-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RGRtcEaTMCCOvIVge5StCikI1ikf4FE23cerpg2N11ua8Fe/hYSoSKSccRenyEK/ fzG0NYHRz9sqeWxSvKxzBA== 0000950131-00-001605.txt : 20000308 0000950131-00-001605.hdr.sgml : 20000308 ACCESSION NUMBER: 0000950131-00-001605 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000307 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ARCHSTONE COMMUNITIES TRUST/ CENTRAL INDEX KEY: 0000080737 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 746056896 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-10272 FILM NUMBER: 562143 BUSINESS ADDRESS: STREET 1: 7670 SOUTH CHESTER STREET STREET 2: SUITE 100 CITY: ENGLEWOOD STATE: CO ZIP: 80112 BUSINESS PHONE: 3037085959 MAIL ADDRESS: STREET 1: 7670 SOUTH CHESTER ST CITY: ENGLEWOOD STATE: CO ZIP: 80012 FORMER COMPANY: FORMER CONFORMED NAME: SECURITY CAPITAL PACIFIC TRUST DATE OF NAME CHANGE: 19950417 FORMER COMPANY: FORMER CONFORMED NAME: PROPERTY TRUST OF AMERICA DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: EL PASO REAL ESTATE INVESTMENT TRUST DATE OF NAME CHANGE: 19700108 10-K 1 FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-K (Mark One) [X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended December 31, 1999 OR [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from to . Commission File Number 1-10272 ARCHSTONE COMMUNITIES TRUST (Exact Name of Registrant as Specified in Its Charter) MARYLAND 74-6056896 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) 7670 South Chester Street, Suite 100 Englewood, Colorado 80112 (Address of principal executive offices and zip code) (303) 708-5959 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: None
Name of each exchange Title of each class on which registered ------------------- ------------------------------ Common Shares of Beneficial Interest, par value $1.00 per share New York Stock Exchange Cumulative Convertible Series A Preferred Shares of Beneficial Interest, par value $1.00 per share New York Stock Exchange Series B Cumulative Redeemable Preferred Shares of Beneficial Interest, par value $1.00 per share New York Stock Exchange Series C Cumulative Redeemable Preferred Shares of Beneficial Interest, par value $1.00 per share New York Stock Exchange Series D Cumulative Redeemable Preferred Shares of Beneficial Interest, par value $1.00 per share New York Stock Exchange Preferred Share Purchase Rights New York Stock Exchange
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. [ ] Based on the closing price of the registrant's Common Shares on February 23, 2000, the aggregate market value of the voting common equity held by non- affiliates of the registrant was approximately $1,654,547,000. At February 23, 2000, there were approximately 138,970,000 of the registrant's Common Shares outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant's definitive proxy statement for the 2000 annual meeting of its shareholders are incorporated by reference in Part III of this report. Table of Contents
Item Description Page - ---- ----------- ---- PART I Glossary............................................................................... 1 1. Business............................................................................... 3 Archstone Communities Trust........................................................ 3 Trustees and Officers of Archstone................................................. 6 Employees.......................................................................... 10 Insurance.......................................................................... 10 Risk Factors....................................................................... 11 2. Properties............................................................................. 14 Geographic Distribution............................................................ 14 Real Estate Portfolio.............................................................. 15 3. Legal Proceedings...................................................................... 17 4. Submission of Matters to a Vote of Security Holders.................................... 17 PART II 5. Market for the Registrant's Common Equity and Related Stockholder Matters.............. 17 6. Selected Financial Data................................................................ 20 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.. 21 Results of Operations.............................................................. 22 Liquidity and Capital Resources.................................................... 24 7A. Quantitative and Qualitative Disclosures About Market Risk............................. 28 8. Financial Statements and Supplementary Data............................................ 29 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure... 30 PART III 10. Trustees 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........................ 30
GLOSSARY The following abbreviations, acronyms or defined terms used in this document are defined below:
Abbreviation, Acronym or Defined Term Definition/Description - ------------------------------------------- -------------------------------------------------------------- 2000 Proxy Statement....................... Archstone's definitive proxy statement for its 2000 annual meeting of shareholders. APB........................................ Accounting Principles Board. Archstone.................................. Archstone Communities Trust, formerly Security Capital Pacific Trust. Financial information and references throughout this document are labeled "Archstone" for periods before and after the Atlantic Merger (when the name of the company was changed), unless indicated otherwise. Atlantic Merger............................ In July 1998, Security Capital Atlantic Incorporated was merged with and into Security Capital Pacific Trust. The combined company has continued its existence under the name Archstone Communities Trust and is traded on the NYSE under the symbol "ASN". Board...................................... Archstone's Board of Trustees. Common Share(s)............................ Archstone common shares of beneficial interest, par value $1.00 per share. DEU(s)..................................... Dividend equivalent unit(s). Fannie Mae................................. Federal National Mortgage Association. Funds From Operations...................... Net earnings computed in accordance with GAAP, excluding real estate depreciation, gains (or losses) on dispositions of depreciated real estate, provisions for possible losses on investments, non-cash interest income, extraordinary items and significant non-recurring items. Funds From Operations has been an industry-wide standard used to measure operating performance of a REIT since its adoption by NAREIT in 1991. Funds From Operations should not be considered as an alternative to net earnings or any other GAAP measurement of performance or as an alternative to cash flow from operating, investing or financing activities as a measure of liquidity. The Funds From Operations measure presented by Archstone, while consistent with NAREIT's definition, will not be comparable to similarly titled measures of other REIT's that do not compute Funds From Operations in a manner consistent with Archstone. GAAP....................................... Generally accepted accounting principles. In Planning................................ Parcels of land owned or Under Control upon which construction of apartments is expected to commence within 36 months. Lease-Up................................... The phase during which newly constructed apartments are being leased for the first time, but prior to the community becoming Stabilized. LIBOR...................................... London Interbank Offered Rate. Long-Term Unsecured Debt................... Collectively, Archstone's long-term unsecured senior notes payable and tax-exempt unsecured bonds. NAREIT..................................... National Association of Real Estate Investment Trusts. Outside Trustees........................... Independent members of Archstone's Board of Trustees.
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Abbreviation, Acronym or Defined Term Definition/Description - --------------------------------------------------- ----------------------------------------------------------------- Preferred Shares................................... Collectively, the Archstone Series A Convertible Preferred Shares, Archstone Series B Preferred Shares, Archstone Series C Preferred Shares, and Archstone Series D Preferred Shares. REIT............................................... Real estate investment trust. Security Capital................................... Security Capital Group Incorporated, Archstone's largest shareholder (39% ownership at December 31, 1999). Series A Convertible Preferred Shares.............. Archstone Series A Cumulative Convertible Preferred Shares of Beneficial Interest, par value $1.00 per share. Series B Preferred Shares.......................... Archstone Series B Cumulative Redeemable Preferred Shares of Beneficial Interest, par value $1.00 per share. These shares are not convertible. Series C Preferred Shares.......................... Archstone Series C Cumulative Redeemable Preferred Shares of Beneficial Interest, par value $1.00 per share. These shares are not convertible. Series D Preferred Shares.......................... Archstone Series D Cumulative Redeemable Preferred Shares of Beneficial Interest, par value $1.00 per share. These shares are not convertible. SFAS............................................... Statement of Financial Accounting Standards. Stabilized......................................... The classification assigned to an apartment community that has achieved 93% occupancy at market rents, and for which the redevelopment, new management and new marketing programs (or development and marketing in the case of a newly developed community) have been completed. The stabilization process takes up to 12 months except for major redevelopments which could take longer. Total Expected Investment.......................... For development communities, represents the total expected investment at completion; for operating communities, represents the total expected investment plus planned capital expenditures. Under Control...................................... Land parcels which Archstone does not own, yet has an exclusive right (through contingent contract or letter of intent) during a contractually agreed upon time period to acquire for the future development of apartment communities, subject to approval of contingencies during the due diligence process. There can be no assurance that any such land will be acquired.
2 PART I Item 1. Business Archstone Communities Trust Archstone Communities Trust (NYSE: ASN) is a leading real estate operating company focused on the development, acquisition, redevelopment, operation and ownership of apartment communities in markets and sub-markets with high barriers to entry across the United States. As of December 31, 1999, we had 267 apartment communities, representing 80,556 units, including 12,301 units in our development pipeline under construction and In Planning, in markets that include 33 of the nation's 50 largest metropolitan markets. Our principal focus is to maximize shareholder value by: . Owning apartment communities in markets with high barriers to entry, limited new supply and strong economic growth; . Generating long-term sustainable growth in cash flow from operations; . Creating value through the development of new apartment communities; . Thoughtfully managing our invested capital, through the disposition of assets that no longer meet the company's investment objectives, in an effort to maximize long-term value creation; and . Leveraging technology to strengthen Archstone's brand position and reputation for quality. 1999 Accomplishments . Net operating income for our communities which have been in operation since January 1, 1998 increased 6.2% in 1999 as compared to 1998, with a 14.1% increase in California and an 8.1% increase in Washington, D.C. . As of December 31, 1999, our development pipeline totaled $1.3 billion, including $823.4 million of communities under construction and $510.9 million of communities In Planning. . Twenty-two development communities achieved Stabilization, adding a total of 5,527 units, representing a Total Expected Investment of $460.9 million, to our operating portfolio. . We completed the disposition of $589.3 million of communities in secondary, non-core markets, which was redeployed primarily into long-term investments in core, high-growth markets. . We completed a $100 million share repurchase program and announced a $50 million share repurchase program that is currently in progress. Through both programs, we have repurchased a total of $121.6 million of Common Shares (6.1 million shares at an average price of $19.76 per share) as of December 31, 1999. . We significantly streamlined the move-in and move-out process for residents through SafeRent/SM/, an Internet-based credit scoring model which allows us to approve a customer's application in less than 30 seconds, and our Instant Refunds program, which allows us to return customers' security deposits when they need it most--on the day they move out. . We created several strategic alliances to broaden our suite of value-added services for residents. Through BroadbandNOW!, Archstone will provide high- speed Internet access across our national portfolio--making us the first apartment company in the industry to roll out this kind of service. In addition, we were the first apartment company to sign an agreement with AT&T to market their long distance service nationally. . Archstone paid dividends of $1.48 per Common Share, a 6.5% increase over Common Share dividends paid in 1998, which represents the company's 24th consecutive year of Common Share dividend payments. We announced Archstone's anticipated 2000 dividend level of $1.54 per share, a 4.1% increase over the 1999 level. Including the announced increase, the company's annual dividend per share has grown 120% since 1992. Investment Strategy We use extensive research to identify investment opportunities we believe will produce total returns in excess of the company's long-term cost of capital. We believe the company's long-term cost of equity capital is 13 - 14%, which when combined with long-term debt rates as of December 31, 1999, gives Archstone a weighted average long-term cost of capital of approximately 11%. We only make an investment when the total return, which includes the initial yield plus expected long-term value creation through continued growth in net operating income, will exceed the company's long-term cost of capital. 3 We focus Archstone's investment activities on markets characterized by: (i) attractive long-term economic fundamentals; (ii) high barriers to entry against new supply; and (iii) expensive single-family housing. Barriers to entry exist when there is a very limited amount of land zoned for apartment development, and where local municipalities are reluctant to zone additional land for apartment communities. Examples of high-barrier markets include the Washington, D.C. metropolitan area, Boston, Chicago, Minneapolis, the San Francisco Bay area, and San Diego--all markets where Archstone continues to establish a long-term strategic presence. We believe that the consistent growth in demand and limited competition typical of Archstone's target markets maximizes our ability to produce sustainable long-term cash flow growth. We use a sophisticated capital allocation strategy to maximize the return on Archstone's invested capital. Our disciplined investment strategy is executed through the following four internal capabilities: 1. Development. We place considerable emphasis on the value created through the development of apartment communities. Currently, the company's development pipeline totals $1.3 billion, including $823.4 million of communities under construction and $510.9 million of communities In Planning. In 1999, the company completed $534.1 million of new development communities, representing 6,678 units in markets that include greater Washington D.C. and Orange County, California. We believe that Archstone's locally based development infrastructure creates a significant competitive advantage in identifying and completing very attractive investment opportunities in Archstone's core markets, and expect our development capability to continue to be a key contributor to growth as communities are completed and Stabilized at attractive yields during the next several years. 2. Dispositions. We continue to pursue favorable opportunities to dispose of assets that no longer meet our long-term investment criteria, and redeploy the proceeds into new investments with more attractive long-term growth prospects. We have disposed of more than $1.6 billion of assets since the beginning of 1996, generating aggregate gains of $213.3 million and producing an average annual unleveraged rate of return during the holding period of 13.1%. In 1999, we made significant progress in aggressively concentrating our portfolio in high-growth metropolitan markets. The company has exited ten secondary markets with limited barriers to entry: Sacramento, California; Sarasota, Florida; Asheville, North Carolina; Oklahoma City and Tulsa, Oklahoma; Columbus, Ohio; El Paso, Texas; Memphis, Tennessee; Santa Fe, New Mexico; and Omaha, Nebraska. In addition, we significantly reduced our presence in low-barrier markets including Dallas and Houston, Texas; Birmingham, Alabama; Tucson, Arizona; and Jacksonville, Florida. Proceeds from dispositions were redeployed primarily into investments in the San Francisco Bay area, Southern California, Washington, D.C., Boston, Chicago and Minneapolis--all high-growth, supply-constrained markets. 3. Acquisitions. We have completed more than $2.8 billion in acquisitions since 1992. In mid-1997, we determined that pricing for acquisitions had become relatively unattractive. From July 1, 1997 through December 31, 1999, the company's aggregate dispositions have exceeded acquisitions by $275.9 million. All of the company's $409.2 million of acquisitions in 1999 were funded with disposition proceeds through 1031 tax-deferred exchanges. Our locally based acquisition infrastructure allows the company to continue to take advantage of selected opportunities in markets with excellent growth prospects as they become available. 4. Redevelopment. Our redevelopment strategy is to reposition well-located assets through value-added renovations including upgrades to interiors, exteriors, leasing offices, landscaping and amenities. In addition, the company has invested in revenue-enhancing capital expenditures such as building garages/carports and adding storage facilities, and also expense- reducing expenditures such as water sub-metering systems and xeriscaping. Archstone had completed the redevelopment of 37 communities whose Total Expected Investment including the redevelopment costs aggregated $767.4 million, over the past six years, and had 16 communities in redevelopment, whose Total Expected Investment including the expected redevelopment costs aggregated $420.1 million as of December 31, 1999. By executing our sophisticated capital allocation strategy, we expect to solidify our position as a company with long-term investments concentrated in core positions in markets and sub-markets with strong economic fundamentals and significant supply constraints. 4 We believe Archstone's Common Shares represent an attractive investment opportunity. Therefore, in February 1999, we announced a $100 million share repurchase program, which was completed in July 1999. In September 1999, we announced an additional $50 million share repurchase program. As of December 31, 1999, we had repurchased a total of $121.6 million of Common Shares (6.1 million shares at an average price of $19.76 per share) under both programs. Customer-focused Operations We are dedicated to maximizing Archstone's operating performance by providing a high-quality lifestyle to our customers in a consistent manner across our diverse portfolio. We actively pursue the ongoing development of innovative ideas, programs and services designed to enhance the customer experience and relationship with the Archstone brand, while also improving cash flow growth. In 1999, we led the industry by launching several new programs that significantly improve relationships with our customers: . SafeRent/SM/ Resident Screening is an Internet-based credit scoring model that allows us to approve customer applications in less than 30 seconds--a dramatic improvement compared to the industry standard of one to two days. Archstone was the first company in the apartment industry to launch this technology. Utilizing a proprietary credit scoring model similar to those used extensively by the nation's consumer credit card and mortgage companies to assess risk, SafeRent provides a more accurate prediction of an applicant's likelihood of fulfilling a lease obligation, while substantially improving our point-of-sale relationship with the customer. And, since the model is completely objective and correlates highly with expected lease performance, the company's exposure to financial and fair- housing risk is also substantially diminished. . Archstone's Instant Refunds Program allows us to return security deposits when customers need them most--on the day they move out, rather than the industry standard of 30 to 45 days. The Instant Refunds Program reduces processing costs and we believe it leaves customers with a lasting, positive impression of the company, which is expected to increase the likelihood for customer referrals. . BroadbandNOW!/TM/ is a high-speed Internet service, which is up to 100 times faster than typical dial-up modem service. Our alliance with BroadbandNOW! enables us to offer our customers the most sophisticated Internet technology available today. We recognized early on that high-speed data and Internet services would become a required amenity for apartment customers, and we had the foresight to perceive the intrinsic value of connecting all of our apartment communities on a nationwide Internet Protocol (IP) network. To our knowledge, Archstone is the first company in the apartment industry to make this service available to our residents, and anticipate a wide-scale national rollout of this service in 2000. Launched in 1997, Archstone's Seal of Service/SM/ emulates successful customer service programs from other highly competitive industries to create customer loyalty and trust while establishing the service benchmark for the apartment industry. The program features the following five unconditional service guarantees, which have contributed positively to our customer-focused operations: (i) a 100% Move-in Satisfaction Guarantee, (ii) a One-day Service Guarantee, (iii) an Archstone Rewards Program, (iv) a Customer Service Connection, and (v) an Archstone Relocation Guarantee. As an example, through the Archstone Relocation Guarantee, we have transferred approximately 2,300 residents to other Archstone communities in 1999, a 48% increase over the previous year, which has allowed us to retain an estimated $18 million in rental revenue. Archstone continues to be an industry leader in generating income from our operating communities through utility reimbursements, telecommunications and other customer services. Utility reimbursements, which we record as a reduction to utility expenses, were $133 per unit in 1999--an increase of 43% over 1998, and telecommunications and cable revenues were $36 per unit in 1999--a 64% increase over 1998. 5 Conservative Balance Sheet Management We are committed to preserving Archstone's strong balance sheet to enhance financial flexibility. The company has strong investment-grade debt ratings from Standard & Poors (BBB+), Moody's Investor Services (Baa1), and Duff & Phelps (A-), which are indicative of Archstone's solid financial position. It should be noted that a rating on debt securities is not a recommendation to buy, sell or hold securities and may be revised or withdrawn at any time. One of our primary objectives is to structure Archstone's balance sheet in order to have access to capital when few others do. We believe that careful balance sheet management will allow us to take advantage of compelling investment opportunities that are more likely to emerge in a capital-constrained environment. During 1999, we financed our investment activity primarily through internally generated cash flow from operations, asset dispositions, and the issuance of perpetual preferred stock. To minimize refinancing risk, we are focused on ensuring that the company does not face liquidity issues in a given quarter or year. As a result, Archstone's long-term debt is structured to create a relatively level principal maturity schedule, without significant repayment obligations in any future year. Archstone has only $82.4 million of long-term debt maturing during 2000, and $80.5 million maturing in 2001. We had a total of $356.5 million of undrawn capacity on our existing short-term credit facilities and $4.1 billion of unencumbered assets as of December 31, 1999. In addition, the company had a significant equity base, with a total equity market capitalization of $3.2 billion as of December 31, 1999. Management Depth and Succession Planning We believe that Archstone should have several senior executives with the leadership, operational, investment and financial skills and experience to oversee the entire operations of the company. We believe that several of Archstone's senior officers could serve as the principal executive officer and continue the company's strong performance. See "--Trustees and Officers of Archstone." Our management team emphasizes active training and organizational development initiatives for associates at all levels of the company to build long-term management depth and succession planning. Trustees and Officers of Archstone In July 1998, the name of the company was changed to Archstone Communities Trust. References throughout this section are labeled "Archstone" for the post- merger period as a result of this name change. Pre-merger periods will be referenced as follows: (i) as "Archstone" for individuals who were associated with Security Capital Pacific Trust and/or its management companies and (ii) as "Atlantic" for individuals who were associated with Security Capital Atlantic Incorporated and/or its management companies. See Note 8 of Archstone's audited financial statements contained in this Annual Report for a more complete discussion of the Atlantic Merger. Trustees of Archstone C. Ronald Blankenship-50-Trustee of Archstone since March 2000, Director, Vice Chairman and Chief Operating Officer of Security Capital since May 1998; prior thereto, Managing Director of Security Capital since 1991. Advisory Trustee of Archstone from July 1998 to March 2000. Non-Executive Chairman of Archstone from June 1997 to July 1998; Chairman of Archstone from June 1991 to June 1997; Interim Chairman, Chief Executive Officer and a Director of Homestead Village Incorporated (ownership, operation and development of extended-stay lodging facilities throughout the United States) since May 1999; Director of BelmontCorp (ownership, operation and development of assisted living facilities in the United States) since May 1998; Director of Storage USA, Inc. (ownership, operation and development of self-storage facilities throughout the United States) since December 1997; Director of CarrAmerica Realty Corporation (ownership, operation and development of office properties throughout the United States) since August 1998; Trustee of City Center Retail Trust (ownership, operation and development of premier urban-infill retail facilities throughout the United States) since December 1997; and a Director of Strategic Hotel Capital Incorporated from April 1997 to September 1999. James A. Cardwell-68-Trustee of Archstone since May 1980; Chief Executive Officer of Petro Stopping Centers, L.P. (operation of a national chain of full- service truck stopping centers) and its predecessor since 1975; Director of El Paso Electric Company since 1990. Ned S. Holmes-55-Trustee of Archstone since July 1998; Director of Atlantic from May 1994 to July 1998; President and Chief Executive Officer of Laing Properties, Inc. since May 1990; Chairman and President of Parkway Investments/ Texas Inc., a Houston-based real estate investment and development company which specializes in residential (apartment and townhouse), commercial (office and warehouse) and subdivision projects since April 1984; Director of Heritage Bank and Commercial Bancshares, Inc.; Chairman of the Port Commission of the Port of Houston Authority; Director of the Institute of International Education and the Houston International Protocol Alliance; a Director of Greater Houston Partnership. John T. Kelley, III-59-Trustee of Archstone since January 1988; founding officer and Advisory Trustee of ProLogis Trust (ownership, operation and development of industrial parks in the United States, Mexico and Europe) since January 1993; Director of Security Capital since 1990; Director of Regency Realty Corporation (ownership, operation and development of infill retail properties throughout the United States) since March 1999, prior to which he served as Chairman of the Board of Pacific Retail Trust. 6 Calvin K. Kessler-68-Trustee of Archstone since January 1972; President and principal shareholder, Kessler Industries, Inc., (manufacturer of furniture and aluminum castings) since 1960. Constance B. Moore-44-Trustee of Archstone since July 1998; Managing Director of the Capital Division of Security Capital since January 1999; Co- Chairman and Chief Operating Officer of Archstone from July 1998 to December 1998, at which time she left Archstone to become an employee of Security Capital; Director, Co-Chairman and Chief Operating Officer of Atlantic from January 1996 to July 1998; Managing Director of Archstone from May 1994 to December 1995. James H. Polk, III-57-Trustee of Archstone since January 1976; Managing Director, SING LTD. Co. (ownership, operation and development of self-storage facilities), since January 1998; Managing Director of Security Capital Markets Group Incorporated from August 1992 to June 1997 and President from March 1997 to June 1997; affiliated with Archstone from January 1976 to June 1997 in various capacities, including Trustee, President, and Chief Executive Officer; past President and Trustee of the National Association of Real Estate Investment Trusts, Inc.; Director, M.D. Anderson Hospital, Houston, Texas, and Mortgage West, Santa Fe, New Mexico. John M. Richman-72-Trustee of Archstone since July 1998; Director of Atlantic from September 1996 to July 1998; Counsel to the law firm of Wachtell, Lipton, Rosen & Katz from January 1990 to October 1996 and from April 1997 to present; former Chairman and CEO of Kraft Foods; Director, Evanston Northwestern Healthcare, Chicago Council on Foreign Relations and Lyric Opera of Chicago; Life Trustee of the Chicago Symphony Orchestra and Northwestern University; retired Director of R.R. Donnelley & Sons Company and served as Acting Chairman and Chief Executive Officer of that company from October 1996 to April 1997; retired Director of BankAmerica Corporation, Bank of America National Trust and Savings Association, and USX Corporation. Member, The Business Council and The Commercial Club of Chicago. John C. Schweitzer-55-Trustee of Archstone since April 1976; Director of Homestead Village Incorporated (ownership and operation of extended-stay lodging facilities) since April 1997; Director of Regency Realty Corporation (ownership, operation and development of infill retail properties throughout the United States) since March 1999; Trustee of Pacific Retail Trust from June 1997 to February 1999; President, Westgate Corporation (real estate and investments) since 1976; Managing Partner, Campbell Capital Ltd. (real estate and investments) since 1976; Trustee of Texas Christian University; Director of Chase Bank of Texas-Austin and KLRU Public Television, Austin, Texas. R. Scot Sellers-43-Trustee of Archstone since July 1998; Chairman and Chief Executive Officer of Archstone since December 1998, where he has overall responsibility for Archstone's strategic direction, investments and operations; Co-Chairman and Chief Investment Officer of Archstone from July 1998 to December 1998; President and Chief Executive Officer of Archstone from June 1997 to July 1998; from September 1994 to June 1997, Managing Director of Archstone, where he had overall responsibility for Archstone's investment strategy and implementation; Senior Vice President of Archstone from May 1994 to September 1994; from April 1993 to May 1994, Senior Vice President of Security Capital, where he was responsible for portfolio acquisitions from institutional sources. Executive Officers of Archstone The executive officers of Archstone are:
Name Title - ---- ----- R. Scot Sellers............... Chairman and Chief Executive Officer Patrick R. Whelan............. Chief Operating Officer Charles E. Mueller, Jr........ Chief Financial Officer Richard A. Banks.............. Managing Director J. Lindsay Freeman............ Managing Director
Biographies of Executive and Senior Officers R. Scot Sellers-43-See "Trustees of Archstone" above. 7 Patrick R. Whelan-42-Chief Operating Officer of Archstone since December 1998, where he has overall responsibility for operations of the company; Managing Director of Archstone since December 1996; previously, President of SCG Realty Services Incorporated, where he had overall responsibility for property management nationwide; Senior Vice President and Co-Manager of apartment acquisitions for Security Capital in 1994; Senior Vice President of Trammell Crow Company (development, acquisition and management of commercial properties) from July 1986 to January 1994. Charles E. Mueller, Jr.-36-Chief Financial Officer of Archstone since December 1998, where he is responsible for corporate finance, accounting/reporting and investor relations; Vice President of Archstone from September 1996 to December 1998; prior thereto, he was with Security Capital Markets Group, where he provided financial services to Security Capital and its affiliates. Richard A. Banks-52-Managing Director of Archstone since December 1997, where he is responsible for investments and operations in the West Region; Senior Vice President of Archstone from August 1997 to December 1997; from January 1995 to August 1997, President and Chief Executive Officer of Lincoln Residential Services, where he was responsible for all aspects of leading a full service property management company of approximately 40,000 apartment units in the western United States; from July 1993 to January 1995, Vice President of Lincoln Property Company, Irvine, California, with responsibility for overall management and revenue growth for the region. J. Lindsay Freeman-54-Managing Director of Archstone since July 1998, where he has responsibility for investments and operations in the East Region; Managing Director of Atlantic from December 1997 to July 1998; Senior Vice President of Atlantic from May 1994 to November 1997; previously, Senior Vice President and Operating Partner of Lincoln Property Company in Atlanta, Georgia, where he was responsible for acquisitions, financing, construction and management of apartment communities within the Atlantic region and oversaw operations of 16,000 apartment units. Daniel E. Amedro-43-Senior Vice President of Archstone since January 1999, where he has served as Chief Information Officer since March 1998; from September 1996 to March 1998, Vice President of Information Services for American Medical Response, the largest private ambulance operation in the United States; from March 1981 to September 1996, he was with Hyatt Hotels and Resorts, where his most recent position was Vice President of Information Services and was responsible for all strategic information systems including Spirit, Hyatt's worldwide reservation system, which supported over 50,000 users and was recognized as the leading reservations system in the hospitality industry. Caroline Brower-51-Senior Vice President, General Counsel and Secretary of Archstone since September 1999, where she provides legal and corporate governance services. Ms. Brower was Executive Director and Senior Vice President of AMERITON Properties Incorporated from September 1998 to September 1999. Prior thereto, Ms. Brower was a partner of Mayer, Brown & Platt, where she practiced transaction and real estate law. Neil T. Brown-43-Senior Vice President of Archstone since September 1998, where he is responsible for all investments, including the acquisition and development of new apartment communities in the East Region; Vice President from July 1998 to September 1998; Vice President of Atlantic from April 1996 to July 1998, where he had comparable responsibilities; from July 1992 to December 1995, Regional Vice President/Regional Partner of JPI Development Partners, Inc., where he was responsible for all development activity in Florida. Richard O. Campbell-37-Senior Vice President of Archstone since July 1998, where he is responsible for investment activity in target markets in the Midwest; Senior Vice President and Regional Managing Partner for the Dallas/Fort Worth area for JPI Partners from March 1997 to May 1998; Vice President in the Development Group for Atlantic from May 1994 to March 1997. Richard W. Dickason-43-Senior Vice President of Archstone since October 1997, where he has overall responsibility for investment activities in the northeastern United States; Vice President of Archstone from December 1993 to October 1997. Prior thereto, Partner and Vice President of Lincoln Property Company, Inc., where he was responsible for the acquisition, development, construction and management of a 4,000 unit multifamily residential portfolio in California. 8 Joseph J. Dominguez-40-Senior Vice President of Archstone since December 1998, where he is responsible for construction and planning of development communities in the East Region; Vice President from July 1998 to December 1998; Vice President of Atlantic from April 1996 to July 1998; prior thereto, he was a member of the development group of Atlantic; from November 1984 to August 1995, Vice President of Operations for the Casden Company, where he had overall responsibility for the start-up and operations of a general contracting subsidiary. Dana K. Hamilton-31-Senior Vice President of Archstone since December 1998 where she is responsible for the company's investments in new e-business and technology-related initiatives, development of the Archstone brand and corporate marketing and communications; Vice President from December 1996 to December 1998, responsible for new product development and revenue enhancement through portfolio-wide initiatives, and prior thereto, she focused on national operations for Archstone and its affiliates. Nelson L. Henry-64-Senior Vice President of Archstone since September 1998, where he has overall responsibility for construction, planning and rehabilitation activity in the West Region; Vice President of Archstone from August 1994 to September 1998. Prior thereto, Construction Vice President for Lincoln Property Company N.C. Inc., where he was responsible for the construction of over 8,000 units in Colorado and California. John Jordano, III-43-Senior Vice President of Archstone since October 1997, where he has overall responsibility for investment activity in the West Region; Vice President of Archstone from August 1994 to October 1997. Prior thereto, Senior Vice President of Prospect Partners, where he was responsible for identifying and advising individual and corporate clients on financial institution and Resolution Trust Corporation apartment acquisition and investment opportunities in the western United States. William Kell-43-Senior Vice President and Controller of Archstone since July 1998, where he is responsible for financial reporting, accounting, budgeting and forecasting; Senior Vice President of Atlantic from December 1997 to July 1998; Vice President of Atlantic from January 1996 to December 1997, during which time he held comparable responsibilities; from June 1991 to December 1995, Vice President and Controller of Archstone, where he had overall responsibility for accounting and financial reporting. Mary Caperton Lester-45-Senior Vice President of Archstone since September 1998 and Vice President from July 1998 to September 1998, where she has overall responsibility for community operations in Mid-Atlantic markets; Vice President of Atlantic from July 1995 to July 1998 and with Atlantic since June 1994, during which time she held comparable responsibilities. Prior thereto, Ms. Lester was with Summit Management Company, where she specialized in new business development. Toni L. Lopez-42-Senior Vice President of Archstone since September 1998 and Vice President from August 1996 to September 1998, where she has overall responsibility for community operations in Denver, Colorado; Salt Lake City, Utah; and Dallas, Austin, Houston and San Antonio, Texas, and with Archstone since July 1993, where she held similar responsibilities. Scott V. Monroe-40-Senior Vice President of Archstone since December 1998, where he has overall responsibility for community operations in California; Vice President from August 1996 to December 1998, during which time he held comparable responsibilities; from March 1987 to July 1996, Vice President of Maxim Property Management, where he had direct management responsibility for a residential portfolio consisting of over 11,000 units located throughout California and Arizona. Christopher T. Nolan-36-Senior Vice President of Archstone since September 1998 and Vice President from July 1998 to September 1998, where he has overall responsibility for acquisitions and dispositions in the East Region; Vice President of Atlantic from February 1998 to July 1998; from January 1997 to February 1998, Managing Director of R&B Realty Group, where he managed their apartment community expansion effort; from December 1995 to January 1997, Vice President of Atlantic, where he had responsibility for acquisitions; from May 1994 to December 1995, he was a member of Atlantic's asset management group. Daniel W. Ogden-39-Senior Vice President of Archstone since September 1998, where he is responsible for community operations in New Mexico, Arizona, Nevada and portions of Southern California; Vice President from March 1995 to September 1998, during which time he held comparable responsibilities; from June 1994 to February 1995, Executive Vice President of Mutual Real Estate Corporation in Dallas, Texas, where he was responsible for the management of a multifamily portfolio containing 2,500 units in seven states. 9 Jerry D. Quinn-56-Senior Vice President of Archstone since April 1999, where he is responsible for construction in the Central Region, Senior Vice President of Homestead Village Incorporated (ownership and operation of extended-stay lodging facilities) from December 1998 to March 1999, and was Vice President from December 1996 to December 1998, where he was a member of the Development group; a Vice President of Security Capital from July 1994 to December 1996. Glenn T. Rand-39-Senior Vice President of Archstone since September 1998 and Vice President from July 1998 to September 1998, where he is responsible for community operations in Florida and Georgia; Vice President of Atlantic from June 1996 to July 1998 and with Atlantic since May 1995, where he had comparable responsibilities; from August 1987 to April 1995, Vice President of Trammell Crow Residential and Avalon Properties, where he was responsible for operations and third party management solicitation in southern Florida and the northeastern United States. Gary L. Truitt-49-Senior Vice President of Archstone since December 1998, where he is responsible for Archstone's national redevelopment and purchasing activities and construction in the northeastern United States; Vice President from December 1995 to December 1998 and with Archstone since January 1995. Employees Archstone currently employs approximately 2,000 individuals, of which approximately 1,600 are focused on the site-level operation of our apartment communities. The balance are professionals who manage corporate and regional operations, including our investment program, property operations, and support functions. We consider our relationship with employees to be good. Archstone's employees are not represented by a collective bargaining agreement. Insurance Archstone carries comprehensive general liability coverage on our owned communities, with limits of liability customary within the industry, to insure against liability claims and related defense costs. Similarly, we are insured against the risk of direct physical damage in amounts necessary to reimburse the company on a replacement cost basis for costs incurred to repair or rebuild each property, including loss of rental income during the reconstruction period, plus a 12 month extended indemnification period. Archstone's blanket property policy for all operating and development communities includes coverage for the perils of flood and earthquake. Our earthquake coverage is subject to a deductible equal to 5% of the aggregate insurance value of communities affected by any such occurrence, subject to a maximum deductible of $5 million. The maximum aggregate flood or earthquake recovery per occurrence is $450 million. Risk Factors The following factors could affect Archstone's future financial performance: Dependence on Key Personnel Archstone's success depends on our ability to attract and retain the services of executive officers, senior officers and company managers. There is substantial competition for qualified personnel in the real estate industry and the loss of several of our key personnel could have an adverse effect on the company. Debt Financing Risks Archstone is subject to risks associated with debt financing. These risks include the risks that we will not have sufficient cash flow from operations to meet required payments of principal and interest, that we will be unable to refinance current or future indebtedness, that the terms of any refinancing will not be as favorable as the terms of existing indebtedness, and that we will be unable to make necessary investments in new business initiatives due to lack of available funds. Increases in interest rates could increase interest expense, which would adversely affect net earnings and cash available for payment of obligations. If we are unable to make required payments on indebtedness that is secured by a mortgage on Archstone's property, the asset may be transferred to the mortgagee with a consequent loss of income and value to Archstone. As of December 31, 1999, Archstone had $2.5 billion in total debt outstanding of which $694.9 million was secured by real estate assets. 10 Availability of Capital Since mid-1998 and continuing into 2000, the real estate industry has experienced a reduced supply of favorably priced public equity and debt capital, which has generally decreased the level of new investment activity by publicly traded real estate companies. A prolonged period in which real estate operating companies cannot effectively access the public equity markets may result in heavier reliance on alternative financing sources to undertake new investment activities. Interest of Certain Trustees in Archstone's Affiliates Three members of our Board are directors of Security Capital or one or more of its affiliates. In the event there is a transaction between Archstone and Security Capital or one of these affiliates, the interests of these persons may differ from the interests of our shareholders as a result of their positions in the other entity. For this reason, any transactions with an affiliate must be approved by a majority of the Outside Trustees, and Board members with a potential conflict are not allowed to vote on such transactions. Significant Influence of Principal Shareholder As of December 31, 1999, Security Capital beneficially owned approximately 39% of the issued and outstanding Common Shares and therefore controls approximately 39% of the vote on matters submitted to our shareholders. In addition, as long as Security Capital beneficially owns at least 10% of the outstanding Common Shares, Security Capital is entitled to representation on the Board of Trustees in proportion to its ownership interest and has rights of prior approval and consultation regarding certain matters. General Real Estate Investment Risks Real estate cash flows and values are affected by a number of factors, including changes in the general economic climate, local, regional or national conditions (such as an oversupply of properties or a reduction in rental demand in a specific area), the quality and philosophy of management, competition from other available properties and the ability to provide adequate maintenance and insurance and to control operating costs. Although we seek to minimize these risks through our market research and property management capabilities, they cannot be totally eliminated. Real estate cash flows and values are also affected by such factors as government regulations, including zoning, usage and tax laws, interest rate levels, the availability of financing, property tax rates, potential liability under environmental and other laws, and changes in environmental and other laws. Risks of Real Estate Development We have developed or commenced development on a substantial number of apartment communities and expect to develop additional apartment communities in the future. Real estate development involves risks in addition to those involved in the ownership and operation of established communities, including the risks that financing, if needed, may not be available on favorable terms, construction may not be completed on schedule, contractors may default, estimates of the costs of apartment communities may prove to be inaccurate and communities may not be leased or rented on profitable terms. These risks may cause the development to fail to perform as expected. Timely construction may be affected by local weather conditions, local or national strikes and by local or national shortages in materials, building supplies or energy and fuel for equipment. Illiquidity of Real Estate Investments Equity real estate investments are relatively illiquid and therefore may tend to limit our ability to react promptly to changes in economic or other conditions. Our ability to dispose of assets in the future will depend on prevailing market conditions. 11 Regulation Our communities must comply with Title III of the Americans with Disabilities Act to the extent that such communities are "public accommodations" and/or "commercial facilities" as defined by the Act. The Act does not consider apartment communities to be public accommodations or commercial facilities, except portions of such facilities open to the public, such as the leasing office. Noncompliance could result in imposition of fines or an award of damages to private litigants. We believe our communities comply with all present requirements under the Act and applicable state laws. Changes in Laws We may not be able to pass increased costs resulting from increases in real estate, income taxes or other governmental requirements directly to tenants. Substantial increases in rents, as a result of those increased costs, may affect the ability of a tenant to pay rent, causing increased vacancy. Changes in laws increasing potential liability for environmental conditions or increasing the restrictions on discharges or other conditions may result in significant unanticipated expenditures. We cannot give any assurance that new legislation, regulations, administrative interpretations or court decisions will not significantly change the laws relating to our qualification as a REIT, or the federal income tax consequences of that qualification to Archstone. Uninsured Losses There are certain types of losses (such as from wars) which may be uninsurable or not economically insurable. If an uninsured loss or a loss in excess of insured limits occurs, we could lose both our invested capital, and anticipated profits from, one or more communities. Competition There are numerous commercial developers, real estate companies and other owners of real estate that we compete with in seeking land for development, apartment communities for acquisition and disposition, and residents for apartment communities. All of our apartment communities are located in developed areas that include other apartment communities. The number of competitive apartment communities in a particular area could have a material adverse effect on our ability to lease units and on the rents charged. In addition, single- family homes and other residential properties provide housing alternatives to residents and potential residents of our apartment communities. As reported in "Item 2. Properties - Geographic Distribution", approximately 16% of the apartment communities which are operating, under construction or In Planning were in Southern California as of December 31, 1999. Southern California is the geographic area comprised of Los Angeles, the Inland Empire, Orange County, San Diego and Ventura County. None of these markets, however, represent over 10% of our portfolio. We are, nonetheless, subject to increased exposure (positive or negative) to the economic and other competitive factors specific to our target markets within this geographic area. Impact of Environmental Regulations We must comply with certain environmental and health and safety laws and regulations related to the ownership, operation, development and acquisition of apartments. Under those laws and regulations, we may be liable for, among other things, the costs of removal or remediation of certain hazardous substances, including asbestos-related liability. Those laws and regulations often impose liability without regard to fault. As part of our due diligence procedures, we have conducted Phase I environmental assessments on each of our properties prior to acquisition; however, we cannot give any assurance that those assessments have revealed all potential liabilities. We are not aware of any environmental condition on any of our real estate investments which is likely to have a material adverse effect on Archstone's financial position or results of operations; however, we cannot give any assurance that any such condition does not exist or may not arise in the future. 12 Item 2. Properties Geographic Distribution Archstone's apartment communities are located in markets that include 33 of the nation's 50 largest metropolitan markets. The following table summarizes the geographic distribution of our apartment communities which are operating, under construction or In Planning, based on Total Expected Investment.
December 31, --------------------------- 1999 1998 1997 ------ ------ ------ Central Region Austin, Texas...................................... 2.55% 2.19% 3.43% Chicago, Illinois.................................. 1.50 -- -- Dallas, Texas...................................... 1.70 1.94 2.11 Denver, Colorado................................... 3.67 2.96 5.23 Houston, Texas..................................... 2.50 2.71 4.53 Minneapolis, Minnesota............................. 0.96 -- -- Salt Lake City, Utah............................... 3.03 3.84 5.33 San Antonio, Texas................................. 2.25 2.25 3.74 Other.............................................. 0.16 2.45 3.14 ------ ------ ------ Central Region Total............................ 18.32 18.34 27.51 ------ ------ ------ East Region Atlanta, Georgia................................... 7.27 8.35 -- Boston, Massachusetts.............................. 1.88 -- -- Charlotte, North Carolina.......................... 2.89 3.86 -- Nashville, Tennessee............................... 1.54 1.75 -- Orlando, Florida................................... 1.12 1.31 -- Raleigh, North Carolina............................ 4.20 5.21 -- Richmond, Virginia................................. 2.28 2.69 -- Southeast Florida.................................. 5.12 5.23 -- Washington, D.C.................................... 7.02 5.41 -- West Coast Florida................................. 1.72 1.85 -- Other.............................................. 3.12 3.12 -- ------ ------ ------ East Region Total............................... 38.16 38.78 -- ------ ------ ------ West Region Albuquerque, New Mexico............................ 2.05 2.31 4.04 Las Vegas, Nevada.................................. 1.47 1.43 2.81 Phoenix, Arizona................................... 5.60 5.84 10.42 Portland, Oregon................................... 1.72 2.10 5.01 San Francisco Bay Area, California................. 9.49 9.76 15.27 Seattle, Washington................................ 5.80 6.44 11.63 Southern California................................ 16.20 13.83 20.15 Other.............................................. 1.19 1.17 3.16 ------ ------ ------ West Region Total............................... 43.52 42.88 72.49 ------ ------ ------ Total All Markets............................. 100.00% 100.00% 100.00% ====== ====== ======
13 Real Estate Portfolio The information in the following table is as of December 31, 1999 (dollar amounts in thousands). Additional information on the company's real estate portfolio is contained in "Schedule III, Real Estate and Accumulated Depreciation," and in Archstone's audited financial statements contained in this Annual Report.
Total Number of Number Archstone Expected Percentage Communities of Units Investment Investment Leased (1) ----------- -------- ---------- ------------ ----------- OPERATING APARTMENT COMMUNITIES: Central Region: Austin, Texas............................ 6 1,900 $ 85,121 $ 86,928 99.11% Chicago, Illinois........................ 3 879 81,758 88,474 97.27 Dallas, Texas............................ 6 1,616 95,487 100,201 95.79 Denver, Colorado......................... 11 3,286 193,279 199,701 97.75 Houston, Texas........................... 8 2,712 141,865 147,363 94.36 Minneapolis, Minnesota................... 3 718 50,641 56,592 98.89 Salt Lake City, Utah..................... 10 2,522 136,998 140,711 96.91 San Antonio, Texas....................... 13 3,269 127,253 132,502 96.08 Other.................................... 1 468 8,696 8,696 93.59 ------------ --------- ---------- ---------- --------- Central Region Subtotal/Average....... 61 17,370 $ 921,098 $ 961,168 96.66% ------------ --------- ---------- ---------- --------- East Region: Atlanta, Georgia......................... 19 6,182 $ 422,034 $ 428,018 96.75% Boston, Massachusetts.................... 2 389 53,440 54,582 99.23 Charlotte, North Carolina................ 7 2,136 137,280 138,941 95.22 Nashville, Tennessee..................... 5 1,637 88,399 90,383 95.30 Orlando, Florida......................... 5 984 64,325 65,981 98.17 Raleigh, North Carolina.................. 12 3,162 213,130 216,181 96.52 Richmond, Virginia....................... 5 1,308 101,387 101,916 96.71 Southeast Florida........................ 13 3,436 233,272 236,684 98.84 Washington, D.C. ........................ 8 2,484 222,162 225,688 99.32 West Coast Florida....................... 7 1,538 77,944 81,219 97.59 Other.................................... 3 1,135 70,037 70,180 94.62 ------------ --------- ---------- ---------- --------- East Region Subtotal/Average.......... 86 24,391 $1,683,410 $1,709,773 97.09% ------------ --------- ---------- ---------- --------- West Region: Albuquerque, New Mexico.................. 8 2,295 $ 118,460 $ 120,895 96.73% Las Vegas, Nevada........................ 3 1,748 84,119 86,226 97.83 Phoenix, Arizona......................... 15 5,718 298,723 307,535 94.22 Portland, Oregon......................... 6 1,597 100,455 101,233 94.43 San Francisco Bay Area, California....... 7 3,120 321,799 336,266 96.79 Seattle, Washington...................... 13 3,484 261,564 265,350 95.09 Southern California...................... 24 7,565 601,882 609,162 97.25 Other.................................... 4 967 52,779 53,575 95.76 ------------ --------- ---------- ---------- --------- West Region Subtotal/Average.......... 80 26,494 $1,839,781 $1,880,242 96.03% ------------ --------- ---------- ---------- --------- Operating Apartment Communities Subtotal/Average..... 227 68,255 $4,444,289 $4,551,183 96.57% ------------ --------- ---------- ---------- ---------
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Number of Number Archstone Total Expected Percentage Communities of Units Investment Investment Leased (1) -------------- ----------- ------------ -------------- ------------- APARTMENT COMMUNITIES UNDER CONSTRUCTION: Central Region: Austin, Texas........................... 1 448 $ 13,089 $ 31,669 N/A% Denver, Colorado........................ 1 172 5,549 16,376 N/A Salt Lake City, Utah.................... 1 448 34,435 37,483 79.2 -------------- ----------- ------------ -------------- ------------ Central Region Subtotal/Average...... 3 1,068 $ 53,073 $ 85,528 33.2% -------------- ----------- ------------ -------------- ------------ East Region: Boston, Massachusetts................... 1 168 $ 20,066 $ 21,402 44.6% Charlotte, North Carolina............... 1 404 7,629 31,398 N/A Raleigh, North Carolina................. 1 388 27,706 31,289 56.7 Richmond, Virginia...................... 1 288 22,148 22,873 27.4 Southeast Florida....................... 1 408 9,857 30,722 N/A Washington, D.C......................... 3 862 54,564 92,683 24.5 West Coast Florida...................... 1 264 18,675 19,750 73.1 Other................................... 2 470 33,794 35,022 63.8 -------------- ----------- ------------ -------------- ------------- East Region Subtotal/Average......... 11 3,252 $ 194,439 $ 285,139 33.1% -------------- ----------- ------------ -------------- ------------- West Region: San Francisco Bay Area, California...... 4 1,500 $ 168,438 $ 222,057 32.8% Seattle, Washington..................... 2 754 60,648 64,964 67.5 Southern California..................... 2 1,076 71,896 149,467 9.8 Other................................... 1 180 14,526 16,204 52.2 -------------- ----------- ------------ -------------- ------------ West Region Subtotal/Average......... 9 3,510 $ 315,508 $ 452,692 34.2% -------------- ----------- ------------ -------------- ------------ Apartment Communities Under Construction Subtotal/Average.. 23 7,830 $ 563,020 $ 823,359 33.6% -------------- ----------- ------------ -------------- ------------ APARTMENT COMMUNITIES IN PLANNING AND OWNED: Central Region.......................... 1 444 $ 4,813 $ 31,648 East Region............................. 2 401 6,604 32,974 West Region............................. 5 1,251 34,064 149,913 -------------- ----------- ------------ ------------- Apartment Communities In Planning and Owned Subtotal/Average............... 8 2,096 $ 45,481 $ 214,535 -------------- ----------- ------------ ------------- Total Apartment Communities Owned at December 31, 1999... 258 78,181 $ 5,052,790 $ 5,589,077 -------------- ----------- ------------ ------------- OTHER REAL ESTATE ASSETS (3).............. -- $ 141,671 -- ----------- ------------ ------------- HOTEL ASSET............................... -- $ 22,870 $ 22,870 ----------- ------------ ------------- Total Real Estate Owned at December 31, 1999....... 78,181 $ 5,217,331 $ 5,611,947 =========== ============ =============
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APARTMENT COMMUNITIES IN PLANNING AND UNDER CONTROL(2): Expected Total Number Expected of Units Investment ----------- -------------- East Region................................................. 1,773 $218,236 West Region................................................. 602 78,141 ----------- -------------- Total Apartment Communities In Planning and Under Control............................................... 2,375 $296,377 =========== ==============
(1) Represents percentage leased as of December 31, 1999. For communities in Lease-Up, the percentage leased is based on leased units divided by total number of units in the community (completed and under construction) as of December 31, 1999. An "N/A" indicates markets with communities under construction where Lease-Up has not yet commenced. (2) As of December 31, 1999, Archstone's actual investment in communities In Planning and Under Control was $5.3 million, which is reflected in the "Other assets" caption of Archstone's Balance Sheet. (3) Includes land that is not In Planning and our investment in an unconsolidated taxable subsidiary. Item 3. Legal Proceedings Archstone is a party to various claims and routine litigation arising in the ordinary course of business. We do not believe that the results of any such claims and litigation, individually or in the aggregate, will have a material adverse effect on Archstone's business, financial position or results of operations. Item 4. Submission of Matters to a Vote of Security Holders Not applicable. PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters The Common Shares are listed on the NYSE under the symbol "ASN". The following table sets forth the high and low sales prices of the Common Shares, as reported on the NYSE Composite Tape, and cash distributions per Common Share for the periods indicated.
Cash High Low Distributions ---------------- --------------- --------------------- 1998: First Quarter....................................... $ 24 1/2 $ 22 1/8 $0.340 Second Quarter...................................... 24 1/16 21 1/4 0.340 Third Quarter....................................... 23 11/16 18 0.355 Fourth Quarter...................................... 21 1/2 17 7/8 0.355 1999: First Quarter....................................... $20 15/16 $ 19 3/16 $0.370 Second Quarter...................................... 23 1/2 19 5/8 0.370 Third Quarter....................................... 22 5/16 19 5/16 0.370 Fourth Quarter...................................... 21 11/16 18 15/16 0.370 2000: First Quarter (through February 23, 2000).......... $ 21 3/4 $19 11/16 $0.385
As of February 23, 2000, Archstone had approximately 138,970,000 Common Shares outstanding, approximately 3,300 record holders of Common Shares and approximately 35,000 beneficial holders of Common Shares. 16 In order to qualify as a REIT, Archstone is required to make distributions (other than capital gain distributions) to shareholders in amounts at least equal to (i) the sum of (A) 95% of its REIT taxable income (computed without regard to the dividends-paid deduction and its net capital gain) and (B) 95% of the net income (after tax), if any, from foreclosure property, minus (ii) the sum of certain items of non-cash income. Including the February 2000 distribution of $0.385 per Common Share, Archstone has paid quarterly cash distributions on the Common Shares for 24 consecutive years. The payment of distributions is subject to the discretion of the Board and is dependent upon the strategy, financial condition and operating results of Archstone. Our long- term objective is to reduce the company's dividend payout ratio to 65-70% of Funds From Operations while increasing annual dividends per Common Share each year. Reducing the dividend payout ratio allows Archstone to retain more of our internally generated cash flow from operations to fund future investment opportunities while maintaining compliance with the REIT rules requiring payout of at least 95% of taxable income. We announce the following year's projected annual distribution level after the Board's annual budget review and approval in December of each year. At its December 1999 Board meeting, the Board announced an anticipated increase in the annual distribution level from $1.48 to $1.54 per Common Share and declared the first quarter 2000 distribution of $0.385 per Common Share. The first quarter distribution was paid on February 28, 2000 to shareholders of record on February 14, 2000. Archstone is restricted from declaring or paying any distribution with respect to our Common Shares unless all cumulative distributions with respect to the Preferred Shares have been paid and sufficient funds have been set aside for Preferred Share distributions that have been declared. All of Archstone's declared distributions have been paid on schedule. For federal income tax purposes, distributions may consist of ordinary income, capital gains, non-taxable return of capital or a combination thereof. Distributions that exceed Archstone's current and accumulated earnings and profits (calculated for tax purposes) constitute a return of capital rather than a dividend and reduce the shareholder's basis in the Common Shares. To the extent that a distribution exceeds both current and accumulated earnings and profits and the shareholder's basis in the Common Shares, it will generally be treated as a gain from the sale or exchange of that shareholder's Common Shares. We annually notify shareholders of the taxability of distributions paid during the preceding year. For federal income tax purposes, the following summarizes the taxability of cash distributions paid on the Common Shares in 1997 and 1998 and the estimated taxability for 1999:
1999 1998 1997 ----- ----- ----- Per Common Share: Ordinary income................................... $1.26 $1.29 $1.08 Capital gains..................................... 0.10 0.10 -- Return of capital................................. 0.12 -- 0.22 ----- ----- ----- Total.......................................... $1.48 $1.39 $1.30 ===== ===== =====
Under federal income tax rules, Archstone's earnings and profits are first allocated to our Series A, Series B, Series C, and Series D Preferred Shares, which increases the portion of the Common Shares distribution classified as return of capital. 17 For federal income tax purposes, the following summaries reflect the estimated taxability of dividends paid on the Series A, Series B, Series C, and Series D Preferred Shares, respectively.
1999 1998 1997 ----- ----- ----- Per Series A Convertible Preferred Share: Ordinary income............................. $1.83 $1.72 $1.75 Capital gains............................... 0.16 0.15 -- ----- ----- ----- Total.................................... $1.99 $1.87 $1.75 ===== ===== ===== Per Series B Preferred Share: Ordinary income............................. $2.07 $2.07 $2.25 Capital gains............................... 0.18 0.18 -- ----- ----- ----- Total.................................... $2.25 $2.25 $2.25 ===== ===== =====
1999 1998/(1)/ ----- ----- Per Series C Preferred Share: Ordinary income............................. $1.99 $0.99 Capital gains............................... 0.17 0.09 ----- ----- Total.......................... $2.16 $1.08 ===== =====
(1) Represents dividends paid by Archstone in 1998 subsequent to the Atlantic Merger.
Date of Issuance to 12/31/99 ----------- Per Series D Preferred Share: Ordinary income............................. $0.81 Capital gains............................... 0.07 ----- Total.................................... $0.88 =====
Archstone's tax return for the year ended December 31, 1999 has not been filed, and the taxability information for 1999 is based upon the best available data. Archstone's tax returns for prior years have not been examined by the Internal Revenue Service and, therefore, the taxability of the dividends may be subject to change. 18 Item 6. Selected Financial Data The following table provides selected financial data relating to the historical financial condition and results of operations of Archstone for 1999, 1998, 1997, 1996 and 1995. This data is qualified in its entirety by, and should be read in conjunction with, "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation" and the financial statements and notes thereto incorporated by reference herein (amounts in thousands, except per share data).
Year Ended December 31, -------------------------------------------------------------------------------- 1999 1998 1997 1996 1995 ----------- ----------- ----------- ----------- ----------- Operations Summary: Total revenues................................... $ 666,872 $ 513,645 $ 355,662 $ 326,246 $ 264,873 Property operating expenses...................... 217,527 173,760 123,051 128,122 104,046 Net operating income............................. 420,281 310,779 212,009 193,924 158,427 Interest expense................................. 121,494 83,350 61,153 35,288 19,584 General and administrative expense............... 22,156 16,092 18,350 23,268 21,306 Nonrecurring expenses (1)........................ - 2,193 71,707 - - Earnings from operations (1)..................... 167,279 133,926 24,686 94,089 81,696 Gains on dispositions of depreciated real estate, net..................................... 62,093 65,531 48,232 37,492 2,623 Preferred Share cash dividends paid.............. 23,731 20,938 19,384 24,167 21,823 Net earnings attributable to Common Shares: - Basic....................................... 204,528 177,022 53,534 106,544 62,496 - Diluted..................................... 204,528 186,999 53,534 121,261 62,496 Common Share cash distributions paid............. $ 208,018 $ 165,190 $ 105,547 $ 90,728 $ 76,804 Per Share Data: Net earnings attributable to Common Shares: Basic (1)................................... $ 1.46 $ 1.49 $ 0.65 $ 1.46 $ 0.93 Diluted (1)................................. 1.46 1.49 0.65 1.44 0.93 Common Share cash distributions paid............. 1.48 1.39 1.30 1.24 1.15 Series A Convertible Preferred Share cash dividends paid.................................. 1.99 1.87 1.75 1.75 1.75 Series B Preferred Share cash dividends paid..... 2.25 2.25 2.25 2.25 1.36 Series C Preferred Share cash dividends paid..... 2.16 1.08 - - - Series D Preferred Share cash dividends paid..... $ 0.88 $ - $ - $ - $ - Weighted average Common Shares outstanding - Basic....................................... 139,801 118,592 81,870 73,057 67,052 Weighted average Common Shares outstanding - Diluted..................................... 139,829 125,825 81,908 84,340 67,126
December 31, ------------------------------------------------------------------------------ 1999 1998 1997 1996 1995 ------------ ------------ ------------ ------------ ------------ Financial Position: Real estate owned, at cost....................... $ 5,217,331 $ 4,869,801 $ 2,604,919 $ 2,153,363 $ 1,855,866 Mortgage notes receivable........................ 210,357 211,967 285,238 189,829 15,844 Total assets..................................... 5,302,437 5,059,898 2,805,686 2,282,432 1,840,999 Unsecured credit facilities...................... 493,536 264,651 231,500 110,200 129,000 Long-Term Unsecured Debt......................... 1,276,572 1,231,167 630,000 580,000 200,000 Mortgages payable................................ 694,948 676,613 265,652 217,188 158,054 Total liabilities................................ 2,679,628 2,410,114 1,265,250 1,014,924 565,331 Redeemable preferred stock....................... 297,635 272,515 240,210 267,374 335,000 Shareholders' equity............................. $ 2,567,506 $ 2,628,325 $ 1,540,436 $ 1,267,508 $ 1,275,668 Number of Common Shares outstanding.............. 139,008 143,313 92,634 75,511 72,211
19
Year Ended December 31 ------------------------------------------------------------- 1999 1998 1997 1996 1995 --------- --------- --------- --------- --------- Other Data: Cash Flows: Net cash provided by operating activities................ $ 282,537 $ 221,534 $ 159,724 $ 143,939 $ 121,795 Net cash used in investing activities.................... $(210,441) $(309,145) $(403,112) $(360,935) $(294,488) Net cash provided by (used in) financing activities...... $ (72,143) $ 92,803 $ 242,672 $ 195,720 $ 191,520 Computation of Funds From Operations: Net earnings attributable to Common Shares - Basic....... $ 204,528 $ 177,022 $ 53,534 $ 106,544 $ 62,496 Add (Deduct): Depreciation on real estate investments.................. 132,437 96,337 52,893 44,887 36,685 Provision for possible loss on investments............... 2,000 4,700 3,000 - 420 Gains on dispositions of depreciated real estate, net.... (62,093) (65,531) (48,232) (37,492) (2,623) Nonrecurring expenses and extraordinary items, net....... 1,113 3,690 71,707 739 - Other.................................................... 170 (662) (1,281) (141) - --------- --------- --------- --------- --------- Funds From Operations attributable to Common Shares/(2)/ - Basic..................................... 278,155 215,556 131,621 114,537 96,978 Series A Convertible Preferred Share dividends........... 8,206 9,332 9,934 14,717 16,100 Minority interest........................................ 780 - - - - --------- --------- --------- --------- --------- Funds From Operations attributable to Common Shares/(2)/ - Diluted................................... $ 287,141 $ 224,888 $ 141,555 $ 129,254 $ 113,078 ========= ========= ========= ========= ========= Weighted average Common Shares outstanding - Diluted..... 146,087 125,825 90,230 84,340 78,315 ========= ========= ========= ========= =========
(1) Nonrecurring expenses in 1998 include $1.1 million in transaction integration costs associated with the Atlantic Merger and $1.1 million associated with the introduction of Archstone's national branding strategy. In 1997, the non-recurring expense represents the impact of a one-time, non-cash charge of $71.7 million associated with the costs incurred in acquiring Archstone's REIT and property management companies from Security Capital. These one-time charges were not deducted for purposes of calculating Funds From Operations in 1998 and 1997, due to the non- recurring and/or non-cash nature of the expenses. (2) Funds From Operations has been an industry-wide standard used to measure operating performance of a REIT since its adoption by the NAREIT in 1991. Funds From Operations should not be considered as an alternative to net earnings or any other GAAP measurement of performance or as an alternative to cash flow from operating, investing or financing activities as a measure of liquidity. The Funds From Operations measure presented by Archstone, while consistent with the NAREIT's definition, will not be comparable to similarly titled measures of other REIT's that do not compute Funds From Operations in a manner consistent with Archstone. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The following information should be read in conjunction with Archstone's audited financial statements and notes contained in this Annual Report. Forward-Looking Statements Certain statements in this Annual Report are "forward-looking statements" as that term is defined under the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on management's current expectations, estimates and projections about the industry and markets in which Archstone operates. Words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates" and variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions, which are difficult to predict and many of which are beyond the control of Archstone. Therefore, actual outcomes and results may differ materially from what is expressed, forecasted or implied in such forward-looking statements. Information concerning expected investment balances, expected funding sources, planned investments and revenue and expense growth assumptions are examples of forward-looking statements. We undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law. 20 Archstone's operating results depend primarily on income from apartment communities, which is substantially influenced by demand and supply of apartment units in Archstone's primary target markets and submarkets, operating expense levels, property level operations and the pace and price at which we can develop, acquire or dispose of apartment communities. Capital and credit market conditions which affect Archstone's cost of capital also influence operating results. See "Item 1. Business" for a more complete discussion of risk factors that could impact Archstone's future financial performance. Results of Operations Archstone's rental revenues and net operating income increased in 1999 for the fourteenth consecutive year. The year over year increases from 1997 to 1998 and 1998 to 1999 were primarily due to: (i) the Atlantic Merger in July 1998; (ii) development of new communities; and (iii) execution of our capital redeployment program, which involves the disposition of operating communities in secondary markets with less attractive growth prospects to fund investments in targeted markets with higher barriers to entry. Archstone's net earnings from 1997 to 1998 and 1998 to 1999 also increased as a result of the increases in revenues and net operating income discussed above. The substantial increase in net earnings from 1997 to 1998 was also affected by greater gains on dispositions in 1998 and a $71.7 million non-cash charge recorded in 1997 related to the acquisition of Archstone's REIT and property management companies from Security Capital. The acquisition of these companies resulted in Archstone becoming an internally managed REIT. The non- cash charge was equal to the difference between the fair value of the stock consideration given by Archstone and the tangible net assets acquired. In July 1998 Security Capital Atlantic Incorporated, an affiliated apartment REIT which operated primarily in the southeast and mid-Atlantic markets of the United States, was merged with and into Archstone (which was called Security Capital Pacific Trust at the time). The Atlantic Merger added 91 operating apartment communities (24,414 units) and 34 development communities (9,358 units) to the portfolio. The transaction was accounted for as a purchase. Apartment Community Operations At December 31, 1999, investments in apartment communities comprised over 99% of Archstone's total real estate portfolio, based on Total Expected Investment. The following table summarizes the net operating income generated from Archstone's apartment communities during 1999, 1998 and 1997 (in thousands, except for units and percentages):
1999 1998 1997 ----------- ----------- ----------- Rental revenues........................... $ 634,028 $ 478,144 $ 331,346 Property operating expenses: Rental expenses......................... 165,103 132,359 95,956 Real estate taxes....................... 52,410 40,476 26,967 ----------- ----------- ----------- Total property operating expenses..... 217,513 172,835 122,923 ----------- ----------- ----------- Net operating income...................... $ 416,515 $ 305,309 $ 208,423 ----------- ----------- ----------- Average number of operating units......... 68,991 55,276 41,849 ----------- ----------- ----------- Operating margin (net operating income/rental revenues).................. 65.7% 63.9% 62.9% =========== =========== ===========
Archstone's growth in net operating income from 1997 to 1998 and 1998 to 1999 resulted primarily from increases in the number of operating communities added by the Atlantic Merger in July 1998 and the on-going development of new communities and increasing cash flow from existing apartment communities. The acquisition of operating communities has also played an important role in Archstone's growth, although community dispositions have exceeded acquisitions during the last four years as a result of our capital redeployment program. Execution of this strategy has led to an improvement in operating margins in each year during the period from 1997 to 1999 as a result of higher rental rates and more stable revenue growth as more capital is redeployed into markets with higher barriers to entry. Average occupancy has remained strong at 94.9%, 95.0% and 94.7%, respectively over the last three years. Rental expense growth has been controlled by operating efficiencies and increasing levels of utility expense reimbursements from customers, which has also contributed to improvement in operating margins. 21 We expect overall net operating income to increase in 2000 as units under development become operational and as the full impact of incremental development completions and acquisitions become fully reflected in Archstone's operating results. During 2000, we will continue to focus our energies on enhancing relationships and improving interfaces with customers. These efforts are intended to help build the Archstone brand, which is expected to result in higher levels of customer satisfaction, lower customer turnover and improved profitability. To achieve these objectives, our plans include: . Continuation of Archstone's Seal of Service/SM/ program which features five unconditional customer service guarantees; . Use of an Internet-based credit scoring model to facilitate on-the- spot approval of rental applications; and . Issuance of security deposit refunds the day a customer moves out of an Archstone community. In addition, we expect substantial progress towards each of the following initiatives during 2000: . Development and launch of an on-line leasing process; . Creation of community Web pages to facilitate electronic payment of rent, lease renewals and transfers, and the submission and tracking of requests for service; and . Offering various value-added services to customers, including high- speed Internet access, through alliances with world-class service providers. Other Income Other income is primarily influenced by interest income on convertible mortgage notes receivable. During 1999, 1998 and 1997, Archstone recorded $23.6 million, $22.9 million, and $16.7 million in interest income, respectively, from these notes. Depreciation Expense The increases in depreciation expense from 1997 to 1998 and 1998 to 1999 resulted primarily from the increase in the number of operating communities due to the Atlantic Merger in July 1998, and an increase in the cost basis of operating communities resulting from our active development and capital redeployment programs. These increases were partially offset by dispositions. A slight increase in depreciation is expected in 2000 as the full impact of incremental development completions and acquisitions become fully reflected. Interest Expense The increases in interest expense from 1997 to 1998 and 1998 to 1999 are primarily attributable to higher outstanding debt balances associated with the financing of our investment activities. These higher borrowing costs were partially offset by the capitalization of interest on apartment development activities, which increased in each successive year. We expect interest expense to increase in 2000 as a result of higher outstanding debt balances, slightly higher interest rates and a decrease in interest capitalization due to lower levels of investments undergoing active development. General and Administrative Expenses The increase in general and administrative expenses in 1999 compared to 1998 related primarily to the incremental costs associated with operating the company after the Atlantic Merger, which occurred in July 1998. General and administrative expenses decreased in 1998 as compared to 1997 due primarily to the acquisition of the REIT management company from Security Capital in September 1997. Prior to the acquisition, the company paid an external management fee equal to approximately 16% of cash flow, none of which was eligible for capitalization. As a result of the management company acquisition, Archstone became internally managed and now directly incurs expenses related to personnel and other operating costs. General and administrative expenses also include a portion of the fees paid to Security Capital for certain services provided under an administrative service agreement, which began in September 1997. These fees have steadily declined since inception of the agreement as functions related to information technology, human resources, investor relations, legal and tax have been internalized. We expect these fees to continue to decrease as we explore further opportunities to internalize services. Costs related to internalized functions are incurred and paid directly by Archstone. Overall general and administrative expenses are expected to increase in 2000 primarily as a result of research and development associated with information technology initiatives and higher costs associated with Archstone's long-term incentive plan. 22 Provision for Possible Loss on Investments During 1999, we concluded that the full recovery of certain investments was doubtful. As a result, a provision for possible loss of $2.0 million was recorded to reduce these assets to their estimated fair value. Similar provisions of $4.7 million and $3.0 million were recorded during 1998 and 1997, respectively. Non-recurring and Other Expenses During 1998, Archstone incurred approximately $2.2 million in costs related to merger integration and the implementation of the Archstone national branding strategy. In 1997, Archstone recorded a non-recurring charge of $71.7 million in connection with the acquisition of the REIT and property management companies, as further discussed above. Other expenses have increased primarily as a result of an increase in minority interest associated with the issuance of perpetual preferred units during the latter half of 1999. Minority interest expense is expected to increase in 2000 as the effect of new issuances is realized. Gains on Dispositions Archstone has recognized substantial gains on the disposition of depreciated real estate in each of the last three years. These gains have resulted from our capital redeployment program, which we believe has been highly successful. Archstone's disposition activity will continue into 2000, although the level of dispositions is expected to be less than 1999. Extraordinary Items Extraordinary items were recorded in 1999 and 1998 in connection with the extinguishment of certain debt instruments. Preferred Share Dividends The higher level of Preferred Share dividends in each year during the period from 1997 to 1999 is primarily attributable to the issuance of the Series C Preferred Shares in connection with the Atlantic Merger, and yearly increases in the Series A Convertible Preferred Share dividend rate. The increase in 1999 relative to 1998 was also due to the issuance of Series D Preferred Shares in August 1999. The increases were partially offset by periodic conversions by shareholders of Series A Convertible Preferred Shares into Common Shares in each year. Liquidity and Capital Resources Financial Flexibility Since mid-1998 and continuing into 2000, the real estate industry has experienced a reduced supply of favorably priced equity and debt capital, which has generally decreased the level of new investment activity by real estate companies. As a result of this challenging capital environment and consistent with the capital redeployment program described earlier, Archstone funded attractive new investment opportunities during 1999 primarily through use of proceeds from dispositions in non-core secondary markets. Other sources of capital during 1999 included issuance of $50 million in Series D Preferred Shares, issuance of $43 million in perpetual preferred limited partnership units and borrowings under unsecured credit facilities. Although we cannot predict how long the current market conditions will prevail, we continue to believe Archstone's liquidity and financial condition are strong and are committed to preserving a strong balance sheet and maintaining the financial flexibility needed to capitalize on market opportunities as they arise. For example, in early 1999, we commenced a program to repurchase our shares and through December 31, 1999, have repurchased $121.6 million of Common Shares through this program (6.1 million shares at an average price of $19.76 per share). The Board has authorized the repurchase of up to $150 million in Common Shares. See "-Planned Investments" and "-Funding Sources" in this section for further information on planned investment and financing activities. We consider our liquidity and ability to generate cash from operations, dispositions and financings to be adequate to meet all of our cash flow requirements during 2000. 23 Operating Activities Archstone's net cash flow provided by operating activities increased by $61.0 million (27.5%) in 1999 as compared to 1998 and $61.8 million (38.7%) for 1998 compared to 1997. These increases are due primarily to the Atlantic Merger in July 1998, the development of new apartment communities and cash flow growth from existing apartment communities. Investing and Financing Activities During 1999, 1998 and 1997, we invested cash of $801.8 million, $688.2 million and $616.1 million, respectively, in real estate investments. Real estate investments and the repurchase of $121.6 million of Common Shares during 1999 were financed primarily from proceeds from property dispositions, cash held in escrow pending tax-deferred exchanges and borrowings under unsecured credit facilities. These unsecured credit facilities were partially repaid with net proceeds of $90.2 million from the issuance of Series D Preferred Shares and perpetual preferred limited partnership units, and cash flow from operations. Real estate investments during 1998 were financed primarily from proceeds from property dispositions, cash held in escrow pending tax-deferred exchanges, cash acquired in the Atlantic Merger and borrowings under unsecured credit facilities. These unsecured credit facilities were partially repaid with proceeds from the issuance of $447.2 million of Long-Term Unsecured Debt, $268.5 million in proceeds from the issuance of Fannie Mae secured debt and $44.0 million in net proceeds from the sale of Common Shares in 1998. Real estate investments during 1997 were financed primarily from proceeds from property dispositions and borrowings under unsecured credit facilities. These unsecured credit facilities were partially repaid during 1997 with proceeds from the issuance of $50 million of Long-Term Unsecured Debt and $248.4 million in net proceeds from the sale of 11.4 million Common Shares. Other significant financing activity included the payment of $231.7 million, $186.1 million and $124.9 million in Common and Preferred Share distributions in 1999, 1998 and 1997, respectively. The increases are principally attributable to (i) an increase in the overall number of Common Shares and Series C Preferred Shares outstanding resulting primarily from the Atlantic Merger in 1998; and (ii) annual increases in the cash distributions paid per Common Share. The increase from 1998 to 1999 was also due in part to the issuance of Series D Preferred Shares during 1999. We prepaid mortgages due to community dispositions of $52.1 million, $76.3 million and $49.8 million in 1999, 1998 and 1997, respectively, and funded convertible mortgage notes of $11.9 million and $85.8 million in 1998 and 1997, respectively. Archstone's most significant non-cash investing and financing activities during the three-year period ended December 31, 1999 included the Atlantic Merger in July 1998, and the acquisition of the REIT and property management companies from Security Capital in September 1997. Scheduled Debt Maturities and Interest Payment Requirements In order to reduce refinancing risk, Archstone's long-term debt obligations are carefully structured to create a relatively level principal maturity schedule with the objective of minimizing the requirement for unusually large payments in any single year. Archstone has only $82.4 million of long-term debt maturing during 2000, and $80.5 million maturing in 2001. See Note 4 of Archstone's audited financial statements contained in this Annual Report for additional information on scheduled debt maturities. We currently have $850 million in total borrowing capacity under Archstone's unsecured credit facilities, with $570.4 million outstanding and an available balance of $279.6 million at February 23, 2000. Archstone's unsecured credit facilities, Long-Term Unsecured Debt and mortgages payable had effective interest rates of 6.3%, 7.3% and 6.1%, respectively, as of December 31, 1999. These rates give effect to interest rate swaps and caps, as applicable. Archstone was in compliance with all financial covenants pertaining to our debt instruments at December 31, 1999. 24 Shareholder Dividend/Distribution Requirements Based on anticipated distribution levels for 2000 and the number of Archstone shares outstanding as of December 31, 1999, we anticipate that Archstone will pay the following annual dividends/distributions in 2000 (in thousands, except per share amounts):
Per Share Total --------- -------- Common Share distributions.......................... $1.54 $214,073 Series A Convertible Preferred Share dividends...... 2.07 7,685 Series B Preferred Share dividends.................. 2.25 9,450 Series C Preferred Share dividends.................. 2.16 4,312 Series D Preferred Share dividends.................. 2.19 4,375 Series E perpetual preferred limited partnership 2.09 1,926 unit distributions (1)............................ Series F perpetual preferred limited partnership 2.03 1,625 unit distributions (1)............................ Other distributions on minority interests /1/....... 1.54 921 -------- Total dividend/distribution requirements............ $244,367 ========
(1) See Note 6 of Archstone's audited financial statements contained in this Annual Report for information on the perpetual preferred limited partnership units and other minority interests. Planned Investments Following is a summary of unfunded planned investments as of December 31, 1999 (dollar amounts in thousands). The amounts labeled "Discretionary" represent future investments that we plan to make, although there is not a contractual commitment to do so. The amounts labeled "Committed" represent the approximate amount that Archstone has contractually committed to fund. Only the amount of non-refundable earnest money deposits is reflected as "Committed" for community acquisitions under contract or letter of intent.
Planned Investments ------- --------------------------- Units Discretionary Committed ------- ------------- --------- Planned operating community improvements............. - $ 93,117 $ 13,777 Communities under construction....................... 7,830 - 260,339 Communities In Planning and owned.................... 2,096 169,054 - Communities In Planning and Under Control............ 2,375 291,121 - Operating community acquisitions under contract or 1,241 179,200 6,600 letter of intent................................... ------ ------------- --------- Total.......................................... 13,542 $732,492 $280,716 ====== ============= =========
We anticipate completion of most of the communities that are currently under construction and the planned operating community improvements during the remainder of 2000 and 2001 and expect to start construction on approximately $250-300 million, based on Total Expected Investment, of communities that are currently In Planning, during 2000. We expect to complete the acquisition of operating communities under contract or letter of intent by June 30, 2000. No assurances can be given that communities Archstone does not currently own will be acquired or that planned developments will actually occur. In addition, actual costs incurred could be greater or less than Archstone's current estimates. 25 Funding Sources We anticipate financing the company's planned investment and operating needs primarily with cash flow from operating activities, disposition proceeds derived from our capital redeployment program and borrowings under unsecured credit facilities, prior to arranging long-term financing. Consistent with Archstone's performance in 1999, we anticipate that net cash flow from operating activities during 2000 will be sufficient to fund anticipated dividend/distribution requirements and scheduled debt principal payments. To fund planned investment activities, we had $356.5 million in available capacity on Archstone's unsecured credit facilities, $68.7 million in tax-deferred exchange escrow and $57.5 million of operating communities and certain other real estate assets under contract for sale as of December 31, 1999. Subject to normal closing risks, we anticipate that we will complete these dispositions during the first or second quarter of 2000. Furthermore, we expect that $300-400 million in total proceeds will be generated from dispositions during 2000 in connection with the ongoing execution of our capital redeployment program. In addition, Archstone currently has $777.2 million in shelf registered securities which can be issued in the form of Long-Term Unsecured Debt, preferred shares or Common Shares on an as-needed basis, subject to our ability to complete offerings on satisfactory terms. Other Contingencies, Hedging Activities and Year 2000 Issue Archstone is a party to various claims and routine litigation arising in the ordinary course of business. When considering the company's insurance coverage and other aspects of our risk management program, we do not believe that the results of any such claims and litigation, individually or in aggregate, will have a material adverse effect on Archstone's business, financial position or results of operations. Our involvement with derivative financial instruments is limited and we do not use them for trading or other speculative purposes. We occasionally utilize derivative financial instruments to lower our overall borrowing costs. See Note 11 of Archstone's audited financial statements contained in this Annual Report for more information on derivative financial instruments currently in use. We have not experienced any significant adverse consequences related to the widely publicized Year 2000 issue. All mission-critical computer systems are operable and performing as intended. 26 Funds From Operations Funds From Operations has been an industry-wide standard used to measure operating performance of a REIT since its adoption by NAREIT in 1991. Funds From Operations should not be considered as an alternative to net earnings or any other GAAP measurement of performance or as an alternative to cash flow from operating, investing or financing activities as a measure of liquidity. The Funds From Operations measure presented by Archstone, while consistent with NAREIT's definition, will not be comparable to similarly titled measures of other REITs that do not compute Funds From Operations in a manner consistent with Archstone. Archstone's Funds From Operations is calculated as follows (amounts in thousands):
Year Ended December 31 ------------------------------ 1999 1998 1997 -------- -------- -------- Net earnings attributable to Common Shares--Basic ............. $204,528 $177,022 $ 53,534 Add (Deduct): Depreciation on real estate investments ................... 132,437 96,337 52,893 Provision for possible loss on investments ................ 2,000 4,700 3,000 Gain on disposition of investments, net ................... (62,093) (65,531) (48,232) Nonrecurring expenses and extraordinary items ............. 1,113 3,690 71,707 Other, net ................................................ 170 (662) (1,281) -------- -------- -------- Funds From Operations attributable to Common Shares--Basic .... $278,155 $215,556 $131,621 -------- -------- -------- Series A Convertible Preferred Share dividends ............ 8,206 9,332 9,934 Minority interest ......................................... 780 -- -- -------- -------- -------- Funds From Operations attributable to Common Shares--Diluted .. $287,141 $224,888 $141,555 ======== ======== ======== Weighted average Common Shares outstanding--Diluted ........... 146,087 125,825 90,230 ======== ======== ========
In October 1999, NAREIT revised the definition of Funds From Operations. The primary change involves including non-recurring items in Funds From Operations, except for those that are defined as "extraordinary items" under GAAP. To more closely conform to the revised definition, Archstone will count all interest income associated with our convertible mortgage notes as Funds From Operations whereas in the past it has excluded the benefit of non-cash amortization. Archstone will officially begin reporting the revised measure in the first quarter of 2000. Item 7A. Quantitative and Qualitative Disclosures About Market Risk Archstone is exposed to interest rate changes associated with our unsecured credit facilities and other variable rate debt. Our involvement with derivative financial instruments is limited and we do not use them for trading or other speculative purposes. We occasionally utilize derivative financial instruments to lower our overall borrowing costs. 27 The table below provides information about Archstone's financial instruments that are sensitive to changes in interest rates, including the estimated fair values for each interest rate sensitive asset or liability, as of December 31, 1999. As the table incorporates only those exposures that exist as of December 31, 1999, it does not consider those exposures or positions which could arise after that date. Moreover, because there were no firm commitments to actually sell these instruments at fair value as of December 31, 1999, the information presented therein is merely an estimate and has limited predictive value. As a result, Archstone's ultimate realized gain or loss with respect to interest rate fluctuations will depend on the exposures that arise during future periods, hedging strategies and prevailing interest rates at the time. The interest rates shown below give effect to interest rate caps and swaps, where applicable. See Note 11 of Archstone's audited financial statements contained in this Annual Report for information on Archstone's derivative financial instruments.
Expected Maturity/Principal Repayment Schedule at December 31, ------------------------------------------------------------- Estimated Total Fair 2000 2001 2002 2003 2004 Thereafter Balance Value(1) ------- ------- -------- -------- ------- ---------- ---------- ----------- Interest rate sensitive assets: Convertible mortgage notes receivable(2)..$ -- $ -- $ -- $ -- $ -- $205,601 $ 205,601 $ 205,600 Average nominal interest rate (3)....... 9.0% 9.0% 9.0% 9.0% 9.0% 9.0% -- -- Interest rate sensitive liabilities: Unsecured credit facilities...............$ 8,536 $ -- $ -- $485,000(4) $ -- $ -- $ 493,536 $ 494,000 Average nominal interest rate (3)....... 6.0% 6.0% 6.0% 6.0% -- -- -- -- Long-Term Unsecured Debt: Fixed rate..............................$75,310 $70,010 $97,810 $171,560 $51,560 $734,607 $1,200,857 $1,139,000 Average nominal interest rate (3)..... 7.3% 7.4% 7.4% 7.5% 7.5% 7.5% -- -- Variable rate (5).......................$ -- $ -- $ -- $ -- $ -- $ 75,715 $ 75,715 $ 71,000 Average nominal interest rate (3)..... 3.9% 3.9% 3.9% 3.9% 3.9% 3.9% -- -- Mortgages payable: Fixed rate debt (6).....................$ 5,910 $ 9,184 $ 4,531 $ 25,014 $ 4,842 $452,619 $ 502,100 $ 497,000 Average nominal interest rate (3)..... 6.3% 6.3% 6.2% 6.2% 6.2% 6.2% -- -- Variable rate debt........................$ 1,165 $ 1,257 $ 1,358 $ 1,467 $37,932 $149,669 $ 192,848 $ 193,000 Average nominal interest rate (3)...... 3.5% 3.5% 3.5% 3.5% 3.5% 3.4% -- --
(1) The estimated fair value for the convertible mortgage notes receivable and each of the liabilities listed was calculated by discounting the actual principal payment stream at prevailing interest rates (obtained from third party financial institutions) currently available on debt instruments with similar terms and features. (2) The face amount of the convertible mortgage notes is $221.3 million. See Note 3, of Archstone's audited financial statements contained in this Annual Report for more information on convertible mortgages notes. (3) Reflects the weighted average nominal interest rate on the assets or liabilities outstanding during each period, giving effect to principal payments and final maturities during each period, if any. The nominal interest rates for variable rate mortgages payable have been held constant during each period presented based on the actual variable rates at December 31, 1999. The weighted average effective interest rate at December 31, 1999 for the convertible mortgage notes receivable was 13.4%. The weighted average effective interest rate on the unsecured credit facilities, Long- Term Unsecured Debt and mortgages payable was 6.3%, 7.3%, and 6.1%, respectively. (4) Archstone's $750 million unsecured credit facility matures in July 2001, at which time it may be converted into a two-year term loan, at Archstone's option. (5) Consists of tax-exempt unsecured bonds. (6) The fixed rate mortgages payable balance includes $304.4 million of Fannie Mae secured debt. Archstone also has investments in marketable equity securities aggregating $7.7 million which have been classified as "available for sale" and whose value is subject to equity price risk. As of December 31, 1999 an unrealized holding gain of $394,000 had been recorded in "other comprehensive income", a component of shareholders' equity, on these securities. Item 8. Financial Statements and Supplementary Data Archstone's Balance Sheets as of December 31, 1999 and 1998, and its Statements of Earnings, Shareholders' Equity and Cash Flows for each of the years in the three-year period ended December 31, 1999 and Schedule III - Real Estate and Accumulated Depreciation, together with the reports of KPMG LLP, independent auditors, are included under Item 14 of this report and are incorporated herein by reference. Selected quarterly financial data is presented in Note 11 of Archstone's audited financial statements contained in this Annual Report. 28 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Not applicable. PART III Item 10. Trustees and Executive Officers of the Registrant For information regarding Archstone's Trustees and executive officers, see "Item 1. Business - Trustees and Officers of Archstone." The other information required by this Item 10 is incorporated herein by reference to the description under the captions "Election of Trustees" and "Section 16(a) Beneficial Ownership Reporting Compliance" in Archstone's 2000 Proxy Statement. Item 11. Executive Compensation Incorporated herein by reference to the description under the captions "Election of Trustees" and "Executive Compensation" in the 2000 Proxy Statement. Item 12. Security Ownership of Certain Beneficial Owners and Management Incorporated herein by reference to the description under the captions "Principal Shareholders" and "Election of Trustees" in the 2000 Proxy Statement. Item 13. Certain Relationships and Related Transactions Incorporated herein by reference to the description under the caption "Certain Relationships and Transactions" in the 2000 Proxy Statement. PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K The following documents are filed as a part of this report: (a) Financial Statements and Schedule: 1. Financial Statements See Index to Financial Statements and Schedule on page 31 of this report, which is incorporated herein by reference. 2. Financial Statement Schedule: See Schedule III on page 59 of this report, which is incorporated herein by reference. All other schedules have been omitted since the required information is presented in the financial statements and the related notes or is not applicable. 3. Exhibits. See Index to Exhibits on page 70 of this report, which is incorporated herein by reference. (b) Reports on Form 8-K: The following reports on Form 8-K were filed during the last quarter of the period covered by this report. None filed in last quarter of period covered by this report. (c) Exhibits: The Exhibits required by Item 601 of Regulation S-K are listed in the Index to Exhibits on page 70 of this report, which is incorporated herein by reference. 29 Index to Financial Statements and Schedule
Page ------ Archstone Communities Trust Independent Auditors' Report................................................................. 32 Balance Sheets as of December 31, 1999 and 1998.............................................. 33 Statements of Earnings for the years ended December 31, 1999, 1998 and 1997.................. 34 Statements of Shareholders' Equity for the years ended December 31, 1999, 1998 and 1997...... 35 Statements of Cash Flows for the years ended December 31, 1999, 1998 and 1997................ 36 Notes to Financial Statements................................................................ 37 Independent Auditors' Report on Financial Statement Schedule................................. 58 Schedule III - Real Estate and Accumulated Depreciation as of December 31, 1999.............. 59 Index to Exhibits............................................................................ 70
30 Independent Auditors' Report The Board of Trustees and Shareholders Archstone Communities Trust: We have audited the accompanying balance sheets of Archstone Communities Trust as of December 31, 1999 and 1998, and the related statements of earnings, shareholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1999. These financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with 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, the financial statements referred to above present fairly, in all material respects, the financial position of Archstone Communities Trust as of December 31, 1999 and 1998, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 1999, in conformity with generally accepted accounting principles. KPMG LLP Chicago, Illinois January 27, 2000, except as to Note 16, which is as of February 4, 2000 31 Archstone Communities Trust Balance Sheets (In thousands, except share data)
December 31, -------------------------- Assets 1999 1998 ------ ---------- ---------- Real estate................................................................................ $5,217,331 $4,869,801 Less accumulated depreciation.............................................................. 300,658 205,795 ---------- ---------- 4,916,673 4,664,006 Mortgage notes receivable, net............................................................. 210,357 211,967 ---------- ---------- Net investments..................................................................... 5,127,030 4,875,973 Cash and cash equivalents.................................................................. 10,072 10,119 Restricted cash in tax-deferred exchange escrow............................................ 68,729 90,874 Other assets............................................................................... 96,606 82,932 ---------- ---------- Total assets........................................................................ $5,302,437 $5,059,898 ========== ========== Liabilities and Shareholders' Equity ------------------------------------ Liabilities: Unsecured credit facilities............................................................. $ 493,536 $ 264,651 Long-Term Unsecured Debt................................................................ 1,276,572 1,231,167 Mortgages payable....................................................................... 694,948 676,613 Distributions payable................................................................... 53,518 53,364 Accounts payable........................................................................ 26,677 55,649 Accrued expenses........................................................................ 74,462 83,114 Other liabilities....................................................................... 59,915 45,556 ---------- ---------- Total liabilities................................................................... 2,679,628 2,410,114 ---------- ---------- Minority interest.......................................................................... 55,303 21,459 ---------- ---------- Shareholders' equity: Series A Convertible Preferred Shares (3,705,390 shares in 1999 and 4,700,615 in 1998; stated liquidation preference of $25 per share)...................................... 92,635 117,515 Series B Preferred Shares (4,200,000 shares; liquidation preference of $25 per share) per share)............................................................................. 105,000 105,000 Series C Preferred Shares (2,000,000 shares; liquidation preference of $25 per share)... 50,000 50,000 Series D Preferred Shares (2,000,000 shares; liquidation preference of $25 per share)... 50,000 -- Common Shares (139,008,353 in 1999 and 143,313,015 in 1998)............................. 139,008 143,313 Additional paid-in capital.............................................................. 2,271,856 2,350,239 Unrealized holding gain................................................................. 394 -- Distributions in excess of net earnings................................................. (141,387) (137,742) ---------- ---------- Total shareholders' equity.......................................................... 2,567,506 2,628,325 ---------- ---------- Total liabilities and shareholders' equity.......................................... $5,302,437 $5,059,898 ========== ==========
The accompanying notes are an integral part of the financial statements. 32 Archstone Communities Trust Statements of Earnings (In thousands, except per share amounts)
Years Ended December 31, ---------------------------------------- Revenues: 1999 1998 1997 --------- --------- ---------- Rental revenues................................................... $ 637,808 $ 484,539 $ 335,060 Other income...................................................... 29,064 29,106 20,602 --------- --------- --------- 666,872 513,645 355,662 --------- --------- --------- Expenses: Rental expenses................................................... 163,110 130,558 88,023 Rental expenses paid to affiliate................................. 1,996 2,521 7,642 Real estate taxes................................................. 52,421 40,681 27,386 Depreciation on real estate investments........................... 132,437 96,337 52,893 Interest expense.................................................. 121,494 83,350 61,153 General and administrative expenses............................... 20,521 13,978 4,036 General and administrative expenses paid to affiliate............. 1,635 2,114 14,314 Nonrecurring expenses: Branding strategy and Atlantic Merger integration............. - 2,193 - Costs incurred in acquiring management companies from an affiliate.................................................. - - 71,707 Provision for possible loss on investments........................ 2,000 4,700 3,000 Other expenses.................................................... 3,979 3,287 822 --------- --------- --------- 499,593 379,719 330,976 --------- --------- --------- Earnings from operations............................................. 167,279 133,926 24,686 Gains on dispositions of depreciated real estate, net............. 62,093 65,531 48,232 --------- --------- --------- Earnings before extraordinary items.................................. 229,372 199,457 72,918 Less extraordinary items.......................................... 1,113 1,497 - --------- --------- --------- Net earnings......................................................... 228,259 197,960 72,918 --------- --------- --------- Less Preferred Share dividends.................................... 23,731 20,938 19,384 --------- --------- --------- Net earnings attributable to Common Shares - Basic................... $ 204,528 $ 177,022 $ 53,534 ========= ========= ========= Weighted average Common Shares outstanding - Basic................... 139,801 118,592 81,870 --------- --------- --------- Weighted average Common Shares outstanding - Diluted................. 139,829 125,825 81,908 --------- --------- --------- Earnings before extraordinary item per Common Share: Basic............................................................. $ 1.47 $ 1.51 $ 0.65 ========= ========= ========= Diluted........................................................... $ 1.47 $ 1.50 $ 0.65 ========= ========= ========= Net earnings per Common Share: Basic and Diluted................................................. $ 1.46 $ 1.49 $ 0.65 ========= ========= ========= Distributions paid per Common Share.................................. $ 1.48 $ 1.39 $ 1.30 ========= ========= =========
The accompanying notes are an integral part of the financial statements. 33 Archstone Communities Trust Statements of Shareholders' Equity Years ended December 31, 1999, 1998 and 1997 (In thousands)
Series A Convertible Series B Series C Series D Preferred Preferred Preferred Preferred Shares at Shares at Shares at Shares at aggregate aggregate aggregate aggregate liquidation liquidation liquidation liquidation preference preference preference preference ----------- ----------- ----------- ----------- Balances at December 31, 1996 .............. $162,374 $105,000 $ -- $ -- Comprehensive income: Net earnings ....................... -- -- -- -- Preferred Share dividends paid ..... -- -- -- -- Other comprehensive income ......... -- -- -- -- Comprehensive income attributable to Common Shares ........................ -- -- -- -- Common Share distributions ............. -- -- -- -- Issuance of shares to affiliate ........ -- -- -- -- Issuance of shares, net of expenses .... -- -- -- -- Other, net ............................. (27,164) -- -- -- -------- -------- ------- ------- Balances at December 31, 1997 .............. 135,210 105,000 -- -- Comprehensive income: Net earnings ....................... -- -- -- -- Preferred Share dividends paid ..... -- -- -- -- Other comprehensive income ......... -- -- -- -- Comprehensive income attributable to Common Shares ........................ -- -- -- -- Common Share distributions ............. -- -- -- -- Atlantic Merger ........................ -- -- 50,000 -- Issuance of shares, net of expenses .... -- -- -- -- Other, net ............................. (17,695) -- -- -- -------- -------- ------- ------- Balances at December 31, 1998 .............. 117,515 105,000 50,000 -- Comprehensive income: Net earnings ....................... -- -- -- -- Preferred Share dividends paid ..... -- -- -- -- Other comprehensive income ......... -- -- -- -- Comprehensive income attributable to Common Shares ........................ -- -- -- -- Common Share distributions ............. -- -- -- -- Repurchase of shares, net of expenses .. (750) -- -- -- Issuance of shares, net of expenses .... -- -- -- 50,000 Other, net ............................. (24,130) -- -- -- -------- -------- ------- ------- Balances at December 31, 1999 .............. $ 92,635 $105,000 $50,000 $50,000 ======== ======== ======= =======
Common Additional Unrealized Distributions Shares at paid-in holding in excess of par value capital gain (loss) net earnings Total --------- ---------- ----------- ------------- ---------- Balances at December 31, 1996 .............. $ 75,511 $ 918,434 $ 74,923 $ (68,734) $1,267,508 Comprehensive income: Net earnings ....................... -- -- -- 72,918 72,918 Preferred Share dividends paid ..... -- -- -- (19,384) (19,384) Other comprehensive income ......... -- -- 8,871 -- 8,871 ---------- Comprehensive income attributable to Common Shares ........................ -- -- -- -- 62,405 ---------- Common Share distributions ............. -- -- -- (112,505) (112,505) Issuance of shares to affiliate ........ 3,296 68,780 -- -- 72,076 Issuance of shares, net of expenses .... 11,420 236,956 -- -- 248,376 Other, net ............................. 2,407 27,333 -- -- 2,576 -------- ---------- -------- --------- ---------- Balances at December 31, 1997 .............. 92,634 1,251,503 83,794 (127,705) 1,540,436 Comprehensive income: Net earnings ....................... -- -- -- 197,960 197,960 Preferred Share dividends paid ..... -- -- -- (20,938) (20,938) Other comprehensive income ......... -- -- (83,794) -- (83,794) ---------- Comprehensive income attributable to Common Shares ........................ -- -- -- -- 93,228 ---------- Common Share distributions ............. -- -- -- (187,059) (187,059) Atlantic Merger ........................ 47,752 1,038,390 -- -- 1,136,142 Issuance of shares, net of expenses .... 2,050 41,959 -- -- 44,009 Other, net ............................. 877 18,387 -- -- 1,569 -------- ---------- -------- --------- ---------- Balances at December 31, 1998 .............. 143,313 2,350,239 -- (137,742) 2,628,325 Comprehensive income: Net earnings ....................... -- -- -- 228,259 228,259 Preferred Share dividends paid ..... -- -- -- (23,731) (23,731) Other comprehensive income ......... -- -- 394 -- 394 ---------- Comprehensive income attributable to -- -- -- -- 204,922 Common Shares ........................ ---------- Common Share distributions ............. -- -- -- (208,173) (208,173) Repurchase of shares, net of expenses .. (6,098) (114,733) -- -- (121,581) Issuance of shares, net of expenses .... -- (1,740) -- -- 48,260 Other, net ............................. 1,793 38,090 -- -- 15,753 -------- ---------- -------- --------- ---------- Balances at December 31, 1999 .............. $139,008 $2,271,856 $ 394 $(141,387) $2,567,506 ======== ========== ======== ========= ==========
The accompanying notes are an integral part of the financial statements. 34 Archstone Communities Trust Statements of Cash Flows (In thousands)
Years Ended December 31, ------------------------------------- 1999 1998 1997 --------- --------- --------- Operating activities: Net earnings............................................................. $ 228,259 $ 197,960 $ 72,918 Adjustments to reconcile net earnings to net cash flow provided by operating activities: Depreciation and amortization........................................ 133,817 96,908 54,541 Gains on dispositions of depreciated real estate, net................ (62,093) (65,531) (48,232) Provision for possible loss on investments........................... 2,000 4,700 3,000 Costs incurred in acquiring management companies from an affiliate... -- -- 71,707 Extraordinary item................................................... 1,113 1,497 -- Change in accounts payable............................................... (19,119) (9,714) 4,000 Change in accrued expenses and other liabilities......................... 4,598 16,886 11,034 Change in other assets................................................... (6,038) (21,172) (9,244) --------- --------- --------- Net cash flow provided by operating activities....................... 282,537 221,534 159,724 --------- --------- --------- Investing activities: Real estate investments.................................................. (801,805) (688,151) (616,100) Proceeds from dispositions, net of closing costs......................... 572,741 401,031 297,895 Cash acquired in Atlantic Merger......................................... -- 79,359 -- Change in tax-deferred exchange escrow................................... 22,145 (90,874) -- Funding of convertible mortgage notes receivable......................... -- (11,895) (85,750) Other, net............................................................... (3,522) 1,385 843 --------- --------- --------- Net cash flow used in investing activities........................... (210,441) (309,145) (403,112) --------- --------- --------- Financing activities: Proceeds from (payments on) Long-Term Unsecured Debt..................... (30,000) 447,200 50,000 Proceeds from Fannie Mae secured debt.................................... 36,206 268,450 -- Debt issuance costs incurred............................................. (6,304) (14,281) (1,518) Principal payments on mortgages payable.................................. (62,965) (111,325) (53,131) Proceeds from bond refinancing........................................... 16,000 -- -- Proceeds from (payments on) unsecured credit facilities, net............. 228,885 (356,621) 121,300 Repurchase of Common Shares.............................................. (121,581) -- -- Proceeds from issuance of Common Shares, net............................. -- 44,009 249,199 Proceeds from issuance of Series D Preferred Shares, net................. 48,260 -- -- Proceeds from issuance of perpetual preferred units...................... 41,969 -- -- Cash distributions paid on Common Shares................................. (208,018) (165,190) (105,547) Cash dividends paid on Preferred Shares.................................. (23,731) (20,938) (19,384) Other, net............................................................... 9,136 1,499 1,753 --------- --------- --------- Net cash flow provided by (used in) financing activities............. (72,143) 92,803 242,672 --------- --------- --------- Net change in cash and cash equivalents..................................... (47) 5,192 (716) Cash and cash equivalents at beginning of year.............................. 10,119 4,927 5,643 --------- --------- --------- Cash and cash equivalents at end of year.................................... $ 10,072 $ 10,119 $ 4,927 ========= ========= =========
See Note 15 for supplemental information on non-cash investing and financing activities. The accompanying notes are an integral part of the financial statements. 35 Archstone Communities Trust Notes to Financial Statements December 31, 1999, 1998 and 1997 (1) Description of Business and Summary of Significant Accounting Policies In July 1998, Security Capital Atlantic Incorporated was merged with and into Security Capital Pacific Trust. This transaction is hereafter referred to as the "Atlantic Merger". Upon consummation of the Atlantic Merger, the name of the company was changed to Archstone Communities Trust. Financial information and references throughout this document are labeled "Archstone" for both pre- and post-transaction periods. Archstone's financial statements and related footnotes as of and for the period from the merger date (July 1998) to December 31, 1998 give effect to the Atlantic Merger, which was accounted for under the purchase method. See Note 8 for a more complete discussion. Business Archstone is an equity REIT organized in 1963 under the laws of the state of Maryland. Archstone primarily owns, operates, develops, acquires and redevelops income-producing apartment communities in our strategic target markets throughout the United States. Principles of Financial Presentation The accounts of Archstone and its controlled subsidiaries are consolidated in the accompanying financial statements. All significant intercompany accounts and transactions have been eliminated in consolidation. We use the equity method to account for investments when we do not control but have the ability to exercise significant influence over the operating and financial policies of the investee. For an investee accounted for under the equity method, Archstone's share of net earnings or losses of the investee is reflected in income as earned and dividends are credited against the investment as received. The preparation of these financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual amounts realized or paid could differ from those estimates. Cash and Cash Equivalents We consider all cash on hand, demand deposits with financial institutions and short-term, highly liquid investments with original maturities of three months or less to be cash equivalents. Real Estate and Depreciation Real estate, other than land and properties held for sale, is carried at depreciated cost. Long-lived assets to be disposed of are reported at the lower of their carrying amount or fair value less cost to sell. Such assets are no longer depreciated when designated as held for sale. We periodically review long-lived assets to be held and used for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. This review involves comparing an investment's book value to its estimated future cash flows, on an undiscounted basis. We capitalize direct and certain related indirect costs associated with the successful acquisition, development or improvement of real estate. Capitalized costs associated with unsuccessful acquisition or development pursuits are expensed at the time the pursuit is abandoned. 36 Archstone Communities Trust Notes to Financial Statements - (Continued) Depreciation is computed over the expected useful lives of depreciable property on a straight-line basis as follows: Buildings and related land improvements..... 20-40 years Furniture, fixtures, equipment and other.... 5-10 years Interest During 1999, 1998 and 1997, the total interest paid in cash on all outstanding debt, was $148.0 million, $96.4 million, and $73.1 million, respectively. We capitalize interest incurred during the construction period as part of the cost of apartment communities under development. Interest capitalized during 1999, 1998 and 1997 aggregated $31.9 million, $29.9 million, and $17.6 million, respectively. Cost of Raising Capital Costs incurred in connection with the issuance of equity securities are deducted from shareholders' equity. Costs incurred in connection with the issuance or renewal of debt are capitalized as other assets and are amortized into interest expense over the term of the related loan or the renewal period. The balance of any unamortized loan costs associated with refinanced debt is expensed upon replacement with new debt. Amortization of loan costs included in interest expense for 1999, 1998 and 1997 was $4.8 million, $3.3 million, and $3.2 million, respectively. We occasionally utilize derivative financial instruments to lower our overall borrowing costs. The costs associated with entering into these agreements, as well as the related gains or losses on such agreements, are deferred and are amortized into interest expense over the term of the underlying debt. Revenue and Gain Recognition We generally lease our apartment units under operating leases with terms of one year or less. Rental income is recognized according to the terms of the underlying leases which approximates the revenue which would be recognized if spread evenly over the lease term. Gains on sales of real estate are recorded when the recognition criteria set forth by GAAP have been met. Rental Expenses Rental expenses shown on the accompanying Statements of Earnings include costs associated with on-site and property management personnel, utilities (net of utility reimbursements from residents), repairs and maintenance, make-ready, property insurance, marketing, landscaping, and other on-site and related administrative costs. Federal Income Taxes We have made an election to be taxed as a REIT under the Internal Revenue Code of 1986, as amended, and believe Archstone qualifies as a REIT. Accordingly, no provision has been made for federal income taxes in the accompanying financial statements. Comprehensive Income Comprehensive income, which is defined as all changes in equity during each period except those resulting from transactions with or distributions to shareholders, is displayed in the accompanying Statements of Shareholders' Equity. The amounts reflected as "other comprehensive income" in 1998 and 1997 reflect unrealized holding gains and losses on convertible mortgages notes receivable (see Note 3). 37 Archstone Communities Trust Notes to Financial Statements - (Continued) Per Share Data Following is a reconciliation of basic earnings per share to diluted earnings per share for the periods indicated (in thousands):
1999 1998 1997 -------------- --------------- ------------- Reconciliation of numerator between basic and diluted net earnings per Common Share (1): Net earnings attributable to Common Shares - Basic.......................... $204,528 $177,022 $53,534 Dividends on Series A Convertible Preferred Shares...................... - 9,332 - Minority interest........................................................ - 645 - -------- -------- ------- Net earnings attributable to Common Shares - Diluted........................ $204,528 $186,999 $53,534 ======== ======== ======= Reconciliation of denominator between basic and diluted net earnings per Common Share (1): Weighted average number of Common Shares outstanding - Basic................ 139,801 118,592 81,870 Assumed conversion of Series A Convertible Preferred Shares into Common Shares......................................................... - 6,765 - Minority interest........................................................ - 458 - Incremental options outstanding.......................................... 28 10 38 -------- -------- ------- Weighted average number of Common Shares outstanding - Diluted.............. 139,829 125,825 81,908 ======== ======== =======
(1) Excludes the impact of potentially dilutive equity securities during the periods in which they are anti-dilutive. Expected Impact of New Accounting Rules In June 1998, SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, was issued which established standards for the accounting and reporting of derivative instruments. The new rules, which become effective January 1, 2001, are not expected to have a material impact on Archstone's financial position or results of operations. See Note 11 for further information on derivative financial instruments. Reclassifications Certain of the 1998 and 1997 amounts have been reclassified to conform to the 1999 presentation. 38 Archstone Communities Trust Notes to Financial Statements - (Continued) (2) Real Estate Investments in Real Estate Equity investments in real estate, at cost, were as follows (dollar amounts in thousands):
December 31, ------------------------------------------------------------------ 1999 1998 (1) ------------------------------ -------------------------------- Investment Units Investment Units -------------- ------------ --------------- ------------- Apartment communities: Operating communities................................ $4,444,289 68,255 $4,027,044 69,341 Communities under construction (2)................... 563,020 7,830 701,897 12,120 Development communities In Planning (2) Owned............................................. 45,481 2,096 69,710 3,398 Under Control (3)................................ - 2,375 - 3,772 ---------- ------ ---------- ------ Total development communities In Planning........ 45,481 4,471 69,710 7,170 ---------- ------ ---------- ------ Total apartment communities....................... 5,052,790 80,556 4,798,651 88,631 ---------- ====== ---------- ====== Hotel asset (4)....................................... 22,870 22,870 Other real estate assets (5)........................... 141,671 48,280 ---------- ---------- Total real estate.............................. $5,217,331 $4,869,801 ========== ==========
(1) Includes the real estate assets acquired in the Atlantic Merger (see Note 8). (2) Unit information is based on management's estimates and has not been audited or reviewed by Archstone's independent auditors. (3) Archstone's investment as of December 31, 1999 and 1998 for developments Under Control was $5.3 million and $4.8 million, respectively, and is reflected in the "Other assets" caption of Archstone's Balance Sheets. (4) Represents Archstone's investment in a five-story Holiday Inn hotel located in the Fisherman's Wharf area of San Francisco, California. (5) Includes land that is not In Planning and, in 1999, our investment in an unconsolidated taxable subsidiary. Capital Expenditures In conjunction with the underwriting of each acquisition of an operating community, we prepare acquisition budgets that encompass the incremental capital needed to achieve our investment objectives. These expenditures, combined with the initial purchase price and related closing costs, are capitalized and classified as "acquisition-related" capital expenditures, as incurred. As part of our operating strategy, we periodically evaluate each community's physical condition relative to established business objectives and the community's competitive position in its market. In conducting these evaluations, we consider Archstone's return on investment in relation to its long-term cost of capital as well as our research and analysis of competitive market factors. Capital expenditures for operating communities are classified as either "redevelopment" or "recurring". The redevelopment category includes: (i) redevelopment initiatives, which are intended to reposition the community in the marketplace and include items such as significant upgrades to the interiors, exteriors, landscaping and amenities; (ii) revenue-enhancing expenditures, which include investments that are expected to produce incremental community revenues, such as building garages, carports and storage facilities or gating a community; and (iii) expense-reducing expenditures, which include items such as water submetering systems and xeriscaping that reduce future operating costs. Recurring capital expenditures consist of significant expenditures for items having a useful life in excess of one year which are incurred to maintain a community's long-term physical condition at a level commensurate with our stringent operating standards. Examples of recurring capital expenditures include roof replacements, parking lot resurfacing and exterior painting. 39 Archstone Communities Trust Notes to Financial Statements - (Continued) Repairs, maintenance and make-ready expenditures, including the replacement of carpets and appliances, are expensed as incurred, to the extent they are not acquisition-related costs identified during our pre-acquisition due diligence. Make-ready expenditures are costs incurred in preparing a vacant apartment unit for the next resident. The change in investments in real estate, at cost, consisted of the following (in thousands):
Year Ended December 31, ---------------------------------------------------- 1999 1998 1997 ---------- ---------- ---------- Balance at January 1........................................ $4,869,801 $2,604,919 $2,153,363 ---------- ---------- ---------- Apartment communities: Real estate assets acquired in the Atlantic Merger..... - 1,823,727 - Acquisition-related expenditures....................... 401,392 285,806 391,234 Redevelopment expenditures............................. 72,517 57,171 43,187 Recurring capital expenditures......................... 13,022 9,464 8,762 Development expenditures, excluding land acquisitions.. 334,049 378,161 205,619 Acquisition and improvement of land for development.... 43,417 67,248 75,196 Dispositions(1)........................................ (542,554) (344,336) (268,210) Provision for possible loss on investments............. (450) - (2,800) ---------- ---------- ---------- Net apartment community activity............................ 321,393 2,277,241 452,988 ---------- ---------- ---------- Other: Change in other real estate assets..................... 32,359 - - Dispositions........................................... (4,672) (9,959) (1,232) Provision for possible loss on investments............. (1,550) (2,400) (200) ---------- ---------- ---------- Net other activity.......................................... 26,137 (12,359) (1,432) ---------- ---------- ---------- Balance at December 31...................................... $5,217,331 $4,869,801 $2,604,919 ========== ========== ==========
(1) At December 31, 1999, Archstone held a portion of the 1999 disposition proceeds aggregating $68.7 million in an interest bearing escrow account, pending the acquisition of other apartment communities to complete tax- deferred exchanges. At December 31, 1999, Archstone had unfunded contractual commitments related to real estate investment activities aggregating approximately $280.7 million. We were committed to the sale of seven apartment communities and certain other real estate assets having an aggregate carrying value of $57.5 million as of December 31, 1999. Each property's carrying value is less than or equal to its estimated fair market value, net of estimated costs to sell. The property- level earnings, after mortgage interest and depreciation, from communities held for disposition at December 31, 1999, which are included in Archstone's earnings from operations for 1999, 1998 and 1997, were $3.8 million, $3.3 million and $2.6 million, respectively. 40 Archstone Communities Trust Notes to Financial Statements - (Continued) (3) Mortgage Notes Receivable Convertible Mortgage Note Terms In October 1996, we contributed 54 extended-stay lodging assets to Homestead Village Incorporated (NYSE: HSD) in exchange for common stock and convertible mortgage notes. The common stock was distributed to Archstone's shareholders in November 1996. In total, we received $221.3 million (face amount) of convertible mortgage notes in exchange for development financing provided to Homestead from 1996 through 1998, including the notes received in exchange for the initial contribution of properties. In May 1999, Homestead consummated a common share rights offering and, in accordance with the terms of the agreement governing Archstone's convertible mortgage notes, the conversion ratio of the notes was adjusted. The notes are convertible into Homestead common stock on the basis of one share of Homestead common stock for every $10.44 of principal face amount outstanding. Previously the conversion ratio was $11.50. As a result of this lower conversion ratio, Archstone has the right to convert the Homestead notes into 1,944,860 additional Homestead common shares, for a total of 21,191,262 Homestead common shares. The conversion feature had no intrinsic value as of December 31, 1999. The convertible mortgage notes bear interest at 9.0% of face per annum which is received in interest-only payments on a semi-annual basis, are callable by Homestead after October 31, 2001 and mature on October 31, 2006. The extended- stay lodging assets we contributed serve as collateral securing the convertible mortgage notes. Face amount of convertible mortgage notes........................................ $221,334 Original issue discount.......................................................... (22,501) -------- Amount funded.................................................................... 198,833 Other adjustments(1)............................................................. 6,768 -------- Carrying value at December 31, 1999.............................................. $205,601 ========
(1) Includes the amortization of the original issue discount and the net unamortized discount on the conversion feature. (4) Borrowings Unsecured Credit Facilities Upon consummation of the Atlantic Merger in July 1998, we replaced our $350 million unsecured revolving credit facility with a $750 million unsecured revolving credit facility provided by a group of financial institutions led by Chase Bank of Texas, National Association. The $750 million unsecured credit facility matures in July 2001, at which time it may be converted into a two-year term loan at our option. The unsecured credit facility bears interest at the greater of prime or the federal funds rate plus 0.50%, or at our option, LIBOR (6.5% at December 31, 1999 and an average of 5.3% for the year ended December 31, 1999) plus 0.65%. The spread over LIBOR can vary from LIBOR plus 0.50% to LIBOR plus 1.25% based upon the rating of our Long-Term Unsecured Debt. Under a competitive bid option contained in the credit agreement, we may be able to borrow up to $375 million at a lower interest rate spread over LIBOR, depending on market conditions. Under the agreement, Archstone pays a facility fee, which is equal to 0.15% of the commitment. Archstone paid commitment fees of $1.1 million, $0.8 million, and $0.4 million in 1999, 1998 and 1997, respectively. Upon replacing the $350 million credit facility with the $750 million credit facility, we expensed the remaining $1.5 million of unamortized loan costs associated with the $350 million credit facility, which was recorded as an extraordinary item during 1998. 41 Archstone Communities Trust Notes to Financial Statements - (Continued) The following table summarizes our unsecured credit facility borrowings (in thousands, except for percentages):
Year Ended December 31, -------------------------------- 1999 1998 1997 -------- -------- -------- Total unsecured credit facility.............................. $750,000 $750,000 $350,000 Borrowings outstanding at December 31........................ $485,000 $234,000 $223,500 Weighted average daily borrowings............................ $387,082 $340,658 $121,038 Maximum borrowings outstanding during the period............. $485,000 $624,000 $251,250 Weighted average daily nominal interest rate................. 6.0% 6.3% 6.7% Weighted average daily effective interest rate............... 6.4% 6.8% 8.4%
In September 1996, we entered into a short-term, unsecured borrowing agreement with Chase Bank of Texas in order to enhance cash management flexibility. This borrowing agreement was renegotiated by Archstone upon consummation of the Atlantic Merger under terms similar to the previous agreement. In October 1998, the maximum borrowing capacity under the agreement was increased to $100 million. The agreement bears interest at an overnight rate that ranged from 5.4% to 6.3% during 1999. At December 31, 1999 and 1998, there were $8.5 million and $30.7 million of borrowings outstanding under this agreement respectively. Long-Term Unsecured Debt A summary of our Long-Term Unsecured Debt outstanding at December 31, 1999 follows (amounts in thousands):
Effective Average Coupon Interest Balance at Balance at Remaining Type of Debt Rate/(1)/ Rate/(2)/ December 31, 1999 December 31, 1998 Life (years) - ----------------------------------- --------- --------- ----------------- ----------------- ------------ Long-term unsecured senior notes... 7.3% 7.5% $1,200,857 $1,231,167 7.9 Unsecured tax-exempt bonds......... 3.9% 4.3% 75,715 -- 8.4 --- --- ---------- ---------- --- Total/average.................... 7.1% 7.3% $1,276,572 $1,231,167 7.9 === === ========== ========== ===
(1) Represents a fixed rate for the long-term unsecured notes and a variable rate for the unsecured tax-exempt bonds. See Note 11 for information on derivative financial instruments. (2) Represents the effective interest rate, including interest rate hedges, loan cost amortization and other ongoing fees and expenses, where applicable. The $1.2 billion of long-term unsecured senior notes generally have semi- annual interest payments and either amortizing annual principal payments or balloon payments due at maturity. (see -Scheduled Debt Maturities). The notes are redeemable any time at our option, in whole or in part. The redemption price is equal to the sum of the principal amount of the notes being redeemed plus accrued interest through the redemption date plus an adjustment, if any, based on the yield to maturity relating to market yields available at redemption. The long-term unsecured senior notes are governed by the terms and provisions of an indenture agreement. The unsecured tax-exempt bonds require semi-annual interest payments and are due upon maturity in 2008. 42 Archstone Communities Trust Notes to Financial Statements - (Continued) Mortgages Payable Archstone's mortgages payable generally feature either monthly interest and principal payments or monthly interest only payments with balloon payments due at maturity. A summary of mortgages payable outstanding at December 31, 1999 follows (amounts in thousands):
Effective Interest Principal Balance at December 31, Type of Mortgage Rate (1) 1999 1998 - ----------------------------------------------- ----------------------- ------------------------ ---------------------- Fannie Mae secured debt (2).................... 6.5% $304,365 $268,450 Conventional fixed rate........................ 7.9% 110,776 108,588 Tax-exempt fixed rate.......................... 6.3% 56,576 61,604 Tax-exempt floating rate....................... 4.5% 192,847 209,316 Other.......................................... 6.3% 30,384 28,655 ----------------------- ----------------------- ---------------------- Total/average mortgage debt.................. 6.1% $694,948 $676,613 ======================= ======================== ======================
(1) Includes the effect of interest rate hedges, credit enhancement fees, other bond-related costs and loan cost amortization, where applicable, as of December 31, 1999. See Note 11 for information on derivative financial instruments. (2) Represents a long-term secured debt agreement with Fannie Mae. The Fannie Mae secured debt matures January 2006, although Archstone has the option to extend the term of any portion of the debt for up to an additional 30-year period at any time, subject to Fannie Mae's approval. The changes in mortgages payable during the past three years consisted of the following (in thousands):
1999 1998 1997 ------------------ ----------------- ----------------- Balances at January 1.............................. $676,613 $ 265,652 $217,188 Notes assumed in Atlantic Merger................. - 160,329 - Notes assumed or originated...................... 141,613 362,158 101,595 Bond refinancing................................. (59,715) - - Regularly scheduled principal amortization....... (5,391) (4,316) (3,284) Prepayments, final maturities and other.......... (58,172) (107,210) (49,847) ------------------ ----------------- ----------------- Balances at December 31............................ $694,948 $ 676,613 $265,652 ================== ================= =================
Scheduled Debt Maturities Approximate principal payments due during each of the next five calendar years and thereafter, are as follows (in thousands):
Mortgages Payable --------------------------------------------- Regularly Scheduled Long-Term Principal Final Maturities Unsecured Debt Amortization and Other Total ------------------- -------------------- -------------------- ------------------ 2000............................. $ 75,310 $ 4,876 $ 2,199 $ 82,385 2001............................. 70,010 5,240 5,201 80,451 2002............................. 97,810 5,596 293 103,699 2003............................. 171,560 5,891 20,590 198,041 2004............................. 51,560 6,135 36,639 94,334 Thereafter....................... 810,322 158,737 443,551 1,412,610 ------------------- -------------------- -------------------- ------------------ Total....................... $1,276,572 $186,475 $508,473 $1,971,520 =================== ==================== ==================== ==================
The average annual principal payments due from 2005 to 2019 are $90.7 million per year. The $750 million unsecured credit facility matures in July 2001, at which time it may be converted into a two-year term loan at our option. 43 Archstone Communities Trust Notes to Financial Statements - (Continued) Other Archstone's debt instruments generally contain certain covenants common to the type of facility or borrowing, including financial covenants establishing minimum debt service coverage ratios and maximum leverage ratios. We were in compliance with all financial covenants pertaining to our debt instruments at December 31, 1999. See Note 11 for a summary of derivative financial instruments used in connection with our debt instruments. (5) Distributions to Shareholders To maintain Archstone's status as a REIT, we are generally required to distribute at least 95% of our taxable income. The payment of distributions is subject to the discretion of the Board and is dependent upon our strategy, financial condition and operating results. At its December 1999 Board meeting, the Board announced an anticipated increase in the annual distribution level from $1.48 to $1.54 per Common Share. The following table summarizes the cash dividends paid per share on the Common Shares and Preferred Shares in 1999, 1998 and 1997:
1999 1998 1997 ----- ----- ----- Common Shares.......................... $1.48 $1.39 $1.30 Series A Convertible Preferred Shares.. $1.99 $1.87 $1.75 Series B Preferred Shares.............. $2.25 $2.25 $2.25 Series C Preferred Shares (1).......... $2.16 $1.08 - Series D Preferred Shares (2).......... $0.88 - -
(1) In 1998, represents dividends paid subsequent to the Atlantic Merger. (2) Shares were issued in August 1999. The annualized dividend level is $2.1875 per share. (6) Minority Interest In August 1999, a consolidated subsidiary issued 520,000 Series E perpetual preferred units ($25 liquidation preference per unit) to a limited partnership in exchange for $13.0 million. In November 1999, an additional 400,000 units were issued in exchange for $10.0 million. The units pay cumulative quarterly distributions of $0.5234 per share ($2.09375 or 8.375% per annum), are redeemable at our option after August 13, 2004 and are convertible into Archstone Series E Cumulative Redeemable Perpetual Preferred shares on or after August 13, 2009. In September 1999, a consolidated subsidiary issued 800,000 Series F perpetual preferred units ($25 liquidation preference per unit) to a limited partnership in exchange for $20.0 million. The units pay cumulative quarterly distributions of $0.5078 per share ($2.03125 or 8.125% per annum), are redeemable at our option after September 27, 2004 and are convertible into Archstone Series F Cumulative Redeemable Perpetual Preferred shares on or after September 27, 2009. The total net proceeds of $42.0 million from the issuance of perpetual preferred units in 1999 were used to repay borrowings under our unsecured credit facilities. 44 Archstone Communities Trust Notes to Financial Statements - (Continued) During 1998, certain operating communities were acquired by a consolidated subsidiary of Security Capital Atlantic Incorporated in exchange for cash and limited partnership units. The Atlantic subsidiary became a subsidiary of Archstone as a result of the Atlantic Merger. As of December 31, 1999 and 1998 there were approximately 598,000 and 913,000 of these limited partnership units outstanding, respectively. The units are convertible on a one for one basis into Common Shares and are generally entitled to distributions in amounts equal to those distributed on Common Shares. All of the units are reflected as minority interest in the accompanying Balance Sheets. Distributions on the units are recorded as minority interest expense and are reflected as "Other expenses" in Archstone's 1999 and 1998 Statements of Earnings. See Note 16 for information regarding an additional issuance of perpetual preferred units. (7) Shareholders' Equity Shares of Beneficial Interest Archstone's Declaration of Trust authorizes us to issue up to 250,000,000 Shares of Beneficial Interest, $1.00 par value per share, consisting of Common Shares, preferred shares and such other shares of beneficial interest as the Board may create and authorize from time to time. The Board may classify or reclassify any unissued shares from time to time by setting or changing the preferences, conversion rights, voting powers, restrictions, limitations as to distributions, qualifications of terms or conditions of redemption. Preferred Shares The Series A Convertible Preferred Shares issued in November 1993 have a liquidation preference of $25.00 per share for an aggregate liquidation preference at December 31, 1999 of $92.6 million. Holders of the Series A Convertible Preferred Shares are entitled only to limited voting rights under certain conditions. Each Series A Convertible Preferred Share is convertible, in whole or in part at the option of the holder at anytime, into 1.3469 of Archstone's Common Shares. During 1999, 1998 and 1997, approximately 965,000, 708,000, and 1,087,000 of Series A Convertible Preferred Shares were converted, at the option of the holders, into approximately 1,300,000, 953,000, and 1,463,000 Common Shares, respectively. This activity is included in "Other, net" in the accompanying Statements of Shareholders' Equity. Distributions on the Series A Convertible Preferred Shares are payable in an amount per share equal to the greater of $1.75 per annum or the annualized quarterly distribution rate on the Common Shares into which the Series A Convertible Preferred Shares are convertible. Based on our anticipated 2000 Common Share dividend level, the dividend on the Series A Convertible Preferred Shares will be $2.074. The Series A Convertible Preferred Shares are redeemable at our option after November 30, 2003. A summary of Archstone's Series B, Series C and Series D Preferred Shares outstanding at December 31, 1999 follows:
Liquidation Total Preferred Shares Preference Liquidation Dividend Redeemable on or Shares Outstanding (per share) Preference (per share) After/(1)/ - --------- ----------- ----------- ------------ ----------- ---------------- Series B..... 4.2 million $25.00 $105 million $2.2500 May 24, 2000 Series C..... 2.0 million $25.00 $ 50 million $2.1560 August 20, 2002 Series D..... 2.0 million $25.00 $ 50 million $2.1875 August 6, 2004
(1) We may redeem the shares for cash, in whole or in part, at a redemption price of $25.00 per share plus any accrued but unpaid distributions, if any, to the redemption date. The redemption price (other than the portion thereof consisting of accrued and unpaid distributions) is payable solely out of the sale proceeds of other shares of Archstone, which may include other series of preferred shares. 45 Archstone Communities Trust Notes to Financial Statements - (Continued) The holders of the Preferred Shares do not have preemptive rights over the holders of Common Shares. The Preferred Shares have no stated maturity and are not subject to any sinking fund or other obligation of Archstone to redeem or retire the Preferred Shares. Holders of the Preferred Shares are entitled to receive, when and as declared by the Board, out of funds legally available for the payment of distributions, cumulative preferential cash distributions. The Series B, Series C, and Series D Preferred Shares are not convertible into any other securities of Archstone. All Preferred Share distributions are cumulative from the date of original issue and are payable quarterly in arrears on the last day of each March, June, September and December. All dividends due and payable on Preferred Shares have been accrued and paid as of the end of each fiscal year. All series of Preferred Shares rank on a parity as to distributions and liquidation proceeds. If six quarterly dividends payable (whether or not consecutive) on any series or class of preferred shares that are of equal rank with respect to dividends and any distribution of assets, shall not be paid in full, the number of Outside Trustees shall be increased by two and the holders of all such preferred shares voting as a class regardless of series or class, shall be entitled to elect the two additional Outside Trustees. Whenever all arrears in dividends have been paid, the right to elect the two additional Outside Trustees shall cease and the terms of such Outside Trustees shall terminate. Share Repurchase In February 1999, the Board authorized a $100 million share repurchase program, which was completed in July 1999. In September 1999, the Board authorized an additional repurchase of up to $50 million Common Shares. Through both programs, we have repurchased a total of $121.6 million of Common Shares (6.1 million shares at an average price of $19.76 per share) as of December 31, 1999. Proceeds from apartment community dispositions were used to reduce our unsecured credit facilities, providing the capacity to fund the share purchases. Dividend Reinvestment and Share Purchase Plan We established the Dividend Reinvestment and Share Purchase Plan in December 1997 in order to increase ownership in the company by private investors. Under the plan, holders of Common Shares have the ability to automatically reinvest their cash dividends to purchase additional Common Shares at a two percent discount from market rates, based on the average of the high and low sales price of a Common Share on the day of the purchase. Additionally, existing and prospective investors have the ability to tender cash payments that will be applied towards the purchase of Common Shares. The amount purchased by an individual is limited to a maximum of $5,000 per month, with any investments above the limitation requiring company approval. We did not grant approval for any purchases above the $5,000 threshold during 1999. In January 1998, we filed a registration statement with the SEC registering the offering of 2,000,000 Common Shares, which may be issued pursuant to the terms of the plan. Ownership Restrictions and Significant Shareholder Our governing documents restrict beneficial ownership of our outstanding shares by a single person, or persons acting as a group, to 9.8% of the Common Shares and 25% of each series of Preferred Shares. The purpose of these provisions is to assist in protecting and preserving Archstone's REIT status and to protect the interests of shareholders in takeover transactions by preventing the acquisition of a substantial block of shares without first negotiating with the Board. For Archstone to qualify as a REIT under the Internal Revenue Code of 1986, as amended, not more than 50% in value of its outstanding capital shares may be owned by five or fewer individuals at any time during the last half of Archstone's taxable year. The provision permits five persons to acquire up to a maximum of 9.8% each of the Common Shares, or an aggregate of 49% of the outstanding Common Shares. 46 Archstone Communities Trust Notes to Financial Statements - (Continued) Common Shares owned by a person or group of persons in excess of the 9.8% limit are subject to redemption by Archstone. The provision does not apply where a majority of the Board, in its sole and absolute discretion, waives such limit after determining that the eligibility of Archstone to qualify as a REIT for federal income tax purposes will not be jeopardized or the disqualification of Archstone as a REIT is advantageous to shareholders. The Board has permitted Security Capital to acquire up to 49% of Archstone's fully converted Common Shares. Security Capital's ownership of Common Shares is attributed for tax purposes to its shareholders. Security Capital owned approximately 39% of Archstone's total outstanding Common Shares at December 31, 1999. Pursuant to an agreement between Security Capital and Archstone, Security Capital has agreed to acquire no more than 49% of the fully converted Common Shares, subject to certain limited exceptions. Purchase Rights In 1994, the Board authorized the distribution to shareholders of one purchase right for each Common Share held. Holders of additional Common Shares issued after this date and prior to the expiration of the purchase rights in July 2004 will be entitled to one purchase right for each additional Common Share. Each purchase right entitles the holder under certain circumstances to purchase from Archstone one one-hundredth of a share of a Participating Preferred Share at a price of $60.00 per one one-hundredth of Participating Preferred Share, subject to adjustment. Purchase rights are exercisable when a person or group of persons acquires beneficial ownership of 20% or more of the fully converted Common Shares (49% in the case of Security Capital and certain defined affiliates), or takes formal actions, the intent of which would result in the beneficial ownership by a person of 25% or more of the outstanding Common Shares (49% in the case of Security Capital and certain defined affiliates). Under certain circumstances, each purchase right entitles the holder to purchase, at the purchase right's then current exercise price, a number of Common Shares having a market value of twice the purchase right's exercise price. The acquisition of Archstone pursuant to certain transactions or other business transactions would entitle each holder to purchase, at the purchase right's then current exercise price, a number of the acquiring company's common shares having a market value at that time equal to twice the purchase right's exercise price. The purchase rights will expire in July 2004 and are subject to redemption in whole, but not in part, at a price of $0.01 per purchase right payable in cash, shares of Archstone or any other form of consideration determined by the Board. Shelf Registration In December 1998, we filed a $750 million shelf registration with the SEC to supplement an existing shelf registration with a balance of $77.2 million. These securities can be issued in the form of Long-Term Unsecured Debt, Common Shares or preferred shares on an as-needed basis, subject to our ability to complete offerings on satisfactory terms. As of December 31, 1999 Archstone had approximately $777.2 million in shelf-registered securities available for issuance. (8) Atlantic Merger In July 1998, Security Capital Atlantic Incorporated ("Atlantic"), an affiliated apartment REIT which operated primarily in the southeast and mid- Atlantic markets of the United States, was merged with and into Security Capital Pacific Trust ("Pacific"). The combined company continued its existence under the name Archstone and is traded on the NYSE under the symbol "ASN". In accordance with the terms of the Atlantic Merger, each outstanding Atlantic common share was converted into the right to receive one Common Share and each outstanding Atlantic Series A preferred share was converted into the right to receive one comparable share of a new class of Series C Preferred Shares. As a result, 47,752,052 Common Shares and 2,000,000 Series C Preferred Shares were issued to Atlantic's shareholders in exchange for all of the outstanding Atlantic common shares and Atlantic Series A preferred shares. In addition, Archstone assumed Atlantic's debt and other liabilities. The total purchase price paid for Atlantic aggregated approximately $1.9 billion. The transaction was structured as a tax-free transaction and was accounted for under the purchase method. See Note 5 for additional information on Archstone's dividend and distribution levels, which were adjusted subsequent to the Atlantic Merger. 47 Archstone Communities Trust Notes to Financial Statements - (Continued) The following summarized pro forma unaudited information represents the combined historical operating results of Pacific and Atlantic with the appropriate purchase accounting adjustments, assuming the Atlantic Merger had occurred on January 1, 1997. The pro forma financial information presented is not necessarily indicative of what Archstone's actual operating results would have been had the two companies constituted a single entity during such periods (in thousands, except per share amounts):
Year Ended December 31, ----------------------- 1998 1997 --------- --------- Total revenues......................................................... $ 610,866 $ 550,805 ========= ========= Net earnings attributable to Common Shares before extraordinary items.. $ 201,562 $ 110,680 ========= ========= Net earnings attributable to Common Shares............................. $ 199,842 $ 110,680 ========= ========= Weighted average Common Shares outstanding: Basic........................................................... 141,939 128,575 ========= ========= Diluted......................................................... 148,714 128,614 ========= ========= Earnings attributable to Common Shares before extraordinary items per Common Share: Basic and Diluted............................................... $ 1.42 $ 0.86 ========= ========= Net earnings attributable to Common Shares per Common Share: Basic and Diluted............................................... $ 1.41 $ 0.86 ========= =========
(9) Acquisition of REIT Manager and Property Manager In September 1997, we acquired the operations and businesses of our REIT manager and property manager from Security Capital in exchange for 3,295,533 Common Shares. As a result of the transaction, we became an internally managed REIT. The market value of the 3,295,533 Common Shares issued was approximately $73.3 million, based on the $22.25 per share closing price of the Common Shares on such date. Of this amount, approximately $1.6 million was allocated to the estimated fair value of the tangible net assets acquired. The $71.7 million difference between the market value of the Common Shares and the estimated fair value of the net tangible assets acquired was recorded as "Costs incurred in acquiring management companies from an affiliate" (a non-recurring and non-cash expense) in Archstone's 1997 Statement of Earnings. Since the management companies did not have significant operations other than the management of Archstone and its assets, the transaction did not qualify as the acquisition of a "business" for purposes of applying APB Opinion No. 16, Business Combinations. Consequently, the market value of the Common Shares issued in excess of the fair value of the net tangible assets acquired was recorded as an operating expense rather than capitalized as goodwill. As a result of this transaction, we no longer pay REIT and property management fees to Security Capital. The REIT management agreement required us to pay a fee of approximately 16% of cash flow from operations, whereas the property management agreement required payment of a fee equal to approximately 3.5-3.75% of revenues, as defined in the respective agreements. None of these fees were capitalized. In lieu of these fees, we now directly incur the personnel and other costs related to these functions. Concurrent with the closing of the transaction, we also entered into an agreement with Security Capital for the provision of certain administrative services. Archstone purchases these services in exchange for a fee which, through December 31, 1998, was equal to Security Capital's direct cost of such services plus 20%. Effective January 1, 1999, the fee arrangement was revised to provide for the payment of our specific usage at fixed rates per unit for each service provided. The agreement has a one-year term and expires on December 31, 2000. We may modify or terminate the agreement, in whole or in part, at any time, subject to certain terms and conditions. 48 Archstone Communities Trust Notes to Financial Statements - (Continued) (10) Benefit Plans In September 1997, our Common Shareholders approved the long-term incentive plan. To date, there have been three types of awards issued under the plan: (i) an employee share purchase plan with matching options, (ii) share options with a DEU feature, and (iii) restricted Common Share unit awards with a dividend feature. No more than 8,650,000 Common Shares in the aggregate may be awarded under the plan and no individual may be awarded more than 500,000 Common Shares in any one-year period. The plan has a 10-year term. Dividend Equivalent Units The long-term incentive plan generally provides that participants who are awarded share options or restricted Common Share units will also be credited with DEUs with respect to such awards. Options awarded under the employee share purchase plan are not eligible for DEUs. The DEUs credited to share options or restricted Common Share units are awarded annually at the end of each year and vest under the same terms as the underlying share options or restricted Common Share units. DEUs credited to share options represent the number of share options held plus DEUs previously awarded, multiplied by the excess between the average annual dividend yield on Common Shares and the average dividend yield for the Standard & Poor's 500 Stock Index. The average annual dividend yield for the Standard & Poor's 500 Stock Index is not deducted when calculating DEUs credited to restricted Common Share units. As of December 31, 1999, there were a total of 151,840 DEUs outstanding, awarded to 172 holders of share options and restricted Common Share units. These DEUs were valued at $3.1 million on December 31, 1999 based upon the market price of the Common Shares on that date. We recognize the value of the DEUs awarded as compensation expense over the vesting period, net of any previously recorded DEU expense related to forfeitures. Employee Share Purchase Plan with Matching Options As of December 31, 1999, certain officers and other employees had purchased 931,304 Common Shares at prices ranging from $21.19 to $24.31 per Common Share under the employee share purchase plan. Archstone financed 95% of the total purchase price through 10-year notes from the participants aggregating $19.2 million at December 31, 1999. The share purchase notes are recorded as a reduction in shareholders' equity and are included in "Other, net" on the accompanying Statements of Shareholders' Equity. The notes bear interest at approximately 6.0% per annum. All dividends on the shares are applied to interest and principal on the notes, with no cash distributions to employees. The notes are fully recourse to the participant and are also secured by the Common Shares purchased. For each Common Share purchased, participants were granted two options, each to purchase one Common Share at the market price of the underlying share on the date of grant. The matching share options gradually vest over a five-year period. The matching share options do not have a DEU feature. A reconciliation of the notes due from employees during 1999 and 1998 are summarized as follows (in thousands):
1999 1998 ---------------- ---------------- Beginning balance.................. $ 26,275 $ 17,238 Notes assumed in Atlantic Merger... - 11,338 Notes issued....................... - 1,164 Retirements........................ (6,854) (3,254) Principal payments received........ (251) (211) ---------------- ---------------- Ending balance................ $ 19,170 $ 26,275 ================ ================
Of the notes outstanding at December 31, 1999, approximately $16.3 million were due from officers. 49 Archstone Communities Trust Notes to Financial Statements - (Continued) Share Options with DEU's and Trustee Options We have awarded share options with a DEU feature to certain officers and other employees. The exercise price of each share option granted is equal to the Common Share market price on the date of grant (See "Proforma Compensation Expense" below). The share options awarded generally vest at a rate of 25% per year. Additionally, Archstone has authorized 300,000 Common Shares for issuance to Outside Trustees. The exercise price of Outside Trustee options may not be less than the fair market value on the date of grant. All the options, except the 35,000 issued in 1999, have a five-year term and are exercisable in whole or in part at any time. The options issued in 1999 have a DEU feature, a 10-year term and vest over a four-year period. A summary of all share options outstanding at December 31, 1999 follows:
Weighted-Average Number of Range of Exercise Remaining Options Prices (1) Expiration Date Contractual Life --------------- ---------------------- -------------------- -------------------- Matching options under the employee share purchase plan.................. 1,862,608 $21.19 - $24.31 2007 - 2008 7.7 years Share options with DEU's.............. 2,260,806 $19.00 - $24.31 2007 - 2009 9.0 years Outside Trustees...................... 73,000 $15.59 - $22.59 2000 - 2009 5.8 years --------------- Total................................. 4,196,414 ===============
(1) The exercise price was equal to market price on the date of grant. The weighted average exercise prices for the matching options under the employee share purchase plan, share options with DEU's and Outside Trustee options were $22.17, $20.68, and $21.46 per Common Share, respectively, as of December 31, 1999. The weighted average exercise price for all options outstanding at December 31, 1999 was $21.36 per Common Share. A summary of the status of our share option plans as of December 31, 1999, 1998 and 1997, and changes during the years ended on those dates is presented below.
Weighted Number of Number of Average Exercise Options Options Price Exercisable ------------------ ---------------------- ------------------ Balance/Average at December 31, 1996............. 32,000 $16.48 32,000 ------------------ Granted....................................... 1,857,417 22.06 Exercised..................................... (2,000) 16.34 Forfeited..................................... (2,000) 8.46 ------------------ ---------------------- Balance/Average at December 31, 1997............. 1,885,417 21.99 38,000 ------------------ ---------------------- ------------------ Assumed in the Atlantic Merger................ 1,260,138 22.44 Granted....................................... 1,582,754 20.67 Exercised..................................... (8,000) 16.14 Forfeited..................................... (563,660) 22.30 ------------------ ---------------------- Balance/Average at December 31, 1998............. 4,156,649 21.62 48,000 ------------------ ---------------------- ------------------ Granted....................................... 923,528 20.74 Exercised..................................... (10,000) 18.83 Forfeited..................................... (873,763) 21.87 ------------------ ---------------------- Balance/Average at December 31, 1999 4,196,414 $21.36 873,325 ================== ====================== ==================
Restricted Common Share Unit Awards During 1999 and 1998, we awarded 360,594 and 220,572 restricted Common Share units with a DEU feature to certain employees under the long-term incentive plan, respectively, of which 22,663 have been forfeited. Each restricted Common Share unit provides the holder with one Common Share, subject to certain vesting provisions. The Common Share units and related DEU feature generally vest at 20% per year, over a five-year period. We recognize the value of the awards as compensation expense over the vesting period. 50 Archstone Communities Trust Notes to Financial Statements - (Continued) Proforma Compensation Expense We have adopted SFAS No. 123, Accounting for Stock-Based Compensation, which allows us to continue to account for our various share option plans using APB Opinion No. 25, Accounting for Stock Issued to Employees ("APB 25"), and related interpretations. Under APB 25, if the exercise price of the share options equals the market price of the underlying share on the date of grant, no compensation expense is recognized. Accordingly, we did not recognize compensation expense related to share options as the exercise price of all options granted was equal to the market price on the date of grant. Had compensation cost for these plans been determined using the option valuation models prescribed by SFAS No. 123, net earnings attributable to Common Shares and earnings per Common Share for 1999, 1998, and 1997 would change as follows:
1999 1998 1997 -------- -------- ------- Net earnings attributable to Common Shares (in thousands): As reported................................. $204,528 $177,022 $53,534 -------- -------- ------- Pro forma................................... $203,348 $175,991 $53,318 ======== ======== ======= Basic earnings per Common Share: As reported................................. $ 1.46 $ 1.49 $ 0.65 -------- -------- ------- Pro forma................................... $ 1.45 $ 1.48 $ 0.65 ======== ======== ======= Diluted earnings per Common Share: As reported................................. $ 1.46 $ 1.49 $ 0.65 -------- -------- ------- Pro forma................................... $ 1.45 $ 1.48 $ 0.65 ======== ======== =======
The pro forma amounts above were calculated using the Black-Scholes model, using the following assumptions:
1999 1998 1997 -------- -------- ------- Weighted average risk-free interest rate......... 6.52% 4.74% 6.08% Weighted average dividend yield.................. 6.97% 6.43% 5.60% Weighted average volatility...................... 16.31% 25.44% 18.35% Weighted average expected option life............ 6.27 years 6.74 years 6.74 years
The weighted average fair value of all options granted (excluding Trustee options) was approximately $2.00, $3.00 and $3.00 per option during 1999, 1998, and 1997, respectively. 401(k) Plan and Nonqualified Savings Plan In December 1997, the Board established a 401(k) plan and a nonqualified savings plan, which both became effective on January 1, 1998. The plans work together to provide for matching employer contributions of fifty cents for every dollar contributed by an employee, up to 6% of the employees' annual compensation. The matching employer contributions are made in Common Shares, which vest based on years of service at a rate of 20% per year. 51 Archstone Communities Trust Notes to Financial Statements - (Continued) (11) Fair Values of Financial Instruments The following disclosures of estimated fair value of financial instruments were determined based on available market information and valuation methodologies believed to be appropriate for these purposes. Considerable judgment and a high degree of subjectivity are involved in developing these estimates and, therefore, are not necessarily indicative of the actual amounts that Archstone could realize upon disposition. At December 31, 1999, the carrying amount of cash and cash equivalents, restricted cash in tax-deferred exchange escrow, and trade receivables and payables were representative of their fair values because of the short-term maturity of these instruments. Similarly, the carrying value of the unsecured credit facilities approximates fair value as of those dates since the interest rates on these instruments fluctuate based on published market rates. At December 31, 1999, the estimated fair value of our mortgage notes receivable approximated their amortized cost. At December 31, 1999, our marketable securities, which are all classified as "available for sale", had an estimated fair value and actual carrying value of $7.7 million. At December 31, 1999 our Long-Term Unsecured Debt had an estimated fair value of approximately $1.2 billion and an actual carrying value of $1.3 billion. The mortgages payable had an estimated fair value and actual carrying value of approximately $0.7 billion at December 31, 1999. Derivative Financial Instruments Our involvement with derivative financial instruments is limited and we do not use them for trading or other speculative purposes. We occasionally utilize derivative financial instruments to lower our overall borrowing costs. On December 22, 1999, we entered into an interest rate swap agreement with a notional amount of $7.25 million, relating to a tax-exempt bond carrying a fixed interest rate of 5.25% per annum. The $7.25 million swap effectively provides for a floating interest rate through the bond mandatory tender date of December 1, 2006, at which time the agreement terminates. The actual floating effective interest rate at December 31, 1999 was 4.1% per annum. On July 28, 1999, we entered into an interest rate swap agreement with a notional amount of $15.1 million, relating to unsecured tax-exempt bonds carrying a fixed interest rate of 5.3% per annum. The $15.1 million swap effectively provides for a floating interest rate through the bond mandatory tender date of June 1, 2008, at which time the agreement terminates. The actual floating effective interest rate at December 31, 1999, was 4.1% per annum. On June 29, 1999, we entered into an interest rate swap agreement with a notional amount of $60.6 million, relating to unsecured tax-exempt bonds carrying a fixed interest rate of 5.3% per annum. The $60.6 million swap effectively provides for a floating interest rate through the bond mandatory tender date of June 1, 2008, at which time the agreement terminates. The actual floating effective interest rate at December 31, 1999, was 4.3% per annum. On May 12, 1999, we entered into an interest rate swap agreement with a notional amount of $36.3 million, relating to secured tax-exempt bonds carrying a fixed interest rate of 9.0% per annum. The $36.3 million swap effectively provides for a floating interest rate through the bond maturity date of May 1, 2004, at which time the agreement terminates. The actual floating effective interest rate at December 31, 1999, was 4.6% per annum. On April 13, 1999, we entered into an interest rate swap agreement with a notional amount of $100 million, relating to a portion of the outstanding balance on our $750 million unsecured line of credit. The $100 million swap effectively provides for a fixed interest rate of 5.9% through April 13, 2000, at which time the agreement terminates. The effective interest rate on Archstone's unsecured line of credit, including the effect of the hedge, was 6.4% per annum as of December 31, 1999. 52 Archstone Communities Trust Notes to Financial Statements - (Continued) On January 21, 1999, we entered into two interest rate swap agreements with notional amounts aggregating $55.0 million, relating to Long-Term Unsecured Debt. The $55.0 million of notes, which were originally issued at a floating weighted average effective interest rate of 7.3%, were effectively converted to a fixed weighted average interest rate of 7.1% through maturity. In connection with the closing of the $268.5 million of long-term secured debt agreement in December 1998 with Fannie Mae, we entered into an interest rate cap agreement on December 30, 1998, with a notional amount aggregating $118.5 million, which capped this portion of the debt at an effective interest rate of 6.9% through December 2002. The actual floating effective interest rate at December 31, 1999, was 6.7% per annum. Additionally in January 1999, we entered into an interest rate swap on the remaining $150 million, which was originally issued at a floating weighted average interest rate of 5.9% per annum. The swap effectively provides for a fixed interest rate of 6.3% until maturity in 2006. As of December 31, 1999, marking our various interest rate agreements to market would result in a net gain of $15.8 million, prior to consideration of the associated issuance costs, if each had been terminated on such date. In anticipation of a Long-Term Unsecured Debt offering that closed in March 1998, we entered into four separate interest rate contracts in 1997 with notional amount aggregating $120 million. Upon completion of the offering, we terminated the interest rate contracts, realizing a loss of approximately $5.5 million. The resulting loss was deferred and is being amortized into interest expense over the term of the debt agreement. (12) Selected Quarterly Financial Data (Unaudited) Selected quarterly financial data (in thousands except per share amounts) for 1999 and 1998 is summarized below. The sum of the quarterly earnings per Common Share amounts may not equal the annual earnings per Common Share amounts due primarily to the impact of equity issuances.
Three Months Ended Year Ended ----------------------------------------------- ----------- 3-31 6-30 9-30 12-31 12-31 -------- -------- -------- -------- -------- 1999: Total revenues......................... $161,387 $163,317 $168,872 $173,296 $666,872 -------- -------- -------- -------- -------- Earnings from operations............... 39,330 42,415 43,361 42,173 167,279 Gains on dispositions of depreciated real estate, net......... 5,319 13,659 27,909 15,206 62,093 Less extraordinary item................ 1,113 - - - 1,113 Less Preferred Share dividends......... 5,691 5,617 6,036 6,387 23,731 -------- -------- -------- -------- -------- Net earnings attributable to Common Shares - Basic.................. 37,845 50,457 65,234 50,992 204,528 ======== ======== ======== ======== ======== Net earnings per Common Share: Basic.................................. $ 0.27 $ 0.36 $ 0.47 $ 0.37 $ 1.46 ======== ======== ======== ======== ======== Diluted................................ $ 0.27 $ 0.36 $ 0.46 $ 0.37 $ 1.46 ======== ======== ======== ======== ======== 1998: Total revenues......................... $ 95,611 $ 98,176 $159,045 $160,813 $513,645 -------- -------- -------- -------- -------- Earnings from operations............... 29,299 28,048 37,961 38,618 133,926 Gains on dispositions of depreciated real estate, net......... 15,484 - 21,204 28,843 65,531 Less extraordinary item................ - - 1,497 - 1,497 Less Preferred Share dividends......... 4,712 4,757 5,723 5,746 20,938 -------- -------- -------- -------- -------- Net earnings attributable to Common Shares Basic.................. $ 40,071 $ 23,291 $ 51,945 $ 61,715 $177,022 ======== ======== ======== ======== ======== Net earnings per Common Share: Basic................................. $ 0.43 $ 0.25 $ 0.36 $ 0.43 $ 1.49 ======== ======== ======== ======== ======== Diluted............................... $ 0.42 $ 0.25 $ 0.36 $ 0.43 $ 1.49 ======== ======== ======== ======== ========
53 Archstone Communities Trust Notes to Financial Statements - (Continued) (13) Segment Data We define each of our apartment communities as individual operating segments. We have determined that all of our apartment communities have similar economic characteristics and also meet the other criteria which permit the apartment communities to be aggregated into one reportable segment. We rely primarily on net operating income for purposes of making decisions about allocating resources and assessing segment performance. Following are reconciliations of the reportable segment's: (i) revenues to consolidated revenues, (ii) net operating income to consolidated earnings from operations, and (iii) assets to consolidated assets, for the periods indicated (in thousands):
Year Ended December 31, --------------------------------------------------- 1999 1998 1997 ------------- ------------- ------------- Reportable segment revenues................................................ $ 634,028 $ 478,144 $ 331,346 Other non-reportable operating segment income(1)........................... 32,844 35,501 24,316 ------------- ------------- ------------- Total segment and consolidated revenues.................................... $ 666,872 $ 513,645 $ 355,662 ============= ============= =============
Year Ended December 31, --------------------------------------------------- 1999 1998 1997 ------------- ------------- ------------- Reportable segment net operating income (2)................................ $ 416,515 $ 305,309 $ 208,423 Other non-reportable operating segment net operating income................ 3,766 5,470 3,586 ------------- ------------- ------------- Total segment net operating income.................................... 420,281 310,779 212,009 ------------- ------------- ------------- Reconciling items: Other income.......................................................... 29,064 29,106 20,602 Depreciation on real estate investments............................... (132,437) (96,337) (52,893) Interest expense...................................................... (121,494) (83,350) (61,153) General and administrative expenses................................... (22,156) (16,092) (18,350) Provision for possible loss on investments............................ (2,000) (4,700) (3,000) Nonrecurring expenses................................................. -- (2,193) (71,707) Other expenses........................................................ (3,979) (3,287) (822) ------------- ------------- ------------- Consolidated earnings from operations...................................... $ 167,279 $ 133,926 $ 24,686 ============= ============= =============
54 Archstone Communities Trust Notes to Financial Statements - (Continued)
December 31, ------------------------------------------- 1999 1998 ------------------ ------------------- Reportable segment assets...................................................... $ 4,819,307 $ 4,536,529 Other non-reportable operating segment assets (3).............................. 371,727 385,587 ------------------ ------------------- Total segment assets...................................................... 5,191,034 4,922,116 ------------------ ------------------- Reconciling items: Cash and cash equivalents................................................. 515 5,429 Restricted cash in tax-deferred exchange escrow........................... 68,729 90,874 Other assets.............................................................. 42,159 41,479 ------------------ ------------------- Consolidated total assets...................................................... $ 5,302,437 $ 5,059,898 ================== ===================
(1) Includes $23.6 million, $22.9 million and $16.7 million of interest income on the convertible mortgage notes receivable in 1999, 1998 and 1997, respectively (see Note 3). Also includes income from our unconsolidated taxable subsidiary and interest income on cash equivalents and other notes receivable. (2) Net operating income is defined as rental revenues less rental expenses and real estate taxes. (3) Includes $205.6 million and $203.0 million of convertible mortgage notes receivable during 1999 and 1998, respectively, and various other real estate investments. We do not derive any of our consolidated revenues from foreign countries and do not have any major customers that individually account for 10% or more of our consolidated revenues. (14) Commitments and Contingencies Archstone is a party to various claims and routine litigation arising in the ordinary course of business. We do not believe that the results of any of such claims and litigation, individually or in the aggregate, will have a material adverse effect on our business, financial position or results of operations. Archstone is subject to environmental regulations related to the ownership, operation, development and acquisition of real estate. As part of our due diligence investigation procedures, we conduct Phase I environmental assessments on each property prior to acquisition. The cost of complying with environmental regulations was not material to Archstone's results of operations for any of the years in the three-year period ended December 31, 1999. We are not aware of any environmental condition on any of our communities which is likely to have a material effect on Archstone's financial condition or results of operations. See Note 2 for apartment construction and redevelopment commitments. 55 Archstone Communities Trust Notes to Financial Statements - (Concluded) (15) Supplemental Cash Flow Information Significant non-cash investing and financing activities for the years ended December 31, 1999, 1998 and 1997 are as follows: (i) Holders of Series A Convertible Preferred Shares converted $24.1 million, $17.7 million and $27.2 million of their shares into Common Shares during the years ended December 31, 1999, 1998 and 1997, respectively. (ii) In connection with the acquisition of apartment communities, we assumed mortgage debt of $105.4 million, $93.7 million (excluding mortgage debt assumed in the Atlantic Merger) and $101.6 million during the years ended December 31, 1999, 1998 and 1997, respectively. (iii) We refinanced $59.7 million in bonds during the year ended December 31, 1999. (iv) We issued 47,752,052 Common Shares valued at approximately $1.1 billion, 2,000,000 Series C Preferred Shares valued at approximately $50.6 million and assumed debt and other liabilities valued at approximately $778.9 million in exchange for approximately $1.9 billion of assets in the Atlantic Merger. (v) We recorded an $83.8 million decrease and an $8.9 million increase in the unrealized gain on the convertible mortgage notes receivable during the years ended December 31, 1998 and 1997 respectively, primarily as a result of changes in the market value of the common stock into which these securities are convertible. (vi) We had notes receivable outstanding from employees aggregating $19.2 million, $26.3 million (including $11.3 million assumed in the Atlantic Merger) and $17.2 million for the purchase of Common Shares under the Archstone's long-term incentive plan in 1999, 1998 and 1997, respectively. (vii) We issued 3,295,533 Common Shares valued at $73.3 million to Security Capital in exchange for the operations and business of the REIT and property management companies in September 1997. (16) Subsequent Event In February 2000, a consolidated subsidiary issued 680,000 additional Series E perpetual preferred units ($25 liquidation preference per unit) to a limited partnership in exchange for $17.0 million. The units pay cumulative quarterly dividends of $0.5234 per share ($2.09375 or 8.375% per annum), are redeemable at our option after August 13, 2004 and are convertible into Archstone Series E Cumulative Redeemable Perpetual Preferred shares on or after August 13, 2009. 56 Independent Auditors' Report The Board of Trustees and Shareholders Archstone Communities Trust: Under date of January 27, 2000, except as to Note 16 which is as of February 4, 2000, we reported on the balance sheets of Archstone Communities Trust as of December 31, 1999 and 1998, and the related statements of earnings, shareholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1999. In connection with our audits of the aforementioned financial statements, we also audited the related financial statement schedule. This financial statement schedule is the responsibility of the company's management. Our responsibility is to express an opinion on this financial statement schedule based on our audits. In our opinion, such financial statement schedule as listed in the accompanying index, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. KPMG LLP Chicago, Illinois January 27, 2000 57 SCHEDULE III Archstone Communities Trust Real Estate and Accumulated Depreciation December 31, 1999 (Dollar amounts in thousands)
Initial Cost to Archstone ------------------------- Costs Capitalized Encum- Buildings & Subsequent to Units brances Land Improvements Acquisition ----- ------- ---- ------------ ------------- Apartment Communities: Albuquerque, New Mexico: Comanche Wells....................... 179 $ - $ 719 $ 4,072 $ 835 La Paloma............................ 424 - 4,135 - 19,966 La Ventana........................... 232 - 2,210 - 13,590 Pavilions............................ 240 - 2,182 7,624 6,339 Telegraph Hill....................... 200 - 1,216 6,889 1,013 Vista Del Sol........................ 168 - 1,105 4,419 1,238 Vistas at Seven Bar Ranch............ 572 - 3,541 5,351 20,709 Wellington Place..................... 280 - 1,881 7,523 1,904 Atlanta, Georgia: Archstone Roswell.................... 664 30,355 6,791 38,484 457 Archstone Vinings.................... 200 - 1,787 10,126 740 Azalea Park.......................... 447 15,033 4,330 24,536 484 Cameron Ashford...................... 365 - 4,245 24,053 251 Cameron at Barrett Creek............. 332 - 1,963 11,126 13,733 Cameron Briarcliff................... 220 - 2,515 14,250 238 Cameron at Northpoint................ 264 - 2,248 12,740 8,073 Cameron Bridge....................... 224 - 2,119 12,010 4,948 Cameron Brook........................ 440 18,774 4,050 22,950 306 Cameron Dunwoody..................... 238 - 2,747 15,566 148 Cameron Greens....................... 304 10,013 2,389 13,537 239 Cameron Landing...................... 368 15,340 3,535 20,030 516 Cameron Pointe....................... 214 12,545 2,725 15,440 462 Cameron Station...................... 348 15,058 2,880 16,321 1,010 Cameron Woodlands.................... 644 - 4,901 27,775 319 Lake Ridge at Dunwoody............... 268 - 3,126 17,712 179 Old Salem............................ 172 - 1,490 8,446 521 Trolley Square....................... 270 - 2,918 16,534 524 Winterscreek......................... 200 4,834 1,561 8,846 86 Austin, Texas: Archstone Hunters' Run I & II........ 400 14,820 2,197 - 17,856 Archstone Monterey Ranch I........... 168 16,861 424 - 9,204 Archstone Monterey Ranch II.......... 456 - 1,151 - 23,686 Archstone Monterey Ranch III......... 448 - 1,131 - 11,958 Archstone Northwest Hills............ 314 - 1,311 7,431 3,054 Ridge, The........................... 326 - 1,669 6,675 3,326 Shadowood............................ 236 - 1,197 4,787 1,154
Gross Amount at Which Carried at December 31, 1999 ------------------------------------- Con- Buildings & Accumulated struction Year Land Improvements Totals Depreciation Year Acquired ------ ------------ ------- ------------ --------- -------- Apartment Communities: Albuquerque, New Mexico: Comanche Wells....................... $ 719 $ 4,907 $ 5,626 $ 753 1985 1994 La Paloma............................ 4,135 19,966 24,101 3,165 1996 1993 La Ventana........................... 2,210 13,590 15,800 1,673 1996 1994 Pavilions............................ 2,182 13,963 16,145 3,082 (a) (a) Telegraph Hill....................... 1,216 7,902 9,118 701 1986 1996 Vista Del Sol........................ 1,105 5,657 6,762 946 1987 1993 Vistas at Seven Bar Ranch............ 3,541 26,060 29,601 3,451 (b) (b) Wellington Place..................... 1,881 9,427 11,308 1,446 1981 1993 Atlanta, Georgia: Archstone Roswell.................... 6,791 38,941 45,732 2,806 1988 1998 Archstone Vinings.................... 1,787 10,866 12,653 658 1978 1998 Azalea Park.......................... 4,330 25,020 29,350 1,658 1987 1998 Cameron Ashford...................... 4,245 24,304 28,549 1,542 1990 1998 Cameron at Barrett Creek............. 1,963 24,859 26,822 400 1999 1998 Cameron Briarcliff................... 2,515 14,488 17,003 915 1989 1998 Cameron at Northpoint................ 2,248 20,813 23,061 612 1999 1998 Cameron Bridge....................... 2,119 16,958 19,077 516 1999 1998 Cameron Brook........................ 4,050 23,256 27,306 1,447 1988 1998 Cameron Dunwoody..................... 2,747 15,714 18,461 999 1989 1998 Cameron Greens....................... 2,389 13,776 16,165 865 1986 1998 Cameron Landing...................... 3,535 20,546 24,081 1,359 1998 1998 Cameron Pointe....................... 2,725 15,902 18,627 989 1987 1998 Cameron Station...................... 2,880 17,331 20,211 1,062 (d) 1998 Cameron Woodlands.................... 4,901 28,094 32,995 1,758 (e) 1998 Lake Ridge at Dunwoody............... 3,126 17,891 21,017 1,347 1979 1998 Old Salem............................ 1,490 8,967 10,457 557 1968 1998 Trolley Square....................... 2,918 17,058 19,976 1,082 1989 1998 Winterscreek......................... 1,561 8,932 10,493 570 1984 1998 Austin, Texas: Archstone Hunters' Run I & II........ 2,197 17,856 20,053 2,428 (f) (f) Archstone Monterey Ranch I........... 424 9,204 9,628 164 1999 1993 Archstone Monterey Ranch II.......... 1,151 23,686 24,837 2,365 1996 1993 Archstone Monterey Ranch III......... 1,131 11,958 13,089 (c) (c) 1993 Archstone Northwest Hills............ 1,311 10,485 11,796 1,588 1979 1993 Ridge, The........................... 1,669 10,001 11,670 1,672 1978 1993 Shadowood............................ 1,197 5,941 7,138 954 1985 1993
58 SCHEDULE III
Initial Cost to Archstone ------------------------- Costs Capitalized Encum- Buildings & Subsequent to Units brances Land Improvements Acquisition ----- ------- ---- ------------ ------------- Apartment Communities: Birmingham, Alabama: Cameron at the Summit I.............. 372 $ - $3,458 $19,595 $ 414 Cameron at the Summit II............. 268 - 698 3,955 13,387 Boston. Massachusetts Arboretum, The....................... 312 36,346 6,721 38,087 513 Archstone Tewksbury.................. 77 3,076 1,189 6,739 190 Archstone Tewksbury II............... 168 - 3,235 660 16,171 Charlotte, North Carolina: Archstone Tyvola Centre.............. 404 - 3,470 2,461 1,698 Cameron at Hickory Grove............. 202 6,063 1,434 8,127 219 Cameron Matthews..................... 212 9,035 2,034 11,526 165 Archstone Eastover................... 128 - 1,431 8,107 705 Pinnacle at North Cross, The......... 312 - 3,573 20,264 206 Archstone Reafield................... 324 - 3,009 17,052 1,012 Springs at Steele Creek.............. 264 - 2,475 14,028 170 Waterford Square I & II.............. 694 - 6,220 35,243 280 Chicago, Illinois Foxfire (k).......................... 294 8,119 3,137 17,770 192 Garden Glen (k)...................... 460 33,410 6,844 38,722 1,203 Prairie Court (k).................... 125 7,250 2,071 11,708 111 Dallas, Texas: Archstone Knoxbridge................. 334 15,462 4,668 26,453 697 Archstone Legacy..................... 244 - 1,532 8,683 2,581 Archstone Spring Creek............... 278 - 1,613 9,140 2,925 Oaks at Park Boulevard, The.......... 216 - 1,386 5,543 3,050 Summerstone.......................... 192 - 1,028 5,824 2,192 Timber Ridge I & II.................. 352 - 1,672 5,671 10,829 Denver, Colorado: Archstone Dakota Ridge............... 480 - 2,108 24 32,494 Cambrian, The........................ 383 - 2,256 9,026 3,967 Cedars II, The....................... 172 - 828 529 4,192 Cedars, The.......................... 408 - 3,128 12,512 5,828 Fox Creek I.......................... 175 - 1,167 4,669 1,612 Fox Creek II......................... 112 - - - 8,819 Legacy Heights....................... 384 16,417 2,049 4 20,496 Reflections I & II................... 416 - 2,396 6,362 14,550 Regency Park......................... 204 8,500 2,416 13,674 16 Silver Cliff......................... 312 - 2,410 13,656 1,156 Sunwood.............................. 156 - 1,030 4,596 3,013 Wendemere at the Ranch............... 256 - 2,606 14,769 469 El Paso, Texas: Las Flores........................... 468 5,648 625 6,624 1,447
Gross Amount at Which Carried at December 31, 1999 ------------------------------------- Con- Buildings & Accumulated struction Year Land Improvements Totals Depreciation Year Acquired ------ ------------ ------- ------------ --------- -------- Apartment Communities: Birmingham, Alabama: Cameron at the Summit I.............. $3,458 $20,009 $23,467 $1,685 1998 1998 Cameron at the Summit II............. 698 17,342 18,040 101 (c) 1998 Boston. Massachusetts Arboretum, The....................... 6,721 38,600 45,321 926 1989 1999 Archstone Tewksbury.................. 1,189 6,929 8,118 181 1995 1999 Archstone Tewksbury II............... 3,235 16,831 20,066 50 (c) 1999 Charlotte, North Carolina: Archstone Tyvola Centre.............. 3,470 4,159 7,629 (c) (c) 1998 Cameron at Hickory Grove............. 1,434 8,346 9,780 522 1988 1998 Cameron Matthews..................... 2,034 11,691 13,725 748 1998 1998 Archstone Eastover................... 1,431 8,812 10,243 527 1987 1998 Pinnacle at North Cross, The......... 3,573 20,470 24,043 819 1997 1998 Archstone Reafield................... 3,009 18,064 21,073 1,101 1987 1998 Springs at Steele Creek.............. 2,475 14,198 16,673 879 1997 1998 Waterford Square I & II.............. 6,220 35,523 41,743 2,416 (g) 1998 Chicago, Illinois Foxfire (k).......................... 3,137 17,962 21,099 171 1998 1999 Garden Glen (k)...................... 6,844 39,925 46,769 374 1987 1999 Prairie Court (k).................... 2,071 11,819 13,890 112 1987 1999 Dallas, Texas: Archstone Knoxbridge................. 4,668 27,150 31,818 812 1994 1998 Archstone Legacy..................... 1,532 11,264 12,796 1,687 1985 1993 Archstone Spring Creek............... 1,613 12,065 13,678 1,792 1983 1993 Oaks at Park Boulevard, The.......... 1,386 8,593 9,979 1,078 1986 1993 Summerstone.......................... 1,028 8,016 9,044 1,164 1983 1993 Timber Ridge I & II.................. 1,672 16,500 18,172 1,730 (h) (h) Denver, Colorado: Archstone Dakota Ridge............... 2,108 32,518 34,626 433 1999 1997 Cambrian, The........................ 2,256 12,993 15,249 1,872 1983 1993 Cedars II, The....................... 828 4,721 5,549 (c) (c) 1999 Cedars, The.......................... 3,128 18,340 21,468 2,849 1984 1993 Fox Creek I.......................... 1,167 6,281 7,448 896 1984 1993 Fox Creek II......................... - 8,819 8,819 159 1999 1995 Legacy Heights....................... 2,049 20,500 22,549 1,199 1998 1997 Reflections I & II................... 2,396 20,912 23,308 2,828 (i) (i) Regency Park......................... 2,416 13,690 16,106 20 1986 1999 Silver Cliff......................... 2,410 14,812 17,222 2,248 1991 1994 Sunwood.............................. 1,030 7,609 8,639 1,143 1981 1992 Wendemere at the Ranch............... 2,606 15,238 17,844 548 1984 1999 El Paso, Texas: Las Flores........................... 625 8,071 8,696 3,981 (j) (j)
59 SCHEDULE III
Initial Cost to Archstone ------------------------- Costs Capitalized Encum- Buildings & Subsequent to Units brances Land Improvements Acquisition ----- ------- ---- ------------ ------------- Apartment Communities: Ft. Lauderdale/West Palm Beach: Archstone at Woodbine............ 408 $ - $3,803 $ 1,832 $ 4,222 Archstone Pembrooke Pines........ 308 - 2,675 15,159 1,051 Archstone Waterview.............. 192 - 1,847 10,464 874 Cameron at Meadow Lakes.......... 189 - 1,712 9,702 121 Cameron at the Villages.......... 384 - 3,298 18,686 722 Cameron Cove..................... 221 8,173 1,648 9,338 644 Cameron Gardens.................. 300 - 2,803 15,882 6,017 Cameron Hidden Harbor............ 200 5,233 1,868 10,587 839 Cameron Palms.................... 340 - 2,252 12,763 13,813 Cameron Park I................... 196 - 2,129 12,063 2,580 Cameron View..................... 176 - 1,487 8,425 376 Cameron Waterways................ 300 - 3,678 20,840 452 Archstone Island Reach........... 280 - 2,764 15,662 605 Park Place at Turtle Run......... 350 - 2,598 14,721 128 Ft. Myers, Florida: Forestwood....................... 397 11,058 2,534 14,361 520 Houston, Texas: 7100 Almeda...................... 348 - 1,713 9,706 2,484 Archstone Braeswood.............. 240 - 1,861 10,548 1,775 Archstone Braeswood II........... 36 - 1,125 5 3,050 Archstone Brompton Court......... 794 - 4,058 22,993 8,940 Archstone Medical Center I....... 360 13,295 4,210 - 14,660 Archstone Medical Center II...... 318 - 3,368 - 15,908 Memorial Heights I............... 360 14,801 3,169 - 16,087 Memorial Heights II.............. 256 12,174 9,164 - 7,042 Indianapolis, Indiana: Arbor Green...................... 208 - 1,597 9,049 446 Archstone River Ridge............ 202 - 461 2,612 12,681 Inland Empire, California: Crossing, The.................... 296 - 2,227 12,622 2,058 Miramonte........................ 290 - 2,357 13,364 1,231 Sierra Hills..................... 300 612 2,810 15,921 1,827 Terracina........................ 736 - 5,780 32,757 3,252 Westcourt........................ 515 - 1,909 10,817 4,795 Woodsong......................... 262 - 1,846 10,469 920 Jacksonville, Florida: Cameron Lakes I & II............. 555 - 5,268 29,855 355
Gross Amount at Which Carried at December 31, 1999 -------------------------------- Con- Buildings & Accumulated struction Year Land Improvements Totals Depreciation Year Acquired ------ ------------ ------ ------------ --------- -------- Apartment Communities: Ft. Lauderdale/West Palm Beach: Archstone at Woodbine............ $3,803 $ 6,054 $ 9,857 $ (c) (c) 1999 Archstone Pembrooke Pines........ 2,675 16,210 18,885 996 1988 1998 Archstone Waterview.............. 1,847 11,338 13,185 705 1988 1998 Cameron at Meadow Lakes.......... 1,712 9,823 11,535 620 1983 1998 Cameron at the Villages.......... 3,298 19,408 22,706 1,219 1987 1998 Cameron Cove..................... 1,648 9,982 11,630 617 1986 1998 Cameron Gardens.................. 2,803 21,899 24,702 550 1999 1998 Cameron Hidden Harbor............ 1,868 11,426 13,294 704 1986 1998 Cameron Palms.................... 2,252 26,576 28,828 421 1999 1998 Cameron Park I................... 2,129 14,643 16,772 562 1999 1998 Cameron View..................... 1,487 8,801 10,288 554 1987 1998 Cameron Waterways................ 3,678 21,292 24,970 1,209 1998 1998 Archstone Island Reach........... 2,764 16,267 19,031 387 1990 1999 Park Place at Turtle Run......... 2,598 14,849 17,447 938 1989 1998 Ft. Myers, Florida: Forestwood....................... 2,534 14,881 17,415 933 1986 1998 Houston, Texas: 7100 Almeda...................... 1,713 12,190 13,903 1,680 1984 1994 Archstone Braeswood.............. 1,861 12,323 14,184 1,863 1984 1993 Archstone Braeswood II........... 1,125 3,055 4,180 35 1999 1997 Archstone Brompton Court......... 4,058 31,933 35,991 4,628 1972 1994 Archstone Medical Center I....... 4,210 14,660 18,870 1,991 1996 1994 Archstone Medical Center II...... 3,368 15,908 19,276 541 1999 1994 Memorial Heights I............... 3,169 16,087 19,256 3,226 1996 1996 Memorial Heights II.............. 9,164 7,042 16,206 4 1998 1996 Indianapolis, Indiana: Arbor Green...................... 1,597 9,495 11,092 591 1989 1998 Archstone River Ridge............ 461 15,293 15,754 100 (c) 1998 Inland Empire, California: Crossing, The.................... 2,227 14,680 16,907 1,453 1989 1996 Miramonte........................ 2,357 14,595 16,952 1,618 1989 1995 Sierra Hills..................... 2,810 17,748 20,558 1,270 1990 1997 Terracina........................ 5,780 36,009 41,789 3,504 1988 1996 Westcourt........................ 1,909 15,612 17,521 1,712 1986 1996 Woodsong......................... 1,846 11,389 13,235 1,033 1985 1996 Jacksonville, Florida: Cameron Lakes I & II............. 5,268 30,210 35,478 2,457 (l) 1998
60 SCHEDULE III
Initial Cost to Archstone ------------------------- Costs Capitalized Encum- Buildings & Subsequent to Units brances Land Improvements Acquisition ----- ------- ---- ------------ ------------- Apartment Communities: Las Vegas, Nevada: Crossings at Lake Mead, The.......... 444 $ - $2,086 $11,867 $ 2,035 Horizons at Piccole Ranch............ 408 - 3,173 18,048 1,307 La Tierra at the Lakes............... 896 - 5,904 33,561 6,137 Los Angeles, California: Oakridge............................. 178 - 3,212 18,200 1,355 Regency Court........................ 174 - 1,962 11,118 1,066 Minneapolis, Minnesota: Eden Commons (k)..................... 196 5,979 1,973 11,181 258 Regency Woods (k).................... 282 - 3,591 20,368 29 Willow Creek (k)..................... 240 - 1,976 11,192 73 Nashville, Tennessee: Amberwood at Bellevue................ 225 5,002 2,235 12,660 966 Archstone Briley Parkway............. 360 - 2,471 14,003 367 Cameron Overlook..................... 452 - 4,031 22,843 186 Enclave at Brentwood, The............ 380 - 2,672 15,143 1,197 Shadowbluff.......................... 220 5,720 1,422 8,059 145 Orange County, California: Las Flores........................... 504 7,368 8,900 264 41,392 Newpointe............................ 160 - 1,403 7,981 651 Rivermeadows......................... 152 - 2,082 11,797 1,503 Sorrento............................. 241 4,744 4,872 - 22,888 Villa Marseilles..................... 192 3,630 1,970 11,162 4,850 Windemere............................ 182 - 2,611 14,815 14 Orlando, Florida: Cameron Promenade.................... 212 - 2,236 12,671 1,117 Cameron Springs...................... 340 - 2,893 16,391 378 Cameron Wellington I................. 192 - 1,505 8,526 98 Cameron Wellington II................ 120 - 1,605 9,094 274 Kingston Village..................... 120 - 1,039 5,887 610 Phoenix, Arizona: Bay Club at Mesa Cove................ 472 - 2,797 11,188 2,336 Cochise at Arrowhead I (k)........... 272 - 2,019 - 16,080 Cochise at Arrowhead II (k).......... 200 - 1,601 - 11,074 Foxfire.............................. 188 - 1,055 5,976 1,011 Miralago I........................... 496 18,720 2,743 - 22,519 Moorings at Mesa Cove, The........... 406 - 3,261 13,045 2,136 Peaks at Papago Park, The............ 768 - 5,131 23,408 10,221 Ridge, The........................... 380 - 1,852 10,492 1,067
Gross Amount at Which Carried at December 31, 1999 ------------------------------------- Con- Buildings & Accumulated struction Year Land Improvements Totals Depreciation Year Acquired ------ ------------ ------- ------------ --------- -------- Apartment Communities: Las Vegas, Nevada: Crossings at Lake Mead, The.......... $2,086 $13,902 $15,988 $1,720 1986 1995 Horizons at Piccole Ranch............ 3,173 19,355 22,528 2,434 1990 1995 La Tierra at the Lakes............... 5,904 39,698 45,602 5,167 1986 1995 Los Angeles, California: Oakridge............................. 3,212 19,555 22,767 686 1985 1998 Regency Court........................ 1,962 12,184 14,146 341 1988 1999 Minneapolis, Minnesota: Eden Commons (k)..................... 1,973 11,439 13,412 328 1987 1998 Regency Woods (k).................... 3,591 20,397 23,988 140 1988 1999 Willow Creek (k)..................... 1,976 11,265 13,241 107 1979 1999 Nashville, Tennessee: Amberwood at Bellevue................ 2,235 13,626 15,861 440 1986 1998 Archstone Briley Parkway............. 2,471 14,370 16,841 1,057 1986 1998 Cameron Overlook..................... 4,031 23,029 27,060 1,897 1998 1998 Enclave at Brentwood, The............ 2,672 16,340 19,012 1,004 1988 1998 Shadowbluff.......................... 1,422 8,204 9,626 520 1986 1998 Orange County, California: Las Flores........................... 8,900 41,656 50,556 1,297 1999 1996 Newpointe............................ 1,403 8,632 10,035 809 1987 1996 Rivermeadows......................... 2,082 13,300 15,382 992 1986 1997 Sorrento............................. 4,872 22,888 27,760 800 1998 1996 Villa Marseilles..................... 1,970 16,012 17,982 1,138 1991 1996 Windemere............................ 2,611 14,829 17,440 101 1987 1999 Orlando, Florida: Cameron Promenade.................... 2,236 13,788 16,024 670 1999 1998 Cameron Springs...................... 2,893 16,769 19,662 1,060 1986 1998 Cameron Wellington I................. 1,505 8,624 10,129 548 1988 1998 Cameron Wellington II................ 1,605 9,368 10,973 422 1999 1998 Kingston Village..................... 1,039 6,497 7,536 397 1982 1998 Phoenix, Arizona: Bay Club at Mesa Cove................ 2,797 13,524 16,321 2,136 1985 1993 Cochise at Arrowhead I (k)........... 2,019 16,080 18,099 920 1999 1995 Cochise at Arrowhead II (k).......... 1,601 11,074 12,675 180 1999 1995 Foxfire.............................. 1,055 6,987 8,042 1,041 1985 1994 Miralago I........................... 2,743 22,519 25,262 2,417 1997 1995 Moorings at Mesa Cove, The........... 3,261 15,181 18,442 2,682 1985 1992 Peaks at Papago Park, The............ 5,131 33,629 38,760 4,975 (m) (m) Ridge, The........................... 1,852 11,559 13,411 1,891 1987 1993
61 SCHEDULE III
Initial Cost to Archstone ------------------------- Costs Capitalized Encum- Buildings & Subsequent to Units brances Land Improvements Acquisition ----- ------- ------ ------------ ------------- Apartment Communities: Phoenix, Arizona (continued): San Marbeya (k)...................... 404 $ $3,675 $ 93 $23,369 San Marquis North.................... 208 - 1,215 - 9,866 San Marquis South.................... 264 - 2,312 - 11,568 San Palmera (k)...................... 412 - 3,515 - 23,216 San Valiente I (k)................... 376 - 3,062 - 19,796 San Valiente II (k).................. 228 - 1,647 - 12,360 Scottsdale Greens.................... 644 23,465 3,489 19,774 8,753 Portland, Oregon: Arbor Heights........................ 348 - 2,669 - 20,771 Brighton............................. 233 - 1,675 9,532 1,743 Cambridge Crossing................... 250 - 2,260 - 13,411 Hedges Creek......................... 408 - 3,758 162 23,647 Preston's Crossing................... 228 - 851 - 12,280 Timberline........................... 130 - 1,058 5,995 643 Raleigh, North Carolina: 52 Magnolia.......................... 228 11,765 2,732 15,482 283 Archstone at Preston................. 388 - 882 4,996 21,828 Cameron at Six Forks................. 172 - 1,417 8,027 225 Cameron at Southpoint................ 288 - 1,719 9,741 9,397 Cameron Brooke....................... 228 - 2,031 11,508 258 Cameron Lake I & II.................. 368 - 3,145 17,820 1,342 Cameron Ridge........................ 228 - 1,694 9,599 675 Cameron Square....................... 268 - 2,575 14,590 190 Cameron Woods........................ 328 - 2,107 11,940 8,182 Conifer Glen......................... 186 - 2,204 12,511 148 Cornerstone.......................... 302 - 3,748 21,239 334 Poplar Place......................... 230 - 2,189 12,407 772 Waterford Point...................... 336 14,560 3,136 17,763 - Reno, Nevada: Enclave, The......................... 228 - 1,947 - 13,810 Enclave II, The...................... 180 - 1,538 - 12,988 Vista Ridge.......................... 324 - 2,002 - 19,416 Richmond, Virginia: Archstone Swift Creek I.............. 288 - 812 4,604 16,732 Cameron at Gayton.................... 220 - 1,905 10,796 168 Cameron at Virginia Center........... 264 - 2,907 16,472 1,227 Cameron at Virginia Center II........ 88 - 242 1,372 5,367 Cameron at Wyndham................... 312 - 3,782 21,433 992 Cameron Crossing I & II.............. 424 - 4,968 28,155 1,600
Gross Amount at Which Carried at December 31, 1999 -------------------------------- Con- Buildings & Accumulated struction Year Land Improvements Totals Depreciation Year Acquired ------ ------------ ------- ------------ --------- -------- Apartment Communities: Phoenix, Arizona (continued): San Marbeya (k)...................... $3,675 $23,462 $27,137 $ 478 1999 1997 San Marquis North.................... 1,215 9,866 11,081 1,429 1994 1993 San Marquis South.................... 2,312 11,568 13,880 1,967 1994 1993 San Palmera (k)...................... 3,515 23,216 26,731 2,282 1997 1995 San Valiente I (k)................... 3,062 19,796 22,858 1,988 1997 1995 San Valiente II (k).................. 1,647 12,360 14,007 202 1999 1995 Scottsdale Greens.................... 3,489 28,527 32,016 4,553 1980 1994 Portland, Oregon: Arbor Heights........................ 2,669 20,771 23,440 1,669 1998 1996 Brighton............................. 1,675 11,275 12,950 1,014 1985 1996 Cambridge Crossing................... 2,260 13,411 15,671 1,154 1998 1996 Hedges Creek......................... 3,758 23,809 27,567 605 1999 1997 Preston's Crossing................... 851 12,280 13,131 1,358 1996 1995 Timberline........................... 1,058 6,638 7,696 672 1990 1996 Raleigh, North Carolina: 52 Magnolia.......................... 2,732 15,765 18,497 978 1995 1998 Archstone at Preston................. 882 26,824 27,706 143 (c) 1998 Cameron at Six Forks................. 1,417 8,252 9,669 519 1985 1998 Cameron at Southpoint................ 1,719 19,138 20,857 369 1999 1998 Cameron Brooke....................... 2,031 11,766 13,797 925 1997 1998 Cameron Lake I & II.................. 3,145 19,162 22,307 1,145 (n) 1998 Cameron Ridge........................ 1,694 10,274 11,968 615 1985 1998 Cameron Square....................... 2,575 14,780 17,355 923 1987 1998 Cameron Woods........................ 2,107 20,122 22,229 512 1999 1998 Conifer Glen......................... 2,204 12,659 14,863 508 1997 1998 Cornerstone.......................... 3,748 21,573 25,321 1,335 1997 1998 Poplar Place......................... 2,189 13,179 15,368 816 1987 1998 Waterford Point...................... 3,136 17,763 20,899 1,307 1996 1998 Reno, Nevada: Enclave, The......................... 1,947 13,810 15,757 723 1998 1996 Enclave II, The...................... 1,538 12,988 14,526 89 (c) 1996 Vista Ridge.......................... 2,002 19,416 21,418 2,096 1997 1995 Richmond, Virginia: Archstone Swift Creek I.............. 812 21,336 22,148 41 (c) 1998 Cameron at Gayton.................... 1,905 10,964 12,869 688 1987 1998 Cameron at Virginia Center........... 2,907 17,699 20,606 779 1999 1998 Cameron at Virginia Center II........ 242 6,739 6,981 60 1999 1998 Cameron at Wyndham................... 3,782 22,425 26,207 1,161 1999 1998 Cameron Crossing I & II.............. 4,968 29,755 34,723 1,799 1998 1998
62 SCHEDULE III
Initial Cost to Archstone -------------------------- Costs Capitalized Encum- Buildings & Subsequent to Units brances Land Improvements Acquisition ----- ------- ------ ------------ ------------- Apartment Communities: Salt Lake City, Utah Archstone River Oaks................... 448 $ - $5,400 $ 213 $28,822 Brighton Place......................... 336 - 2,091 11,892 4,376 Carrington Place....................... 142 3,372 1,072 6,072 724 Cloverland............................. 186 4,124 1,392 7,886 1,265 Crossroads............................. 240 4,435 1,521 8,619 2,183 Fairstone at Riverview................. 492 - 4,636 - 27,383 Greenpointe............................ 224 - 923 5,050 3,237 Mountain Shadow........................ 262 - 927 4,730 6,294 Raintree............................... 152 - 948 5,373 905 Remington, The......................... 288 10,530 2,324 - 14,986 Riverbend.............................. 200 - 1,357 7,692 1,140 San Antonio, Texas: Archstone Huebner Oaks................. 344 - 1,455 8,248 1,963 Austin Pointe.......................... 328 - 1,728 9,725 1,596 Camino Real............................ 176 - 1,084 4,338 2,577 Contour Place.......................... 126 - 456 1,829 632 Crescent, The.......................... 306 - 1,145 - 15,290 Dymaxion............................... 190 - 683 3,740 837 Marbach Park........................... 304 - 1,122 6,361 1,307 Rancho Mirage.......................... 254 - 724 2,971 1,909 St. Tropez I........................... 273 - 2,013 8,054 2,749 Stanford Heights....................... 276 - 1,631 - 12,002 Sterling Heights....................... 224 9,498 1,644 - 10,818 Villas of Castle Hills................. 163 - 1,037 4,148 1,147 Waters at Northern Hills, The.......... 305 - 1,251 7,105 1,932 San Diego, California: Archstone La Jolla..................... 296 - 4,741 26,866 1,379 Archstone Mission Valley............... 736 - 20,893 656 10,543 Archstone Torrey Hills................. 340 - 10,400 659 28,745 Archstone University Towne Centre...... 328 20,846 4,616 26,160 2,095 Carmel Del Mar......................... 232 14,670 3,802 21,546 2,491 Club Pacifica.......................... 264 - 2,141 12,132 1,356 El Dorado Hills........................ 448 - 4,418 25,084 3,500 Ocean Crest............................ 450 - 3,918 22,207 3,265 Archstone Seaport Village.............. 387 - 5,963 33,789 1,725 Seascape............................... 208 - 2,659 15,066 1,675
Gross Amount at Which Carried at December 31, 1999 --------------------------------- Con- Buildings & Accumulated struction Year Land Improvements Totals Depreciation Year Acquired ------ ------------ ------- ------------ --------- -------- Apartment Communities: Salt Lake City, Utah Archstone River Oaks................... $ 5,400 $29,035 $34,435 $ 318 (c) 1997 Brighton Place......................... 2,091 16,268 18,359 2,074 1979 1995 Carrington Place....................... 1,072 6,796 7,868 434 1986 1997 Cloverland............................. 1,392 9,151 10,543 576 1985 1997 Crossroads............................. 1,521 10,802 12,323 857 1986 1996 Fairstone at Riverview................. 4,636 27,383 32,019 2,079 1998 1996 Greenpointe............................ 923 8,287 9,210 881 (o) (o) Mountain Shadow........................ 927 11,024 11,951 1,063 (p) (p) Raintree............................... 948 6,278 7,226 337 1984 1998 Remington, The......................... 2,324 14,986 17,310 1,781 1997 1995 Riverbend.............................. 1,357 8,832 10,189 472 1985 1998 San Antonio, Texas: Archstone Huebner Oaks................. 1,455 10,211 11,666 1,556 1983 1993 Austin Pointe.......................... 1,728 11,321 13,049 1,845 1982 1993 Camino Real............................ 1,084 6,915 7,999 1,051 1979 1993 Contour Place.......................... 456 2,461 2,917 694 1984 1992 Crescent, The.......................... 1,145 15,290 16,435 2,724 1994 1992 Dymaxion............................... 683 4,577 5,260 605 1984 1994 Marbach Park........................... 1,122 7,668 8,790 1,287 1985 1993 Rancho Mirage.......................... 724 4,880 5,604 788 1974 1993 St. Tropez I........................... 2,013 10,803 12,816 1,798 1982 1992 Stanford Heights....................... 1,631 12,002 13,633 1,705 1996 1993 Sterling Heights....................... 1,644 10,818 12,462 1,534 1995 1993 Villas of Castle Hills................. 1,037 5,295 6,332 871 1971 1993 Waters at Northern Hills, The.......... 1,251 9,037 10,288 1,348 1982 1994 San Diego, California: Archstone La Jolla..................... 4,741 28,245 32,986 2,317 1991 1996 Archstone Mission Valley............... 20,893 11,199 32,092 (c) (c) 1998 Archstone Torrey Hills................. 10,400 29,404 39,804 95 (c) 1997 Archstone University Towne Centre...... 4,616 28,255 32,871 2,068 1986 1997 Carmel Del Mar......................... 3,802 24,037 27,839 1,071 1991 1998 Club Pacifica.......................... 2,141 13,488 15,629 1,328 1987 1996 El Dorado Hills........................ 4,418 28,584 33,002 2,583 1983 1996 Ocean Crest............................ 3,918 25,472 29,390 1,959 (q) (q) Archstone Seaport Village.............. 5,963 35,514 41,477 999 1992 1999 Seascape............................... 2,659 16,741 19,400 661 1986 1998
63 SCHEDULE III
Initial Cost to Archstone ------------------------- Costs Capitalized Encum- Buildings & Subsequent to Units brances Land Improvements Acquisition ----- ------- ------ ------------ ------------- Apartment Communities: San Francisco (Bay Area), California: Archstone Emerald Park............... 324 $ - $ 8,950 $ 170 $36,575 Archstone Hacienda................... 540 5,002 18,696 668 47,785 Archstone Marina Bay................. 468 - 5,952 33,728 1,062 Archstone Monterey Grove............. 224 - 4,451 13 22,564 Archstone San Ramon.................. 496 - 7,820 44,311 1,924 Archstone Willow Glen................ 412 - 16,140 746 11,681 Ashton Place......................... 948 45,566 9,782 55,429 28,310 Los Padres Village................... 245 - 4,579 25,946 1,143 Redwood Shores....................... 304 23,608 5,608 31,778 2,473 Treat Commons........................ 510 - 5,788 32,802 1,458 Seattle, Washington: Archstone Inglewood Hill............. 230 - 2,463 68 17,931 Archstone Northcreek................. 524 - 5,750 261 34,175 Cambrian, The........................ 422 - 6,231 35,309 1,854 Canyon Creek......................... 336 17,324 5,250 - 19,800 Canyon Creek II...................... 216 7,865 2,705 15,330 1,973 Fairwood Landing..................... 194 - 1,223 6,928 1,222 Forestview........................... 192 - 1,681 - 13,896 Harbour Pointe....................... 230 - 2,027 - 13,128 Redmond Hill Central................. 258 - 1,950 11,118 1,687 Newport Crossing..................... 192 - 1,694 9,602 781 Pebble Cove.......................... 288 14,261 1,895 - 15,742 Redmond Hill East.................... 332 - 2,795 15,593 3,242 Redmond Hill West.................... 184 6,251 2,084 11,833 1,567 Stonemeadow Farms.................... 280 - 4,370 - 18,134 Waterford Place...................... 360 - 4,131 23,407 1,383 Tampa/St. Petersburg, Florida: Archstone Boot Ranch................. 250 - 2,102 11,910 546 Archstone Rocky Creek................ 264 - 511 2,896 15,268 Cameron Bayshore..................... 328 - 2,035 11,530 1,025 Cameron Lakes........................ 207 - 1,570 8,897 530 Cameron Palm Harbor.................. 168 5,517 1,293 7,325 436 Country Place Village I.............. 88 1,904 777 4,400 422 Country Place Village II............. 100 - 805 4,563 362 Tucson, Arizona: Tierra Antigua....................... 147 - 992 3,967 1,000 Villa Caprice........................ 268 - 1,279 7,248 1,118 Ventura County, California: Le Club.............................. 370 - 4,958 28,097 2,155 Pelican Point........................ 400 - 4,365 24,735 1,947
Gross Amount at Which Carried at December 31, 1999 ------------------------------------- Con- Buildings & Accumulated struction Year Land Improvements Totals Depreciation Year Acquired ------ ------------ ------- ------------ --------- -------- Apartment Communities: San Francisco (Bay Area), California: Archstone Emerald Park............... $ 8,950 $36,745 $45,695 $ 134 (c) 1997 Archstone Hacienda................... 18,696 48,453 67,149 96 (c) 1997 Archstone Marina Bay................. 5,952 34,790 40,742 2,652 1991 1997 Archstone Monterey Grove............. 4,451 22,577 27,028 277 (c) 1997 Archstone San Ramon.................. 7,820 46,235 54,055 3,620 1988 1997 Archstone Willow Glen................ 16,140 12,427 28,567 (c) (c) 1998 Ashton Place......................... 9,782 83,739 93,521 6,363 1970 1996 Harborside........................... 3,213 18,691 21,904 1,492 1989 1996 Los Padres Village................... 4,579 27,089 31,668 1,916 1988 1997 Redwood Shores....................... 5,608 34,251 39,859 2,932 1986 1996 Treat Commons........................ 5,788 34,260 40,048 3,620 1988 1995 Seattle, Washington: Archstone Inglewood Hill............. 2,463 17,999 20,462 179 (c) 1997 Archstone Northcreek................. 5,750 34,436 40,186 446 (c) 1998 Cambrian, The........................ 6,231 37,163 43,394 2,566 1991 1997 Canyon Creek......................... 5,250 19,800 25,050 1,792 1997 1997 Canyon Creek II...................... 2,705 17,303 20,008 865 1989 1998 Fairwood Landing..................... 1,223 8,150 9,373 650 1982 1996 Forestview........................... 1,681 13,896 15,577 697 1998 1996 Harbour Pointe....................... 2,027 13,128 15,155 953 1997 1996 Redmond Hill Central................. 1,950 12,805 14,755 1,568 1987 1995 Newport Crossing..................... 1,694 10,383 12,077 841 1990 1997 Pebble Cove.......................... 1,895 15,742 17,637 1,542 1996 1995 Redmond Hill East.................... 2,795 18,835 21,630 2,204 1990 1995 Redmond Hill West.................... 2,084 13,400 15,484 539 1986 1999 Stonemeadow Farms.................... 4,370 18,134 22,504 741 1999 1997 Waterford Place...................... 4,131 24,790 28,921 1,495 1989 1997 Tampa/St. Petersburg, Florida: Archstone Boot Ranch................. 2,102 12,456 14,558 778 1988 1998 Archstone Rocky Creek................ 511 18,164 18,675 137 (c) 1998 Cameron Bayshore..................... 2,035 12,555 14,590 754 1984 1998 Cameron Lakes........................ 1,570 9,427 10,997 600 1986 1998 Cameron Palm Harbor.................. 1,293 7,761 9,054 486 1988 1998 Country Place Village I.............. 777 4,822 5,599 289 1982 1998 Country Place Village II............. 805 4,925 5,730 301 1983 1998 Tucson, Arizona: Tierra Antigua....................... 992 4,967 5,959 1,156 1979 1992 Villa Caprice........................ 1,279 8,366 9,645 1,316 1972 1993 Ventura County, California: Le Club.............................. 4,958 30,252 35,210 2,091 1987 1997 Pelican Point........................ 4,365 26,682 31,047 1,779 1985 1997
64 SCHEDULE III
Initial Cost to Archstone --------------------------- Costs Capitalized Encum- Buildings & Subsequent to Units brances Land Improvements Acquisition ------ -------- -------- ------------ ------------- Apartment Communities: Washington, D.C. Archstone Bellemeade Farms............ 316 $ 13,122 $ 3,250 $ 18,416 $ 787 Archstone Fair Lakes.................. 282 15,477 3,687 20,893 610 Archstone Governor's Green............ 338 -- 1,836 10,402 20,483 Archstone Milestone II................ 132 -- 2,009 435 1,271 Bristol Gables........................ 358 -- 5,429 30,760 33 Camden at Kendall Ridge............... 184 -- 2,089 11,838 157 Cameron at Milestone.................. 444 -- 5,633 31,920 311 Cameron at Saybrooke.................. 252 -- 3,210 18,190 154 Cameron Woodland Park................. 392 -- 6,989 494 10,645 Ellipse at Government Center, The..... 404 -- 5,704 38,310 1,061 West Springfield Terrace.............. 244 -- 2,918 16,537 268 ------ -------- -------- ---------- --------------- Total Apartment Communities - Operating and Under Construction....... 76,085 $692,630 $732,260 $2,800,434 $ 1,474,615 ====== ======== ======== ========== =============== Other: Development Communities in Planning and Owned................... Hotel Asset............................. Other Real Estate Assets (r)............ Total Real Estate Assets................
Gross Amount at Which Carried at December 31, 1999 ------------------------------------- Con- Buildings & Accumulated struction Year Land Improvements Totals Depreciation Year Acquired ------- ------------ ---------- ------------ --------- -------- Apartment Communities: Washington, D.C. Archstone Bellemeade Farms............ $ 3,250 $ 19,203 $ 22,453 $ 688 1988 1998 Archstone Fair Lakes.................. 3,687 21,503 25,190 576 1988 1998 Archstone Governor's Green............ 1,836 30,885 32,721 151 (c) 1998 Archstone Milestone II................ 2,009 1,706 3,715 (c) (c) 1999 Bristol Gables........................ 5,429 30,793 36,222 129 1988 1999 Camden at Kendall Ridge............... 2,089 11,995 14,084 769 1990 1998 Cameron at Milestone.................. 5,633 32,231 37,864 2,158 1997 1998 Cameron at Saybrooke.................. 3,210 18,344 21,554 1,161 1990 1998 Cameron Woodland Park................. 6,989 11,139 18,128 (c) (c) 1998 Ellipse at Government Center, The..... 5,704 39,371 45,075 57 1989 1999 West Springfield Terrace.............. 2,918 16,805 19,723 1,067 1978 1998 -------- ------------ ---------- ------------ Total Apartment Communities - Operating and Under Construction....... $732,260 $ 4,275,049 5,007,309 296,303 ======== ============ ========== ============ Other: Development Communities in Planning and Owned................... 45,481 -- ---------- ------------ Hotel Asset............................. 22,870 4,355 ---------- ------------ Other Real Estate Assets (r)............ 141,671 -- ---------- ------------ Total Real Estate Assets................ $5,217,331 $ 300,658 ========== ============
(a) Phase I (118 units) was acquired in 1991 and Phase II (122 units) was developed in 1992. (b) Vistas at Seven Bar Ranch (364 units) was developed in 1996 and Corrales Pointe (208 units) was acquired in 1993. (c) As of 12/31/99, community was under construction. (d) Phase I (108 units) was constructed in 1981 and Phase II (240 units) was constructed in 1983. (e) Phase I (332 units) was constructed in 1983 and Phase II (312 units) was constructed in 1985. (f) Phase I (240 units) was developed in 1995 and Phase II (160 units) was developed in 1996. (g) Phase I (408 units) was developed in 1996 and Phase II (286 units) was developed in 1998. (h) Phase I (160 units) was acquired in 1994 and constructed in 1984 and Phase II (192 units) was acquired in 1996 and developed in 1998. (i) Phase I (208 units) was acquired in 1993 and Phase II (208) was developed in 1996. (j) Phase I (120 units) was developed in 1980, Phase II (60 units) was developed in 1981 and Phase III (288 units) was developed in 1983. (k) Represents properties owned by third party developers that are subject to presale agreements to Archstone to acquire such properties. Archstone's investment as of December 31, 1999 represents development loans made by Archstone to such developers. (l) Phase I (302 units) was developed in 1996 and Phase II (253 units) was developed in 1998. (m) Phase I and II (624 units) were acquired in 1994 and Phase III (144 units) was developed in 1996. (n) Phase I (196 units) was constructed in 1985 and Phase II (172 units) was constructed in 1982. (o) Phase I (192 units) was acquired in 1995 and Phase II (32 units) was developed in 1997. (p) Phase I (174 units) was acquired in 1995 and constructed in 1985 and Phase II (88 units) was acquired in 1996 and constructed in 1996. (q) Camino Pointe and Ocean Crest were combined in 1999. Camino Pointe (150 units) was constructed in 1985 and acquired in 1998 and Ocean Crest (300 units) was constructed in 1993 and acquired in 1996. (r) Includes land that is not In Planning and our investment in an unconsolidated taxable subsidiary. 65 Schedule III The following is a reconciliation of the carrying amount and related accumulated depreciation of Archstone's investment in real estate, at cost (in thousands):
Year Ended December 31, ----------------------------------------------------------- Carrying Amounts 1999 1998 1997 ---------------- ----------------- ----------------- ----------------- $4,869,801 $2,604,919 $2,153,363 Balance at January 1..................................... ----------------- ----------------- ----------------- Apartment communities: Real estate assets acquired in the Atlantic Merger..... - 1,823,727 - Acquisition-related expenditures....................... 401,392 285,806 391,234 Redevelopment expenditures............................. 72,517 57,171 43,187 Recurring capital expenditures......................... 13,022 9,464 8,762 Development expenditures, excluding land acquisitions.. 334,049 378,161 205,619 Acquisition and improvement of land for development.... 43,417 67,248 75,196 Dispositions........................................... (542,554) (344,336) (268,210) Provision for possible loss on investments............. (450) - (2,800) ----------------- ----------------- ----------------- Net apartment community activity......................... 321,393 2,277,241 452,988 ----------------- ----------------- ----------------- Other: Change in other real estate assets..................... 32,359 - - Dispositions........................................... (4,672) (9,959) (1,232) Provision for possible loss on investments............. (1,550) (2,400) (200) ----------------- ----------------- ----------------- Net other activity....................................... 26,137 (12,359) (1,432) ----------------- ----------------- ----------------- Balance at December 31................................... $5,217,331 $4,869,801 $2,604,919 ================= ================= =================
December 31, ----------------------------------------------------------- Accumulated Depreciation 1999 1998 1997 ------------------------ ----------------- ----------------- ----------------- Balance at January 1..................................... $205,795 $129,718 $ 97,574 Depreciation for the year................................ 132,437 96,337 52,893 Accumulated depreciation on real estate dispositions..... (37,230) (20,260) (20,749) Other.................................................... (344) - - ----------------- ----------------- ----------------- Balance at December 31................................... $300,658 $205,795 $129,718 ================= ================= =================
See accompanying independent auditors' report 66 Power of Attorney KNOW ALL MEN BY THESE PRESENTS, that each of Archstone Communities Trust, a Maryland real estate investment trust, and the undersigned Trustees and officers of Archstone Communities Trust, hereby constitutes and appoints, R. Scot Sellers, Charles E. Mueller, Jr., William Kell and Caroline Brower its or his/her true and lawful attorneys-in-fact and agents, for it or him/her and in its or his/her name, place and stead, in any and all capacities, with full power to act alone, to sign any and all amendments to this report, and to file each such amendment to this report, with all exhibits thereto, and any and all documents in connection therewith, with the Securities and Exchange Commission, hereby granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform any and all acts and things requisite and necessary to be done in and about the premises, as fully to all intents and purposes as it or he/she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them may lawfully do or cause to be done by virtue hereof. 67 Archstone Communities Trust Signatures Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Archstone Communities Trust By: /s/ R. Scot Sellers ------------------------------------ R. Scot Sellers Chairman and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.
Signature Title Date - --------- ----- ---- /s/ R. Scot Sellers Chairman, Chief Executive Officer March 6, 2000 - ----------------------------------- R. Scot Sellers /s/ Charles E. Mueller, Jr. Chief Financial Officer March 6, 2000 - ----------------------------------- Charles E. Mueller, Jr. /s/ William Kell Controller and Senior Vice President March 6, 2000 - ----------------------------------- William Kell /s/ C. Ronald Blakenship Trustee March 6, 2000 - ----------------------------------- C. Ronald Blakenship /s/ James A. Cardwell Trustee March 6, 2000 - ----------------------------------- James A. Cardwell /s/ Ned S. Holmes Trustee March 6, 2000 - ----------------------------------- Ned S. Holmes /s/ John T. Kelley III Trustee March 6, 2000 - ----------------------------------- John T. Kelley III /s/ Calvin K. Kessler Trustee March 6, 2000 - ----------------------------------- Calvin K. Kessler /s/ Constance B. Moore Trustee March 6, 2000 - ----------------------------------- Constance B. Moore /s/ James H. Polk III Trustee March 6, 2000 - ----------------------------------- James H. Polk III /s/ John M. Richman Trustee March 6, 2000 - ----------------------------------- John M. Richman /s/ John C. Schweitzer Trustee March 6, 2000 - ----------------------------------- John C. Schweitzer
68 Index to Exhibits Certain of the following documents are filed herewith. Certain other of the following documents have been previously filed with the Securities and Exchange Commission and, pursuant to Rule 12b-32, are incorporated herein by reference.
Number Description - ------ ----------- 3.1 Amended and Restated Declaration of Trust of Archstone (incorporated by reference to Exhibit 4.1 to Archstone's Current Report on Form 8-K dated July 7, 1998) 3.2 Second Amended and Restated Bylaws of Archstone 3.3 Articles Supplementary, dated August 3, 1999, related to the Series D Cumulative Redeemable Preferred Shares of Beneficial (incorporated by reference to Exhibit 99.2 to Archstone's Current Report on Form 8-K, dated August 3, 1999) 3.4 Articles Supplementary, dated August 13, 1999, related to the Series E Cumulative Redeemable Preferred Shares of Beneficial Interest (incorporated by reference to exhibit 4.1 to Archstone's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999) 3.5 Certificate of Correction, dated October 12, 1999, to the Articles Supplementary, dated August 13, 1999, related to the Series E Cumulative Redeemable Preferred Shares of Beneficial Interest (incorporated by reference to Exhibit 4.2 to Archstone's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999) 3.6 Articles Supplementary, dated September 27, 1999, related to the Series F Cumulative Redeemable Preferred Shares of Beneficial Interest (incorporated by reference to Exhibit 4.3 to Archstone's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999) 4.1 Indenture, dated as of February 1, 1994, between Archstone and Morgan Guaranty Trust Company of New York, as Trustee relating to Archstone's unsecured senior debt securities (incorporated by reference to Exhibit 4.2 to Archstone's Annual Report on Form 10-K for the year ended December 31, 1993) 4.2 First Supplemental Indenture, dated as of February 2, 1994, among Archstone, Morgan Guaranty Trust Company of New York and State Street Bank and Trust Company, as successor Trustee (incorporated by reference to Exhibit 4.3 to Archstone's Annual Report on Form 8-K dated July 19, 1994) 4.3 Rights Agreement, dated as of July 21, 1994, between Archstone and Chemical Bank, including Form of Rights Certificate (incorporated by reference to Exhibit 4.2 to Archstone's Current Report on Form 8-K dated July 19, 1994) 4.4 First Amendment, dated as of February 8, 1995, to the Rights Agreement (incorporated by reference to Exhibit 4.13 to Archstone's Annual Report on Form 10-K for the year ended December 31, 1994) 10.1 1987 Share Option Plan for Outside Trustees, as amended (incorporated by reference to Exhibit 10.1 to Archstone's Annual Report on Form 10-K for the year ended December 31, 1995) 10.2 1996 Share Option Plan for Outside Trustees (incorporated by reference to Exhibit 4.1 to Archstone's Registration Statement on Form S-8 (File No. 333-31031)) 10.3 Amendment to the 1996 Share Option Plan for Outside Trustees (incorporated by reference to Exhibit 4.6 to Archstone's Registration Statement on Form S-8 (File No. 333-60815)) 10.4 Archstone 1997 Long-Term Incentive Plan (incorporated by reference to Annex II to Security Capital Group`s Registration Statement on Form S-11 (File No. 333-26267)) 10.5 First Amendment to Archstone 1997 Long-Term Incentive Plan (incorporated by reference to Exhibit 4.6 to Archstone's Registration Statement on Form S-8 (File No. 333-60847)) 10.6 Form of Indemnification Agreement entered into between Archstone and each of its officers and Trustees (incorporated by reference to Exhibit 10.5 to Archstone's Registration Statement No. 333-43201))
69 Index to Exhibits - (Concluded)
Number Description - ------ ----------- 10.7 Form of Change in Control Agreement between Archstone and certain of its officers 10.8 Third Amended and Restated Investor Agreement, dated as of September 9, 1997, between Archstone and Security Capital (incorporated by reference to Exhibit 10.2 to Security Capital's Quarterly Report on Form 10-Q for the quarter ended September 30, 1997) 10.9 Amendment No. 1 to Third Amended and Restated Investor Agreement (incorporated by reference to Exhibit 10.1 to Archstone's Current Report on Form 8-K dated July 7, 1998) 10.10 Amended and Restated Credit Agreement, dated as of July 7, 1998, among Archstone, Chase Bank of Texas, National Association, Morgan Guaranty Trust company of New York, and Wells Fargo National Association, as co-agents, and the lenders named therein (incorporated by reference to Exhibit 10.1 to Archstone's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998) 10.11 Master Credit Facility Agreement, dated as of December 1, 1998, by and among Archstone and ASN Multifamily Limited Partnership and Berkshire Mortgage Finance Limited Partnership (incorporated by reference to Exhibit 10.10 to Archstone's Annual Report on Form 10-K for the year ended December 31, 1998.) 10.12 Amended and Restated Promissory Note, dated as of May 28, 1996, by Homestead Village Incorporated in favor of Archstone (incorporated by reference to Exhibit 4.3 to Homestead's Registration Statement on Form S-4 (File No. 333-4455)) 10.13 Amended and Restated Promissory Note, dated as of May 28, 1996, by PTR Homestead Village Limited Partnership in favor of Archstone (incorporated by reference to Exhibit 4.4 to Homestead's Registration Statement on Form S-4 (File No. 333-4455)) 10.14 Protection of Business Agreement, dated as of October 17, 1996, among Security Capital Atlantic Incorporated, Archstone, Security Capital and Homestead Village Incorporated (incorporated by Reference to Exhibit 10.12 to Archstone's Annual Report on Form 10-K for the year ended December 31, 1996) 10.15 Investor and Registration Rights Agreement, dated as of October 17, 1996, between Homestead Village Incorporated and Archstone (incorporated by reference to Exhibit 10.13 to Archstone's Annual Report on Form 10-K for the year ended December 31, 1996) 10.16 Archstone 1998 Dividend Reinvestment and Share Purchase Plan (incorporated by reference to the prospectus contained in Archstone's Form S-3 Registration Statement No. 333-44639) 10.17 Separation Agreement and General Release effective as of February 22, 2000, between Archstone and Jay S. Jacobson. 12.1 Computation of Ratio of Earnings to Fixed Charges 12.2 Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Share Dividends 21 Subsidiaries of Archstone 22 Consent of KPMG LLP 23 Power of Attorney (included at page 68) 27 Financial Data Schedule 99.1 Current Development Activity 99.2 Long-Term Unsecured Debt 99.3 Mortgages Payable
70 EX-3.2 2 SECOND AMENDED AND RESTATED BYLAWS OF ARCHSTONE Exhibit 3.2 ARCHSTONE COMMUNITIES TRUST AMENDED AND RESTATED BYLAWS ARTICLE I. MEETINGS OF SHAREHOLDERS Section 1. Place. All meetings of shareholders ("Shareholders") of Archstone Communities Trust (the "Trust") shall be held at the principal office of the Trust or at such other place within the United States as shall be stated in the notice of the meeting. Section 2. Special Meetings. Requests for special meetings shall state the purpose of such meeting and the matters proposed to be acted on at such meeting. The Secretary shall inform the requesting Shareholders of the reasonably estimated cost of preparing and mailing notice of the meeting and, upon payment to the Trust by such Shareholders of such costs, the Secretary shall give notice of the meeting. Unless requested by the Shareholders entitled to cast a majority of the votes entitled to be cast at such meeting, a special meeting need not be called to consider any matter which is substantially the same as a matter voted on at any special meeting of Shareholders held during the preceding twelve months. The Board has the sole power to fix (i) the record date for determining shareholders entitled to request a special meeting of the shareholders and the record date for determining shareholders entitled to notice of and to vote at the special meeting and (ii) the date, time and place of the special meeting. Section 3. Notice. Notice of any meeting may be given in any manner permitted by Maryland law. If mailed, notices of meetings of Shareholders shall be deemed to be given when deposited in the United States mail addressed to the Shareholder at his or her post office address as it appears on the records of the Trust, with postage thereon prepaid. Section 4. Scope of Notice. Any business of the Trust may be transacted at an annual meeting of Shareholders without being specifically designated in the notice, except such business as is required by any statute to be stated in such notice. Section 5. Waiver of Notice. Whenever any notice of a meeting of Shareholders is required to be given pursuant to the Trust's Declaration of Trust (as amended, supplemented or restated from time to time, the "Declaration of Trust") or these Bylaws or pursuant to applicable law, a waiver thereof in writing, signed by the Shareholder or Shareholders entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice. Neither the business to be transacted at nor the purpose of any meeting need be set forth in the waiver of notice, unless specifically required by statute. The attendance of any Shareholder at any meeting shall constitute a waiver of notice of such meeting, except where such Shareholder attends a meeting for the express purpose of objecting to the transaction of any business on the ground that the meeting is not lawfully called or convened. Exhibit 3.2 Section 6. Organization. At every meeting of Shareholders, the Chairman of the Board, if there is one (or any Co-Chairman of the Board, if there is more than one), shall conduct the meeting or, in the case of vacancy in office or absence of the Chairman of the Board (or all Co-Chairmen of the Board), one of the following officers present shall conduct the meeting in the order stated: the President, the Managing Directors in their order of rank and seniority, the Vice Presidents in their order of rank and seniority, or a chairman chosen by the Shareholders entitled to cast a majority of the votes which all Shareholders present in person or by proxy are entitled to cast, shall act as chairman, and the Secretary, or, in his or her absence, an Assistant Secretary, or in the absence of both the Secretary and Assistant Secretaries, a person appointed by the chairman shall act as secretary. At any Shareholders' meeting, the chairman shall determine the construction or interpretation of these Bylaws, or any part thereof, and the ruling of the chairman shall be final. Section 7. Quorum. If a quorum is not present at any meeting of the Shareholders, the Shareholders entitled to vote at such meeting, present in person or by proxy, shall have the power to adjourn such meeting from time to time to a date not more than 120 days after the original record date without notice other than announcement at such meeting. At any such adjourned meeting at which a quorum shall be present, any business may be transacted which might have been transacted at the meeting as originally notified. Section 8. Proxies. A Shareholder may cast the votes entitled to be cast by the shares ("Shares") of the Trust owned of record by him, either in person or by proxy in any manner authorized by law, by the Shareholder or by his or her duly authorized attorney in fact. Such proxy shall be filed with the Secretary before or at the time of the meeting. No proxy shall be valid after eleven months from the date of its execution, unless otherwise provided in the proxy. Section 9. Voting of Shares by Certain Holders. (a) Shares Held by an Entity. Shares registered in the name of a corporation, partnership, trust or other entity, if entitled to be voted, may be voted by the president or a vice president, a general partner or trustee thereof, as the case may be, or a proxy appointed by any of the foregoing individuals, unless some other person who has been appointed to vote such Shares pursuant to a bylaw or a resolution of the governing body of such corporation or other entity or agreement of the partners of a partnership presents a certified copy of such bylaw, resolution or agreement, in which case such person may vote such Shares. Any director or other fiduciary may vote Shares registered in his or her name as such fiduciary, either in person or by proxy. (b) Shares Held by Certain Persons. Shares registered in the name of a person adjudged incompetent may be voted and all rights incident thereto may be exercised only by his Exhibit 3.2 guardian, in person or by proxy. Shares registered in the name of a deceased person may be voted and all rights incident thereto may be exercised only by his executor or administrator, in person or by proxy. Shares registered in the name of a minor may be voted and all rights incident thereto may be exercised by his guardian, in person or by proxy, or in the absence of such representation by his guardian, by the minor, in person or by proxy, whether or not the Trust has notice, actual or constructive, of the minority or the appointment of a guardian, and whether or not a guardian has in fact been appointed. (c) Shares Held by Two or More Persons. Shares registered in the names of two or more persons shall be voted or represented in accordance with the vote or consent of the majority of the persons in whose names the Shares stand. If only one such person is present in person or by proxy, he or she may vote all the Shares, and all the Shares standing in the names of such persons are represented for the purpose of determining a quorum. This procedure also applies to the voting of Shares by two or more administrators, executors, trustees or other fiduciaries, unless the instrument or order of court appointing them otherwise directs. (d) Shares Held by the Trust. Shares of the Trust directly or indirectly owned by it shall not be voted at any meeting and shall not be counted in determining the total number of outstanding Shares entitled to be voted at any given time, unless they are held by it in a fiduciary capacity, in which case they may be voted and shall be counted in determining the total number of outstanding Shares at any given time. (e) Certifications of Beneficial Ownership. The Board of Trustees (the "Board") may adopt by resolution a procedure by which a Shareholder may certify in writing to the Trust that any Shares registered in the name of the Shareholder are held for the account of a specified person other than the Shareholder. The resolution shall set forth: the class of Shareholders who may make the certification; the purpose for which the certification may be made; the form of certification; the information to be contained in it; if the certification is with respect to a record date or closing of the Share transfer books, the time after the record date or closing of the Share transfer books within which the certification must be received by the Trust; and any other provisions with respect to the procedure which the Board considers necessary or desirable. On receipt of such certification, the person specified in the certification shall be regarded as, for the purposes set forth in the certification, the Shareholder of record of the specified Shares in place of the Shareholder who makes the certification. Section 10. Inspectors. At any meeting of Shareholders, the chairman of the meeting may, or upon the request of any Shareholder shall, appoint one or more persons as inspectors for such meeting. Such inspectors shall ascertain and report the number of Shares represented at the meeting based on their determination of the validity and effect of proxies, count all votes, report the results and perform such other acts as are proper to conduct the election and voting with 3 Exhibit 3.2 impartiality and fairness to all the Shareholders. Each report of an inspector shall be in writing and signed by him or by a majority of them if there is more than one inspector acting at such meeting. If there is more than one inspector, the report of a majority shall be the report of the inspectors. The report of the inspector or inspectors on the number of Shares represented at the meeting and the results of the voting shall be prima facie evidence thereof. Section 11. Action Without Meetings. Any action required or permitted to be taken at a meeting of Shareholders may be taken without a meeting if there is filed with the records of Shareholders' meetings a unanimous written consent which sets forth the action and is signed by each Shareholder entitled to vote on the matter and a written waiver of any rights to dissent signed by each Shareholder entitled to notice of the meeting but not entitled to vote at such meeting. Section 12. Nominations and Proposals by Shareholders. (a) Annual Meetings of Shareholders. (1) Nominations of persons for election to the Board and the proposal of business to be considered by the Shareholders may be made at an annual meeting of Shareholders (i) pursuant to the Trust's notice of a meeting, (ii) by or at the direction of the Board or (iii) by any Shareholder of the Trust who was a Shareholder of record at the time of the giving of notice provided for in this Section 12(a) and at the time of the annual meeting, who is entitled to vote at the meeting and who complied with the notice procedures set forth in this Section 12(a). (2) For nominations or other business to be properly brought before an annual meeting by a Shareholder pursuant to clause (iii) of paragraph (a)(1) of this Section 12, the Shareholder must have given timely notice thereof in writing to the Secretary and such nomination or other business must otherwise be a proper matter for action by Shareholders. To be timely, a Shareholder's notice shall be delivered to the Secretary at the principal executive offices of the Trust not less than 90 days nor more than 120 days prior to the first anniversary of the date of the proxy statement released to shareholders in connection with the preceding year's annual meeting of shareholders; provided, however, that if the date of the annual meeting is advanced by more than 30 days or delayed by more than 60 days from such anniversary of the preceding year's annual meeting, notice by the Shareholder to be timely must be so delivered (x) not more than 120 days prior to the first anniversary of the date of the proxy statement released to shareholders in connection with the preceding year's annual meeting nor less than 90 days prior to the first anniversary of the date of the proxy statement released to shareholders in connection with the preceding year's annual meeting or (y) not later than the close of business on the tenth day following the day on which public announcement of the date of such meeting is first made by the Trust. Such Shareholder's notice shall set forth (i) as to each person whom the Shareholder proposes to nominate for election or reelection as a Trustee all information relating to such person 4 Exhibit 3.2 which is required to be disclosed in solicitations of proxies for election of Trustees, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the "Exchange Act") (including such person's written consent to being named in the proxy statement as a nominee and to serving as a Trustee if elected); (ii) as to any other business which the Shareholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting and any material interest in such business of such Shareholder and of the beneficial owner, if any, on whose behalf the proposal is made; and (iii) as to the Shareholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made, (x) the name and address of such Shareholder, as they appear on the Trust's books, and of such beneficial owner, (y) the number of Shares of each class of the Trust which are owned beneficially and of record by such Shareholder and such beneficial owner and (z) in the case of a nomination, (A) a description of all arrangements or understandings between such Shareholder and each proposed nominee and any other person or persons (including their names) pursuant to which the nomination(s) are to be made by such Shareholder, (B) a representation that such Shareholder intends to appear in person or by proxy at the meeting, if there is a meeting, to nominate the persons named in its notice and (C) any other information relating to such Shareholder that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of Trustees pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder. (3) Notwithstanding anything in the second sentence of paragraph (a)(2) of this Section 12 to the contrary, if the number of Trustees to be elected to the Board is increased and there is no public announcement by the Trust naming all of the nominees for Trustee or specifying the size of the increased Board at least 100 days prior to the first anniversary of the date of the proxy statement released to shareholders in connection with the preceding year's annual meeting of shareholders, a Shareholder's notice required by this Section 12(a) shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to the Secretary at the principal executive offices of the Trust not later than the close of business on the tenth day following the day on which such public announcement is first made by the Trust. (b) Special Meetings of Shareholders. Only such business shall be conducted at a special meeting of Shareholders as shall have been brought before the meeting pursuant to the Trust's notice of meeting. Nominations of persons for election to the Board may be made at a special meeting of Shareholders at which Trustees are to be elected (i) pursuant to the Trust's notice of meeting, (ii) by or at the direction of the Board or (iii) provided that the Board has determined that Trustees shall or may be elected at such special meeting, by any Shareholder of the Trust who was a Shareholder of record both at the time of giving of notice provided for in this Section 12(b) and at the time of the special meeting, who is entitled to vote at the meeting and who 5 Exhibit 3.2 complied with the notice procedures set forth in this Section 12(b). If the Trust calls a special meeting of Shareholders for the purpose of electing one or more Trustees to the Board, any such Shareholder may nominate a person or persons (as the case may be) for election to such position as specified in the Trust's notice of meeting, if the Shareholder's notice containing the information required by paragraph (a)(2) of this Section 12 shall be delivered to the Secretary at the principal executive offices of the Trust (A) not more than 120 days prior to such special meeting nor less than 90 days prior to such special meeting or (B) not later than the close of business on the tenth day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the Board to be elected at such meeting. (c) General. (1) Only such persons who are nominated in accordance with the procedures set forth in this Section 12 shall be eligible to serve as Trustees and only such business shall be conducted at a meeting of Shareholders as shall have been brought before the meeting in accordance with the procedures set forth in this Section 12. The chairman of the meeting shall have the power and duty to determine whether a nomination or any business proposed to be brought before the meeting was made or proposed in accordance with the procedures set forth in this Section 12 and, if any proposed nomination or business is not in compliance with this Section 12, to declare that such nomination or proposal shall be disregarded. (2) For purposes of this Section 12, "public announcement" shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable news service or in a document publicly filed by the Trust with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act. (3) Notwithstanding the foregoing provisions of this Section 12, a Shareholder shall also comply with all applicable requirements of Maryland law and of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this Section 12. Nothing in this Section 12 shall be deemed to affect any rights of Shareholders to request inclusion of, nor any rights of the Trust to omit, proposals in the Trust's proxy statement pursuant to Rule 14a-8 under the Exchange Act. Section 13. Voting by Ballot. Voting on any question or in any election may be by voice unless the presiding officer shall order or any Shareholder shall demand that voting be by ballot. 6 Exhibit 3.2 ARTICLE II. TRUSTEES Section 1. Annual And Regular Meetings. An annual meeting of the Board shall be held immediately after and at the same place as the annual meeting of Shareholders, no notice other than this bylaw being necessary. The Board may provide, by resolution, the time and place, either within or without the State of Maryland, for the holding of regular meetings of the Board without other notice than such resolution. Section 2. Special Meetings. Special meetings of the Board may be called by or at the request of the Chairman of the Board (or any Co-Chairman of the Board, if there is more than one), the Chief Executive Officer or by a majority of the Trustees then in office. The person or persons authorized to call special meetings of the Board may fix any place, either within or without the State of Maryland, as the place for holding any special meeting of the Board called by them. Section 3. Notice. Notice of any special meeting of the Board shall be delivered personally or by telephone, facsimile transmission, United States mail or courier to each Trustee at his or her business or residence address. Notice by personal delivery, by telephone or a facsimile transmission shall be given at least two days prior to the meeting. Notice by mail shall be given at least five days prior to the meeting and shall be deemed to be given when deposited in the United States mail properly addressed, with postage thereon prepaid. Telephone notice shall be deemed to be given when the Trustee is personally given such notice in a telephone call to which he is a party. Facsimile transmission notice shall be deemed to be given upon completion of the transmission of the message to the number given to the Trust by the Trustee and receipt of a completed transmission indicating receipt. Neither the business to be transacted at, nor the purpose of, any annual, regular or special meeting of the Board need be stated in the notice, unless specifically required by statute or these Bylaws. Section 4. Waiver of Notice. Whenever any notice of a meeting of the Board or any committee thereof is required to be given pursuant to the Declaration of Trust or these Bylaws or pursuant to applicable law, a waiver thereof in writing, signed by the Trustee or Trustees entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice. Neither the business to be transacted at nor the purpose of any meeting need be set forth in the waiver of notice, unless specifically required by statute. The attendance of any Trustee at any meeting shall constitute a waiver of notice of such meeting, except where such Trustee attends a meeting for the express purpose of objecting to the transaction of any business on the ground that the meeting is not lawfully called or convened. Section 5. Organization. A majority of the Board may designate or elect a Trustee to preside at Board meetings. In the absence of such designation or election, the Chairman of the 7 Exhibit 3.2 Board (or any Co-Chairman of the Board, if there is more than one) or the Chief Executive Officer shall preside at Board meetings; in his absence, the Trustees present at each meeting shall elect one of the Trustees present as chairman. All rules of conduct adopted and used at Board meetings shall be determined by the chairman, whose ruling on all procedural matters shall be final. Section 6. Quorum. If less than a quorum of Trustees is present at a meeting, a majority of the Trustees present may adjourn the meeting from time to time without further notice, and further provided that if, pursuant to the Declaration of Trust or these Bylaws, the vote of a majority of a particular group of Trustees is required for action, a quorum must also include a majority of such group. The Trustees present at a meeting which has been duly called and convened may continue to transact business until adjournment, notwithstanding the withdrawal of enough Trustees to leave less than a quorum. Section 7. Voting at Meetings. Voting at Board meetings may be conducted orally, by show of hands, or, if requested by any Trustee, by written ballot. The results of all voting shall be recorded by the Secretary in the minute book. Section 8. Telephone Meetings. Trustees may participate in a meeting by means of a conference telephone or similar communications equipment if all persons participating in the meeting can hear each other at the same time. Participation in a meeting by these means shall constitute presence in person at the meeting. Section 9. Compensation. Trustees shall not receive any stated salary for their services as Trustees but, by resolution of the Board, may receive fixed sums per year and/or per meeting and/or per visit to real property owned or to be acquired by the Trust and for any service or activity they performed or engaged in as Trustees. Trustees may be reimbursed for expenses of attendance, if any, at each annual, regular or special meeting of the Board or of any committee thereof and for their expenses, if any, in connection with each property visit and any other service or activity they performed or engaged in as Trustees; but nothing herein contained shall be construed to preclude any Trustees from serving the Trust in any other capacity and receiving compensation therefor. Section 10. Distributions. Before payment of any dividends or other distributions, there may be set aside out of any assets of the Trust available for dividends or other distributions such sum or sums as the Board may from time to time, in its absolute discretion, think proper as a reserve fund for contingencies, for equalizing dividends or other distributions, for repairing or maintaining any property of the Trust or for such other purpose as the Board shall determine to be in the best interest of the Trust and the Board may modify or abolish any such reserve in the manner in which it was created. 8 Exhibit 3.2 Section 11. Investment Policy. Subject to the provisions of the Declaration of Trust, the Board may from time to time adopt, amend, revise or terminate any policy or policies with respect to investments by the Trust as it shall deem appropriate in its sole discretion. Section 12. Loss of Deposits. No Trustee shall be liable for any loss which may occur by reason of the failure of the bank, trust company, savings and loan association or other institution with whom moneys or shares have been deposited. Section 13. Surety Bonds. Unless required by law, no Trustee shall be obligated to give any bond or surety or other security for the performance of any of his or her duties. Section 14. Reliance. Each Trustee, officer, employee and agent of the Trust shall, in the performance of his or her duties with respect to the Trust, be fully justified and protected with regard to any act or failure to act in reliance in good faith on the books of account or other records of the Trust, on an opinion of counsel or on reports made to the Trust by any of its officers or employees or by the adviser, accountants, appraisers or other experts or consultants selected by the Board or officers of the Trust, regardless of whether such counsel or expert may also be a Trustee. Section 15. Certain Rights of Trustees, Officers, Employees And Agents. The Trustees shall have no responsibility to devote their full time to the affairs of the Trust. Any Trustee or officer, employee or agent of the Trust, in his or her personal capacity or in a capacity as an affiliate, employee or agent of any other person, or otherwise, may have business interests and engage in business activities similar to or in addition to or in competition with those of or relating to the Trust. ARTICLE III. COMMITTEES Section 1. Number, Tenure And Qualifications. The Board may appoint from among its members an Executive Committee, an Audit Committee, an Executive Compensation Committee, an Investment Committee and other committees, composed of one or more Trustees, to serve at the pleasure of the Board. Section 2. Meetings. Notice of committee meetings shall be given in the same manner as notice for special meetings of the Board. A majority of the members of the committee shall constitute a quorum for the transaction of business at any meeting of the committee. The Board may designate a chairman of any committee and such chairman or any two members of any committee may fix the time and place of its meeting unless the Board shall otherwise provide. In the absence of any member of any such committee, the members thereof present at any meeting, 9 whether or not they constitute a quorum, may appoint another Trustee to act in the place of such absent member. Each committee shall keep minutes of its proceedings. Section 3. Telephone Meetings. Members of a committee of the Board may participate in a meeting by means of a conference telephone or similar communications equipment if all persons participating in the meeting can hear each other at the same time. Participation in a meeting by these means shall constitute presence in person at the meeting. Section 4. Informal Action by Committees. Any action required or permitted to be taken at any meeting of a committee of the Board may be taken without a meeting, if a consent in writing to such action is signed by each member of the committee and such written consent is filed with the minutes of proceedings of such committee. Section 5. Vacancies. Subject to the provisions hereof, the Board shall have the power at any time to change the membership of any committee, to fill all vacancies, to designate alternate members to replace any absent or disqualified member or to dissolve any such committee. ARTICLE IV. OFFICERS Section 1. General Provisions. The officers of the Trust shall be elected annually by the Board at the first meeting of the Board held after each annual meeting of Shareholders, except that the Chairman of the Board (or any Co- Chairman of the Board, if there is more than one) or the Chief Executive Officer may appoint a President, a Chief Operating Officer, a Chief Financial Officer and a Treasurer, and one or more Managing Directors, Vice Presidents, Assistant Secretaries and Assistant Treasurers, or such other officers as the Board, the Chairman of the Board or the Chief Executive Officer shall deem proper. If the election of officers shall not be held at such meeting, such election shall be held as soon thereafter as may be convenient. Each officer shall hold office until his or her successor is elected and qualifies or until his or her death, resignation or removal in the manner hereinafter provided. Any two or more offices may be held by the same person. In its discretion, the Board may leave unfilled any office except that of Chairman of the Board (or Co-Chairman of the Board, if there is more than one) and Secretary. Any two offices except President and Vice President may be held concurrently by the same person. Section 2. Resignation. Any officer of the Trust may resign at any time by giving written notice of his or her resignation to the Board, the Chairman of the Board (or any Co-Chairman of the Board, if there is more than one), the Chief Executive Officer or the Secretary. Any resignation shall take effect at any time subsequent to the time specified therein or, if the time when it shall become effective is not specified therein, immediately upon its receipt. The acceptance of a resignation shall not be necessary to make it effective unless otherwise stated in 10 the resignation. Such resignation shall be without prejudice to the contract rights, if any, of the Trust. Section 3. Vacancies. A vacancy in any office may be filled by the Board for the balance of the term. Section 4. Chairman of The Board. The Chairman of the Board (or the Co- Chairmen of the Board in the order of their election, if there is more than one) shall also serve as the Chief Executive Officer and, as such, shall have general supervision, direction and control of the business and affairs of the Trust, subject to the control of the Board, shall preside at meetings of Shareholders and shall have such other functions, authority and duties as customarily appertain to the office of the chief executive of a business corporation or as may be prescribed by the Board. Section 5. Chief Executive Officer. The Chief Executive Officer, if elected, shall be the chief executive officer of the Trust and, as such, shall have general supervision, direction and control of the business and affairs of the Trust, subject to the control of the Board, shall preside at meetings of Shareholders and shall have such other functions, authority and duties as customarily appertain to the office of the chief executive of a business corporation or as may be prescribed by the Board or the Chairman of the Board. Section 6. President. The President shall have such functions, authority and duties as may be prescribed by the Board or the Chairman of the Board (or any Co-Chairman of the Board, if there is more than one). Section 7. Managing Director. The Managing Director (or the Managing Directors, if there is more than one), shall have such functions, authority and duties, and shall have such additional descriptive designations in his or her title (if any), as may be prescribed by the Board, the Chairman of the Board (or any Co-Chairman of the Board, if there is more than one), the Chief Executive Officer or the President. Section 8. Chief Operating Officer. The Chief Operating Officer shall have such functions, authority and duties, and have such additional descriptive designations in his or her title (if any), as may be prescribed by the Board, the Chairman of the Board (or any Co-Chairman of the Board, if there is more than one), the Chief Executive Officer or the President. Section 9. Chief Financial Officer. The Chief Financial Officer shall have the custody of the funds and securities of the Trust and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Trust and shall deposit all moneys and other valuable effects in the name and to the credit of the Trust in such depositories as may be designated by the Board and shall perform such other duties as may be prescribed by the Board, 11 the Chairman of the Board (or any Co-Chairman of the Board, if there is more than one), the Chief Executive Officer or the President. Section 10. Vice Presidents. Each Vice President shall have such functions, authority and duties, and have such additional descriptive designations in his or her title (if any), as may be prescribed by the Board, the Chairman of the Board (or any Co-Chairman of the Board, if there is more than one), the Chief Executive Officer, the President or any Managing Director. Section 11. Secretary. The Secretary shall keep a record of all proceedings of the Shareholders of the Trust and of the Board and shall perform like duties for the standing committees when required. The Secretary shall give, or cause to be given, notice, if any, of all meetings of the Shareholders and shall perform such other duties as may be prescribed by the Board, the Chairman of the Board (or any Co-Chairman of the Board, if there is more than one), the Chief Executive Officer or the President. The Secretary shall have custody of the corporate seal of the Trust and the Secretary or, in the absence of the Secretary, any Assistant Secretary shall have authority to affix the same to any instrument requiring it and when so affixed it may be attested by the signature of the Secretary or any Assistant Secretary. The Board may give general authority to any other officer to affix the seal of the Trust and to attest such affixing of the seal. Section 12. Assistant Secretary. The Assistant Secretary, or if there is more than one, the Assistant Secretaries in the order determined by the Board (or if there is no such determination, then in the order of their election), shall, in the absence of the Secretary or if the Secretary is unable or refuses to act, perform the duties and exercise the powers of the Secretary and shall perform such other duties as may from time to time be prescribed by the Board, the Chairman of the Board (or any Co-Chairman of the Board, if there is more than one), the Chief Executive Officer, the President or the Secretary. Section 13. Treasurer. The Treasurer shall have such functions, authority and duties, and have such additional descriptive designations in his or her title (if any), as may be prescribed by the Board, the Chairman of the Board (or any Co-Chairman of the Board, if there is more than one), the Chief Executive Officer or the President. Section 14. Assistant Treasurer. The Assistant Treasurer, or if there is more than one, the Assistant Treasurers in the order determined by the Board (or if there is no such determination, then in the order of their election), shall, in the absence of the Treasurer or if the Treasurer is unable or refuses to act, perform the duties and exercise the powers of the Treasurer and shall perform such other duties as may from time to time be prescribed by the Board, the Chairman of the Board (or any Co-Chairman of the Board, if there is more than one), the Chief Executive Officer, the President or the Treasurer. 12 Section 15. Salaries. The salaries and other compensation of the officers shall be fixed from time to time by the Board and no officer shall be prevented from receiving such salary or other compensation by reason of the fact that he or she is also a Trustee. Section 16. Execution of Documents. A person who holds more than one office in the Trust may not act in more than one capacity to execute, acknowledge or verify an instrument required by law to be executed, acknowledged or verified by more than one officer. Section 17. Bonds. The Board may require any officer, agent or employee of the Trust to give a bond to the Trust, conditioned on the faithful discharge of his or her duties, with one or more sureties and in such amount as may be satisfactory to the Board. ARTICLE V. INDEMNIFICATION Section 1. Procedure. Any indemnification, or payment of expenses in advance of the final disposition of any proceeding, shall be made promptly, and in any event within 60 days, upon the written request of the Trustee or officer entitled to seek indemnification (the "Indemnified Party"). The right to indemnification and advances hereunder shall be enforceable by the Indemnified Party in any court of competent jurisdiction, if (i) the Trust denies such request, in whole or in part, or (ii) no disposition thereof is made within 60 days. The Indemnified Party's costs and expenses incurred in connection with successfully establishing his or her right to indemnification, in whole or in part, in any such action shall also be reimbursed by the Trust. It shall be a defense to any action for advance of expenses that (a) a determination has been made that the facts then known to those making the determination would preclude indemnification or (b) the Trust has not received both (i) an undertaking as required by law to repay such advances if it shall ultimately be determined that the standard of conduct has not been met and (ii) a written affirmation by the Indemnified Party of such Indemnified Party's good faith belief that the standard of conduct necessary for indemnification by the Trust has been met. Section 2. Exclusivity, Etc. The indemnification and advance of expenses provided by the Declaration of Trust and these Bylaws shall not be deemed exclusive of any other rights to which a person seeking indemnification or advance of expenses may be entitled under any law (common or statutory), or any agreement, vote of Shareholders or disinterested Trustees or other provision which is consistent with law, both as to action in his or her official capacity and as to action in another capacity while holding office or while employed by or acting as agent for the Trust, shall continue in respect of all events occurring while a person was a Trustee or officer after such person has ceased to be a Trustee or officer, and shall inure to the benefit of the estate, heirs, executors and administrators of such person. All rights to indemnification and advancement of expenses under the Declaration of Trust and these Bylaws shall be deemed to be a contract between the Trust and each Trustee or officer of the Trust who serves or served in such capacity 13 at any time while such provisions are in effect. Nothing herein shall prevent the amendment of these Bylaws, provided that no such amendment shall diminish the rights of any person hereunder with respect to events occurring or claims made before its adoption or as to claims made after its adoption in respect of events occurring before its adoption. Any repeal or modification of these Bylaws shall not in any way diminish any rights to indemnification or advancement of expenses of such Trustee or officer of the obligations of the Trust arising hereunder with respect to events occurring, or claims made, while these Bylaws or any provision hereof is in effect. ARTICLE VI. CONTRACTS AND ACCOUNTING Section 1. Contracts. The Board may authorize any officer or agent to enter into any contract or to execute and deliver any instrument in the name of and on behalf of the Trust and such authority may be general or confined to specific instances. Any agreement, deed, mortgage, lease or other document executed by one or more of the Trustees or by an authorized person shall be valid and binding on the Board and on the Trust when authorized or ratified by action of the Board. Section 2. Checks And Drafts. All checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the Trust shall be signed by such officer or agent of the Trust in such manner as shall from time to time be determined by the Board. Section 3. Deposits. All funds of the Trust not otherwise employed shall be deposited from time to time to the credit of the Trust in such banks, trust companies or other depositories as the Board may designate. Section 4. Books and Records. The Trust shall keep correct and complete books and records of its accounts and transactions and minutes of the proceedings of its Shareholders and Board and of any executive or other committee when exercising any of the powers of the Board. The books and records of the Trust may be in written form or in any other form which can be converted within a reasonable time into written form for visual inspection. Minutes shall be recorded in written form but may be maintained in the form of a reproduction. The original or a certified copy of the Bylaws shall be kept at the principal office of the Trust. Section 5. Fiscal Year. The fiscal year of the Trust shall be the twelve months ending December 31 in each year, unless otherwise provided by the Board. ARTICLE VII. SHARES 14 Section 1. Certificates. Each Shareholder shall be entitled to a certificate or certificates which shall represent and certify the number of Shares of each class held by him or her in the Trust; provided, however, that the Board may provide by resolution or resolutions that some or all of any class or series of Shares shall be uncertificated. Each certificate shall be signed by the Chairman of the Board (or any Co-Chairman of the Board, if there is more than one), the President or a Vice President and countersigned by the Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer and may be sealed with the seal, if any, of the Trust. The signatures may be either manual or facsimile. Certificates shall be consecutively numbered; and if the Trust shall, from time to time, issue several classes of Shares, each class may have its own number series. A certificate is valid and may be issued whether or not an officer who signed it is still an officer when it is issued. Each certificate representing Shares which are restricted as to their transferability or voting powers, which are preferred or limited as to their dividends or as to their allocable portion of the assets upon liquidation or which are redeemable at the option of the Trust, shall have a statement of such restriction, limitation, preference or redemption provision, or a summary thereof, plainly stated on the certificate. If the Trust has authority to issue Shares of more than one class, the certificate shall contain on the face or back a full statement or summary of the designations and any preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends and other distributions, qualifications and terms and conditions of redemption of each class of Shares and, if the Trust is authorized to issue any preferred or special class in series, the differences in the relative rights and preferences between the Shares of each series to the extent they have been set and the authority of the Board to set the relative rights and preferences of subsequent series. In lieu of such statement or summary, the certificate may state that the Trust will furnish a full statement of such information to any Shareholder upon request and without charge. If any class of Shares is restricted by the Trust as to transferability, the certificate shall contain a full statement of the restriction or state that the Trust will furnish information about the restrictions to the Shareholder on request and without charge. Section 2. Transfers. Upon surrender to the Trust or the transfer agent of the Trust of a Share certificate duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, the Trust shall issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction on its books. Notwithstanding the foregoing, transfers of Shares of any class will be subject in all respects to the Declaration of Trust and all of the terms and conditions contained therein. Section 3. Replacement Certificate. Any officer designated by the Board may direct a new certificate to be issued in place of any certificate previously issued by the Trust alleged to have been lost, stolen or destroyed upon the making of an affidavit of that fact by the person claiming the certificate to be lost, stolen or destroyed. When authorizing the issuance of a new certificate, an officer designated by the Board may, in his or her discretion and as a condition 15 precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or the owner's legal representative to advertise the same in such manner as he or she shall require and/or to give bond, with sufficient surety, to the Trust to indemnify it against any loss or claim which may arise as a result of the issuance of a new certificate. Section 4. Closing of Transfer Books or Fixing of Record Date. (a) Fixing of Record Date. The Board may set, in advance, a record date for the purpose of determining Shareholders entitled to notice of or to vote at any meeting of Shareholders or determining Shareholders entitled to receive payment of any dividend or the allotment of any other rights, or in order to make a determination of Shareholders for any other proper purpose. Such date, in any case, shall not be prior to the close of business on the day the record date is fixed and shall be not more than 90 days, and in the case of a meeting of the Shareholders not less than ten days, before the date on which the particular action requiring such determination of Shareholders of record is to be held or taken. In lieu of fixing a record date, the Board may provide that the Share transfer books shall be closed for a stated period but not longer than 20 days. (b) If Record Date Not Fixed. If no record date is fixed and the Share transfer books are not closed for the determination of Shareholders, the record date for the determination of Shareholders entitled to receive a payment of a dividend or an allotment of any other rights shall be the close of business on the day on which the resolution of the Board, declaring the dividend or allotment of rights, is adopted. (c) Record Dates for Adjourned Meetings. When a determination of Shareholders entitled to vote at any meeting of Shareholders has been made as provided in the Declaration of Trust, such determination shall apply to any adjournment thereof, except when the meeting is adjourned to a date more than 120 days after the record date fixed for the original meeting, in which case a new record date shall be determined as set forth in the Declaration of Trust. (d) Share Transfers After Record Date. Except where the Board fixes a new record date for any adjourned meeting as provided above, any Shareholder who was a Shareholder on the original record date shall be entitled to receive notice of and to vote at a meeting of Shareholders or any adjournment thereof and to receive a dividend or allotment of rights even though he or she has since such date disposed of his or her Shares, and no Shareholder becoming a Shareholder after such date shall be entitled to receive notice of or to vote at such meeting or any adjournment thereof or to receive such dividend or allotment of rights. (e) Paying of Pro Rata Dividends. Notwithstanding anything in this Section 4 to the contrary, the Board may declare and pay dividends or an allotment or any other rights to those 16 who are Shareholders as of a specified record date or, alternatively, to those who are or were Shareholders at any time during any quarter, year or other applicable period with respect to which any such dividend or allotment of rights is paid so that each Shareholder shall receive, with respect to each Share, the proportion of such dividend or allotment of rights per Share which the number of days each Share is owned of record by such Shareholder during such quarter, year or other applicable period bears to the total number of days in such quarter, year or other applicable period. Section 5. Share Ledger. The Trust shall maintain at its principal office or at the office of its counsel, accountants or transfer agent, an original or duplicate Share ledger containing the name and address of each Shareholder and the number of Shares of each class held by such Shareholder. The Trust shall be entitled to treat the holder of record of any Share as the holder in fact thereof and, accordingly, shall not be bound to recognize any equitable or other claim to or interest in such Share or on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of the State of Maryland. Section 6. Fractional Shares; Issuance of Units. The Board may issue fractional Shares or provide for the issuance of scrip, all on such terms and under such conditions as they may determine. Notwithstanding any other provision of the Declaration of Trust or these Bylaws to the contrary, the Board may issue units consisting of different securities of the Trust. Any security issued in a unit shall have the same characteristics as any identical securities issued by the Trust, except that the Board may provide that, for a specified period, securities of the Trust issued in such unit may be transferred on the books of the Trust only in such unit. ARTICLE VIII. SEAL Section 1. Seal. The Board may adopt a suitable seal, bearing the name of the Trust, which shall be in the charge of the Secretary. The Board may authorize one or more duplicate seals and provide for the custody thereof. Section 2. Affixing Seal. Whenever the Trust is permitted or required to affix its seal to a document, it shall be sufficient to meet the requirements of any law, rule or regulation relating to a seal to place the word "(SEAL)" adjacent to the signature of the person authorized to execute the document on behalf of the Trust. 17 EX-10.7 3 FORM OF CHANGE IN CONTROL AGREEMENT Exhibit 10.7 FORM OF CHANGE IN CONTROL AGREEMENT This Agreement entered into as of the 30th day of November, 1999, by and between Archstone Communities Trust, a Maryland real estate investment trust ("REIT") (the "Trust"), and [insert name] (the "Executive"). - ------ ----- --------- WHEREAS the Trust wishes to assure itself of the continuity of the Executive's services in the event of any change in control of the Trust; WHEREAS the Trust and the Executive accordingly desire to enter into this Agreement on the terms and conditions set forth below; NOW, THEREFORE, in consideration of the promises and mutual covenants set forth herein and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, it is hereby agreed by and between the parties as follows: 1. Term of Agreement. The term of this Agreement (the "Term") shall ----------------- ---- commence on the date hereof and shall continue through December 31, 2000; provided, however, that on such date and on each December 31 thereafter, the term of this Agreement shall automatically be extended for one additional year unless, not later than sixty (60) days prior to December 31 either party shall have given notice that such party does not wish to extend the Term; and provided, further, that if a Change in Control (as defined in Paragraph 3 below) shall have occurred during the original or any extended Term of this Agreement, the Term of this Agreement shall continue for a period of [insert thirty-six for Tier 1, or twenty-four for Tier 2] calendar months beyond the calendar month in which such Change in Control occurs. 2. Employment After Change in Control. If the Executive is in the employ ---------------------------------- of the Trust on the date of a Change in Control, the Trust hereby agrees to continue Executive in its employ for the period commencing on the date of the Change in Control and ending on the last day of the Term of this Agreement (the "Employment Period"). During the Employment Period, the Executive shall hold such position with the Trust and exercise such authority and perform such duties as are substantially commensurate with the Executive's position, authority and duties immediately prior to the Change in Control. The Executive agrees that, during the Employment Period, the Executive shall devote his full professional ----------------- time and attention to the Executive's duties and perform such duties faithfully and efficiently; provided, however, that nothing in this Agreement shall prevent the Executive from voluntarily resigning from employment upon 30 days' written notice to the Trust under circumstances which do not constitute a Termination (as defined in Paragraph 5 below). 3. Change in Control. For purposes of this Agreement, "Change in Control" ----------------- ----------------- means the occurrence of any of the following: a. the shareholders of the Trust approve a definitive agreement to merge the Trust into or consolidate the Trust with another entity, sell or otherwise dispose of all or substantially all of its assets, or adopt a plan of liquidation. However, a Change in Control shall not be deemed to have occurred by reason of a transaction (or a substantially concurrent or otherwise related series of transactions) (a "Transaction") upon the completion of which 75% or ----------- more of the beneficial ownership of the voting power of the Trust, the surviving corporation or corporation directly or indirectly controlling the Trust or the surviving corporation, as the case may be, is held by the same persons (although not necessarily in the same proportion) as held the beneficial ownership of the voting power of the Trust immediately prior to the Transaction (except that upon the completion thereof, employees or employee benefit plans of the Trust may be a new holder of such beneficial ownership); provided, however, that in the event that the shareholders of the Trust immediately prior to the consummation of a Transaction beneficially own (not giving effect to any shares beneficially owned by such persons in any party to the Transaction other than the Trust) less than 75% of the voting power of the Trust, the surviving corporation or corporation directly or indirectly controlling the Trust or the surviving corporation, as the case may be, immediately after the consummation of the Transaction, then a Change in Control shall be deemed to have occurred. A transaction with an "Affiliate" of the Trust (as defined in the Securities Exchange Act of 1934, as --------- amended (the "Exchange Act")) shall not be treated as a Change in Control; or, ------------ b. the "beneficial ownership" (as defined in Rule 13(d)(3) under the -------------------- Exchange Act) of securities representing 25% or more of the combined voting power of the Trust is acquired, other than from the Trust, by any "person" as defined in Sections 13(d) and 14(d) of the Exchange Act (other than by any trustee or other fiduciary holding securities under an employee benefit plan or other similar stock plan of the Trust), provided that any purchase by Security Capital Group Incorporated or any of its Affiliates of securities representing 50% or more of the combined voting power of the Trust shall not be treated as a Change in Control; or c. at any time during any period of two consecutive years, individuals who at the beginning of such period were members of the Board of Trustees of the Trust cease for any reason to constitute at least a majority thereof (unless the election, or the nomination for election by the Trust's shareholders, of each new Trustee was approved by a vote of at least two-thirds of the Trustees still in office at the time of such election or nomination who were trustees at the beginning of such period). 4. Compensation During the Employment Period. During the Employment ----------------------------------------- Period, the Executive shall be compensated as follows: 2 a. The Executive shall receive an annual salary which is not less than his annual salary immediately prior to the Employment Period and shall be eligible to receive an increase in annual salary which is not materially less favorable than the average increases in salary for the Trust's other executives with comparable duties and responsibilities; b. the Executive shall be eligible to participate in short-term and long-term cash-based incentive compensation plans which, in the aggregate, provide bonus opportunities which are not materially less favorable to the Executive than the greater of (i) the opportunities provided to the Trust's other executives with comparable duties and responsibilities; and, (ii) the opportunities provided to the Executive under all such plans in which the Executive was participating prior to the Employment Period; c. the Executive shall be eligible to participate in stock option, performance awards, restricted stock and other equity-based incentive compensation plans (the "Plans") on a basis not materially less favorable to the ----- Executive than the greater of the Plans available (i) to the Executive immediately prior to the Employment Period, or (ii) to other executives of the Trust with comparable duties and responsibilities; and, d. the Executive shall be eligible to receive employee benefits (including, but not limited to, tax-qualified and nonqualified savings plan benefits, medical insurance, disability income protection, life insurance coverage and death benefits) and perquisites which are not materially less favorable to the Executive than the greater of (i) the employee benefits and perquisites provided to the Trust's other executives with comparable duties and responsibilities, or (ii) the employee benefits and perquisites to which the Executive would be entitled under the Trust's employee benefit plans and perquisites as in effect immediately prior to the Employment Period. 5. Termination. For purposes of this Agreement, the term "Termination" ----------- ----------- shall mean termination of the employment of the Executive during the Employment Period (i) by the Trust, for any reason other than death, Disability (as defined below) or Cause (as described below), or (ii) by resignation of the Executive upon the occurrence of one of the following events: a. a material adverse change in the nature or scope of the Executive's [title], position, authority or duties, a breach of any of the subparagraphs of Paragraph 4 above, or the breach by the Trust of any other provision of this Agreement; b. a material reduction in the base salary and/or target bonus received by the Executive; 3 c. the relocation of the Executive's office to a location more than thirty miles from the location of the Executive's office immediately prior to the Employment Period; d. the failure of the Trust to obtain a satisfactory agreement from any successor to assume and agree to perform this Agreement, as contemplated in Paragraph 19 below. The date of the Executive's Termination under this Paragraph 5 shall be the date specified by the Executive or the Trust, as the case may be, in a written notice to the other party complying with the requirements of Paragraph 15 below. For purposes of this Agreement, the Executive shall be considered to have a "Disability" during the period in which the Executive is unable, by reason of a ---------- medically determinable physical or mental impairment, to engage in the material and substantial duties of his regular occupation, which condition is expected to be permanent. For purposes of this Agreement, "Cause" means, in the reasonable ----- judgment of the Board of Trustees of the Trust, (i) the willful and continued failure by the Executive to substantially perform the Executive's duties with the Trust, after written notification by the Trust of such failure, (ii) the willful engaging by the Executive in conduct which is demonstrably injurious to the Trust, monetarily or otherwise, or (iii) the engaging by Executive in egregious misconduct involving serious moral turpitude. For purposes of this Agreement, no act, or failure to act, on the Executive's part shall be deemed "willful" unless done, or omitted to be done, by the Executive not in good faith and without reasonable belief that such action was in the best interest of the Trust. 6. Severance Payments. Subject to the provisions of Paragraph 9 below, in ------------------ the event of a Termination described in Paragraph 5 above, in lieu of the amount otherwise payable under Paragraph 4 above, the Executive shall continue to receive, at the Trust's expense, medical insurance, disability income protection, life insurance coverage and death benefits, and perquisites in accordance with Subparagraph 4(d) above for a period of [insert thirty-six months for Tier 1, or twenty-four months for Tier 2] after the date of Termination (under COBRA or through an individual conversion policy, as appropriate), and shall be entitled to a lump sum payment in cash no later than ten (10) business days after the date of Termination equal to the sum of: a. the Executive's unpaid salary, accrued vacation pay and unreimbursed business expenses through and including the date of Termination; b. an amount equal to [insert 3 for Tier 1, or 2 for Tier 2] times the Executive's annual salary rate plus an amount equal to [insert 3 for Tier 1, or 2 for Tier 2] times the Executive's target bonus award in effect immediately prior to the date of Termination. 4 c. an amount equal to the assigned target bonus for the Executive for the year of Termination prorated through the date of Termination. 7. Deferred Compensation Plans. --------------------------- a. For purposes of this Paragraph, "deferred compensation plans" -------- ------------ ----- shall mean all nonqualified deferred compensation plans presently maintained by the Trust or adopted in the future by the Trust, including without limitation the Archstone Communities Trust Nonqualified Savings Plan. If a Change in Control occurs during the original or any extended Term of this Agreement, the Trust shall, within thirty (30) days after the date of such Change in Control, establish a "rabbi trust" and transfer to such "rabbi trust" an amount of cash sufficient to provide all benefits accrued by the Executive under all deferred compensation plans. Thereafter, the Trust will, at least quarterly, transfer to the "rabbi trust" an amount of cash sufficient to provide any additional benefits accrued by the Executive under all deferred compensation plans. b. In the event of a Termination as set forth in Paragraph 5 above (and only in the event of such Termination): any election by the Executive as to the form of payment of benefits under the Archstone Communities Trust Nonqualified Savings Plan that is made within thirty (30) days after the date of Change in Control, and before the Executive is entitled to such benefits, will be given effect, whether or not such election was on file at least twelve (12) months prior to such Termination. 8. Share Awards. In the event of a Termination as set forth in Paragraph ------------ 5 above, the restrictions on any outstanding share awards (including nonqualified options, incentive share options, matching share options, purchased shares and restricted share units) granted to Executive under any incentive plan or arrangement shall lapse and such share awards shall become 100% vested, and all other awards granted to Executive shall become immediately exercisable and shall become 100% vested. The expiration date of Executive's share options shall be the three-month anniversary of the date of the Termination as set forth in Paragraph 5 above. 9. Make-Whole Payments. Subject to the following three sentences, if any ------------------- payment or benefit to which the Executive is entitled, whether under this Agreement or otherwise, in connection with a Change in Control or the Executive's termination of employment (a "Payment") is subject to any tax under ------- section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), or ---- any similar federal or state law (an "Excise Tax"), the Trust shall pay to the ---------- Executive an additional amount (the "Make Whole-Amount") which is equal to (i) ----------------- the amount of the Excise Tax, plus (ii) the aggregate amount of any interest, penalties, fines or additions to any tax that are imposed in connections with such Excise Tax, plus (iii) all income, excise and other applicable taxes imposed on the Executive under the laws of any Federal, state or local 5 government or taxing authority by reason of the payments required under clause (i) and clause (ii) and this clause (iii). Such Make Whole-Amount will not be paid to the Executive if the Payment is less than ten (10) percent above the maximum amount that may be paid without incurring Excise Tax. In the event that the Payment is greater than the maximum amount that may be paid without incurring Excise Tax, but less than 10 percent greater than the maximum amount, then the Payment shall be capped at the maximum amount that may be paid without incurring Excise Tax. In such event, the cash severance payments provided in Paragraph 6 above and/or the outplacement services provided in Paragraph 10 below, at the Executive's election, shall be reduced to a level that results in the total Payment being equal to the maximum amount that may be paid without incurring Excise Tax. a. For purposes of determining the Make-Whole Amount, the Executive shall be deemed to be taxed at the highest marginal rate under all applicable local, state, federal and foreign income tax laws for the year in which the Make-Whole Amount is paid. The Make-Whole Amount payable with respect to an Excise Tax shall be paid by the Trust coincident with the Payment with respect to which such Excise Tax relates. b. All calculations under this Paragraph 9 shall be made initially by the Trust and the Trust shall provide prompt written notice thereof to the Executive to enable the Executive to timely file all applicable tax returns. Upon request of the Executive, the Trust shall provide the Executive with sufficient tax and compensation data to enable the Executive or his tax advisor to independently make the calculations described in subparagraph (a) above and the Trust shall reimburse the Executive for reasonable fees and expenses incurred for any such verification. c. If the Executive gives written notice to the Trust of any objection to the results of the Trust's calculations within sixty (60) days of the Executive's receipt of written notice thereof, the dispute shall be referred for determination to tax counsel selected by the independent auditors of the Trust ("Tax Counsel"). The Trust shall pay all reasonable fees and expenses of ----------- such Tax Counsel. Pending such determination by Tax Counsel, the Trust shall pay the Executive the Make-Whole Amount as determined by the Trust in good faith. The Trust shall pay the Executive any additional amount determined by Tax Counsel to be due under this Paragraph 9 (together with interest thereon at a rate equal to 120% of the Federal short-term rate compounded daily determined under section 1274(d) of the Code) promptly after such determination. d. The determination by Tax Counsel shall be conclusive and binding upon all parties unless the Internal Revenue Service, a court of competent jurisdiction, or such other duly empowered governmental body or agency (a "Tax --- Authority") determines that the Executive owes a greater or lesser amount of - --------- Excise Tax with respect to any Payment than the amount determined by Tax Counsel. 6 e. If a Taxing Authority makes a claim against the Executive which, if successful, would require the Trust to make a payment under this Paragraph 9, the Executive agrees to contest the claim, with counsel reasonably satisfactory to the Trust, on request of the Trust, subject to the following conditions: (1) The Executive shall notify the Trust of any such claim within ten (10) days of becoming aware thereof. In the event that the Trust desires the claim to be contested, it shall promptly (but in no event more than thirty (30) days after the notice from the Executive or such shorter time as the Taxing Authority may specify for responding to such claim) request the Executive to contest the claim. The Executive shall not make any payment of any tax which is subject of the claim before the Executive has given the notice or during the thirty (30) day period thereafter unless the Executive receives written instructions from the Trust to make such payment together with an advance of funds sufficient to make the requested payment plus any amounts payable under this Paragraph 9 determined as if such advance were an Excise Tax, in which case the Executive will act promptly in accordance with such instructions. (2) If the Trust so requests, the Executive will contest the claim by either contesting the claim in the United States Tax Court or other appropriate court, as directed by the Trust; provided, however, that any request by the Trust for the Executive to pay the tax shall be accompanied by an advance from the Trust to the Executive of funds sufficient to make the requested payment plus any amounts payable under this Paragraph 9 determined as if such advance were an Excise Tax. If directed by the Trust in writing, the Executive will take all action necessary to compromise or settle the claim, but in no event will the Executive compromise or settle the claim or cease to contest the claim without the written consent of the Trust; provided, however, that the Executive may take any such action if the Executive waives in writing his right to a payment under this Paragraph 9 for any amounts payable in connection with such claim. The Executive agrees to cooperate in good faith with the Trust in contesting the claim and to comply with any reasonable request from the Trust concerning the contest of the claim, including the pursuit of administrative remedies, the appropriate forum for any judicial proceedings, and the legal basis for contesting the claim. Upon request of the Trust, the Executive shall take appropriate appeals of any judgment or decision that would require the Trust to make a payment under this Paragraph 9. Provided that the Executive is in compliance with the provisions of this paragraph, the Trust shall be liable for and indemnify the Executive against any loss in connection with, and all costs and expenses, including attorneys' fees, which may be incurred as a result of, contesting the claim, and shall provide to the Executive, within ten (10) days after each written request therefor by the Executive, cash advances or reimbursement for all such costs and expenses actually incurred or reasonably expected to be incurred by the Executive as a result of contesting the claim. 7 f. Should a Tax Authority finally determine that an additional Excise Tax is owed, then the Trust shall pay an additional Make-Whole Amount to the Executive in a manner consistent with this Paragraph 9 with respect to any additional Excise Tax and any assessed interest, fines, or penalties. If any Excise Tax as calculated by the Trust or Tax Counsel, as the case may be, is finally determined by a Tax Authority to exceed the amount required to be paid under applicable law, then the Executive shall repay such excess to the Trust within thirty (30) days of such determination; provided that such repayment shall be reduced by the amount of any taxes paid by the Executive on such excess which is not offset by the tax benefit attributable to the repayment. 10. Outplacement Services. If the Executive's Termination occurs --------------------- during the Employment Period, the Trust shall provide to the Executive, at the Executive's election, outplacement services of an experienced firm, selected by the Trust and acceptable to the Executive, located not more than thirty miles from the location of Executive's office immediately prior to the Employment Period, provided that the cost of such services shall not exceed [insert $20,000 for Tier 1, or $15,000 for Tier 2] and such services shall not extend beyond six (6) months from the date of Executive's Termination. 11. Pooling of Interests Accounting Treatment. If the application of ----------------------------------------- any provision of this Agreement, or of the Agreement in its entirety, would preclude the use of pooling of interests accounting treatment with respect to a transaction for which such treatment otherwise is available and to be adopted by the Trust, this Agreement, upon the determination of the Board, shall be modified as it applies to such transaction, to the minimum extent necessary to prevent such impact and preserving to the greatest extent possible the protections and rights afforded the Executive under this Agreement. 12. Deductions and Withholding. All payments to the Executive under -------------------------- this Agreement will be subject to applicable deductions and withholding of state and federal taxes. 13. Confidentiality, Non-Solicitation and Non-Competition. The ----------------------------------------------------- Executive agrees that: a. Except as may be required by the lawful order of a court or agency of competent jurisdiction, or except to the extent that the Executive has the express written authorization from the Trust, the Executive agrees to keep secret and confidential for a period of two years following the termination of Executive's employment all non-public information concerning the Trust or any entity in which the Trust has a 25% or greater ownership interest ("Trust- ----- Related Entity") which was acquired by or disclosed to Executive during the - -------------- course of Executive's employment with the Trust or any Trust-Related Entity controlled by the Trust, and not to disclose the same, either directly or indirectly, to any other person, firm or business entity or to use it in any way. 8 b. While the Executive is employed by the Trust or Trust- Related Entity and for a period of one year after the date the Executive terminates employment for any reason, the Executive covenants and agrees that Executive will not, whether for Executive or for any other person, business, partnership, association, firm, company or corporation, initiate contact with, solicit, divert or take away any of the customers (entities or individuals from which the Trust or any Trust-Related Entity receives rents or payments for services) of the Trust or any Trust-Related Entity or employees of the Trust or any Trust-Related Entity in existence from time to time during Executive's employment with the Trust or any Trust-Related Entity and at the time of such initiation, solicitation or diversion. c. While the Executive is employed by the Trust or any Trust- Related Entity, the Executive covenants and agrees that Executive will not, directly or indirectly, engage in, assist, perform services for, plan for, establish or open, or have any financial interest (other than (i) ownership of 1% or less of the outstanding stock of any corporation listed on the New York or American Stock Exchange or included in the National Association of Securities Dealers Automated Quotation System, or (ii) ownership of securities in any entity affiliated with the Trust) in any person, firm, corporation, or business entity (whether as an employee, officer, director or consultant) that engages in the operation, development, management or financing of multifamily communities. 14. Arbitration of All Disputes. Any controversy or claim arising --------------------------- out of or relating to this Agreement or the breach thereof shall be settled by arbitration in Denver, Colorado, in accordance with the laws of the State of Colorado. The arbitration shall be conducted in accordance with the rules of the American Arbitration Association. Judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction thereof. In the event that the Executive determines that it is either necessary or desirable for the Executive to retain legal counsel or incur other costs and expenses in connection with enforcement of his or her rights under this Agreement, the Trust shall pay the Executive's reasonable attorneys' fees and costs and expenses in connection with enforcement of his or her rights (including the enforcement of any arbitration award in court). If, however, the arbitrator shall determine that, under the circumstances, payment by the Trust of all or any part of any such fees, costs and expenses would be unjust, the Executive shall repay such amount to the Trust in accordance with the order of the arbitrator. Any award of the arbitrator shall include interest at a rate or rates considered just under the circumstances by the arbitrator. 15. Mitigation and Set-Off. The Executive shall not be required to ---------------------- mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise. The Trust shall not be entitled to set-off against the amounts payable to the Executive under this Agreement any amounts owed to the Trust by the Executive, or any amounts earned, or which 9 could have been earned, by the Executive after the date of Termination of Executive's employment with the Trust. 16. Notices. Except as otherwise provided herein, either the Trust ------- or the Executive may terminate the employment relationship upon no less than thirty (30) days' notice to the other party. Any notices, requests, demands or other communications provided for by this Agreement shall be sufficient if in writing and if sent by telecopy or facsimile transmission or by hand delivery or registered, certified, or overnight mail to the Executive at the last address Executive has filed in writing with the Trust or, in the case of the Trust, to the attention of the Secretary of the Trust, at its principal executive offices. Such notices and communications shall be deemed to have been received on the date of confirmation of receipt, in the case of telecopy or facsimile transmission, or upon the date of delivery thereof or the fifth (5/th/) business day after the mailing thereof, whichever is earlier, in the case of the remaining delivery methods. 17. Binding Effect; Assignment. This Agreement shall inure to the -------------------------- benefit of, and shall be binding upon, the parties hereto and their respective successors, assigns, heirs, and legal representatives. This Agreement may not be assigned by Executive, nor may Executive assign or pledge any of his rights, including rights to payment, hereunder. 18. Governing Law. The provisions of this Agreement shall be ------------- construed in accordance with the laws of the State of Colorado, without application of conflict of laws provisions thereunder. 19. Successors to the Trust. The Trust shall require any successor, ----------------------- whether direct or indirect, by purchase, merger, consolidation or otherwise, and whether to all or substantially all of the business and/or assets of the Trust, to assume the obligations of this Agreement. Such assumption shall be by an express agreement signed by both the successor Company and the Executive and shall be reasonably satisfactory to the Executive. 20. Employment Status. Nothing in this Agreement shall be deemed to ----------------- create an employment agreement between the Trust and the Executive providing for the employment of the Executive for any fixed period of time. The Executive's employment is terminable at will by the Trust of the Executive, meaning either party may terminate the employment relationship at any time, with or without Cause, subject in the event of a Termination, as defined in this Agreement, to (i) the notice provisions of Paragraph 2, 5, and 16, and (ii) the Trust's obligations to provide severance payments as required by Paragraph 6, the election rights of the Executive set forth in Paragraph 7(b) and the modifications to any outstanding awards set forth in Paragraph 8. Upon termination of the Executive's employment prior to the date of a Change in Control, there shall be no further rights under this Agreement. 10 21. Entire Agreement. This Agreement, contains the entire agreement ---------------- between the parties hereto and supersedes all prior agreements and understandings, oral or written, between the parties hereto with respect to the subject matter hereof, except with respect to the Archstone Communities Trust 1997 Long-Term Incentive Plan, which, subject to the modifications thereto set forth in this Agreement, remains as a separate document in full force and effect in accordance with its terms. 22. Amendments and Waivers. This Agreement may not be modified or ---------------------- amended except by an instrument or instruments in writing signed by the party against whom enforcement or any such modification or amendment is sought. Either party hereto may, by an instrument in writing, waive compliance by the other party with any term or provision of this Agreement on the part of such other party hereto to be performed or complied with. The waiver by any party hereto of a breach of any term or provision of this Agreement shall not be construed as a waiver of any subsequent breach. 23. Section Headings. The headings contained in this Agreement are ---------------- for reference purposes only and shall not be deemed to be a part of this Agreement or to control or affect the meaning or construction of any provision of this Agreement. 24. Severability. In the event that any provision or portion of this ------------ Agreement shall be determined to be invalid or unenforceable for any reason, the remaining provisions of this Agreement shall be unaffected thereby and shall remain in full force and effect. 25. Counterparts. This Agreement may be executed in two or more ------------ counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same agreement. [Signatures are on following page] 11 SIGNATURE PAGE TO CHANGE IN CONTROL AGREEMENT IN WITNESS WHEREOF, the Executive has hereunto set his hand and, pursuant to the authorization from its Board of Trustees, the Trust has caused these presents to be executed in its name and on its behalf, all as of the day and year first above written. ____________________________________ [Insert name] [Insert title] ARCHSTONE COMMUNITIES TRUST By: _______________________________ Name: ____________________________ Title: ____________________________ 12 SCHEDULE TO CHANGE IN CONTROL AGREEMENT --------------------------------------- The following persons have executed Change in Control Agreements with Archstone, which Agreements are in the same form as is set forth in Exhibit 10.7, with the only differences being those provisions noted in such form which vary based upon whether the individual is a Tier 1 Executive or a Tier 2 Executive. TIER 1 EXECUTIVES: R. Scot Sellers, Chairman and Chief Executive Officer, and Patrick R. Whelan, Chief Operating Officer. TIER 2 EXECUTIVES: Richard A. Banks, Managing Director West Region, and J. Lindsay Freeman, Managing Director East Region are Tier 2 Executives for purposes of the Change in Control Agreements. 13 EX-10.17 4 SEPERATION AGREEMENT AND GENERAL RELEASE Exhibit 10.17 SEPARATION AGREEMENT AND GENERAL RELEASE ---------------------------------------- THIS AGREEMENT made and entered by and between Jay S. Jacobson ("Employee") the undersigned Employee and Archstone Communities Trust (together with its affiliates and their trustees, directors, officers, shareholders and other affiliates, collectively referred to hereinafter as "Employer"). WHEREAS, Employee has been employed by the Employer; and WHEREAS, the parties have engaged in discussions resulting in an amicable and mutually satisfactory separation of Employee's employment with the Employer. NOW, THEREFORE, in consideration of the mutual covenants and promises set forth below, the parties hereby agree as follows: 1. Employee hereby resigns Employee's employment with Employer effective February 22, 2000, the date of separation. 2. Upon this Agreement becoming effective as set forth in paragraph 19, Employer and Employee shall be obligated as set forth herein: a) Employer shall pay Employee severance in a lump sum amount of $424,480.00 (one year's salary and target bonus, plus accrued bonus from January 1, 2000 - February 25, 2000), minus applicable deductions and withholding for state and federal taxes and any health insurance premiums incurred at Employee's election, on such amount. Employee agrees not to accept a full-time position with a publicly traded REIT or national apartment developer for six months after last date of employment, however, if Employee obtains full-time employment with any related or affiliated entity of Archstone Communities, including Security Capital Group affiliates, or a competitor of Archstone Communities, including any publicly traded REIT or national apartment developer prior to six months after the separation date, Employee will reimburse Employer for six months of salary and target bonus, minus applicable deductions and withholdings. Employee agrees that he will notify Archstone, c/o Ms. Sharon Orlopp, 7670 S. Chester, Suite 100, Englewood, CO 80112 within five (5) days of accepting any full-time employment. b) Employer shall provide Employee with outplacement services for six months. c) Concurrently with the execution of the Agreement, Employee shall repay the loan from Employer, in the principal amount of $950,000.00 used to purchase 45,325 shares of Employer stock (the "Shares"), which repayment shall be effected through the tender of the 45,325 shares of Employer stock purchased with such loan, which the parties agree shall have an aggregate value of $950,000.00. Employee waives the right to the vested and unvested matching two-for-one shares in the Share Purchase Program. Employee also received a loan from the Employer in the amount of $50,000 plus interest in order to assist with the purchase of the shares. Employee has paid $26,361.00 to date. At the time this Agreement becomes binding on Employee in accordance with Paragraph 19, Employer shall pay Employee $26,361.00 which represents the payments on the loan made by Employee to purchase the shares of Employer stock, and will forgive and release Employee from all remaining debt on the loan. d) Employee shall be entitled 2 to retain ownership of his lap top computer, a Portege 3010CT. e) Employee will be entitled to all vested Options, Restricted Share Units, and Dividend Equivalent Units, in accordance with the terms of the 1997 Long Term Incentive Plan. 3. In the Employee's regular paycheck, due March 10, 2000, the Employer shall pay to Employee, all accrued and unpaid salary and vacation as of February 25, 2000, less the applicable deductions. 4. Employee is entitled to continue Employer's group health and dental insurance coverage as provided by the Consolidated Omnibus Budget and Reconciliation Act (COBRA). Employer will pay for the COBRA expense until the earlier of the date Employee becomes eligible, as a full- time employee of a new employer, for coverage under a comparable group health and dental insurance plan, or twelve months from the date of separation. Information regarding COBRA enrollment forms and payment requirements will be forwarded to Employee by Employer's human resources department. 5. In consideration of the promises contained in this Agreement, the Employee and Employer hereby mutually agree to do the following: a. Except for a claim based upon a breach of this Agreement, the Employee and Employer hereby release and forever discharge the other (including, in the case of the Employer, its related and affiliated entities, including employee benefit plans and fiduciaries of employee benefit plans, and each of their trustees, officers, directors, 3 representatives, agents, employees and insurers) (Employee, Employer and said related parties are hereinafter collectively and individually "said Releasee(s)") from any and all rights, claims, demands, debts, dues, sums of money, accounts, attorneys' fees, complaints, judgements, executions, actions and causes of action of any nature whatsoever, cognizable at law or equity, which Employee and Employer have or claim, or might hereafter have or claim, against said Releasee(s) based upon or arising out of any matter or thing whatsoever, from the beginning of the world through the date of this Agreement, including but not limited to any rights, claims, complaints or actions or causes of action which were or could have been asserted by Employee or Employer arising out of or related to Employee's employment by the Employer or Employee's separation and/or resignation therefrom, the purchase (or sale to Employer) of any Employer securities by Employee, or under any local state, or federal law dealing with employment discrimination including, without limitation, Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act and the Americans with Disabilities Act. b. Upon request of the Employer, Employee shall promptly provide the Employer with a written report and verbal briefings concerning all 4 current business activities engaged in by Employee on behalf of the Employer. c. Employee shall cooperate reasonably with the Employer in the transition of Employee's responsibilities to other employees of the Employer including, without limitation, being available by telephone during normal business hours to answer questions and to assist other employees or designees of the Employer. d. Employee shall promptly submit to the Employer an expense account report accounting for all business expenses charged by Employee to the Employer and all advances received, and repay the Employer for all advances and all non-business related items charged by Employee to the Employer, if any. Employee hereby agrees that such advances and non-business related expenses may, at the option of the Employer, be deducted by the Employer from any of its payments to Employee under this Agreement. 6. In addition to the confidentiality and nonsolicitation covenants contained in that certain Confidentiality and Non-Competition Agreement dated as of September 7, 1997, by and between Employee and Employer, Employee agrees that, for a period of one (1) year from the of separation, Employee shall maintain in confidence and shall not, directly or indirectly, use, publish or otherwise disclose to any competitor or other third party any trade secrets 5 disclosed to the Employee in confidence. For purposes of this paragraph, trade secret means information that derives independent economic value from not being generally known to the public or to other persons who can obtain economic value from its disclosure or use and is subject to efforts that are reasonable under the circumstances to maintain its secrecy. All duties and obligations set forth herein shall be in addition to those which exist at common law and pursuant to statute. In addition, Employee agrees not to recruit or hire any current Employer associates for a period of one (1) year. 7. Employee hereby agrees to immediately turn over to the Employer all notes, offering materials, slide shows, investment summaries, memoranda, records, documents and all other information, no matter how produced or reproduced, kept by Employee or in Employee's possession or control, used in or pertaining to the business of the Employer, it being hereby acknowledged that all of said items are the sole and exclusive property of the Employer. 8. Except as may be required to the contrary by the final order issued by a court of competent jurisdiction and except for any communication with members of Employee's immediate family and any attorney or accountant rendering advice to Employee in connection with this Agreement, Employee and Employer shall not, directly or indirectly, discuss or communicate the facts of this Agreement, or any of its terms and provisions with any third party. 9. The Employer agrees not to contest the Employee's claim for unemployment 6 benefits. 10. From and after the date of presentment of this Agreement, Employee shall not, directly or indirectly, take any action which is in fact, or is intended to be, contrary to the interests of the Employer, nor will Employee disparage or make negative, derogatory or defamatory statements about the Employer, its related and affiliated entities and their trustees, directors, officers, employees, agents or representatives, or any of them, to any other person or business entity. Employer shall not make any negative, derogatory or defamatory statements about Employee. All requests for references for Employee shall be referred to R. Scot Sellers. Mr. Sellers will make a general statement to the effect that it is not the practice of Employer to provide references regarding prior performance of employees, but that Employer will, if requested, provide information regarding the dates of employment, rate of pay and last title held. 11. Nothing in this Agreement shall be deemed an admission of wrongdoing or any kind of liability by either party. 12. In the event Employee engages in a material breach of any of the terms or provisions of this Agreement, all of Employee's obligations shall remain and shall be enforceable, but the Employer's obligations under this Agreement shall immediately terminate, including, without limitation, all remaining monetary obligations of the Employer to Employee which are outstanding at 7 the time of said breach. Similarly, Employee shall be relieved of any further obligation under this Agreement if Employer materially breaches its covenants in this Agreement. 13. This Agreement shall be binding upon and inure to the benefit of both parties, their successors and assigns, and any affiliated or related entity, as well as Employee's heirs, assigns, administrators, executors and legal representatives. 14. This instrument constitutes the entire agreement between the parties with respect to the matters addressed herein, and may not be modified or amended in any way except by a subsequent, written agreement between the parties. 15. If any provision, section, subsection or other portion of this Agreement shall be determined by any court of competent jurisdiction to be invalid, illegal or unenforceable in whole or in part, and such determination shall become final, such provision or portion shall be deemed to be severed or limited, but only to the extent required to render the remaining provisions and portions of this Agreement enforceable. This Agreement as thus amended shall be enforced so as to give effect to the intention of the parties insofar as this is possible. In addition, the parties hereby expressly empower a court of competent jurisdiction to modify any term or provision of this Agreement to the extent necessary to comply with existing law and to enforce this Agreement as modified. 16. This Agreement shall be construed in accordance with the laws of the State of 8 Colorado. 17. The language used in this Agreement shall be deemed to be the language chosen by the parties hereto to express their mutual intent, and no rule of strict construction shall be applied against any person. 18. This Agreement may be signed in multiple counterparts, each of which shall be deemed to be an original for all purposes. 19. Employee may revoke this Agreement within seven days of Employee's signing it. Revocation should be delivered to Employer's offices at 7670 S. Chester, Suite 100, Englewood, CO, attention Sharon Orlopp, Vice President Human Resources. For such revocation to be effective, the notice and the cashier's check must be received no later than 5:00 p.m. on the seventh calendar day after Employee signs this Agreement. If Employee does not revoke this Agreement within seven days, this Agreement shall be effective on the next calendar day. 20. Employee affirms that Employee has been given a period of at least twenty one days within which to consider this Agreement, and that Employee has carefully read and reviewed all the terms and conditions contained in this Agreement and fully understands this Agreement to be a release of all claims, known or unknown, present or future, that Employee has or may have against the Employer arising out of Employee's employment by Employer or its termination. Employee also 9 affirms that Employee has been advised to consult with an attorney prior to executing this Agreement and that Employee has, in fact, been given full opportunity to review this Agreement with counsel, and that Employee signs it voluntarily of his own volition, without duress or coercion. Employee represents that Employee is signing this Agreement because of the compensation to be paid by Employer under this Agreement which exceeds separation compensation generally available under the Employer's policies. 10 IN WITNESS THEREOF, the parties have executed this Agreement on the date(s) set forth below. Archstone Communities By: /s/ Patrick R. Whelan ---------------------------------- Patrick R. Whelan Date: March 3, 2000 --------------------------------- Employee: Jay Jacobson /s/ Jay S. Jacobson -------------------------------------- (Signature) Date: March 3, 2000 --------------------------------- 11 State of Texas ) ) County of Travis ) The above and foregoing was acknowledged before me this third day of March, 2000, by Jay Jacobson. /s/ Yvonne Gonzalez -------------------------------- Notary Public My Commission expires April 22, 2003. County of Travis ) ) State of Texas ) 12 EX-12.1 5 COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES EXHIBIT 12.1 Archstone Communities Trust Computation of Ratio of Earnings to Fixed Charges (Dollar amounts in thousands) (Unaudited)
Year Ended December 31, --------------------------------------------------------- 1999 1998 1997 (1) 1996 1995 --------- --------- -------- --------- --------- Earnings from operations.............. $ 167,279 $ 133,926 $ 24,686 $ 94,089 $ 81,696 Add: Interest expense.................... 121,494 83,350 61,153 35,288 19,584 --------- --------- --------- --------- --------- Earnings as adjusted.................. $ 288,773 $ 217,276 $ 85,839 $ 129,377 $ 101,280 ========= ========= ========= ========= ========= Fixed charges: Interest expense.................... $ 121,494 $ 83,350 $ 61,153 $ 35,288 $ 19,584 Capitalized interest................ 31,912 29,942 17,606 16,941 11,741 --------- --------- --------- --------- --------- Total fixed charges............... $ 153,406 $ 113,292 $ 78,759 $ 52,229 $ 31,325 ========= ========= ========= ========= ========= Ratio of earnings to fixed charges.... 1.9 1.9 1.1 2.5 3.2 ========= ========= ========= ========= =========
(1) Earnings from operations for 1997 includes a one-time, non-cash charge of $71.7 million associated with costs incurred in acquiring Archstone's REIT and property management companies from Security Capital. Excluding this charge, the ratio of earnings to fixed charges for the year ended December 31, 1997 would be 2.0. EX-12.2 6 COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED EXHIBIT 12.2 Archstone Communities Trust Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Share Dividends (Dollar amounts in thousands) (Unaudited)
Year Ended December 31, --------------------------------------------------------- 1999 1998 1997/(1)/ 1996 1995 -------- -------- --------- -------- -------- Earnings from operations................ $167,279 $133,926 $24,686 $ 94,089 $ 81,696 Add: Interest expense...................... 121,494 83,350 61,153 35,288 19,584 -------- -------- ------- -------- -------- Earnings as adjusted.................... $288,773 $217,276 $85,839 $129,377 $101,280 ======== ======== ======= ======== ======== Combined fixed charges and Preferred Share dividends: Interest expense...................... $121,494 $ 83,350 $61,153 $ 35,288 $ 19,584 Capitalized interest.................. 31,912 29,942 17,606 16,941 11,741 -------- -------- ------- -------- -------- Total fixed charges................. 153,406 113,292 78,759 52,229 31,325 -------- -------- ------- -------- -------- Preferred Share dividends............. 23,731 20,938 19,384 24,167 21,823 -------- -------- ------- -------- -------- Combined fixed charges and Preferred Share dividends........................ $177,137 $134,230 $98,143 $ 76,396 $ 53,148 ======== ======== ======= ======== ======== Ratio of earnings to combined fixed charges and Preferred Share dividends.. 1.6 1.6 0.9 1.7 1.9 ======== ======== ======= ======== ========
(1) Earnings from operations for 1997 includes a one-time, non-cash charge of $71.7 million associated with costs incurred in acquiring Archstone's REIT and property management companies from Security Capital. Accordingly, earnings from operations were insufficient to cover combined fixed charges and Preferred Share dividends by $12.3 million for the year ended December 31, 1997. Excluding this charge, the ratio of earnings to combined fixed charges and Preferred Share dividends for the year ended December 31, 1997 would be 1.6. EX-21 7 SUBSIDIARIES OF ARCHSTONE EXHIBIT 21
State of Incorporation ---------------------- Subsidiary Name or Organization - --------------- --------------- Archstone Communities Incorporated Delaware SCP Nevada Holdings 1 Incorporated Nevada SCP Utah Holdings 4 Incorporated Utah SCP Utah Holdings 5 Incorporated Utah Las Flores Development Texas PTR-California Holdings (1) Incorporated Maryland PTR-California Holdings (2) Incorporated Maryland PTR-California Holdings (3) Incorporated Delaware PTR Multifamily Holdings Incorporated Delaware Archstone Financial Services, Inc. Delaware PTR-Colorado (1), LLC Colorado Security Capital Atlantic Multifamily Inc. Delaware SCA Florida Holdings (1) Incorporated Florida Atlantic-Alabama (5) Incorporated Maryland Atlantic-Alabama (6) Incorporated Maryland SCA-Alabama Multifamily Trust Alabama SCA-North Carolina (1) Incorporated Maryland SCA-North Carolina (2) Incorporated Maryland SCA North Carolina Limited Partnership Delaware SCA-Indiana Limited Partnership Delaware SCA-Tennessee (3) Incorporated Maryland SCA-Tennessee (4) Incorporated Maryland Atlantic-Tennessee Limited Partnership Delaware SCA Florida Holdings (2) Incorporated Delaware SCA-1 Incorporated Delaware Atlantic Multifamily Limited Partnership-1 Delaware Archstone Communities Limited Partnership Delaware ASN Minnesota Holdings (1) LLC Delaware ASN Multifamily Limited Partnership Delaware ASN-Massachusetts Holdings (1) Incorporated Delaware ASN-Washington Holdings (1) Incorporated Delaware NEC Tatum and Bell Owner's Association, Inc. Arizona Turtle Run at Coral Springs, LLC Delaware Archstone Communities Limited Partnership II Delaware ASN- Massachusetts Holdings (3) Incorporated Delaware Archstone Communities Investment LLC-I Delaware ASN- San Diego Incorporated Delaware ASN Studio City Incorporated Delaware
EX-22 8 CONSENT OF KPMG LLP EXHIBIT 22 Independent Auditors' Consent The Board of Trustees of Archstone Communities Trust: We consent to incorporation by reference in registration statements No. 333- 43723 (Form S-8), No. 333-60847 (Form S-8), No. 333-60815 (Form S-8), No. 333- 60817 (Form S-8), No. 333-44639 (Form S-3), No. 333-68591 (Form S-3) and No. 333-51139 (Form S-4) of Archstone Communities Trust of our reports dated January 27, 2000, except as to Note 16 which is as of February 4, 2000, relating to the balance sheets of Archstone Communities Trust as of December 31, 1999 and 1998, and the related statements of earnings, shareholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1999, and the related schedule, which reports appear in the December 31, 1999 annual report on Form 10-K of Archstone Communities Trust. KPMG LLP Chicago, Illinois March 6, 2000 EX-27 9 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the Form 10-K for the twelve months ended December 31, 1999 and is qualified in its entirety by reference to such financial statements. 1,000 YEAR DEC-31-1999 JAN-01-1999 DEC-31-1999 10,072 0 0 0 0 0 5,217,331 300,658 5,302,437 0 1,971,520 0 297,635 139,008 2,130,863 5,302,437 637,808 666,872 0 349,964 26,135 2,000 121,494 205,641 0 205,641 0 1,113 0 204,528 1.46 1.46
EX-99.1 10 CURRENT DEVELOPMENT ACTIVITY EXHIBIT 99.1 Current Development Activity The following table summarizes Archstone's development communities under construction as of December 31, 1999 (dollar amounts in thousands):
Actual or Expected Expected Date Stabilization Total Start Date for First Units Date Number of Archstone Expected (Quarter/ (Quarter/ (Quarter/ % Units Investment Investment(1) Year) Year)(2) Year) Leased(3) --------- ---------- ------------- ---------- -------------- ------------ --------- Central Region: Austin, Texas: Archstone Monterey Ranch III.... 448 $ 13,089 $ 31,669 Q3/98 Q2/00 Q2/01 N/A ----- -------- -------- Denver, Colorado: Cedars II, The.................. 172 $ 5,549 $ 16,376 Q3/99 Q2/00 Q2/01 N/A ----- -------- -------- Salt Lake City, Utah: Archstone River Oaks.............. 448 $ 34,435 $ 37,483 Q2/98 Q1/99 Q4/00 79.2% ----- -------- -------- Total Central Region.......... 1,068 $ 53,073 $ 85,528 ----- -------- -------- East Region: Birmingham, Alabama: Cameron at the Summit II.......... 268 $ 18,040 $ 18,939 Q2/98 Q2/99 Q3/00 69.0% ----- -------- -------- Boston, Massachusetts: Archstone Tewksbury II............ 168 $ 20,066 $ 21,402 Q1/99 Q4/99 Q3/00 44.6% ----- -------- -------- Charlotte, North Carolina: Archstone Tyvola Centre........... 404 $ 7,629 $ 31,398 Q3/99 Q3/00 Q2/02 N/A ----- -------- -------- Indianapolis, Indiana: Archstone River Ridge............. 202 $ 15,754 $ 16,083 Q2/98 Q2/99 Q2/00 56.9% ----- -------- -------- Raleigh, North Carolina: Archstone at Preston.............. 388 $ 27,706 $ 31,289 Q2/98 Q2/99 Q4/00 56.7% ----- -------- -------- Richmond, Virginia: Archstone Swift Creek I........... 288 $ 22,148 $ 22,873 Q2/98 Q3/99 Q1/01 27.4% ----- -------- -------- Southeast Florida: Archstone at Woodbine............. 408 $ 9,857 $ 30,722 Q3/99 Q3/00 Q4/01 N/A ----- -------- -------- Washington, D.C.: Archstone Governor's Green........ 338 $ 32,721 $ 36,446 Q3/98 Q3/99 Q3/00 62.4% Archstone Milestone II............ 132 3,715 13,615 Q4/99 Q3/00 Q1/01 N/A Cameron Woodland Park............. 392 18,128 42,622 Q2/99 Q2/00 Q3/01 N/A ----- -------- -------- Total Washington, D.C........... 862 $ 54,564 $ 92,683 ----- -------- -------- West Coast, Florida: Archstone Rocky Creek............. 264 $ 18,675 $ 19,750 Q3/98 Q2/99 Q3/00 73.1% ----- -------- -------- Total East Region............... 3,252 $194,439 $285,139 ----- -------- -------- West Region: Reno, Nevada: Enclave II, The................... 180 $ 14,526 $ 16,204 Q4/98 Q3/99 Q4/00 52.2% ----- -------- -------- San Diego, California: Archstone Mission Valley.......... 736 $ 32,092 $106,328 Q4/99 Q4/00 Q3/03 N/A Archstone Torrey Hills............ 340 39,804 43,139 Q1/98 Q3/99 Q3/00 30.9% ----- -------- -------- Total San Diego, California..... 1,076 $ 71,896 $149,467 ----- -------- -------- San Francisco Bay Area, California: Archstone Emerald Park............ 324 $ 45,695 $ 47,963 Q4/97 Q3/99 Q3/00 43.2% Archstone Hacienda................ 540 67,149 77,363 Q2/98 Q3/99 Q1/01 26.5% Archstone Monterey Grove.......... 224 27,028 27,150 Q4/97 Q1/99 Q1/00 93.3% ----- -------- -------- Total San Francisco Bay Area.... 1,088 $139,872 $152,476 ----- -------- -------- San Jose, California: Archstone Willow Glen............. 412 $ 28,566 $ 69,581 Q3/99 Q1/01 Q1/02 N/A ----- -------- -------- Seattle, Washington: Archstone Inglewood Hill.......... 230 $ 20,462 $ 20,939 Q2/98 Q2/99 Q2/00 82.6% Archstone Northcreek.............. 524 40,186 44,025 Q2/98 Q2/99 Q1/01 60.9% ----- -------- -------- Total Seattle................... 754 $ 60,648 $ 64,964 ----- -------- -------- Total West Region............. 3,510 $315,508 $452,692 ----- -------- -------- Total Communities Under Construction........ 7,830 $563,020 $823,359 ===== ======== ========
(1) Represents total budgeted land and development costs. (2) Represents the quarter that the first completed units were made available for leasing (or are expected to be made available). Archstone begins leasing completed units prior to completion of the entire community. (3) The percentage leased is based on leased units divided by total number of units in the community (completed and under construction) as of December 31, 1999. A "n/a" indicates the communities where Lease-Up has not yet commenced. EX-99.2 11 LONG-TERM UNSECURED DEBT EXHIBIT 99.2 Long-Term Unsecured Debt As of December 31, 1999, Archstone had $1.3 billion of Long-Term Unsecured Debt issued and outstanding. The following table summarizes the Long-Term Unsecured Debt as of December 31, 1999 (dollar amounts in thousands):
Effective Average Principal Outstanding Coupon Interest Maturity Remaining Payment Date of Issuance Principal Amount Rate Rate/(1)/ Date Life (Years) Requirement - --------------------------- ---------------- ------ --------- -------- ------------ ----------- 06/29/99/(2)/.............. $ 10,000 3.91% 4.29% 06/01/08 8.42 (3) 06/29/99/(2)/.............. 21,700 3.91 4.37 06/01/08 8.42 (3) 06/29/99/(2)/.............. 16,000 3.91 4.29 06/01/08 8.42 (3) 06/29/99/(2)/.............. 12,900 3.91 4.33 06/01/08 8.42 (3) 07/28/99/(2)/.............. 15,115 3.86 4.13 06/01/08 8.42 (3) ---------------- ------ --------- ------------ Subtotal Average........... $ 75,715 3.90% 4.29% 8.42 ---------------- ------ --------- ------------ 12/08/98................... $ 10,000 7.00% 7.35% 01/15/09 9.05 (3) 10/30/98................... 120,000 7.20 7.34 04/15/03 3.29 (3) 10/29/98................... 3,000 7.00 7.11 10/30/01 1.83 (3) 10/28/98................... 5,000 7.00 7.12 10/29/01 1.83 (3) 10/27/98................... 18,000 7.00 7.13 10/29/01 1.83 (3) 10/26/98................... 13,000 6.63 6.78 10/26/00 0.82 (3) 10/23/98................... 15,000 6.75 6.92 10/23/00 0.81 (3) 10/20/98................... 3,000 6.89 7.09 10/20/00 0.81 (3) 10/19/98................... 9,000 6.81 7.02 10/19/00 0.80 (3) 10/15/98................... 10,000 6.93 7.18 10/15/00 0.79 (3) 10/13/98/(4)/.............. 5,000 6.62 6.87 10/15/01 1.79 (3) 10/09/98/(4)/.............. 50,000 6.95 7.14 10/09/02 2.78 (3) 10/01/98................... 5,000 6.32 6.51 10/01/01 1.75 (3) 10/01/98................... 10,000 6.95 7.08 10/01/08 8.76 (3) 09/25/98................... 25,000 6.17 6.40 10/13/00 0.79 (3) 09/23/98................... 21,200 6.37 6.57 10/15/01 1.79 (3) ---------------- ------ --------- ------------ Subtotal/Average........... $322,200 6.91% 7.08% 2.72 ---------------- ------ --------- ------------ 03/06/98................... $125,000 7.20% 7.86% 03/01/13 11.17 (5) ---------------- ------ --------- ------------ 08/20/97................... $ 52,147 7.86% 7.91% 08/15/17 15.63 (6) 08/20/97................... 101,510 7.25 7.27 08/15/09 5.95 (7) ---------------- ------ --------- ------------ Subtotal/Average........... $153,657 7.46% 7.49% 9.25 ---------------- ------ --------- ------------ 03/31/97................... $ 20,000 7.50% 7.44% 04/01/07 7.25 (3) 03/31/97................... 30,000 8.05 8.04 04/01/17 17.26 (3) ---------------- ------ --------- ------------ Subtotal/Average........... $ 50,000 7.91% 7.85% 13.26 ---------------- ------ --------- ------------ 10/21/96................... $ 20,000 6.95% 7.40% 10/15/02 2.79 (3) 10/21/96................... 20,000 7.15 7.50 10/15/03 3.79 (3) 10/21/96................... 20,000 7.25 7.63 10/15/04 4.79 (3) 10/21/96................... 20,000 7.30 7.64 10/15/05 5.79 (3) 10/21/96................... 20,000 7.38 7.69 10/15/06 6.79 (3) ---------------- ------ --------- ------------ Subtotal/Average........... $100,000 7.21% 7.57% 4.79 ---------------- ------ --------- ------------
EXHIBIT 99.2
Effective Average Principal Outstanding Coupon Interest Maturity Remaining Payment Date of Issuance Principal Amount Rate Rate/(1)/ Date Life (Years) Requirement - --------------------------- ---------------- ------ --------- -------- ------------ ----------- 08/06/96................... $ 20,000 7.55% 7.68% 08/01/08 8.59 (3) 08/06/96................... 20,000 7.63 7.73 08/01/09 9.59 (3) 08/06/96................... 20,000 7.65 7.77 08/01/10 10.59 (3) 08/06/96................... 20,000 8.10 8.21 08/01/15 15.59 (3) 08/06/96................... 20,000 8.15 8.25 08/01/16 16.59 (3) ---------------- ------ --------- ------------ Subtotal/Average........... $ 100,000 7.84% 7.95% 12.19 ---------------- ------ --------- ------------ 02/23/96................... $ 50,000 7.15% 7.30% 02/15/10 6.63 (8) 02/23/96................... 100,000 7.90 8.03 02/15/16 14.14 (9) ---------------- ------ --------- ------------ Subtotal/Average........... $ 150,000 7.71% 7.84% 11.63 ---------------- ------ --------- ------------ 02/08/94................... $ 100,000 6.88% 6.98% 02/15/08 4.63 (10) 02/08/94................... 100,000 7.50 7.65 02/15/14 12.14 (11) ---------------- ------ --------- ------------ Subtotal/Average........... $ 200,000 7.24% 7.37% 8.38 ---------------- ------ --------- ------------ Grand Total/Average........ $1,276,572 7.11% 7.31% 7.92 ================ ====== ========= ============
(1) Includes the effect of interest rate hedges and loan cost amortization, where applicable. (2) Tax-exempt unsecured bonds. See Note 11, Fair Values of Financial Instruments, for information related to the derivative financial instruments on these bonds. (3) Entire principal amount due at maturity. (4) The $5.0 million and $50.0 million of notes were originally issued at floating interest rates of 7.10% and 7.36%, respectively. In January 1999, the notes were converted through interest rate swap agreements to fixed interest rates of 6.87% and 7.14%, respectively. (5) These notes require annual principal payments of $25.0 million commencing in 2009. (6) These notes require annual principal payments of $10.0 million commencing in 2013. (7) These notes require aggregate annual principal payments of $15.0 million in 2002, $12.5 million from 2003 to 2008 and $10.0 million in 2009. (8) These notes require aggregate annual principal payments of $6.25 million commencing in 2003. (9) These notes require aggregate annual principal payments of $10.0 million in 2011, $12.5 million in 2012, $15.0 million in 2013, $17.5 million in 2014, $20.0 million in 2015 and $25.0 million in 2016. (10) These notes require annual principal payments of $12.5 million commencing in 2001. (11) These notes require aggregate annual principal payments of $10.0 million in 2009, $12.5 million in 2010, $15.0 million in 2011, $17.5 million in 2012, $20.0 million in 2013 and $25.0 million in 2014. EX-99.3 12 MORTGAGES PAYABLE EXHIBIT 99.3 Mortgages Payable Mortgages payable at December 31, 1999 consisted of the following (dollar amounts in thousands):
Principal Balance Effective Scheduled Periodic Balloon at December 31, Interest Maturity Payment Payment Due ------------------- Community Rate /1/ Date Terms at Maturity 1999 1998 - --------- --------- --------- -------- ----------- -------- -------- Conventional fixed rate: Fairwood Landing .................... N/A 12/21/99 (2) N/A $ -- $ 5,621 Country Place Village I ............. 6.71% 11/01/00 (2) 1,849 1,904 1,967 Cameron Hidden Harbor ............... 6.86 05/12/01 (2) 4,869 5,233 5,475 Archstone Knoxbridge ................ 7.63 07/01/03 (2) 14,741 15,462 15,650 Cameron at Hickory Grove ............ 7.09 07/10/03 (2) 5,556 6,063 6,187 Foxfire ............................. 7.32 10/01/05 (2) 7,334 8,119 -- Shadowbluff ......................... 7.10 12/01/05 (2) 4,926 5,720 5,835 Canyon Creek II ..................... 7.63 02/10/06 (4) 6,600 7,865 8,020 Cameron Palm Harbor ................. 7.10 11/01/06 (2) 4,661 5,517 5,622 Archstone Tewksbury ................. 8.45 01/01/07 (2) 2,621 3,076 -- Ashton Place ........................ 8.25 10/01/23 (5) N/A 45,566 46,204 Redmond Hill West ................... 9.63 06/01/26 (5) N/A 6,251 -- Cameron on the Cahaba II ............ N/A 03/01/29 (3) N/A -- 8,007 -------- -------- $110,776 $108,588 -------- -------- Tax-exempt fixed rate /6/: Cherry Creek ........................ N/A 11/01/01 (3) N/A $ -- $ 3,598 Cameron Station ..................... 5.81 05/01/07 (2) 12,563 15,058 15,352 Redwood Shores ...................... 5.74 10/01/08 (2) 16,820 23,608 24,280 Cloverland .......................... 7.35 03/01/10 (2) 3,273 4,124 4,178 Crossroads .......................... 6.66 12/15/18 (7) 4,435 4,435 4,435 Carrington Place .................... 7.93 04/01/19 (5) N/A 3,372 3,444 Eden Commons ........................ 7.88 03/01/25 (5) N/A 5,979 6,317 -------- -------- $ 56,576 $ 61,604 -------- -------- Tax-exempt floating rate /6/: Arboretum, The ...................... 4.63 06/15/04 (8) 36,346 $ 36,346 $ -- Rivermeadows ........................ N/A 10/01/05 (9) N/A -- 10,000 Seascape ............................ N/A 12/01/05 (9) N/A -- 15,115 Prairie Court ....................... 4.09 12/01/06 (10) 7,250 7,250 -- Amberwood at Bellevue ............... 4.77 07/01/13 (11) 3,702 5,002 5,102 Garden Glen ......................... 5.01 12/01/13 (8) 33,410 33,410 -- Archstone University Towne Centre ... 3.98 08/01/14 (11) 13,232 20,846 21,200 Regency Park ........................ 5.05 12/15/14 (7) 8,500 8,500 -- Oakridge ............................ N/A 06/01/15 (9) N/A -- 13,050 Le Club ............................. N/A 11/01/15 (9) N/A -- 21,700 Carmel Del Mar ...................... 3.62 12/01/15 (8) 13,608 13,608 13,608 Azalea Park ......................... 4.36 06/01/25 (5) N/A 15,033 15,179 Cameron Brook ....................... 4.36 06/01/25 (5) N/A 18,774 18,950 Cameron Cove ........................ 4.50 06/01/25 (5) N/A 8,173 8,259 Clairmont Crest ..................... N/A 06/01/25 (3) N/A -- 11,273 Forestwood .......................... 4.40 06/01/25 (5) N/A 11,058 11,158 Foxbridge on the Bay ................ N/A 06/01/25 (3) N/A -- 10,109 Cameron Green ....................... 4.25 06/01/25 (5) N/A 10,013 10,107 Parrot's Landing I .................. N/A 06/01/25 (3) N/A -- 15,386 Winterscreek ........................ 4.47 06/01/25 (5) N/A 4,834 4,880 Fox Creek ........................... N/A 08/15/27 (3) N/A -- 4,240 -------- -------- $192,847 $209,316 -------- --------
Principal Balance at Effective Scheduled Periodic Balloon December 31, Interest Maturity Payment Payment Due ----------------------- Community Rate(1) Date Terms at Maturity 1999 1998 - --------- --------- --------- -------- ----------- --------- --------- Other: Las Flores(12)....................... 9.16% 06/01/24 (5) N/A $ 5,648 $ 5,726 Mello-Roos bonds(13)................. 5.65 Various (5) N/A 24,736 22,929 --------- --------- $ 30,384 $ 28,655 --------- --------- Fannie Mae secured debt(14).......... 6.53 (15) (16) 300,051 304,365 268,450 --------- --------- --------- Total/Average...................... 6.14% $ 694,948 $ 676,613 ========= ========= =========
(1) Represents the effective interest rate, including interest rate hedges, loan cost amortization and other ongoing fees and expenses, where applicable. (2) Regular amortization with a balloon payment due at maturity. (3) Mortgage was prepaid by Archstone or assumed by the buyer upon disposition of the community. (4) Apartment community has two notes; one note is interest only with a balloon payment of $6.6 million and the second note is fully amortizing. (5) Fully amortizing. (6) Tax-exempt effective interest rates include credit enhancement and other bond-related costs, where applicable. (7) Semi-annual payments are interest only until December 2003 at 5.4%, at which time the interest rate is adjusted to the current market rate. (8) Payments are interest only until maturity and the interest rate is adjusted weekly or monthly. (9) These bonds were refinanced during 1999 and are now classified as Long-Term Unsecured Debt. (10) Semi-annual payments are interest only until December 1999 at 8% at which time the bond will be tendered. (11) Requires annual principal payments of $100,000 each year until maturity and variable interest is paid monthly to the sub-servicers. (12) The bonds consist of $4.5 million Series A tax-exempt fixed rate bonds and $1.7 million Series B taxable fixed rate bonds. The bonds are guaranteed by the GNMA mortgage-backed securities program. (13) Primarily represents bonded indebtedness associated with improvements to public facilities and infrastructure in certain California taxing jurisdictions known as "Mello-Roos districts." The bonds have a weighted-average rate of 5.65% and mature at dates ranging from 2007 to 2027. (14) The following apartment communities secure the Fannie Mae secured debt: Canyon Creek, Pebble Cove, The Remington, Hunters Run I & II, Monterey Ranch II, Legacy Heights, Memorial Heights I & II, Miralago I, Scottsdale Greens, Cameron Creek, Cameron Landing, Cameron Pointe, Cameron Matthews, 52 Magnolia, Waterford Point, Oaks at Fair Lakes, Bellemeade Farms, Sterling Heights, Oaks at Medical Center I. (15) The $268.5 million issued in December 1998 matures on January 1, 2006. The remaining $35.9 million issued in March 1999 matures on April 1, 2008. (16) In December 1998, Archstone closed on a $268.5 million long term secured debt agreement with Fannie Mae. In March 1999, Archstone closed on an additional $36.0 million at an effective fixed interest rate of 6.7%. See Note 11, Fair Values of Financial Instruments, for information on the derivative financial instruments related to the Fannie Mae secured debt. -----END PRIVACY-ENHANCED MESSAGE-----