulted from the disposition
of seven communities. The seven communities sold were:
COMMUNITY LOCATION
--------- --------
Summit Hampton Bradenton, FL
Summit Oak Goldsboro, NC
Summit Beacon Ridge Greenville, SC
Summit Heron's Run Sarasota, FL
Summit McIntosh Sarasota, FL
Summit Perico Bradenton, FL
Summit East Ridge Taylors, SC
The Communities disposed of in 1999 were part of the Company's plan to dispose
of assets that no longer meet its growth objectives, to make desired changes in
the number of apartment homes in each of the Company's markets, or that are
located in smaller markets. The Company believes that by concentrating its
efforts and capital in large growth markets it will gain a competitive advantage
as it improves operational efficiencies, builds a more significant brand name
and improves market knowledge. Also, by disposing of assets that no longer meet
the Company's long-term growth objectives, capital is provided to fund the
development of new, higher growth assets. The $37.1 million gain on the sale of
assets in 1998 resulted from the disposition of eight communities. The $4.4
million gain on sale of assets in 1997 resulted from the sale of one community.
The extraordinary items in the year ended December 31, 1998 resulted from the
write-off of deferred financing costs in connection with the replacement by the
Company of its prior unsecured credit facility with the Unsecured Credit
Facility (as hereinafter defined) and prepayment penalties incurred on six
mortgage notes which were repaid during the period.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity
The Company's net cash provided by operating activities decreased from $63.8
million for the year ended December 31, 1998 to $55.8 million for the same
period in 1999, primarily due to a $10.6 million decrease in net income and a
$6.0 million increase in interest paid. The decrease in net income was primarily
due to a decrease in gain on sale of real estate assets. The increase in
interest paid was primarily due to an increase in the average indebtedness
outstanding during the year.
Net cash used in investing activities decreased from $219.1 million for the year
ended December 31, 1998 to $36.5 million for the same period in 1999 due to no
acquisition activity in 1999 and an increase in proceeds from the sale of
Communities. In addition, the Company funded $11.7 million in capital
improvements during 1999. Proceeds from the sale of Communities during 1999
represent funds expended from like-kind exchange escrows. In the event that the
proceeds from these property sales are not fully invested in qualified like-kind
property during the required time period, a special distribution may be made or
company level tax may be incurred.
Net cash provided by financing activities was $154.6 million for the year ended
December 31, 1998. Net cash used in financing activities was $18.0 million for
the year ended December 31, 1999, primarily due to net repayments of $75.5
million on the Company's Unsecured Credit Facility funded partially by the use
of $136.3 million of proceeds from the sale of Series B and Series C Preferred
Units (as hereinafter defined) by the Operating Partnership during the year.
Other uses of cash during the year ended December 31, 1999 which
23
24
caused an increase in cash used in financing activities as compared to the same
period in 1998 were the payment of higher dividends and distributions to
unitholders, the repurchase of Common Stock for an aggregate purchase price of
approximately $47.5 million and a decrease in equity proceeds from the Company's
dividend reinvestment and stock purchase plans.
The ratio of earnings to fixed charges was 1.85 to 1 for the year ended December
31, 1999 compared to 2.52 to 1 for the year ended December 31, 1998. The
decrease is primarily due to a decrease in the gain on real estate assets offset
by increased interest charges as discussed in "Historical Results of
Operations -- Other Income and Expenses" above.
The Company has elected to be taxed as a Real Estate Investment Trust ("REIT")
under Sections 856 and 860 of the Internal Revenue Code of 1986, as amended.
REITs are subject to a number of organizational and operational requirements,
including a requirement that 95% (90% effective for tax years beginning after
December 31, 2000) of ordinary taxable income be distributed (see "Recently
Enacted Legislation" on page 33). As a REIT, the Company generally will not be
subject to federal income tax on net income to the extent taxable income is
distributed.
The Company's outstanding indebtedness at December 31, 1999 totaled $649.6
million. This amount includes approximately $263.2 million in fixed rate
conventional mortgages, $38.3 million of variable rate tax-exempt bonds, $266.0
million of unsecured notes, $4.1 million of tax-exempt fixed rate loans, and
$78.0 million under the Unsecured Credit Facility (as hereinafter defined).
The Company expects to meet its short-term liquidity requirements (i.e.,
liquidity requirements arising within 12 months) including recurring capital
expenditures relating to maintaining its existing properties, generally through
its working capital, net cash provided by operating activities and borrowings
under its line of credit. The Company believes that its cash provided by
operating activities will be adequate to meet operating requirements and
payments of dividends and distributions during the next twelve months.
The Company expects to meet its long-term liquidity requirements (i.e.,
liquidity requirements arising after 12 months), such as scheduled mortgage debt
maturities, property acquisitions, financing of construction and development
activities and other non-recurring capital improvements, through the issuance of
unsecured notes and equity securities, from undistributed Funds from Operations
(see page 31), from proceeds received from the disposition of certain
properties, and, in connection with the acquisition of land or improved
property, through the issuance of Units.
Credit Facility
In March 1998, the Company obtained a new syndicated unsecured line of credit
(the "Unsecured Credit Facility") in the amount of $175 million which replaced
the existing $150 million credit facility. The Unsecured Credit Facility was
increased in December 1998 to $200 million. The Unsecured Credit Facility
provides funds for new development, acquisitions and general working capital
purposes. The Unsecured Credit Facility has a three year term with two one-year
extension options and bears interest at LIBOR + 90 basis points based upon the
Company's current credit rating of BBB- by Standard & Poor's Rating Services and
Baa3 by Moody's Investors Service. The spread component of the aggregate
interest rate will be reduced in the event of an upgrade of the Company's
unsecured credit rating. The Unsecured Credit Facility is repayable monthly on
an interest only basis with principal due at maturity. The Company's credit
facility had an average interest rate and average balance outstanding during the
years ended December 31, 1999, 1998 and 1997 of 6.06%, 6.67%, 6.73% and $99.2
million, $98.0 million and $53.9 million, respectively. In addition, the maximum
outstanding during 1999, 1998 and 1997 was $176.0 million, $175.0 million and
$121.9 million, respectively.
The Unsecured Credit Facility also provides a bid option sub-facility equal to a
maximum of fifty percent of the total facility ($100 million). This sub-facility
provides the Company with the option to place borrowings in fixed LIBOR contract
periods of thirty, sixty, ninety and one hundred eighty days. The Company may
have up to seven fixed LIBOR contracts outstanding at any one time. Upon proper
notifications, all lenders
24
25
participating in the Unsecured Credit Facility may, but are not obligated to,
participate in a competitive bid auction for these fixed LIBOR contracts.
The Unsecured Credit Facility requires the Company to comply with certain
affirmative and negative covenants including the following requirements: (i) the
Company maintain its qualification as a REIT; (ii) the Company maintain a ratio
of EBITDA (as defined therein) to fixed charges (as defined therein) of not less
that 1.75 to 1; (iii) dividends not exceed 90% of funds from operations (as
defined therein); (iv) the Company maintain a ratio of total funded debt (as
defined therein) to implied capitalization value (as defined therein) of less
than .55 to 1; and (v) the Company maintain a ratio of unencumbered asset value
(as defined therein) to unsecured debt of less than 1.75 to 1. In addition, the
Unsecured Notes and the Unsecured Bank Notes require the Company to comply with
certain affirmative and negative covenants including the following requirements:
(i) the ratio of unencumbered assets (as defined therein) to unsecured debt
equal or exceed 150%; (ii) the ratio of debt to assets (as defined therein) not
exceed 60%; and (iii) secured debt not exceed 40% of assets (as defined
therein). The Company was in compliance with these covenants at December 31,
1999.
Medium-Term Notes
On May 29, 1998, the Company established a program for the sale by the Operating
Partnership of up to $95 million aggregate principal amount of Medium-Term Notes
due nine months or more from the date of issuance (the "MTN Program"). The
Operating Partnership issued Medium-Term Notes with an aggregate principal
amount of $80 million in connection with the MTN Program as follows: (i) on July
28, 1998, the Company sold $30 million of notes which are due on July 30, 2001
and bear interest at 6.75% per year; (ii) on October 5, 1998, the Operating
Partnership sold $25 million of notes which are due on October 5, 2000 and bear
interest at 6.71% per year; and (iii) on March 18, 1999, the Operating
Partnership sold $25 million of notes which are due on March 16, 2009 and bear
interest at 7.59% per year. In July 1999, the Company and the Operating
Partnership filed a shelf registration statement with the Securities and
Exchange Commission, pursuant to which the Operating Partnership may issue debt
securities with an aggregate public offering price of up to $250 million. The
Company intends to establish a new, similar program for the sale of Medium-Term
Notes by the Operating Partnership under such registration statement, pursuant
to which the Operating Partnership may issue Medium-Term Notes from time to time
in the future subject to certain market conditions and other factors.
Private Placement of Preferred Units
On April 29, 1999, the Operating Partnership completed a private placement of
3.4 million of its 8.95% Series B Cumulative Redeemable Perpetual Preferred
Units (the "Series B Preferred Units") to two institutional investors at a price
of $25.00 per unit. The net proceeds of approximately $83 million were used to
repay amounts outstanding under the Company's Unsecured Credit Facility. The
Series B Preferred Units may be exchanged by the holders into shares of 8.95%
Series B Cumulative Redeemable Perpetual Preferred Stock of the Company ("Series
B Preferred Shares") on a one-for-one basis. Holders of the Series B Preferred
Units may exercise their exchange right (a) at any time on or after April 29,
2009, (b) at any time if full quarterly distributions are not made for six
quarters, or (c) upon the occurrence of specified events related to the
treatment of the Operating Partnership or the Series B Preferred Units for
federal income tax purposes. The Operating Partnership may redeem the Series B
Preferred Units at any time on or after April 29, 2004 for cash at a redemption
price equal to the redeemed holder's capital account (initially $25.00 per
unit), plus all accumulated, accrued and unpaid distributions or dividends. In
lieu of cash, the Operating Partnership may elect to deliver Series B Preferred
Shares on a one-for-one basis, plus an amount equal to all accumulated, accrued
and unpaid distributions or dividends. The Series B Preferred Units have no
stated maturity, are not subject to any sinking fund or mandatory redemption and
are not convertible into any other securities of the Company or the Operating
Partnership. Distributions on the Series B Preferred Units are cumulative from
the date of original issuance and are payable quarterly at the rate of 8.95% per
annum of the $25.00 original capital contribution. Holders of the Series B
Preferred Units received distributions in the aggregate amount of approximately
$5.1 million during 1999.
25
26
On September 3, 1999, the Operating Partnership completed a private placement of
2.2 million of its 8.75% Series C Cumulative Redeemable Perpetual Preferred
Units (the "Series C Preferred Units") to an institutional investor at a price
of $25.00 per unit. The net proceeds of approximately $54 million were used to
repay amounts outstanding under the Company's Unsecured Credit Facility. The
Series C Preferred Units may be exchanged by the holder into shares of 8.75%
Series C Cumulative Redeemable Perpetual Preferred Stock of the Company ("Series
C Preferred Shares") on a one-for-one basis. The holder of the Series C
Preferred Units may exercise its exchange right (a) at any time on or after
September 3, 2009, (b) at any time if full quarterly distributions are not made
for six quarters, (c) upon the occurrence of specified events related to the
treatment of the Operating Partnership or the Series C Preferred Units for
federal income tax purposes, or (d) at any time that such institutional
investor's holdings in the Operating Partnership exceed 18% of the total profits
of or capital interests in the Operating Partnership for a taxable year. The
Operating Partnership may redeem the Series C Preferred Units at any time on or
after September 3, 2004 for cash at a redemption price equal to the redeemed
holder's capital account (initially $25.00 per unit), plus all accumulated,
accrued and unpaid distributions or dividends. The Series C Preferred Units have
no stated maturity, are not subject to any sinking fund or mandatory redemption
and are not convertible into any other securities of the Company or the
Operating Partnership. Distributions on the Series C Preferred Units are
cumulative from the date of original issuance and are payable quarterly at the
rate of 8.75% per annum of the $25.00 original capital contribution. The holder
of the Series C Preferred Units received distributions in the aggregate amount
of approximately $1.5 million during 1999.
Common Stock Repurchase Program
On May 11, 1999, the Board of Directors of the Company authorized a common stock
repurchase program pursuant to which the Company is authorized to purchase up to
an aggregate of $50 million of outstanding Common Stock. All repurchases have
been and will be made on the open market at prevailing prices. This authority
may be exercised from time to time and in such amounts as market conditions
warrant. During the year ended December 31, 1999, the Company repurchased
2,414,300 shares of Common Stock for an aggregate purchase price, including
commissions, of approximately $47.5 million at an average price of $19.67 per
share.
Market Risk
The fair market value of long-term fixed rate debt is subject to changes in
interest rates. Generally, the fair market value of fixed interest rate debt
will increase as interest rates fall and decrease as interest rates rise. The
estimated fair value of the Company's total fixed rate long-term debt at
December 31, 1999 was $501.3 million. Fair values were determined from quoted
market prices, where available, and from information received from investment
bankers using current interest rates considering credit ratings and remaining
terms to maturity.
While the Company has historically had limited involvement with derivative
financial instruments, the Company may utilize such instruments in certain
situations to hedge interest rate exposure by modifying the interest rate
characteristics of related balance sheet instruments and prospective financing
transactions. The Company does not utilize derivative financial instruments for
trading or speculative purposes. On September 16, 1999, the Company entered into
an interest rate swap agreement with a notional amount of $30 million, relating
to $30 million of notes issued by the Operating Partnership under the MTN
Program which carry a fixed interest rate of 6.625% per annum (the "Fixed
Rate"). Under the interest rate swap agreement, through the maturity date of
such notes of December 15, 2003, (i) the Company has agreed to pay to the
counterparty the interest on a $30 million notional amount at a floating
interest rate of LIBOR plus 11 basis points (the "Floating Rate"), and (ii) the
counterparty has agreed to pay to the Company the interest on the same notional
amount at the Fixed Rate. The Floating Rate at December 31, 1999 was 6.23%.
Under the interest rate swap agreement, an increase in LIBOR will increase the
amount of interest that the Company will be required to pay, and a decrease in
LIBOR will decrease the amount of interest that the Company will be required to
pay. The fair value of the interest rate swap was $445,000 at December 31, 1999.
26
27
Schedule of Debt
The following table sets forth certain information regarding debt financing as
of December 31, 1999 and 1998 (dollars in thousands):
PRINCIPAL OUTSTANDING
INTEREST DECEMBER 31,
RATE AS OF MATURITY ----------------------
DECEMBER 31, 1999 DATE(1) 1999 1998
----------------- -------- --------- ---------
FIXED RATE DEBT
MORTGAGE LOAN(2)........................ 6.24% 10/15/08 $143,740 $146,740
MORTGAGE LOAN(3)........................ 8.00% 9/1/05 8,375 8,470
MORTGAGE NOTES
Summit Foxcroft...................... 8.00% 4/1/20 2,594 2,663
Summit Sherwood...................... 7.88% 3/1/29 3,244 3,274
Summit Radbourne..................... 9.80% 3/1/02 8,405 8,507
Summit Sand Lake..................... 7.88% 2/15/06 14,348 14,679
Summit Buena Vista................... 6.75% 2/15/07 25,393 25,779
Summit Belcourt...................... 6.75% 1/1/06 9,552 9,708
Summit Turtle Cove................... 6.75% 6/1/06 16,806 17,073
Summit Turtle Rock................... 6.75% 12/1/05 10,824 11,001
Summit Arboretum..................... 6.75% 12/1/05 19,915 20,240
Mortgage Notes paid in 1999.......... -- 7,561
TAX EXEMPT MORTGAGE NOTES
Summit Crossing...................... 6.95% 11/1/25 4,048 4,106
-------- --------
TOTAL MORTGAGE DEBT............. 267,244 279,801
-------- --------
UNSECURED NOTES
6.71% Medium Term Notes due 2000..... 6.71% 10/5/00 25,000 25,000
6.75% Medium Term Notes due 2001..... 6.75% 7/30/01 30,000 30,000
7.59% Medium Term Notes due 2009..... 7.59% 3/16/09 25,000
6.80% Notes due 2002................. 6.80% 8/15/02 25,000 25,000
6.63% Notes due 2003................. 6.63% 12/15/03 30,000 30,000
6.95% Notes due 2004................. 6.95% 8/15/04 50,000 50,000
7.20% Notes due 2007................. 7.20% 8/15/07 50,000 50,000
Bank Note Due 2002................... 7.85% 8/3/02 16,000 16,000
Bank Note Due 2000................... 7.61% 8/3/00 15,000 15,000
-------- --------
TOTAL UNSECURED NOTES........... 266,000 241,000
-------- --------
TOTAL FIXED RATE DEBT........... 533,244 520,801
-------- --------
VARIABLE RATE DEBT
UNSECURED CREDIT FACILITY............... LIBOR + 90 3/27/01 78,000 153,500
TAX EXEMPT BONDS(4)
Summit Belmont....................... 6.90% 4/1/07 11,225 11,445
Summit Pike Creek.................... 6.90% 8/15/20 12,208 12,767
Summit Gateway....................... 6.90% 7/1/07 6,700 6,900
Summit Stony Point................... 6.90% 4/1/29 8,255 8,430
Bonds paid in 1999................... -- 12,260
-------- --------
TOTAL TAX EXEMPT BONDS.......... 38,388 51,802
-------- --------
TOTAL VARIABLE RATE DEBT........ 116,388 205,302
-------- --------
TOTAL OUTSTANDING INDEBTEDNESS............................... $649,632 $726,103
======== ========
(1) With the exception of the Mortgage Loan referred to in Note 2 below, which
has a $143.7 million balance at December 31, 1999, all the secured debt can
be prepaid at any time. Such Mortgage Loan can be prepaid after February 15,
2001. Prepayment of all such secured debt is generally subject to penalty or
27
28
premium; however, the tax exempt mortgage notes can be prepaid at any time
without penalty or premium.
(2) Mortgage Loan secured by the following Communities:
Summit Glen Summit Blue Ash Summit St. Clair
Summit Square Summit Village Summit Waterford
Summit Meadow Summit Highland Summit Del Ray
Summit Windsor I Summit Norcroft I Summit Palm Lake
Summit Windsor II Summit Norcroft II Summit on the River
(3) Mortgage Loan secured by Summit Simsbury and Summit Touchstone Communities.
(4) The tax exempt bonds (the "Bonds") bear interest at various rates set by a
remarketing agent at the demand note index plus 0.50%, set weekly, or the
lowest percentage of prime which allows the resale at a price of par. The
Bonds are enhanced by letters of credit from a financial institution (the
"Credit Enhancements"), each of which Credit Enhancements will terminate
prior to the maturity dates of the related Bonds. In the event such Credit
Enhancements are not renewed or replaced upon termination, the related loan
obligations will be accelerated.
The one-month LIBOR rate at December 31, 1999 was 5.82%.
The Company's outstanding indebtedness (excluding the Unsecured Credit Facility)
had an average maturity of 6.9 years as of December 31, 1999. The aggregate
maturities of all outstanding debt (excluding the Unsecured Credit Facility) as
of December 31, 1999 for each of the years ended after December 31, 1999 are as
follows (in thousands):
2000...................................................... $ 46,497
2001...................................................... 36,698
2002...................................................... 56,186
2003...................................................... 37,424
2004...................................................... 57,857
Thereafter................................................ 336,970
--------
Total................................................ $571,632
========
Of the significant maturities in the above table, $15.0 million and $16.0
million relate to the unsecured bank notes that mature in 2000 and 2002,
respectively; $25 million relates to unsecured notes due in 2000; $30 million
relates to unsecured notes due in 2001 and $25 million relates to unsecured
notes due in 2002.
Net Asset Value
The Company's estimate of net asset value is based on the sum of: 1) the
estimated fair market value of stabilized properties determined by applying
current market capitalization rates (for recent purchases and sales of
comparable properties) to projected cash flows, 2) the cost of any properties
acquired during the period under consideration, 3) construction in progress
adjusted to estimated fair market value, 4) the implied value of any below
market debt (assumable under certain terms and conditions) and 5) other assets
including cash and cash equivalents, less total liabilities divided by the
weighted average number of common shares and operating partnership units
outstanding during the period under consideration. Using this methodology,
management's current estimate of net asset value is $24.61 per share as of
December 31, 1999. The Company's estimate of net asset value will vary depending
on current market conditions.
ACQUISITIONS AND DISPOSITIONS
During the year ended December 31, 1999, the Company sold seven communities
comprising 1,518 apartment homes for approximately $76.0 million, resulting in a
gain on sale of approximately $17.4 million. Net proceeds of $54.4 million, were
placed in escrow with a qualified intermediary in accordance with like-kind
exchange income tax rules and regulations. The communities sold were Summit
Hampton, Summit Oak,
28
29
Summit Beacon Ridge, Summit Perico, Summit McIntosh, Summit Heron's Run and
Summit East Ridge (referred to herein using former community names).
During the year ended December 31, 1999, the Company acquired no communities.
The Company completed the acquisition of three communities located in Atlanta,
Georgia in 1998: Summit St. Clair, purchased effective March 1, 1998, Summit
Club at Dunwoody, purchased effective May 22, 1998, and Summit Lenox, purchased
effective July 8, 1998 (the "Atlanta Acquisitions"). The Atlanta Acquisitions
added a total of 1,093 apartment homes to the Company's portfolio at an
aggregate purchase price of $88.3 million. The Atlanta Acquisitions were
financed with the issuance of 259,871 Common Units (valued at $5.2 million) and
the assumption of $8.8 million of mortgage debt. The balance of the purchase
price was paid in cash.
In individual property transactions, the Company sold three communities for
$48.9 million (formerly known as Summit Providence on May 8, 1998, Summit
Springs on October 23, 1998 and Summit Old Town on November 2, 1998). The total
gain on sale recognized for these three disposition transactions was $17
million.
On December 16, 1998, the Company (i) sold five communities (the "Sold
Communities") to Hollow Creek, LLC., a newly-formed North Carolina limited
liability company for approximately $68 million and (ii) contributed two
communities with an approximate value of $22 million (together with the Sold
Communities, the "Joint Venture Communities") to Station Hill, LLC., a
newly-formed North Carolina limited liability company ("Station Hill"). On the
same date, Hollow Creek, LLC contributed the Sold Communities to Station Hill.
Station Hill is a joint venture limited liability company, the membership of
which is comprised of the Company and a wholly owned subsidiary of a major
financial services company (the "Joint Venture Member"). The disposition was
effected pursuant to a Real Estate Sale Agreement dated November 20, 1998
between the Operating Partnership and the Joint Venture Member and pursuant to
the Operating Agreement of Station Hill, also dated November 20, 1998. The
Company's contribution to Station Hill (approximately $5.6 million) represents a
25 percent equity interest in Station Hill. In addition, the Company is the
managing member of Station Hill and will also retain management of the Joint
Venture Communities through a management agreement with Station Hill. The cash
flow of Station Hill will be distributed pro rata to each member based on its
equity contribution until certain economic benchmarks are achieved, at which
point the Company will receive an escalated portion of the cash flow and
residual interest. Station Hill has obtained five separate mortgages totaling
$70.15 million from Fannie Mae. These mortgages have a ten-year maturity and a
6.70% interest rate. The proceeds of the mortgages were distributed on a pro
rata basis to Station Hill's two members. The Joint Venture Communities involved
in the transaction were Summit Green, Summit Hollow I and II and Summit Creek in
Charlotte, North Carolina; Summit Hill I and II in Raleigh, North Carolina; and
Summit Station in Tampa, Florida. The Joint Venture Communities include 1,433
apartment homes. The Company recognized a gain of approximately $20.2 million on
the disposition. The gain is net of $5.6 million elimination of gain relative to
the Company's retained portion of the joint venture. The elimination of the gain
reduced the Company's investment in the joint venture to zero at the initial
joint venture formation.
Proceeds from the sale of Summit Springs, Summit Old Town and the Sold
Communities were put in escrow with a qualified intermediary in accordance with
like-kind exchange income tax rules and regulations. These proceeds were used to
fund future developments.
On November 4, 1998, the Company acquired a portfolio of multifamily properties
in Texas (the "Ewing Portfolio") through a merger with Ewing Industries, a
private developer of luxury apartment homes. The Ewing Portfolio consists of
2,465 apartment homes in seven communities located in Dallas, Austin and San
Antonio. The acquisition of the Ewing Portfolio was effected pursuant to an
Agreement and Plan of Reorganization dated as of October 31, 1998 (the "Merger
Agreement") among the Company, affiliates of the Company including the Operating
Partnership, Ewing Industries, Inc., an Ohio corporation ("Ewing Industries"),
affiliates of Ewing, and their respective partners, shareholders and members
(together with Ewing Industries, "Ewing"). Pursuant to the Merger Agreement, the
acquisition was funded through (i) the issuance to Ewing of 1,008,988 shares of
Common Stock of the Company and 141,921 Units, valued at $20.7 million in the
aggregate, (ii) the assumption of $84.0 million in long-term fixed-rate mortgage
indebtedness,
29
30
(iii) the payment of $50.6 million in cash and (iv) receipt of $3.8 million of
credit for customary prorations and reserves. A portion of the consideration was
deferred until stabilization of one community (Summit Las Palmas) which was in
lease-up at the time of the acquisition of the Ewing Portfolio. The Summit Las
Palmas purchase closed on December 31, 1998 with the additional consideration of
(i) 1,027,771 shares of Common Stock and 36,124 Common Units valued at $29.2
million in the aggregate and (ii) cash in the amount of approximately $600,000.
At December 31, 1999, the Company had three apartment communities for sale with
a net book value of approximately $13.8 million. The Company does not anticipate
incurring a loss on any individual apartment Community sale. Proceeds from the
sale of the Communities will be used to fund future development. The three
apartment communities held for sale represented approximately 2% of property
operating income for the Company for the year ended December 31, 1999.
DEVELOPMENT ACTIVITY
The Company's developments in process at December 31, 1999 are summarized as
follows (dollars in thousands):
TOTAL ESTIMATED ANTICIPATED
APARTMENT ESTIMATED COST TO COST TO CONSTRUCTION
COMMUNITY HOMES COSTS DATE COMPLETE COMPLETION
- ------------------------------------------- --------- --------- -------- --------- ------------
Summit New Albany II -- Columbus, OH(1).... 127 $ 9,800 $ 8,323 $ 1,477 Q1 2000
Summit Largo -- Largo, MD(1)............... 219 18,000 17,021 979 Q1 2000
Summit Hunter's Creek -- Orlando, FL(1).... 270 19,200 16,609 2,591 Q1 2000
Summit Deer Creek -- Atlanta, GA(1)........ 292 22,200 16,409 5,791 Q2 2000
Summit Russett II -- Laurel, MD............ 112 9,900 4,367 5,533 Q2 2000
Summit Ashburn Farm -- Loudon County, VA... 162 14,600 9,235 5,365 Q3 2000
Summit Grandview -- Charlotte, NC.......... 266 45,500 16,821 28,679 Q4 2000
Reunion Park by Summit -- Raleigh, NC...... 248 14,300 7,963 6,337 Q1 2001
Summit Deerfield -- Cincinnati, OH......... 498 41,500 14,845 26,655 Q3 2001
Summit Crest -- Raleigh, NC................ 438 30,700 3,727 26,973 Q3 2001
Summit Overlook -- Raleigh, NC............. 320 25,500 8,046 17,454 Q3 2001
Other development and construction
costs(2)................................. -- -- 25,221 --
----- -------- -------- --------
2,952 $251,200 $148,587 $127,834
===== ======== ======== ========
(1) These communities were in lease-up at December 31, 1999.
(2) Consists primarily of land held for development and other predevelopment
costs.
Estimated cost to complete the development Communities represents substantially
all of the Company's material commitments for capital expenditures at December
31, 1999.
Certain Factors Affecting the Performance of Development Communities
The Company is optimistic about the operating prospects of the Communities under
construction, even with the increased supply of newly constructed apartment
homes of comparable quality in many of its markets. As with any development
community, there are uncertainties and risks associated with the development of
the Communities described above. While the Company has prepared development
budgets and has estimated completion and stabilization target dates based on
what it believes are reasonable assumptions in light of current conditions,
there can be no assurance that actual costs will not exceed current budgets or
that the Company will not experience construction delays due to the
unavailability of materials, weather conditions or other events.
Other development risks include the possibility of incurring additional costs or
liabilities resulting from increased costs for materials or labor or other
unexpected costs or defects in construction material, and the possibility that
financing may not be available on favorable terms, or at all, to pursue or
complete development activities. Similarly, market conditions at the time these
Communities become available for leasing will affect
30
31
the rental rates that may be charged and the period of time necessary to achieve
stabilization, which could make one or more of the development Communities
unprofitable or result in achieving stabilization later than currently
anticipated.
In addition, the Company is conducting feasibility and other pre-development
work for eleven Communities. The Company could abandon the development of any
one or more of these potential Communities in the event that it determines that
market conditions do not support development, financing is not available on
favorable terms, or it is unable to obtain necessary permits and authorizations,
or due to other circumstances which may prevent development. Similarly, there
can be no assurance that, if the Company does pursue one or more of these
potential Communities, that it will be able to complete construction within the
currently estimated development budgets or that construction can be started at
the time currently anticipated.
INFLATION
Substantially all of the leases at the Communities are for a term of one year or
less, which may enable the Company to seek increased rents upon renewal of
existing leases or commencement of new leases. The short-term nature of these
leases generally serves to reduce the risk to the Company of the adverse effect
of inflation.
YEAR 2000
The term "Year 2000 issue" is a general term used to describe various problems
that may result from the improper processing by computer systems of dates after
1999. These problems arise from the inability of some hardware and software to
distinguish dates before the year 2000 from dates in and after the year 2000.
This could result in a system failure or miscalculations causing disruptions of
operations. The Year 2000 issue affects virtually all companies and all
organizations.
The Company's efforts to address its Year 2000 issues prior to January 1, 2000,
were focused in the following three areas: (i) reviewing and taking any
necessary steps to attempt to correct the Company's computer information systems
(i.e., software applications and hardware platforms), (ii) evaluating and making
any necessary modifications to other computer systems that do not relate to
information technology but include embedded technology, such as
telecommunications, security, HVAC, elevator, fire and safety systems, and (iii)
communicating with certain significant third-party service providers to
determine whether there will be any interruption in their systems that could
affect the Company.
The Company has not experienced any business or service disruptions as a result
of any Year 2000 issues, nor has the Company been contacted by any vendors or
customers as to any Year 2000 issues with respect to their various products or
services. Costs incurred to date related to Year 2000 issues have not been
material, nor does the Company expect to incur additional material costs related
to Year 2000 issues. The Company is continuing to evaluate potential disruptions
or complications that might result in the future from Year 2000 related
problems; although at this time, the Company has not identified any specific
business functions that are likely to suffer material disruption as a result of
Year 2000 related issues. Due to the unique and pervasive nature of the Year
2000 issue, however, it is not possible to anticipate each of the wide variety
of Year 2000 issues that might arise, particularly outside of the Company, which
might have a material adverse impact on the Company's business, financial
condition and results of operations.
FUNDS FROM OPERATIONS
The Company considers funds from operations ("FFO") to be an appropriate measure
of performance of an equity REIT. The Company computes FFO in accordance with
standards established by the National Association of Real Estate Trusts
("NAREIT"). FFO, as defined by NAREIT, represents net income (loss) excluding
gains or losses from sales of property, plus depreciation of real estate assets,
and after adjustments for unconsolidated partnerships and joint ventures, all
determined on a consistent basis in accordance with generally accepted
accounting principles ("GAAP"). Funds Available for Distribution ("FAD") is
defined as FFO less capital expenditures funded by operations (recurring capital
expenditures). The Company's methodology for calculating FFO and FAD may differ
from the methodology for calculating FFO and FAD utilized by other real estate
companies, and accordingly, may not be comparable to other real
31
32
estate companies. FFO and FAD do not represent amounts available for
management's discretionary use because of needed capital expenditures or
expansion, debt service obligations, property acquisitions, development,
dividends and distributions or other commitments and uncertainties. FFO and FAD
should not be considered as alternatives to net income (determined in accordance
with GAAP) as an indication of the Company's financial performance or to cash
flows from operating activities (determined in accordance with GAAP) as a
measure of the Company's liquidity, nor are they indicative of funds available
to fund the Company's cash needs, including its ability to make
dividends/distributions. The Company believes FFO and FAD are helpful to
investors as measures of the performance of the Company because, along with cash
flows from operating activities, financing activities and investing activities,
they provide investors with an understanding of the ability of the Company to
incur and service debt and make capital expenditures.
Funds from Operations and Funds Available for Distribution are calculated as
follows (dollars in thousands):
1999 1998 1997
----------- ----------- -----------
Net income.............................................. $ 45,745 $ 56,375 $ 27,116
Extraordinary items, net of minority interest........... -- 508 --
Minority interest of Unitholders in Operating
Partnership........................................... 7,317 9,592 4,818
Gain on sale of real estate assets...................... (17,427) (37,148) (4,366)
----------- ----------- -----------
Adjusted net income................................... 35,635 29,327 27,568
Depreciation:
Real estate assets.................................... 34,324 28,890 22,633
Real estate joint venture............................. 748 25 --
----------- ----------- -----------
Funds from Operations................................... 70,707 58,242 50,201
Recurring capital expenditures(1)..................... (6,357) (4,607) (4,586)
=========== =========== ===========
Funds Available for Distribution........................ $ 64,350 $ 53,635 $ 45,615
=========== =========== ===========
Non-recurring capital expenditures(2)................... $ (5,348) $ (4,978) $ (4,653)
=========== =========== ===========
Cash Flow Provided By (Used In):
Operating Activities.................................. $ 55,754 $ 63,808 $ 55,947
Investing Activities.................................. (36,484) (219,170) (175,907)
Financing Activities.................................. (17,977) 154,636 119,858
Weighted average shares and units
outstanding -- basic.................................. 32,134,646 29,140,931 27,257,637
=========== =========== ===========
Weighted average shares and units
outstanding -- diluted................................ 32,205,637 29,150,315 27,294,058
=========== =========== ===========
(1) Recurring capital expenditures are expected to be funded from operations and
consist primarily of exterior painting, carpets in 1999, new appliances,
vinyl, blinds, tile, and wallpaper. In contrast, non-recurring capital
expenditures, such as major improvements, new garages and access gates, are
expected to be funded by financing activities and are, therefore, not
included in the calculation of Funds Available for Distribution. The
increase in recurring capital expenditures for the year ended December 31,
1999 was primarily due to the Company's change in accounting policy to
capitalize carpets starting January 1, 1999. Without carpet, recurring
capital expenditures for the year ended December 31, 1999 would have been
$4.6 million. Recurring capital expenditures for 1998 and 1997 have not been
restated for the change in accounting policy.
(2) Non-recurring capital expenditures for the year ended December 31, 1999 and
1998 primarily consisted of major renovations in the amount of $3.5 million
in 1999 and $1.3 million in 1998 respectively; $740,000 and $446,000 for
access gates and security fences in 1999 and 1998 respectively; $10,000 and
$1.0 million for water meters in 1999 and 1998, respectively; $1.0 million
and $1.7 million in other revenue enhancement expenditures in 1999 and 1998,
respectively.
32
33
RECENTLY ENACTED LEGISLATION
The Company has elected to be taxed as a Real Estate Investment Trust under
Sections 856 and 860 of the Internal Revenue Code of 1986, as amended. Recently
enacted tax legislation alters the requirements for qualification as a REIT.
Among others, the newly passed legislation generally liberalizes, from the
perspective of the Company's historic operations, the asset diversification
requirements applicable to REITs. Effective for tax years beginning after
December 31, 2000, a REIT may own the securities of a "taxable REIT subsidiary"
without limitation on the REIT's voting control over the subsidiary, provided
that not more than 20% of the value of the REIT's total assets is represented by
securities of one or more taxable REIT subsidiaries. A taxable REIT subsidiary
would include a corporation in which the Company directly or indirectly owns
stock and which has elected to be treated as the Company's taxable REIT
subsidiary. The definition of taxable REIT subsidiary in the Internal Revenue
Code limits the ability of corporations whose activities relate to lodging or
health care to be taxable REIT subsidiaries.
Under current law, a REIT must distribute at least 95% of its real estate
investment trust taxable income, excluding net capital gains, to its
stockholders. Effective for tax years beginning after December 31, 2000, the
recently enacted tax legislation reduces the percent of real estate investment
trust taxable income that must be distributed to 90%, exclusive of net capital
gains.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Market Risk".
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial statements and supplementary data are contained on the pages indicated
on the Index to Financial Statements and Supplementary Data on page 43 of this
Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
33
34
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
Incorporated herein by reference to the Company's definitive proxy statement to
be filed with the Securities and Exchange Commission within 120 days after the
end of the year covered by this Form 10-K with respect to its Annual Meeting of
Stockholders to be held on May 9, 2000.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated herein by reference to the Company's definitive proxy statement to
be filed with the Securities and Exchange Commission within 120 days after the
end of the year covered by this Form 10-K with respect to its Annual Meeting of
Stockholders to be held on May 9, 2000.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Incorporated herein by reference to the Company's definitive proxy statement to
be filed with the Securities and Exchange Commission within 120 days after the
end of the year covered by this Form 10-K with respect to its Annual Meeting of
Stockholders to be held on May 9, 2000.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated herein by reference to the Company's definitive proxy statement to
be filed with the Securities and Exchange Commission within 120 days after the
end of the year covered by this Form 10-K with respect to its Annual Meeting of
Stockholders to be held on May 9, 2000.
34
35
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial Statements
The consolidated financial statements of the Company are listed in the Index to
Financial Statements on page 43 of this Report.
(b) Reports on Form 8-K
None.
(c) Exhibits
As noted below, certain of the exhibits required by Item 601 of Regulation S-K
have been filed with previous reports by the Company and are incorporated by
reference herein.
EXHIBIT NO. DESCRIPTION
- ----------- -----------
3.1.1 Articles of Incorporation of the Company. (Incorporated by
reference to Exhibit 3.1 to the Company's Registration
Statement on Form S-11, Registration No. 33-90706).
3.1.2 Articles Supplementary to the Articles of Amendment and
Restatement of Summit Properties Inc. designating 8.95%
Series B Cumulative Redeemable Perpetual Preferred Stock of
the Company dated April 29, 1999 (Incorporated by reference
to Exhibit 3.1 to the Company's quarterly report on Form
10-Q for the quarterly period ended March 31, 1999, File No.
001-12792).
3.1.3 Articles Supplementary to the Articles of Amendment and
Restatement of Summit Properties Inc. designating 8.75%
Series C Cumulative Redeemable Perpetual Preferred Stock of
the Company dated September 3, 1999 (Incorporated by
reference to Exhibit 99.1 to the Operating Partnership's
Current Report on Form 8-K filed on September 17, 1999, File
No. 000-22411).
3.2.1 Bylaws of the Company. (Incorporated by reference to Exhibit
3.2 to the Company's Registration Statement on Form S-11,
Registration No. 33-90706).
3.2.2 First Amendment to Bylaws of the Company (filed herewith).
4.1.1 Indenture dated as of August 7, 1997 between the Operating
Partnership and First Union National Bank, relating to the
Operating Partnership's Senior Debt Securities.
(Incorporated by reference to Exhibit 4.1 to the Operating
Partnership's Current Report on Form 8-K filed on August 11,
1997, File No. 000-22411).
4.1.2 Supplemental Indenture No. 1, dated as of August 12, 1997
between the Operating Partnership and First Union National
Bank. (Incorporated by reference to Exhibit 4.1 to the
Operating Partnership's Amended Current Report on Form
8-K/A-1 filed on August 18, 1997, File No. 000-22411).
4.1.3 Supplemental Indenture No. 2, dated as of December 17, 1997
between the Operating Partnership and First Union National
Bank. (Incorporated by reference to Exhibit 4.1 to the
Operating Partnership's Amended Current Report on Form
8-K/A-1 filed on December 17, 1997, File No. 000-22411).
4.1.4 Supplemental Indenture No. 3, dated as of May 29, 1998
between the Operating Partnership and First Union National
Bank. (Incorporated by reference to Exhibit 4.2 to the
Operating Partnership's Current Report on Form 8-K filed on
June 2, 1998, File No. 000-22411).
4.2.1 The Operating Partnership's 6.80% Note due 2002, dated
August 12, 1997. (Incorporated by reference to Exhibit 4.2
to the Operating Partnership's Amended Current Report on
Form 8-K/A-1 filed on August 18, 1997, File No. 000-22411).
35
36
EXHIBIT NO. DESCRIPTION
- ----------- -----------
4.2.2 The Operating Partnership's 6.95% Note due 2004, dated
August 12, 1997. (Incorporated by reference to Exhibit 4.3
to the Operating Partnership's Amended Current Report on
Form 8-K/A-1 filed on August 18, 1997, File No. 000-22411).
4.2.3 The Operating Partnership's 7.20% Note due 2007, dated
August 12, 1997. (Incorporated by reference to Exhibit 4.4
to the Operating Partnership's Amended Current Report on
Form 8-K/A-1 filed on August 18, 1997, File No. 000-22411).
4.2.4 The Operating Partnership's 6.63% Note due 2003, dated
December 17, 1997. (Incorporated by reference to Exhibit 4.2
to the Operating Partnership's Amended Current Report on
Form 8-K/A-1 filed on December 17, 1997, File No.
000-22411).
4.2.5 6.7% Medium Term Note due on October 5, 2000 in principal
amount of $25,000,000 issued by the Operating Partnership on
October 5, 1998 (Incorporated by reference to Exhibit 10.1
of the Operating Partnership's Quarterly Report on Form 10-Q
for the quarterly period ended September 30, 1998, File No.
000-224111).
4.2.6 6.75% Medium-Term Note due 2001 in principal amount of
$30,000,000 issued by the Operating Partnership on July 28,
1998 (Exhibit 10.2 to the Operating Partnership's Quarterly
Report on Form 10-Q for the quarterly period ended June 30,
1998, File No. 000-22411).
4.2.7 7.59% Medium-Term Note due 2009 in principal amount of
$25,000,000 issued by the Operating Partnership on March 18,
1999 (Incorporated by reference to Exhibit 4.1 to the
Operating Partnership's Quarterly Report on Form 10-Q for
the quarterly period ended March 31, 1999, File No.
000-22411).
4.3 Shareholder Rights Agreement, dated as of December 14, 1998,
between the Company and First Union National Bank, as Rights
Agent (Incorporated by reference to Exhibit 4.1 to the
Company's Registration Statement on Form 8-A, filed on
December 16, 1998).
10.1.1 Agreement of Limited Partnership of the Operating
Partnership, as amended. (Incorporated by reference to
Exhibit 3.1 to the Operating Partnership's Registration
Statement on Form 10, dated April 21, 1997, filed pursuant
to the Securities Exchange Act of 1934, as amended, File No.
000-22411).
10.1.2 Amendment No. 10 to the Agreement of Limited Partnership of
the Operating Partnership. (Incorporated by reference to
Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q
for the fiscal quarter ended June 30, 1997, File No.
001-12792).
10.1.3 Amendment No. 11 to the Limited Partnership Agreement of the
Operating Partnership (Incorporated by reference to Exhibit
3.1 of the Operating Partnership's Quarterly Report on Form
10-Q for the quarterly period ended March 31, 1998, File No.
000-22411)
10.1.4 Amendment No. 12 to the Limited Partnership Agreement of the
Operating Partnership (Incorporated by reference to Exhibit
3.1 of the Operating Partnership's Quarterly Report on Form
10-Q for the quarterly period ended June 30, 1998, File No.
000-22411).
10.1.5 Amendment No. 13 to the Limited Partnership Agreement of the
Operating Partnership (Incorporated by reference to Exhibit
3.1 of the Operating Partnership's Quarterly Report on Form
10-Q for the quarterly period ended September 30, 1998, File
No. 000-22411)
10.1.6 Amendment No. 14 to the Limited Partnership Agreement of the
Operating Partnership (Incorporated by reference to Exhibit
3.1 to the Operating Partnership's Quarterly Report on Form
10-Q for the quarterly period ended March 31, 1999, File No.
000-22411).
10.1.7 Amendment No. 15 to the Limited Partnership Agreement of the
Operating Partnership (Incorporated by reference to Exhibit
3.2 to the Operating Partnership's Quarterly Report on Form
10-Q for the quarterly period ended March 31, 1999, File No.
000-22411).
36
37
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.1.8 Amendment No. 16 to the Limited Partnership Agreement of the
Operating Partnership (Incorporated by reference to Exhibit
3.3 to the Operating Partnership's Quarterly Report on Form
10-Q for the quarterly period ended March 31, 1999, File No.
000-22411).
10.1.9 Amendment No. 17 to the Limited Partnership Agreement of the
Operating Partnership (Incorporated by reference to Exhibit
10.1 to the Operating Partnership's Current Report on Form
8-K filed on September 17, 1999, File No. 000-22411).
10.2 Articles of Incorporation of Summit Management Company
(filed herewith).
10.3 Bylaws of Summit Management Company (filed herewith).
10.4 The Company's 1994 Stock Option and Incentive Plan as
amended and restated. (Incorporated by reference to Exhibit
4.5 to the Company's Registration Statement on Form S-8,
Registration No. 333-79897).
10.5.1 The Company's 1996 Non-Qualified Employee Stock Purchase
Plan. (Incorporated by reference to Exhibit 10.5 to the
Company's Registration Statement on Form S-8, Registration
No. 333-00078).
10.5.2 First Amendment to Non-Qualified Employee Stock Purchase
Plan (filed herewith).
10.5.3 Second Amendment to Non-Qualified Employee Stock Purchase
Plan (filed herewith).
10.5.4 Third Amendment to Non-Qualified Employee Stock Purchase
Plan (filed herewith).
10.6 Indemnification Agreement, dated as of July 20, 1999, by and
among the Company, the Operating Partnership, and each
director and executive officer of the Company (Incorporated
by reference to Exhibit 10.3 to the Company's Quarterly
Report on Form 10-Q for the quarterly period ended June 30,
1999, File No. 001-12792).
10.7.1 Employment Agreement between the Company and William F.
Paulsen (filed herewith).
10.7.2 Employment Agreement between the Company and William B.
McGuire, Jr. (Incorporated by reference to Exhibit 10.7.2 to
the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997, File No. 001-12792).
10.7.3(a) Employment Agreement between the Company and William B.
Hamilton. (Incorporated by reference to Exhibit 10.7.9 to
the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997, File No. 001-12792).
10.7.3(b) Amendment Agreement, dated as of May 1, 1999, by and among
the Company, Summit Management Company and William B.
Hamilton (Incorporated by reference to Exhibit 10.2 to the
Company's Quarterly Report on Form 10-Q for the quarterly
period ended June 30, 1999, File No. 001-12792).
10.7.4 Employment Agreement between the Company and Michael L.
Schwarz. (Incorporated by reference to Exhibit 10.7.10 to
the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997, File No. 001-12792).
10.7.5 Employment Agreement between the Company and Steven R.
LeBlanc. (Incorporated by reference to Exhibit 10.7.11 to
the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1998, File No. 001-12792).
10.8.1 Noncompetition Agreement between the Company and William F.
Paulsen. (Incorporated by reference to Exhibit 10.8.1 to the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997, File No. 001-12792).
10.8.2 Noncompetition Agreement between the Company and William B.
McGuire, Jr. (Incorporated by reference to Exhibit 10.8.2 to
the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997, File No. 001-12792).
10.8.3 Noncompetition Agreement between the Company and William B.
Hamilton. (Incorporated by reference to Exhibit 10.8.9 to
the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997, File No. 001-12792).
37
38
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.8.4 Noncompetition Agreement between the Company and Michael L.
Schwarz. (Incorporated by reference to Exhibit 10.8.10 to
the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997, File No. 001-12792).
10.8.5 Noncompetition Agreement between the Company and Steven R.
LeBlanc. (Incorporated by reference to Exhibit 10.8.11 to
the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1998, File No. 001-12792).
10.9.1 Executive Severance Agreement between the Company and
William F. Paulsen. (Incorporated by reference to Exhibit
10.9.1 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997, File No. 001-12792).
10.9.2 Executive Severance Agreement between the Company and
William B. McGuire, Jr. (Incorporated by reference to
Exhibit 10.9.2 to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1997, File No.
001-12792).
10.9.3 Executive Severance Agreement between the Company and
Michael L. Schwarz. (Incorporated by reference to Exhibit
10.9.3 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997, File No. 001-12792).
10.9.4 Executive Severance Agreement between the Company and
William B. Hamilton. (Incorporated by reference to Exhibit
10.9.5 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997, File No. 001-12792).
10.9.5 Executive Severance Agreement between the Company and Steven
R. LeBlanc. (Incorporated by reference to Exhibit 10.9.6 to
the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1998, File No. 001-12792)
10.11 $31,000,000 Loan Agreement, dated July 31, 1996, between the
Operating Partnership and Wachovia Bank of North Carolina,
N.A. (Incorporated by reference to Exhibit 10.34 to the
Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended September 30, 1996, File No. 001-12792).
10.12.1 Promissory Note and Security Agreement, dated January 28,
1998, between the Company and Michael L. Schwarz.
(Incorporated by reference to Exhibit 10.14.1 to the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997, File No. 001-12792).
10.12.2 Promissory Note and Security Agreement, dated January 28,
1998, between the Company and William B. Hamilton.
(Incorporated by reference to Exhibit 10.14.2 to the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997, File No. 001-12792).
10.12.3 Form of Promissory Note and Security Agreement between the
Company and the employees named in the Schedule thereto.
(Incorporated by reference to Exhibit 10.14.3 to the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997, File No. 001-12792).
10.12.4 Promissory Note and Security Agreement, dated August 5,
1998, between the Company and Steven R. LeBlanc.
(Incorporated herein by reference to Exhibit 10.12.4 to the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1998, File No. 001-12792).
10.12.5 Promissory Note, dated as of January 28, 1998, evidencing a
loan of $42,258 to Michael L. Schwarz for the purpose of
paying tax liability associated with Restricted Stock Award.
(Incorporated by reference to Exhibit 10.2 to the Company's
Quarterly Report on Form 10-Q for the quarterly period ended
March 31, 1998, File No. 001-12792).
38
39
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.12.6 Promissory Note, dated as of January 30, 1998, evidencing a
loan of $361,785 to Michael L. Schwarz for the purpose of
purchasing shares of Common Stock of the Company
(Incorporated by reference to Exhibit 10.3 to the Company's
Quarterly Report on Form 10-Q for the quarterly period ended
March 31, 1998, File No. 001-12792).
10.12.7 Promissory Note, dated as of January 28, 1998, evidencing a
loan of $57,418 to William B. Hamilton for the purpose of
paying tax liability associated with Restricted Stock Award.
(Incorporated by reference to Exhibit 10.4 to the Company's
Quarterly Report on Form 10-Q for the quarterly period ended
March 31, 1998, File No. 001-12792).
10.12.8 Promissory Note, dated as of January 30, 1998, evidencing a
loan of $441,562 to William B. Hamilton for the purpose of
purchasing shares of Common Stock of the Company
(Incorporated by reference to Exhibit 10.5 to the Company's
Quarterly Report on Form 10-Q for the quarterly period ended
March 31, 1998, File No. 001-12792).
10.12.9 Promissory Note, dated as of August 5, 1998, evidencing a
loan of $961,000 to Steven R. LeBlanc for the purpose of
purchasing shares of Common Stock of the Company.
(Incorporated by reference to Exhibit 10.2 to the Company's
Quarterly Report on Form 10-Q for the quarterly period ended
September 30, 1998, File No. 001-12792).
10.12.10 Promissory Note, dated February 2, 1999, evidencing a loan
of $1,000,487.05 to Steven R. LeBlanc for the purpose of
purchasing shares of Common Stock of the Company
(Incorporated herein by reference to Exhibit 10.12.10 to the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1998, File No. 001-12792).
10.12.11 Promissory Note, dated February 2, 1999, evidencing a loan
of $450,004.09 to Michael L. Schwarz for the purpose of
purchasing shares of Common Stock of the Company
(Incorporated herein by reference to Exhibit 10.12.11 to the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1998, File No. 001-12792).
10.13.1 Registration Rights Agreement, dated October 12, 1994
between the Company and PK Partners, L.P. (Incorporated by
reference to Exhibit 10.15.1 to the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1997,
File No. 001-12792).
10.13.2 Registration Rights Agreement, dated February 8, 1994,
between the Company and the Continuing Investors named
therein. (filed herewith).
10.13.3 Registration Rights Agreement, dated December 11, 1995,
between the Company and Bissell Ballantyne,
LLC.(Incorporated by reference to Exhibit 10.2 to the
Company's Registration Statement on Form S-3, Registration
No. 333-24669).
10.13.4 Registration Rights Agreement, dated January 10, 1996, among
the Company, Joseph H. Call and Gary S. Cangelosi.
(Incorporated by reference to Exhibit 10.2 to the Company's
Registration Statement on Form S-3, Registration No.
333-24669).
10.13.5 Registration Rights Agreement, dated February 20, 1997,
among the Company, The Northwestern Mutual Life Insurance
Company, J. Ronald Terwilliger, J. Ronald Terwilliger
Grantor Trust, Crow Residential Realty Investors, L.P.,
Douglas A. Hoeksema, Randy J. Pace, Clifford A. Breining,
TCF Residential Partnership, Ltd. and Trammell S. Crow.
(Incorporated by reference to Exhibit 10.2 to the Company's
Registration Statement on Form S-3, Registration No.
333-24669).
10.13.6 Registration Rights Agreement, dated May 16, 1995, between
the Company and the individuals named therein executed in
connection with the Crosland Acquisition. (Incorporated by
reference to Exhibit 10.15.6 to the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1997,
File No. 001-12792).
39
40
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.13.7 Registration Rights and Lock-up Agreement, dated October 31,
1998, by and between the Company, the Operating Partnership,
and the holders named therein (Incorporated herein by
reference to Exhibit 99.1 to the Company's Registration
Statement on Form S-3, Registration No. 333-93923).
10.14 Agreement to Contribute, dated February 13, 1995, between
the Company, the Operating Partnership and Crosland
Partnerships. (Incorporated by reference to Exhibit 2.1 to
the Company's Current Report on Form 8-K dated May 16, 1995,
File No. 001-12792).
10.15.1 Credit Agreement, dated as of March 27, 1998, by and among
the Operating Partnership, the Company, the Banks listed on
the signature pages thereof and the other Lenders from time
to time party thereto, and First Union National Bank, as
Administrative Agent for the Lenders thereunder ("1998
Credit Agreement"). (Incorporated by reference to Exhibit
10.1 to the Company's Quarterly Report on Form 10-Q for the
quarterly period ended March 31, 1998, File No. 001-12792).
10.15.2 Letter Agreement, dated November 25, 1998, by and among the
Operating Partnership, the Company, Wachovia Bank, N.A.
("Wachovia") and First Union National Bank, as
Administrative Agent and Lender under the 1998 Credit
Agreement ("First Union"), evidencing an increase in First
Union's and Wachovia's Commitments (as defined in the 1998
Credit Agreement) under the 1998 Credit Agreement of
$15,000,000 and $10,000,000, respectively (Incorporated
herein by reference to Exhibit 10.15.2 to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1998, File No. 001-12792).
10.15.3 Replacement Competitive Note, dated November 25, 1998 by and
among the Operating Partnership, The Company and First Union
reflecting the increased Commitments (Incorporated herein by
reference to Exhibit 10.15.3 to the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1998,
File No. 001-12792).
10.15.4 Replacement Competitive Note, dated November 25, 1998 by and
among the Operating Partnership, The Company and Wachovia
reflecting the increased Commitments (Incorporated herein by
reference to Exhibit 10.15.4 to the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1998,
File No. 001-12792).
10.15.5 Replacement Competitive Note, dated November 25, 1998 by and
among the Operating Partnership, The Company and
NationsBank, N.A. reflecting the increased Commitments
(Incorporated herein by reference to Exhibit 10.15.5 to the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1998, File No. 001-12792).
10.15.6 Replacement Competitive Note, dated November 25, 1998 by and
among the Operating Partnership, The Company and
Commerzbank, A.G. reflecting the increased Commitments
(Incorporated herein by reference to Exhibit 10.15.6 to the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1998, File No. 001-12792).
10.15.7 Replacement Competitive Note, dated November 25, 1998 by and
among the Operating Partnership, The Company and PNC Bank,
National Association reflecting the increased Commitments
(Incorporated herein by reference to Exhibit 10.15.7 to the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1998, File No. 001-12792).
10.15.8 Replacement Competitive Note, dated November 25, 1998 by and
among the Operating Partnership, The Company and AmSouth
Bank reflecting the increased Commitments (Incorporated
herein by reference to Exhibit 10.15.8 to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1998, File No. 001-12792).
10.15.9 Replacement Revolving Note, dated November 25, 1998 by and
among the Operating Partnership, the Company and First Union
reflecting the increased Commitments (Incorporated herein by
reference to Exhibit 10.15.9 to the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1998,
File No. 001-12792).
40
41
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.15.10 Replacement Revolving Note, dated November 25, 1998 by and
among the Operating Partnership, the Company and Wachovia
reflecting the increased Commitments (Incorporated herein by
reference to Exhibit 10.15.10 to the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1998,
File No. 001-12792).
10.16 Agreement and Plan of Reorganization dated as of October 31,
1998 among the Company, affiliates of the Company (including
the Operating Partnership), Ewing Industries, Inc., and
affiliates of Ewing Industries, Inc. (Incorporated by
reference to Exhibit 2.1 to the Company's Current Report on
Form 8-K filed on November 13, 1998, File No. 001-12792).
12.1 Statement Regarding Calculation of Ratios of Earnings to
Fixed Charges for the Years Ended December 31, 1999, 1998,
1997 1996 and 1995 (filed herewith).
21.1 Subsidiaries of the Company (filed herewith).
23.1 Consent of Deloitte & Touche LLP (filed herewith).
27 Financial Data Schedule (filed herewith).
41
42
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, Summit Properties Inc. certifies that it has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized,
in Charlotte, North Carolina on March 16, 2000.
SUMMIT PROPERTIES INC.
/s/ WILLIAM F. PAULSEN
--------------------------------------
William F. Paulsen,
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons in the capacities and on the dates
indicated.
SIGNATURES TITLE DATE
---------- ----- ----
/s/ WILLIAM B. MCGUIRE, JR. Co-Chairman of the Board of March 16, 2000
- ----------------------------------------------------- Directors
William B. McGuire, Jr.
/s/ WILLIAM F. PAULSEN Co-Chairman of the Board of March 16, 2000
- ----------------------------------------------------- Directors and Chief
William F. Paulsen Executive Officer
(Principal Executive
Officer)
/s/ STEVEN R. LEBLANC President, Chief Operating March 16, 2000
- ----------------------------------------------------- Officer and Director
Steven R. LeBlanc (Principal Operating
Officer)
/s/ MICHAEL L. SCHWARZ Chief Financial Officer and March 16, 2000
- ----------------------------------------------------- Executive Vice President
Michael L. Schwarz (Principal Financial
Officer and Principal
Accounting Officer)
/s/ HENRY H. FISHKIND Director March 16, 2000
- -----------------------------------------------------
Henry H. Fishkind
/s/ JAMES H. HANCE, JR. Director March 16, 2000
- -----------------------------------------------------
James H. Hance, Jr.
/s/ NELSON SCHWAB, III Director March 16, 2000
- -----------------------------------------------------
Nelson Schwab, III
/s/ JAMES M. ALLWIN Director March 16, 2000
- -----------------------------------------------------
James M. Allwin
42
43
INDEX TO FINANCIAL STATEMENTS
The following financial statements of the Company required to be included in
Item 14(a)(1) are listed below:
SUMMIT PROPERTIES INC.
PAGE
----
Independent Auditors' Report................................ 44
Consolidated Balance Sheets as of December 31, 1999 and
1998...................................................... 45
Consolidated Statements of Earnings for the Years Ended
December 31, 1999, 1998 and 1997.......................... 46
Consolidated Statements of Stockholders' Equity for the
Years Ended December 31, 1999, 1998 and 1997.............. 47
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1999, 1998 and 1997.......................... 48
Notes to Consolidated Financial Statements.................. 49
43
44
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Summit Properties Inc.
Charlotte, North Carolina
We have audited the accompanying consolidated balance sheets of Summit
Properties Inc. as of December 31, 1999 and 1998, and the related consolidated
statements of earnings, stockholders' equity, and cash flows for each of the
three years in the period ended December 31, 1999. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of December 31, 1999
and 1998, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1999 in conformity with accounting
principles generally accepted in the United States of America.
As discussed in Note 3 to the consolidated financial statements, in 1999 the
Company changed its method of accounting for carpet replacements.
DELOITTE & TOUCHE LLP
Charlotte, North Carolina
January 20, 2000
44
45
SUMMIT PROPERTIES INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
DECEMBER 31,
------------------------
1999 1998
---------- ----------
ASSETS
Real estate assets:
Land and land improvements................................ $ 174,615 $ 169,374
Buildings and improvements................................ 893,179 836,054
Furniture, fixtures and equipment......................... 68,437 63,963
---------- ----------
1,136,231 1,069,391
Less: accumulated depreciation............................ (129,620) (115,128)
---------- ----------
Operating real estate assets...................... 1,006,611 954,263
Construction in progress.................................. 148,587 137,145
---------- ----------
Net real estate assets............................ 1,155,198 1,091,408
Cash and cash equivalents................................... 4,130 2,837
Restricted cash............................................. 40,080 91,981
Investments in Summit Management Company and real estate
joint ventures............................................ 583 1,330
Deferred financing costs, net of accumulated amortization of
$5,153 and $4,472 in 1999 and 1998, respectively.......... 6,657 7,538
Other assets................................................ 10,765 3,570
---------- ----------
Total assets................................................ $1,217,413 $1,198,664
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Notes payable............................................. $ 649,632 $ 726,103
Accrued interest payable.................................. 7,018 6,806
Accounts payable and accrued expenses..................... 25,626 32,745
Dividends and distributions payable....................... 12,984 12,713
Security deposits and prepaid rents....................... 3,850 4,188
---------- ----------
Total liabilities................................. 699,110 782,555
---------- ----------
Commitments and contingencies
Minority interest of common unitholders in Operating
Partnership............................................... 54,698 57,184
Minority interest of preferred unitholders in Operating
Partnership............................................... 136,270 --
Stockholders' equity:
Preferred stock, $.01 par value -- 25,000,000 shares
authorized, no shares issued and outstanding........... -- --
Common stock, $.01 par value -- 100,000,000 shares
authorized, 26,374,446 and 27,805,836 shares issued and
outstanding in 1999 and 1998, respectively............. 264 278
Additional paid-in capital................................ 412,874 442,132
Accumulated deficit....................................... (80,555) (80,281)
Unamortized restricted stock compensation................. (387) (728)
Employee notes receivable................................. (4,861) (2,476)
---------- ----------
Total stockholders' equity.................................. 327,335 358,925
---------- ----------
Total liabilities and stockholders' equity.................. $1,217,413 $1,198,664
========== ==========
See notes to consolidated financial statements.
45
46
SUMMIT PROPERTIES INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31,
---------------------------------------
1999 1998 1997
----------- ----------- -----------
Revenues:
Rental................................................ $ 162,859 $ 137,961 $ 110,105
Other property income................................. 10,670 7,695 5,901
Interest.............................................. 3,030 1,064 392
Other income.......................................... 289 849 279
----------- ----------- -----------
Total revenues................................ 176,848 147,569 116,677
----------- ----------- -----------
Expenses:
Property operating and maintenance:
Personnel........................................ 12,796 11,350 9,278
Advertising and promotion........................ 2,630 2,419 2,095
Utilities........................................ 8,544 7,541 6,124
Building repairs and maintenance................. 8,609 9,893 8,790
Real estate taxes and insurance.................. 17,684 14,063 10,721
Depreciation..................................... 34,432 28,997 22,652
Property supervision............................. 4,175 3,531 2,783
Other operating expenses......................... 2,880 2,753 2,241
----------- ----------- -----------
91,750 80,547 64,684
Interest.............................................. 38,274 33,506 21,959
General and administrative............................ 3,876 3,861 2,740
Loss (income) on equity investments:
Summit Management Company.......................... 719 327 (274)
Real estate joint ventures......................... (104) 1 --
----------- ----------- -----------
Total expenses................................ 134,515 118,242 89,109
----------- ----------- -----------
Income before gain on sale of real estate assets,
minority interest of common unitholders in Operating
Partnership, dividends to preferred unitholders in
Operating Partnership and extraordinary items......... 42,333 29,327 27,568
Gain on sale of real estate assets...................... 17,427 37,148 4,366
----------- ----------- -----------
Income before minority interest of common unitholders in
Operating Partnership, dividends to preferred
unitholders in Operating Partnership and extraordinary
items................................................. 59,760 66,475 31,934
Minority interest of common unitholders in Operating
Partnership........................................... (7,317) (9,592) (4,818)
Dividends to preferred unitholders in Operating
Partnership........................................... (6,698) -- --
----------- ----------- -----------
Income before extraordinary items....................... 45,745 56,883 27,116
Extraordinary items, net of minority interest of common
unitholders in Operating Partnership.................. -- (508) --
----------- ----------- -----------
Net income.............................................. $ 45,745 $ 56,375 $ 27,116
=========== =========== ===========
Per share data:
Income before extraordinary items -- basic and
diluted.......................................... $ 1.65 $ 2.28 $ 1.17
=========== =========== ===========
Extraordinary items -- basic and diluted........... -- $ (0.02) --
=========== =========== ===========
Net income -- basic and diluted.................... $ 1.65 $ 2.26 $ 1.17
=========== =========== ===========
Dividends declared on common stock................. $ 1.67 $ 1.63 $ 1.59
=========== =========== ===========
Weighted average shares -- basic................... 27,697,904 24,934,618 23,145,881
=========== =========== ===========
Weighted average shares -- diluted................. 27,768,895 24,944,002 23,182,302
=========== =========== ===========
See notes to consolidated financial statements.
46
47
SUMMIT PROPERTIES INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
UNAMORTIZED
ADDITIONAL RESTRICTED EMPLOYEE
COMMON PAID-IN ACCUMULATED STOCK NOTES
STOCK CAPITAL DEFICIT COMPENSATION RECEIVABLE TOTAL
------- ---------- ----------- ------------ ---------- --------
Balance, December 31, 1996............ $224 $342,872 $(85,068) $ (814) $257,214
Dividends........................... -- -- (37,168) -- (37,168)
Issuance of stock................... 6 11,740 -- -- 11,746
Costs of shelf registrations........ -- (616) -- -- (616)
Proceeds from dividend and stock
purchase plans.................... 2 3,605 -- -- 3,607
Conversion of units to shares....... 2 3,911 -- -- 3,913
Exercise of stock options........... -- 851 -- -- 851
Issuance of restricted stock
grants............................ 546 -- (546) --
Amortization of restricted stock
grants............................ -- -- -- 354 354
Adjustment for minority interest of
common unitholders in Operating
Partnership....................... -- (1,178) -- -- (1,178)
Net income.......................... -- -- 27,116 -- 27,116
---- -------- -------- ------- ------- --------
Balance, December 31, 1997............ 234 361,731 (95,120) (1,006) 265,839
Dividends........................... -- -- (41,536) -- (41,536)
Issuance of stock................... 21 37,322 -- -- 37,343
Proceeds from dividend and stock
purchase plans.................... 22 42,891 -- -- 42,913
Conversion of units to shares....... -- 555 -- -- 555
Exercise of stock options........... 1 840 -- -- 841
Issuance of restricted stock
grants............................ 162 -- (162) --
Amortization of restricted stock
grants............................ -- -- -- 440 440
Adjustment for minority interest of
common unitholders in Operating
Partnership....................... -- (1,369) -- -- (1,369)
Issuance of employee notes
receivable........................ -- -- -- $(2,476) (2,476)
Net income.......................... -- -- 56,375 -- -- 56,375
---- -------- -------- ------- ------- --------
Balance, December 31, 1998............ 278 442,132 (80,281) (728) (2,476) 358,925
Dividends........................... -- -- (46,019) -- -- (46,019)
Proceeds from dividend and stock
purchase plans.................... 10 15,331 -- -- -- 15,341
Repurchase of common stock.......... (24) (47,502) -- -- -- (47,526)
Exercise of stock options........... -- 182 -- -- -- 182
Issuance of restricted stock
grants............................ -- 304 -- (304) -- --
Amortization of restricted stock
grants............................ -- -- -- 645 -- 645
Adjustment for minority interest of
common unitholders in Operating
Partnership....................... -- 2,427 -- -- -- 2,427
Issuance of employee notes
receivable........................ -- -- -- -- (3,144) (3,144)
Repayment of employee notes
receivable........................ -- -- -- -- 759 759
Net income.......................... -- -- 45,745 -- -- 45,745
---- -------- -------- ------- ------- --------
Balance, December 31, 1999............ $264 $412,874 $(80,555) $ (387) $(4,861) $327,335
==== ======== ======== ======= ======= ========
See notes to consolidated financial statements.
47
48
SUMMIT PROPERTIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
YEARS ENDED DECEMBER 31,
-----------------------------------
1999 1998 1997
--------- --------- ---------
Cash flows from operating activities:
Net income................................................ $ 45,745 $ 56,375 $ 27,116
Adjustments to reconcile net income to net cash provided
by operating activities:
Minority interest of common unitholders in Operating
Partnership........................................... 7,317 9,592 4,818
Extraordinary items..................................... -- 508 --
Loss (income) on equity investments..................... 615 328 (274)
Gain on sale of real estate assets...................... (17,427) (37,148) (4,366)
Depreciation and amortization........................... 35,304 30,163 23,897
(Increase) decrease in restricted cash.................. (4,722) (777) 941
Increase in other assets................................ (3,952) (504) (162)
Increase in accrued interest payable.................... 212 1,444 3,581
(Decrease) increase in accounts payable and accrued
expenses.............................................. (7,000) 3,823 517
(Decrease) increase in security deposits and prepaid
rents................................................. (338) 4 (121)
--------- --------- ---------
Net cash provided by operating activities.......... 55,754 63,808 55,947
--------- --------- ---------
Cash flows from investing activities:
Construction of real estate assets and land acquisitions,
net of payables......................................... (127,764) (122,842) (91,665)
Purchase of Communities................................... -- (124,846) (78,870)
Proceeds from sale of Communities......................... 110,873 44,245 9,209
Capitalized interest...................................... (7,888) (6,142) (5,873)
Recurring capital expenditures, net of payables........... (6,357) (4,607) (4,586)
Non-recurring capital expenditures........................ (5,348) (4,978) (4,122)
--------- --------- ---------
Net cash used in investing activities.............. (36,484) (219,170) (175,907)
--------- --------- ---------
Cash flows from financing activities:
Net (repayments) borrowings on line of credit............. (75,508) 131,252 (655)
Net borrowings on unsecured bonds......................... 24,600 54,392 151,192
Repayments of mortgage debt............................... (5,136) (27,391) (3,852)
Repayments of tax exempt bonds............................ (1,155) (1,050) (1,010)
Net proceeds from dividend reinvestment and stock purchase
plans................................................... 15,341 42,913 3,607
Dividends and distributions to unitholders................ (53,186) (46,819) (42,971)
Issuance of stock......................................... -- -- 6,196
Exercise of stock options................................. 182 841 851
(Decrease) increase in advance proceeds from direct stock
purchase plan........................................... (9,474) 2,974 6,500
Net proceeds from the sale of preferred units............. 136,270 -- --
Repurchase of common stock................................ (47,526) -- --
Increase in employee notes receivable..................... (2,385) (2,476) --
--------- --------- ---------
Net cash provided by (used in) financing
activities....................................... (17,977) 154,636 119,858
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents........ 1,293 (726) (102)
Cash and cash equivalents, beginning of year................ 2,837 3,563 3,665
--------- --------- ---------
Cash and cash equivalents, end of year...................... $ 4,130 $ 2,837 $ 3,563
========= ========= =========
Supplemental disclosure of cash flow information -- Cash
paid for interest, net of capitalized interest............ $ 37,070 $ 31,106 $ 17,321
========= ========= =========
See notes to consolidated financial statements.
48
49
SUMMIT PROPERTIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND FORMATION OF THE COMPANY
Summit Properties Inc. (the "Company") was initially organized as a Maryland
real estate investment trust on December 1, 1993 under the Maryland Real Estate
Investment Trust Act. The Company became a Maryland corporation under the
General Corporation Law of Maryland on January 13, 1994. On February 15, 1994,
the Company completed an Initial Public Offering ("Initial Offering"). In
connection with the Initial Offering, the Company consummated a business
combination involving the partnerships (the "Property Partnerships") which owned
the 27 communities (together with all communities acquired and developed since
the Initial Offering, the "Communities") and the affiliated entities which
provided development, construction, management and leasing services to each of
the Communities prior to the Initial Offering (collectively, the "Summit
Entities"). A portion of the proceeds from the Initial Offering was used to
acquire an economic and voting interest in Summit Properties Partnership, L.P.
(the "Operating Partnership"), which was formed to succeed to substantially all
of the interests of the Property Partnerships in the Communities and the
operations of the Summit Entities (the "Formation"). The Company became the sole
general partner and the majority owner of the Operating Partnership upon
completion of the Initial Offering and, accordingly, reports its investment in
the Operating Partnership on a consolidated basis.
In June 1995, the Company completed the sale of 4 million shares of Common
Stock, ("1995 Offering"). In August 1996, the Company completed the sale of 5.75
million shares of Common Stock, ("1996 Offering"). The net proceeds of $65.9
million and $97.6 million from the 1995 and 1996 Offerings, respectively, were
used to repay mortgage debt and to fund the construction of development
communities.
2. BASIS OF PRESENTATION
In conjunction with the Initial Offering, construction, management and leasing
activities for third parties were transferred to Summit Management Company (the
"Management Company") and its wholly-owned subsidiary, Summit Apartment
Builders, Inc. (the "Construction Company"). The Operating Partnership has a 99%
economic interest in the Management Company but controls only 1% of the voting
stock. The remaining 99% of the voting stock is held by an executive officer of
the Company, which stock is subject to certain restrictions on transfer designed
to ensure that the holder of the Management Company's voting stock will have
interests aligned with those of the Company. Because of the Company's ability to
exercise significant influence, the Management Company is accounted for on the
equity method of accounting.
As a result of the Formation, the partners and owners of the entities comprising
the Summit Entities either retained their existing ownership interests, received
shares of Common Stock or received common units of limited partnership interest
("Common Units") in the Operating Partnership. Purchase accounting was applied
to the acquisition of all non-controlled interests in which cash consideration
was paid. The acquisition of all other interests was accounted for as a
reorganization of entities under common control and, accordingly, was reflected
at historical cost in a manner similar to that in pooling of interests
accounting.
All significant intercompany accounts and transactions have been eliminated in
consolidation. The financial statements of the Company have been adjusted for
the minority interest of common unitholders in the Operating Partnership.
Minority interest of unitholders in the Operating Partnership is calculated at
the balance sheet date based upon the percentage of Common Units outstanding
owned by partners other than the Company to the total number of Common Units
outstanding. Minority interest of unitholders in Operating Partnership earnings
is calculated based on the weighted average Units outstanding during the period.
Common Units can be exchanged for cash, or at the option of the Company, for
shares of Common Stock on a one-for-one basis. With respect to Common Units
issued in conjunction with the initial formation of the Company as a REIT, the
redemption of Common Units for shares of Common Stock is recorded at book value.
With respect to Common Units issued subsequent to that date, the redemption of
Common Units for shares of Common Stock is accounted for as the purchase of a
minority interest and, therefore, recorded at the fair market value of the
shares of Common Stock issued at the date of the redemption.
49
50
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REAL ESTATE ASSETS AND DEPRECIATION -- The Company records its real estate
assets at cost less accumulated depreciation and adjusts carrying value in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 121,
"Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be
Disposed Of". SFAS No. 121 requires that long-lived assets such as real estate
assets be reviewed whenever events or changes in circumstances indicate that the
book value of the asset may not be recoverable. If the sum of the estimated
future net cash flows (undiscounted and without interest charges) from an asset
to be held and used is less than the book value of the asset, an impairment loss
must be recognized in the amount of the difference between book value and fair
value. For long-term assets like apartment communities, the determination of
whether there is an impairment loss is dependent primarily on the Company's
estimates on occupancy, rent and expense increases, which involves numerous
assumptions and judgments as to future events over a period of many years.
Assets to be disposed of are reported at the lower of carrying value or fair
value less costs to sell. At December 31, 1999, the Company did not hold any
assets that meet the impairment criteria of SFAS No. 121. At December 31, 1999,
the Company had three apartment communities for sale with a net book value of
approximately $13.8 million. The Company does not anticipate incurring a loss on
the sale of any individual apartment community. The three apartment communities
held for sale represented approximately 2.0% of property operating income for
the Company for the year ended December 31, 1999.
Expenditures directly related to the acquisition, development and improvement of
real estate assets are capitalized at cost as land, buildings and improvements.
Improvements are categorized as either recurring capital expenditures or
non-recurring capital expenditures. Non-recurring capital expenditures primarily
consist of the cost of improvements such as new garages, water submeters and
improvements made in conjunction with acquisitions and major renovations. All
other improvements are deemed as recurring capital expenditures.
Ordinary repairs and maintenance, including interior painting, are expensed as
incurred; major replacements and betterments are capitalized and depreciated
over their estimated useful lives. Depreciation is computed on a straight-line
basis over the estimated useful lives of the assets (buildings -- 40 years;
building improvements -- 5 to 15 years; land improvements -- 15 years;
furniture, fixtures and equipment -- 5 to 7 years).
Effective January 1, 1999, the Company implemented prospectively a new
accounting policy whereby expenditures for carpet replacement are capitalized
and depreciated over their estimated useful lives. Previously, the cost of
carpet replacements had been expensed. The Company believes that the newly
adopted accounting policy is preferable as it is consistent with the standards
and practices utilized by the majority of the Company's peers and provides a
better matching of expenses with the related benefit of the expenditure. The
change in accounting policy is being treated as a change in accounting principle
inseparable from a change in accounting estimate. The effect of this change for
the year ended December 31, 1999 was a net increase in net income of $1.4
million, or $0.05 per basic and diluted share, respectively.
Interest costs incurred during the construction period are capitalized and
depreciated over the lives of the constructed assets. Interest capitalized was
$7.9 million, $6.1 million and $5.9 million for the years ended December 31,
1999, 1998 and 1997, respectively.
RENTAL REVENUE RECOGNITION -- The Company leases its residential properties
under operating leases with terms generally one year or less. Rental revenue is
recognized on the accrual method of accounting as earned.
PROPERTY MANAGEMENT -- The Management Company provides property management
services for both Company owned properties as well as properties owned by third
parties. Revenue is recognized when earned, as the services are provided.
CASH AND CASH EQUIVALENTS -- For purposes of the statement of cash flows, the
Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents.
50
51
RESTRICTED CASH -- Restricted cash is comprised primarily of resident security
deposits, bond repayment escrows, replacement reserve escrows, and proceeds from
apartment community sales deposited with a qualified intermediary in accordance
with like-kind exchange rules and regulations.
DEFERRED FINANCING COSTS -- Deferred financing costs include fees and costs
incurred in conjunction with long-term financings and are amortized on the
straight-line method over the terms of the related debt. Such amortization is
included in interest expense in the accompanying consolidated statements of
earnings.
ADVERTISING COSTS -- The Company expenses advertising costs as incurred.
INCOME TAXES -- The Company has maintained and intends to maintain its election
to be taxed as a real estate investment trust ("REIT") under the Internal
Revenue Code of 1986, as amended (the "Code"). As a result, the Company
generally will not be subject to federal and state income taxation at the
corporate level to the extent it distributes annually at least 95% (90%
effective for tax years beginning after December 31, 2000) of its taxable
income, as defined in the Code, to its stockholders and satisfies certain other
requirements. Accordingly, no provision has been made for federal and state
income taxes in the accompanying consolidated financial statements.
Financial Accounting Standard No. 109, "Accounting for Income Taxes" requires a
public enterprise to disclose the aggregate difference in the basis of its net
assets for financial and tax reporting purposes. The carrying value reported in
the Company's consolidated financial statements exceeded the tax basis by
approximately $90.6 million as of December 31, 1999 and 1998. The change between
December 31, 1999 and 1998 was primarily due to financial depreciation exceeding
tax depreciation by approximately $9.2 million offset by the carrying value
exceeding the tax basis by $11.5 million for the Company's 1999 Development
communities and recurring capital expenditures and the carrying value exceeding
the tax value by $2.4 million for the Company's 1999 Disposition communities.
A schedule of per share distributions paid by the Company to be reported by the
stockholders is set forth in the following table:
YEAR ENDED DECEMBER 31,
-----------------------
1999 1998 1997
----- ----- -----
Ordinary income............................................. $1.40 $1.34 $1.19
20% Long-term capital gain.................................. 0.10 -- --
Unrecaptured Sec. 1250 gain................................. 0.07 -- --
Return of capital........................................... 0.10 0.29 0.40
----- ----- -----
Total Distribution per share...................... $1.67 $1.63 $1.59
===== ===== =====
PER SHARE DATA -- Basic earnings per share with respect to the Company for the
years ended December 31, 1999, 1998 and 1997 are computed based upon the
weighted average number of shares outstanding during the period. The difference
between "basic" and "diluted" weighted average shares is the dilutive effect of
the Company's stock options outstanding (70,991, 9,384 and 36,421 shares added
to weighted shares outstanding in 1999, 1998 and 1997, respectively). Dilution
caused by these options had no impact on earnings per share.
ESTIMATES -- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
COMPREHENSIVE INCOME -- Comprehensive income is the same as net income for all
periods presented.
NEW ACCOUNTING PRONOUNCEMENTS -- On January 1, 2001, the Company is required to
adopt Statement of Financial Accounting Standard No. 133, "Accounting for
Derivative Instruments and Hedging Activities" (FAS 133). This statement
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and
51
52
measure those instruments at fair value. The Company is currently assessing the
impact, if any, that the adoption of SFAS 133 will have on the Company's
financial statements.
RECLASSIFICATIONS -- Certain reclassifications have been made to the 1998 and
1997 financial statements to conform to the 1999 presentation.
4. REAL ESTATE JOINT VENTURES
The Company obtained a 25% interest in a joint venture named Station Hill, LLC,
a North Carolina limited liability company ("Station Hill"), the membership of
which is comprised of the Company and a wholly owned subsidiary of a major
financial services company, in exchange for the contribution of two communities
in December 1998. Station Hill also owns, and the Company thereby holds a 25%
interest in, five apartment communities that were previously 100% owned by the
Company. These five communities were sold by the Company to Hollow Creek, LLC on
December 16, 1998 and were concurrently contributed to Station Hill by Hollow
Creek, LLC for a 75% joint venture interest (See Acquisitions and
Dispositions -- Note 8). The seven communities are Summit Green, Summit Hill I &
II, Summit Creek, Summit Hollow I & II and Summit Station. The Company's initial
investment in Station Hill was reduced to zero when the Company eliminated the
portion of the gain on disposal related to the percentage of joint venture
ownership interest retained. Station Hill is accounted for on the equity method
of accounting.
The Company owns a 49% interest in each of three joint ventures ("Construction
Projects"), each of which is developing an apartment community. All of the
Construction Projects are under construction and two are in lease-up. The
Construction Projects are accounted for under the equity method of accounting
and, therefore, the operating results of the two Construction Communities in
lease-up are presented in "Loss (income) on equity investments: Real estate
joint ventures" in the consolidated statements of earnings. The construction
costs are being funded primarily through separate construction loans to each
joint venture from unrelated third parties equal to 100% of the construction
costs. During the construction period, in lieu of equity contribution to each of
the respective joint ventures, the Company has under certain circumstances,
subsequent to demand by the third party lenders, agreed to make contributions
which would reduce the respective construction loan by an amount not to exceed
25% of the total construction loan amount. Any such contribution would be deemed
to be all or a portion of the equity required to be contributed by the Company
to the respective joint venture at the end of the construction and lease up
period. The Company has the right to purchase its joint venture partner's
interest in each of the joint ventures for a period of six months after each
project becomes stabilized. None of the Construction Projects have reached
stabilization as of December 31, 1999 and the Company has not made a
determination about whether it will exercise any of its options. If the Company
does not exercise an option with respect to a joint venture, it will be required
to make a capital contribution of 25% of that joint venture's total construction
loan amount.
52
53
The following is a condensed balance sheet and income statement for Station Hill
as of and for the year ended December 31, 1999 (in thousands). The balance sheet
and income statement set forth below reflects the financial position and
operations of Station Hill in its entirety, not only the Company's respective
interest therein. The balance sheet and income statement information for the
Construction Projects is not material.
BALANCE SHEET
----------------
Cash and cash equivalents................................... $ 1,764
Real estate assets, net, other than construction in
progress.................................................. 89,214
Other assets................................................ 399
-------
Total assets...................................... $91,377
=======
Mortgages payable........................................... $69,460
Other liabilities........................................... 784
Partners' capital........................................... 21,133
-------
Total liabilities and partners' capital........... $91,377
=======
INCOME STATEMENT
----------------
Revenues.................................................... $11,919
Expenses
Property Operating........................................ 4,323
Depreciation and amortization............................. 3,031
Interest.................................................. 4,677
-------
Total expenses.................................... 12,031
-------
Net loss.................................................... $ (112)
=======
5. PROPERTY MANAGEMENT AND RELATED PARTY TRANSACTIONS
In conjunction with the Formation, construction, management and leasing
activities for third parties were transferred to the Management Company.
The Management Company also provides property management services to the
Company's Communities. Total fees for management services provided to the
Company's Communities were $5.0 million, $3.9 million and $3.1 million for the
years ended December 31, 1999, 1998 and 1997, respectively.
In addition, the Management Company provides management services to apartment
communities in which executive officers and certain directors of the Company are
general partners. The Management Company received management fees of
approximately $239,000, $233,000 and $214,000 for the performance of such
services for the years ended December 31, 1999, 1998 and 1997, respectively.
Construction Company revenue consists of fees on contracts with the Company.
Revenue from construction contracts with the Company was $1.8 million, $1.1
million and $1.1 million for the years ended December 31, 1999, 1998 and 1997,
respectively. The Construction Company's profits on these contracts are
eliminated in consolidation against the Company's investment in real estate. The
Company had $13.3 million and $5.7 million payable to the Construction Company
as of December 31, 1999 and 1998, respectively. This amount is included in
"Accounts payable and accrued expenses" in the accompanying consolidated balance
sheets. Also included in the accompanying consolidated balance sheets under the
caption "Other assets" is a receivable from the Construction Company of $3.3
million as a result of construction advances.
53
54
The Company's investment in the Management Company as of December 31, 1999 and
1998, reported on the equity method, includes the amounts shown below. The
Company's investment in the Management Company is not considered material to the
consolidated financial statements of the Company taken as a whole (in
thousands):
1999 1998
------- -------
Equity investment........................................... $ (900) $ 111
Note receivable............................................. 2,500 2,500
Deferred gain on sale of third party contract rights........ (1,031) (1,281)
------- -------
$ 569 $ 1,330
======= =======
The consolidated statement of earnings of the Management Company and its wholly
owned subsidiary, the Construction Company, are summarized below (in thousands):
YEARS ENDED DECEMBER 31,
--------------------------
1999 1998 1997
------ ------ ------
Revenue..................................................... $8,853 $6,396 $6,102
Expenses:
Operating................................................. 8,699 5,893 5,039
Depreciation.............................................. 284 244 185
Amortization.............................................. 289 286 304
Interest.................................................. 300 300 300
------ ------ ------
Total expenses............................................ 9,572 6,723 5,828
------ ------ ------
Net income (loss) of Summit Management Company.............. $ (719) $ (327) $ 274
====== ====== ======
54
55
6. NOTES PAYABLE
Notes payable consist of the following (in thousands):
INTEREST PRINCIPAL OUTSTANDING
RATE AS OF DECEMBER 31,
DECEMBER 31, ----------------------
1999 1999 1998
------------ --------- ---------
FIXED RATE DEBT
Secured Debt:
Mortgage Loan...................................... 6.24% $143,740 $146,740
Mortgage Loan...................................... 8.00% 8,375 8,470
Mortgage Notes..................................... 6.75%-9.80% 111,081 115,443
Tax-exempt Mortgage Note........................... 6.95% 4,048 9,148
-------- --------
Total Secured Fixed Rate Debt................. 267,244 279,801
Unsecured Debt:
6.71% Medium Term Notes due 2000................... 6.71% 25,000 25,000
6.75% Medium Term Notes due 2001................... 6.75% 30,000 30,000
7.59% Medium Term Notes due 2009................... 7.59% 25,000 --
6.80% Notes due 2002............................... 6.80% 25,000 25,000
6.63% Notes due 2003............................... 6.63% 30,000 30,000
6.95% Notes due 2004............................... 6.95% 50,000 50,000
7.20% Notes due 2007............................... 7.20% 50,000 50,000
Bank Note due 2000................................. 7.61% 15,000 15,000
Bank Note due 2002................................. 7.85% 16,000 16,000
-------- --------
Total Unsecured Fixed Rate Debt.................... 266,000 241,000
-------- --------
Total Fixed Rate Debt.............................. 533,244 520,801
-------- --------
VARIABLE RATE DEBT
Unsecured Credit Facility............................. LIBOR +90 78,000 153,500
Tax Exempt Bonds...................................... 6.90% 38,388 51,802
-------- --------
Total Variable Rate Debt...................... 116,388 205,302
-------- --------
Total Outstanding Indebtedness........................ $649,632 $726,103
======== ========
The one-month London Interbank Offered Rate (LIBOR) at December 31, 1999 was
5.82%.
MORTGAGE LOANS -- On September 23, 1998, the Company consolidated and renewed
two mortgage loans which had a $147.2 million balance. The original loans
matured in February 2001 ($118.3 million at 5.88%) and December 2005 ($28.9
million at 7.71%). The consolidation and renewal combined the two mortgage loans
into one loan at an interest rate equal to the existing weighted average
interest rate of the two previous mortgage loans (6.24%) up to February 2001. As
of February 2001, the rate of interest on the loan will increase to 6.76% until
the loan matures in October of 2008.
The 8.00% Mortgage Loan requires monthly principal and interest payments on a
30-year amortization schedule with a balloon payment due at maturity in
September 2005.
MORTGAGE NOTES -- The Mortgage Notes bear interest at fixed rates ranging from
6.75% to 9.80% and require monthly interest and principal payments over the life
of the notes which range from the year 2002 to 2029. The weighted average
interest rate and debt maturity at December 31, 1999 for these nine Mortgage
Notes were 7.19% and 7.0 years, respectively.
TAX EXEMPT MORTGAGE NOTE -- The Tax Exempt Mortgage Note bears interest at a
fixed rate of 6.95% and requires monthly interest and principal payments over
the life of the note which matures November 2025.
MEDIUM-TERM NOTES -- On May 29, 1998, the Company established a program for the
sale by the Operating Partnership of up to $95 million aggregate principal
amount of Medium-Term Notes due nine months or more from the date of issuance
(the "MTN Program"). The Operating Partnership issued Medium-Term Notes
55
56
with an aggregate principal amount of $80 million in connection with the MTN
Program as follows: (i) on July 28, 1998, the Company sold $30 million of notes
which are due on July 30, 2001 and bear interest at 6.75% per year; (ii) on
October 5, 1998, the Operating Partnership sold $25 million of notes which are
due on October 5, 2000 and bear interest at 6.71% per year; and (iii) on March
18, 1999, the Operating Partnership sold $25 million of notes which are due on
March 16, 2009 and bear interest at 7.59% per year. In July 1999, the Company
and the Operating Partnership filed a shelf registration statement with the
Securities Exchange Commission, pursuant to which the Operating Partnership may
issue debt securities with an aggregate public offering price of up to $250
million. The Company intends to establish a new, similar program for the sale of
Medium-Term Notes by the Operating Partnership under such registration
statement, pursuant to which the Operating Partnership may issue Medium-Term
Notes from time to time in the future subject to certain market conditions and
other factors.
UNSECURED NOTES -- The unsecured notes consist of $25.0 million of notes due
2002, $30.0 million of notes due 2003, $50.0 million of notes due 2004 and $50.0
million of notes due 2007 (collectively, the "Unsecured Notes"). The Unsecured
Notes require semi-annual interest payments until the end of the respective
terms.
UNSECURED BANK NOTES -- The unsecured bank notes consist of a $16.0 million note
due 2002 and a $15.0 million note due 2000 (collectively, the "Unsecured Bank
Notes"). The Unsecured Bank notes require quarterly interest only payments until
the end of the respective terms.
UNSECURED CREDIT FACILITY -- In March 1998, the Company obtained a new
syndicated unsecured line of credit (the "Unsecured Credit Facility") in the
amount of $175 million which replaced the existing $150 million credit facility.
The Unsecured Credit Facility was increased in December 1998 to $200 million.
The Unsecured Credit Facility provides funds for new development, acquisitions
and general working capital purposes. The Unsecured Credit Facility has a three
year term with two one-year extension options and bears interest at LIBOR + 90
basis points based upon the Company's current credit rating of BBB- by Standard
& Poor's Rating Services and Baa3 by Moody's Investors Service. The interest
rate will be reduced in the event of an upgrade of the Company's unsecured
credit rating. The Unsecured Credit Facility is repayable monthly on an interest
only basis with principal due at maturity. The Company's credit facility had an
average interest rate and average balance outstanding during the years ended
December 31, 1999, 1998 and 1997 of 6.06%, 6.67%, 6.73% and $99.2 million, $98.0
million and $53.9 million, respectively. In addition, the maximum outstanding
during 1999, 1998 and 1997 was $176.0 million, $175.0 million and $121.9
million, respectively.
The Unsecured Credit Facility also provides a bid option sub-facility equal to a
maximum of fifty percent of the total facility ($100 million). This sub-facility
provides the Company with the option to place borrowings in fixed LIBOR contract
periods of thirty, sixty, ninety and one hundred eighty days. The Company may
have up to seven fixed LIBOR contracts outstanding at any one time. Upon proper
notifications, all lenders participating in the Unsecured Credit Facility may,
but are not obligated to, participate in a competitive bid auction for these
fixed LIBOR contracts.
The Unsecured Credit Facility requires the Company to comply with certain
affirmative and negative covenants including the following requirements: (i) the
Company maintain its qualification as a REIT; (ii) the Company maintain a ratio
of EBITDA (as defined therein) to fixed charges (as defined therein) of not less
that 1.75 to 1; (iii) dividends not exceed 90% of funds from operations (as
defined therein); (iv) the Company maintain a ratio of total funded debt (as
defined therein) to implied capitalization value (as defined therein) of less
than .55 to 1; and (v) the Company maintain a ratio of unencumbered asset value
(as defined therein) to unsecured debt of less than 1.75 to 1. In addition, the
Unsecured Notes and the Unsecured Bank Notes require the Company to comply with
certain affirmative and negative covenants including the following requirements:
(i) the ratio of unencumbered assets (as defined therein) to unsecured debt
equal or exceed 150%; (ii) the ratio of debt to assets (as defined therein) not
exceed 60%; and (iii) secured debt not exceed 40% of assets (as defined
therein). The Company was in compliance with these covenants at December 31,
1999.
VARIABLE RATE TAX EXEMPT BONDS -- The average effective interest rate of the
Variable Rate Tax Exempt Bonds was 4.85% for the year ended December 31, 1999.
These bonds bear interest at various rates set by a remarketing agent at the
demand note index plus 0.50%, set weekly, or the lowest percentage of prime
which
56
57
allows the resale at a price of par. The bonds contain covenants which require
that the Company lease or hold for lease 20% (or 25% under certain state or
local requirements) of the apartment homes for moderate-income residents. The
bonds require maintenance of letters of credit or surety bonds (credit
enhancements) aggregating to $39.5 million at December 31, 1999. The credit
enhancements on three of the four tax exempt bonds ($30.1 million of debt and
$31 million of letters of credit) provide for a principal amortization schedule
which approximates a 25-year term during the term of the credit enhancement.
Real estate assets with a net book value of $410.3 million serve as collateral
for the various debt agreements.
The aggregate maturities of all debt for each of the years ending December 31
are as follows (in thousands):
FIXED RATE FIXED RATE FIXED RATE TAX EXEMPT UNSECURED
MORTGAGE MORTGAGE UNSECURED VARIABLE CREDIT
LOANS NOTES NOTES RATE BONDS FACILITY TOTAL
---------- ---------- ---------- ---------- --------- --------
2000.............................. $ 3,293 $ 2,044 $ 40,000 $ 1,160 $ -- $ 46,497
2001.............................. 3,340 2,198 30,000 1,160 78,000 114,698
2002.............................. 3,531 10,395 41,000 1,260 -- 56,186
2003.............................. 3,779 2,385 30,000 1,260 -- 37,424
2004.............................. 4,043 2,554 50,000 1,260 -- 57,857
Thereafter........................ 134,129 95,553 75,000 32,288 -- 336,970
-------- -------- -------- ------- ------- --------
$152,115 $115,129 $266,000 $38,388 $78,000 $649,632
======== ======== ======== ======= ======= ========
EXTRAORDINARY ITEMS -- The extraordinary items in the year ended December 31,
1998 resulted from the write-off of deferred financing cost in connection with
the replacement by the Company of its prior credit facility with the Unsecured
Credit Facility and prepayment penalties on six mortgage notes which were repaid
during the period. The extraordinary items are net of $86,000 which was
allocated to the minority interest of the unitholders in the Operating
Partnership, calculated on the weighted average number of Units outstanding in
1998.
7. MINORITY INTEREST
Minority interest of common unitholders consists of the following at December
31, 1999 and 1998 (in thousands):
1999 1998
------- -------
Minority interest of common unitholders in Operating
Partnership............................................... $55,065 $57,587
Minority interest in one operating community................ (367) (403)
------- -------
$54,698 $57,184
======= =======
As of December 31, 1999, there were 30,811,188 Common Units outstanding of the
Operating Partnership, of which 26,374,446 or 85.6% were owned by the Company
and 4,436,742 or 14.4% were owned by other partners (including certain officers
and directors of the Company).
Proceeds from Common Stock issued by the Company are contributed to the
Operating Partnership for an equivalent number of Units. Total Common Stock
issued by the Company and contributed to the Operating Partnership for an
equivalent number of Common Units was 945,000 and 4.8 million shares valued at
$16.4 million ($17.35 per share average) and $89.7 million ($18.52 per share
average) for the years ended December 31, 1999 and 1998, respectively. No
individual transaction significantly changed the Company's ownership percentage
in the Operating Partnership. The Company's ownership percentage in the
Operating Partnership was 85.6%, 86.2% and 85.3% as of December 31, 1999, 1998
and 1997, respectively.
In addition to the amounts set forth in the preceding paragraph, the Company
issued shares of Common Stock in exchange for Common Units owned by other
partners on a one-for-one basis during 1998. An aggregate of 28,993 shares were
issued for Common Units during 1998. The shares exchanged were valued based upon
the Company's market price per share and had an aggregate value of $555,000 in
1998. There were no Common Units exchanged for shares during 1999.
57
58
Common Units issued for the purchase of apartment communities were valued based
upon the Company's market price per share of Common Stock as the Common Units
can be exchanged for shares on a one-for-one basis. In addition, of the 438,103
Common Units issued for the 1997 purchase of apartment communities, 243,608
Common Units were issued to the Company in exchange for 243,608 shares of Common
Stock to the sellers of the apartment communities. Of the 2,253,165 Common Units
issued for the 1998 purchase of apartment Communities, 2,074,615 were issued to
the Company in exchange for 2,074,615 shares of common stock to the sellers of
the apartment communities.
8. ACQUISITIONS AND DISPOSITIONS
During the year ended December 31, 1999, the Company sold seven communities
comprising 1,518 apartment homes for approximately $76.0 million, resulting in a
gain on sale of approximately $17.4 million. Net proceeds of $54.4 million, were
placed in escrow with a qualified intermediary in accordance with like-kind
exchange income tax rules and regulations. The communities sold were Summit
Hampton, Summit Oak, Summit Beacon Ridge, Summit Perico, Summit McIntosh, Summit
Heron's Run and Summit East Ridge (referred to herein using former community
names). In the event that the proceeds from these property sales are not fully
invested in qualified like-kind property during the required time period, a
special distribution may be made or company level tax may be incurred.
During the year ended December 31, 1999 the Company acquired no communities.
The Company completed the acquisition of three communities located in Atlanta,
Georgia in 1998: Summit St. Clair, purchased effective March 1, 1998, Summit
Club at Dunwoody, purchased effective May 22, 1998, and Summit Lenox, purchased
effective July 8, 1998 (the "Atlanta Acquisitions"). The Atlanta Acquisitions
added a total of 1,093 apartment homes to the Company's portfolio at an
aggregate purchase price of $88.3 million. The Atlanta Acquisitions were
financed with the issuance of 259,871 Common Units (valued at $5.2 million) and
the assumption of $8.8 million of mortgage debt. The balance of the purchase
price was paid in cash.
In individual property transactions, the Company sold three communities for
$48.9 million (formerly known as Summit Providence on May 8, 1998, Summit
Springs on October 23, 1998 and Summit Old Town on November 2, 1998). The total
gain on sale recognized for these three disposition transactions was $17
million.
On December 16, 1998, the Company (i) sold five communities (the "Sold
Communities") to Hollow Creek, LLC., a newly-formed North Carolina limited
liability company for approximately $68 million and (ii) contributed two
communities with an approximate value of $22 million (together with the Sold
Communities, the "Joint Venture Communities") to Station Hill, LLC., a
newly-formed North Carolina limited liability company ("Station Hill"). On the
same date, Hollow Creek, LLC contributed the Sold Communities to Station Hill.
Station Hill is a joint venture limited liability company, the membership of
which is comprised of the Company and a wholly owned subsidiary of a major
financial services company (the "Joint Venture Member"). The disposition was
effected pursuant to a Real Estate Sale Agreement dated November 20, 1998
between the Operating Partnership and the Joint Venture Member and pursuant to
the Operating Agreement of Station Hill, also dated November 20, 1998. The
Company's net contribution to the LLC (approximately $5.6 million) represents a
25 percent equity interest in Station Hill. In addition, the Company is the
managing member of Station Hill and will also retain management of the Joint
Venture Communities through a management agreement with Station Hill. The cash
flow of Station Hill will be distributed pro rata to each member based on its
equity contribution until certain economic benchmarks are achieved, at which
point the Company will receive an escalated portion of the cash flow and
residual interest. Station Hill has obtained five separate mortgages totaling
$70.15 million from Fannie Mae. These mortgages have a ten-year maturity and a
6.70% interest rate. The proceeds of the mortgages were distributed on a pro
rata basis to Station Hill's two members. The Joint Venture Communities involved
in the transaction were Summit Green, Summit Hollow I and II and Summit Creek in
Charlotte, North Carolina; Summit Hill I and II in Raleigh, North Carolina, and
Summit Station in Tampa, Florida. The Joint Venture Communities include 1,433
apartment homes. The Company recognized a gain of approximately $20.2 million on
the disposition. The gain is net of $5.6 million elimination of gain relative to
the Company's retained portion of the
58
59
joint venture. The elimination of the gain reduced the Company's investment in
the joint venture to zero at the initial joint venture formation.
Proceeds from the sale of Summit Springs, Summit Old Town and the Sold
Communities were put in escrow with a qualified intermediary in accordance with
like-kind exchange income tax rules and regulations. These proceeds will be used
to fund future developments.
On November 4, 1998, the Company acquired a portfolio of multifamily properties
in Texas (the "Ewing Portfolio") through a merger with Ewing Industries, a
private developer of luxury apartment homes. The Ewing Portfolio consists of
2,465 apartment homes in seven communities located in Dallas, Austin and San
Antonio. The acquisition of the Ewing Portfolio was effected pursuant to an
Agreement and Plan of Reorganization dated as of October 31, 1998 (the "Merger
Agreement") among the Company, affiliates of the Company including the Operating
Partnership, Ewing Industries, Inc., an Ohio corporation ("Ewing Industries"),
affiliates of Ewing, and their respective partners, shareholders and members
(together with Ewing Industries, "Ewing"). Pursuant to the Merger Agreement, the
acquisition was funded through (i) the issuance to Ewing of 1,008,988 shares of
Common Stock of the Company and 141,921 Units, valued at $20.7 million in the
aggregate, (ii) the assumption of $84.0 million in long-term fixed-rate mortgage
indebtedness, (iii) the payment of $50.6 million in cash and (iv) receipt of
$3.8 million of credit for customary prorations and reserves. A portion of the
consideration was deferred until stabilization of one community (Summit Las
Palmas) which was in lease-up at the time of the acquisition of the Ewing
Portfolio. The Summit Las Palmas purchase closed on December 31, 1998 with the
additional consideration of (i) 1,027,771 shares of Common Stock and 36,124
Common Units valued at $29.2 million in the aggregate and (ii) cash in the
amount of approximately $600,000.
The following summary of selected unaudited pro forma results of operations
presents information as if the Atlanta Acquisitions and the Ewing Portfolio
purchase (except Summit Las Palmas) had occurred as of January 1, 1998 for the
1998 pro forma information. Pro forma information for 1998 excludes Las Palmas
as it was in construction and lease-up and had insignificant operations. Pro
forma information for the year ended December 31, 1997 presents information as
if the Summit Lenox and the Ewing Portfolio acquisitions (except for Summit Las
Palmas) had occurred as of January 1, 1997. Pro forma information for 1997 has
not been presented for Summit St. Clair, Summit Club at Dunwoody and Summit Las
Palmas as they were under construction during the period and had insignificant
operations. The pro forma information for the year ended December 31, 1998 and
1997 is provided for informational purposes only and is not indicative of
results that would have occurred or which may occur in the future (dollars in
thousands except per share amounts):
YEAR ENDED DECEMBER 31,
------------------------
1998 1997
--------- ---------
Net revenues................................................ $166,308 $140,570
======== ========
Income before extraordinary items........................... $ 53,457 $ 22,893
======== ========
Net income.................................................. $ 52,949 $ 22,893
======== ========
Earnings per share:
Income before extraordinary items......................... $ 2.11 $ 0.97
======== ========
Net income................................................ $ 2.09 $ 0.97
======== ========
During the year ended December 31, 1997, the Company completed the acquisition
of five communities: Summit Portofino, purchased on January 6, 1997: Summit
Mayfaire, purchased on January 15, 1997: Summit Sand Lake purchased on February
20, 1997: Summit Windsor II, purchased on July 18, 1997: and Summit Fair Oaks,
purchased on December 31, 1997 (the "1997 Acquisitions"). The 1997 Acquisitions
added a total of 1,434 apartment homes to the Company's portfolio. The total
purchase price for the 1997 Acquisitions was $104.5 million which consisted of
$15.2 million in assumed debt, 243,608 shares of Common Stock (valued at $4.9
million) issued to the seller, 194,495 Common Units (valued at $3.9 million)
issued to the seller and $78.9 million of cash. Concurrently with the purchase
of Summit Portofino, the Company sold 315,029 shares of Common Stock to the
public for cash to fund part of the purchase. The Summit Windsor II purchase was
59
60
partially funded by the proceeds from the sale of a property formerly known as
Summit Charleston in May, 1997. The property formerly known as Summit Charleston
was sold for $9.5 million and a gain on the sale of approximately $4.4 million
was recognized.
9. NOTES RECEIVABLE FROM EMPLOYEES
On September 8, 1997, the Board of Directors approved a Statement of Company
Policy, which has subsequently been amended and restated by the Board from time
to time, on loans to executive officers and certain key employees relating to
purchases of Common Stock (as amended through December 31, 1999, the "Loan
Program"). Pursuant to the Loan Program, the Company may lend amounts to certain
of the Company's executive officers and certain of its key employees for one or
more of the following purposes: (i) to finance the purchase of Common Stock of
the Company on the open market at the then-current market prices; (ii) to
finance an executive officer's or key employee's payment of the exercise price
of one or more stock options to purchase shares of Common Stock granted to such
employees under the Company's 1994 Stock Option and Incentive Plan, as amended
and restated (the "1994 Stock Plan"); or (iii) to finance the annual tax
liability of certain executive officers related to the vesting of shares of
Common Stock which constitute a portion of a restricted stock award granted to
such employees under the 1994 Stock Option Plan. Unless otherwise determined on
a case-by-case basis by the Board of Directors or the compensation Committee
thereof, the maximum aggregate amount the Company may loan to an executive
officer is $500,000, and the maximum aggregate amount the Company may loan to a
qualified employee other than an executive officer is $200,000. Shares of Common
Stock which are the subject of a loan serve as collateral for the notes until
the notes have been paid in full. Each note bears interest at the applicable
federal rate, as established by the Internal Revenue Service, in effect on the
date of the note. The notes are payable through the application to the
outstanding loan balance of all dividends and distributions related to the
collateral stock, first to interest, with the remainder, if any, to outstanding
principal. Each note becomes due and payable in full on the tenth anniversary of
the respective note. As of December 31, 1999, the Company had loans receivable
in the net amount of $4,861,000.
10. COMMITMENTS AND CONTINGENCIES
The estimated cost to complete eleven development projects currently under
construction was approximately $127.8 million at December 31, 1999. Anticipated
construction completion dates of the projects range from the first quarter of
2000 to the third quarter of 2001.
The Company rents office space in several locations. Rental expense for the
years ended December 31, 1999, 1998 and 1997 amounted to $170,000, $121,000 and
$101,000, respectively ($481,000 in 1999, $406,000 in 1998 and $347,000 in 1997
including amounts recorded by the Management Company). Future minimum rental
payments for the years 2000 through 2003 for those operating leases (including
those of the Management Company) that have initial or remaining non-cancelable
lease terms in excess of one year are as follows (in thousands):
YEARS ENDED DECEMBER 31:
- ------------------------
2000........................................................ $546
2001........................................................ 185
2002........................................................ 100
2003........................................................ 77
----
$908
====
The Company has employment agreements (the "Employment Agreements") with all
four executive officers. The Employment Agreements for two executive officers
provide for the payment of severance benefits in certain circumstances.
Generally, these benefits provide for the payment of the executive officer's
salary for a period of up to the remaining term of the Employment Agreement. In
addition, all four of the executive officers have severance agreements that
provide for the payment of severance benefits of up to three times such
officer's annual base salary and cash bonus in the event of the termination of
the officer's employment
60
61
under certain circumstances following certain "change in control" or
"combination transactions" involving a consolidation or merger. The benefits
payable under the terms of the severance agreements are subject to reduction by
the amount of any severance benefits payable under applicable Employment
Agreements.
The Company is obligated to redeem each Common Unit in the Operating Partnership
at the request of the holder thereof for cash equal to the fair market value of
one share of Common Stock, except that the Company may elect to acquire each
Common Unit presented for redemption for one share of Common Stock.
11. EMPLOYEE BENEFIT PLANS
PROFIT SHARING PLAN
The Company has a defined contribution plan pursuant to Section 401(k) of the
Internal Revenue Code which covers all employees with one year or greater
service. The Company's contributions are equal to one-half of each employee's
contribution up to a maximum of 3% of each employee's compensation. Aggregate
contributions of approximately $306,000, $242,000 and $217,000 were made for the
years ended December 31, 1999, 1998 and 1997, respectively.
STOCK OPTION PLAN
In 1994, the Company established the 1994 Stock Option and Incentive Plan (the
"Incentive Plan") under which 1,000,000 shares of the Company's Common Stock
were reserved for issuance. The plan was amended and restated in 1998 to, among
other things, increase the number of shares reserved for issuance thereunder
from 1,000,000 to 3,000,000 shares. The plan provides that the option price
shall not be less than the fair market value of the shares at the date of grant.
The options have ten-year lives and vest in three or five annual installments on
the anniversaries of the date of grant, except for shares granted to independent
directors of the Company, which vest on the date of grant. The Company applies
Accounting Principles Board Opinion No. 25 and related interpretations in
accounting for its stock options. Accordingly, no compensation cost has been
recognized for its stock options.
A summary of changes in common stock options for the three years ended December
31, 1999 is as follows:
EXERCISE
PRICE
WEIGHTED
OPTIONS AVERAGE
--------- --------
Outstanding at December 31, 1996............................ 498,646 $18.60
Year ended December 31, 1997
Exercised................................................. (45,900) 18.55
Forfeited................................................. (36,350) 17.74
---------
Outstanding at December 31, 1997....................... 416,396 18.86
Year ended December 31, 1998
Granted to employees and directors........................ 191,000 19.19
Exercised................................................. (45,000) 19.00
Forfeited................................................. (15,000) 19.03
---------
Outstanding at December 31, 1998....................... 547,396 18.80
Year ended December 31, 1999
Granted to employees and directors........................ 841,000 17.12
Exercised................................................. (10,625) 17.91
Forfeited................................................. (27,500) 16.62
---------
Outstanding at December 31, 1999....................... 1,350,271 17.81
=========
Exercise prices for options outstanding as of December 31, 1999 ranged from
$16.50 to $20.75. The weighted average remaining contractual life of those
options is 8.2 years.
61
62
As of December 31, 1999, 1998 and 1997 options to purchase 556,979, 369,528 and
359,218 shares, respectively, of Common Stock were exercisable. The weighted
average exercise price for the shares exercisable as of December 31, 1999, 1998
and 1997 was $18.33, $18.84 and $18.86, respectively.
The estimated weighted average fair value of options granted was $1.83 per share
in 1999 and $2.18 per share in 1998 (none granted in 1997). Had compensation
cost for the Company's stock options been determined based on the fair value at
the grant dates, consistent with the method of Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation", the Company's net
income and net income per share for the years ended December 31, 1999 and 1998
would have been as follows (dollars in thousands except per share amounts):
1999 1998
--------- ---------
Net income as reported...................................... $45,745 $56,375
Net income per share -- basic and diluted as reported....... 1.65 2.26
Pro forma net income........................................ 44,204 55,958
Pro forma net income per share -- basic..................... 1.60 2.24
Pro forma net income per share -- diluted................... 1.59 2.24
The fair value of options granted in 1999 was estimated on the date of grant
using the Binomial option-pricing model with the following weighted-average
assumptions: dividend yields ranging from 8.39% to 10.10%, expected volatility
of 20%, risk free interest rates ranging from 4.7% to 6.1%, and expected lives
of ten years.
The fair value of options granted during 1998 was estimated on the date of grant
using the Binomial option-pricing model with the following weighted average
assumptions: dividend yield of 9.3%, expected volatility of 20%, risk free
interest rate of 6.0%, and expected lives of ten years.
In addition, the Incentive Plan provides for the grant of stock to employees.
The Company granted 17,669 shares of restricted stock under the plan in 1999.
The market value of the restricted stock totaled $304,000, which was recorded as
unamortized restricted stock compensation and is shown as a separate component
of stockholders' equity. Unearned compensation is being amortized to expense
over the five year vesting period. Restricted stock of 8,372 shares with a
market value of $162,000 was granted in the year ended December 31, 1998.
Restricted stock of 26,528 shares with a market value of $546,000 was granted in
the year ended December 31, 1997. The Company recognized $365,000, $314,000 and
$292,000 of expense in the statement of earnings in the years ended December 31,
1999, 1998 and 1997, respectively, relative to the stock grants.
PERFORMANCE STOCK AWARD PLAN
In January 1998, the Company agreed to award key employees of the Company
certain amounts of Common Stock under the Company's Performance Stock Award
Plan. The amount of Common Stock to be granted to the key employees is based
upon the Company's average annual return (share appreciation and distributions)
from the date of the award to the third anniversary of the award. The number of
shares to be granted under the Performance Stock Award Plan ranges from none (in
the event the Company achieves less than a 11% average annual return) to 147,713
(in the event the Company achieves a 15% or greater annual return). The starting
Common Stock price for the purposes of calculating appreciation was $21.375
($19.87 for one key employee) and represents fair market value at the date of
award. Since the attainment of the minimum performance target that would result
in shares being granted is not considered probable at December 31, 1999, no
compensation cost has been recorded.
EMPLOYEE STOCK PURCHASE PLAN
In 1996, the Company established a non-qualified employee stock purchase plan.
From 1996 through 1999, the plan allowed Company employees to purchase up to
$100,000 (with certain executive officers limited to $25,000) per year of the
Company's Common Stock. In December 1999, the plan was amended to decrease the
maximum annual purchase amount by a participant from $100,000 to $25,000. The
price of the shares of the Common Stock purchased will be the lesser of 85
percent of the closing price of such shares either on (a) the first day of each
six month purchase period, or (b) the last day of each six month purchase
period.
62
63
Total shares issued under the plan in 1999, 1998 and 1997 were 144,513, 65,541
and 62,117 with a market value of $2.7 million, $1.3 million and $1.3 million,
respectively. The Company applies APB Opinion 25 and related Interpretations in
accounting for its Employee Stock Purchase Plan and, accordingly, no
compensation cost is required to be recognized for such plan. An additional
34,455 shares with a market value of $616,000 were issued in January 2000 under
the plan.
12. DIVIDEND REINVESTMENT AND DIRECT STOCK PURCHASE PLAN
In November 1997, the Company replaced its existing dividend reinvestment plan
with a new dividend reinvestment and direct stock purchase plan ("the Plan").
The Plan provides both new investors and existing shareholders of the Company's
stock (including Common Stock and other classes of outstanding stock) with a
method to purchase shares of Common Stock under the Stock Purchase Program of
the Plan. The Plan also permits shareholders to designate all, a portion or none
of the cash dividends on their newly purchased Common Stock and cash dividends
on their existing stock for reinvestment in more shares of Common Stock through
the Dividend Reinvestment Program of the Plan. With respect to reinvested
dividends and optional cash payments, shares of Common Stock will be purchased
for the Plan at a discount ranging from 0% to 5% (established by the Company
from time to time) from the market price, as more fully described in the
Prospectus relating to the Plan. Common Stock will be purchased by the Plan's
Agent (First Union National Bank) directly from the Company or in open market or
privately negotiated transactions, as determined from time to time by the
Company, to fulfill requirements for the Plan. At present, the Company expects
that shares usually will be purchased directly from the Company. On December 31,
1998, the Company received $9.5 million under the optional cash component of the
plan for shares to be issued January 2, 1999. These proceeds are included in
accounts payable and accrued expenses at December 31, 1998. The Company received
no amounts on December 31, 1999 related to the optional cash component of the
Plan.
13. SHAREHOLDER RIGHTS AGREEMENT
On December 14, 1998, the Board of Directors adopted a shareholder rights
agreement (the "Rights Plan"). In connection with the adoption of the Rights
Plan, the Board of Directors declared a dividend distribution of one preferred
stock purchase right (a "Right") for each outstanding share of common stock to
stockholders of record as of the close of business on December 15, 1998.
Currently, these Rights are not exercisable and trade with the shares of the
Company's Common Stock. Under the Rights Plan, the Rights generally become
exercisable if a person becomes an "acquiring person" by acquiring 15% or more
of the Company's Common Stock, or if a person commences a tender offer that
would result in that person owning 15% or more of the Company's Common Stock. In
the event that a person becomes an "acquiring person,"each holder of a Right
(other than the acquiring person) would be entitled to acquire such number of
units of preferred stock (which are equivalent to shares of the Company's Common
Stock) having a value of twice the exercise price of the Right.
If the Company is acquired in a merger or other business combination transaction
after any such event, each holder of a Right would then be entitled to purchase,
at the then-current exercise price, shares of the acquiring company's common
stock having a value of twice the exercise price of the Right. The current
exercise price per Right is $45.00.
The Rights will expire at the close of business on December 14, 2008 (the
"Expiration Date"), unless previously redeemed or exchanged by the Company as
described below. The Rights may be redeemed in whole, but not in part, at a
price of $0.01 per Right (payable in cash, shares of the Company's Common Stock
or other consideration deemed appropriate by the Board of Directors) by the
Board of Directors only until the earlier of (i) the time at which any person
becomes an "acquiring person" or (ii) the Expiration Date. At any time after any
person becomes an "acquiring person," the Board of Directors may, at its option,
exchange all or any part of the then outstanding and exercisable Rights for
shares of the Company's Common Stock at an exchange ratio specified in the
Rights Plan. Notwithstanding the foregoing, the Board of Directors generally
will not be empowered to effect such exchange at any time after any person
becomes the beneficial owner of 50% or more of the Company's Common Stock.
63
64
Until a Right is exercised, the holder will have no rights as a stockholder of
the Company (beyond those as an existing stockholder), including the right to
vote or to receive dividends.
In connection with the establishment of the Rights Plan, the Board of Directors
approved the creation of Preferred Stock of the Company designated as Series A
Junior Participating Cumulative Preferred Stock with a par value of $0.01 per
share. The Board also reserved 350,000 shares of preferred stock for issuance
upon exercise of the Rights.
14. BUSINESS SEGMENTS
Effective December 31, 1998, the Company adopted Financial Accounting Standards
Board (FASB) Statement No. 131, Disclosures about Segments of an Enterprise and
Related Information (FAS 131). FAS 131 established standards for the way public
enterprises report information about operating segments in annual financial
statements. FAS 131 also established standards for related disclosures about
products and services, geographic areas and major customers. The adoption of FAS
131 did not affect the Company's results of operations or financial position.
The Company reports as a single business segment with activities related to the
operation, development and acquisition of "Class A" luxury apartments primarily
in the southeastern, southwestern, midwestern and mid-atlantic United States.
The Company develops apartments solely for its own use and does not perform
development activities for third parties.
15. PRIVATE PLACEMENT OF PREFERRED UNITS
On April 29, 1999, the Operating Partnership completed a private placement of
3.4 million of its 8.95% Series B Cumulative Redeemable Perpetual Preferred
Units (the "Series B Preferred Units") to two institutional investors at a price
of $25.00 per unit. The net proceeds of approximately $83 million were used to
repay amounts outstanding under the Company's unsecured credit facility. The
Series B Preferred Units may be exchanged by the holders into shares of 8.95%
Series B Cumulative Redeemable Perpetual Preferred Stock of the Company ("Series
B Preferred Shares") on a one-for-one basis. Holders of the Series B Preferred
Units may exercise their exchange right (a) at any time on or after April 29,
2009, (b) at any time if full quarterly distributions are not made for six
quarters, or (c) upon the occurrence of specified events related to the
treatment of the Operating Partnership or the Series B Preferred Units for
federal income tax purposes. The Operating Partnership may redeem the Series B
Preferred Units at any time on or after April 29, 2004 for cash at a redemption
price equal to the redeemed holder's capital account (initially $25.00 per
unit), plus all accumulated, accrued and unpaid distributions or dividends. In
lieu of cash, the Operating Partnership may elect to deliver Series B Preferred
Shares on a one-for-one basis, plus an amount equal to all accumulated, accrued
and unpaid distributions or dividends. The Series B Preferred Units have no
stated maturity, are not subject to any sinking fund or mandatory redemption and
are not convertible into any other securities of the Company or the Operating
Partnership. Distributions on the Series B Preferred Units are cumulative from
the date of original issuance and are payable quarterly at the rate of 8.95% per
annum of the $25.00 original capital contribution. The Company paid holders of
the Series B Preferred Units distributions in the aggregate amount of
approximately $5.1 million during 1999.
On September 3, 1999, the Operating Partnership completed a private placement of
2.2 million of its 8.75% Series C Cumulative Redeemable Perpetual Preferred
Units (the "Series C Preferred Units") to an institutional investor at a price
of $25.00 per unit. The net proceeds of approximately $54 million were used to
repay amounts outstanding under the Company's unsecured credit facility. The
Series C Preferred Units may be exchanged by the holder into shares of 8.75%
Series C Cumulative Redeemable Perpetual Preferred Stock of the Company ("Series
C Preferred Shares") on a one-for-one basis. The holder of the Series C
Preferred Units may exercise its exchange right (a) at any time on or after
September 3, 2009, (b) at any time if full quarterly distributions are not made
for six quarters, (c) upon the occurrence of specified events related to the
treatment of the Operating Partnership or the Series C Preferred Units for
federal income tax purposes, or (d) at any time that such institutional
investor's holdings in the Operating Partnership exceed 18% of the total profits
of or capital interests in the Operating Partnership for a taxable year. The
Operating Partnership may
64
65
redeem the Series C Preferred Units at any time on or after September 3, 2004
for cash at a redemption price equal to the redeemed holder's capital account
(initially $25.00 per unit), plus all accumulated, accrued and unpaid
distributions or dividends. The Series C Preferred Units have no stated
maturity, are not subject to any sinking fund or mandatory redemption and are
not convertible into any other securities of the Company or the Operating
Partnership. Distributions on the Series C Preferred Units are cumulative from
the date of original issuance and are payable quarterly at the rate of 8.75% per
annum of the $25.00 original capital contribution. The Company paid the holder
of the Series C Preferred Units distributions in the aggregate amount of
approximately $1.5 million during 1999.
16. COMMON STOCK REPURCHASE PROGRAM
On May 11, 1999, the Board of Directors of the Company authorized a common stock
repurchase program pursuant to which the Company is authorized to purchase up to
an aggregate of $50 million of outstanding Common Stock. All repurchases have
been and will be made on the open market at prevailing prices. This authority
may be exercised from time to time and in such amounts as market conditions
warrant. During the year ended December 31, 1999, the Company repurchased
2,414,300 shares of Common Stock for an aggregate purchase price, including
commissions, of approximately $47.5 million and at an average price of $19.67
per share.
17. SUPPLEMENTAL CASH FLOW INFORMATION
Non-cash investing and financing activities for the years ended December 31,
1999, 1998 and 1997 are as follows:
A. The Company sold seven communities during the year ended December 31,
1999. The respective purchasers of three of the communities assumed the
related outstanding debt balances associated with such communities of
$19.7 million.
B. The Company purchased the Atlanta Acquisitions and the Ewing Portfolio
by issuing 438,421 Common Units, issuing 2,074,615 shares of Common
Stock, assuming mortgage notes, assuming certain liabilities and the
payment of cash. The recording of the purchases is summarized as follows
(in thousands):
Fixed Assets................................................ $267,991
Restricted Cash............................................. 1,713
Current liabilities assumed................................. (6,327)
Mortgage notes assumed...................................... (92,761)
Value of Operating Partnership Units issued................. (8,427)
Value of Common Stock issued................................ (37,343)
--------
Cash invested............................................... $124,846
========
C. In the year ended December 31, 1997, the Company purchased five
communities (Summit Mayfaire, Summit Portofino, Summit Sand Lake, Summit
Windsor II and Summit Fair Oaks). The Company completed the purchase of
the five communities by assuming debt, issuing 194,495 Common Units,
issuing 243,608 shares of Common Stock, assuming certain liabilities and
current assets, and the payment of cash. The recording of the purchases
is summarized as follows (in thousands):
Fixed Assets................................................ $104,469
Current Assets.............................................. 30
Debt Assumed................................................ (15,226)
Current liabilities assumed................................. (1,531)
Value of Operating Partnership Units issued................. (3,939)
Value of Common Stock issued................................ (4,933)
--------
Cash invested............................................... $ 78,870
========
65
66
D. The Company granted 17,669 (net of 6,828 shares forfeited), 8,372 and
26,528 shares of restricted stock in 1999, 1998 and 1997 valued at
$304,000, $162,000 and $546,000, respectively.
E. The Company accrued a dividend and distribution payable of $13.0
million, $12.7 million and $11.0 million at December 31, 1999, 1998 and
1997, respectively.
18. FAIR VALUE DISCLOSURE OF FINANCIAL INSTRUMENTS
The following disclosures of estimated fair value were determined by management
using available market information and appropriate valuation methodologies.
However, considerable judgment is necessary to interpret market data and develop
the related estimates of fair value. Accordingly, the estimates presented herein
are not necessarily indicative of the amounts that could be realized upon
disposition of the financial instruments. The use of different market
assumptions and/or estimation methodologies may have a material effect on the
estimated fair value amounts. The fair value estimates presented herein are
based on information available to management as of December 31, 1999 and 1998.
Although management is not aware of any factors that would significantly affect
the estimated fair value amounts, such amounts have not been comprehensively
re-valued for purposes of these financial statements since that date, and
current estimates of fair value may differ significantly from the amounts
presented herein.
Cash and cash equivalents, rents receivable, accounts payable, accrued expenses,
security deposits, other liabilities, tax-exempt bond indebtedness and the
credit facility are carried at amounts which reasonably approximate their fair
values at December 31, 1999 and 1998 due to either the short-term nature or
variable interest rates associated with such balances.
Fixed rate mortgage debt and fixed rate unsecured notes with a carrying value of
$533.2 million have an estimated aggregate fair value of approximately $501.3
million at December 31, 1999. Fixed rate mortgage debt and unsecured notes with
a carrying value of $520.9 million have an estimated aggregate fair value of
approximately $521.0 million at December 31, 1998. Rates currently available to
the Company for debt with similar terms and maturities were used to estimate the
fair value of this debt.
The fair market value of long-term fixed rate debt is subject to changes in
interest rates. Generally, the fair market value of fixed interest rate debt
will increase as interest rates fall and decrease as interest rates rise. The
estimated fair value of the Company's total fixed rate long-term debt at
December 31, 1999 was $501.3 million. Fair values were determined from quoted
market prices, where available, and from information received from investment
advisors using current interest rates considering credit ratings and remaining
terms to maturity.
While the Company has historically had limited involvement with derivative
financial instruments, the Company may utilize such instruments in certain
situations to hedge interest rate exposure by modifying the interest rate
characteristics of related balance sheet instruments and prospective financing
transactions. The Company does not utilize derivative financial instruments for
trading or speculative purposes. On September 16, 1999, the Company entered into
an interest rate swap agreement with a notional amount of $30 million, relating
to $30 million of notes issued by the Operating Partnership under the MTN
Program which carry a fixed interest rate of 6.625% per annum (the "Fixed
Rate"). Under the interest rate swap agreement, through the maturity date of
such notes of December 15, 2003, (i) the Company has agreed to pay to the
counterparty the interest on a $30 million notional amount at a floating
interest rate of LIBOR plus 11 basis points (the "Floating Rate"), and (ii) the
counterparty has agreed to pay to the Company the interest on the same notional
amount at the Fixed Rate. The Floating Rate at December 31, 1999 was 6.23%.
Under the interest rate swap agreement, an increase in LIBOR will increase the
amount of interest that the Company will be required to pay, and a decrease in
LIBOR will decrease the amount of interest that the Company will be required to
pay. The fair value of the interest rate swap was $445,000 at December 31, 1999.
66
67
19. GEOGRAPHIC CONCENTRATION
The Company's Communities are concentrated in six major markets as follows:
NUMBER
OF 1999
APARTMENT % OF % OF
MARKET HOMES PORTFOLIO REVENUES
- ------ --------- --------- --------
Washington D.C.............................................. 2,658 15% 16%
Atlanta, GA................................................. 2,302 13% 13%
South Florida............................................... 2,019 11% 13%
Charlotte, NC............................................... 1,980 11% 11%
Raleigh, NC................................................. 1,720 10% 9%
Dallas, TX.................................................. 1,359 8% 8%
Other....................................................... 5,635 32% 30%
------ --- ---
17,673 100% 100%
====== === ===
67
68
20. REAL ESTATE AND ACCUMULATED DEPRECIATION
Real estate and accumulated depreciation by apartment community consisted of the
following at December 31, 1999 (dollars in thousands):
GROSS AMOUNT AT WHICH
INITIAL COSTS COSTS CARRIED AT CLOSE OF PERIOD
-------------------------- CAPITALIZED ---------------------------------------
BUILDINGS SUBSEQUENT BUILDINGS
RELATED AND TO AND
APARTMENTS ENCUMBRANCES LAND IMPROVEMENTS(6) ACQUISITION LAND IMPROVEMENTS(6) TOTAL(1)
---------- ------------ -------- --------------- ----------- -------- --------------- ----------
Summit Arboretum........ $19,915 $ 4,080 $ 24,403 $ 166 $ 4,080 $ 24,569 $ 28,649
Summit Arbors........... 780 5,066 535 780 5,601 6,381
Summit Aventura......... 6,367 25,618 6,368 25,617 31,985
Summit Ballantyne I..... 2,060 13,959 2,008 14,011 16,019
Summit Ballantyne II.... 1,268 9,412 1,339 9,341 10,680
Summit Belcourt......... 9,552 3,600 16,788 102 3,600 16,890 20,490
Summit Belmont.......... (4) 974 11,287 984 11,277 12,261
Summit Blue Ash......... (2) 2,033 12,040 2,169 11,904 14,073
Summit Breckenridge..... 812 12,406 812 12,406 13,218
Summit Buena Vista...... 25,393 4,670 30,499 321 4,670 30,820 35,490
Summit Camino Real...... 3,640 22,210 127 3,640 22,337 25,977
Summit Club at
Dunwoody.............. 2,934 24,510 75 2,934 24,585 27,519
Summit Creekside........ 414 3,614 515 414 4,129 4,543
Summit Crossing......... 4,048 768 5,174 376 768 5,550 6,318
Summit Del Ray.......... (2) 3,120 15,615 5,402 13,333 18,735
Summit Doral............ 3,099 20,432 3,133 20,398 23,531
Summit Eastchester...... 912 4,699 432 912 5,131 6,043
Summit Fair Lakes I..... 6,646 26,388 6,668 26,366 33,034
Summit Fair Lakes II.... 2,875 12,506 2,894 12,487 15,381
Summit Fair Oaks........ 4,356 17,215 367 4,356 17,582 21,938
Summit Fairview......... 404 5,411 537 5,278 5,815
Summit Fairways......... 2,819 15,233 2,819 15,233 18,052
Summit Foxcroft......... 2,594 925 3,797 636 925 4,433 5,358
Summit Gateway.......... (4) 1,738 11,064 2,256 10,546 12,802
Summit Glen............. (2) 3,652 13,156 3,693 13,115 16,808
Summit Governor's
Village............... 1,622 15,293 1,640 15,275 16,915
Summit Highland......... (2) 1,374 6,438 1,374 6,438 7,812
Summit Lake I........... 1,712 18,504 1,712 18,504 20,216
Summit Lake II.......... 770 9,299 794 9,275 10,069
Summit Las Palmas....... 4,480 25,504 188 4,480 25,692 30,172
Summit at Lenox......... 10,800 22,997 231 10,800 23,228 34,028
Summit Lofts............ 1,800 7,337 899 1,800 8,236 10,036
Summit Mayfaire......... 936 8,897 50 936 8,947 9,883
Summit Meadow........... (2) 2,313 8,815 2,539 8,589 11,128
Summit New Albany....... 2,693 21,207 2,715 21,185 23,900
Summit Norcroft I....... (2) 1,072 8,105 1,226 7,951 9,177
Summit Norcroft II...... (2) 381 2,678 409 2,650 3,059
Summit On the River..... (2) 3,212 21,135 3,212 21,135 24,347
Summit Palm Lake........ (2) 4,949 17,081 5,084 16,946 22,030
Summit Park............. 1,680 11,448 1,921 11,207 13,128
DEPRECIABLE
ACCUMULATED DATE OF DATE LIVES
APARTMENTS DEPRECIATION CONSTRUCTION ACQUIRED YEARS
---------- ------------ ------------ -------- -----------
Summit Arboretum........ $ (949) 1996(5) 11/98 5-40 years
Summit Arbors........... (1,049) 1986(5) 5/95 5-40 years
Summit Aventura......... (3,490) 6/94-12/95 12/93 5-40 years
Summit Ballantyne I..... (818) 7/96-12/97 12/95 5-40 years
Summit Ballantyne II.... (545) 8/97-12/98 12/95 5-40 years
Summit Belcourt......... (623) 1994(5) 11/98 5-40 years
Summit Belmont.......... (4,620) 1/86-5/87 1/86 5-40 years
Summit Blue Ash......... (3,161) 1/92-5/92 1/91 5-40 years
Summit Breckenridge..... (5,123) 7/85-5/87 6/85 5-40 years
Summit Buena Vista...... (1,132) 1996(5) 11/98 5-40 years
Summit Camino Real...... (818) 1998(5) 11/98 5-40 years
Summit Club at
Dunwoody.............. (1,207) 1997(5) 5/98 5-40 years
Summit Creekside........ (829) 1981(5) 5/95 5-40 years
Summit Crossing......... (1,091) 1985(5) 5/95 5-40 years
Summit Del Ray.......... (3,567) 1/92-2/93 1/92 5-40 years
Summit Doral............ (449) 12/97-11/99 12/96 5-40 years
Summit Eastchester...... (1,130) 1981(5) 5/95 5-40 years
Summit Fair Lakes I..... (915) 6/97-12/98 12/96 5-40 years
Summit Fair Lakes II.... (179) 7/98-8/99 12/96 5-40 years
Summit Fair Oaks........ (1,360) 1990(5) 12/97 5-40 years
Summit Fairview......... (2,466) 3/82-3/83 3/82 5-40 years
Summit Fairways......... (1,712) 9/95-12/96 8/95 5-40 years
Summit Foxcroft......... (949) 1979(5) 5/95 5-40 years
Summit Gateway.......... (3,996) 1/86-1/87 12/85 5-40 years
Summit Glen............. (3,398) 5/90-8/92 4/90 5-40 years
Summit Governor's
Village............... (608) 8/97-12/98 7/97 5-40 years
Summit Highland......... (2,830) 3/86-1/87 11/85 5-40 years
Summit Lake I........... (1,170) 9/96-5/98 4/96 5-40 years
Summit Lake II.......... (192) 5/98-1/99 4/96 5-40 years
Summit Las Palmas....... (814) 1998(5) 12/98 5-40 years
Summit at Lenox......... (1,329) 1965(5) 7/98 5-40 years
Summit Lofts............ (2,158) 1990(5) 10/94 5-40 years
Summit Mayfaire......... (882) 1995(5) 1/97 5-40 years
Summit Meadow........... (2,835) 8/89-8/90 2/89 5-40 years
Summit New Albany....... (820) 5/97-12/98 11/96 5-40 years
Summit Norcroft I....... (1,820) 2/90-3/91 12/89 5-40 years
Summit Norcroft II...... (607) 3/97-11/97 8/96 5-40 years
Summit On the River..... (2,090) 8/95-6/97 10/94 5-40 years
Summit Palm Lake........ (4,909) 3/90-2/92 1/90 5-40 years
Summit Park............. (4,102) 4/88-4/89 1/88 5-40 years
68
69
GROSS AMOUNT AT WHICH
INITIAL COSTS COSTS CARRIED AT CLOSE OF PERIOD
-------------------------- CAPITALIZED ---------------------------------------
BUILDINGS SUBSEQUENT BUILDINGS
RELATED AND TO AND
APARTMENTS ENCUMBRANCES LAND IMPROVEMENTS(6) ACQUISITION LAND IMPROVEMENTS(6) TOTAL(1)
---------- ------------ -------- --------------- ----------- -------- --------------- ----------
Summit Pike Creek....... (4) 1,132 12,930 1,259 12,803 14,062
Summit Plantation I..... 3,428 18,485 171 3,794 18,290 22,084
Summit Plantation II.... 4,012 17,206 3,645 17,573 21,218
Summit Portofino........ 3,864 24,504 315 3,864 24,819 28,683
Summit Radbourne........ 8,405 1,395 12,607 961 1,395 13,568 14,963
Summit Reston........... 5,434 26,255 827 5,434 27,082 32,516
Summit River Crossing... 2,562 17,024 2,636 16,950 19,586
Summit Russett.......... 3,995 19,285 3,995 19,285 23,280
Summit Sand Lake........ 14,348 4,160 22,979 372 4,160 23,351 27,511
Summit Sedgebrook I..... 1,696 14,778 1,730 14,744 16,474
Summit Sedgebrook II.... 696 6,728 731 6,693 7,424
Summit Sherwood......... 3,244 1,102 4,863 343 1,106 5,202 6,308
Summit Simsbury......... (3) 650 4,570 550 650 5,120 5,770
Summit Square........... (2) 2,757 15,953 3,775 14,935 18,710
Summit St. Clair........ (2) 3,024 24,040 105 3,024 24,145 27,169
Summit Stonefield....... 3,541 16,381 3,576 16,346 19,922
Summit Stony Point...... (4) 1,638 13,041 649 1,638 13,690 15,328
Summit Touchstone....... (3) 766 5,568 385 766 5,953 6,719
Summit Turtle Cove...... 16,806 3,480 19,775 173 3,480 19,948 23,428
Summit Turtle Rock...... 10,824 2,500 14,074 108 2,500 14,182 16,682
Summit Village.......... (2) 3,212 14,260 3,653 13,819 17,472
Summit Walk............. 568 237 5,662 983 5,484 6,467
Summit Waterford........ (2) 1,568 14,885 1,949 14,504 16,453
Summit Westwood......... 1,989 22,532 2,042 22,479 24,521
Summit Windsor.......... (2) 644 6,946 967 6,623 7,590
Summit Windsor II....... (2) 3,060 14,497 111 3,060 14,608 17,668
-------- -------- -------- -------- -------- ----------
Total........... $167,613 $428,205 $539,190 $174,615 $960,393 $1,135,008
======== ======== ======== ======== ======== ==========
DEPRECIABLE
ACCUMULATED DATE OF DATE LIVES
APARTMENTS DEPRECIATION CONSTRUCTION ACQUIRED YEARS
---------- ------------ ------------ -------- -----------
Summit Pike Creek....... (4,483) 11/86-2/88 4/86 5-40 years
Summit Plantation I..... (1,751) 1/94-7/95 4/96 5-40 years
Summit Plantation II.... (1,682) 10/96-11/97 9/96 5-40 years
Summit Portofino........ (2,376) 1995(5) 1/97 5-40 years
Summit Radbourne........ (2,067) 1991(5) 5/95 5-40 years
Summit Reston........... (5,939) 1987(5) 4/94 5-40 years
Summit River Crossing... (2,119) 3/95-9/96 10/94 5-40 years
Summit Russett.......... (1,586) 7/95-9/97 11/94 5-40 years
Summit Sand Lake........ (2,452) 1995(5) 2/97 5-40 years
Summit Sedgebrook I..... (1,030) 6/96-12/97 1/96 5-40 years
Summit Sedgebrook II.... (139) 7/98-5/99 1/96 5-40 years
Summit Sherwood......... (1,104) 1968(5) 5/95 5-40 years
Summit Simsbury......... (983) 1985(5) 5/95 5-40 years
Summit Square........... (4,581) 3/89-8/90 2/89 5-40 years
Summit St. Clair........ (1,366) 1997(5) 3/98 5-40 years
Summit Stonefield....... (1,128) 6/96-3/98 3/96 5-40 years
Summit Stony Point...... (3,249) 1986(5) 2/94 5-40 years
Summit Touchstone....... (1,130) 1986(5) 5/95 5-40 years
Summit Turtle Cove...... (757) 1996(5) 11/98 5-40 years
Summit Turtle Rock...... (559) 1995(5) 11/98 5-40 years
Summit Village.......... (4,360) 9/89-1/91 8/89 5-40 years
Summit Walk............. (1,252) 4/92-2/93 4/92 5-40 years
Summit Waterford........ (4,654) 1/89-6/90 11/88 5-40 years
Summit Westwood......... (566) 10/97-5/99 9/97 5-40 years
Summit Windsor.......... (2,897) 8/88-8/89 3/95 5-40 years
Summit Windsor II....... (851) 1988(5) 7/97 5-40 years
---------
Total........... $(127,803)
=========
(1) The aggregate cost for federal income tax purposes at December 31, 1999 is
$1.0 billion.
(2) Encumbered by fixed rate mortgages of $143.7 million.
(3) Encumbered by fixed rate mortgage of $8.4 million.
(4) Collateral for $39.5 million of letters of credit which serve as collateral
for $38.4 million in tax exempt bonds.
(5) Property purchased by Company. Date reflects date construction completed.
(6) Includes furniture, fixtures and equipment.
69
70
A summary of activity for real estate assets and accumulated depreciation is as
follows:
YEAR ENDED DECEMBER 31,
----------------------------------
1999 1998 1997
---------- ---------- --------
REAL ESTATE ASSETS(1):
Balance at beginning of year.............................. $1,068,435 $ 830,068 $618,102
---------- ---------- --------
Acquisitions.............................................. -- 267,991 104,469
Improvements.............................................. 10,565 9,804 9,823
Developments.............................................. 130,433 74,559 104,897
Disposition of property................................... (74,425) (113,987) (7,223)
---------- ---------- --------
66,573 238,367 211,966
---------- ---------- --------
Balance at end of year.................................... $1,135,008 $1,068,435 $830,068
========== ========== ========
ACCUMULATED DEPRECATION(1):
Balance at beginning of year.............................. $ 114,196 $ 105,313 $ 85,031
Depreciation.............................................. 33,547 28,733 22,610
Disposition of property................................... (19,940) (19,850) (2,328)
---------- ---------- --------
Balance at end of year.................................... $ 127,803 $ 114,196 $105,313
========== ========== ========
(1) Includes only apartment communities and does not include fixed assets used
in property development, construction and management of apartment
communities.
21. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Quarterly financial information for the years 1999 and 1998 is as follows (in
thousands except per share data):
YEAR ENDED DECEMBER 31, 1999
----------------------------------------
FIRST SECOND THIRD FOURTH
------- ------- ------- -------
Revenues............................................ $43,149 $44,557 $45,010 $44,132
Income before gain on sale of real estate assets,
minority interest of common unitholders in
Operating Partnership and dividends to preferred
unitholders in Operating Partnership.............. 8,999 10,200 11,112 12,022
Gain on sale of real estate assets.................. -- 6,307 2,487 8,633
Minority interest of common unitholders in Operating
Partnership....................................... (1,218) (2,051) (1,571) (2,477)
Dividends to preferred unitholders in Operating
Partnership....................................... -- (1,317) (2,276) (3,105)
Net income.......................................... 7,781 13,139 9,752 15,073
Net income per share -- basic and diluted........... 0.27 0.46 0.35 0.57
YEAR ENDED DECEMBER 31, 1998
----------------------------------------
FIRST SECOND THIRD FOURTH
------- ------- ------- -------
Revenues............................................ $33,239 $34,571 $38,256 $41,503
Income before gain on sale of real estate assets,
minority interest of common unitholders in
Operating Partnership and extraordinary items..... 6,892 7,137 7,892 7,406
Gain on sale of real estate assets.................. 8,731 28,417
Minority interest of common unitholders in Operating
Partnership....................................... (995) (2,315) (1,129) (5,153)
Extraordinary items................................. (158) (350)
Net income.......................................... 5,739 13,553 6,763 30,320
Income per share:
Income before extraordinary items -- basic........ 0.25 0.55 0.27 1.19
Income before extraordinary items -- diluted...... 0.24 0.55 0.27 1.19
Net income -- basic and diluted................... 0.24 0.55 0.27 1.17
70