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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997 Commission file number 1-12792
SUMMIT PROPERTIES INC.
(Exact name of registrant as specified in its charter)
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MARYLAND 56-1857807
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
212 SOUTH TRYON STREET
SUITE 500
CHARLOTTE, NORTH CAROLINA 28281
(Address of principal executive offices) (Zip Code)
(704) 334-9905
(Registrant's telephone number, including area code)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
COMMON STOCK, PAR VALUE $.01 PER SHARE NEW YORK STOCK EXCHANGE
(Title of each class) (Name of each exchange on which registered)
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No __
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ____
The aggregate market value of the voting stock held by nonaffiliates of the
Registrant, as of March 4, 1998 was $479,920,238.
The number of shares of the Registrant's Common Stock, par value $.01 per
share, outstanding as of March 4, 1998 was 24,178,765.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 1998 Proxy Statement for the Registrant's Annual Meeting of
Stockholders, to be filed with the Securities and Exchange Commission within 120
days after the end of the year covered by this Form 10-K, are incorporated by
reference herein as portions of Part III of this Form 10-K.
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TABLE OF CONTENTS
ITEM PAGE
---- ----
PART I
1. Business.................................................... 3
2. Properties.................................................. 8
3. Legal Proceedings........................................... 11
4. Submission of Matters to a Vote of Security Holders......... 11
PART II
5. Market for Registrant's Common Equity and Related
Stockholder Matters....................................... 12
6. Selected Financial Data..................................... 13
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 15
8. Financial Statements and Supplementary Data................. 29
9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................. 29
PART III
10. Directors and Executive Officers of the Registrant.......... 30
11. Executive Compensation...................................... 30
12. Security Ownership of Certain Beneficial Owners and
Management................................................ 30
13. Certain Relationships and Related Transactions.............. 30
PART IV
14. Exhibits, Financial Statement Schedules and Reports on Form
8-K....................................................... 31
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PART I
ITEM 1. BUSINESS
THE COMPANY
Summit Properties Inc. (the "Company") is one of the largest developers and
operators of luxury garden apartment communities (the "Communities") in the
southeastern and mid-atlantic United States. The Company's current portfolio
consists of 61 apartment Communities with 14,462 apartment homes, including
Summit Foxcroft in which the Company has a 75% managing general partner
interest. The Company also has nine apartment Communities with 2,251 apartment
homes under construction or in lease-up.
The Communities are located in six states throughout the southeastern and
mid-atlantic United States, as well as in Delaware, Ohio, Pennsylvania and
Indiana. For the year ended December 31, 1997, the average physical occupancy
rate of the Company's Communities that were stabilized in both 1996 and 1997 was
93.2%, and the average monthly rental revenue for these Communities was $717 per
apartment home. A Community is considered to be stabilized at the earlier of its
attainment of 93.0% physical occupancy or one year from the completion of
construction. In addition, the Company has acquisition Communities, stabilized
development Communities (i.e., stabilized in 1997 but not in 1996) and
Communities in lease-up. In 1997, average physical occupancy rates were 92.4%
and 92.0% and average monthly rental revenue were $847 and $883 per apartment
home for acquisition Communities and stabilized development Communities,
respectively. Yearly averages for Communities in lease-up are not meaningful as
the Communities were in various stages of construction/lease-up during the year.
The Company also manages approximately 4,000 apartment homes for unrelated third
parties. The Company is a fully integrated organization with multifamily
development, construction, acquisition and management expertise which employs
approximately 550 individuals.
The Company's business is conducted principally through Summit Properties
Partnership, L.P., a Delaware limited partnership (the "Operating Partnership"),
of which the Company is the sole general partner and an 85.3% economic owner as
of December 31, 1997. The Company'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 "Company" shall mean
Summit Properties Inc. and its subsidiaries on an aggregate basis.
The Company has chosen to focus its efforts on the following ten high growth
core markets: Charlotte, North Carolina; Tampa/Sarasota, Florida; Washington,
D.C.; Raleigh/Central, North Carolina; South Florida; Atlanta, Georgia;
Richmond, Virginia; Orlando, Florida; Indianapolis, Indiana and Columbus, Ohio.
In keeping with this strategy, the Company has established city operating
offices in Charlotte, North Carolina; Tampa, Florida; Reston, Virginia; Atlanta,
Georgia; Fort Lauderdale, Florida and Raleigh, North Carolina. These city
offices have direct responsibility for selecting and overseeing new developments
and for managing the Communities in their geographic areas. This decentralized
structure enables corporate management to maintain tight controls and allows the
Company to compete effectively in its core markets, while efficiently allocating
development and acquisition capital to those markets that will yield the highest
risk-adjusted return.
OPERATING PHILOSOPHY
The Company seeks to maximize the economic return from its Communities by
optimizing the trade-off between increasing rental rates and maintaining high
occupancy levels. Consistent with this strategy, the Company is among the rental
rate leaders in its markets. Although this strategy may result in slightly lower
occupancy rates, the Company believes that the dynamic tension created by this
balancing strategy maximizes operating income at the property level and improves
growth in the Company's cash flow over the long term. Generally, the Company has
found that it is not maximizing property operating income per apartment home
when occupancies are above 95%.
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Historically, the Company has been able to charge market leading rents to its
residents while maintaining high occupancy rates due to: the upscale features of
its Communities, the comprehensive service provided by its on-site management
and its favorable mix of apartment homes. The Company's geographic market focus
and decentralized structure further promote income growth.
GROWTH STRATEGIES
The Company's objective is to create long term value through five strategies:
maximizing cash flow from existing Communities, targeting ten major growth
markets in the Southeast, Mid-Atlantic, and Midwest, development activity,
acquisitions of additional Communities and dedication to customer service.
Maximizing Cash Flow From Existing Communities. The Company seeks to maximize
the economic return from its Communities by optimizing the trade-off between
increasing rental rates and maintaining high occupancy levels. Consistent with
this strategy, the Company is among the rental rate leaders in its markets. The
Company's affluent resident profile, well-trained property management staff and
management information systems support this strategy. For the year ended
December 31, 1997, average rent per apartment home for the Company's Communities
that were stabilized during the comparable period in 1996 increased 2.1%, and
property operating income from these Communities increased 2.4% for the same
period. Average occupancy, rental revenue and property operating income levels
for the Company's Communities that were stabilized during the comparable periods
are as follows for the years set forth below:
YEAR ENDED DECEMBER 31,
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1997 1996 1995
------ ------ ------
Average Physical Occupancy(1)............................... 93.2% 93.1% 94.0%
Average Monthly Rental Revenue per Apartment Home(1)........ $ 717 $ 714 $ 682
Average Monthly Rental Revenue per Apartment Home Growth
Rate...................................................... 2.1% 3.8% 4.9%
Property Operating Income Growth Rate(2).................... 2.4% 3.1% 6.6%
Number of Communities(1).................................... 44 32 27
(1) The Company also has six acquisition Communities, four stabilized
development Communities (i.e., stabilized in 1997 but not in 1996) and nine
Communities in lease-up. In 1997, average physical occupancy rates were
92.4% and 92.0% and average monthly rental revenue were $847 and $883 per
apartment home for acquisition Communities and stabilized development
Communities, respectively. Yearly 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).
The supply of new multifamily communities in the past several years has
increased nationwide and in the Company's markets. This supply has limited the
Company's ability to raise rental rates at the same rate experienced in 1995.
Targeting Ten Major Growth Markets. The Company's existing portfolio and plans
for growth focus on ten core markets that are expected to generate new
employment at a significantly faster rate than the national average. The ten
high growth core markets are as follows: Charlotte, North Carolina;
Tampa/Sarasota, Florida; Washington, D.C.; Raleigh, North Carolina; South
Florida; Atlanta, Georgia; Richmond, Virginia; Orlando, Florida; Indianapolis,
Indiana and Columbus, Ohio. The Company's strategy provides geographic
diversification that protects it against an economic downturn in any one market,
while at the same time benefiting from a tightly targeted focus on a limited
number of attractive markets. By focusing only on these ten markets, the Company
gains better brand recognition, builds local expertise and improves operating
efficiencies.
Within each market there are numerous housing alternatives that compete with the
Communities in attracting residents. The Communities compete directly with other
rental apartments, condominiums and single-family homes that are available for
rent or sale in the markets in which the Communities are located. In addition,
various entities, including insurance companies, pension and investment funds,
partnerships, investment
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companies and other multifamily REITs, compete with the Company for the
acquisition of existing properties and the development of new properties, some
of which may have greater resources than the Company. The Company has not
identified any dominant competitor, nor is it currently the dominant competitor,
in its markets.
Development. Since its initial public offering in 1994, the Company has
increased the size of its property portfolio by almost 110% to 14,462 apartment
homes. Development of new communities has been the foundation of the Company's
growth. Of its 61 Communities, 40 have been developed by the Company or its
predecessors. The Company attributes much of its historical cash flow growth to
the quality of the apartment Communities it has developed over the years.
The Company maintains an active new-community development program which provides
it with a predictable and consistent stream of new revenues. Focusing on
new-community development allows the Company to build desirable properties that
generate premium rents. It also provides returns which generally exceed those
achieved on acquisitions. The Company's development goal is to provide its
residents with a community that feels like single-family housing, with front
yards, open floor plans, abundant square footage, generous storage and both
attached and detached garages. The Company enters into leases with its residents
which include provisions which are usual and customary for apartment leases,
such as the payment of rent monthly, advance notice in the event of a
termination, provision of a security deposit and the imposition by the Company
of a charge for rent paid after the fifth day of the month. The leases are
predominantly for a term of one year.
The Company employs a combination of local autonomy and centralized oversight in
its development process. Development officers live in their respective markets,
so that critical decision-making is kept local. Regional development officers
report to a corporate development executive, a process that is designed to
ensure consistency in design, building materials and quality. The Company
utilizes the Construction Company in addition to third-party general
contractors. Of the 2,251 apartment homes in development at December 31, 1997,
85.1% are being built by the Construction Company, which has resulted in higher
quality construction, improved timeliness and cost savings.
In 1997, the Company completed development of six Communities, adding 1,454
apartment homes to the Company's portfolio. These six Communities represent a
total investment of approximately $104.6 million. The Communities completed in
1997 are Summit on the River, Summit Russett, Summit Sedgebrook I, Summit
Ballantyne I, Summit Plantation II and Summit Norcroft II.
As of December 31, 1997, the Company had nine apartment Communities (two of
which are also in lease-up) containing 2,251 apartment homes, with a budgeted
cost of $170.2 million, under construction. The following provides summary
information regarding the nine Communities under construction as of December 31,
1997 (dollars in thousands):
TOTAL ESTIMATED ANTICIPATED
APARTMENT ESTIMATED COST TO COST TO CONSTRUCTION
COMMUNITY HOMES COSTS DATE COMPLETE COMPLETION
- ----------------------------------------- --------- --------- ------- --------- ------------
Summit Stonefield -- Yardley, PA......... 216 $ 19,640 $18,324 $ 1,316 Q1 1998
Summit Lake I -- Raleigh, NC............. 302 19,700 17,380 2,320 Q2 1998
Summit Ballantyne II -- Charlotte, NC.... 154 10,100 2,792 7,308 Q3 1998
Summit Sedgebrook II -- Charlotte, NC.... 120 7,500 963 6,537 Q3 1998
Summit Doral -- Miami, Florida........... 192 17,000 3,186 13,814 Q1 1999
Summit Fair Lakes I -- Fairfax, VA....... 370 32,900 12,458 20,442 Q1 1999
Summit Governor's Village -- Chapel Hill,
NC..................................... 242 16,400 3,696 12,704 Q1 1999
Summit New Albany I -- Columbus, OH...... 301 22,600 10,223 12,377 Q1 1999
Summit Westwood -- Raleigh, NC........... 354 24,400 3,016 21,384 Q2 1999
Other development and construction
costs.................................. -- -- 10,294 --
-------- -------- ------- -------
2,251 $170,240 $82,332 $98,202
======== ======== ======= =======
The Company is optimistic about the operating prospects of the Communities under
construction even with the increased supply of newly constructed apartment homes
of comparable quality in many of its markets. As
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with any development project, there are uncertainties and risks associated with
the development of the Communities described above. While the Company has
prepared development budgets and has estimated completion and stabilization
target dates based on what it believes are reasonable assumptions in light of
current conditions, there can be no assurance that actual costs will not exceed
current budgets or that the Company will not experience construction delays due
to the unavailability of materials, weather conditions or other events.
Similarly, market conditions at the time these Communities become available for
leasing will affect rental rates and the period of time necessary to achieve
stabilization and could result in achieving stabilization later than currently
anticipated.
The Company is also conducting feasibility and other pre-development work for
eleven new Communities. The Company either owns or holds options to purchase the
land for each of these potential developments (dollars in millions):
ANTICIPATED
APARTMENT DEVELOPMENT CONSTRUCTION
COMMUNITIES IN PRE-DEVELOPMENT HOMES BUDGETS START
- ----------------------------------------------------- --------- ----------- ------------
Summit Lake II -- Raleigh, NC........................ 144 $ 10.0 1Q98
Summit Fair Lakes II -- Fairfax, VA.................. 160 14.2 2Q98
Summit Crest -- Raleigh, NC.......................... 378 25.5 3Q98
Summit Deep Run -- Richmond, VA...................... 304 22.7 3Q98
Summit Grandview -- Charlotte, NC.................... 217 25.2 3Q98
Summit New Albany II -- Columbus, OH................. 127 9.5 3Q98
Summit Pembroke -- Pembroke, FL...................... 328 28.2 3Q98
Summit Strathmoor -- Charlotte, NC................... 496 35.4 3Q98
Summit Devin -- Atlanta, GA.......................... 296 22.5 4Q98
Summit Largo -- Largo, MD............................ 217 17.6 4Q98
Summit Russett II -- Laurel, MD...................... 130 10.1 4Q98
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2,797 $ 220.9
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For each of these potential Communities, the Company is only in the
pre-development phase, and there can be no assurance that all or any one of
these Communities will be completed. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Development Activity" for a
discussion of uncertainties and risks associated with the Company's development
activity.
Acquisitions and Disposition. While the Company has emphasized development of
new apartment communities as one of its strategies for growth, it also has
successfully capitalized on expansion opportunities through the strategic
acquisition of properties that meet the Company's investment criteria. The
Company has acquired more than 4,800 apartment homes since its formation in
1994. These properties were successfully acquired at prices below their
replacement cost and cumulatively have achieved a total unleveraged average
yield of 9.8% in 1997. Acquisitions are concentrated in the Company's ten
targeted core markets in order to further strengthen brand identity and
operational efficiencies. The Company's extensive local-market knowledge and
development expertise give it an advantage in identifying and underwriting
acquisition opportunities which the Company believes will generate shareholder
value. The Company has acquired the following Communities in 1997 (dollars in
thousands):
ACQUISITION APARTMENT PURCHASE YEAR
COMMUNITY DATE HOMES PRICE BUILT
- ------------------------------------------- ----------- --------- --------- -----
Summit Portofino -- Broward County, FL..... 1/6/97 322 $ 28,000 1995
Summit Mayfaire -- Raleigh, NC............. 1/15/97 144 9,650 1995
Summit Sand Lake -- Orlando, FL............ 2/20/97 416 26,798 1995
Summit Windsor II -- Frederick, MD......... 7/18/97 306 17,100 1988
Summit Fair Oaks -- Fairfax, VA............ 12/31/97 246 21,200 1990
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1,434 $ 102,748
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Additionally, the Company has commenced a disposition program targeting those
Communities within its portfolio which do not align with the Company's long term
strategic plan and growth objectives. One such Community was sold in 1997 for
$9.5 million. Currently, one Community is subject to a Sale and Purchase
Agreement with a qualified buyer and the Company is in the initial stages of
marketing another Community. The Company does not expect to incur any losses
related to the sale of these Communities.
Dedication to Customer Service. Proactive property management has allowed the
Company to maximize cash flow from its portfolio by encouraging local
decision-making and rewarding performance, initiative and innovation. The
Company's localized property-management system, with offices strategically
located in six key cities, gives the Company a distinct advantage in better
responding to the needs of each market. The Company has long stressed the
importance of developing strong customer relationships with its residents. The
Company's total commitment to resident satisfaction is further evidenced by its
"Sundown Policy" which mandates a response by the appropriate employee to any
resident inquiry or complaint no later than "sundown" of the day on which the
inquiry or complaint was received. The Company has sought to provide its
residents with experienced, well-trained and attentive management staffs. Every
Community employee enters into a comprehensive training program when he or she
is hired. This training program ensures that employees have a clear
understanding of their job responsibilities, the high standards of performance
expected of them and the Company's operating philosophies. On-going training
following each employee's initial employment period further enhances employee
productivity. The Company believes that this training regimen along with a
proven hiring process has produced a higher quality management staff, evidenced
by higher resident satisfaction at the Communities and lower employee turnover.
COMPANY HISTORY
The Company was formed in 1993 to continue and expand the multifamily
development, construction, acquisition, operation, management and leasing
businesses of the predecessor entities through which the Company historically
conducted operations prior to the Initial Offering (as defined below) (the
"Summit Entities"). The Summit Entities were founded by the Company's Chairman
of the Board, William B. McGuire, Jr., in 1972. In 1981, William F. Paulsen
joined the predecessor to the Company as Chief Executive Officer and shepherded
the growth of its multifamily development and management activities.
The Company organized itself as a real estate investment trust (a "REIT") and
completed its initial public offering (the "Initial Offering") of 10,000,000
shares of common stock, par value $0.01 per share (the "Common Stock"), on
February 15, 1994 and sold an additional 1,500,000 shares upon exercise of the
underwriters' over-allotment option on March 4, 1994. On June 2, 1995, the
Company completed a follow-on public offering (the "1995 Offering") of 4,000,000
shares of Common Stock. A second follow-on public offering (the "1996 Offering")
of 5,000,000 shares of the Company's Common Stock was completed on August 7,
1996, with an additional 750,000 shares sold upon exercise of the underwriters'
over-allotment option on August 12, 1996. On August 12, 1997, the Operating
Partnership completed a $125 million senior unsecured debt offering. On December
17, 1997, the Operating Partnership completed an additional $30 million senior
unsecured debt offering.
The Company, a Maryland corporation, is a self-administered and self-managed
REIT. The Company's Common Stock is listed on the New York Stock Exchange (the
"NYSE") under the symbol "SMT". The executive offices of the Company are located
at 212 South Tryon Street, Suite 500, Charlotte, North Carolina 28281. The
Company's telephone number is (704) 334-9905 and its facsimile number is (704)
333-8340. The Company also maintains offices in Atlanta, Georgia; Tampa,
Florida; Reston, Virginia; Ft. Lauderdale, Florida and Raleigh, North Carolina.
THE OPERATING PARTNERSHIP
The Operating Partnership was formed on January 14, 1994, and is the entity
through which principally all of the Company's business is conducted. The
Company controls the Operating Partnership as the sole general partner and as
the holder of an 85.3% economic and voting interest in the Operating Partnership
as of December 31, 1997. As the sole general partner of the Operating
Partnership, the Company has the exclusive power to manage and conduct the
business of the Operating Partnership, subject to certain voting rights of
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holders (including the Company) of the units of limited partnership interest
("Units"), including the consent of holders (including the Company) of 85% of
the Units in connection with a sale, transfer or other disposition of all or
substantially all of the assets of the Operating Partnership, or any other
transaction which would result in the recognition of a significant taxable gain
to the holders of Units. The Company's general and limited partnership interests
in the Operating Partnership entitle it to share in 85.3% of the cash
distributions from, and in the profits and losses of, the Operating Partnership.
Each Unit may be redeemed by the holder thereof for cash equal to the fair
market value of a share of the Company's Common Stock or, at the option of the
Company, an equivalent number of shares of Common Stock. The Company presently
anticipates that it will elect to issue shares of Common Stock in connection
with redemptions of Units rather than paying cash. With each redemption of Units
for Common Stock, the Company's percentage ownership interest in the Operating
Partnership will increase. In addition, whenever the Company issues shares of
Common Stock for cash, the Company will contribute any net proceeds therefrom to
the Operating Partnership and the Operating Partnership will issue an equivalent
number of Units to the Company.
The Operating Partnership cannot be terminated, except in connection with a sale
of all or substantially all of the assets of the Company, for a period of 99
years without a vote of the limited partners of the Operating Partnership.
ITEM 2. PROPERTIES
THE COMMUNITIES
The Company owns and manages through the Operating Partnership 61 completed
Communities and two Communities which are currently under construction and are
in lease-up consisting of 14,980 apartment homes. Thirty-five of the Communities
have been completed since January 1, 1990 and, as of December 31, 1997, the
average age of the completed Communities was approximately 7 1/2 years. The
following is a summary of Communities by market:
NUMBER OF % OF TOTAL
NUMBER OF APARTMENT APARTMENT
COMMUNITIES HOMES HOMES
----------- --------- -----------
Charlotte, North Carolina............................ 14 2,498 16.7%
Tampa/Sarasota, Florida.............................. 9 2,248 15.0
Washington, DC....................................... 8 2,173 14.5
Raleigh/Central North Carolina....................... 11 2,143 14.3
South Florida........................................ 6 1,759 11.7
Other non core markets............................... 5 1,098 7.3
Atlanta, Georgia..................................... 4 1,229 8.2
Richmond, Virginia................................... 3 862 5.8
Orlando, Florida..................................... 2 656 4.4
Indianapolis, Indiana................................ 1 314 2.1
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63 14,980 100.0%
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Other non-core markets consist of two Communities in Greenville, South Carolina,
two Communities in Cincinnati, Ohio and one Community in Yardley, Pennsylvania.
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 and mid-atlantic United
States (Florida, Georgia, Maryland, North Carolina, South Carolina and Virginia)
as well as in Delaware, Ohio, Indiana and Pennsylvania. The following table
highlights certain information regarding the Communities.
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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 1997(1) 1996(1) 1997(2) 1996(2)
--------------------- ------------------- ---------- --------- --------- --------- --------- ------- -------
ATLANTA
Summit Glen................... Atlanta, GA 242 1992 983 92.8 91.9 $ 838 $ 847
Summit Springs................ Norcross, GA 312 1990 934 92.0 92.6 699 708
Summit Village................ Marietta, GA 323 1991 984 91.5 91.8 728 735
---------- --------- --------- --------- ------- -------
ATLANTA WEIGHTED AVERAGE........................... 877 966 92.0 92.1 748 756
CHARLOTTE
Summit Arbors................. Charlotte, NC 120 1986 944 94.7 94.8 790 748
Summit Creek.................. Charlotte, NC 260 1983 910 92.6 92.7 638 624
Summit Crossing............... Charlotte, NC 128 1985 978 93.5 96.3 664 649
Summit Fairview............... Charlotte, NC 135 1983 1,036 95.7 93.6 751 726
Summit Foxcroft(4)............ Charlotte, NC 156 1979 940 93.2 93.4 660 643
Summit Hollow................. Charlotte, NC 232 1978 949 94.1 94.5 684 656
Summit Norcroft............... Charlotte, NC 162 1991 1,112 93.2 94.0 765 805
Summit Radbourne.............. Charlotte, NC 225 1991 1,006 93.3 92.0 773 786
Summit Simsbury............... Charlotte, NC 100 1985 874 94.0 93.6 743 734
Summit Touchstone............. Charlotte, NC 132 1986 899 92.3 94.0 700 677
---------- --------- --------- --------- ------- -------
CHARLOTTE WEIGHTED AVERAGE......................... 1,650 966 93.5 93.7 711 701
RALEIGH/CENTRAL NORTH CAROLINA
Summit Creekside.............. Hickory, NC 118 1981 1,006 95.7 96.2 596 566
Summit Eastchester............ High Point, NC 172 1981 947 93.7 96.1 593 559
Summit Highland............... Raleigh, NC 172 1987 986 93.8 94.5 708 703
Summit Hill................... Chapel Hill, NC 204 1991 904 92.2 93.3 769 774
Summit Oak.................... Goldsboro, NC 100 1982 918 96.1 96.7 551 532
Summit Old Town............... Winston-Salem, NC 172 1979 954 92.4 90.9 572 542
Summit Sherwood............... Winston-Salem, NC 190 1968 1,028 94.9 95.2 561 526
Summit Square................. Durham, NC 362 1990 925 91.8 92.1 761 763
---------- --------- --------- --------- ------- -------
RALEIGH/CENTRAL NORTH CAROLINA WEIGHTED AVERAGE....
1,490 954 93.4 93.9 662 647
RICHMOND
Summit Breckenridge........... Glen Allen, VA 300 1987 928 95.3 95.1 742 706
Summit Stony Point............ Richmond, VA 250 1986 1,045 95.7 93.2 760 724
Summit Waterford.............. Midlothian, VA 312 1990 995 93.7 91.4 705 685
---------- --------- --------- --------- ------- -------
RICHMOND WEIGHTED AVERAGE.......................... 862 986 94.8 93.2 734 704
SOUTH FLORIDA
Summit Del Ray................ Delray Beach, FL 252 1993 968 94.8 91.5 852 852
Summit Palm Lake.............. W. Palm Beach, FL 304 1992 919 95.2 96.7 764 743
---------- --------- --------- --------- ------- -------
SOUTH FLORIDA WEIGHTED AVERAGE..................... 556 941 95.0 94.3 804 792
TAMPA/SARASOTA
Summit Gateway................ St. Petersburg, FL 212 1987 828 95.6 93.7 644 626
Summit Hampton................ Bradenton, FL 352 1988 933 89.7 93.0 625 630
Summit Heron's Run............ Sarasota, FL 274 1990 863 90.7 92.5 674 653
Summit Lofts.................. Palm Harbour, FL 200 1990 1,045 93.2 90.8 689 690
Summit McIntosh............... Sarasota, FL 212 1990 855 89.5 93.9 696 684
Summit Perico................. Bradenton, FL 256 1990 911 89.2 93.5 671 657
Summit Providence............. Brandon, FL 444 1991 952 91.0 93.0 649 659
Summit Station................ Tampa, FL 230 1990 902 92.1 92.6 634 619
Summit Walk................... Tampa, FL 68 1993 1,614 94.5 95.9 1,098 1,052
---------- --------- --------- --------- ------- -------
TAMPA/SARASOTA WEIGHTED AVERAGE.................... 2,248 936 91.3 93.0 670 663
WASHINGTON, D.C.
Summit Belmont................ Fredricksburg, VA 300 1987 881 94.9 90.2 633 622
Summit Meadow................. Columbia, MD 178 1990 1,020 95.4 93.6 900 864
Summit Pike Creek............. Newark, DE 264 1988 899 94.1 95.8 838 800
Summit Reston................. Reston, VA 418 1987 854 94.0 93.9 965 917
Summit Windsor................ Frederick, MD 147 1989 903 90.7 92.7 686 681
---------- --------- --------- --------- ------- -------
WASHINGTON, D.C. WEIGHTED AVERAGE.................. 1,307 897 94.0 93.2 823 792
OTHER
Summit Blue Ash............... Blue Ash, OH 242 1992 1,158 94.8 95.6 827 769
Summit Park................... Forest Park, OH 316 1989 963 92.0 91.7 633 602
Summit Beacon Ridge........... Greenville, SC 144 1988 1,046 93.6 91.9 657 653
Summit East Ridge............. Greenville, SC 180 1986 959 95.1 92.0 565 568
---------- --------- --------- --------- ------- -------
OTHER WEIGHTED AVERAGE............................. 882 1,029 93.7 92.9 676 649
---------- --------- --------- --------- ------- -------
TOTAL WEIGHTED AVERAGE OF
COMMUNITIES STABILIZED IN
1997 AND 1996..................................... 9,872 954 93.2 93.3 717 702
========== ========= ========= ========= ======= =======
MORTGAGE
NOTES
PAYABLE AT
DECEMBER 31,
1997
MARKET AREA/COMMUNITY (IN THOUSANDS)
--------------------- --------------
ATLANTA
Summit Glen................... (3)
Summit Springs................ (3)
Summit Village................ (3)
ATLANTA WEIGHTED AVERAGE......
CHARLOTTE
Summit Arbors................. --
Summit Creek.................. --
Summit Crossing............... $4,162
Summit Fairview............... --
Summit Foxcroft(4)............ 2,728
Summit Hollow................. 4,809
Summit Norcroft............... (3)
Summit Radbourne.............. 8,599
Summit Simsbury............... (5)
Summit Touchstone............. (5)
CHARLOTTE WEIGHTED AVERAGE....
RALEIGH/CENTRAL NORTH CAROLINA
Summit Creekside.............. 2,837
Summit Eastchester............ 3,814
Summit Highland............... (3)
Summit Hill................... --
Summit Oak.................... 2,553
Summit Old Town............... 3,048
Summit Sherwood............... 3,303
Summit Square................. (3)
RALEIGH/CENTRAL NORTH CAROLINA WEIGHTED AVERAGE
RICHMOND
Summit Breckenridge........... --
Summit Stony Point............ (6)
Summit Waterford.............. (3)
RICHMOND WEIGHTED AVERAGE.....
SOUTH FLORIDA
Summit Del Ray................ (3)
Summit Palm Lake.............. (3)
SOUTH FLORIDA WEIGHTED AVERAGE
TAMPA/SARASOTA
Summit Gateway................ (6)
Summit Hampton................ (6)
Summit Heron's Run............ (3)
Summit Lofts.................. --
Summit McIntosh............... --
Summit Perico................. (3)
Summit Providence............. (3)
Summit Station................ --
Summit Walk................... --
TAMPA/SARASOTA WEIGHTED AVERAGE
WASHINGTON, D.C.
Summit Belmont................ (6)
Summit Meadow................. (3)
Summit Pike Creek............. (6)
Summit Reston................. --
Summit Windsor................ (3)
WASHINGTON, D.C. WEIGHTED AVERAGE
OTHER
Summit Blue Ash............... (3)
Summit Park................... --
Summit Beacon Ridge........... --
Summit East Ridge............. 5,100
OTHER WEIGHTED AVERAGE........
TOTAL WEIGHTED AVERAGE OF
COMMUNITIES STABILIZED IN
1997 AND 1996................
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 1997(1) 1996(1) 1997(2) 1996(2)
--------------------- ------------------ ---------- --------- --------- --------- --------- ------- -------
DEVELOPED COMMUNITIES(7)
Summit Aventura............... Aventura, FL 379 1995 1,106 91.7 78.8 1,083 1,033
Summit Green.................. Charlotte, NC 300 1996 997 90.9 60.1 777 825
Summit Hill II................ Chapel Hill, NC 207 1996 1,023 92.2 75.1 769 774
Summit River Crossing......... Indianapolis, IN 314 1996 1,060 93.3 48.8 817 781
---------- ---------
1,200 1,052
ACQUISITION COMMUNITIES
Summit Mayfaire(9)............ Raleigh, NC 144 1995 1,047 92.8 N/A 770 N/A
Summit Sand Lake(9)........... Orlando, FL 416 1995 1,035 93.8 N/A 775 N/A
Summit Plantation(10)......... Plantation, FL 262 1995 1,283 91.7 93.1 1,034 993
Summit Portofino(9)........... Broward County, FL 322 1995 1,307 93.7 N/A 977 N/A
Summit Windsor II(9).......... Frederick, MD 306 1988 903 90.2 N/A 679 N/A
Summit Fair Oaks(9)........... Fairfax, VA 246 1990 938 N/A N/A N/A N/A
---------- ---------
1,696 1,088
---------- ---------
TOTAL WEIGHTED AVERAGE OF
COMPLETED COMMUNITIES............................ 12,768 981
COMMUNITIES IN LEASE-UP(8)
Summit Fairways............... Orlando, FL 240 1996 1,302 81.3 11.1 891 834
Summit on the River........... Atlanta, GA 352 1997 1,103 71.2 14.7 792 801
Summit Russett I.............. Laurel, MD 314 1997 958 58.7 0.8 883 866
Summit Ballantyne I........... Charlotte, NC 246 1997 1,124 18.7 N/A 865 N/A
Summit Sedgebrook I........... Charlotte, NC 248 1997 1,017 16.7 N/A 717 N/A
Summit Plantation II.......... Plantation, FL 240 1997 1,173 19.5 N/A 1,036 N/A
Summit Norcroft II............ Charlotte, NC 54 1997 1,168 8.2 N/A 816 N/A
Summit Lake I................. Raleigh, NC 302 1998 1,048 4.7 N/A 735 N/A
Summit Stonefield............. Yardley, PA 216 1998 1,022 20.4 N/A 1,101 N/A
---------- ---------
2,212 1,090
---------- ---------
TOTAL COMMUNITIES............. 14,980 997
========== =========
MORTGAGE
NOTES
PAYABLE AT
DECEMBER 31,
1997
MARKET AREA/COMMUNITY (IN THOUSANDS)
--------------------- --------------
DEVELOPED COMMUNITIES(7)
Summit Aventura............... --
Summit Green.................. --
Summit Hill II................ --
Summit River Crossing......... --
ACQUISITION COMMUNITIES
Summit Mayfaire(9)............ --
Summit Sand Lake(9)........... 14,985
Summit Plantation(10)......... --
Summit Portofino(9)........... --
Summit Windsor II(9).......... --
Summit Fair Oaks(9)........... --
TOTAL WEIGHTED AVERAGE OF
COMPLETED COMMUNITIES........
COMMUNITIES IN LEASE-UP(8)
Summit Fairways............... --
Summit on the River........... --
Summit Russett I.............. --
Summit Ballantyne I........... --
Summit Sedgebrook I........... --
Summit Plantation II.......... --
Summit Norcroft II............ --
Summit Lake I................. --
Summit Stonefield............. --
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 midweek occupancy that existed during each week of the
period.
(2) Represents the average monthly net rental revenue per occupied apartment
home.
(3) Collateral for fixed rate mortgages of $149.6 million.
(4) Summit Foxcroft is held by a partnership in which the Company is a 75%
managing general partner.
(5) Collateral for a fixed rate mortgage of $8.6 million.
(6) Collateral for letters of credit in an aggregate amount of $54.1 million
which serve as collateral for $52.9 million in tax exempt bonds.
(7) Communities that were stabilized in 1997 but were not stabilized in 1996.
(8) Communities that were in lease-up during 1997. These Communities have and
are leasing at a rate consistent with the Company's expectations. As with
any community in lease-up, there are uncertainties and risks associated
with the Company's communities in lease-up. While the Company has estimated
completion and stabilization budgets and target dates based on what it
believes are reasonable assumptions in light of current conditions, there
can be no assurance that actual costs will not exceed current budgets or
that the Company will not experience delays in reaching stabilization of
such communities.
(9) Community acquired in 1997. Summit Fair Oaks was acquired on December 31,
1997 and, accordingly, no average occupancy or average rent information is
available.
(10) Community acquired April 1, 1996.
10
11
Information with respect to total debt secured by thirty-three of the Company's
communities having an aggregate net book value of $320.7 million as of December
31, 1997, is as follows (in thousands):
FIXED RATE VARIABLE RATE
-------------- -------------
Total principal........................... $ 214,088 $ 52,852
Interest rates range from................. 5.88% to 9.80% 5.65%(1)
Weighted average interest rate............ 6.69% 5.65%(1)
Annual debt service....................... $ 18,431 $ 3,703(2)
Scheduled annual maturities:
1998........................................................ $ 5,208
1999........................................................ 5,537
2000........................................................ 5,856
2001(3)..................................................... 114,648
2002........................................................ 11,248
Thereafter.................................................. 124,443
--------
Total....................................................... $266,940
========
(1) Interest rate as of December 31, 1997.
(2) Annual debt service for variable rate loans represents 1997 costs and
includes letter of credit fees and other bond related costs.
(3) Year 2001 maturities include a $111.4 million balloon payment on the 5.88%
fixed rate mortgage loan from The Northwestern Mutual Life Insurance
Company.
Each Community has many of the following features: swimming pools, tennis,
racquetball and 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 managed by the Company's property management staff.
The community management team for each Community includes supervision by a
regional vice-president and regional property manager, as well as on-site
management, maintenance personnel and an off-site support staff. Community
management teams perform leasing and rent collection functions and coordinate
resident services. All personnel are extensively trained and experienced and are
encouraged to continue their education through both Company-designed and outside
courses.
ITEM 3. LEGAL PROCEEDINGS
Neither the Company nor any of the Communities is presently subject to any
material litigation nor, to the Company's knowledge, is any litigation
threatened against the Company or any of the Communities, other than routine
actions for negligence or other claims and administrative proceedings arising in
the ordinary course of business, some of which are expected to be covered by
liability insurance and all of which collectively are not expected to have a
material adverse effect on the business or financial condition or results of
operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NONE
11
12
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock began trading on the NYSE on February 8, 1994 under
the symbol "SMT". The following table sets forth the quarterly high and low
sales prices per share reported on the NYSE.
1997 1996
------------------ ------------------
QUARTER HIGH LOW HIGH LOW
- -------------------------------------------------- ------ ------ ------ ------
January 1 through March 31........................ $21.88 $19.75 $21.25 $19.00
April 1 through June 30........................... 21.00 19.63 20.50 18.50
July 1 through September 30....................... 22.06 19.50 20.13 18.00
October 1 through December 31..................... 22.38 19.94 22.50 19.13
On March 4, 1998 the last reported sale price of the Common Stock on the NYSE
was $20.375. On March 4, 1998 there were 1,135 holders of record of 24,178,765
shares of the Company's Common Stock.
The Company declared a dividend of $0.3975 per share of Common Stock for each of
the four quarters in 1997, which was paid on May 15, 1997 for the first quarter,
August 15, 1997 for the second quarter, November 17, 1997 for the third quarter,
and February 14, 1998 for the fourth quarter.
The Company declared a dividend of $0.3875 per share of Common Stock for each of
the four quarters in 1996, which was paid on May 15, 1996 for the first quarter,
August 15, 1996 for the second quarter, November 15, 1996 for the third quarter,
and February 14, 1997 for the fourth quarter.
On October 23, 1997, the Company issued 4,772 shares of Common Stock (valued at
approximately $102,300 at the time of issuance) to a limited partner of the
Operating Partnership. Such shares of the Company's Common Stock were issued in
reliance on an exemption from registration under Section 4(2) of the Securities
Act of 1933, as amended, and the rules and regulations promulgated thereunder.
In light of information obtained by the Company in connection with such
transaction, management of the Company believes that the Company may rely on
such exemption.
The Company intends to continue to make regular quarterly dividends to holders
of shares of Common Stock. Future dividends will be declared at the discretion
of the Board of Directors and will depend on actual cash flow of the Company,
its financial condition, capital requirements, the annual distribution
requirements under the REIT provisions of the Internal Revenue Code, and such
other factors as the Board of Directors may deem relevant. The Board of
Directors may modify the Company's dividend policy from time to time.
In November, 1997 the Company put in place a dividend reinvestment and direct
stock purchase program which provides both current owners of Common Stock and
interested new investors with a convenient and attractive method of investing
cash dividends and optional cash payments of $100 to $10,000 per month (or such
larger amounts as may be approved by the Company) in shares of Common Stock at a
discount from the Market Price (as defined in the program documents) and without
payment of any brokerage commission or service charge. To fulfill its
obligations under this program, the Company may either issue additional shares
of Common Stock or repurchase Common Stock in the open market.
12
13
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected consolidated financial and other
information on a consolidated historical basis for the Company and its
predecessors, the Summit Entities, as of and for each of the years in the five-
year period ended December 31, 1997. This table should be read in conjunction
with the Consolidated Financial Statements of Summit Properties Inc. and the
Notes thereto included elsewhere herein.
SELECTED FINANCIAL DATA
SUMMIT PROPERTIES INC. (HISTORICAL)(1)
YEARS ENDED DECEMBER 31,
---------------------------------------------------------
1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AND PROPERTY
INFORMATION)
OPERATING INFORMATION:
Revenue
Rental..................................... $ 109,827 $ 88,864 $ 70,773 $ 54,198 $ 45,561
Property management(2)..................... -- -- -- 536 4,102
Interest and other......................... 6,850 5,625 4,221 3,700 3,779
--------- --------- --------- --------- ---------
Total............................... 116,677 94,489 74,994 58,434 53,442
--------- --------- --------- --------- ---------
Property operating and maintenance expense
(before depreciation and amortization)..... 42,032 35,226 28,012 21,502 18,991
Property management expenses(2).............. -- -- -- 366 2,799
Interest expense............................. 21,959 17,138 14,802 14,067 26,400
Depreciation and amortization................ 22,652 18,208 15,141 11,700 9,735
REIT formation costs......................... -- -- -- 457 --
General and administrative expense........... 2,740 2,557 1,949 1,756 1,375
(Income) loss from equity investments........ (274) 173 39 59 --
--------- --------- --------- --------- ---------
Total............................... 89,109 73,302 59,943 49,907 59,300
--------- --------- --------- --------- ---------
Income (loss) before gain on sale of real
estate assets, extraordinary items and
minority interest of unitholders in
Operating Partnership...................... 27,568 21,187 15,051 8,527 (5,858)
Gain on sale of real estate assets........... 4,366 -- -- -- --
--------- --------- --------- --------- ---------
Income (loss) before extraordinary items and
minority interest of unitholders in
Operating Partnership...................... $ 31,934 $ 21,187 $ 15,051 $ 8,527 $ (5,858)
========= ========= ========= ========= =========
Net income (loss)............................ $ 27,116 $ 16,948 $ 11,819 $ 14,032 $ (3,408)
========= ========= ========= ========= =========
Income per share before extraordinary items
-- basic and diluted....................... $ 1.17 $ .92 $ .83 $ .64 N/A
========= ========= ========= ========= =========
Net income per share -- basic and diluted.... $ 1.17 $ .90 $ .80 $ 1.28 N/A
========= ========= ========= ========= =========
Dividends per share.......................... $ 1.59 $ 1.55 $ 1.51 $ 1.29 N/A
========= ========= ========= ========= =========
Weighted average shares outstanding --
basic...................................... 23,146 18,888 14,750 10,992 N/A
========= ========= ========= ========= =========
Weighted average shares and units outstanding
-- basic................................... 27,258 22,914 18,112 13,390 N/A
========= ========= ========= ========= =========
OTHER INFORMATION:
Cash flow provided by (used in):
Operating activities....................... $ 55,947 $ 41,176 $ 30,994 $ 17,525 $ 8,712
Investing activities....................... (175,907) (103,971) (63,734) (113,741) (2,092)
Financing activities....................... 119,858 63,579 34,440 88,993 (9,141)
Funds from Operations(3)..................... $ 50,201 $ 39,391 $ 30,148 $ 20,120 $ 3,777
Total completed communities (at end of
period).................................... 61 51 46 32 27
Total apartment homes developed(4)........... 1,454 1,061 379 -- 320
Total apartment homes acquired............... 1,434 262 2,025 1,332 --
Total apartment homes (at end of
period)(5)................................. 14,462 11,788 10,465 8,061 6,729
Ratio of earnings to fixed charges(6)(7)..... 1.93 1.78 1.65 1.52 0.77
13
14
YEARS ENDED DECEMBER 31,
---------------------------------------------------------
1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AND PROPERTY
INFORMATION)
BALANCE SHEET INFORMATION:
Real estate, before accumulated
depreciation............................... $ 913,033 $ 704,779 $ 586,264 $ 439,025 $ 317,374
Total assets................................. 825,293 634,991 533,252 397,945 297,670
Total long-term debt......................... 474,673 309,933 297,010 249,009 315,847
Stockholders' equity (deficiency)............ 265,839 257,214 175,454 115,525 (38,127)
(1) For purposes of the Selected Financial Data, historical information is
presented both for the Company and its predecessors, the Summit Entities,
provided that historical financial information for its predecessors only
includes information relating to the Communities held by the Company
immediately following the Initial Offering and the entities which provided
property and general management services for those Communities.
(2) Consists of revenues and expenses from property management services provided
to Communities owned by unrelated third parties and by certain predecessor
partnerships prior to the Initial Offering. Since the Initial Offering,
these services have been performed by the Management Company, which is
accounted for under the equity method of accounting.
(3) The White Paper on Funds from Operations approved by the Board of Governors
of the National Association of Real Estate Investment Trusts ("NAREIT") in
March 1995 (the "White Paper") defines Funds from Operations as net income
(loss) (computed in accordance with generally accepted accounting principles
("GAAP"), excluding gains (or losses) from debt restructuring and sales of
property, plus real estate related depreciation and amortization and after
adjustments for unconsolidated partnerships and joint ventures. The Company
believes Funds from Operations is helpful to investors as a measure of the
performance of an equity REIT because, along with cash flows from operating
activities, financing activities and investing activities, it provides
investors with an understanding of the ability of the Company to incur and
service debt and make capital expenditures. The Company computes Funds from
Operations in accordance with the standards established by the White Paper,
which may differ from the methodology for calculating Funds from Operations
utilized by other equity REITs, and, accordingly, may not be comparable to
such other REITs. Further, Funds from Operations does not represent amounts
available for management's discretionary use because of needed capital
replacement or expansion, debt service obligations, property acquisitions,
development, dividends and distributions or other commitments and
uncertainties. Funds from Operations should not be considered as an
alternative to net income (determined in accordance with GAAP) as an
indication of the Company's financial performance or to cash flows from
operating activities (determined in accordance with GAAP) as a measure of
the Company's liquidity, nor is it indicative of funds available to fund the
Company's cash needs, including its ability to make dividends/distributions.
Funds from Operations is calculated as follows (dollars in thousands):
YEARS ENDED DECEMBER 31,
-----------------------------------------------
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
Income (loss) before gain on sale of
real estate assets, minority interest
of unitholders in Operating
Partnership and extraordinary items... $27,568 $21,187 $15,051 $ 8,527 $(5,858)
Real estate depreciation................ 22,633 18,204 15,097 11,593 9,635
------- ------- ------- ------- -------
Funds from Operations................... $50,201 $39,391 $30,148 $20,120 $ 3,777
======= ======= ======= ======= =======
(4) Represents the total number of apartment homes in Communities completed and
owned by the Company during the period.
(5) Represents the total number of apartment homes in Communities completed and
owned by the Company at the end of the period.
14
15
(6) 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 plus fixed charges (excluding capitalized interest).
Fixed charges consist of interest expense (whether expensed or capitalized),
the estimated interest component of rent expense, and the amortization of
debt issuance costs. To date, the Company has not issued any preferred
stock; therefore, the ratios of earnings to combined fixed charges and
preferred stock dividend requirements are the same as the ratios of earnings
to fixed charges presented.
(7) Prior to the completion of the Initial Offering, the Company maintained a
different capital structure. As a result, although the original properties
have historically generated positive net cash flow, the financial statements
of the Company show net losses for the fiscal year ended December 31, 1993.
Consequently, the computation of the ratio of earnings to fixed charges for
such period indicates that earnings were inadequate to cover fixed charges
by approximately $6.0 million for the fiscal year ended December 31, 1993.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Form 10-K contains certain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended (the "Securities Act"),
and Section 21E of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), including without limitation statements relating to the
operating performance of stabilized communities and to development activities of
the Company. The Company intends such forward-looking statements to be covered
by the safe harbor provisions for forward-looking statements contained in the
Private Securities Reform Act of 1995, and is including this statement for
purposes of complying with these safe harbor provisions. Forward-looking
statements, which are based on certain assumptions and describe future plans,
strategies and expectations of the Company are generally identifiable by use of
the words "believe," "expect," "intend," "anticipate," "estimate," "project" or
similar expressions. The Company's ability to predict results or the actual
effect of future plans or strategies is inherently uncertain. Although the
Company believes that the expectations reflected in such forward-looking
statements are based on reasonable assumptions, the Company's actual results and
performance of stabilized and development Communities could differ materially
from those set forth in the forward-looking statements. Factors which could have
a material adverse effect on the operations and future prospects of the Company
include, but are not limited to, changes in: 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, construction delays due to
unavailability of materials, weather conditions or other delays, competition,
supply and demand for apartment communities in the Company's current and
proposed market areas, general accounting principles, policies and guidelines
applicable to REITs, and those factors discussed in the section entitled
"Development Activity -- Certain Factors Affecting the Performance of
Development Communities" on page 26 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.
As of December 31, 1997, there were 27,438,400 Units outstanding of the
Operating Partnership, of which 23,411,086 or 85.3% were owned by the Company
and 4,027,314 or 14.7% were owned by other partners (including certain officers
and directors of the Company).
The following discussion should be read in conjunction with the Consolidated
Financial Statements of Summit Properties Inc. and the Notes thereto appearing
elsewhere herein.
HISTORICAL RESULTS OF OPERATIONS
The Company's net income is generated primarily from the operations of its
Communities. The changes in operating results from period to period reflect
changes in existing community performance as well as increases in the number of
apartment homes due to the acquisition and development of Communities. Where
appropriate, comparisons are made on a "stabilized Communities," "acquisition
Communities," "stabilized development Communities" and "Communities in lease-up"
basis in order to adjust for changes in the
15
16
number of apartment homes. A Community is deemed to be "stabilized" at the
earlier of when it has attained a physical occupancy level of at least 93% or
when construction has been completed for one year in each of the comparable
periods presented. A Community is deemed to be a "stabilized development" when
stabilized in the entire current period presented, but was in lease-up in the
prior period presented.
Results of Operations for the Years Ended December 31, 1997, 1996 and 1995
Income before minority interest of unitholders in the Operating Partnership,
gain on sale of real estate assets and extraordinary items increased from 1995
($15.1 million) to 1996 ($21.2 million) and from 1996 to 1997 ($27.6 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 an increase in depreciation and
interest expense.
OPERATING PERFORMANCE OF THE COMPANY'S PORTFOLIO OF COMMUNITIES
The operating performance of the Communities is summarized below (dollars in
thousands):
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
------------------------------- -------------------------------
1997 1996 % CHANGE 1996 1995 % CHANGE
-------- -------- --------- -------- -------- ---------
Property revenues:
Stabilized Communities(1).... $ 81,668 $ 80,296 1.7% $ 65,553 $ 63,255 3.6%
Acquisition Communities(2)... 12,467 2,250 454.1% 16,993 8,716 95.0%
Stabilized Development
Communities............... 12,375 8,762 41.2% 8,762 767 1042.4%
Communities in lease-up...... 8,977 818 997.4% 818 -- 100.0%
Community sold............... 519 1,421 (63.5%) 1,421 1,391 2.2%
-------- -------- -------- --------
Total property revenues........ 116,006 93,547 24.0% 93,547 74,129 26.2%
-------- -------- -------- --------
Property operating and
maintenance expense(3):
Stabilized Communities....... 30,709 30,555 0.5% 24,717 23,687 4.3%
Acquisition Communities...... 4,336 606 615.5% 6,444 3,492 84.5%
Stabilized Development
Communities............... 3,955 3,069 28.9% 3,069 275 1016.0%
Communities in lease-up...... 2,821 411 586.4% 411 -- 100.0%
Community sold............... 211 585 (63.9%) 585 558 4.8%
-------- -------- -------- --------
Total property operating and
maintenance expense.......... 42,032 35,226 19.3% 35,226 28,012 25.8%
-------- -------- -------- --------
Property operating income...... $ 73,974 $ 58,321 26.8% $ 58,321 $ 46,117 26.5%
======== ======== ======== ========
Apartment homes, end of
period....................... 14,980 12,454 20.3% 12,454 11,286 10.3%
======== ======== ======== ========
(1) Includes Communities which were stabilized during the entire period for each
of the comparable periods presented.
(2) The 1997 and 1996 comparison includes the Communities acquired in 1997 and
1996. The 1996 and 1995 comparison includes Communities acquired in 1996 and
1995.
(3) Before real estate depreciation and amortization expense.
16
17
A summary of the Company's apartment homes for the years ended December 31,
1997, 1996 and 1995 is as follows:
1997 1996 1995
------ ------ ------
Apartment homes at the beginning of the year................ 12,454 11,286 8,061
Acquisitions................................................ 1,434 262 2,025
Developments which began rental operations during the
year...................................................... 1,306 906 1,200
Sale of apartment homes..................................... (214) -- --
------ ------ ------
Apartment homes at the end of the year...................... 14,980 12,454 11,286
====== ====== ======
OPERATING PERFORMANCE OF THE COMPANY'S 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,
----------------------------- -----------------------------
1997 1996 % CHANGE 1996 1995 % CHANGE
------- ------- --------- ------- ------- ---------
Property revenues:
Rental $77,788 $76,443 1.8% $62,177 $60,256 3.2%
Other 3,880 3,853 0.7% 3,376 2,999 12.6%
------- ------- ------- -------
Total property revenues 81,668 80,296 1.7% 65,553 63,255 3.6%
------- ------- ------- -------
Property operating and
maintenance expense (1):
Personnel...................... 6,905 7,289 (5.3%) 5,723 5,420 5.6%
Advertising and promotion...... 1,085 866 25.3% 649 540 20.2%
Utilities...................... 3,657 3,567 2.5% 2,987 2,982 0.2%
Building repairs and
maintenance................. 6,967 6,997 (0.4%) 5,484 5,121 7.1%
Real estate taxes and
insurance................... 7,676 7,609 0.9% 6,501 6,166 5.4%
Property supervision........... 2,043 2,001 2.1% 1,635 1,567 4.3%
Other operating expense........ 2,376 2,226 6.7% 1,738 1,891 (8.1%)
------- ------- ------- -------
Total property operating and
maintenance expense............ 30,709 30,555 0.5% 24,717 23,687 4.3%
------- ------- ------- -------
Property operating income........ $50,959 $49,741 2.4% $40,836 $39,568 3.2%
======= ======= ======= =======
Average physical occupancy (2)... 93.2% 93.3% (0.1%) 93.1% 94.2% (1.2%)
======= ======= ======= =======
Average monthly rental revenue
(3)............................ $ 717 $ 702 2.1% $ 720 $ 693 3.9%
======= ======= ======= =======
Number of apartment homes........ 9,872 9,872 7,847 7,847
======= ======= ======= =======
Number of apartment
communities.................... 44 44 31 31
======= ======= ======= =======
(1) Before real estate depreciation and amortization expense.
(2) 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 of the midweek occupancy that existed during
each week of the period.
(3) Represents the average monthly net rental revenue per occupied apartment
home.
Rental and other revenue increased from 1996 to 1997 due to higher rental rates
partially offset by a decrease in occupancy. The 1.7% property revenue growth
rate was lower than the prior year rate of growth primarily as a result of a new
supply of competing multi-family communities in the markets in which the Company
operates. In 1998 the Company expects the rate of growth to be similar to the
growth rate in 1997 as the supply of new multi-family Communities continues to
increase somewhat balanced by the continued strength of the local economies in
which the Company operates. The lower growth rate was especially noticeable in
the
17
18
Tampa/Sarasota and Atlanta markets. The Company believes its expectations
relative to property revenue growth are based on reasonable assumptions as to
future economic conditions and the quantity of competitive multi-family
communities in the markets in which the Company does business. However, there
can be no assurance that actual results will not differ from these assumptions,
which could result in a lower property revenue growth rate.
Property operating and maintenance expenses were relatively stable from 1996 to
1997. Increased advertising and promotion costs were offset by lower personnel
costs. The significant percentage increase in advertising and promotion was in
response to increased competition caused by the new supply of competing
multi-family communities. As a percentage of total property revenues, property
operating and maintenance expense decreased to 37.6% from 38.1% for the years
ended December 31, 1997 and 1996, respectively.
Rental and other revenue increased from 1995 to 1996 due to higher rental rates
offset by decreased occupancy. The increase in property operating and
maintenance expenses from 1995 to 1996 was primarily due to increased insurance
costs ($240,000 or a 40% increase), higher advertising costs and higher building
and repair costs. The increase in insurance expense was due to higher insurance
rates in the Company's Florida markets, caused by the significant storm damage
expenses incurred in the past years by the insurance industry. Included in the
building repairs and maintenance costs was a $148,000 or a 14% increase for
replacement of carpets.
OPERATING PERFORMANCE OF THE COMPANY'S ACQUISITION COMMUNITIES
Acquisition Communities consist of Summit Mayfaire, Summit Portofino, Summit
Sand Lake and Summit Windsor II acquired in 1997 (1,188 apartment homes), Summit
Plantation (262 apartment homes) acquired in 1996 and the twelve Communities and
a 75% interest in another Community, all of which were owned by the Crosland
Group, Inc. and its affiliates (2,025 apartment homes), acquired in 1995. Summit
Fair Oaks (246 apartment homes), was acquired on December 31, 1997 and
accordingly, its rental operations for 1997 are not reflected in the Company's
financial statements. The operations of these Communities are summarized as
follows (dollars in thousands except average monthly rental revenue):
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
----------------------- -----------------------
1997 1996 1995 1995
--------- -------- --------- --------
Property revenues:
Rental....................................... $11,686 $2,134 $16,401 $8,467
Other........................................ 781 116 592 249
------- ------ ------- ------
Total property revenues........................ 12,467 2,250 16,993 8,716
Property operating and maintenance
expense(1)................................... 4,336 606 6,444 3,492
------- ------ ------- ------
Property operating income...................... $ 8,131 $1,644 $10,549 $5,224
======= ====== ======= ======
Average physical occupancy(2).................. 92.4% 93.1% 94.0% 96.1%
======= ====== ======= ======
Average monthly rental revenue(3).............. $ 847 $ 993 $ 672 $ 592
======= ====== ======= ======
Number of apartment homes:
1995 Acquisitions............................ -- -- 2,025 2,025
1996 Acquisitions............................ 262 262 262 --
1997 Acquisitions............................ 1,188 -- -- --
------- ------ ------- ------
Total number of apartment homes................ 1,450 262 2,287 2,025
======= ====== ======= ======
(1) Before real estate depreciation and amortization expense.
(2) 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 of the midweek occupancy that existed during
each week of the period.
(3) Represents the average monthly net rental revenue per occupied apartment
home.
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19
The decrease in the average monthly rental revenue for the year ended December
31, 1997 as compared to the corresponding period in 1996 is attributable to
lower average monthly rental revenue on the 1997 acquisition Communities in
comparison to the 1996 acquisition community. Average monthly rental revenue for
the year ended December 31, 1997 for the 1997 acquisitions alone was $806.
The unleveraged yield for the 1997 and 1996 acquisitions, defined as property
operating income on an annualized basis over total acquisition cost, for the
year ended December 31, 1997 was 9.0%. The unleveraged yield for the four
Communities acquired in 1997 only for the year ended December 31, 1997 was 8.9%.
OPERATING PERFORMANCE OF THE COMPANY'S STABILIZED DEVELOPMENT COMMUNITIES
The Company had four Communities with 1,200 apartment homes, (Summit Aventura,
Summit Hill II, Summit Green, and Summit River Crossing), which were stabilized
during the entire year ended December 31, 1997 but were still in
lease-up/construction in the year ended December 31, 1996. The operating
performance of these four stabilized development Communities is summarized below
(dollars in thousands except average monthly rental revenue):
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
----------------------- -----------------------
1997 1996 1996 1995
--------- -------- --------- --------
Property revenues:
Rental....................................... $11,580 $8,183 $ 8,183 $ 693
Other........................................ 795 579 579 74
------- ------ ------- ------
Total property revenues........................ 12,375 8,762 8,762 767
------- ------ ------- ------
Property operating and maintenance
expense(1)................................... 3,955 3,069 3,069 275
------- ------ ------- ------
Property operating income...................... $ 8,420 $5,693 $ 5,693 $ 492
======= ====== ======= ======
Average physical occupancy(2).................. 92.0% 65.6% 65.6% 9.1%
======= ====== ======= ======
Average monthly rental revenue(3).............. $ 883 $ 871 $ 871 $ 852
======= ====== ======= ======
(1) Before real estate depreciation expense.
(2) 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 of the midweek occupancy that existed during
each week of the period.
(3) Represents the average monthly net rental revenue per occupied apartment
home.
The unleveraged yield on these four stabilized development Communities, defined
as property operating income over total development cost, for the year ended
December 31, 1997 was 10.5%.
19
20
OPERATING PERFORMANCE OF THE COMPANY'S COMMUNITIES IN LEASE-UP
The Company had nine Communities in lease-up during the year ended December 31,
1997. A Community in lease-up is defined as one which has commenced rental
operations but has not reached stabilization. The following is a summary of the
nine Communities in lease-up (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 1997 1997
- -------------------------- --------- --------- ------------ ------------- --------- ------------
Summit Fairways........... 240 $ 17,775 Q4 1996 Q3 1997 81.27% 95.80%
Summit on the River....... 352 23,922 Q2 1997 Q4 1997 71.23% 96.60%
Summit Russett I.......... 314 23,203 Q3 1997 Q3 1997 58.71% 96.20%
Summit Stonefield......... 216 19,640 Q1 1998 Q1 1998 20.42% 88.90%
Summit Ballantyne I....... 246 16,400 Q4 1997 Q2 1998 18.69% 67.10%
Summit Sedgebrook I....... 248 16,400 Q4 1997 Q2 1998 16.71% 64.10%
Summit Plantation II...... 240 21,400 Q4 1997 Q2 1998 19.54% 79.60%
Summit Norcroft II........ 54 3,700 Q4 1997 Q1 1998 8.21% 85.20%
Summit Lake I............. 302 19,700 Q2 1998 Q3 1998 4.69% 37.40%
--------- --------
2,212 $162,140
========= ========
Property operating income (loss) after interest expense was $1.1 million and
($109,000) for the nine Communities in lease-up for the years ended December 31,
1997 and 1996, respectively. These nine Communities in lease-up had no 1995
operations.
OPERATING PERFORMANCE OF SUMMIT MANAGEMENT COMPANY
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,
-------------------------- --------------------------
1997 1996 % CHANGE 1996 1995 % CHANGE
------ ------ -------- ------ ------ --------
Revenue.............................. $6,102 $5,364 13.8% $5,364 $5,632 (4.8)%
Expenses:
Operating.......................... 5,039 4,849 3.9% 4,849 5,018 (3.4)%
Depreciation....................... 185 110 68.2% 110 120 (8.3)%
Amortization....................... 304 278 9.4% 278 274 1.5 %
Interest........................... 300 300 0.0% 300 300 0.0 %
------ ------ ------ ------
Total expenses..................... 5,828 5,537 5.3% 5,537 5,712 (3.1)%
------ ------ ------ ------
Net income (loss) of Summit
Management Company................. $ 274 $ (173) 258.4% $ (173) $ (80) (116.3)%
====== ====== ====== ======
The change in revenue was a result of higher revenues from managing the
Company's Communities and higher revenues from construction activity, offset by
lower revenues for managing third party Communities in each of the years 1995
compared to 1996 and 1996 compared to 1997. The change in operating expenses was
a result of higher construction activity costs offset by lower costs of managing
the Communities in each of the years 1995 compared to 1996 and 1996 compared to
1997.
Total average third party apartment homes under management were 5,164, 7,919 and
10,927 during the years ended December 31, 1997, 1996 and 1995, respectively.
The decrease from 1996 to 1997 was primarily due to the termination of the
Management Company's contract to manage a portfolio of 1,422 apartment homes
effective December 31, 1996. The contract was terminated as a result of a change
in ownership of the apartment communities. The decrease from 1995 to 1996 was
primarily due to the termination of the Management Company's contract to manage
a portfolio of 4,050 apartment homes effective October 1, 1995. This contract
was terminated as a result of the owner's decision to provide its own property
management for these apartment homes.
20
21
Property management fees include $1.7 million, $2.3 million and $3.3 million of
fees from third parties for the years ended December 31, 1997, 1996 and 1995,
respectively. Property management fees from third parties as a percentage of
total property management revenues were 35.2%, 48.1% and 62.9% for the years
ended December 31, 1997, 1996 and 1995, respectively. The Company expects third
party management revenue as a percentage of total property management revenues
to continue to decline as revenues from the Company's Communities continue to
increase.
Construction Company revenues and expenses increased in 1997 compared to 1996
and in 1996 compared to 1995 primarily as a result of the Company's decision to
expand its in-house construction operations in the state of Florida to cover the
entire geographic area in which the Company operates. All of the Construction
Company's income for the years ended December 31, 1997, 1996 and 1995 is from
contracts with the Company, except for the contract to build Summit Plantation
in 1995. The Company owned a 25% interest in the Summit Plantation joint venture
during construction. The Construction Company is currently building 85.1% of the
Company's Communities under construction. It is the Company's intention to
increase this percentage over time in order to lower construction costs and
continuously improve the quality of its apartment communities.
OTHER INCOME AND EXPENSES
Interest income decreased by $166,000 to $392,000 in 1997 compared to 1996,
primarily due to interest earned in 1996 on the proceeds from the 1996 Offering
prior to using the proceeds to fund development activity.
Depreciation expense increased $4.4 million or 24.4% to $22.7 million in 1997
compared to 1996, primarily due to depreciation expense related to the Company's
1997 acquisitions and increased depreciation of Communities in lease-up.
Depreciation expense increased $3.1 million or 20.3% to $18.2 million in 1996
compared to 1995 due to an increase in depreciation expense related to the 1995
acquisitions and Communities in lease-up.
Interest expense increased $4.8 million, or 28.1%, in 1997 compared to 1996,
primarily due to financing the Company's 1997 acquisitions and the Communities
in lease-up. Interest expense increased $2.3 million, or 15.8%, to $17.1 million
in 1996 compared to 1995, primarily due to interest on debt related to the
Company's 1995 acquisitions and an increase in interest expense related to the
Communities in lease-up, partially offset by the Company's repayment of debt in
connection with the 1995 and 1996 Offerings. The 1995 and 1996 Offerings
together resulted in aggregate net proceeds of approximately $163.0 million.
Weighted average interest rates of all debt for the years ended December 31,
1997, 1996 and 1995 were 6.68%, 6.44% and 6.18%, respectively.
General and administrative expense increased in 1997 compared to 1996 as a
result of the Company's overall growth. The increase in 1996 compared to 1995
was primarily due to increased compensation costs and professional fees. The
increase in compensation in 1996 includes the cost of the Company's restricted
stock grants and the cost of the Company's employee stock purchase plan. As a
percentage of revenues, general and administrative expenses were 2.3%, 2.7% and
2.6% for the years ended December 31, 1997, 1996 and 1995, respectively.
The gain on sale of assets in 1997 resulted from the sale of a community
formerly known as Summit Charleston in May 1997.
The extraordinary items in 1996 and 1995 resulted primarily from the write-off
of deferred financing costs in conjunction with the repayment of debt with the
proceeds from the 1996 and 1995 Offerings and with the proceeds of the $31.0
million unsecured debt financing received in August 1996.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity
The Company's net cash provided by operating activities increased from $41.2
million for the year ended December 31, 1996 to $55.9 million for the same
period in 1997 primarily due to a $15.7 million increase in property operating
income, offset by a $1.5 million increase in interest cost paid.
21
22
Net cash used in investing activities increased from $104.0 million for the year
ended December 31, 1996 to $175.9 million for the same period in 1997 due to an
increase in the number of acquisition Communities, an increase in the
development of Communities and higher capital expenditures on existing
properties, partially offset by the proceeds from the sale of a Community.
Net cash provided by financing activities increased from $63.6 million for the
year ended December 31, 1996 to $119.9 million for the same period in 1997,
primarily due to an increase in net debt proceeds, partially offset by a
decrease in equity offering proceeds and by higher dividends and distributions
to unitholders.
The Company has elected to be taxed as a REIT under Sections 856 and 860 of the
Internal Revenue Code of 1986, as amended. REITs are subject to a number of
organizational and operational requirements, including a requirement that they
currently distribute 95% of their ordinary taxable income. As a REIT, the
Company generally will not be subject to federal income tax on net income.
The Company's outstanding indebtedness at December 31, 1997 totaled $474.7
million. This amount includes approximately $204.8 million in fixed rate
conventional mortgages, $52.9 million of variable rate tax-exempt bonds, $186.0
million of unsecured notes, $9.3 million of tax-exempt fixed rate loans, and
$21.7 million under the Unsecured Credit Facility (as hereinafter defined).
The Company expects to meet its short-term liquidity requirements (i.e.,
liquidity requirements arising within 12 months) generally through its net cash
provided by operations and borrowings under the Unsecured Credit Facility. The
Company believes that its net cash provided by operations will be adequate to
meet its operating requirements and to satisfy applicable REIT dividend payment
requirements in both the short-term and in the long-term. Improvements and
renovations at existing Communities are expected to also be funded from property
operations.
The Company expects to meet its long-term liquidity requirements (i.e.,
liquidity requirements arising after 12 months), such as current and future
developments, debt maturities, acquisitions, renovations and other non-recurring
capital expenditures, with borrowings under its Unsecured Credit Facility,
through the issuance of long-term secured and unsecured debt securities and
additional equity securities of the Company, or in connection with the
acquisition of land or improved property, through the issuance of Units of the
Operating Partnership.
Lines of Credit
The Company's working capital is primarily provided by operations and an
unsecured $150 million credit facility (the "Unsecured Credit Facility"). The
Unsecured Credit Facility has a three year term and currently bears interest at
the London Interbank Offered Rate ("LIBOR") + 110 basis points based upon the
Company's credit rating of BBB- by Standard & Poor's Rating Services. The
interest rate will be reduced in the event an upgrade of the Company's unsecured
credit rating as assigned by Standard & Poor's Rating Services (which rating
must be accompanied by the comparable senior unsecured bond rating from one of
Moody's Investors Service, Duff & Phelps or Fitch) is obtained.
The Company has a commitment for a new syndicated unsecured line of credit (the
"New Unsecured Credit Facility") in the amount of $175 million which will
replace the existing Unsecured Credit Facility. The New Unsecured Credit
Facility will provide funds for new development, acquisitions and general
working capital purposes and is expected to close in March 1998. The New
Unsecured Credit Facility will have a three year term with two one-year
extension options and will initially bear interest at LIBOR + 90 basis points
based upon the Company's current credit rating of BBB- by Standard & Poor's
Rating Services and Baa3 by Moody's Investors Service. The interest rate will be
reduced in the event an upgrade of the Company's unsecured credit rating is
obtained. The New Unsecured Credit Facility also provides a bid option
sub-facility equal to a maximum of fifty percent of the total facility ($87.5
million). This sub-facility provides the Company with the option to place
borrowings in a fixed LIBOR contract up to 180 days.
Senior Unsecured Debt Offerings
On August 12, 1997, the Company completed a $125 million senior unsecured debt
offering comprised of three tranches. The first tranche, $25 million of 6.80%
Notes due August 15, 2002, was priced at 99.940% to
22
23
yield 6.81%, or 73 basis points over the rate on U.S. Treasury securities with a
comparable maturity (the "2002 Notes"). The second tranche, $50 million of 6.95%
Notes due August 15, 2004, was priced at 99.764% to yield 6.99% or 81 basis
points over the rate on U.S. Treasury securities with a comparable maturity (the
"2004 Notes"). The third tranche, $50 million of 7.20% Notes due August 15,
2007, was priced at 99.830% to yield 7.22% or 104 basis points over the rate on
U.S. Treasury securities with a comparable maturity (the "2007 Notes" and,
together with the 2002 Notes and the 2004 Notes, the "August 1997 Notes"). The
proceeds from the August 1997 Notes were used to pay down the Unsecured Credit
Facility.
On December 17, 1997, the Company completed a $30 million senior unsecured debt
offering of 6.625% Notes due December 15, 2003. The Notes were priced at 99.786%
to yield 6.67%, or 95 basis points over the rate of U.S. Treasury securities
with a comparable maturity (the "December 1997 Notes"). The proceeds of the
December 1997 Notes were used to pay down the Unsecured Credit Facility.
In August 1996, the Company obtained $31.0 million of unsecured debt financing
from a bank consisting of a $15.0 million unsecured note with a four-year term
and a $16.0 million unsecured note with a six-year term, which bear interest at
7.61% and 7.85%, respectively.
Common Stock Offering
In August 1996, the Company completed the sale of an additional 5.75 million
shares of Common Stock with net proceeds of $97.6 million. Approximately $97.6
million of the aggregate proceeds from the issuance of Common Stock and the $31
million unsecured bank debt financing were utilized to fully repay the
outstanding balance under the Unsecured Credit Facility and development loans.
The remaining $30.9 million of the proceeds were used to fund current
development.
Dividend Reinvestment and Direct Stock Purchase Plan
In November 1997, the Company replaced its existing dividend reinvestment plan
with a new dividend reinvestment and direct stock purchase plan (the "Plan").
The Plan provides that shares of the Company's Common Stock can be purchased
directly from the Company at a discount from the market price (as defined in the
Plan document) without brokerage commissions or service charges. Purchases are
generally limited to the reinvestment of the Company's dividends and optional
cash purchases of $100 to $10,000 (or any greater amount approved by the
Company) per month. In December 1997, the Company received $6.5 million under
the Plan for shares issued January 2, 1998.
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Schedule of Debt
The following table sets forth certain information regarding debt financing as
of December 31, 1997 and 1996 (dollars in thousands):
PRINCIPAL OUTSTANDING
INTEREST DECEMBER 31,
RATE AS OF MATURITY ----------------------
DECEMBER 31, 1997 DATE(1) 1997 1996
----------------- -------- --------- ---------
FIXED RATE DEBT
MORTGAGE LOAN(2)(3)..................... 5.88% 2/15/01 $120,379 $122,950
MORTGAGE LOAN(2)(3)..................... 7.71% 12/15/05 29,214 29,653
MORTGAGE LOAN (4)....................... 8.00% 9/1/05 8,557 8,638
MORTGAGE NOTES
Summit Hollow I...................... 8.00% 11/1/18 2,243 2,286
Summit Hollow II..................... 7.75% 1/1/29 2,566 2,587
Summit Creekside..................... 8.00% 6/1/22 2,837 2,877
Summit Old Town...................... 8.00% 9/1/20 3,048 3,097
Summit Eastchester................... 8.00% 5/1/21 3,814 3,872
Summit Foxcroft...................... 8.00% 4/1/20 2,728 2,788
Summit Oak........................... 7.75% 12/1/23 2,553 2,585
Summit Sherwood...................... 7.88% 3/1/29 3,303 3,329
Summit Radbourne..................... 9.80% 3/1/02 8,599 8,683
Summit Sand Lake..................... 7.88% 2/15/06 14,985 --
TAX EXEMPT MORTGAGE NOTES
Summit Crossing...................... 6.95% 11/1/25 4,162 4,213
Summit East Ridge.................... 7.25% 12/1/26 5,100 5,156
-------- --------
TOTAL MORTGAGE DEBT............. 214,088 202,714
-------- --------
UNSECURED NOTES
6.80% Notes due 2002................. 6.80% 8/15/02 25,000 --
6.63% Notes due 2003................. 6.63% 12/15/03 30,000 --
6.95% Notes due 2004................. 6.95% 8/15/04 50,000 --
7.20% Notes due 2007................. 7.20% 8/15/07 50,000 --
Bank Note............................ 7.85% 8/3/02 16,000 16,000
Bank Note............................ 7.61% 8/3/00 15,000 15,000
-------- --------
TOTAL UNSECURED NOTES........... 186,000 31,000
-------- --------
TOTAL FIXED RATE DEBT........... 400,088 233,714
VARIABLE RATE DEBT
UNSECURED CREDIT FACILITY............... LIBOR + 110 9/30/99 21,733 22,357
TAX EXEMPT BONDS(5)
Summit Belmont....................... 5.65% 4/1/07 11,650 11,850
Summit Hampton....................... 5.65% 6/1/07 12,490 12,700
Summit Pike Creek.................... 5.65% 8/15/20 13,022 13,262
Summit Gateway....................... 5.65% 7/1/07 7,100 7,300
Summit Stony Point................... 5.65% 4/1/29 8,590 8,750
-------- --------
TOTAL TAX EXEMPT BONDS............. 52,852 53,862
-------- --------
TOTAL VARIABLE RATE DEBT........... 74,585 76,219
-------- --------
TOTAL OUTSTANDING INDEBTEDNESS................................. $474,673 $309,933
======== ========
(1) With the exception of the Mortgage Loans referred to in Note 3 below, all
the secured debt can be prepaid at any time. Prepayment of such debt is
generally subject to penalty or premium; however, the tax exempt mortgage
notes can be prepaid at any time without penalty or premium.
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25
(2) Mortgage Loan secured by the following Communities:
Summit Glen Summit Blue Ash Summit Heron's Run
Summit Springs Summit Square Summit Perico
Summit Village Summit Waterford Summit Providence
Summit Highland Summit Del Ray Summit Meadow
Summit Norcroft Summit Palm Lake Summit Windsor I
(3) The Company may elect to extend the maturity of these Mortgage Loans for a
period of up to two years by providing six months' written notice. These
Mortgage Loans generally may not be prepaid in whole or in part during their
original term, but may be prepaid in whole or in part at any time during
applicable extension periods, if any, with premium or penalty.
(4) Mortgage Loan secured by Summit Simsbury and Summit Touchstone Communities.
(5) 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 financial institutions (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 LIBOR rate at December 31, 1997 was 5.69%.
The Company's outstanding indebtedness had an average maturity of 8.0 years as
of December 31, 1997. The aggregate maturities of all outstanding debt as of
December 31, 1997 for each of the years ended after December 31, 1997 are as
follows (in thousands):
1998........................................................ $ 5,208
1999........................................................ 27,270
2000........................................................ 20,855
2001........................................................ 114,648
2002........................................................ 52,249
Thereafter.................................................. 254,443
--------
$474,673
========
Of the significant maturities in the above table, $21.7 million relates to the
expiration of the Unsecured Credit Facility in 1999; $15.0 million and $16.0
million relate to the unsecured bank notes that mature in 2000 and 2002,
respectively; $111.4 million relates to a mortgage loan balloon payment in 2001;
and $25 million relates to unsecured notes due in 2002.
ACQUISITIONS AND DISPOSITION
On January 6, 1997, the Company purchased Summit Portofino (formerly Portofino
Place), a 322 apartment community located in Broward County, Florida. Summit
Portofino, built in 1995, was purchased for $28.0 million in cash. Concurrently
with the purchase, the Company sold 315,029 shares of Common Stock to the public
for cash to fund a portion of the purchase.
On January 15, 1997, the Company purchased Summit Mayfaire (formerly The
Mayfaire), a 144 apartment community located in Raleigh, North Carolina. Summit
Mayfaire, built in 1995, was purchased for $9.65 million in cash.
On February 20, 1997, the Company purchased Summit Sand Lake (formerly The
Vining at Sand Lake), a 416 apartment community located in Orlando, Florida.
Summit Sand Lake, built in 1995, was purchased for $26.8 million. The Company
issued to the sellers 243,608 shares of Common Stock and 194,495 Units, assumed
$15.2 million in debt and paid the remaining $2.7 million balance in cash.
25
26
On July 18, 1997, the Company purchased Summit Windsor II (formerly Avalon
Farms), a 306 apartment community located in Frederick, Maryland. Summit Windsor
II, which was developed by a predecessor entity of the Company in 1988, was
purchased for $17.1 million in cash. The Summit Windsor II purchase was
partially funded by the proceeds from the sale of the Summit Charleston
Community in May 1997. Summit Charleston was sold for $9.5 million and a gain on
the sale of approximately $4.4 million was recognized.
On December 31, 1997, the Company purchased Summit Fair Oaks (formerly Fair Oaks
Gables), a 246 apartment community located in Fairfax, Virginia. Summit Fair
Oaks, built in 1990, was purchased for $21.2 million in cash.
Effective March 1, 1998, the Company purchased Summit St. Clair, a 336 apartment
community located in Atlanta, Georgia. Summit St. Clair completed construction
in 1997 and reached rental stabilization prior to purchase. The total purchase
price was approximately $26.3 million.
DEVELOPMENT ACTIVITY
The Company's developments in process at December 31, 1997 are summarized as
follows (dollars in thousands):
TOTAL ESTIMATED ANTICIPATED
APARTMENT ESTIMATED COST TO COST TO CONSTRUCTION
COMMUNITY HOMES COSTS DATE COMPLETE COMPLETION
- --------------------------------------------- --------- --------- ------- --------- ------------
Summit Stonefield -- Yardley, PA............. 216 $ 19,640 $18,324 $ 1,316 Q1 1998
Summit Lake I -- Raleigh, NC................. 302 19,700 17,380 2,320 Q2 1998
Summit Ballantyne II -- Charlotte, NC........ 154 10,100 2,792 7,308 Q3 1998
Summit Sedgebrook II -- Charlotte, NC........ 120 7,500 963 6,537 Q3 1998
Summit Doral -- Miami, Florida............... 192 17,000 3,186 13,814 Q1 1999
Summit Fair Lakes I -- Fairfax, VA........... 370 32,900 12,458 20,442 Q1 1999
Summit Governor's Village -- Chapel Hill,
NC......................................... 242 16,400 3,696 12,704 Q1 1999
Summit New Albany I -- Columbus, OH.......... 301 22,600 10,223 12,377 Q1 1999
Summit Westwood -- Raleigh, NC............... 354 24,400 3,016 21,384 Q2 1999
Other development and construction costs..... -- -- 10,294 --
--------- -------- ------- -------
2,251 $170,240 $82,332 $98,202
========= ======== ======= =======
Estimated cost to complete the development Communities represents substantially
all of the Company's material commitments for capital expenditures at December
31, 1997.
Certain Factors Affecting the Performance of Development Communities
The Company is optimistic about the operating prospects of the Communities under
construction even with the increased supply of newly constructed apartment homes
of comparable quality in many of its markets. As with any development Community,
there are uncertainties and risks associated with the development of the
Communities described above. While the Company has prepared development budgets
and has estimated completion and stabilization target dates based on what it
believes are reasonable assumptions in light of current conditions, there can be
no assurance that actual costs will not exceed current budgets or that the
Company will not experience construction delays due to the unavailability of
materials, weather conditions or other events.
Other development risks include the possibility of incurring additional cost or
liability resulting from defects in construction materials 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
Company is conducting feasibility and other pre-development work for eleven
communities. The Company could abandon the development of any one or more of
these potential Communities in the event that it determines that market
conditions do not support development, financing is not available on favorable
terms or other circumstances prevent
26
27
development. Similarly, there can be no assurance that if the Company does
pursue one or more of these potential Communities that it will be able to
complete construction within the currently estimated development budgets or that
construction can be started at the time currently anticipated.
CAPITALIZATION OF FIXED ASSETS AND PROPERTY IMPROVEMENTS
The Company has established a policy of capitalizing those expenditures relating
to acquiring new assets, materially enhancing the value of an existing asset, or
substantially extending the useful life of an existing asset. All expenditures
necessary to maintain a Community in ordinary operating condition (including
replacement carpets) are expensed as incurred.
The Company has a capital expenditure replacement program whereby various
physical components are replaced as to maintain the Communities in normal
operating condition. Certain physical components may be replaced other than at
regular inspection intervals when extraordinary wear has occurred. The Company
also makes capital expenditures for new physical components if these
expenditures will produce sufficient revenue enhancements as to achieve
acceptable returns on invested capital. There are currently no material
commitments relative to renovation or improvements at existing facilities.
Capitalized expenditures for the years ended December 31, 1997, 1996 and 1995
are summarized as follows (dollars in thousands):
YEAR ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
-------- -------- --------
Acquisition of Communities(1).............................. $104,469 $ 21,913 $ 82,935
Construction of Communities(2)............................. 95,909 88,064 58,104
Capitalized interest....................................... 5,873 4,266 3,110
Non-recurring capital expenditures......................... 4,653 2,973 864
Recurring capital expenditures:
Exterior painting........................................ 1,556 1,131 810
Other.................................................... 3,030 2,160 1,370
-------- -------- --------
Total recurring capital expenditures............. 4,586 3,291 2,180
-------- -------- --------
$215,490 $120,507 $147,193
======== ======== ========
(1) Includes the assumption of $15.2 million, $14.3 million and $52.6 million of
debt in 1997, 1996 and 1995, respectively. Includes the issuance of Units of
the Operating Partnership and shares of Common Stock with a value of $8.9
million in 1997. In addition, includes conversion of equity investment into
fixed assets of $1.2 million in conjunction with the purchase of Summit
Plantation in 1996 and the issuance of 1.5 million Units of the Operating
Partnership with a value of $26.2 million in 1995.
(2) Includes the issuance of $2.1 million and $896,000 of Units in the Operating
Partnership for the acquisition of land in 1996 and 1995, respectively.
Construction of Communities was funded primarily by development loans, equity
offering proceeds and borrowings under the credit facilities. Other additions
and improvements were funded primarily by Community operations and the credit
facilities.
INFLATION
Substantially all of the leases at the Communities are for a term of one year or
less, which, coupled with the relatively high occupancy rates, may enable the
Company to seek increased rents upon renewal of existing leases or commencement
of new leases. The short-term nature of these leases generally serves to reduce
the risk to the Company of the adverse effect of inflation.
27
28
YEAR 2000
The Year 2000 compliance issue concerns the inability of computerized
information systems to accurately calculate, store or use a date after 1999.
This could result in a system failure or miscalculations causing disruptions of
operations.
The Company's primary uses of software systems are its corporate accounting and
property on site software. The Company's corporate accounting system is widely
used in the real estate industry. A version upgrade, scheduled to be installed
in the second quarter of 1998, is designed to be Year 2000 compliant. The
Company is replacing its current property on site software with a new software
system designed to be Year 2000 compliant. This new software is also widely used
in the real estate industry. The implementation of the new on site software
system started in the first quarter of 1998 and is expected to be completed by
the fourth quarter of 1998. Both the corporate accounting system upgrade and the
new property on site system were planned changes that would have been done
regardless of Year 2000 compliance issues. The Company believes that the risk of
Year 2000 compliance issues having a material impact on its operations is not
significant. The primary cost of Year 2000 compliance will be the cost of the
new property on site software installation which is estimated to be
approximately $300,000. However, if the Company's efforts to upgrade its
corporate accounting software and to replace its current property on site
software are not completed on time, or if the costs associated therewith exceed
the Company's current estimates, the Year 2000 issue could have a material
impact on the Company's ability to meet its financial and reporting requirements
and/or on its financial results. Further, no estimates can be made as to any
potential adverse impact resulting from the failure of residents or third-party
service providers and vendors to prepare for the Year 2000. The cost and timing
of third-party Year 2000 compliance is not within the Company's control and no
assurances can be given with respect to the cost or timing of such efforts or
the potential effects of any failure to comply.
FUNDS FROM OPERATIONS
The White Paper on Funds from Operations approved by the Board of Governors of
NAREIT in March 1995 defines Funds from Operations as net income (loss)
(computed in accordance with generally accepted accounting principles ("GAAP"),
excluding gains (or losses) from debt restructuring and sales of property, plus
real estate related depreciation and amortization and after adjustments for
unconsolidated partnerships and joint ventures. The Company computes Funds from
Operations in accordance with the standards established by the White Paper,
which may differ from the methodology for calculating Funds from Operations
utilized by other equity REITs, and, accordingly, may not be comparable to such
other REITs. Funds Available for Distribution is defined as Funds from
Operations less capital expenditures funded by operations. The Company's
methodology for calculating Funds Available for Distribution may differ from the
methodology for calculating Funds Available for Distribution utilized by other
REITs, and accordingly, may not be comparable to other REITs. Funds from
Operations and Funds Available for Distribution do not represent amounts
available for management's discretionary use because of needed capital
replacement or expansion, debt service obligations, property acquisitions,
development, dividends and distributions or other commitments and uncertainties.
Funds from Operations and Funds Available for Distribution should not be
considered as alternatives to net income (determined in accordance with GAAP) as
an indication of the Company's financial performance or to cash flows from
operating activities (determined in accordance with GAAP) as a measure of the
Company's liquidity, nor are they indicative of funds available to fund the
Company's cash needs, including its ability to make dividends/distributions. The
Company believes Funds from Operations and Funds Available for Distribution are
helpful to investors as measures of the performance of the Company because,
along with cash flows from operating activities, financing activities and
investing activities, they provide investors with an understanding of the
ability of the Company to incur and service debt and make capital expenditures.
28
29
Funds from Operations and Funds Available for Distribution are calculated as
follows (dollars in thousands):
1997 1996 1995
----------- ----------- -----------
Net income............................................ $ 27,116 $ 16,948 $ 11,819
Extraordinary items, net of minority interest......... -- 516 439
Minority interest of Unitholders in Operating
Partnership......................................... 4,818 3,723 2,793
Net gain on sale of assets............................ (4,366)
----------- ----------- -----------
Adjusted net income................................. 27,568 21,187 15,051
Depreciation:
Real estate assets.................................. 22,633 18,171 15,021
Summit Plantation................................... -- 33 76
----------- ----------- -----------
Funds from Operations................................. 50,201 39,391 30,148
Recurring capital expenditures(1)(3)................ (4,586) (3,291) (2,180)
----------- ----------- -----------
Funds Available for Distribution...................... $ 45,615 $ 36,100 $ 27,968
=========== =========== ===========
Non-recurring capital expenditures(2)(3).............. $ 4,653 $ 2,973 $ 864
=========== =========== ===========
Cash Flow Provided By (Used In):
Operating Activities................................ $ 55,947 $ 41,176 $ 30,994
Investing Activities................................ (175,907) (103,971) (63,734)
Financing Activities................................ 119,858 63,579 34,440
Weighted average shares outstanding -- basic.......... 23,145,881 18,887,744 14,749,682
=========== =========== ===========
Weighted average shares and units
outstanding -- basic................................ 27,257,637 22,914,068 18,112,009
=========== =========== ===========
Weighted average shares outstanding -- diluted........ 23,182,302 18,914,674 14,754,337
=========== =========== ===========
Weighted average shares and units
outstanding -- diluted.............................. 27,294,058 22,940,998 18,116,664
=========== =========== ===========
(1) Recurring capital expenditures include exterior paint in the amount of $1.6
million, $1.1 million and $810,000 in 1997, 1996 and 1995, respectively.
(2) Non-recurring capital expenditures include major renovations, primarily at
eight Communities, in the amount of $4.0 million in 1997 and $1.7 million in
1996; additional garages in the amount of $250,000, $578,000 and $153,000 in
1997, 1996 and 1995, respectively; and access gates, water meters and
washer/dryers of $395,000 in 1997 and $413,000 in 1996. In addition, 1995
included $706,000 of improvements at acquisition Communities.
(3) Recurring capital expenditures are expected to be funded from operations and
consist primarily of exterior painting, 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 therefore are not included in the calculation of
Funds Available for Distribution.
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 36 of this
Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
29
30
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
Incorporated herein by reference to the Company's definitive proxy statement to
be filed with the Securities and Exchange Commission within 120 days after the
end of the year covered by this Form 10-K with respect to its Annual Meeting of
Stockholders to be held on May 12, 1998.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated herein by reference to the Company's definitive proxy statement to
be filed with the Securities and Exchange Commission within 120 days after the
end of the year covered by this Form 10-K with respect to its Annual Meeting of
Stockholders to be held on May 12, 1998.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
Incorporated herein by reference to the Company's definitive proxy statement to
be filed with the Securities and Exchange Commission within 120 days after the
end of the year covered by this Form 10-K with respect to its Annual Meeting of
Stockholders to be held on May 12, 1998.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated herein by reference to the Company's definitive proxy statement to
be filed with the Securities and Exchange Commission within 120 days after the
end of the year covered by this Form 10-K with respect to its Annual Meeting of
Stockholders to be held on May 12, 1998.
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31
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial Statements and Financial Statement Schedule
The consolidated financial statements and financial statement schedule of the
Company are listed in the Index to Financial Statements and Supplementary Data
on page 36 of this Report.
(b) Reports on Form 8-K
On December 16, 1997, the Company filed a Current Report on Form 8-K relating to
the Operating Partnership's $30 million senior unsecured debt offering
underwritten by J.P. Morgan & Co., and a Form 8-K/A-1 was filed on December 17,
1997 to amend such Form 8-K to include certain definitive exhibits.
(c) Exhibits
As noted below, certain of the exhibits required by Item 601 of Regulation S-K
have been filed with previous reports by the Company and are incorporated by
reference herein.
EXHIBIT NO. DESCRIPTION
- ----------- -----------
3.1 Articles of Incorporation of the Company. (Incorporated by
reference to Exhibit 3.1 to the Company's Registration
Statement on Form S-11, Registration No. 33-90706).
3.2 Bylaws of the Company. (Incorporated by reference to Exhibit
3.2 to the Company's Registration Statement on Form S-11,
Registration No. 33-90706).
4.1 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).
4.2 Supplemental Indenture No. 1, dated as of August 12, 1997
between the Operating Partnership and First Union National
Bank. (Incorporated by reference to Exhibit 4.1 to the
Operating Partnership's Amended Current Report on Form
8-K/A-1 filed on August 18, 1997, File No. 000-22411).
4.3 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).
4.4 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).
4.5 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).
4.6 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).
4.7 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).
10.1.1 Agreement of Limited Partnership of the Operating
Partnership, as amended. (Incorporated by reference to
Exhibit 3.1 to the Operating Partnership's Registration
Statement on Form 10, dated April 21, 1997, filed pursuant
to the Securities Exchange Act of 1934, as amended, File No.
000-22411).
10.1.2 Tenth Amendment to the Agreement of Limited Partnership of
the Operating Partnership. (Incorporated by reference to
Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q
for the fiscal quarter ended June 30, 1997, File No.
001-12792).
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32
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.2 Articles of Incorporation of Summit Management Company.
(Incorporated by reference to Exhibit 10.3 to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1993, File No. 001-12792).
10.3 Bylaws of Summit Management Company. (Incorporated by
reference to Exhibit 10.4 to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1993, File
No. 001-12792).
10.4 Summit Properties Inc. 1994 Stock Option and Incentive Plan.
(Incorporated by reference to Exhibit 10.6 to the Company's
Registration Statement on Form S-11, Registration No. 33-
90706).
10.5 Summit Properties Inc. 1996 Non-Qualified Employee Stock
Purchase Plan. (Incorporated by reference to Exhibit 10.5 to
the Company's Registration Statement on Form S-8,
Registration No. 333-00078).
10.6 Indemnification Agreement, dated January 29, 1994, among the
Company, the Operating Partnership and the individuals named
therein. (Incorporated by reference to Exhibit 10.16 to the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1993, File No. 001-12792).
10.7.1 Employment Agreement between the Company and William F.
Paulsen (filed herewith).
10.7.2 Employment Agreement between the Company and William B.
McGuire, Jr. (filed herewith).
10.7.3 Employment Agreement between the Company and Raymond V.
Jones (filed herewith).
10.7.4 Employment Agreement between the David F. Tufaro (filed
herewith).
10.7.5 Employment Agreement between the Company and John C. Moore
(filed herewith).
10.7.6 Employment Agreement between the Company and Michael G.
Malone (filed herewith).
10.7.7 Employment Agreement between the Company and Keith L.
Downey. (Incorporated by reference to Exhibit 10.12.4 to the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1993, File No. 001-12792).
10.7.8 Employment Agreement between the Company and Christopher A.
Hughes. (Incorporated by reference to Exhibit 10.12.3 to the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1993, File No. 001-12792).
10.7.9 Employment Agreement between the Company and William B.
Hamilton (filed herewith).
10.7.10 Employment Agreement between the Company and Michael L.
Schwarz (filed herewith).
10.8.1 Noncompetition Agreement between the Company and William F.
Paulsen (filed herewith).
10.8.2 Noncompetition Agreement between the Company and William B.
McGuire, Jr. (filed herewith).
10.8.3 Noncompetition Agreement between the Company and Raymond V.
Jones (filed herewith).
10.8.4 Noncompetition Agreement between the Company and Keith H.
Kuhlman (filed herewith).
10.8.5 Noncompetition Agreement between the Company and David F.
Tufaro (filed herewith).
10.8.6 Noncompetition Agreement between the Company and John T.
Gray (filed herewith).
10.8.7 Noncompetition Agreement between the Company and John C.
Moore (filed herewith).
10.8.8 Noncompetition Agreement between the Company and Michael G.
Malone (filed herewith).
10.8.9 Noncompetition Agreement between the Company and William B.
Hamilton (filed herewith).
10.8.10 Noncompetition Agreement between the Company and Michael L.
Schwarz (filed herewith).
10.9.1 Executive Severance Agreement between the Company and
William F. Paulsen (filed herewith).
10.9.2 Executive Severance Agreement between the Company and
William B. McGuire, Jr. (filed herewith).
10.9.3 Executive Severance Agreement between the Company and
Michael L. Schwarz (filed herewith).
10.9.4 Executive Severance Agreement between the Company and
Raymond V. Jones (filed herewith).
32
33
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.9.5 Executive Severance Agreement between the Company and
William B. Hamilton (filed herewith).
10.10 $2,500,000 Promissory Note, dated February 15, 1994 and
maturing on February 15, 2004, between Summit Management
Company and Old Summit Management Company. (Incorporated by
reference to Exhibit 10.17 to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1993, File
No. 001-12792).
10.11.1 $125,000,000 Promissory Note, dated February 15, 1994 and
maturing on February 15, 2001, between the Company and The
Northwestern Mutual Life Insurance Company. (Incorporated by
reference to Exhibit 10.18.1 to the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1993,
File No. 001-12792).
10.11.2 Mortgage and Security Agreement and Financing Statement,
dated February 15, 1994, between the Company and The
Northwestern Mutual Life Insurance Company. (Incorporated by
reference to Exhibit 10.18.2 to the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1993,
File No. 001-12792).
10.11.3 $30,000,000 Promissory Note, dated December 21, 1995 between
the Operating Partnership and The Northwestern Mutual Life
Insurance Company (filed herewith).
10.12 $31,000,000 Loan Agreement, dated July 31, 1996, between the
Operating Partnership and Wachovia Bank of North Carolina,
N.A. (Incorporated by reference to Exhibit 10.34 to the
Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended September 30, 1996, File No. 001-12792).
10.13.1 $150,000,000 Credit Agreement, dated November 18, 1996,
among the Operating Partnership, First Union National Bank
of North Carolina and Wachovia Bank of North Carolina, N.A.
(Incorporated by reference to Exhibit 10.35 to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1996, file No. 001-12792).
10.13.2 First Amendment to $150,000,000 Credit Agreement dated July
24, 1997, among the Operating Partnership, First Union
National Bank of North Carolina and Wachovia Bank of North
Carolina, N.A. (Incorporated by reference to the Operating
Partnership's Quarterly Report on Form 10-Q for the fiscal
quarter ended September 30, 1997, File No. 000-22411).
10.14.1 Promissory Note and Security Agreement, dated January 28,
1998 between the Company and Michael L. Schwarz (filed
herewith).
10.14.2 Promissory Note and Security Agreement, dated January 28,
1998 between the Company and William B. Hamilton (filed
herewith).
10.14.3 Form of Promissory Note and Security Agreement between the
Company and the employees named in the Schedule thereto
(filed herewith).
10.15.1 Registration Rights Agreement, dated October 12, 1994
between the Company and PK Partners, L.P. (filed herewith).
10.15.2 Registration Rights Agreement, dated February 8, 1994,
between the Company and the Continuing Investors named
therein. (Incorporated by reference to Exhibit 10.2 to the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1993, File No. 001-12792).
10.15.3 Registration Rights Agreement, dated December 11, 1995,
between the Company and Bissell Ballantyne, LLC.
(Incorporated by reference to Exhibit 10.2 to the Company's
Registration Statement on Form S-3, Registration No.
333-24669).
10.15.4 Registration Rights Agreement, dated January 10, 1996, among
the Company, Joseph H. Call and Gary S. Cangelosi.
(Incorporated by reference to Exhibit 10.2 to the Company's
Registration Statement on Form S-3, Registration No.
333-24669).
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34
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.15.5 Registration Rights Agreement, dated February 20, 1997,
among the Company, The Northwestern Mutual Life Insurance
Company, J. Ronald Terwilliger, J. Ronald Terwilliger
Grantor Trust, Crow Residential Realty Investors, L.P.,
Douglas A. Hoeksema, Randy J. Pace, Clifford A. Breining,
TCF Residential Partnership, Ltd. and Trammell S. Crow.
(Incorporated by reference to Exhibit 10.2 to the Company's
Registration Statement on Form, Registration No. 333-24669).
10.15.6 Registration Rights Agreement, dated May 16, 1995, between
the Company and the individuals named therein executed in
connection with the Crosland Acquisition (filed herewith).
10.16 Agreement to Contribute, dated February 13, 1995, between
the Company, the Operating Partnership and Crosland
Partnerships. (Incorporated by reference to Exhibit 2.1 to
the Company's Current Report on Form 8-K dated May 16, 1995,
File No. 001-12792).
12.1 Statement Regarding Calculation of Ratios of Earnings to
Fixed Charges for the Years Ended December 31, 1997, 1996,
1995, 1994 and 1993 (filed herewith).
21.1 Subsidiaries of the Company (filed herewith).
23.1 Consent of Deloitte & Touche LLP. (Included in the
Independent Auditors' Report dated January 21, 1998 on page
37 of this Annual Report on Form 10-K for the fiscal year
ended December 31, 1997 File No. 001-12792).
27 Financial Data Schedule (filed herewith).
34
35
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, Summit Properties Inc. certifies that it has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized,
in Charlotte, North Carolina on March 16, 1998.
SUMMIT PROPERTIES INC.
/s/ WILLIAM F. PAULSEN
--------------------------------------
William F. Paulsen,
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons in the capacities and on the dates
indicated.
SIGNATURES TITLE DATE
---------- ----- ----
/s/ WILLIAM B. MCGUIRE, JR. Chairman of the Board of March 16, 1998
- ----------------------------------------------------- Directors
William B. McGuire, Jr.
/s/ WILLIAM F. PAULSEN President, Chief Executive March 16, 1998
- ----------------------------------------------------- Officer and Director
William F. Paulsen (Principal Executive
Officer)
/s/ MICHAEL L. SCHWARZ Chief Financial Officer March 16, 1998
- ----------------------------------------------------- (Principal Financial
Michael L. Schwarz Officer and Principal
Accounting Officer)
/s/ JOHN CROSLAND, JR. Director March 16, 1998
- -----------------------------------------------------
John Crosland, Jr.
/s/ HENRY H. FISHKIND Director March 16, 1998
- -----------------------------------------------------
Henry H. Fishkind
/s/ JAMES H. HANCE, JR. Director March 16, 1998
- -----------------------------------------------------
James H. Hance, Jr.
/s/ NELSON SCHWAB, III Director March 16, 1998
- -----------------------------------------------------
Nelson Schwab, III
35
36
INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following financial statements of the Company required to be included in
Item 14(a)(1) are listed below:
SUMMIT PROPERTIES INC.
PAGE
----
Independent Auditors' Report................................ 37
Consolidated Balance Sheets as of December 31, 1997 and
1996...................................................... 38
Consolidated Statements of Earnings for the Years Ended
December 31, 1997, 1996 and 1995.......................... 39
Consolidated Statements of Stockholders' Equity for the
Years Ended December 31, 1997, 1996 and 1995.............. 40
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997, 1996 and 1995.......................... 41
Notes to Consolidated Financial Statements.................. 42
The following financial statement supplementary data of the
Company required to be included in Item 14(a)(2) is listed
below:
Schedule III -- Real Estate and Accumulated Depreciation.... 54
All other schedules are omitted because they are not applicable or not required.
36
37
INDEPENDENT AUDITORS' REPORT
Board of Directors
Summit Properties Inc.
Charlotte, North Carolina
We have audited the accompanying consolidated balance sheets of Summit
Properties Inc. as of December 31, 1997 and 1996, and the related consolidated
statements of earnings, stockholders' equity, and cash flows for each of the
three years in the period ended December 31, 1997. Our audits also included the
financial statement schedule listed in the Index at Item 14. These financial
statements and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of December 31, 1997
and 1996, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles. Also, in our opinion, such financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.
We consent to the incorporation by reference of the above report in Registration
Statement Nos. 33-90704, 33-24669, 33-93540, 333-25575, and 333-38369 on Form
S-3, and Registration Statement Nos. 33-88202 and 333-78 on Form S-8 of Summit
Properties Inc.
DELOITTE & TOUCHE LLP
Charlotte, North Carolina
January 21, 1998
(March 6, 1998 as to Note 7)
37
38
SUMMIT PROPERTIES INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
DECEMBER 31,
--------------------
1997 1996
-------- --------
ASSETS
Real estate assets:
Land and land improvements................................ $133,316 $102,605
Buildings and improvements................................ 643,812 472,996
Furniture, fixtures and equipment......................... 53,573 43,021
-------- --------
830,701 618,622
Less: accumulated depreciation............................ (105,979) (85,651)
-------- --------
Operating real estate assets...................... 724,722 532,971
Construction in progress.................................. 82,332 86,157
-------- --------
Net real estate assets............................ 807,054 619,128
Cash and cash equivalents................................... 3,563 3,665
Restricted cash............................................. 3,180 4,121
Investment in Summit Management Company..................... 1,212 687
Deferred financing costs, net of accumulated amortization of
$3,495 and $2,441 in 1997 and 1996, respectively.......... 7,378 4,675
Other assets................................................ 2,906 2,715
-------- --------
Total assets................................................ $825,293 $634,991
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Notes payable............................................. $474,673 $309,933
Accrued interest payable.................................. 4,916 1,318
Accounts payable and accrued expenses..................... 19,945 7,257
Dividends and distributions payable....................... 11,030 10,244
Security deposits and prepaid rents....................... 3,561 3,196
-------- --------
Total liabilities................................. 514,125 331,948
-------- --------
Commitments and contingencies
Minority interest........................................... 45,329 45,829
Stockholders' equity:
Common stock, $.01 par value -- 100,000,000 authorized,
23,411,086 and 22,409,638 shares issued and outstanding
in 1997 and 1996, respectively......................... 234 224
Additional paid-in capital................................ 361,731 342,872
Accumulated deficit....................................... (95,120) (85,068)
Unamortized restricted stock compensation................. (1,006) (814)
-------- --------
Total stockholders' equity........................ 265,839 257,214
-------- --------
Total liabilities and stockholders' equity.................. $825,293 $634,991
======== ========
See notes to consolidated financial statements.
38
39
SUMMIT PROPERTIES INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
YEARS ENDED DECEMBER 31,
-----------------------------------------
1997 1996 1995
----------- ----------- -----------
Revenues:
Rental............................................ $ 109,827 $ 88,864 $ 70,773
Other property income............................. 6,179 4,683 3,356
Interest.......................................... 392 558 461
Other income...................................... 279 384 404
----------- ----------- -----------
Total revenues............................ 116,677 94,489 74,994
----------- ----------- -----------
Expenses:
Property operating and maintenance:
Personnel...................................... 9,278 8,368 6,640
Advertising and promotion...................... 2,095 1,417 698
Utilities...................................... 5,033 4,115 3,432
Building repairs and maintenance............... 8,790 7,547 6,116
Real estate taxes and insurance................ 10,721 8,823 6,965
Depreciation................................... 22,652 18,208 15,141
Property supervision........................... 2,783 2,240 1,848
Other operating expenses....................... 3,332 2,716 2,313
----------- ----------- -----------
64,684 53,434 43,153
Interest.......................................... 21,959 17,138 14,802
General and administrative........................ 2,740 2,557 1,949
Loss (income) on equity investments:
Summit Management Company...................... (274) 173 80
Real estate joint venture...................... -- -- (41)
----------- ----------- -----------
Total expenses............................ 89,109 73,302 59,943
----------- ----------- -----------
Income before gain on sale of real estate assets,
minority interest of unitholders in Operating
Partnership and extraordinary items............... 27,568 21,187 15,051
Gain on sale of real estate assets................ 4,366 -- --
----------- ----------- -----------
Income before minority interest of unitholders in
Operating Partnership and extraordinary items..... 31,934 21,187 15,051
Minority interest of unitholders in Operating
Partnership....................................... (4,818) (3,723) (2,793)
----------- ----------- -----------
Income before extraordinary items................... 27,116 17,464 12,258
Extraordinary items, net of minority interest of
unitholders in Operating Partnership.............. -- (516) (439)
----------- ----------- -----------
Net income.......................................... $ 27,116 $ 16,948 $ 11,819
=========== =========== ===========
Per share data:
Income before extraordinary items -- basic and
diluted........................................ $ 1.17 $ 0.92 $ 0.83
=========== =========== ===========
Net income -- basic and diluted................... $ 1.17 $ 0.90 $ 0.80
=========== =========== ===========
Dividends declared................................ $ 1.59 $ 1.55 $ 1.51
=========== =========== ===========
Weighted average shares -- basic.................. 23,145,881 18,887,744 14,749,682
=========== =========== ===========
Weighted average shares -- diluted................ 23,182,302 18,914,674 14,754,337
=========== =========== ===========
See notes to consolidated financial statements.
39
40
SUMMIT PROPERTIES INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
UNAMORTIZED
ADDITIONAL RESTRICTED
COMMON PAID IN ACCUMULATED STOCK
STOCK CAPITAL DEFICIT COMPENSATION TOTAL
------- ----------- ------------ ------------ ---------------
Balance, January 1, 1995............. $ 124 $ 175,670 $ (60,269) $ 115,525
Dividends.......................... -- -- (23,325) (23,325)
Proceeds of public offering, net of
underwriting discount and
offering costs.................. 40 65,897 -- 65,937
Proceeds from dividend plan........ -- 240 -- 240
Conversion of units to shares...... 1 1,013 -- 1,014
Issuance of stock grants........... -- 28 -- 28
Adjustment for minority interest of
unitholders in Operating
Partnership..................... -- 4,216 -- 4,216
Net income......................... -- -- 11,819 11,819
------- ----------- ------------ ------------ ---------------
Balance, December 31, 1995........... 165 247,064 (71,775) 175,454
Dividends.......................... -- -- (30,241) (30,241)
Proceeds of public offering, net of
underwriting discount and
offering costs.................. 58 97,576 -- 97,634
Proceeds from dividend and stock
purchase plans.................. -- 1,597 -- 1,597
Conversion of units to shares...... -- 167 -- 167
Exercise of stock options.......... -- 287 -- 287
Issuance of restricted stock
grants.......................... 1 1,015 -- $ (1,016) --
Amortization of restricted stock
grants.......................... -- -- -- 202 202
Adjustment for minority interest of
unitholders in Operating
Partnership..................... -- (4,834) -- -- (4,834)
Net income......................... -- -- 16,948 -- 16,948
------- ----------- ------------ ------------ ---------------
Balance, December 31, 1996........... 224 342,872 (85,068) (814) 257,214
Dividends.......................... -- -- (37,168) -- (37,168)
Issuance of stock.................. 6 11,740 -- -- 11,746
Costs of shelf registrations....... -- (616) -- -- (616)
Proceeds from dividend and stock
purchase plans.................. 2 3,605 -- -- 3,607
Conversion of units to shares...... 2 3,911 -- 3,913
Exercise of stock options.......... -- 851 -- 851
Issuance of restricted stock
grants.......................... 546 -- (546) --
Amortization of restricted stock
grants.......................... -- -- -- 354 354
Adjustment for minority interest of
unitholders in Operating
Partnership..................... -- (1,178) -- -- (1,178)
Net income......................... -- -- 27,116 -- 27,116
------- ----------- ------------ ------------ ---------------
Balance, December 31, 1997........... $ 234 $ 361,731 $ (95,120) $ (1,006) $ 265,839
======= =========== ============ ============ ===============
See notes to consolidated financial statements.
40
41
SUMMIT PROPERTIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
YEARS ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
--------- -------- ---------
Cash flows from operating activities:
Net income................................................ $ 27,116 $ 16,948 $ 11,819
Adjustments to reconcile net income to net cash provided
by operating activities:
Extraordinary items.................................... -- 516 439
(Income) loss on equity investments.................... (274) 173 39
Gain on sale of real estate assets..................... (4,366) -- --
Depreciation and amortization.......................... 23,897 19,183 15,978
Decrease in restricted cash............................ 941 235 575
Increase in other assets............................... (162) (866) (992)
Increase (decrease) in accrued interest payable........ 3,581 333 (47)
Increase in accounts payable and accrued expenses...... 517 386 209
Increase (decrease) in security deposits and prepaid
rents................................................ (121) 545 181
Increase in minority interest of unitholders in
Operating Partnership................................ 4,818 3,723 2,793
--------- -------- ---------
Net cash provided by operating activities......... 55,947 41,176 30,994
--------- -------- ---------
Cash flows from investing activities:
Construction of real estate assets and land acquisitions,
net of payables........................................ (91,665) (87,081) (52,499)
Purchase of Communities................................... (78,870) (6,360) (5,081)
Proceeds from sale of Community........................... 9,209 -- --
Capitalized interest...................................... (5,873) (4,266) (3,110)
Recurring capital expenditures............................ (4,586) (3,291) (2,180)
Non-recurring capital expenditures, net of payables....... (4,122) (2,973) (864)
--------- -------- ---------
Net cash used in investing activities............. (175,907) (103,971) (63,734)
--------- -------- ---------
Cash flows from financing activities:
Debt proceeds, net of underwriters discount, offering and
related costs.......................................... 302,240 89,359 97,075
Debt repayments........................................... (156,533) (90,783) (101,650)
Dividends and distributions to unitholders................ (42,971) (34,000) (26,157)
Payment of financing costs................................ (32) (515) (1,033)
Issuance of stock......................................... 6,812 -- --
Exercise of stock options................................. 851 287 --
Common stock offering proceeds, net of underwriters
discount and related costs............................. -- 97,634 65,937
Advance proceeds from direct stock purchase plan.......... 6,500 -- --
Shelf registration costs.................................. (616) -- --
Proceeds from dividend and stock purchase plans........... 3,607 1,597 268
--------- -------- ---------
Net cash provided by financing activities......... 119,858 63,579 34,440
--------- -------- ---------
Net increase (decrease) in cash and cash equivalents........ (102) 784 1,700
Cash and cash equivalents, beginning of year................ 3,665 2,881 1,181
--------- -------- ---------
Cash and cash equivalents, end of year...................... $ 3,563 $ 3,665 $ 2,881
========= ======== =========
Supplemental disclosure of cash flow information -- Cash
paid for interest, net of capitalized interest............ $ 17,321 $ 15,780 $ 13,762
========= ======== =========
See notes to consolidated financial statements.
41
42
SUMMIT PROPERTIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND FORMATION OF THE COMPANY
Summit Properties Inc. (the "Company") was initially organized as a Maryland
real estate investment trust on December 1, 1993 under the Maryland Real Estate
Investment Trust Act. The Company became a Maryland corporation under the
General Corporation Law of Maryland on January 13, 1994. On February 15, 1994,
the Company completed an Initial Public Offering ("Initial Offering"). In
connection with the Initial Offering, the Company consummated a business
combination involving the Partnerships (the "Property Partnerships") which owned
the 27 communities (the "Communities") and the affiliated entities which
provided development, construction, management and leasing services to each of
the Communities prior to the Initial Offering (collectively, "Summit Entities").
A portion of the proceeds from the Initial Offering was used to acquire an
economic and voting interest in Summit Properties Partnership, L.P. (the
"Operating Partnership"), which was formed to succeed to substantially all of
the interests of the Property Partnerships in the Communities and the operations
of Summit Entities (the "Formation"). The Company became the sole general
partner and the majority owner of the Operating Partnership upon completion of
the Initial Offering and, accordingly, reports its investment in the Operating
Partnership on a consolidated basis.
In June 1995, the Company completed the sale of 4 million shares of Common
Stock, ("1995 Offering"). In August 1996, the Company completed the sale of 5.75
million shares of Common Stock, ("1996 Offering"). The net proceeds of $65.9
million and $97.6 million from the 1995 and 1996 Offerings, respectively, were
used to repay mortgage debt and to fund the construction of development
communities.
2. BASIS OF PRESENTATION
In conjunction with the Initial Offering, construction, management and leasing
activities for third parties were transferred to Summit Management Company (the
"Management Company") and its wholly-owned subsidiary, Summit Apartment Builders
(the "Construction Company"). The Operating Partnership has a 99% economic
interest in the Management Company but controls only 1% of the voting stock. The
remaining 99% of the voting stock is held by an executive officer of the
Company, which stock is subject to certain restrictions on transfer designed to
ensure that the holder of the Management Company's voting stock will have
interests aligned with those of the Company. Because of the Company's ability to
exercise significant influence, the Management Company is accounted for on the
equity method of accounting.
As a result of the Formation, the partners and owners of the entities comprising
the Summit Entities have either retained their existing ownership interests,
received shares of Common Stock or received limited partnership interests
("Units") in the Operating Partnership. Purchase accounting was applied to the
acquisition of all non-controlled interests in which cash consideration was
paid. The acquisition of all other interests was accounted for as a
reorganization of entities under common control and, accordingly, was reflected
at historical cost in a manner similar to that in pooling of interests
accounting.
All significant intercompany accounts and transactions have been eliminated in
consolidation. The financial statements of the Company have been adjusted for
the minority interest of unitholders in the Operating Partnership. Minority
interest of unitholders in the Operating Partnership is calculated at the
balance sheet date based upon the percentage of Units outstanding owned by
partners other than the Company to the total number of Units outstanding.
Minority interest of unitholders in Operating Partnership earnings is calculated
based on the weighted average Units outstanding during the period. Units can be
exchanged for cash, or at the option of the Company, for shares of Common Stock
on a one-to-one basis. It is the Company's prior practice and current intention
to redeem Units only for shares of Common Stock on a one-for-one basis. With
respect to Units issued in conjunction with the initial formation of the Company
as a REIT, the redemption of Units for shares of Common Stock is recorded at
book value. With respect to Units issued subsequent to that date, the redemption
of Units for shares of Common Stock is accounted for as the purchase of a
minority interest and, therefore, recorded at the fair market value of the
shares of Common Stock issued at the date of the redemption.
42
43
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REAL ESTATE ASSETS AND DEPRECIATION -- Real estate assets are stated at
depreciated cost reduced for any estimated impairment in value of which
management believes there is none at December 31, 1997 and 1996.
Expenditures directly related to the acquisition, development and improvement of
real estate assets are capitalized at cost as land, buildings and improvements.
Improvements are broken down into recurring capital expenditures and
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 carpet replacements and 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
properties (buildings -- 40 years; land improvements -- 15 years; furniture,
fixtures and equipment -- 5 to 7 years).
The Company records its real estate assets at cost less accumulated depreciation
and adjusts carrying value in accordance with Statement of Financial Accounting
Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets
and Long-Lived Assets to be Disposed Of", which the Company adopted in 1996.
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
as opposed to the difference between book value and net realizable value under
the previous accounting standard. For long-term assets like apartment
communities, the determination of whether there is an impairment loss is
dependent primarily on the Company's estimates on occupancy, rent and expense
increases, which involves numerous assumptions and judgments as to future events
over a period of many years. Assets to be disposed of are reported at the lower
of carrying value or fair value less costs to sell. At December 31, 1997 the
Company does not hold any assets that meet the impairment criteria of SFAS No.
121.
RENTAL REVENUE RECOGNITION -- The Company leases its residential properties
under operating leases with terms generally one year or less. Rental revenue is
recognized on the accrual method of accounting as earned.
PROPERTY MANAGEMENT -- The Management Company provides property management
services for both Company owned properties as well as properties owned by third
parties and recognizes revenue when earned, as the services are provided.
CASH AND CASH EQUIVALENTS -- For purposes of the statement of cash flows, the
Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents.
RESTRICTED CASH -- Restricted cash is comprised primarily of resident security
deposits, bond repayment escrows and replacement reserve escrows.
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.
INTEREST AND REAL ESTATE TAXES -- Interest and real estate taxes incurred during
the construction period are capitalized and depreciated over the lives of the
constructed assets. Interest capitalized was $5.9 million, $4.3 million and $3.1
million for the years ended December 31, 1997, 1996 and 1995, respectively.
ADVERTISING COSTS -- The Company expenses advertising costs as incurred.
INCOME TAXES -- The Company elected to be taxed as a real estate investment
trust ("REIT") under the Internal Revenue Code of 1986, as amended (the "Code").
As a result, the Company generally will not be subject to federal and state
income taxation at the corporate level to the extent it distributes annually at
least 95% of its taxable income, as defined in the Code, to its stockholders and
satisfies certain other
43
44
requirements. Accordingly, no provision has been made for federal and state
income taxes in the accompanying consolidated financial statements.
Financial Accounting Standard No. 109, "Accounting for Income Taxes" requires a
public enterprise to disclose the aggregate difference in the basis of its net
assets for financial and tax reporting purposes. The carrying value reported in
the Company's consolidated financial statements exceeded the tax basis by
approximately $25.3 million and $24.1 million, as of December 31, 1997 and 1996,
respectively. The change between December 31, 1997 and 1996 was primarily due to
financial depreciation exceeding tax depreciation by approximately $6.2 million,
offset by the financial reporting basis exceeding the tax basis by $7.2 million
for the Company's 1997 Acquisitions and certain property improvements.
A portion of the Company's dividends is deemed as return of capital for
shareholder income tax purposes. The percentage of dividends that was return of
capital was 25%, 21% and 26% for each of the years ended December 31, 1997, 1996
and 1995, respectively.
PER SHARE DATA -- Basic earnings per share with respect to the Company for the
years ended December 31, 1997, 1996 and 1995 are computed based upon the
weighted average number of shares outstanding during the period. In February
1997, The Financial Accounting Standards Board issued Statement of Financial
Accounting Standard No. 128 "Earnings Per Share." This pronouncement specifies
the computation, presentation and disclosure requirements for earnings per
share. The new standard had no impact on the Company's financial statements as
the "basic" and "diluted" earnings per share disclosure required by the
pronouncement were the same as "primary" earnings per share previously required.
The only difference in "basic" and "diluted" weighted average shares is the
dilutive effect of the Company's stock options outstanding (36,421, 26,930 and
4,655 shares added to weighted shares outstanding in 1997, 1996 and 1995,
respectively).
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.
4. 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 and the
Construction Company, which is accounted for using the equity method of
accounting.
The Management Company provides management services to the Company. Total fees
for management services were $3.1 million, $2.4 million and $1.9 million for the
years ended December 31, 1997, 1996 and 1995, respectively.
In addition, the Management Company provides management services to apartment
communities in which executive officers and certain directors of the Company are
general partners. The Management Company received management fees of
approximately $214,000, $267,000 and $294,000 for the performance of such
services for the years ended December 31, 1997, 1996 and 1995, respectively.
Construction Company revenue consists of contracts with the Company. Revenue
from contracts with the Company was $1.1 million, $524,000 and $311,000 for the
years ended December 31, 1997, 1996 and 1995, respectively. The Company has a
$4.6 million and $1.3 million construction contract payable to the Construction
Company as of December 31, 1997 and 1996, respectively.
44
45
The Company's investment in the Management Company as of December 31, 1997 and
1996, reported on the equity method, includes the amounts shown below. The
Company's investment in the Management Company is not considered material to the
consolidated financial statements of the Company taken as a whole (in
thousands):
1997 1996
------- -------
Equity investment........................................... $ 242 $ (32)
Note receivable............................................. 2,500 2,500
Deferred gain on sale of third party contract rights........ (1,530) (1,781)
------- -------
$ 1,212 $ 687
======= =======
5. NOTES PAYABLE
Notes payable consist of the following (in thousands):
INTEREST PRINCIPAL OUTSTANDING
RATE AS OF DECEMBER 31,
DECEMBER 31, ----------------------
1997 1997 1996
------------ --------- ---------
FIXED RATE DEBT
- -----------------
Mortgage Loan..................................... 5.88% $120,379 $122,950
Mortgage Loan..................................... 7.71% 29,214 29,653
Mortgage Loan..................................... 8.00% 8,557 8,638
Mortgage Notes.................................... 7.75%-9.80% 46,676 32,104
Tax Exempt Mortgage Notes......................... 6.95%-7.25% 9,262 9,369
-------- --------
Total Mortgage Debt....................... 214,088 202,714
Unsecured Debt:
6.80% Notes due 2002........................... 6.80% 25,000 --
6.63% Notes due 2003........................... 6.63% 30,000 --
6.95% Notes due 2004........................... 6.95% 50,000 --
7.20% Notes due 2007........................... 7.20% 50,000 --
Bank Note due 2002............................. 7.85% 16,000 16,000
Bank Note due 2000............................. 7.61% 15,000 15,000
-------- --------
Total Unsecured Debt...................... 186,000 31,000
-------- --------
Total Fixed Rate Debt..................... 400,088 233,714
VARIABLE RATE DEBT
- --------------------
Unsecured Credit Facility......................... LIBOR + 110 21,733 22,357
Tax Exempt Bonds.................................. 5.65% 52,852 53,862
-------- --------
Total Variable Rate Debt.................. 74,585 76,219
-------- --------
Total Outstanding Indebtedness...................... $474,673 $309,933
======== ========
The London Interbank Offered Rate (LIBOR) at December 31, 1997 was 5.69%.
MORTGAGE LOANS -- The 5.88% fixed rate Mortgage Loan requires monthly principal
and interest payments on a 24-year amortization schedule with a balloon payment
due at maturity in February, 2001. The Company has an option to extend the final
maturity date for a period of up to two years at an interest rate equal to the
then current year treasury rate plus a predetermined spread.
The 7.71% fixed rate Mortgage Loan requires monthly principal and interest
payments on a 25-year amortization schedule with a balloon payment due at
maturity in December, 2005.
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.
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46
MORTGAGE NOTES -- The Mortgage Notes bear interest at fixed rates ranging from
7.75% 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, 1997 for these nine Mortgage
Notes were 8.26% and 15.9 years, respectively.
TAX EXEMPT MORTGAGE NOTES -- The Tax Exempt Mortgage Notes bear interest at
fixed rates ranging from 6.95% to 7.25% and require monthly interest and
principal payments over the life of the notes. The weighted average interest
rate and debt maturity at December 31, 1997 for these two mortgage notes were
7.12% and 28.5 years, respectively.
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 required semi-annual interest payments until the end of the respective
terms.
UNSECURED BANK NOTES -- The unsecured bank debt financing consists of a $16.0
million note due 2002 and a $15.0 million note due 2000 (collectively, the
"Unsecured Bank Notes"). The notes require quarterly interest only payments
until the end of the respective terms.
UNSECURED CREDIT FACILITY -- The $150 million unsecured credit facility
("Unsecured Credit Facility") had an original three-year term and currently
bears interest at LIBOR + 110 basis points. The interest rate can be reduced
based upon an upgrade in the Company's unsecured credit rating. The Unsecured
Credit Facility provides $25 million for general working capital purposes with
the remainder available to finance development projects and acquisitions. The
Unsecured Credit Facility is repayable monthly on an interest-only basis with
the balance of all principal and accrued interest due no later than September
30, 1999. The Unsecured Credit Facility had an average interest rate of 6.73%
and 6.46% and an average balance outstanding of $53.9 million and $9.4 million
during the years ended December 31, 1997 and 1996, respectively. In addition,
the maximum outstanding during 1997 and 1996 was $121.9 million and $22.4
million, respectively.
The Company has a commitment for a new syndicated unsecured line of credit (the
"New Unsecured Credit Facility") in the amount of $175 million which will
replace the existing Unsecured Credit Facility. The New Unsecured Credit
Facility will provide funds for new development, acquisitions and general
working capital purposes. The New Unsecured Credit Facility will have a three
year term with two one-year extension options and will initially bear interest
at LIBOR + 90 basis points based upon the Company's current credit rating of
BBB- by Standard & Poor's Rating Services and Baa3 by Moody's Investors Service.
The interest rate will be reduced in the event of an upgrade of the Company's
unsecured credit rating. The New Unsecured Credit Facility is repayable monthly
on an interest only basis with principal due at maturity.
The New Unsecured Credit Facility also provides a bid option sub-facility equal
to a maximum of fifty percent of the total facility ($87.5 million). This
sub-facility provides the Company with the option to place borrowings in fixed
LIBOR contract periods of thirty, sixty, ninety and one hundred eighty days. The
Company may have up to seven fixed LIBOR contracts outstanding at any one time.
Upon proper notifications, all lenders in the New Unsecured Credit Facility may,
but are not obligated, to participate in a competitive bid auction for these
fixed LIBOR contracts.
The Unsecured Credit Facility and the Unsecured Notes require the Company to
comply with certain affirmative and negative covenants including the
requirements: (i) that the Company maintain its qualification as a REIT; (ii)
that the ratio of unencumbered assets to debt equal or exceed 150%; (iii) that
the ratio of debt to assets not exceed 60%; (iv) that the maximum secured debt
not exceed $350 million or 40% of assets; (v) that the Company maintain a debt
service ratio of not less than 1.75 to 1; and (vi) that the Company maintain a
ratio of adjusted funds flow, as defined, to debt of greater than .15 to 1.
VARIABLE RATE TAX EXEMPT BONDS -- The effective interest rate of the Variable
Rate Tax Exempt Bonds was 5.05% for the year ended December 31, 1997. 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 Company lease or hold for lease 20% (or 25% under certain state or
local requirements) of the apartment homes for moderate-income residents. The
bonds require maintenance of letters of credit or surety bonds (credit
enhancements)
46
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aggregating $54.1 million. The credit enhancements on four of the five tax
exempt bonds ($45.2 million of debt) 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 $320.7 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
---------- ---------- ---------- ---------- --------- --------
1998.................... $ 3,287 $ 866 $ 1,055 $ 5,208
1999.................... 3,497 935 1,105 $21,733 27,270
2000.................... 3,718 1,007 $ 15,000 1,130 -- 20,855
2001.................... 112,407 1,091 -- 1,150 -- 114,648
2002.................... 765 9,214 41,000 1,270 -- 52,249
Thereafter.............. 34,476 42,825 130,000 47,142 -- 254,443
-------- ------- -------- ---------- ------- --------
$158,150 $55,938 $186,000 $ 52,852 $21,733 $474,673
======== ======= ======== ========== ======= ========
EXTRAORDINARY ITEMS -- The 1996 extraordinary item resulted from the write-off
of deferred financing costs on development loans repaid with the proceeds from
the 1996 Offering and with the proceeds of the $31.0 million Unsecured Notes.
The extraordinary item is net of $110,000 which was allocated to the minority
interest of the unitholders in the Operating Partnership, calculated on the
weighted average number of units outstanding.
The 1995 extraordinary items resulted from the write-off of deferred financing
costs on variable rate mortgage debt repaid with the proceeds from the 1995
Offering and with the proceeds of the $30 million Mortgage Loan, and from the
write-off of deferred financing costs related to the refunding of two variable
rate tax exempt bonds. The extraordinary items are net of $100,000 which was
allocated to the minority interest of the unitholders in the Operating
Partnership, calculated on the weighted average number of units outstanding.
6. MINORITY INTEREST
Minority interest consists of the following at December 31, 1997 and 1996 (in
thousands):
1997 1996
------- -------
Minority interest of unitholders in Operating Partnership... $45,731 $46,202
Minority interest in one operating Community................ (402) (373)
------- -------
$45,329 $45,829
======= =======
As of December 31, 1997, there were 27,438,400 Units outstanding of the
Operating Partnership, of which 23,411,086, or 85.3% were owned by the Company
and 4,027,314, or 14.7% were owned by other partners (including certain officers
and directors of the Company).
Proceeds from Common Stock issued by the Company are contributed to the
Operating Partnership for an equivalent number of Units. The following is a
summary of significant Units issued and the Company's ownership percentage
before and after each transaction for the years ended December 31, 1997 and
1996:
COMPANY'S
OWNERSHIP AS A
PERCENTAGE OF THE
OPERATING
PARTNERSHIP
NUMBER OF PRICE PER DOLLAR VALUE ------------------
YEAR DESCRIPTION UNITS UNIT (IN THOUSANDS) BEFORE AFTER
- ---- ------------------------------ --------- --------- -------------- ------- -------
1996 Purchase of land.............. 106,330 $ 19.75 $ 2,100 80.77% 80.35%
1996 Issuance of stock............. 5,750,000 18.00 103,500 80.49% 84.74%
1997 Issuance of stock............. 315,029 21.62 6,813 84.81% 84.99%
1997 Summit Sand Lake purchase..... 438,103 20.25 8,872 85.02% 84.54%
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In addition to the amounts in the above table, the Company issued shares of
Common Stock in exchange for Units owned by other partners on a one-for-one
basis. An aggregate of 192,463 shares and 9,474 shares were issued for Units in
1997 and 1996, respectively. The shares exchanged were valued based upon the
Company's market price per share and had an aggregate value of $3.9 million and
$167,000 in 1997 and 1996, respectively.
Units issued for land and the Summit Sand Lake purchase were valued based upon
the Company's market value price per share of Common Stock as the Units can be
exchanged for shares on a one-to-one basis. In addition, of the 438,103 Units
issued for the Summit Sand Lake purchase, 243,608 Units were issued to the
Company in exchange for the Company issuing 243,608 shares of Common Stock to
the seller of Summit Sand Lake.
7. ACQUISITIONS AND DISPOSITION
On April 1, 1996, the Company acquired its joint venture partner's interest in
Summit Plantation (formerly Plantation Cove), a 262 apartment community located
in Plantation, Florida. The Company paid $6.4 million in cash for the remaining
75% interest in the joint venture.
On January 6, 1997, the Company purchased Summit Portofino (formerly Portofino
Place), a 322 apartment community located in Broward County, Florida. Summit
Portofino, built in 1995, was purchased for $28.0 million in cash. Concurrently
with the purchase, the Company sold 315,029 shares of Common Stock to the public
for cash to fund a portion of the purchase.
On January 15, 1997, the Company purchased Summit Mayfaire (formerly The
Mayfaire), a 144 apartment community located in Raleigh, North Carolina. Summit
Mayfaire, built in 1995, was purchased for $9.65 million in cash.
On February 20, 1997, the Company purchased Summit Sand Lake (formerly The
Vining at Sand Lake), a 416 apartment community located in Orlando, Florida.
Summit Sand Lake, built in 1995, was purchased for $26.8 million. The Company
issued the seller 243,608 shares of Common Stock and 194,495 Units in the
Operating Partnership, assumed $15.2 million in debt and paid the remaining $2.7
million balance in cash.
On July 18, 1997, the Company purchased Summit Windsor II (formerly Avalon
Farms), a 306 apartment community located in Frederick, Maryland. Summit Windsor
II, which was developed by a predecessor entity of the Company in 1988, was
purchased for $17.1 million in cash. The Summit Windsor II purchase was
partially funded by the proceeds from the sale of Summit Charleston in May of
1997. Summit Charleston was sold for $9.5 million and a gain on the sale of
approximately $4.4 million was recognized.
On December 31, 1997, the Company purchased Summit Fair Oaks (formerly Fair Oaks
Gables), a 246 apartment community located in Fairfax, Virginia. Summit Fair
Oaks, built in 1990, was purchased for $21.2 million in cash.
The following summary of unaudited pro forma results of operations for the years
ended December 31, 1997 and 1996 presents information as if the Company's 1997
acquisitions and the 1996 acquisition had occurred at January 1, 1996. The pro
forma information for the years ended December 31, 1997 and 1996 is provided for
informational purposes only and is not indicative of results which would have
occurred or which may occur in the future.
YEAR ENDED DECEMBER 31,
------------------------
1997 1996
---------- ----------
Net revenues................................................ $121,208 $108,561
Income before extraordinary items........................... 26,709 16,911
Net income.................................................. 26,709 16,395
Earnings per share -- basic:
Income before extraordinary items......................... 1.15 .87
Net income................................................ 1.15 .84
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Effective March 1, 1998, the Company purchased Summit St. Clair, a 336 apartment
community located in Atlanta, Georgia. Summit St. Clair completed construction
in 1997 and reached rental stabilization prior to purchase. The total purchase
price was approximately $26.3 million.
8. COMMITMENTS
The estimated cost to complete nine development projects currently under
construction was approximately $98.2 million at December 31, 1997. Anticipated
construction completion dates of the projects range from the first quarter of
1998 to the second quarter of 1999.
The Company rents office space in several locations. Rental expense for the
years ended December 31, 1997, 1996 and 1995 amounted to $101,000, $109,000 and
$125,000, respectively, ($347,000 in 1997, $376,000 in 1996 and $405,000 in 1995
including amounts recorded at the Management Company). Future minimum rental
payments for the next five years for those operating leases (including 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:
- ------------------------
1998........................................................ $ 431
1999........................................................ 432
2000........................................................ 145
2001........................................................ 72
2002........................................................ 2
------
$1,082
======
The Company has employment agreements with six executive officers. Five of these
agreements will expire on February 15, 1999 unless otherwise extended, and may
be terminated by the officer after giving 180 days prior written notice, without
breaching such agreements. One of these agreements provided for an original term
through February 16, 1996, and has been automatically extended until such time
as terminated pursuant to the terms of such executive officers' employment
agreement.
Each of the executive officers and the Chairman of the Board have
non-competition agreements with the Company which prohibit them, without the
prior written consent of the Board of Directors, from competing with the Company
for a period of the latter of (1) one year from the termination of their
employment with the Company, or (2) any period during which such individuals
receive severance payments.
The Company is obligated to redeem each Unit of interest in the Operating
Partnership at the request of the holder thereof for cash equal to the fair
market value of one share of Common Stock, except that the Company may elect to
acquire each Unit presented for redemption for one share of Common Stock. The
Company presently anticipates that it will elect to issue Common Stock in
connection with such redemption, rather than pay cash.
9. EMPLOYEE BENEFIT PLANS
PROFIT SHARING PLAN
The Company has a defined contribution plan pursuant to Section 401(k) of the
Internal Revenue Code which covers all employees with one year or greater
service. The Company's contributions are equal to one-half of each employee's
contribution up to a maximum of 3% of each employee's compensation. Aggregate
contributions of approximately $217,000, $223,000 and $191,000 were made for the
years ended December 31, 1997, 1996 and 1995, respectively.
STOCK OPTION PLAN
In 1994, the Company established the 1994 Stock Option Plan under which
1,000,000 shares of the Company's Common Stock were reserved for issuance. The
plan provides that the option price shall not be less than the fair market value
of the shares at the date of grant. The options vest in three or five annual
installments on the anniversaries of the date of grant except for shares granted
to independent directors of the Company, which vest on the date of grant.
49
50
A summary of changes in common stock options for the three years ended December
31, 1997 is as follows:
WEIGHTED AVERAGE
OPTIONS EXERCISE PRICE
------- ----------------
Outstanding at January 1, 1995.............................. 429,900 $19.14
Year ended December 31, 1995
- ---------------------------------
Granted to employees...................................... 130,000 17.13
Forfeited................................................. (20,800) 19.72
-------
Outstanding at December 31, 1995....................... 539,100 18.64
Year ended December 31, 1996
- ---------------------------------
Granted to employees...................................... 28,000 19.30
Exercised................................................. (15,073) 19.04
Forfeited................................................. (53,381) 19.22
-------
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
=======
Exercise prices for options outstanding as of December 31, 1997 ranged from
$17.13 to $20.75. The weighted average remaining contractual life of those
options is 6.5 years.
As of December 31, 1997, 1996 and 1995 options to purchase 359,218, 283,228 and
132,784 shares, respectively, of Common Stock were exercisable. The weighted
average exercise price for the shares exercisable as of December 31, 1997, 1996
and 1995 was $18.86, $18.36 and $19.03, respectively.
The estimated weighted average fair value of options granted were $2.10 per
share in 1996 and $1.61 per share in 1995 (none granted in 1997). The Company
applies Accounting Principal Board Opinion No. 25 and related interpretations in
accounting for its stock options. Accordingly, no compensation cost has been
recognized for its stock options. Had compensation cost for the Company's stock
options been determined based on the fair value at the grant dates, consistent
with the method of Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation", the Company's net income and net
income per share for the years ended December 31, 1996 and 1995 would have
changed to the pro forma amounts indicated below (dollars in thousands except
per share amounts):
1996 1995
------- -------
Pro forma net income........................................ $16,898 $11,808
Pro forma net income per share -- basic and diluted......... .89 .80
The fair value of options granted during 1996 and 1995 were estimated on the
date of grant using the Binomial option-pricing model with the following
weighted-average assumptions: dividend yields ranging from 7.80% to 8.82%,
expected volatility of 16%, risk free interest rate of 6.52%, and expected lives
of ten years.
In addition, the plan provides for the issuance of stock grants to employees.
The Company granted 26,528 shares of restricted stock grants under the plan in
1997. The market value of the restricted stock grants totaled $546,000, which
was recorded as unamortized restricted stock compensation and is shown as a
separate component of stockholders' equity. Unearned compensation is being
amortized to expense over the five year vesting period. Restricted stock grants
of 56,046 shares with a market value of $1.0 million were granted in the year
ended December 31, 1996. The Company recognized $292,000 and $223,000 of expense
in the statement of earnings in the years ended December 31, 1997 and 1996,
respectively, relative to the stock grants.
EMPLOYEE STOCK PURCHASE PLAN
In 1996, the Company established a non-qualified employee stock purchase plan.
The plan allows Company employees to purchase up to $100,000 per year of the
Company's Common Stock. The price of the shares of
50
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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 1997 and 1996 were 62,117 and 44,362 with a market value of $1.3
million and $871,000, respectively. An additional 18,525 shares with a market
value of $391,000 were issued in January, 1998 under the plan. The Company
recognized $265,000 and $151,000 of expense in the statement of earnings in the
years ended December 31, 1997 and 1996, respectively, relative to the employee
stock purchase plan.
10. DIVIDEND REINVESTMENT AND DIRECT STOCK PURCHASE PLAN
In November 1997, the Company replaced its existing dividend reinvestment plan
with a new dividend reinvestment and direct stock purchase plan. The plan
provides that shares of the Company's Common Stock can be purchased directly
from the Company at a discount from the market price (as defined in the plan
document) without brokerage commissions or service charges. Purchases are
generally limited to the reinvesting of the Company's dividends and optional
cash purchases of $100 to $10,000 (or any greater amount approved by the
Company) per month. On December 31, 1997, the Company received $6.5 million
under the plan for shares issued January 2, 1998. These proceeds are included in
accounts payable and accrued expenses at December 31, 1997.
11. SUPPLEMENTAL CASH FLOW INFORMATION
Non-cash investing and financing activities for the years ended December 31,
1997, 1996 and 1995 are as follows:
A. In the year ended December 31, 1997, the Company purchased five
Communities (Summit Mayfaire, Summit Portofino, Summit Sand Lake, Summit
Windsor II and Summit Fair Oaks). The Company completed the purchase of
the five Communities by assuming debt, issuing 194,495 Operating
Partnership Units, issuing 243,608 shares of Common Stock, assuming
certain liabilities and current assets, and the payment of cash. The
recording of the purchases is summarized as follows (in thousands):
Fixed Assets................................................ $104,469
Current Assets.............................................. 30
Debt assumed................................................ (15,226)
Current liabilities assumed................................. (1,531)
Value of Operating Partnership Units issued................. (3,939)
Value of Common Stock issued................................ (4,933)
--------
Cash invested............................................... $ 78,870
========
B. On April 1, 1996, the Company acquired its joint venture partner's
interest in the Summit Plantation (formerly Plantation Cove) apartment
community. The Company paid $6.4 million in cash for the remaining 75%
interest in this joint venture, which is now owned entirely by the
Company. The recording of the purchase is summarized as follows (in
thousands):
Fixed assets................................................ $ 21,913
Current assets.............................................. 202
Deferred charges............................................ 95
Debt assumed................................................ (14,347)
Current liabilities assumed................................. (288)
Minority interest........................................... (1,215)
--------
Net cash paid............................................... $ 6,360
========
C. In the second quarter of 1995, the Company completed the acquisition of
twelve apartment Communities and 75% interest in another Community. The
Company purchased the communities by assuming debt, issuing
approximately 1.5 million Operating Partnership Units, assuming certain
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liabilities and current assets, and the payment of cash. The recording
of the purchase is summarized as follows (in thousands):
Fixed assets................................................ $ 82,935
Restricted cash............................................. 1,427
Other assets................................................ 93
Debt assumed................................................ (52,576)
Current liabilities assumed................................. (996)
Minority interest........................................... 388
Value of units issued....................................... (26,190)
--------
Net cash paid............................................... $ 5,081
========
D. The Company issued 26,528 and 52,086 (net of 3,960 shares issued but
subsequently retired) of restricted stock grants in 1997 and 1996 valued
at $546,000 and $1.0 million, respectively.
E. The Company accrued a dividend and distribution payable of $11.0
million, $10.2 million and $7.7 million at December 31, 1997, 1996 and
1995, respectively.
F. The Company issued 106,330 Units of the Operating Partnership, valued at
$2.1 million at issuance, for the purchase of land in 1996.
G. The Company issued 45,359 Units of interest in the Operating
Partnership, valued at $896,000 at issuance, for the purchase of land in
1995.
12. 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.
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, 1997.
Fixed rate mortgage debt and unsecured notes with a carrying value of $400
million have an estimated aggregate fair value of approximately $399.4 million
at December 31, 1997. Rates currently available to the Company for debt with
similar terms and maturities were used to estimate the fair value of this debt.
The fair value estimates presented herein are based on information available to
management as of December 31, 1997. Although management is not aware of any
factors that would significantly affect the estimated fair value amounts, such
amounts have not been comprehensively re-valued for purposes of these financial
statements since that date, and current estimates of fair value may differ
significantly from the amounts presented herein.
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13. GEOGRAPHIC CONCENTRATION
The Company's completed Communities are concentrated in three major regions as
follows:
NUMBER APARTMENT
OF HOMES -- % OF
APARTMENT % 1997
MARKET HOMES OF PORTFOLIO REVENUES
- ------ --------- ------------ --------
I-85 Corridor (Raleigh, NC to Atlanta, GA).............. 5,892 41% 38%
Central/South Florida................................... 4,663 33% 35%
Washington, DC/Virginia................................. 2,789 20% 20%
Other................................................... 872 6% 7%
--------- ------------ --------
14,216 100% 100%
========= ============ ========
The above table does not include Summit Fair Oaks which was acquired on December
31, 1997.
14. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Quarterly financial information for the years 1997 and 1996 are as follows (in
thousands):
YEAR ENDED DECEMBER 31, 1997
-------------------------------------
FIRST SECOND THIRD FOURTH
------- ------- ------- -------
Revenues.................................................. $27,249 $28,103 $30,068 $31,257
Income before gain on sale of real estate
assets and minority interest of unitholders
in Operating Partnership................................ 6,928 6,856 6,948 6,836
Gain on sale of real estate assets........................ -- 4,366 -- --
Minority interest of unitholders in
Operating Partnership................................... (1,052) (1,729) (1,031) (1,006)
Net income................................................ 5,876 9,493 5,917 5,830
Net income per share -- basic and diluted................. 0.26 0.41 0.25 0.25
YEAR ENDED DECEMBER 31, 1996
-------------------------------------
FIRST SECOND THIRD FOURTH
------- ------- ------- -------
Revenues.................................................. $21,430 $23,062 $24,771 $25,226
Income before minority interest of unitholders
in Operating Partnership and
extraordinary items..................................... 4,237 4,345 5,740 6,865
Minority interest of unitholders in
Operating Partnership................................... (828) (850) (974) (1,071)
Extraordinary items....................................... -- -- (516) --
Net income................................................ 3,409 3,495 4,250 5,794
Income per share:
Income before extraordinary items -- basic
and diluted............................................. 0.21 0.21 0.24 0.26
Net income -- basic and diluted......................... 0.21 0.21 0.21 0.26
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SUMMIT PROPERTIES INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION SCHEDULE III
DECEMBER 31, 1997
(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 Arbors............ $ 780 $ 5,066 $ 210 $ 780 $ 5,276 $ 6,056
Summit Aventura.......... 6,367 25,075 6,368 25,074 31,442
Summit Ballantyne........ 2,060 14,171 2,060 14,171 16,231
Summit Beacon Ridge...... 1,053 5,839 1,154 5,738 6,892
Summit Belmont........... (4) 974 11,107 984 11,097 12,081
Summit Blue Ash.......... (2) 2,033 11,765 2,169 11,629 13,798
Summit Breckenridge...... 812 12,061 812 12,061 12,873
Summit Creek............. 1,430 9,125 258 1,430 9,383 10,813
Summit Creekside......... 2,837 414 3,614 382 414 3,996 4,410
Summit Crossing.......... 4,162 768 5,174 206 768 5,380 6,148
Summit Del Ray........... (2) 3,120 14,796 5,402 12,514 17,916
Summit East Ridge........ 5,100 900 6,303 267 910 6,560 7,470
Summit Eastchester....... 3,814 912 4,699 168 912 4,867 5,779
Summit Fair Oaks......... 4,356 17,215 0 4,356 17,215 21,571
Summit Fairview.......... 404 4,441 537 4,308 4,845
Summit Fairways.......... 2,819 15,088 2,819 15,088 17,907
Summit Foxcroft.......... 2,728 925 3,797 241 925 4,038 4,963
Summit Gateway........... (4) 1,738 10,431 2,256 9,913 12,169
Summit Glen.............. (2) 3,652 12,837 3,693 12,796 16,489
Summit Green............. 1,970 16,624 1,970 16,624 18,594
Summit Hampton........... (4) 2,577 13,223 2,972 12,828 15,800
Summit Heron's Run....... (2) 3,154 10,730 3,192 10,692 13,884
Summit Highland.......... (2) 1,374 6,249 1,374 6,249 7,623
Summit Hill.............. 2,698 8,500 10,014 2,698 18,514 21,212
Summit Hollow............ 4,809 1,470 7,463 442 1,472 7,903 9,375
Summit Lofts............. 1,800 7,337 667 1,800 8,004 9,804
Summit Mayfaire.......... 936 8,897 4 936 8,901 9,837
Summit McIntosh.......... 1,862 10,168 1,943 10,087 12,030
Summit Meadow............ (2) 2,313 8,483 2,539 8,257 10,796
Summit Norcroft.......... (2) 1,072 7,083 1,253 6,902 8,155
Summit Norcroft II....... 381 3,315 381 3,315 3,696
Summit Oak............... 2,553 400 3,065 32 400 3,097 3,497
Summit Old Town.......... 3,048 774 4,693 137 774 4,830 5,604
DEPRECIABLE
ACCUMULATED DATE OF DATE LIVES
APARTMENTS DEPRECIATION CONSTRUCTION ACQUIRED YEARS
---------- ------------ ------------ -------- -----------
Summit Arbors............ $ (528) 1986(5) 5/95 5-40 years
Summit Aventura.......... (1,791) 6/94-12/95 12/93 5-40 years
Summit Ballantyne........ (147) 7/96-12/97 12/95 5-40 years
Summit Beacon Ridge...... (1,882) 1/88-7/88 1/88 5-40 years
Summit Belmont........... (3,947) 1/86-5/87 1/86 5-40 years
Summit Blue Ash.......... (2,336) 1/92-5/92 1/91 5-40 years
Summit Breckenridge...... (4,346) 7/85-5/87 6/85 5-40 years
Summit Creek............. (1,402) 1983(5) 9/94 5-40 years
Summit Creekside......... (432) 1981(5) 5/95 5-40 years
Summit Crossing.......... (566) 1985(5) 5/95 5-40 years
Summit Del Ray........... (2,522) 1/92-2/93 1/92 5-40 years
Summit East Ridge........ (660) 1986(5) 6/95 5-40 years
Summit Eastchester....... (593) 1981(5) 5/95 5-40 years
Summit Fair Oaks......... - 1990(5) 12/97 5-40 years
Summit Fairview.......... (2,009) 3/82-3/83 3/82 5-40 years
Summit Fairways.......... (626) 9/95-12/96 8/95 5-40 years
Summit Foxcroft.......... (479) 1979(5) 5/95 5-40 years
Summit Gateway........... (3,215) 1/86-1/87 12/85 5-40 years
Summit Glen.............. (2,561) 5/90-8/92 4/90 5-40 years
Summit Green............. (991) 1/95-6/96 12/94 5-40 years
Summit Hampton........... (4,524) 11/86-3/88 10/86 5-40 years
Summit Heron's Run....... (2,817) 7/89-10/90 6/89 5-40 years
Summit Highland.......... (2,451) 3/86-1/87 11/85 5-40 years
Summit Hill.............. (1,883) 11/94-6/96 6/94 5-40 years
Summit Hollow............ (941) 1976(5) 5/95 5-40 years
Summit Lofts............. (1,270) 1990(5) 10/94 5-40 years
Summit Mayfaire.......... (292) 1995(5) 1/97 5-40 years
Summit McIntosh.......... (2,848) 7/89-6/90 1/89 5-40 years
Summit Meadow............ (2,317) 8/89-8/90 2/89 5-40 years
Summit Norcroft.......... (1,841) 2/90-3/91 12/89 5-40 years
Summit Norcroft II....... (15) 3/97-11/97 8/96 5-40 years
Summit Oak............... (357) 1982(5) 5/95 5-40 years
Summit Old Town.......... (576) 1979(5) 5/95 5-40 years
54
55
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 On the River...... 3,212 20,734 3,212 20,734 23,946
Summit Palm Lake......... (2) 4,949 16,868 5,084 16,733 21,817
Summit Park.............. 1,680 11,078 1,921 10,837 12,758
Summit Perico............ (2) 1,588 11,939 2,174 11,353 13,527
Summit Pike Creek........ (4) 1,132 10,950 1,259 10,823 12,082
Summit Plantation........ 3,428 18,485 7 3,428 18,492 21,920
Summit Plantation II..... 4,012 17,292 4,012 17,292 21,304
Summit Portofino......... 3,864 24,504 15 3,864 24,519 28,383
Summit Providence........ (2) 3,043 17,362 3,391 17,014 20,405
Summit Radbourne......... 8,599 1,395 12,607 366 1,395 12,973 14,368
Summit Reston............ 5,434 26,255 499 5,434 26,754 32,188
Summit River Crossing.... 2,562 16,664 2,636 16,589 19,225
Summit Russett........... 3,995 19,217 3,995 19,217 23,212
Summit Sand Lake......... 14,985 4,160 22,979 72 4,160 23,051 27,211
Summit Sedgebrook........ 1,696 14,559 1,696 14,559 16,255
Summit Sherwood.......... 3,303 1,102 4,863 100 1,106 4,959 6,065
Summit Simsbury.......... (3) 650 4,570 163 650 4,733 5,383
Summit Springs........... (2) 2,575 12,297 2,667 12,205 14,872
Summit Square............ (2) 2,757 15,067 3,775 14,049 17,824
Summit Station........... 1,688 10,294 1,988 9,994 11,982
Summit Stony Point....... (4) 1,638 13,041 373 1,638 13,413 15,052
Summit Touchstone........ (3) 766 5,568 172 766 5,740 6,506
Summit Village........... (2) 3,212 14,069 3,653 13,628 17,281
Summit Walk.............. 568 237 5,462 983 5,284 6,267
Summit Waterford......... (2) 1,568 14,368 1,949 13,987 15,936
Summit Windsor........... (2) 644 6,329 969 6,004 6,973
Summit Windsor II........ 3,060 14,497 9 3,060 14,506 17,566
-------- -------- -------- -------- -------- --------
Total $124,676 $242,554 $462,838 $133,315 $696,749 $830,068
======== ======== ======== ======== ======== ========
DEPRECIABLE
ACCUMULATED DATE OF DATE LIVES
APARTMENTS DEPRECIATION CONSTRUCTION ACQUIRED YEARS
---------- ------------ ------------ -------- -----------
Summit On the River...... (687) 8/95-6/97 10/94 5-40 years
Summit Palm Lake......... (3,846) 3/90-2/92 1/90 5-40 years
Summit Park.............. (3,317) 4/88-4/89 1/88 5-40 years
Summit Perico............ (3,069) 1/89-2/90 8/88 5-40 years
Summit Pike Creek........ (3,724) 11/86-2/88 4/86 5-40 years
Summit Plantation........ (1,036) 1/94-7/95 4/96 5-40 years
Summit Plantation II..... (153) 10/96-11/97 9/96 5-40 years
Summit Portofino......... (763) 1995(5) 1/97 5-40 years
Summit Providence........ (4,886) 9/88-2/91 4/88 5-40 years
Summit Radbourne......... (1,098) 1991(5) 5/95 5-40 years
Summit Reston............ (3,872) 1987(5) 4/94 5-40 years
Summit River Crossing.... (915) 3/95-9/96 10/94 5-40 years
Summit Russett........... (393) 7/95-9/97 11/94 5-40 years
Summit Sand Lake......... (722) 1995(5) 2/97 5-40 years
Summit Sedgebrook........ (65) 6/96-12/97 1/96 5-40 years
Summit Sherwood.......... (592) 1968(5) 5/95 5-40 years
Summit Simsbury.......... (495) 1985(5) 5/95 5-40 years
Summit Springs........... (3,607) 12/88-4/90 12/88 5-40 years
Summit Square............ (3,613) 3/89-8/90 2/89 5-40 years
Summit Station........... (2,402) 10/89-9/90 9/89 5-40 years
Summit Stony Point....... (2,154) 1986(5) 2/94 5-40 years
Summit Touchstone........ (594) 1986(5) 5/95 5-40 years
Summit Village........... (3,413) 9/89-1/91 8/89 5-40 years
Summit Walk.............. (852) 4/92-2/93 4/92 5-40 years
Summit Waterford......... (3,756) 1/89-6/90 11/88 5-40 years
Summit Windsor........... (1,860) 8/88-8/89 3/95 5-40 years
Summit Windsor II........ (263) 1988(5) 7/97 5-40 years
---------
Total $(105,313)
=========
(1) The aggregate cost for federal income tax purposes at December 31, 1997 is
$765.6 million.
(2) Encumbered by fixed rate mortgages of $149.6 million.
(3) Encumbered by fixed rate mortgage of $8.6 million.
(4) Collateral for $54.1 million of letters of credit which serve as collateral
for $52.9 million in tax exempt bonds.
(5) Property purchased by Company. Date reflects date construction completed.
(6) Includes furniture, fixtures and equipment.
55
56
SCHEDULE III
SUMMIT PROPERTIES INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
(DOLLARS IN THOUSANDS)
A summary of activity for real estate assets and accumulated depreciation is as
follows:
YEAR ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
-------- -------- --------
REAL ESTATE ASSETS(1):
Balance at beginning of year............................. $618,102 $524,772 $407,707
-------- -------- --------
Acquisitions............................................. 104,469 21,913 82,935
Improvements............................................. 9,823 4,780 2,560
Developments............................................. 104,897 66,637 31,570
Disposition of property.................................. (7,223) -- --
-------- -------- --------
211,966 93,330 117,065
-------- -------- --------
Balance at end of year................................... $830,068 $618,102 $524,772
======== ======== ========
ACCUMULATED DEPRECIATION(1):
Balance at beginning of year............................. $ 85,031 $ 66,978 $ 51,957
Depreciation............................................. 22,610 18,053 15,021
Disposition of property.................................. (2,328) -- --
-------- -------- --------
Balance at end of year................................... $105,313 $ 85,031 $ 66,978
======== ======== ========
(1) Includes only apartment communities and does not include fixed assets used
in property development, construction and management of apartment
communities.
56