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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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 0-22411
SUMMIT PROPERTIES PARTNERSHIP, L.P.
(Exact name of registrant as specified in its charter)
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DELAWARE 56-1857809
(State or other jurisdiction of (IRS 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)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON UNITS OF LIMITED PARTNERSHIP INTEREST
(TITLE OF EACH CLASS)
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 common units of limited partnership interest
("Units") held by nonaffiliates of the Registrant, as of March 10, 2000 was
$59,597,743 based on the last reported sale price of the Common Stock of Summit
Properties Inc., a Maryland corporation and the sole general partner of the
Registrant (the "Company"), into which Units are redeemable under certain
circumstances at the election of the Company.
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TABLE OF CONTENTS
ITEM PAGE
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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 the Registrant.......... 34
11. Executive Compensation...................................... 36
12. Security Ownership of Certain Beneficial Owners and
Management................................................ 40
13. Certain Relationships and Related Transactions.............. 41
PART IV
14. Exhibits, Financial Statement Schedules and Reports on Form
8-K....................................................... 43
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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 Operating Partnership'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 OPERATING PARTNERSHIP
Summit Properties Partnership, L.P. (the "Operating Partnership") 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 Operating Partnership 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 Operating Partnership is a fully integrated organization
with multifamily development, construction, acquisition and management expertise
which employs approximately 650 individuals.
The sole general partner of the Operating Partnership is Summit Properties Inc.
("Summit Properties"), a fully integrated real estate investment trust ("REIT").
Summit Properties' common stock, par value $.01 per share ("Common Stock"), is
listed on the New York Stock Exchange under the symbol "SMT". The Operating
Partnership's third party management and 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 "Operating Partnership" shall also hereinafter refer to
the Operating Partnership, the Management Company and the Construction Company.
The Operating Partnership, 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 Operating
Partnership 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 Operating
Partnership believes that this decentralized structure provides it with superior
local knowledge and experience in each market.
OPERATING PHILOSOPHY
The Operating Partnership 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 Operating Partnership has also developed five
classes focusing on excellence in property management to provide on-going
training and to further enhance associate productivity. The Operating
Partnership 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 Operating Partnership has long stressed the importance of developing strong
customer relationships with its residents. The Operating Partnership'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
Operating Partnership'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
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Living Accessories where the Operating Partnership 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.
This excellence in service, in addition to upscale features and premium
locations in high growth markets, has allowed the Operating Partnership to
charge market-leading rents to its residents while maintaining high occupancy
rates. The Operating Partnership's geographic market focus and decentralized
city office structure further promote income growth.
GROWTH STRATEGIES
The Operating Partnership'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 Operating Partnership 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 Operating Partnership 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 Operating
Partnership is typically among the rental rate leaders in its markets. The
Operating Partnership'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 Operating Partnership'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 Operating Partnership's fully stabilized Communities are as follows for
the years set forth below:
YEAR ENDED DECEMBER 31,
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1999 1998 1997
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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 Operating Partnership 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 Operating Partnership 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 Operating
Partnership 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 Operating Partnership believes
this integrated approach will create premium quality communities with increased
customer satisfaction.
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Furthermore, the Operating Partnership 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 Operating Partnership. The
Operating Partnership's development organization has moved to using a consistent
design across all garden style communities, which the Operating Partnership
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.
Deploying Capital Strategically. Since its initial public offering in 1994, the
Operating Partnership 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 Operating Partnership's growth. Of its 65 completed
Communities, 40 have been developed by the Operating Partnership or its
predecessors. The Operating Partnership attributes much of its historical cash
flow growth to the quality of the apartment Communities it has developed over
the years.
The Operating Partnership maintains an active development program which provides
it with a predictable and consistent stream of new revenues. Focusing on
development allows the Operating Partnership to build desirable properties that
generate premium rents. It also provides returns which generally exceed those
achieved on acquisitions.
The Operating Partnership 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 Operating Partnership 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 Operating Partnership completed development of seven Communities,
adding 1,650 apartment homes to the Operating Partnership'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 Operating Partnership 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 --
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2,952 $251,200 $148,587 $127,834
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The Operating Partnership 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 Operating
Partnership 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 Operating Partnership 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 affect rental rates and the period of time
necessary to achieve stabilization, and could result in achieving stabilization
later than currently anticipated.
While the Operating Partnership 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 Operating Partnership's investment
criteria. The Operating Partnership has acquired more than 8,612 apartment homes
since its formation in 1994. Acquisitions have generally been concentrated in
the Operating Partnership's targeted core markets in order to further strengthen
brand identity and operational efficiencies. The Operating Partnership's
extensive local-market knowledge and development expertise give it an advantage
in identifying and underwriting acquisition opportunities that the Operating
Partnership 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
Operating Partnership's development program. As a result, the Operating
Partnership made no such acquisitions in 1999. However, this pricing dynamic
also created an opportunity for the Operating Partnership to increase its
disposition activity.
During 1999, the Operating Partnership disposed of seven communities for over
$76 million. These Communities did not align with the Operating Partnership's
overall long term strategic plan and growth objectives. This is part of a
strategy that the Operating Partnership calls "Capital Recycling" whereby the
proceeds of these dispositions are reinvested into new communities that the
Operating Partnership 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 Operating Partnership
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 Operating Partnership'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 Operating Partnership's portfolio in one or two markets.
The Operating Partnership is currently in the process of exiting its smaller
markets and reinvesting the sale proceeds into new Communities in its larger
core markets. The Operating Partnership believes this strategy will improve
financial performance by improving economies of scale, concentrating market
knowledge, and increasing brand awareness.
Furthermore, the Operating Partnership is seeking opportunities to diversify its
product type. The Operating Partnership 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.
THE OPERATING PARTNERSHIP
As sole general partner of the Operating Partnership, Summit Properties has the
exclusive power to manage and conduct the business of the Operating Partnership
subject to certain voting rights of holders (including Summit Properties) of the
units of limited partnership interest ("Common Units"), including the consent of
holders (including Summit Properties) of 85% of the Common 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
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which would result in the recognition of a significant taxable gain to the
holders of Common 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, as of December 31,
1999, Summit Properties' general and limited partnership interests in the
Operating Partnership entitle it to share in 85.6% of the cash distributions
form, and in the profits and losses of, the Operating Partnership.
Each Common Unit may be redeemed by the holder thereof for cash equal to the
fair market value of a share of Summit Properties' Common Stock or, at the
option of Summit Properties, an equivalent number of shares of Common Stock.
Summit Properties presently determines on a case-by-case basis whether it will
elect to issue shares of Common Stock in connection with a redemption of Common
Units rather than paying cash. With each redemption of Common Units for Common
Stock, Summit Properties' percentage ownership interest in the Operating
Partnership will increase. Similarly, when Summit Properties acquires a share of
Common Stock under its common stock repurchase program described below or
otherwise, it simultaneously disposes of one Common Unit of the Operating
Partnership. In addition, whenever Summit Properties issues shares of Common
Stock for cash, Summit Properties will contribute any net proceeds therefrom to
the Operating Partnership and the Operating Partnership will issue an equivalent
number of Common Units to Summit Properties.
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, 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 Operating Partnership for a
period of 99 years from the date of formation without a vote of the limited
partners of the Operating Partnership.
OPERATING PARTNERSHIP HISTORY
The Operating Partnership, a Delaware limited partnership, was formed on January
14, 1994 to continue and expand the multifamily development, construction,
acquisition, operation, management and leasing businesses of the predecessor
entities through which the Operating Partnership historically conducted
operations prior to the Initial Offering (as defined below) (the "Summit
Entities"). The Summit Entities were founded by Summit Properties' Co-Chairman
of the Board, William B. McGuire, Jr., in 1972. In 1981, William F. Paulsen
joined the predecessor to Summit Properties as Chief Executive Officer and
shepherded the growth of its multifamily development and management activities.
Summit Properties organized itself as a REIT and completed its initial public
offering (the "Initial Offering") of 10,000,000 shares of 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, Summit
Properties completed a follow-on public offering of 4,000,000 shares of Common
Stock. A second follow-on public offering of 5,000,000 shares of Summit
Properties' Common Stock was completed on August 7, 1996, with an additional
750,000 shares sold upon exercise of the underwriters' over-allotment option on
August 12, 1996. In addition, Summit Properties 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, Summit Properties adopted a common stock repurchase program
pursuant to which Summit Properties is authorized to purchase up to an aggregate
of $50 million of outstanding Common Stock. During 1999, Summit Properties
repurchased 2,414,300 shares of Common Stock for an aggregate purchase price of
approximately $47.5 million.
On August 12, 1997, the Operating Partnership completed a $125 million senior
unsecured debt offering. On December 12, 1997, the Operating Partnership
completed an additional $30 million senior unsecured debt offering. On May 29,
1998, the Operating Partnership 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
Operating Partnership issued notes with an aggregate principal amount of $80
million in connection with the MTN Program. The Operating Partnership intends to
establish a similar program for the sale of Medium-Term Notes under a shelf
registration statement filed with the
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Securities and Exchange Commission (the "SEC") in July 1999, pursuant to which
the Operating Partnership may sell debt securities with an aggregate public
offering price of up to $250 million.
The executive offices of the Operating Partnership are located at 212 South
Tryon Street, Suite 500, Charlotte, North Carolina 28281. The Operating
Partnership's telephone number is (704) 334-3000 and its facsimile number is
(704) 333-8340. The Operating Partnership also maintains offices in Atlanta,
Georgia; Tampa, Florida; Bethesda, Maryland; Ft. Lauderdale, Florida; Dallas,
Texas; and Raleigh, North Carolina.
ITEM 2. PROPERTIES
THE COMMUNITIES
The Operating Partnership owns and operates 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%
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69 17,673 100.0%
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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
and Virginia), as well as in Delaware, Ohio, Indiana and Pennsylvania. The
following table highlights certain information regarding the Communities:
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)
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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
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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
MORTGAGE
NOTES
PAYABLE AT
DECEMBER 31,
1999
MARKET AREA/COMMUNITY (IN THOUSANDS)
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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....
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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)
- --------------------- -------- ---------- --------- --------- --------- --------- ------- -------
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
---------- --------- --------- --------- ------- -------
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
MORTGAGE
NOTES
PAYABLE AT
DECEMBER 31,
1999
MARKET AREA/COMMUNITY (IN THOUSANDS)
- --------------------- --------------
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
COMMUNITIES STABILIZED IN
1999 AND 1998................
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............. --
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)
- --------------------- -------- ---------- --------- --------- --------- --------- ------- -------
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
STABLIZED 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)
- --------------------- --------------
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
STABLIZED 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 Operating Partnership
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 Operating Partnership's
expectations. As with any community in lease-up, there are uncertainties
and risks associated with the Operating Partnership's Communities in
lease-up. While the Operating Partnership 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
Operating Partnership will not experience delays in reaching stabilization
of such Communities.
10
11
Information with respect to total debt secured by thirty of the Operating
Partnership'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 are 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 Operating Partnership'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 Operating
Partnership-designed and outside courses.
ITEM 3. LEGAL PROCEEDINGS
Neither the Operating Partnership nor any of the Communities is presently
subject to any material litigation nor, to the Operating Partnership's
knowledge, is any litigation threatened against the Operating Partnership 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 Operating Partnership.
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
There is no established public trading market for the Common Units. As of March
10, 2000 there were 112 holders of record of Common Units.
The Operating Partnership declared a distribution of $0.4175 per Common Unit 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 Operating Partnership declared a distribution of $0.4075 per Common Unit 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.
During the three months ended December 31, 1999, the Operating Partnership
issued Common Units in private placements in the reliance on the exemption from
registration under Section 4(2) of the Securities Act of 1933, as amended (the
"Securities Act"), in the amounts and for the consideration set forth below:
A. Summit Properties issued an aggregate of 76,629 shares of Common Stock
pursuant to its Dividend Reinvestment and Stock Purchase Program. Summit
Properties contributed the proceeds (approximately $1.4 million) of these
sales to the Operating Partnership in consideration of an aggregate of 76,629
Common Units.
B. Summit Properties issued an aggregate of 500 shares of Common Stock in
connection with restricted stock awards. Each time a share of Common Stock is
issued in connection with such an award, the Operating Partnership issues a
Common Unit to Summit Properties during the relevant period.
C. Summit Properties issued an aggregate of 748 shares of Common Stock pursuant
to its Employee Stock Purchase Plan. Summit Properties has contributed the
proceeds (approximately $14,000) of these sales to the Operating Partnership
in consideration of an aggregate of 748 Common Units.
In light of the circumstances under which such Common Units were issued and
information obtained by the Operating Partnership in connection with such
transactions, management of Summit Properties, in its capacity as general
partner of the Operating Partnership, believes that the Operating Partnership
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 Operating Partnership 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 Partnership, L.P. and the Notes thereto included
elsewhere herein.
SELECTED FINANCIAL DATA
SUMMIT PROPERTIES PARTNERSHIP, L.P. (HISTORICAL)
YEARS ENDED DECEMBER 31,
-------------------------------------------------------------------
1999 1998 1997 1996 1995
------------ ------------ ---------- ---------- -----------
(AMOUNTS IN THOUSANDS, EXCEPT PER UNIT 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..................... 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... $ 59,760 $ 66,475 $ 31,934 $ 21,187 $ 15,051
========== ========== ======== ======== =========
Net Income available to common
unitholders....................... $ 53,062 $ 65,881 $ 31,934 $ 21,187 $ 15,051
========== ========== ======== ======== =========
Income per common unit before
extraordinary items -- basic and
diluted........................... $ 1.86 $ 2.28 $ 1.17 $ 0.92 $ 0.83
========== ========== ======== ======== =========
Net income available to common
unitholders per unit -- basic and
diluted........................... $ 1.65 $ 2.26 $ 1.17 $ 0.90 $ 0.80
========== ========== ======== ======== =========
Dividends per Common Unit........... $ 1.67 $ 1.63 $ 1.59 $ 1.55 $ 1.51
========== ========== ======== ======== =========
Weighted average common 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........................ 1,217,780 1,199,067 825,695 635,364 533,609
Total long-term debt................ 649,632 726,103 474,673 309,933 297,010
Partners' equity.................... 518,670 416,512 311,570 303,416 217,496
13
14
YEARS ENDED DECEMBER 31,
-------------------------------------------------------------------
1999 1998 1997 1996 1995
------------ ------------ ---------- ---------- -----------
(AMOUNTS IN THOUSANDS, EXCEPT PER UNIT AND PROPERTY INFORMATION)
OTHER INFORMATION:
Cash flow provided by (used in):
Operating activities.............. $ 62,452 $ 63,808 $ 55,947 $ 41,176 $ 30,994
Investing activities.............. (36,484) (219,170) (175,907) (103,971) (63,734)
Financing activities.............. (24,675) 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 Operating Partnership considers funds from operations ("FFO") to be an
appropriate measure of performance of an equity REIT. The Operating
Partnership 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 Operating Partnership 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 Operating Partnership
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 Operating Partnership's financial performance
or to cash flows from operating activities (determined in accordance with
GAAP) as a measure of the Operating Partnership's liquidity, nor is it
indicative of funds available to fund the Operating Partnership'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 available to common unitholders
before gain on sale of real estate
assets 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 Operating Partnership during the period.
(3) Represents the total number of apartment homes in Communities completed and
owned by the Operating Partnership 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 and dividends to preferred
unitholders). 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, Summit Properties 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 Operating Partnership. These risks, uncertainties and other
factors may cause the actual results, performance or achievements of the
Operating Partnership 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 Operating Partnership 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 Operating Partnership'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 Operating
Partnership'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 Operating
Partnership's Fully Stabilized Communities,", in the section entitled
"Development Activity -- Certain Factors Affecting the Performance of
Development Communities," and in the section entitled "Year 2000" on pages 17,
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 Partnership, L.P. and the Notes
thereto appearing elsewhere herein.
HISTORICAL RESULTS OF OPERATIONS
The Operating Partnership'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
Operating Partnership has acquired is deemed "fully stabilized" when owned by
the Operating Partnership for one year or more as of the beginning of the year.
A Community that the Operating Partnership 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 Operating Partnership's methodology for calculating average
physical occupancy and average monthly rental revenue may differ from
15
16
the methodology used by other apartment companies, and accordingly, may not be
comparable to such other apartment companies.
Effective January 1, 1999, the Operating Partnership 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 Operating Partnership believes that the newly
adopted accounting policy is preferable as it is consistent with standards and
practices utilized by the majority of the Operating Partnership'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 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 the disposition of Communities and an
increase in depreciation and interest expense.
OPERATING PERFORMANCE OF THE OPERATING PARTNERSHIP'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 Operating Partnership'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 OPERATING PARTNERSHIP'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 Operating Partnership 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 Operating Partnership
operates. The higher growth rate was especially noticeable in the Washington,
DC, Atlanta and South Florida markets. In 2000, the Operating Partnership
expects the rate of growth to decline due to more difficult year over year
comparisons and a
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different fully stabilized portfolio composition. The Operating Partnership
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
Operating Partnership 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 OPERATING PARTNERSHIP'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 Operating Partnership'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(2)............. $ 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 Operating Partnership 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.
(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 was minimal. Average monthly rental revenue for
18
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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 OPERATING PARTNERSHIP'S STABILIZED DEVELOPMENT
COMMUNITIES
The Operating Partnership 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 Operating Partnership 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%.
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20
OPERATING PERFORMANCE OF THE OPERATING PARTNERSHIP'S COMMUNITIES IN LEASE-UP
The Operating Partnership 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 Operating Partnership 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 Operating Partnership 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 Operating Partnership's lease-up Communities is
summarized as follows (dollars in thousands):
YEAR ENDED YEAR ENDED
DECEMBER 31, 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
======= ====== ======= ======
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21
(1) Effective January 1, 1999, the Operating Partnership 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 OPERATING PARTNERSHIP'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 Operating Partnership 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 YEAR ENDED
DECEMBER 31, 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 Operating Partnership 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 Operating Partnership'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 Operating Partnership'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 Operating Partnership
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 Operating
Partnership.
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
Operating Partnership 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 Operating
Partnership'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 Operating Partnership's average indebtedness outstanding
offset
22
23
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. 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 Operating
Partnership'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 Operating Partnership'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 Operating
Partnership's markets, or that are located in smaller markets. The Operating
Partnership 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 Operating
Partnership'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
Operating Partnership 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 Operating Partnership's net cash provided by operating activities decreased
from $63.8 million for the year ended December 31, 1998 to $62.5 million for the
same period in 1999, primarily due to a $6.1 million decrease in net income and
a $6.0 million increase in interest paid. The decrease in net income was due to
the 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 Operating Partnership 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.
23
24
Net cash provided by financing activities was $154.6 million for the year ended
December 31, 1998. Net cash used in financing activities was $24.7 million for
the year ended December 31, 1999, primarily due to net repayments of $75.5
million on the Operating Partnership'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 caused an increase in cash used in financing activities as compared to the
same period in 1998 were the payment of higher distributions to unitholders,
Summit Properties' repurchase of Common Stock for an aggregate purchase price of
approximately $47.5 million and a decrease in equity proceeds from Summit
Properties' 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 Operating Partnership'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 Operating Partnership 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 Operating Partnership 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 Operating Partnership 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 32), 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 Operating Partnership 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 Operating Partnership'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 Operating Partnership's unsecured credit rating. The Unsecured
Credit Facility is repayable monthly on an interest only basis with principal
due at maturity. The Operating Partnership'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 Operating Partnership with the option to place borrowings in fixed
LIBOR contract periods of thirty, sixty, ninety and one hundred eighty days. The
Operating Partnership 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.
24
25
The Unsecured Credit Facility requires the Operating Partnership to comply with
certain affirmative and negative covenants including the following requirements:
(i) Summit Properties maintain its qualification as a REIT; (ii) the Operating
Partnership 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 Operating Partnership
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
Operating Partnership 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 Operating Partnership 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 Operating Partnership was in compliance with these
covenants at December 31, 1999.
Medium-Term Notes
On May 29, 1998, the Operating Partnership 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 Operating Partnership 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, Summit Properties
and the Operating Partnership filed a shelf registration statement with the SEC,
pursuant to which the Operating Partnership may issue debt securities with an
aggregate public offering price of up to $250 million. The Operating Partnership
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 Operating Partnership'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
Summit Properties ("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 Summit
Properties 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.
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
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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
Operating Partnership'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 Summit Properties ("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 Summit Properties 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 Summit Properties authorized a common
stock repurchase program pursuant to which Summit Properties 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, Summit Properties
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 Operating Partnership'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 Operating Partnership has historically had limited involvement with
derivative financial instruments, the Operating Partnership 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 Operating Partnership does not utilize
derivative financial instruments for trading or speculative purposes. On
September 16, 1999, the Operating Partnership 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 Operating Partnership 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 Operating Partnership 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 Operating Partnership will be required to pay, and a decrease
in LIBOR will decrease the amount of interest that the Operating Partnership
will be required to pay. The fair value of the interest rate swap was $445,000
at December 31, 1999.
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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 NOTE
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
-------- --------
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PRINCIPAL OUTSTANDING
INTEREST DECEMBER 31,
RATE AS OF MATURITY ----------------------
DECEMBER 31, 1999 DATE(1) 1999 1998
----------------- -------- --------- ---------
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
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 Operating Partnership'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.
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ACQUISITIONS AND DISPOSITIONS
During the year ended December 31, 1999, the Operating Partnership 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).
During the year ended December 31, 1999, the Operating Partnership acquired no
communities.
The Operating Partnership 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 Operating
Partnership'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 Operating Partnership 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 $17.0 million.
On December 16, 1998, the Operating Partnership (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 Operating Partnership 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
Operating Partnership's contribution to Station Hill (approximately $5.6
million) represents a 25 percent equity interest in Station Hill. In addition,
the Operating Partnership 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 Operating Partnership 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
Operating Partnership 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
Operating Partnership's retained portion of the joint venture. The elimination
of the gain reduced the Operating Partnership'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 Operating Partnership acquired a portfolio of
multifamily properties in Texas (the "Ewing Portfolio") through a merger with
Ewing Industries, a private developer of luxury apartment homes.
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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 Operating Partnership,
affiliates of the Operating Partnership 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 Operating Partnership 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.
At December 31, 1999, the Operating Partnership had three apartment communities
for sale with a net book value of approximately $13.8 million. The Operating
Partnership 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 Operating Partnership for
the year ended December 31, 1999.
DEVELOPMENT ACTIVITY
The Operating Partnership'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 Operating Partnership's material commitments for capital expenditures
at December 31, 1999.
Certain Factors Affecting the Performance of Development Communities
The Operating Partnership 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 Operating
Partnership 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
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exceed current budgets or that the Operating Partnership 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 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 Operating Partnership is conducting feasibility and other
pre-development work for eleven Communities. The Operating Partnership 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, 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 Operating
Partnership 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 Operating Partnership 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 Operating Partnership
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 Operating Partnership'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 Operating Partnership'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 Operating Partnership.
The Operating Partnership has not experienced any business or service
disruptions as a result of any Year 2000 issues, nor has the Operating
Partnership 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 Operating
Partnership expect to incur additional material costs related to Year 2000
issues. The Operating Partnership is continuing to evaluate potential
disruptions or complications that might result in the future from Year 2000
related problems; although at this time, the Operating Partnership 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 Operating Partnership, which might have a material
adverse impact on the Operating Partnership's business, financial condition and
results of operations.
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FUNDS FROM OPERATIONS
The Operating Partnership considers funds from operations ("FFO") to be an
appropriate measure of performance of an equity REIT. The Operating Partnership
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").
Funds Available for Distribution ("FAD") is defined as FFO less capital
expenditures funded by operations (recurring capital expenditures). The
Operating Partnership'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 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 Operating Partnership's financial performance or to cash
flows from operating activities (determined in accordance with GAAP) as a
measure of the Operating Partnership's liquidity, nor are they indicative of
funds available to fund the Operating Partnership's cash needs, including its
ability to make dividends/distributions. The Operating Partnership believes FFO
and FAD are helpful to investors as measures of the performance of the Operating
Partnership because, along with cash flows from operating activities, financing
activities and investing activities, they provide investors with an
understanding of the ability of the Operating Partnership to incur and service
debt and make capital expenditures.
Funds from Operations and Funds Available for Distribution are calculated as
follows (dollars in thousands):
YEAR ENDING DECEMBER 31,
---------------------------------------
1999 1998 1997
----------- ----------- -----------
Net income available to common unitholders............ $ 53,062 $ 65,881 $ 31,934
Gain on sale of real estate assets.................... (17,427) (37,148) (4,366)
Extraordinary items................................... -- 594 --
----------- ----------- -----------
Subtotal............................................ 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) $ (4,995) $ (4,653)
=========== =========== ===========
Cash Flow Provided By (Used In):
Operating Activities............................. $ 62,452 $ 63,808 $ 55,947
Investing Activities............................. (36,484) (219,170) (175,907)
Financing Activities............................. (24,675) 154,636 119,858
Weighted average units outstanding -- basic........... 32,134,646 29,140,931 27,257,637
=========== =========== ===========
Weighted average 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 Operating Partnership's change in accounting
policy to capitalize carpets starting January 1, 1999. Without carpet,
recurring capital expenditures for the year ended December 31, 1999
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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.
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 51 of this
Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
The Operating Partnership is managed by Summit Properties, in its capacity as
the general partner of the Operating Partnership. Consequently, the Operating
Partnership has no directors or executive officers. This Item 10 reflects
information with respect to the directors and executive officers of Summit
Properties.
Directors
Terms Expiring in 2000
WILLIAM B. MCGUIRE, JR. Mr. McGuire has served as Co-Chairman of the Board of
Directors of Summit Properties since December 1999 and as Chairman of the Board
from 1994 to December 1999. Prior to the formation of Summit Properties, Mr.
McGuire served as a senior partner of the predecessor to Summit Properties and
as a general partner of each of the partnerships which transferred multifamily
apartment communities to Summit Properties when it was formed. Mr. McGuire
founded the predecessor to Summit Properties in 1972. Mr. McGuire also founded
McGuire Properties, Inc., a real estate brokerage firm, in 1972. He has been
active in the following professional and community organizations: Residential,
Multifamily and Urban Development Mixed Use Councils of the Urban Land
Institute; Charlotte Advisory Board of NationsBank of North Carolina, N.A.; and
The Charlotte City Club, serving on its Board of Governors as President. He was
a Trustee of the North Carolina Nature Conservancy; a Founder and Director of
Habitat for Humanity of Charlotte; and the Founder and President of The
Neighborhood Medical Clinic. Mr. McGuire is 55 years old.
WILLIAM F. PAULSEN. Mr. Paulsen is Co-Chairman of the Board of Directors and
the Chief Executive Officer of Summit Properties. He has held the position of
Co-Chairman of the Board since December 1999 and the position of Chief Executive
Officer since 1994. Mr. Paulsen has been a director of Summit Properties since
1994. Prior to the formation of Summit Properties, Mr. Paulsen was a senior
partner and the Chief Executive Officer of the predecessor to Summit Properties
and a general partner of each of the partnerships which transferred multifamily
apartment communities to Summit Properties when it was formed. Mr. Paulsen
joined the predecessor to Summit Properties in 1981. He was selected as North
Carolina Entrepreneur of the Year in 1991. In addition to his responsibilities
with Summit Properties, Mr. Paulsen is a full member and Residential Council
member of the Urban Land Institute. He is a member of the Board of Directors of
The Beach Company, a real estate investment company specializing primarily in
commercial and resort development in the southeastern United States, and is a
trustee of The Asheville School. Mr. Paulsen also served as a Vice President of
the Charlotte Apartment Association. He is 53 years old.
JAMES M. ALLWIN. Mr. Allwin has been a director of Summit Properties since
1999. Mr. Allwin is President of Aetos Capital, a newly formed independent
investment management firm. Prior to January 1, 1999, he was head of the
investment management business of Morgan Stanley Dean Witter, which included
Morgan Stanley Asset Management, Miller Anderson & Sherrerd and the firm's
Private Equity Funds: Capital Partners, Venture Capital and Real Estate.
Together, these businesses had over $160 billion of assets under management and
$10 billion of private equity commitments. In addition, he oversaw Morgan
Stanley Trust Company, with $400 billion in custody, which was sold to Chase
Bank in 1998. He was a member of the Morgan Stanley Dean Witter Management
Committee. Mr. Allwin joined Morgan Stanley in 1976, and during the course of
his career, he also worked in areas such as corporate finance, mergers and
acquisitions and real estate. He is a graduate of Yale University, where he
currently serves as a member of the Investment Committee, and a graduate of the
Amos Tuck School of Business Administration at Dartmouth College, where he is a
member of the Board of Overseers. He is a member of the Chairman's Council of
the Museum of Modern Art in New York, the Board of Trustees of Greenwich Academy
and the Board of Directors of The National Mentoring Partnership. He is also
Chairman of Communities In Schools, Inc., the nation's largest non-profit
stay-in-school program. Mr. Allwin is 47 years old.
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Terms Expiring in 2001
JAMES H. HANCE, JR. Mr. Hance has been a director of Summit Properties since
1994. Mr. Hance is Vice Chairman and Chief Financial Officer of Bank of America
and is a member of such corporation's Policy Committee. He is also responsible
for the Finance Group, comprised of the finance, accounting and control
functions, and for Treasury, including balance sheet management. Additionally,
he is responsible for Technology & Operations, which encompasses such
corporation's operations and technology development functions, Investor
Relations, the legal department, and Management Services, which provides for
such corporation's real estate needs. The global payment business, which
provides depository and treasury services to customers worldwide, also reports
to Mr. Hance. Mr. Hance, a certified public accountant, spent 17 years with the
Price Waterhouse accounting firm in Philadelphia and Charlotte. For six years,
he was a partner in the Charlotte office and served as the audit partner
responsible for the firm's relationship with NCNB Corporation (predecessor to
NationsBank and Bank of America). From August 1985 until December 1986, he was
Chairman and co-owner of Consolidation Coin Caterers Corp. in Charlotte. He
joined NationsBank (predecessor to Bank of America) in March 1987. Mr. Hance is
Chairman of the Board of Trustees of both Novant Health Services and Charlotte
Country Day School. He also is a member of the Boards of Directors of Caraustar
Industries Inc., Family Dollar Stores Inc., Lance Inc. and Bank of America
Corporation. Mr. Hance is a Trustee of Washington University in St. Louis and is
a member of Washington University's National Council for the John M. Olin School
of Business. He is a member of the Board of Visitors of Duke University Fuqua
School of Business, and serves on the Board of Trustees of the North Carolina
Blumenthal Performing Arts Center and the Boards of Directors of the Foundation
for the Carolinas, the United Negro College Fund and the Foundation for the
University of North Carolina at Charlotte. In addition, he is the 1996 past
chairman of the Charlotte Chamber of Commerce and a 1998 International Business
Fellow. Mr. Hance is 55 years old.
HENRY H. FISHKIND. Dr. Fishkind has been a director of Summit Properties since
1994. He is the President of Fishkind & Associates, Inc., a private economic and
financial consulting firm based in Orlando, Florida that he founded in 1987. Dr.
Fishkind is a member of the Board of Directors of Engle Homes. Dr. Fishkind
served on the Florida Governor's Economic Advisory Board from 1979 to 1981. He
is 50 years old.
Terms Expiring in 2002
NELSON SCHWAB III. Mr. Schwab has been a director of Summit Properties since
1994. He has been a Managing Director of Carousel Capital, a merchant banking
firm based in Charlotte, North Carolina specializing in middle market
acquisitions, since 1996. Mr. Schwab served as Chairman and Chief Executive
Officer of Paramount Parks from 1992 to 1995. Mr. Schwab is a member of the
Boards of Directors of First Union National Bank, Silver Dollar City, Inc.,
Griffin Corporation, Go America Inc., Children First, Claremont Restaurant
Group, Critical Care Concepts, Simpson Performance Products and Burlington
Industries. Mr. Schwab previously served as the Chairman of the Carolinas
Partnership and the Charlotte Chamber of Commerce. Mr. Schwab is 55 years old.
STEVEN R. LEBLANC. Mr. LeBlanc is the President, Chief Operating Officer and a
director of Summit Properties. Mr. LeBlanc has been a director of Summit
Properties since 1998. Prior to joining Summit Properties, Mr. LeBlanc served as
President of Urban Growth Property Trust from 1997 to 1998 where he developed
Summit Properties' strategic business plan, orchestrated the transition to REIT
status and initiated over $200 million in acquisitions and developments. From
1992 to 1997, Mr. LeBlanc served in a number of senior management positions with
the Security Capital Group where he implemented a fully integrated operating
company strategy focused on long-term sustainable cash flow growth. While at
these companies, he was responsible for the acquisition and development of
11,000 apartment homes and the purchase of land for an additional 10,000
apartment homes. From 1984 to 1992, Mr. LeBlanc was a partner with Lincoln
Property Company where he was a member of the senior management team and was
responsible for the management of 17,000 apartments as well as the firm's
acquisition and development activities throughout Texas and the Northeast. Mr.
LeBlanc is a member of the Board of Directors of the National Multifamily
Council and a member of the Urban Land Institute. He has served on the Boards of
Directors of the Rio Grand School, the
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Santa Fe Pro-Musica and the Austin Apartment Association. Mr. LeBlanc has taught
various real estate courses at Austin Community College in Austin, Texas. Mr.
LeBlanc is 42 years old.
Executive Officers Who Are Not Directors
MICHAEL L. SCHWARZ. Mr. Schwarz is an Executive Vice President and Chief
Financial Officer of Summit Properties. Prior to joining Summit Properties in
1994, Mr. Schwarz served as co-founder, Senior Vice President and Chief
Financial Officer of Industrial Developments International, Inc. ("IDI"), a
developer of industrial real estate. While at IDI, Mr. Schwarz was responsible
for the company's capital markets activities, accounting operations and
information technology efforts. In this capacity, Mr. Schwarz arranged over $500
million in financing including IDI's initial capitalization. At Summit
Properties, Mr. Schwarz is responsible for Summit Properties' capital markets,
accounting, information technology and legal activities. He is a certified
public accountant. Mr. Schwarz served as the Chairman of the Board of The Study
Hall of Emmaus House, a non-profit educational facility serving inner-city
youths, and is currently active in Junior Achievement, Inc. Mr. Schwarz also
sits on the Long Term Planning committee of St. Patrick's School and the board
of the MACS Education Foundation. Mr. Schwarz is 39 years old.
WILLIAM B. HAMILTON. Mr. Hamilton is an Executive Vice President of Summit
Properties and the President of Summit Management Company. Prior to joining
Summit Properties in December 1996, Mr. Hamilton spent one year as a Senior Vice
President with Insignia Management Group in Atlanta, Georgia where he was
responsible for property and asset management for 50,000 multifamily apartments.
For the four years immediately prior thereto, Mr. Hamilton was the President of
NPI Property Management Corporation, where his management portfolio consisted of
31,000 multifamily apartments. Mr. Hamilton's experience in the property and
asset management field for multifamily apartments has spanned more than 20
years. Mr. Hamilton has been designated a certified property manager by the
Institute of Real Estate Management and a Certified Apartment Supervisor by the
National Apartment Association. Mr. Hamilton is 51 years old.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
Summit Properties' executive officers and directors, and persons who are
beneficial owners of more than 10% of a registered class of the Operating
Partnership's equity securities to file reports of ownership and changes in
ownership with the SEC. Officers, directors and greater than 10% beneficial
owners are required by SEC regulations to furnish Summit Properties with copies
of all Section 16(a) forms they file. To Summit Properties' knowledge, based
solely on a review of the copies of such reports furnished to Summit Properties
by the executive officers, directors and greater than 10% beneficial owners, all
Section 16(a) filing requirements were satisfied during 1999.
ITEM 11. EXECUTIVE COMPENSATION
The Operating Partnership is managed by Summit Properties, in its capacity as
the general partner of the Operating Partnership. Consequently, the Operating
Partnership has no directors or executive officers and pays no compensation.
This Item 11 reflects the compensation paid to the directors and executive
officers of Summit Properties.
DIRECTOR COMPENSATION
Directors of Summit Properties who are also employees receive no additional
compensation for their services as directors. Non-employee directors of Summit
Properties (the "Independent Directors") received an annual director's fee of
$12,000 in 1999. Each Independent Director also receives $1,000 for each regular
meeting of the Board of Directors attended, $1,000 for each special meeting of
the Board of Directors attended, $250 for each committee meeting attended if
held concurrently with a Board of Directors regular or special meeting and $500
for each committee meeting attended if not held concurrently with a Board of
Directors regular or special meeting. Under Summit Properties' amended and
restated 1994 Stock Option and Incentive Plan (the "1994 Plan"), following each
annual meeting of stockholders, each Independent Director receives a non-
qualified stock option to purchase 2,000 shares of Common Stock at a price equal
to the market price of the
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Common Stock on the date of grant. Following the Annual Meeting, each
Independent Director will receive a non-qualified stock option to purchase an
additional 3,000 shares of Common Stock at a price equal to the market price of
the Common Stock on the date of grant.
EXECUTIVE COMPENSATION
Summary Compensation Table. The following table sets forth the cash and
non-cash compensation awarded to the Chief Executive Officer and the three other
most highly compensated executive officers of Summit Properties who were serving
as executive officers at the end of 1999, each of whose compensation exceeded
$100,000 during the fiscal year ended December 31, 1999 (collectively the "Named
Executive Officers").
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION AWARDS
----------------------------------------------------
ANNUAL LONG-TERM
COMPENSATION RESTRICTED SECURITIES INCENTIVE
----------------- STOCK UNDERLYING PLAN ALL OTHER
SALARY BONUS AWARDS OPTIONS ("LTIP") COMPENSATION
YEAR ($)(1) ($) ($) (#) PAYOUTS($) ($)(2)
NAME AND PRINCIPAL POSITION ---- ------- ------- ---------- ---------- ---------- ------------
William F. Paulsen............... 1999 300,000 150,000 30,009(3) 150,000 -- 3,840
Chief Executive Officer 1998 252,370 126,185 68,013(3) 0 -- 5,000
1997 244,500 122,250 24,443(3) 0 -- 4,750
Steven R. LeBlanc(4)............. 1999 280,000 140,000 28,014(5) 150,000 -- 3,840
President and Chief 1998 113,462 96,250 0 175,000 -- 0
Operating Officer
Michael L. Schwarz............... 1999 225,000 157,500 0 120,000 -- 3,840
Executive Vice President 1998 178,725 138,959 0 0 -- 5,000
and Chief Financial Officer 1997 173,000 86,500 196,775(6) 0 -- 4,750
William B. Hamilton.............. 1999 210,000 164,000 0 135,000 -- 3,840
Executive Vice President 1998 178,725 54,064 0 0 -- 5,000
and President of Summit 1997 173,000 43,250 179,375(7) 0 -- 0
Management Company
(1) Includes amounts deferred under Summit Properties' 401(k) plan. Under the
plan, employees generally are permitted to invest up to 17% of their salary
on a pre-tax basis, subject to a statutory maximum.
(2) Amounts represent matching contributions made by Summit Properties to the
Named Executive Officer's account under the Company's 401(k) plan.
(3) Pursuant to a Summit Properties policy which requires any cash bonus earned
in excess of 50% of base salary to be paid in the form of Common Stock, Mr.
Paulsen received (a) an award of 1,564 shares of restricted stock on January
20, 2000 under the 1994 Stock Plan that vests in two equal annual
installments beginning in January 2001 (the value of vested and unvested
shares of such restricted stock as of December 31, 1999 would have been
$27,957), (b) an award of 4,122 shares of restricted stock on January 13,
1999 under the 1994 Stock Plan that vests in two equal annual installments
beginning in January 2000 (the value of vested and unvested shares of such
restricted stock as of December 31, 1999 was $73,681) and (c) an award of
1,157 shares of restricted stock on January 1, 1998 under the 1994 Stock
Plan that vests in two equal annual installments beginning in January 1999
(the value of vested and unvested shares of such restricted stock as of
December 31, 1999 was $20,681). Moreover, Mr. Paulsen received an award of
11,700 shares of restricted stock on January 12, 1996 under the 1994 Stock
Plan that vests in five equal annual installments beginning in January 1996
(the value of vested and unvested shares of such restricted stock as of
December 31, 1999 was $209,138). Dividends will be paid on the shares of
restricted stock.
(4) Mr. LeBlanc began employment on July 1, 1998.
(5) Pursuant to a Summit Properties policy which requires any cash bonus earned
in excess of 50% of base salary to be paid in the form of Common Stock, Mr.
LeBlanc received an award of 1,460 shares of restricted stock on January 20,
2000 under the 1994 Stock Plan that vests in two equal annual
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installments beginning in January 2001 (the value of vested and unvested
shares of such restricted stock as of December 31, 1999 would have been
$26,098).
(6) Mr. Schwarz received an award of 7,908 shares of restricted stock on January
2, 1997 under the 1994 Stock Plan that vests in four equal annual
installments beginning in January 1998 (the value of vested and unvested
shares of such restricted stock as of December 31, 1999 was $141,356).
Pursuant to a Summit Properties policy which requires any cash bonus earned
in excess of 50% of base salary to be paid in the form of Common Stock, Mr.
Schwarz received an award of 1,126 shares of restricted stock on January 1,
1998 under the 1994 Stock Plan that vests in two equal annual installments
beginning in January 1999 (the value of vested and unvested shares of such
restricted stock as of December 31, 1999 was $20,127). Dividends will be
paid on the shares of restricted stock.
(7) Mr. Hamilton received an award of 8,200 shares of restricted stock on
January 2, 1997 under the 1994 Stock Plan that vests in four equal annual
installments beginning in January 1998 (the value of vested and unvested
shares of such restricted stock as of December 31, 1999 was $146,575).
Dividends will be paid on the shares of restricted stock.
Option Grants in Fiscal Year 1999. The following table sets forth the options
granted with respect to the fiscal year ended December 31, 1999 to Summit
Properties' Named Executive Officers.
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
---------------------------------------------------
PERCENT OF POTENTIAL REALIZABLE
TOTAL VALUE AT ASSUMED
NUMBER OF OPTIONS ANNUAL RATES OF STOCK
SECURITIES GRANTED TO PRICE APPRECIATION
UNDERLYING EMPLOYEES EXERCISE OR FOR OPTION TERM
OPTIONS IN FISCAL BASE PRICE EXPIRATION ---------------------
NAME GRANTED (#) YEAR ($/SH) DATE 5%($) 10%($)
- ---- ----------- ---------- ----------- ---------- --------- ---------
William F. Paulsen.............. 150,000(1) 17.96% 17.3125 12/12/09 1,633,161 4,138,750
Steven R. LeBlanc............... 150,000(2) 17.96% 17.3125 12/12/09 1,633,161 4,138,750
Michael L. Schwarz.............. 120,000(2) 14.37% 17.3125 12/12/09 1,306,529 3,311,000
William B. Hamilton............. 120,000(3) 14.37% 17.3125 12/12/09 1,306,529 3,311,000
15,000(4) 1.80% 16.5000 1/12/09 155,651 394,451
- ---------------
(1) These options, of which 28,880 are incentive stock options and 121,120 are
non-qualified stock options, vest in five equal annual installments
beginning on December 13, 1999, the date of grant of such options.
(2) These options, all of which are non-qualified stock options, vest in five
equal annual installments beginning on December 13, 1999, the date of grant
of such options.
(3) These options, of which 2,915 are incentive stock options and 117,085 are
non-qualified stock options, vest in five equal annual installments
beginning on December 13, 1999, the date of grant of such options.
(4) These options, all of which are incentive stock options, vest in five equal
annual installments beginning on January 13, 1999, the date of grant of such
options.
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Option Exercises and Year-End Holdings. The following table sets forth the
aggregated number of options to purchase shares of Common Stock exercised in
1999 and the value of options to purchase shares of Common Stock held on
December 31, 1999 by Summit Properties' Named Executive Officers.
AGGREGATED OPTION EXERCISES IN FISCAL YEAR 1999 AND
FISCAL YEAR-END 1999 OPTION VALUES
VALUE OF
NUMBER OF SECURITIES UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT FISCAL OPTIONS AT FISCAL
YEAR-END(#) YEAR-END($)(1)
EXERCISE VALUE EXERCISABLE/ EXERCISABLE/
NAME (#) REALIZED($) UNEXERCISABLE UNEXERCISABLE
- ---- -------- ----------- ---------------------- -----------------
William F. Paulsen................. 0 0 70,000/120,000 16,875/67,500
Steven R. LeBlanc.................. 0 0 100,000/225,000 16,875/67,500
Michael L. Schwarz................. 0 0 81,000/96,000 36,000/54,000
William B. Hamilton................ 0 0 27,000/108,000 17,625/70,500
- ---------------
(1) Based on a closing price of $17.875 per share of Common Stock on December
31, 1999, the last 1999 trading day for Summit Properties' Common Stock.
EMPLOYMENT AND NONCOMPETITION AGREEMENTS
Summit Properties has entered into employment agreements (the "Employment
Agreements") with each of Messrs. Paulsen, LeBlanc, Schwarz and Hamilton. The
Employment Agreement with Mr. Paulsen expired on February 15, 1999 and Summit
Properties entered into a new Employment Agreement with him. The Employment
Agreement with Mr. LeBlanc has an original term which expires on July 1, 2001.
The Employment Agreement with Mr. Schwarz had an original term through February
16, 1996, and has been automatically extended until such time as terminated
pursuant to its terms. Mr. Hamilton's Employment Agreement provided for an
original term through December 5, 1998 and has been automatically extended
pursuant to its terms. The Employment Agreements provide that the officers will
be paid the base salaries set forth next to their names in the Summary
Compensation Table above, which amounts may be increased or decreased (subject
to certain limitations) at the discretion of the Compensation Committee of the
Board of Directors of Summit Properties (the "Compensation Committee"), plus any
other amounts the Compensation Committee, in its discretion, determines to
award. The Employment Agreements also provide for certain severance benefits. If
the employment of Mr. LeBlanc is terminated by either Summit Properties without
"cause" or by Mr. LeBlanc for "cause" (as defined in his Employment Agreement)
during the original term or any extended term of the Employment Agreement, Mr.
LeBlanc will be entitled to receive as severance an amount equal to his base
salary, as in effect on the date of termination, through the remainder of his
original term of employment or the then current extended term, as the case may
be, under his Employment Agreement, payable over time. If the employment of Mr.
Hamilton is terminated by Summit Properties without "cause" or by Mr. Hamilton
for "cause" (as defined in his Employment Agreement), Mr. Hamilton will be
entitled to receive as severance an amount equal to his base salary as in effect
on the date of termination for a period of six months, payable over time. Upon
the termination of the employment of Mr. LeBlanc by reason of death or
disability, his estate or he, as the case may be, will be entitled to receive a
payment equal to his base salary, as in effect on the date of termination,
through the remainder of his original term or the then current extended term,
but in no event less than one year, except that in the case of termination by
reason of disability the amount of such benefit shall be offset by the proceeds
of any disability plan awards provided by Summit Properties. Upon the
termination of the employment of Mr. Hamilton by reason of death or disability,
his estate or he, as the case may be, will be entitled to receive a payment
equal to his base salary, as in effect on the date of termination, for a period
of twelve months, except that in the case of termination by reason of
disability, the amount of such benefit shall be offset by the proceeds of any
disability plan awards provided by Summit Properties. The Employment Agreements
provide that if the employment of either of Messrs. LeBlanc or Hamilton is
terminated by Summit Properties for "cause" or if they voluntarily terminate
their employment other than for "cause" (as defined in the Employment
Agreements), no
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severance amount will be payable. If the employment of either of Messrs. Paulsen
or Schwarz is terminated for any reason, no severance amount will be payable
other than as provided in the Severance Agreements (as defined below) of Messrs.
Paulsen and Schwarz.
Each of these officers also entered into a noncompetition agreement with Summit
Properties (collectively, the "Noncompetition Agreements"). Subject to certain
limited exceptions, the Noncompetition Agreements prohibit all of the executive
officers from engaging in any businesses prior to their termination of
employment, other than those of Summit Properties, without the prior written
consent of the Board of Directors (or in the case of Messrs. Schwarz and
Hamilton, without the prior written consent of the President of Summit
Properties). The Noncompetition Agreements also prohibit the officers for
certain periods after the termination of their employment with Summit Properties
from hiring certain key employees of Summit Properties or participating in any
efforts to persuade such employees to leave Summit Properties and from engaging
in any manner, directly or indirectly, in any business which engages or attempts
to engage in the acquisition, development, construction, operation, management
or leasing of any of Summit Properties then existing communities or development
or acquisition opportunities. Under the Noncompetition Agreements, such officers
are prohibited from disclosing trade secrets and, for certain periods, other
confidential information of Summit Properties.
SEVERANCE AGREEMENTS
Summit Properties entered into Severance Agreements ("Severance Agreements")
with (a) each of Messrs. Paulsen, Schwarz and Hamilton on January 2, 1997 and
(b) Mr. LeBlanc on July 1, 1998. The Severance Agreements 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 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.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee currently consists of Messrs. Allwin, Fishkind, Hance
and Schwab. None of these individuals has served as an officer of Summit
Properties. Messrs. Hance and Schwab serve as officers and directors of lending
institutions that have provided financing and related services to Summit
Properties. James H. Hance, Jr. is Vice Chairman and Chief Financial Officer of
Bank of America and Nelson Schwab III is a member of the Board of Directors of
First Union National Bank ("First Union"). Bank of America and First Union have
provided Summit Properties with credit enhancements on certain of Summit
Properties' apartment communities financed with tax-exempt bonds and are both
members of a group of banks that provide Summit Properties' $200 million
unsecured credit facility.
John Crosland, Jr., a former director of Summit Properties, served as a member
of the Compensation Committee for a portion of 1999. Mr. Crosland declined
nomination for re-election to the Board of Directors at the 1999 annual meeting
of stockholders. Accordingly, after the 1999 meeting, Mr. Crosland ceased to be
a member of the Compensation Committee. Mr. Crosland is a member of the Board of
Directors of First Union.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth the beneficial ownership of Common Units for (i)
each of the directors and Named Executive Officers of Summit Properties, (ii)
the directors and Named Executive Officers of Summit Properties as a group and
(iii) each limited partner of the Operating Partnership that the Operating
Partnership believes holds more than a 5% beneficial interest in the Operating
Partnership. All such beneficial interests are owned directly, and the indicated
person has sole voting and investment power. The information
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in the following table was provided by the unitholders listed and reflects their
beneficial ownership known by the Operating Partnership and Summit Properties as
of December 31, 1999.
NAME AND NUMBER OF PERCENT OF CLASS
BUSINESS ADDRESS COMMON UNITS OF COMMON
OF BENEFICIAL OWNER(1) BENEFICIALLY OWNED UNITS
- ---------------------- ------------------ ----------------
DIRECTORS AND EXECUTIVE OFFICERS
William B. McGuire, Jr...................................... 620,313 2.0%
William F. Paulsen.......................................... 596,045 1.9%
Steven R. LeBlanc........................................... -- *
Michael L. Schwarz.......................................... -- *
William B. Hamilton......................................... -- *
James M. Allwin............................................. -- *
Henry H. Fishkind........................................... -- *
James H. Hance, Jr.......................................... -- *
Nelson Schwab III........................................... -- *
ALL DIRECTORS AND EXECUTIVE OFFICERS AS A GROUP (9
PERSONS).................................................. 1,216,358 3.9%
5% HOLDER
Summit Properties Inc....................................... 26,381,275 85.6%
* Less than one percent.
(1) The business address of each person is: c/o Summit Properties Inc., 212
South Tryon Street, Suite 500, Charlotte, NC 28281.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Operating Partnership is managed by Summit Properties, in its capacity as
the general partner of the Operating Partnership.
Messrs. Hance and Schwab serve as officers and directors of lending institutions
that have provided financing and related services to the Operating Partnership.
James H. Hance, Jr. is Vice Chairman and Chief Financial Officer of Bank of
America, and Nelson Schwab III is a member of the Board of Directors of First
Union. Both Bank of America and First Union provided the Operating Partnership
with credit enhancements on certain of its communities financed with tax-exempt
bonds and are both members of a group of banks that provide the Operating
Partnership's $200 million unsecured credit facility.
LOANS TO OFFICERS AND EMPLOYEES
The Board of Directors of Summit Properties, including the Compensation
Committee thereof, believes that ownership of Summit Properties' Common Stock by
executive officers and certain other qualified employees of Summit Properties
and its subsidiaries aligns the interests of such officers and employees with
the interests of the stockholders of Summit Properties. To further such goal of
aligning the interests of such officers and employees with the interests of the
stockholders of Summit Properties, the Board of Directors on September 8, 1997
approved and Summit Properties instituted a loan program. The Board of Directors
has amended the terms of the loan program from time to time since its inception.
Currently, Summit Properties may lend amounts to or on behalf of certain of
Summit Properties' executive officers and key employees (hereinafter, a "Loan")
for one or more of the following purposes: (i) to finance the purchase of Common
Stock on the open market at then-current market prices; (ii) to finance an
employee's payment of the exercise price of one or more stock options to
purchase shares of Common Stock granted to such employee under the 1994 Stock
Plan; or (iii) to finance the annual tax liability or other expenses of an
executive officer related to the vesting of shares of Common Stock which
constitute a portion of a restricted stock award granted to such executive
officer under the 1994 Stock Plan.
The maximum aggregate amount that Summit Properties may loan to an executive
officer is $500,000 (unless such limit is otherwise waived by the Board of
Directors or the Compensation Committee thereof), and the
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maximum aggregate amount that Summit Properties may loan to a qualified employee
is $200,000 (unless similarly waived). The Board of Directors has increased such
limit to $1,000,000, $3,000,000, $1,750,000 and $1,250,000 for Messrs. Paulsen,
LeBlanc, Schwarz and Hamilton, respectively. As of March 1, 2000, Loans have
been extended to Mr. McGuire and each of the Named Executive Officers for the
purpose of financing the purchase of Common Stock or the payment of the annual
tax liability related to the vesting of shares of Common Stock which constitute
a portion of a restricted stock award.
The relevant employee shall execute a Promissory Note and Security Agreement
(the "Note") related to each Loan made by Summit Properties. Each Note will bear
interest at the applicable federal rate, as established by the Internal Revenue
Service (the "Applicable Federal Rate"), in effect on the date of the Note and
such rate shall be fixed and the Note shall become due and payable in full no
later than the tenth anniversary of the Note (the "Maturity Date"). Shares of
Common Stock which are the subject of a Loan serve as collateral (the
"Collateral Stock") for the Note until such time as the Note has been paid in
full. Until the Maturity Date, the employee to whom a Loan has been extended
will only be required to repay such Loan through the application to the
outstanding Loan balance of all dividends and distributions related to the
Collateral Stock, first to interest, and the remainder, if any, to outstanding
principal. Unless otherwise determined by the Board of Directors or the
Compensation Committee, Loans made by Summit Properties after December 31, 1999
will be full recourse against the employee. All of the outstanding Loans
extended by Summit Properties after December 31, 1999 are full recourse against
the employee. Summit Properties' recourse against the executive officers under
the outstanding Notes for satisfaction of the Loans made prior to January 1,
2000, however, is limited to Summit Properties' rights to the Collateral Stock
and 25% or 10%, in the case of Mr. LeBlanc, of the principal of the Note for
which the executive officer is personally liable in the event of any deficiency
which may arise upon a foreclosure and sale or other disposition of the
Collateral Stock.
As of March 1, 2000, Summit Properties had extended Loans totaling $12,672,070
to its employees, including the amounts of $499,814, $999,995, $2,961,040,
$1,427,273 and $499,980 which were extended to Messrs. McGuire, Paulsen,
LeBlanc, Schwarz and Hamilton, respectively. Loans to Messrs. McGuire and
Paulsen in the amounts of $499,814 and $999,995, respectively, bear interest at
6.21% per year (i.e., the Applicable Federal Rate for Loans made in January
2000). Loans to Mr. LeBlanc in the amount of (i) $960,578 bear interest at 5.56%
per year (i.e., the Applicable Federal Rate for Loans made in August 1998), (ii)
$1,000,467 bear interest at 4.71% per year (i.e., the Applicable Federal Rate
for Loans made in February 1999), and (iii) $999,995 bear interest at 6.21% per
year (i.e., the Applicable Federal Rate for Loans made in January 2000). Loans
to Mr. Schwarz in the amount of (i) $404,044 bear interest at 6.13% per year
(i.e., the Applicable Federal Rate for Loans made in January 1998), (ii) $55,838
bear interest at 5.68% per year (i.e., the Applicable Federal Rate for Loans
made in July 1998), (iii) $17,425 bear interest at 5.56% per year (i.e., the
Applicable Federal Rate for Loans made in August 1998), (iv) $449,997 bear
interest at 4.71% per year (i.e., the Applicable Federal Rate for Loans made in
February 1999), and (v) $499,969 bear interest at 6.21% per year (i.e., the
Applicable Federal Rate for Loans made in January 2000). Loans to Mr. Hamilton
in the amount of $499,980 bear interest at 6.13% per year (i.e., the Applicable
Federal Rate for Loans made in January 1998).
42
43
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial Statements
The consolidated financial statements of the Operating Partnership are listed in
the Index to Financial Statements on page 51 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 Operating Partnership and are
incorporated by reference herein.
EXHIBIT NO. DESCRIPTION
- ----------- -----------
3.1.1 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).
3.1.2 Amendment No. 10 to the Agreement of Limited Partnership of
the Operating Partnership. (Incorporated by reference to
Exhibit 10.1 to Summit Properties' Quarterly Report on Form
10-Q for the fiscal quarter ended June 30, 1997, File No.
001-12792).
3.1.3 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)
3.1.4 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).
3.1.5 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)
3.1.6 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).
3.1.7 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).
3.1.8 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).
3.1.9 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).
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).
43
44
EXHIBIT NO. DESCRIPTION
- ----------- -----------
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).
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 6.71% 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).
10.1.1(a) Articles of Incorporation of Summit Properties.
(Incorporated by reference to Exhibit 3.1 to Summit
Properties' Registration Statement on Form S-11,
Registration No. 33-90706).
10.1.1(b) First Amendment to Bylaws of Summit Properties (Incorporated
by reference to Exhibit 3.2.2 to Summit Properties' Annual
Report on Form 10-K for the fiscal year ended December 31,
1999, File No. 001-12792).
10.1.2 Articles Supplementary to the Articles of Amendment and
Restatement of Summit Properties Partnership, L.P.
designating 8.95% Series B Cumulative Redeemable Perpetual
Preferred Stock of Summit Properties dated April 29, 1999
(Incorporated by reference to Exhibit 3.1 to Summit
Properties' quarterly report on Form 10-Q for the quarterly
period ended March 31, 1999, File No. 001-12792).
10.1.3 Articles Supplementary to the Articles of Amendment and
Restatement of Summit Properties Partnership, L.P.
designating 8.75% Series C Cumulative Redeemable Perpetual
Preferred Stock of Summit Properties 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).
10.1.4 Bylaws of Summit Properties. (Incorporated by reference to
Exhibit 3.2 to Summit Properties' Registration Statement on
Form S-11, Registration No. 33-90706).
10.2.1 Articles of Incorporation of Summit Management Company
(Incorporated by reference to Exhibit 10.2 to Summit
Properties' Annual Report on Form 10-K for the fiscal year
ended December 31, 1999, File No. 001-12792).
44
45
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.2.2 Bylaws of Summit Management Company. (Incorporated by
reference to Exhibit 10.3 to Summit Properties' Annual
Report on Form 10-K for the fiscal year ended December 31,
1999, File No. 001-12792).
10.4 Summit Properties' 1994 Stock Option and Incentive Plan as
amended and restated. (Incorporated by reference to Exhibit
4.5 to Summit Properties' Registration Statement on Form
S-8, Registration No. 333-79897).
10.5.1 The Operating Partnership's 1996 Non-Qualified Employee
Stock Purchase Plan. (Incorporated by reference to Exhibit
10.5 to Summit Properties' Registration Statement on Form
S-8, Registration No. 333-00078).
10.5.2 First Amendment to Non-Qualified Employee Stock Purchase
Plan. (Incorporated by reference to Exhibit 10.5.2 to Summit
Properties' Annual Report on Form 10-K for the fiscal year
ended December 31, 1999, File No. 001-12792).
10.5.3 Second Amendment to Non-Qualified Employee Stock Purchase
Plan. (Incorporated by reference to Exhibit 10.5.3 to Summit
Properties' Annual Report on Form 10-K for the fiscal year
ended December 31, 1999, File No. 001-12792).
10.5.4 Third Amendment to Non-Qualified Employee Stock Purchase
Plan. (Incorporated by reference to Exhibit 10.5.4 to Summit
Properties' Annual Report on Form 10-K for the fiscal year
ended December 31, 1999, File No. 001-12792).
10.6 Indemnification Agreement, dated as of July 20, 1999, by and
among the Operating Partnership, Summit Properties, and each
director and executive officer of Summit Properties
(Incorporated by reference to Exhibit 10.3 to the Operating
Partnership'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 Summit Properties Inc. and
William F. Paulsen. (Incorporated by reference to Exhibit
10.7.1 to Summit Properties' Annual Report on Form 10-K for
the fiscal year ended December 31, 1999, File No.
001-12792).
10.7.2 Employment Agreement between Summit Properties Inc. and
William B. McGuire, Jr. (Incorporated by reference to
Exhibit 10.7.2 to Summit Properties' 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 Summit Properties Inc. and
William B. Hamilton. (Incorporated by reference to Exhibit
10.7.9 to Summit Properties' 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
Summit Properties, Summit Management Company and William B.
Hamilton (Incorporated by reference to Exhibit 10.2 to
Summit Properties' Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 1999, File No. 001-12792).
10.7.4 Employment Agreement between Summit Properties and Michael
L. Schwarz. (Incorporated by reference to Exhibit 10.7.10 to
Summit Properties' Annual Report on Form 10-K for the fiscal
year ended December 31, 1997, File No. 001-12792).
10.7.5 Employment Agreement between Summit Properties and Steven R.
LeBlanc. (Incorporated by reference to Exhibit 10.7.11 to
Summit Properties' Annual Report on Form 10-K for the fiscal
year ended December 31, 1998, File No. 001-12792).
10.8.1 Noncompetition Agreement between Summit Properties and
William F. Paulsen. (Incorporated by reference to Exhibit
10.8.1 to Summit Properties' Annual Report on Form 10-K for
the fiscal year ended December 31, 1997, File No.
001-12792).
10.8.2 Noncompetition Agreement between Summit Properties and
William B. McGuire, Jr. (Incorporated by reference to
Exhibit 10.8.2 to Summit Properties' Annual Report on Form
10-K for the fiscal year ended December 31, 1997, File No.
001-12792).
10.8.3 Noncompetition Agreement between Summit Properties and
William B. Hamilton. (Incorporated by reference to Exhibit
10.8.9 to Summit Properties' Annual Report on Form 10-K for
the fiscal year ended December 31, 1997, File No.
001-12792).
45
46
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.8.4 Noncompetition Agreement between Summit Properties and
Michael L. Schwarz. (Incorporated by reference to Exhibit
10.8.10 to Summit Properties' Annual Report on Form 10-K for
the fiscal year ended December 31, 1997, File No.
001-12792).
10.8.5 Noncompetition Agreement between Summit Properties and
Steven R. LeBlanc. (Incorporated by reference to Exhibit
10.8.11 to Summit Properties' 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 Summit Properties and
William F. Paulsen. (Incorporated by reference to Exhibit
10.9.1 to Summit Properties' 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 Summit Properties and
William B. McGuire, Jr. (Incorporated by reference to
Exhibit 10.9.2 to Summit Properties' 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 Summit Properties and
Michael L. Schwarz. (Incorporated by reference to Exhibit
10.9.3 to Summit Properties' 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 Summit Properties and
William B. Hamilton. (Incorporated by reference to Exhibit
10.9.5 to Summit Properties' 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 Summit Properties and
Steven R. LeBlanc. (Incorporated by reference to Exhibit
10.9.6 to Summit Properties' 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 Summit
Properties' 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 Summit Properties and Michael L. Schwarz.
(Incorporated by reference to Exhibit 10.14.1 to Summit
Properties' 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 Summit Properties and William B. Hamilton.
(Incorporated by reference to Exhibit 10.14.2 to Summit
Properties' 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
Summit Properties and the employees named in the Schedule
thereto. (Incorporated by reference to Exhibit 10.14.3 to
Summit Properties' 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 Summit Properties and Steven R. LeBlanc.
(Incorporated herein by reference to Exhibit 10.12.4 to
Summit Properties' 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 Summit
Properties' Quarterly Report on Form 10-Q for the quarterly
period ended March 31, 1998, File No. 001-12792).
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 Summit Properties
(Incorporated by reference to Exhibit 10.3 to Summit
Properties' Quarterly Report on Form 10-Q for the quarterly
period ended March 31, 1998, File No. 001-12792).
46
47
EXHIBIT NO. DESCRIPTION
- ----------- -----------
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 Summit
Properties' 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 Summit Properties
(Incorporated by reference to Exhibit 10.5 to Summit
Properties' 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 Summit Properties.
(Incorporated by reference to Exhibit 10.2 to Summit
Properties' 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 Summit Properties
(Incorporated herein by reference to Exhibit 10.12.10 to
Summit Properties' 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 Summit Properties
(Incorporated herein by reference to Exhibit 10.12.11 to
Summit Properties' 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 Summit Properties and PK Partners, L.P.
(Incorporated by reference to Exhibit 10.15.1 to Summit
Properties' 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 Summit Properties and the Continuing Investors named
therein. (Incorporated by reference to Exhibit 10.13.2 to
Summit Properties' Annual Report on Form 10-K for the fiscal
year ended December 31, 1999, File No. 001-12792).
10.13.3 Registration Rights Agreement, dated December 11, 1995,
between Summit Properties and Bissell Ballantyne,
LLC.(Incorporated by reference to Exhibit 10.2 to Summit
Properties' Registration Statement on Form S-3, Registration
No. 333-24669).
10.13.4 Registration Rights Agreement, dated January 10, 1996, among
Summit Properties, Joseph H. Call and Gary S. Cangelosi.
(Incorporated by reference to Exhibit 10.2 to Summit
Properties' Registration Statement on Form S-3, Registration
No. 333-24669).
10.13.5 Registration Rights Agreement, dated February 20, 1997,
among Summit Properties, 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 Summit Properties' Registration Statement on Form S-3,
Registration No. 333-24669).
10.13.6 Registration Rights Agreement, dated May 16, 1995, between
Summit Properties and the individuals named therein executed
in connection with the Crosland Acquisition. (Incorporated
by reference to Exhibit 10.15.6 to Summit Properties' Annual
Report on Form 10-K for the fiscal year ended December 31,
1997, File No. 001-12792).
10.14 Agreement to Contribute, dated February 13, 1995, between
the Operating Partnership, Summit Properties and Crosland
Partnerships. (Incorporated by reference to Exhibit 2.1 to
Summit Properties' Current Report on Form 8-K dated May 16,
1995, File No. 001-12792).
47
48
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.15.1 Credit Agreement, dated as of March 27, 1998, by and among
the Operating Partnership, Summit Properties, 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 Summit Properties' 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, Summit Properties, 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 Summit Properties'
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, Summit Properties and First
Union reflecting the increased Commitments (Incorporated
herein by reference to Exhibit 10.15.3 to Summit Properties'
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, Summit Properties and
Wachovia reflecting the increased Commitments (Incorporated
herein by reference to Exhibit 10.15.4 to Summit Properties'
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, Summit Properties and
NationsBank, N.A. reflecting the increased Commitments
(Incorporated herein by reference to Exhibit 10.15.5 to
Summit Properties' Annual Report on Form 10-K for the fiscal
year ended December 31, 1998, File No. 00112792).
10.15.6 Replacement Competitive Note, dated November 25, 1998 by and
among the Operating Partnership, Summit Properties and
Commerzbank, A.G. reflecting the increased Commitments
(Incorporated herein by reference to Exhibit 10.15.6 to
Summit Properties' 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, Summit Properties and PNC
Bank, National Association reflecting the increased
Commitments (Incorporated herein by reference to Exhibit
10.15.7 to Summit Properties' 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, Summit Properties and
AmSouth Bank reflecting the increased Commitments
(Incorporated herein by reference to Exhibit 10.15.8 to
Summit Properties' 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, Summit Properties and First
Union reflecting the increased Commitments (Incorporated
herein by reference to Exhibit 10.15.9 to Summit Properties'
Annual Report on Form 10-K for the fiscal year ended
December 31, 1998, File No. 001-12792).
10.15.10 Replacement Revolving Note, dated November 25, 1998 by and
among the Operating Partnership, Summit Properties and
Wachovia reflecting the increased Commitments (Incorporated
herein by reference to Exhibit 10.15.10 to Summit
Properties' Annual Report on Form 10-K for the fiscal year
ended December 31, 1998, File No. 001-12792).
48
49
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.16 Agreement and Plan of Reorganization dated as of October 31,
1998 among Summit Properties, affiliates of Summit
Properties (including the Operating Partnership), Ewing
Industries, Inc., and affiliates of Ewing Industries, Inc.
(Incorporated by reference to Exhibit 2.1 to Summit
Properties' 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 Summit Properties Partnership, L.P. (filed
herewith).
23.1 Consent of Deloitte & Touche LLP. (filed herewith).
27 Financial Data Schedule (filed herewith).
49
50
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, Summit Properties Partnership, L.P. 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 23, 2000.
SUMMIT PROPERTIES PARTNERSHIP, L.P.
By: Summit Properties Inc., as General
Partner
/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. Each person below has signed this report as an officer or director of
Summit Properties Inc., in its capacity as general partner of Summit Properties
Partnership, L.P.
SIGNATURES TITLE DATE
---------- ----- ----
/s/ WILLIAM B. MCGUIRE, JR. Co-Chairman of the Board of March 23, 2000
- -------------------------------------------------- Directors
William B. McGuire, Jr.
/s/ WILLIAM F. PAULSEN Co-Chairman of the Board of March 23, 2000
- -------------------------------------------------- Directors and Chief Executive
William F. Paulsen Officer (Principal Executive
Officer)
/s/ STEVEN R. LEBLANC President, Chief Operating March 23, 2000
- -------------------------------------------------- Officer and Director
Steven R. LeBlanc (Principal Operating Officer)
Chief Financial Officer and
Executive Vice President
/s/ MICHAEL L. SCHWARZ Chief Financial Officer and March 23, 2000
- -------------------------------------------------- Executive Vice President
Michael L. Schwarz (Principal Financial Officer
and Principal Accounting
Officer)
/s/ HENRY H. FISHKIND Director March 23, 2000
- --------------------------------------------------
Henry H. Fishkind
/s/ JAMES H. HANCE, JR Director March 23, 2000
- --------------------------------------------------
James H. Hance, Jr.
/s/ NELSON SCHWAB, III Director March 23, 2000
- --------------------------------------------------
Nelson Schwab, III
/s/ JAMES M. ALLWIN Director March 23, 2000
- --------------------------------------------------
James M. Allwin
50
51
INDEX TO FINANCIAL STATEMENTS
The following financial statements of the Operating Partnership required to be
included in Item 14(a)(1) are listed below:
SUMMIT PROPERTIES PARTNERSHIP, L.P.
PAGE
----
Independent Auditors' Report................................ 52
Consolidated Balance Sheets as of December 31, 1999 and
1998...................................................... 53
Consolidated Statements of Earnings for the Years Ended
December 31, 1999, 1998 and 1997.......................... 54
Consolidated Statements of Partners' Equity for the Years
Ended December 31, 1999, 1998
and 1997.................................................. 55
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1999, 1998
and 1997.................................................. 56
Notes to Consolidated Financial Statements.................. 57
51
52
INDEPENDENT AUDITORS' REPORT
Board of Directors and Unitholders
Summit Properties Partnership, L.P.
Charlotte, North Carolina
We have audited the accompanying consolidated balance sheets of Summit
Properties Partnership, L.P. (the "Operating Partnership") as of December 31,
1999 and 1998, and the related consolidated statements of earnings, partners'
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 Operating
Partnership'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 Operating Partnership 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
Operating Partnership changed its method of accounting for carpet replacements.
DELOITTE & TOUCHE LLP
Charlotte, North Carolina
January 20, 2000
52
53
PART I.
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SUMMIT PROPERTIES PARTNERSHIP, L.P.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
DECEMBER 31, 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............................... 6,657 7,538
Other assets................................................ 11,132 3,973
---------- ----------
Total assets...................................... $1,217,780 $1,199,067
========== ==========
LIABILITIES AND PARTNERS' EQUITY
Liabilities:
Notes payable............................................. $ 649,632 $ 726,103
Accrued interest payable.................................. 7,018 6,806
Accounts payable and accrued expenses..................... 25,626 32,745
Distributions payable..................................... 12,984 12,713
Security deposits and prepaid rents....................... 3,850 4,188
---------- ----------
Total liabilities................................. 699,110 782,555
---------- ----------
Partners' common and preferred equity:
Series B preferred units -- 3,400,000 issued and
outstanding............................................ 82,718 --
Series C preferred units -- 2,200,000 issued and
outstanding............................................ 53,552 --
Partnership common units -- issued and outstanding,
30,811,188 and 32,242,074.
General partner -- outstanding 308,112 and 322,421........ 4,555 4,895
Limited partners -- outstanding 30,503,076 and
31,919,653............................................. 377,845 411,617
---------- ----------
Total partners' equity............................ 518,670 416,512
---------- ----------
Total liabilities and partners' equity............ $1,217,780 $1,199,067
========== ==========
See notes to consolidated financial statements
53
54
SUMMIT PROPERTIES PARTNERSHIP, L. P.
CONSOLIDATED STATEMENTS OF EARNINGS
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT 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 extraordinary items and gain on sale of real
estate assets............................................. 42,333 29,327 27,568
Gain on sale of real estate assets........................ 17,427 37,148 4,366
---------- ---------- ----------
Income before extraordinary items........................... 59,760 66,475 31,934
Extraordinary items......................................... -- (594) --
---------- ---------- ----------
Net income.................................................. 59,760 65,881 31,934
Dividends to Series B preferred unitholders................. (5,120) -- --
Dividends to Series C preferred unitholders................. (1,578) -- --
---------- ---------- ----------
Income available to common unitholders...................... 53,062 65,881 31,934
Income available to common unitholders allocated to general
partner................................................... (531) (659) (319)
---------- ---------- ----------
Income available to common unitholders allocated to limited
partners.................................................. $ 52,531 $ 65,222 $ 31,615
========== ========== ==========
Per unit data:
Income before extraordinary items -- basic and diluted.... $ 1.86 $ 2.28 $ 1.17
========== ========== ==========
Extraordinary items -- basic and diluted.................. $ -- $ (0.02) $ --
========== ========== ==========
Net income -- basic and diluted........................... $ 1.86 $ 2.26 $ 1.17
========== ========== ==========
Dividends to Series B preferred unitholders -- basic and
diluted................................................. $ (0.16) $ -- $ --
========== ========== ==========
Dividends to Series C preferred unitholders -- basic and
diluted................................................. $ (0.05) $ -- $
========== ========== ==========
Income available to common unitholders -- basic and
diluted................................................. $ 1.65 $ 2.26 $ 1.17
========== ========== ==========
Distributions declared.................................... $ 1.67 $ 1.63 $ 1.59
========== ========== ==========
Weighted average units -- basic........................... 32,134,646 29,140,931 27,257,637
========== ========== ==========
Weighted average units -- diluted......................... 32,205,637 29,150,315 27,294,058
========== ========== ==========
See notes to consolidated financial statements.
54
55
SUMMIT PROPERTIES PARTNERSHIP, L.P.
CONSOLIDATED STATEMENTS OF PARTNERS' EQUITY
(DOLLARS IN THOUSANDS)
SERIES B SERIES C
PREFERRED PREFERRED GENERAL LIMITED
UNITS UNITS PARTNER PARTNERS TOTAL
--------- --------- ------- -------- --------
Balance, December 31, 1996...................... $ -- $ -- $3,766 $299,650 $303,416
Distributions to common unitholders........... (437) (43,223) (43,660)
Contributions from Summit Properties related
to:
Proceeds from public offering.............. 68 6,744 6,812
Proceeds from dividend and stock purchase
plans.................................... 36 3,571 3,607
Exercise of stock options.................. 9 842 851
Costs of shelf registrations............... (6) (610) (616)
Issuance of stock related to
acquisitions............................. 49 4,884 4,933
Amortization of restricted stock grants.... 4 350 354
Issuance of units related to property
acquisitions............................... 39 3,900 3,939
Net income.................................... 319 31,615 31,934
------- ------- ------ -------- --------
Balance, December 31, 1997...................... -- -- 3,847 307,723 311,570
Distributions to common unitholders........... (484) (47,943) (48,427)
Contributions from Summit Properties related
to:
Proceeds from dividend and stock purchase
plans.................................... 429 42,484 42,913
Exercise of stock options.................. 8 833 841
Issuance of stock related to
acquisitions............................. 373 36,970 37,343
Amortization of restricted stock grants.... 4 436 440
Issuance of units related to property
acquisitions............................... 84 8,343 8,427
Issuance of employees notes receivable........ (25) (2,451) (2,476)
Net income.................................... 659 65,222 65,881
------- ------- ------ -------- --------
Balance, December 31, 1998...................... -- -- 4,895 411,617 416,512
Distributions to common unitholders........... (534) (52,897) (53,431)
Contributions from Summit Properties related
to:
Proceeds from dividend and stock purchase
plans.................................... 153 15,188 15,341
Exercise of stock options.................. 2 180 182
Repurchase of common stock................. (475) (47,051) (47,526)
Amortization of restricted stock grants.... 6 639 645
Issuance of employee notes receivable......... (31) (3,113) (3,144)
Repayments of employee notes receivable....... 8 751 759
Net proceeds from preferred units............. 82,718 53,552 -- -- 136,270
Distributions to preferred unitholders........ (67) (6,631) (6,698)
Net income.................................... 598 59,162 59,760
------- ------- ------ -------- --------
Balance, December 31, 1999...................... $82,718 $53,552 $4,555 $377,845 $518,670
======= ======= ====== ======== ========
See notes to consolidated financial statements.
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56
SUMMIT PROPERTIES PARTNERSHIP, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
YEARS ENDED DECEMBER 31,
--------------------------------
1999 1998 1997
-------- --------- ---------
Cash flows from operating activities:
Net income................................................ $ 59,760 $ 65,881 $ 31,934
Adjustments to reconcile net income to net cash provided
by operating activities:
Extraordinary items..................................... -- 594 --
(Income) loss on equity method 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
Decrease (increase) in restricted cash.................. (4,722) (777) 941
Increase in other assets................................ (685) (504) (162)
Increase in notes receivable............................ (3,267) -- --
Increase in accrued interest payable.................... 212 1,444 3,581
Increase (decrease) in accounts payable and accrued
expenses.............................................. (7,000) 3,823 517
Increase (decrease) in security deposits and prepaid
rents................................................. (338) 4 (121)
-------- --------- ---------
Net cash provided by operating activities.......... 62,452 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............................ (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 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)
Repayment of tax exempt bonds............................. (1,155) (1,050) (1,010)
Distributions to common unitholders....................... (53,186) (46,819) (42,971)
Distributions to Series B preferred unitholders........... (5,121) -- --
Distributions to Series C preferred unitholders........... (1,577) -- --
Increase in employee notes................................ (2,385) (2,476) --
Net proceeds from Series B preferred units................ 82,718 -- --
Net proceeds from Series C preferred units................ 53,552 -- --
Contributions from (distributions to) Summit Properties
related to:
Proceeds from public offering........................... -- -- 6,812
Proceeds from dividend and stock purchase plans......... 15,341 42,912 3,607
Exercise of stock options............................... 182 842 851
Costs of shelf registrations............................ -- -- (616)
Repurchase of Summit Properties common stock............ (47,526) -- --
Increase (decrease) in advance proceeds of direct stock
purchase plan......................................... (9,474) 2,974 6,500
-------- --------- ---------
Net cash (used in) provided by financing
activities....................................... (24,675) 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.
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57
SUMMIT PROPERTIES PARTNERSHIP, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND FORMATION OF THE OPERATING PARTNERSHIP
Summit Properties Partnership, L.P. (the "Operating Partnership"), a Delaware
limited partnership, was formed on January 14, 1994 to conduct the business of
developing, leasing and managing multifamily apartment communities for Summit
Properties Inc. ("Summit Properties"). On February 15, 1994, Summit Properties
completed an initial public offering ("Initial Offering"). In connection with
the Initial Offering, the Operating Partnership consummated a business
combination involving the partnerships (the "Property Partnerships") which owned
the 27 communities acquired in connection with the Initial Offering and the
affiliated entities which provided development, construction, management and
leasing services to each of those communities prior to the Initial Offering
(collectively, the "Summit Entities"). A portion of the proceeds from the
Initial Offering was used by Summit Properties to acquire an economic and voting
interest in the Operating Partnership, which was formed to succeed to
substantially all of the interests of the Property Partnerships in the 27
communities and the operations of the Summit Entities (the "Formation"). Summit
Properties became the sole general partner and the majority owner of the
Operating Partnership upon completion of the Initial Offering. Summit Properties
is a self-administered and self-managed equity real estate investment trust
("REIT").
In June 1995, Summit Properties completed the sale of 4 million shares of Common
Stock (the "1995 Offering"). In August 1996, Summit Properties completed the
sale of 5.75 million shares of Common Stock (the "1996 Offering"). The net
proceeds of $65.9 million and $97.6 million from the 1995 and 1996 Offerings,
respectively, were contributed to the Operating Partnership in exchange for
common units of limited partnership interest in the Operating Partnership
("Common Units"), and the Operating Partnership used the proceeds to repay
mortgage debt and to fund current development projects.
Summit Properties conducts all of its business through the Operating Partnership
and its subsidiaries. As of December 31, 1999, Summit Properties held 85.6% of
the outstanding partnership interests of the Operating Partnership, consisting
of a 1% general partner interest and an 84.6% limited partner interest. The
Operating Partnership is obligated to redeem each Common Unit at the request of
the holder for cash equal to the fair market value of one share of Summit
Properties' common stock, par value $.01 per share ("Common Stock"), except that
Summit Properties may elect to acquire each Common Unit presented for redemption
for cash or one share of Common Stock. With each redemption of outstanding
Common Units for Common Stock, Summit Properties percentage ownership interest
in the Operating Partnership will increase. In addition, whenever Summit
Properties issues shares of Common Stock, Summit Properties will contribute any
new proceeds therefrom to the Operating Partnership and the Operating
Partnership will issue an equivalent number of Common Units to Summit
Properties.
Distributions to holders of Common Units are made to enable distributions to be
made to Summit Properties' stockholders under Summit Properties dividend policy.
Federal income tax laws require Summit Properties, as a REIT, to distribute 95%
of its ordinary taxable income (90% effective for tax years beginning after
December 31, 2000). The Operating Partnership makes distributions to Summit
Properties to enable it to satisfy this requirement.
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 Operating Partnership, 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 Operating Partnership.
Because of the Operating Partnership's ability to exercise significant
influence, the Management Company is accounted for on the equity method of
accounting.
57
58
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. 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.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REAL ESTATE ASSETS AND DEPRECIATION -- The Operating Partnership 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 Operating Partnership'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
Operating Partnership did not hold any assets that meet the impairment criteria
of SFAS No. 121. At December 31, 1999, the Operating Partnership had three
apartment communities for sale with a net book value of approximately $13.8
million. The Operating Partnership 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
Operating Partnership 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 Operating Partnership 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 Operating Partnership
believes that the newly adopted accounting policy is preferable as it is
consistent with the standards and practices utilized by the majority of the
Operating Partnership'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 $0.04 per basic and
diluted Common Unit, 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.
58
59
RENTAL REVENUE RECOGNITION -- The Operating Partnership 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 Operating Partnership 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
Operating Partnership considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
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 Operating Partnership expenses advertising costs as
incurred.
INCOME TAXES -- In accordance with partnership taxation, each partner is
responsible for reporting its share of taxable income or loss. Accordingly, no
provision has been made in the accompanying financial statements for federal,
state or local income taxes.
A schedule of per Common Unit distributions paid by the Operating Partnership to
be reported by the partners 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 Common Unit................ $1.67 $1.63 $1.59
===== ===== =====
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 Operating Partnership'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 Operating
Partnership's 1999 Development communities and recurring capital expenditures
and the carrying value exceeding the tax value by $2.4 million for the Operating
Partnership's 1999 Disposition communities.
A reconciliation of net income as reported for financial reporting purposes for
the years ended December 31, 1999, 1998 and 1997 is as follows (in thousands):
1999 1998 1997
------- -------- -------
Net income for financial reporting purposes................. $59,760 $ 65,881 $31,934
Excess of financial reporting depreciation over tax
depreciation.............................................. 6,981 7,806 6,122
Excess of financial reporting gain on sale of property over
tax gain.................................................. (9,960) (37,148) (4,365)
Basis difference in property improvements................... (2,717) 66 (957)
Other....................................................... 404 677 (959)
------- -------- -------
Taxable income of the Operating Partnership................. $54,468 $ 37,282 $31,775
======= ======== =======
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60
PER UNIT DATA -- Basic earnings per Common Unit with respect to the Operating
Partnership for the years ended December 31, 1999, 1998 and 1997 is computed
based upon the weighted average number of Common Units outstanding during the
period. The difference between "basic" and "diluted" weighted average Common
Units is the dilutive effect of Summit Properties' stock options outstanding
(70,991, 9,384 and 36,421 Common Units added to weighted Common Units
outstanding in 1999, 1998 and 1997, respectively). Dilution caused by these
options had no impact on earnings per Common Unit.
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 Operating Partnership
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 measure those instruments at fair value. The Operating Partnership
is currently assessing the impact, if any, that the adoption of SFAS 133 will
have on the Operating Partnership'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 Operating Partnership 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 Operating Partnership and Hollow
Creek LLP, 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 Operating Partnership thereby holds a 25% interest in, five
apartment communities that were previously 100% owned by the Operating
Partnership. These five communities were sold by the Operating Partnership 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 7). The seven communities are Summit
Green, Summit Hill I & II, Summit Creek, Summit Hollow I & II and Summit
Station. The Operating Partnership's initial investment in Station Hill was
reduced to zero when the Operating Partnership 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 Operating Partnership 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
Projects 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 Operating Partnership
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 Operating Partnership to the respective
joint venture at the end of the construction and lease-up period. The Operating
Partnership 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 Operating Partnership has not made a determination
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about whether it will exercise any of its options. If the Operating Partnership
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.
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 reflect the financial position and
operations of Station Hill in its entirety, not only the Operating Partnership'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
Operating Partnership's Communities. Total fees for management services provided
to the Operating Partnership'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 Summit
Properties 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 Operating
Partnership. Revenue from construction contracts with the Operating Partnership
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 Operating Partnership's
investment in real estate. The Operating Partnership 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.
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The Operating Partnership's investment in the Management Company as of December
31, 1999 and 1998, reported on the equity method, includes the amounts shown
below. The Operating Partnership's investment in the Management Company is not
considered material to the consolidated financial statements of the Operating
Partnership 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
====== ====== ======
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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
6.75% --
Mortgage Notes..................................... 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 Operating Partnership 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 Operating Partnership established a
program for the sale by the Operating Partnership of up to $95 million aggregate
principal amount of Medium-Term Notes due nine
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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
Operating Partnership 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, Summit Properties 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
Operating Partnership 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 Operating Partnership 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 Operating Partnership'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 Operating
Partnership's unsecured credit rating. The Unsecured Credit Facility is
repayable monthly on an interest only basis with principal due at maturity. The
Operating Partnership'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 Operating Partnership with the option to place borrowings in fixed
LIBOR contract periods of thirty, sixty, ninety and one hundred eighty days. The
Operating Partnership 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 Operating Partnership to comply with
certain affirmative and negative covenants including the following requirements:
(i) Summit Properties maintain its qualification as a REIT; (ii) the Operating
Partnership 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 Operating Partnership
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
Operating Partnership 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 Operating Partnership 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 Operating Partnership was in compliance with these
covenants at December 31, 1999.
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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 allows the resale at a price of par. The bonds contain covenants which
require that the Operating Partnership 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 Operating Partnership of its prior credit facility with
the Unsecured Credit Facility and prepayment penalties on six mortgage notes
which were repaid during the period.
7. ACQUISITIONS AND DISPOSITIONS
During the year ended December 31, 1999, the Operating Partnership 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 Operating Partnership acquired no
communities.
The Operating Partnership 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 Operating
Partnership'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 Operating Partnership 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 $17.0 million.
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On December 16, 1998, the Operating Partnership (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. 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 Operating Partnership 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
Operating Partnership's net contribution to Station Hill (approximately $5.6
million) represents a 25 percent equity interest in Station Hill. In addition,
the Operating Partnership 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 Operating Partnership 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
Operating Partnership 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
Operating Partnership's retained portion of the joint venture. The elimination
of the gain reduced the Operating Partnership'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 Operating Partnership 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 Summit Properties, affiliates of Summit
Properties 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 and 141,921 Common 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.
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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 Common Unit amounts):
YEAR ENDED DECEMBER
31,
-------------------
1998 1997
-------- --------
Net revenues................................................ $166,308 $140,570
Income before extraordinary items........................... 62,765 27,032
Net income.................................................. 62,171 27,032
Earnings per Common Unit:
Income before extraordinary items......................... 2.11 0.97
Net income................................................ 2.09 0.97
During the year ended December 31, 1997, the Operating Partnership 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 Operating
Partnership'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 Common
Units (valued at $4.9 million) issued to Summit Properties in exchange for
Summit Properties issuing 243,608 shares of Common Stock 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, Summit Properties sold
315,029 shares of Common Stock to the public for cash. Summit Properties
contributed the proceeds of these sales of Common Stock to the Operating
Partnership in exchange for Common Units. The proceeds were then used to fund a
portion of the purchase. The Summit Windsor II purchase was 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.
8. NOTES RECEIVABLE FROM EMPLOYEES
On September 8, 1997, the Board of Directors of Summit Properties 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, Summit Properties may
lend amounts to certain of Summit Properties' 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 Summit Properties 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 Summit
Properties' 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 Summit Properties may loan to an executive officer is $500,000,
and the maximum aggregate amount Summit
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Properties 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, Summit Properties
had loans receivable in the net amount of $4,861,000.
9. 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 Operating Partnership 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
====
10. EMPLOYEE BENEFIT PLANS
PROFIT SHARING PLAN
The employees of Summit Properties, the Operating Partnership and its
subsidiaries (the "Summit Employees") are participants in Summit Properties'
defined contribution plan pursuant to Section 401(k) of the Internal Revenue
Code which covers all employees with one year or greater service. The Operating
Partnership'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, Summit Properties established the 1994 Stock Option and Incentive Plan
(the "Incentive Plan") under which 1,000,000 shares of Summit Properties' Common
Stock were reserved for issuance. The Incentive 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 Incentive 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 Summit Properties, which vest on the date of
grant. The Operating Partnership 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.
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A summary of changes in common stock options for the three years ended December
31, 1999 is as follows:
WEIGHTED AVERAGE
OPTIONS EXERCISE PRICE
--------- ----------------
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.
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 Operating Partnership'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 Operating Partnership'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 unit amounts):
1999 1998
------- -------
Net income as reported...................................... $59,760 $65,881
Net income per common unit -- basic and diluted as
reported.................................................. 1.86 2.28
Pro forma net income........................................ 58,219 65,464
Pro forma net income per common unit -- basic and diluted... 1.81 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 Summit
Employees. Summit Properties granted 17,669 shares of restricted stock under the
Incentive Plan in 1999. The market value of the restricted stock totaled
$304,000, which was recorded as unamortized restricted stock compensation.
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 Operating
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Partnership 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, Summit Properties agreed to award key Summit Employees certain
amounts of Common Stock under Summit Properties' Performance Stock Award Plan.
The amount of Common Stock to be granted to the key Summit Employees is based
upon Summit Properties' 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 Summit Properties achieves less than a 11% average
annual return) to 147,713 (in the event Summit Properties 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, Summit Properties established a non-qualified employee stock purchase
plan. From 1996 through 1999, the plan allowed Summit Employees to purchase up
to $100,000 (with certain executive officers limited to $25,000) per year of
Summit Properties' 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. 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.
11. DIVIDEND REINVESTMENT AND DIRECT STOCK PURCHASE PLAN
In November 1997, Summit Properties 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 Summit
Properties' 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
Summit Properties 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 Summit Properties
or in open market or privately negotiated transactions, as determined from time
to time by Summit Properties, to fulfill requirements for the Plan. At present,
Summit Properties expects that shares usually will be purchased directly from
Summit Properties. On December 31, 1998, Summit Properties 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. Summit Properties received no amounts on December 31, 1999
related to the optional cash component of the Plan.
12. BUSINESS SEGMENTS
Effective December 31, 1998, the Operating Partnership 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
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products and services, geographic areas and major customers. The adoption of FAS
131 did not affect the Operating Partnership's results of operations or
financial position.
The Operating Partnership 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 Operating Partnership develops apartments solely
for its own use and does not perform development activities for third parties.
13. 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 Operating Partnership'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
Summit Properties ("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 Summit
Properties 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 Operating Partnership 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 Operating Partnership'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
Summit Properties ("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
Operating Partnership 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 Operating Partnership paid the holder of the Series C
Preferred Units distributions in the aggregate amount of approximately $1.5
million during 1999.
14. COMMON STOCK REPURCHASE PROGRAM
On May 11, 1999, the Board of Directors of Summit Properties authorized a common
stock repurchase program pursuant to which Summit Properties is authorized to
purchase up to an aggregate of $50 million of
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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, Summit Properties 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.
15. 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 Operating Partnership 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 Operating Partnership purchased the Atlanta Acquisitions and the
Ewing Portfolio by issuing 2.5 million Common Units, 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 Units issued....................................... (45,770)
--------
Cash invested............................................. $124,846
========
C. In the year ended December 31, 1997, the Operating Partnership purchased
five communities (Summit Mayfaire, Summit Portofino, Summit Sand Lake,
Summit Windsor II and Summit Fair Oaks). The Operating Partnership
completed the purchase of the five communities by assuming debt, issuing
438,103 Common Units, 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................. (8,872)
--------
Cash invested............................................. $ 78,870
========
D. Summit Properties 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, to Summit Employees.
E. The Operating Partnership accrued a distribution payable of $13.0
million, $12.7 million and $11.0 million at December 31, 1999, 1998 and
1997, respectively.
16. 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
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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 Operating Partnership 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 Operating Partnership'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 Operating Partnership has historically had limited involvement with
derivative financial instruments, the Operating Partnership 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 Operating Partnership does not utilize
derivative financial instruments for trading or speculative purposes. On
September 16, 1999, the Operating Partnership 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 Operating Partnership 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 Operating Partnership 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 Operating Partnership will be required to pay, and a decrease
in LIBOR will decrease the amount of interest that the Operating Partnership
will be required to pay. The fair value of the interest rate swap was $445,000
at December 31, 1999.
17. GEOGRAPHIC CONCENTRATION
The Operating Partnership's Communities are concentrated in six major markets as
follows:
NUMBER OF % OF % OF
MARKET APARTMENT HOMES PORTFOLIO 1999 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%
====== === ===
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18. 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
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
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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 Park.............. 1,680 11,448 1,921 11,207 13,128
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 Park.............. (4,102) 4/88-4/89 1/88 5-40 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 Operating Partnership. Date reflects date construction
completed.
(6) Includes furniture, fixtures and equipment.
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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.
19. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Quarterly financial information for the years 1999 and 1998 is as follows (in
thousands except per unit 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.......... 8,999 10,200 11,112 12,022
Gain on sale of real estate assets........................ -- 6,307 2,487 8,633
Net Income................................................ 8,999 16,507 13,599 20,655
Dividends to preferred unitholders........................ -- (1,317) (2,276) (3,105)
Income available to common unitholders.................... 8,999 15,190 11,323 17,550
Income available to common unitholders per unit -- basic
and diluted............................................. 0.27 0.46 0.36 0.56
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 and
extraordinary items..................................... 6,892 7,137 7,892 7,406
Gain on sale of real estate assets........................ -- 8,731 -- 28,417
Extraordinary items....................................... (185) -- -- (409)
Net income................................................ 6,707 15,868 7,892 35,414
Income per unit:
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
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