10-K 1 FORM 10-K -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 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, 1994 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 SECURITY CAPITAL PACIFIC TRUST (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) MARYLAND 74-6056896 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.) INCORPORATION OR ORGANIZATION) 7777 MARKET CENTER AVENUE EL PASO, TEXAS 79912 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES AND ZIP CODE) (915) 877-3900 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
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 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 shares on March 30, 1995, the aggregate market value of the voting stock held by non-affiliates of the registrant was $767,380,556. At March 30, 1995, there were outstanding approximately 72,212,337 Common Shares of Beneficial Interest of the registrant. DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant's definitive proxy statement for the annual meeting of its shareholders scheduled to be held June 13, 1995 are incorporated by reference in Part III of this report. -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- TABLE OF CONTENTS
ITEM DESCRIPTION PAGE ---- ----------- ---- PART I 1. Business........................................................... 3 Security Capital Pacific Trust..................................... 3 Strategy for Cash Flow and Distribution Growth..................... 4 Multifamily Properties............................................. 5 Non-Multifamily Properties......................................... 6 Investment Analysis................................................ 6 Strategic Accomplishments.......................................... 7 The REIT Manager................................................... 9 Officers of PTR and Directors and Officers of the REIT Manager and Relevant Affiliates................................................ 11 Insurance.......................................................... 16 Competition........................................................ 16 Environmental Matters.............................................. 16 Employees.......................................................... 16 Executive Officers................................................. 17 2. Properties......................................................... 17 Portfolio Composition.............................................. 23 Geographic Distribution............................................ 24 3. Legal Proceedings.................................................. 24 4. Submission of Matters to a Vote of Security Holders................ 25 PART II Market for the Registrant's Common Equity and Related Stockholder 5. Matters............................................................ 25 6. Selected Financial Data............................................ 27 Management's Discussion and Analysis of Financial Condition and 7. Results of Operations.............................................. 28 Overview........................................................... 28 Merger and Concurrent Subscription Offering........................ 28 Results of Operations.............................................. 29 Environmental Matters.............................................. 33 Liquidity and Capital Resources.................................... 33 REIT Management Agreement.......................................... 36 8. Financial Statements and Supplementary Data........................ 36 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Matters...................................... 37 PART III 10. Directors and Executive Officers of the Registrant................. 37 11. Executive Compensation............................................. 37 12. Security Ownership of Certain Beneficial Owners and Management..... 37 13. Certain Relationships and Related Transactions..................... 37 PART IV 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.... 37
2 PART I ITEM 1. BUSINESS SECURITY CAPITAL PACIFIC TRUST The objective of Security Capital Pacific Trust (formerly known as Property Trust of America, and referred to herein as "PTR") is to be the preeminent real estate operating company focusing on multifamily property in its target market. PTR'S REIT manager is Security Capital Pacific Incorporated (the "REIT Manager" or "REIT Management"). Through its REIT Manager, PTR is a fully integrated operating company which engages in development, acquisition, operation and long term ownership of multifamily properties. At March 23, 1995, PTR owned and operated or was developing 47,120 multifamily units. The total investment cost of all of PTR's multifamily properties is $1.9 billion, including planned renovations and development expenditures. PTR seeks to achieve long term sustainable growth in cash flow and distributions by maximizing operating performance through value-added asset management, concentrating its fully integrated development capability and experienced team of professionals on developing industry-leading product in targeted submarkets that exhibit strong job growth and demographic trends and implementing an asset optimization strategy of redeploying capital into targeted moderate income developments with significant long-term cash flow growth prospects. PTR has traditionally focused on multifamily assets in the Southwest. In November 1994, PTR's Board of Trustees (the "Board") expanded PTR's target market to include a six-state region of the western United States comprised of California, Idaho, Nevada, Oregon, Utah and Washington. On March 23, 1995, PTR consummated a merger (the "Merger") of Security Capital Pacific Incorporated, a Maryland corporation ("PACIFIC"), with and into PTR. The assets acquired from PACIFIC in the Merger are located in some of the new markets, which the REIT Manager believes have significant growth prospects. Concurrently with the Merger, PTR completed a subscription offering of common shares of beneficial interest, $1.00 par value per share ("Common Shares"), at a price of $16.375 per share, pursuant to which PTR received subscriptions for 13.2 million Common Shares representing proceeds of $216.6 million. Based on the Merger, its recent subscription offering, debt issuance capacity, asset optimization strategy and current real estate and debt market conditions, PTR believes it has reached an optimal level of equity capitalization. Hence, PTR has no plans to raise additional capital through the equity markets. For the foreseeable future, PTR intends to fund its capital needs through implementation of its asset optimization strategy and the issuance of additional fixed-rate, fully amortizing long term debt. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources." PTR highlights include: . Average rental rates increased 6.42% in 1994 for PTR's multifamily properties that were fully operational throughout both 1994 and 1993. At March 23, 1995, PTR's operating multifamily properties were 95.8% leased. . PTR believes that development of multifamily properties from the ground up that are built for long term ownership and are designed to meet broad renter preferences and demographic trends will provide a greater source of long term cash flow growth in the future than acquisitions. PTR expects to complete an additional 1,991 multifamily units by June 30, 1995. At March 23, 1995, PTR had completed $217.7 million of developments, had $201.3 million of developments under construction and owned land for which it is planning $253 million of developments. 3 . Security Capital Group Incorporated (which reflects the imminent name change from Security Capital Realty Incorporated and is referred to herein as "Security Capital Group"), PTR's largest shareholder, which owned 37.9% of the Common Shares at March 30, 1995, is the owner of the REIT Manager and has provided investment capital to PTR, at the same times and on the same terms made available to public investors. . Based on forecasts published by Woods & Poole Economics, Inc., the projected growth in population of PTR's primary target market is 39.5% for the years 1994-2015, whereas the projected growth in population in the U.S. as a whole for such period is 19.2%. For the same time period, job growth is projected to be 31.5% in PTR's primary target market, and 22.4% in the U.S. as a whole. . A review of local market information in PTR's primary target market indicates that the number of multifamily units for which building permits have been issued has declined significantly from mid-1980 levels. In 1985, 55,005 units were permitted as compared to 32,394 units in 1994. . PTR's long term debt as a percentage of total long term book capitalization was 26% at December 31, 1994 and 22% at March 23, 1995 on a pro forma basis, giving effect to the Merger and the concurrent subscription offering and property acquisitions through March 23, 1995. Giving effect to the use of the proceeds from the subscription offering that closed on March 23, 1995, there would be no borrowings outstanding under PTR's $350 million revolving line of credit at March 23, 1995. PTR has elected to be taxed as a real estate investment trust ("REIT") for federal income tax purposes. PTR was formed in 1963 and is a real estate investment trust organized under the laws of Maryland. Its principal executive offices are located at 7777 Market Center Avenue, El Paso, Texas 79912, and its telephone number is (915) 877-3900. STRATEGY FOR CASH FLOW AND DISTRIBUTION GROWTH PTR seeks to achieve long term sustainable growth in cash flow and distributions by maximizing operating performance through value-added asset management, concentrating its fully integrated development capabilities and experienced team of professionals on developing industry-leading product in targeted submarkets that exhibit strong job growth and demographic trends and implementing an asset optimization strategy of redeploying capital into targeted moderate income developments with significant long-term cash flow growth prospects. Commitment to Fundamental Real Estate Research. PTR utilizes its affiliate, Security Capital (U.S.) Investment Research Incorporated ("Security Capital (U.S.) Investment Research"), to conduct comprehensive evaluations of its target markets on a submarket-by-submarket basis to identify those submarkets and product types that present above average prospects for long term cash flow growth. These evaluations, combined with PTR's experience in development and as one of the largest multifamily property owners in its target market, enable PTR to identify the submarkets with the highest projected job and population growth and to determine the product type to develop, acquire and own in each submarket to appeal to the local resident base. Asset Review and Reallocation. PTR develops and acquires properties with a view to effective long term operation and ownership. REIT Management's asset managers actively review PTR's asset base. These reviews generate operating and capital plans and, with guidance from Security Capital (U.S.) Investment Research, identify submarkets and product types that PTR believes represent better long term growth opportunities. For each market, PTR's research evaluates five major economic factors, further broken down into 20-25 submarket characteristics. This research provides PTR with the demographic information to target specific resident profiles and identify unit size, density and amenities for each community which will provide the greatest opportunity for consistent rental increases and high occupancies and will be contributors to long term income growth. Based upon PTR's market research and in an effort to optimize its portfolio allocation, PTR may from time to time seek to dispose of assets that in management's view do not meet PTR's long 4 term investment criteria and redeploy the proceeds therefrom, preferably through like-kind exchanges, into assets that it believes provide better long term growth opportunities. Development. Through March 23, 1995, PTR has completed $217.7 million of multifamily developments, has $201.3 million of developments under construction and owns land for which it is planning $253 million of developments. PTR has engaged in multifamily development since 1970. PTR has developed from the ground up, or has under development, 29.8%, based on cost, of its multifamily portfolio as of March 23, 1995. Historically, actual operating results on properties developed by PTR have generally exceeded projected operating results and the results available from acquisitions. PTR's development strategy is to focus on developing state of the art product in attractive submarkets to meet renter preferences and demographic trends. PTR believes that developing communities designed for long term appeal to the largest segment of the renter population will allow PTR to achieve more consistent rental increases and higher occupancies over the long term and, thereby, realize cash flow growth. PTR minimizes development risks by having zoning, site planning, construction budgets and similar risks resolved or assumed by third parties prior to PTR's commitment. PTR also targets development for markets with high occupancy rates where population and job growth trends indicate increasing future demand. PTR cannot eliminate all development risk but believes that the opportunities to better control product and realize higher returns from development properties compensate for the retained risk. Development opportunities also permit PTR to incorporate into multifamily communities proprietary technologies and designs aimed at enhancing long term rental growth while reducing ongoing maintenance costs. PTR has had the opportunity to evaluate and refine its multifamily product through its long history of development. PTR, unlike a typical merchant builder, intends to own long term the properties that it develops. Hence, PTR focuses on the quality of construction, materials and design with a view towards minimizing long term operation and maintenance costs. REIT Management believes that development of multifamily units from the ground up that are built for long term ownership and are designed to meet broad renter preferences and demographic trends will provide a greater source of long term cash flow growth. Therefore, while land prices are favorable, PTR has acquired and will acquire, on an unleveraged basis, prudent amounts of zoned land for future multifamily development. For purposes of the property charts and other information in this report, land held for these future developments, which comprises less than 1% of assets, based on cost, is not aggregated with the multifamily properties. PTR believes that effective execution of the strategy described above will contribute to long term sustainable growth in cash flow and distributions. MULTIFAMILY PROPERTIES PTR categorizes operating multifamily properties (which include all properties not under development) as either "stabilized" or "pre-stabilized." The term "stabilized" means that renovation, repositioning, new management and new marketing programs (or development and marketing in the case of newly- developed properties) have been completed and in effect for a sufficient period of time (but in no case longer than 12 months or, in the case of properties requiring major rehabilitation, as long as 18 months) to achieve 93% occupancy at market rents. Prior to being "stabilized," a property is considered "pre- stabilized." For operating properties that PTR has acquired, stabilized operations generally have been achieved six to twelve months after acquisition. For properties that PTR has developed, stabilized operations generally have been achieved twelve to eighteen months after construction commenced. Due to its active development and acquisition programs, 80.5% of PTR's operating multifamily properties, based on cost, were classified by PTR as stabilized as of March 23, 1995. At March 23, 1995, PTR's operating multifamily properties were 95.8% leased and PTR's stabilized multifamily properties were 96.5% leased. PTR's multifamily properties are primarily garden style, two-story multifamily dwellings that range in size from 57 units to 896 units. Resident leases are generally for six-month to twelve-month terms and require 5 security deposits. As of March 23, 1995, PTR owned 27 properties that contain affordable corporate efficiency units which are rented for terms generally shorter than six months. As of March 23, 1995, nine of these properties were under development, including one in the leasing stage, and six were in planning. PTR expects to develop more of these properties. PTR believes that its multifamily communities generally occupy strategic locations in growing submarkets. At March 23, 1995, excluding affordable corporate efficiency properties, the average unit size for properties operating, under development and in planning is 833 square feet, with 53.5% of the units having two or more bedrooms. Many units have washer/dryer connections and walk-in closets, which REIT Management believes substantially enhance marketability. PTR improves attractiveness by investing in extensive landscaping when developing or repositioning multifamily units. Other features frequently included in PTR's multifamily communities are swimming pools, playgrounds, volleyball courts, fitness centers and community rooms. PTR expects to continue to focus a portion of its future development and acquisition efforts on moderate income multifamily housing, which includes moderately priced apartments and efficiency units priced to appeal to the largest segment of the renter population, based on income, age and family size. NON-MULTIFAMILY PROPERTIES PTR focuses its investment and development activities on multifamily properties. It will continue to aggressively manage its non-multifamily properties in order to maximize cash flow, and periodic sales of non- multifamily properties may occur as opportunities arise. The percentage of PTR's rental income generated by non-multifamily properties was less than 2% of total rental income during 1994. Hotel. PTR owns a 338-room, five-story hotel building and land located in the Fisherman's Wharf area of San Francisco, California. The hotel building is leased to Holiday Inns of America, Inc. The lease expires in 2018. Holiday Inns has recently renovated portions of this building at its own expense. The effective annual rent is 25% of the hotel's gross room revenues and 5% of gross food and beverage sales. Holiday Inns operates this building jointly with its 243-room building across the street, and PTR's rental income is based on total revenues for both buildings, prorated based on the number of rooms in PTR's building. Average occupancy for the one-year period ended December 31, 1994 was 82.8%, at an average room rate of $89.77. Office/Industrial. PTR owns one office building through a 40% owned joint venture, and owns three industrial properties. PTR's office building is located in the Dallas, Texas metropolitan area. As of March 23, 1995, this office building was 98.2% leased. PTR's industrial properties are warehouse/showroom facilities located in Texas and California, ranging in size from 37,200 square feet to 130,000 square feet and were 100% leased at March 23, 1995. INVESTMENT ANALYSIS Prospective property investments are analyzed pursuant to several underwriting criteria, including purchase price, competition and other market factors, and prospects for growth in income and market value. PTR's investment decision is based upon the expected contribution of the property to cash flow growth which provides the opportunity for increases in shareholder distributions. The expected economic contribution is based on an estimate of all cash revenues from leases and other revenue sources, minus expenses incurred in operating the property (generally, real estate taxes, insurance, maintenance, personnel costs and utility charges, but excluding depreciation, debt service and amortization of loan costs). Residual value and the effects of debt financing are not considered in the calculation. The economic contribution of properties cannot be predicted with certainty, and no assurance can be given that developed or acquired properties will contribute to increased cash flow and shareholder distributions, or that developments and acquisitions will be available on comparable terms in the future. 6 STRATEGIC ACCOMPLISHMENTS Developments and Acquisitions The REIT Manager's development and acquisition specialists are each assigned to a specific metropolitan area within PTR's target market where they are present each week to review available properties, meet with potential sellers, process planning approvals and monitor construction in progress. PTR has selectively developed and acquired multifamily properties where land costs, demographic trends and market trends indicate a high likelihood of achieving expected operating results. This system has produced multifamily property developments and acquisitions on favorable terms. As of March 23, 1995, the multifamily portfolio consisted of the following (dollars in thousands):
NUMBER TOTAL EXPECTED OF UNITS COST(1) -------- -------------- Properties Acquired............................... 31,845 $1,187,822 Developments Completed............................ 5,750 217,727 Developments Under Construction................... 4,433 201,349 Developments in Planning.......................... 5,092 253,001 ------ ---------- Totals.......................................... 47,120 $1,859,899 ====== ==========
-------- (1) Represents cost, including planned renovations, for properties owned at March 23, 1995. Represents budgeted development cost, which includes the cost of land, fees, permits, payments to contractors, architectural and engineering fees and interest and property taxes to be capitalized during the construction period, for properties under development. Does not include land held for future development, which is less than 1% of assets based on cost. As of March 23, 1995, PTR had contingent contracts or letters of intent, subject to final due diligence, to acquire land for the near term development of 5,877 multifamily units with an aggregate estimated development cost of $289.3 million. At the same date, PTR also had contingent contracts or letters of intent, subject to final due diligence, for the acquisition of 1,821 additional multifamily units with an aggregate investment cost of $76.4 million, including planned renovations. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources." Property Management The REIT Manager believes that a successful REIT must actively manage its properties in order to increase cash flow and enhance the long term economic performance of the properties. Prior to retaining the REIT Manager, PTR's properties were managed by several different property managers for whom PTR was one of many customers. In order to gain more control over multifamily operations, in August 1991, the REIT Manager retained SCG Realty Services Incorporated ("SCG Realty Services"), a property management firm, to replace other firms as the property manager for most of PTR's multifamily properties. Security Capital Group is SCG Realty Services' sole shareholder. At March 23, 1995, SCG Realty Services managed 84.6% of PTR's operating multifamily units, with the balance in various stages of transition to SCG Realty Services' management. SCG Realty Services has over 987 employees dedicated to the management of PTR's properties. SCG Realty Services emphasizes locally-based management of PTR's properties and has opened ten local offices to serve PTR's target market. This network improves SCG Realty Services' ability to respond to changes in local market conditions and resident needs. The REIT Manager believes that SCG Realty Services has developed superior marketing programs, operating procedures, financial controls, information systems and training programs, which it expects to positively affect rental returns and occupancy rates. In addition, incentive compensation programs have been implemented for on-site property managers to further improve the performance of the properties. Rates for services performed by SCG Realty Services are subject to annual approval by PTR's independent Trustees (who receive an annual review from an independent third party) 7 and are at rates prevailing in the markets in which PTR operates. During 1994, PTR paid aggregate fees of $7,148,000 to SCG Realty Services. The REIT Manager has taken an active role in overseeing SCG Realty Services' management of PTR's multifamily properties and has assembled a staff of asset managers to provide better oversight and long term direction. Capital Markets REIT Management believes that a successful REIT must have the ability to access the equity and debt markets efficiently, expeditiously and inexpensively. PTR's capital markets ability permits it to capitalize on the development and acquisition opportunities that PTR believes exist in its target market. In order to maximize this function and enhance relationships with major institutional sources of capital, Security Capital Group has formed a registered broker-dealer subsidiary, Security Capital Markets Group Incorporated ("Capital Markets Group"). Capital Markets Group's services are included in the REIT Manager's fee and do not result in a separate charge to PTR. Capital Markets Group and the REIT Manager have arranged innovative public offering structures, underwritten offerings and substantial credit facilities for PTR, including: In June 1991, PTR raised $21.4 million of net proceeds from a rights offering to holders of Common Shares; In November 1991, PTR raised $45.6 million of net proceeds from a public offering of Common Shares to shareholders and institutions; In April 1992, PTR raised $69.8 million of net proceeds from a public offering of Common Shares that was 71% underwritten by a syndicate of investment banks; In October 1992, PTR raised $73.4 million of net proceeds from a rights offering to holders of Common Shares and a sale of shelf-registered Common Shares to new institutional investors; In February and March 1993, PTR raised $129.5 million of net proceeds from a public offering of Common Shares that was 82% underwritten by a syndicate of investment banks; In September 1993, PTR raised $165.3 million of net proceeds from a rights offering to holders of Common Shares and a sale of shelf-registered Common Shares to institutional investors; In November 1993, PTR raised $219.7 million of net proceeds from an underwritten public offering of Cumulative Convertible Series A Preferred Shares of Beneficial Interest, $1.00 par value per share ("Preferred Shares"); In February 1994, PTR raised $196.4 million of net proceeds from an underwritten public offering of fully amortizing, long term senior debt securities (the "Notes"); In August 1994, PTR raised $101.8 million of net proceeds from a rights offering to holders of Common Shares; and In March 1995, PTR raised $216.3 million of net proceeds from a subscription offering for Common Shares that closed concurrently with the Merger (see "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources Financing Activities"). For the Common Share offerings, PTR's underwriting commissions (all of which were paid to unaffiliated underwriters) have been $8.8 million, representing 1.05% of gross proceeds of $835.1 million, compared to an average commission cost of 5.49% for all public equity REIT offerings of common shares, other than initial public offerings, from January 1, 1991 through March 23, 1995, or $37.1 million less than the industry average commission on the same amount of gross proceeds. When the REIT Manager was retained, PTR had $14.3 million of lines of credit available to it for developments and acquisitions. The REIT Manager has arranged increases in PTR's borrowing capacity as follows: 8 In October 1991, the REIT Manager negotiated a $20 million line of credit for PTR from Texas Commerce Bank National Association ("TCB") at an interest rate of prime plus 1/2 of 1%; In August 1992, with the REIT Manager's assistance in the syndication process, TCB arranged with a group of banks to increase this line of credit to $72 million at an interest rate of prime plus 1/4 of 1%; In February 1993, the REIT Manager negotiated and assisted in syndicating an increase in the line of credit to $125 million; In November 1993, the REIT Manager negotiated and assisted in syndicating an extension of this line of credit from August 1994 to August 1995 and an increase to $200 million, with a reduction in interest rate to prime or, at PTR's option, LIBOR plus 2%; In August 1994, the REIT Manager negotiated and assisted in converting the line of credit to an unsecured facility; In October 1994, the REIT Manager negotiated and assisted in syndicating an extension of the line of credit from August 1995 to August 1996 and an increase to $275 million, with a reduction in interest rate to the greater of prime or the federal funds rate plus 0.5% or, at PTR's option, LIBOR plus 1.75% to 2.0% (varying based upon the rating of PTR's senior unsecured debt); and In March 1995, the REIT Manager negotiated and assisted in syndicating an increase in the line of credit to $350 million, with a reduction in interest rate to the greater of prime or the federal funds rate plus 0.5% or, at PTR's option, LIBOR plus 1.625% (which can vary from LIBOR plus 1.25% to LIBOR plus 2.0% based upon the rating of PTR's senior unsecured debt). PTR's increased borrowing capacity enables it to develop and acquire multifamily properties prior to equity and long term debt offerings and to eliminate or minimize the amount of cash it must invest in short term investments at low yields. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources." PTR's strategy includes maintaining a conservative ratio of long term debt to total long term book capitalization (26% at December 31, 1994 and 22% at March 23, 1995 on a pro forma basis, giving effect to the Merger and the concurrent subscription offering and property acquisitions through March 23, 1995). PTR believes its current conservative leverage provides considerable flexibility to prudently utilize long term debt as a financing tool in the future. During 1995, PTR intends to prudently increase its capital base with debt, while keeping long term debt below 50% of total book capitalization. PTR also intends to limit the sum of total long term and outstanding revolving credit debt to less than 50% of the sum of book capitalization and outstanding revolving credit debt (32% at December 31, 1994 and 22% at March 23, 1995 on a pro forma basis, giving effect to the Merger and the concurrent subscription offering and property acquisitions through March 23, 1995). THE REIT MANAGER The REIT Manager provides both strategic and day-to-day management for PTR, including research, investment analysis, acquisition and development services, asset management, capital markets services, disposition of assets and legal and accounting services, all of which are included in the REIT Management fee. Hence, PTR depends upon the quality of the management provided by the REIT Manager. As of March 23, 1995, 94 professionals were employed by the REIT Manager and its specialized service affiliates. The REIT Manager also provides office and other facilities for PTR's needs. The REIT Manager believes that the quality of management should be assessed in light of the following factors: 9 Management Depth/Succession. Management should have several senior executives with the leadership, operational, investment and financial skills and experience to oversee the entire operations of the REIT. The REIT Manager believes that several of its senior officers could serve as the principal executive officer and continue PTR's performance. See "--Officers of PTR and Directors and Officers of the REIT Manager and Relevant Affiliates." Strategic Vision. Management should have the strategic vision to determine an investment focus that provides favorable initial yields and growth prospects. The REIT Manager demonstrated its strategic vision by focusing PTR on multifamily properties in target markets where demographic and supply factors have permitted high occupancies at increasing rents. This focus has enabled PTR to consistently make investments on attractive terms. See "--Strategic Accomplishments--Developments and Acquisitions" and "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations." Research Capability. Management should have the means for researching markets to determine appropriate investment opportunities. PTR divides its target market into numerous submarkets for analysis purposes. The REIT Manager and its affiliate, Security Capital (U.S.) Investment Research, have several professionals devoting substantial time to research, on a submarket-by- submarket basis, who are closely supervised by the Managing Directors of the REIT Manager; hence, the REIT Manager's research has provided guidance for PTR's strategic focus and investment program. Investment Committee Process. Investment committees should provide discipline and guidance to the investment activities of the REIT in order to achieve its investment goals. The members of the REIT Manager's Investment Committee have a combined 69 years of experience in the real estate industry. See "--Officers of PTR and Directors and Officers of the REIT Manager and Relevant Affiliates." The Investment Committee receives detailed written analyses and research, in a standardized format, from the REIT Manager's development and acquisition personnel and evaluates all prospective investments pursuant to uniform underwriting criteria prior to submission of investment recommendations to the Board. The quality of the REIT Manager's Investment Committee process is evident from the ability of PTR to achieve its investment goals, generally realizing its projected initial returns and growth from multifamily investments. Development/Redevelopment Capability. Development returns generally are higher than acquisition returns. PTR can better control the quality of developed properties than acquired properties. Hence, development is an important source of cash flow growth even during attractive acquisition markets. By internally developing projects and redeveloping well located existing properties, management can capture for the REIT the value that normally escapes through sales premiums paid to successful developers. The REIT Manager's personnel have substantial development and redevelopment experience, as described in "--Officers of PTR and Directors and Officers of the REIT Manager and Relevant Affiliates." The REIT Manager has 31 full-time development professionals (which include seven due diligence professionals). At March 23, 1995, the REIT Manager had under construction 4,433 multifamily units for PTR, with a total budgeted cost of $201.3 million, and had in the final planning stages an estimated 5,092 multifamily units with a total budgeted cost of $253 million. The REIT Manager has engaged in substantial development on behalf of PTR at attractive yields that have generally exceeded projections. See "-- Multifamily Properties" and "--Strategic Accomplishments--Developments and Acquisitions." Acquisitions Capability/Due Diligence Process. Management should have experienced senior personnel dedicated to acquiring investments and performing intelligent and thorough due diligence. The REIT Manager has 11 full-time acquisition and due diligence professionals (including the seven due diligence professionals who also focus on development) and has developed uniform systems and procedures for due diligence. As described under "--Strategic Accomplishments--Developments and Acquisitions," the REIT Manager's acquisition and due diligence personnel have screened and selected a large volume of successful investments. Capital Markets Capability. Management must be able effectively to raise equity and debt capital for the REIT in order for the REIT to achieve growth through investment. As set forth under "--Strategic 10 Accomplishments--Capital Markets," the REIT Manager has successfully arranged funding for PTR's investment program. Operating Capability. Management can substantially improve cash flow by actively and effectively operating assets. As described under "--Strategy for Cash Flow and Distribution Growth" and "--Strategic Accomplishments--Property Management," the REIT Manager and its affiliates have devoted substantial personnel and financial resources to effectively administer and control the operations of PTR's multifamily assets. Communications/Shareholder Relations Capability. A REIT's success in capital markets and asset acquisition activities can be enhanced by management's ability to effectively communicate the REIT's strategy and performance to investors, sellers of property and the financial media. The REIT Manager believes that PTR has now generally established an excellent reputation among these constituencies through its performance and the REIT Manager's communications ability. The REIT Manager provides at its expense full-time personnel who prepare informational materials for and conduct periodic meetings with shareholders, the investment community and analysts. Successfully combining the foregoing attributes can establish for a REIT the ability to increase cash flow and the market valuation of the REIT's portfolio. Both PTR's cash flow and market valuation have increased under the REIT Manager's administration. OFFICERS OF PTR AND DIRECTORS AND OFFICERS OF THE REIT MANAGER AND RELEVANT AFFILIATES Directors and Senior Officers of the REIT Manager. Members of the REIT Manager's Investment Committee are designated by an asterisk. *C. RONALD BLANKENSHIP--45--Chairman of PTR; since March 1991, Chairman of the REIT Manager and Managing Director of Security Capital Group; from June 1988 to March 1991, Regional Partner, Trammell Crow Residential, Chicago, Illinois (multifamily real estate development and property management); prior thereto, Executive Vice President and Chief Financial Officer, The Mischer Corporation, Houston, Texas (multibusiness holding company with investments primarily in real estate). While with Trammell Crow Residential, Mr. Blankenship was on the Management Board for Trammell Crow Residential Services, a property management company that managed approximately 90,000 multifamily units nationwide, and was chief executive officer of Trammell Crow Residential Services-North, which managed 10,000 multifamily units in the Midwest and Northeast. In his various positions prior to his affiliation with the REIT Manager, Mr. Blankenship supervised the development of approximately 9,300 multifamily units. Mr. Blankenship supervises the overall operations of PTR and the REIT Manager. PATRICK R. WHELAN--38--Director of the REIT Manager since February 1995; President of SCG Realty Services since October 1994, where he is responsible for overall property management; from February 1994 to October 1994, Senior Vice President and Co-Manager of Multifamily Acquisitions of Security Capital Group; from April 1991 to January 1994, Senior Vice President of Trammell Crow Company (development, acquisition and management of commercial properties) where he most recently had regional responsibilities for asset management, leasing and acquisitions/dispositions of a $300 million portfolio of properties. *DAVID C. DRESSLER, JR.--41--Managing Director of SCG Multifamily Development Incorporated ("SCG Multifamily Development") since January 1994, PTR since May 1993 and the REIT Manager since April 1992; Director of the REIT Manager since June 1992; from 1984 to May 1991, Regional Partner, Trammell Crow Residential, Boston, Massachusetts (multifamily real estate development and property management). While with Trammell Crow Residential, Mr. Dressler was on the Management Board for Trammell Crow Residential Services (managing 90,000 multifamily units nationwide) and was co-founder and a board member of Trammell Crow Residential Services-North, which managed 10,000 multifamily units in the Midwest and Northeast. In his various positions prior to his affiliation with the REIT Manager, Mr. 11 Dressler supervised the development of approximately 6,500 multifamily units. Mr. Dressler supervises the development activities of the REIT Manager on behalf of PTR. CONSTANCE B. MOORE--39--Managing Director of PTR since May 1994, Director and Managing Director of the REIT Manager since March 1994, Senior Vice President of Security Capital Group from March 1993 to June 1994; from January 1990 to December 1992, President and Director of Kingswood Realty Advisors, Inc., investment advisor to ICM Property Investors, a New York Stock Exchange ("NYSE") listed REIT, and from March 1991 to December 1992, President and Director of ICM Property Investors; from April 1989 to December 1989, consultant to Bedford Properties, a real estate development and management firm where Ms. Moore was responsible for acquiring a controlling interest in ICM Property Investors and Kingswood for Bedford; from January 1983 to November 1988, Senior Vice President and Director of Consolidated Capital Equities Corporation where she was in charge of portfolio and asset management for Consolidated Capital's $3.0 billion diversified debt and equity portfolio. *R. SCOT SELLERS--38--Managing Director of PTR since September 1994 and Senior Vice President of PTR from May 1994 to September 1994, where he has overall responsibility for PTR's investment and development program; Director and Managing Director of the REIT Manager since September 1994; from April 1993 to May 1994, Senior Vice President of Security Capital Group, where he was responsible for portfolio acquisitions from institutional sources; from September 1981 to April 1993, Mr. Sellers was an operating partner and Vice President of Lincoln Property Company (LPC) (development, acquisition and management of multifamily properties) where he was responsible, among other things, for the development of more than 6,500 apartment units in a number of different markets. JOSHUA M. BROWN--43--Senior Vice President of PTR and the REIT Manager since September 1994, where he has overall responsibility for multifamily acquisitions and dispositions; from January 1991 to June 1994, President of Prentiss Properties Realty Advisors, Inc., where he directed the firm's tax- exempt institutional advisory business; from June 1983 to December 1990 Vice President of Fayez Sarofim & Co., where he worked with the firm's real estate advisory group, Sarofim Realty Advisors; prior thereto, Vice President, Director of Investment Administration for CB Institutional Realty Advisors in Los Angeles. *JOHN H. GARDNER JR.--41--Director of the REIT Manager since February 1995; Senior Vice President of PTR and the REIT Manager since September 1994, where he has overall responsibility for multifamily asset management; from December 1984 to January 1993, Vice President of Asset Management and through September 1994, Managing Director and Principal of Copley Real Estate Advisors in Boston, where he had overall responsibility for the portfolio management function for eight accounts valued at $7.5 billion; prior thereto, Real Estate Manager of Equity Real Estate at John Hancock Companies. K. BRUCE WEBSTER--38--Senior Vice President of PTR and the REIT Manager since March 1995 and of PACIFIC from November 1994 to March 1995, where he had responsibility for PACIFIC's portfolio performance and asset management; from June 1993 to November 1994, Vice President of Asset Management at Irvine Apartment Communities with responsibility for property operations, portfolio performance and long term positioning; prior thereto, President and Chief Operating Officer of Trammell Crow Residential Services North where he had responsibility and accountability for management company operations and property performance in the midwestern and northeastern United States. Other Officers. ARIEL AMIR--35--Vice President of Security Capital Group since June 1994; from September 1985 to April 1994, an attorney with the law firm of Weil, Gotshal & Manges, New York, New York where he practiced securities and corporate law for eight years. Mr. Amir provides securities offerings and corporate acquisition services to PTR. ANTHONY R. ARNEST--44--Vice President of PTR and the REIT Manager since November 1994, where he is the head of the due diligence group; from December 1990 to September 1994, Mr. Arnest maintained a 12 private law practice specializing in real estate, development and business and financial consulting; from March 1990 to November 1990, Director of Infill Acquisitions with Lewis Homes of California; from January 1986 to March 1990, Vice President, Director of Acquisitions and Forward Planning/Due Diligence with Wesco Development; prior thereto, House Counsel for Torino Development. MARK J. CHAPMAN--37--Vice President of PTR since March 1995, where he is a member of the asset management group, and Vice President of PACIFIC from November 1994 to March 1995; from July 1989 to November 1994, Vice President at Copley Real Estate Advisors, Inc. where he directed asset management for Copley assets located from Connecticut to Virginia, valued in excess of $1.5 billion; prior thereto, Director of Asset Management for Liberty Real Estate with responsibility for assets east of the Mississippi River, including multifamily, office and retail properties. MARK G. CONROE--37--Vice President of PTR and the REIT Manager since January 1995, where he has overall responsibility for the multifamily corporate affordable housing development program, Homestead Village properties; from February 1994 to January 1995, Vice President of Security Capital Atlantic Incorporated, where he was a member of the development group; from October 1991 to February 1994, President of Classic Communities, Inc., a home building company; prior thereto General Partner and Executive Vice President of the Mozart Development Company, a real estate development company. RICHARD W. DICKASON--38--Vice President of PTR and the REIT Manager since March 1995, where he is a member of the development group, and Vice President of PACIFIC from December 1993 to March 1995; from July 1992 to September 1993, President at J.M. Peters Company/Capital Pacific Homes, where he acquired property for the development of single-family homes and apartments; from May 1980 to January 1992, Partner and Vice President of Lincoln Property Company N.C. Inc. where he was responsible for the acquisition, development, construction and management of a sizable multifamily residential portfolio in the California marketplace; prior thereto, Mr. Dickason represented private investors in the development of condominiums, townhouses, shopping centers and single-family homes throughout California. JOSEPH G. DI CRISTINA--35--Vice President of PTR and the REIT Manager since March 1995, where he is a member of the development group, and Vice President of PACIFIC from August 1994 to March 1995; prior thereto, Vice President of Forward Planning at Robertson Homes. PETER M. GRIMM--52--Vice President of SCG Multifamily Development since January 1994 and Vice President of PTR, of which he has been an officer since 1975. JAMES M. HARLEY--43--Vice President of PTR and the REIT Manager since June 1993, where he provides asset management services for PTR's Homestead Village properties; from 1988 to July 1993, Regional Vice President--Acquisitions and Development of Holiday Inn Worldwide; prior thereto, Senior Vice President-- Hotel Division of Webb Companies, a Lexington, Kentucky based real estate development company. NELSON L. HENRY--59--Vice President of PTR since December 1994, where he is a member of the development group with responsibilities for production and project construction planning; from January 1983 to September 1993, Construction Vice President for Lincoln Property Company N.C. Inc. where he was responsible for the coordination of development in Colorado and California; prior thereto, President of Royal Investment Corporation, a regional multifamily and single-family developer. JAY S. JACOBSON--42--Vice President of SCG Multifamily Development since January 1994 and PTR since July 1993; from 1988 to June 1993, Vice President-- Residential Development for Michael Swerdlow Companies, Inc. and Hollywood Inc., South Florida real estate development/management companies under common control, where he was responsible for the planning and development of over 2,200 multifamily units as well as other development projects; from 1981 to 1988, General Partner and Chief Executive Officer of Meridian Land Company, a Denver-based real estate development company. 13 W. GEOFFREY JEWETT--46--Vice President of PTR and the REIT Manager since March 1995, where he is a member of the asset management group, and Vice President of PACIFIC from November 1994 to March 1995; from May 1994 to November 1994, Vice President of Security Capital (Atlantic) Incorporated where he had overall responsibility for the acquisitions group; from September 1993 to April 1994, Mr. Jewett was involved with and then had overall responsibility for acquisitions for PACIFIC; prior thereto, Vice President of LaSalle Partners Limited in its acquisitions and property finance group where he provided investment property sale, financing and acquisition services on behalf of corporate and institutional clients throughout the western United States. JOHN JORDANO III--38--Vice President of PTR and the REIT Manager since March 1995, where he is a member of the development group, and Vice President of PACIFIC from August 1994 to March 1995; from January 1992 to July 1994, 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 REO apartment acquisition and investment opportunities in the western United States; prior thereto, Partner with Trammell Crow Residential Company where he established the Sacramento office and was responsible for the development of multifamily projects. WILLIAM KELL--38--Vice President of the REIT Manager since June 1991 and Vice President of PTR since October 1993, where he has overall responsibility for multifamily accounting and financial reporting; from 1987 to 1991, Vice President, Bohannon Development Corporation, El Paso, Texas (multifamily development); prior thereto, Manager with KPMG Peat Marwick in its El Paso, Texas office. STEVEN R. LEBLANC--37--Vice President of SCG Multifamily Development since January 1994 and PTR since March 1992; from 1984 to 1992, Operating Partner and Senior Vice President, Lincoln Property Company, Dallas, Texas (multifamily real estate owners and operators). B. THOMAS MILLER, JR.--33--Vice President of Security Capital (U.S.) Investment Research since January 1994 where he conducts strategic market analysis for the REIT Manager and affiliated companies; from December 1985 to December 1993, Senior Manager with the Arthur Andersen Real Estate Services Group in Washington D.C.; prior thereto, an Associate with Kenneth Leventhal & Co. in Dallas. GLENN E. MORGAN--34--Vice President of Security Capital (U.S.) Investment Research since January 1994, where he is responsible for market research; from December 1992 to December 1993, Mr. Morgan developed actuarial and econometric models for American Credit Indemnity, a subsidiary of Dun & Bradstreet. JOHN R. PATTERSON--43--Vice President of PTR and the REIT Manager since January 1995, where he has overall responsibility for operations and asset management of the corporate affordable housing product, Homestead Village properties; from July 1993 to January 1995, a Senior Vice President in business development at NationsBank in Atlanta; prior thereto, Division President and Partner of Trammell Crow Residential Services. MARK P. PEPPERCORN--32--Vice President of PTR since February 1995 where he is a member of the development group; from September 1994 to February 1995, he was a member of the acquisitions group for Security Capital Atlantic Incorporated and previously, for PTR; from February 1992 to June 1993, Mr. Peppercorn was responsible for the multifamily brokerage division of Transwestern Property Company in Houston, Texas; and prior thereto, he was an Associate Vice President of Eastdil Realty Incorporated. GREGG A. PLOUFF--38--Vice President of PTR and the REIT Manager since March 1995, where he is a member of the acquisitions group, and Vice President of PACIFIC from July 1994 to March 1995; prior to November 1993, Mr. Plouff served in an acquisitions consulting capacity for PTR; prior thereto, Mr. Plouff was with Trammell Crow Residential, most recently as a partner, where he was involved with residential development in the Dallas, Chicago and Southern California markets. 14 THOMAS L. POE--37--Vice President of the REIT Manager since April 1992, Vice President of PTR since June 1994 and controller of PTR since October 1994, where he is responsible for accounting and financial reporting; from 1988 to 1992, Vice President of Finance for the Mischer Corporation, Houston, Texas (real estate investments). HAROLD D. RILEY--58--Vice President of the REIT Manager since March 1991, where he provides accounting and financial reporting services; Vice President of PTR since 1974. DAVID K. ROBBINS--43--Vice President of PTR and the REIT Manager since March 1995, where he is responsible for land acquisitions and property development in Tucson, Arizona; from April 1994 to March 1995, Vice President of Security Capital Atlantic Incorporated, where he was responsible for land acquisitions and property development in Richmond, Virginia; from December 1992 to March 1994, Vice President of PTR, where he had overall responsibility for due diligence; prior thereto, a partner and attorney with the law firm of Hill, Farrer & Burrill, Los Angeles, California, where he practiced real estate law for 12 years. PAUL E. SZUREK--34--Secretary and General Counsel of the REIT Manager and PTR; Senior Vice President, and from April 1991 to June 1993, Vice President, Secretary and General Counsel of Security Capital Group; prior thereto, a shareholder and attorney with the law firm of Kemp, Smith, Duncan & Hammond, El Paso, Texas, where he practiced securities law for seven years. Mr. Szurek provides securities offering and corporate acquisition services to PTR and oversees the provision of legal services to PTR. MARK N. TENNISON--34--Vice President of SCG Multifamily Development since January 1994 and PTR since July 1992; from May 1991 to July 1992, Executive Vice President/Chief Operating Officer of Metro Concap, Inc., an operator of over 7,100 multifamily units; from January 1991 to May 1991, attorney for the Federal Deposit Insurance Corporation; and from August 1987 to December 1990, Partner with Trammell Crow Residential (development, construction and management of multifamily properties). In addition, an affiliate of the REIT Manager employs a number of accounting professionals who provide centralized accounting services for PTR. Shareholder Relations and Capital Markets. The following persons provide shareholder relations and capital markets services to PTR: DOUGLAS K. BALL--54--Senior Vice President of PTR and the REIT Manager since June 1993, President since May 1994 and Senior Vice President from August 1993 to May 1994 of Capital Markets Group, where he participates in capital markets and institutional investor relations; from August 1990 to June 1993, Senior Vice President of Koll-Rubloff in its Strategic Management Division, where he provided strategic real estate consulting and transaction services to diverse corporate clients throughout the United States; from August 1988 to July 1990, engaged in private investment activities; from April 1981 to July 1988, Managing Director of LaSalle Partners Limited, where he served as Director of the Services Division. Prior thereto, Mr. Ball was National Director of Insurance Industry Marketing at IBM Corporation. Mr. Ball is registered with the National Association of Securities Dealers, Inc. K. SCOTT CANON--33--Vice President of Capital Markets Group since August 1993 and a member of Capital Markets Group since March 1992; from September 1991 to March 1992, a personal account director for Chase Manhattan Investment Services; from August 1987 to September 1991, a member of private client services for Goldman, Sachs & Co. Mr. Canon is registered with the National Association of Securities Dealers, Inc. JEFFREY A. COZAD--30--Senior Vice President of PTR since December 1994 and Vice President of PTR from June 1992 to December 1994; Senior Vice President of Capital Markets Group since December 1994, Vice President from September 1992 to November 1994 (in its New York office since June 1993) and a member of Capital Markets Group since March 1992; from August 1991 to August 1992, a member of Security Capital Group; in June 1991, Mr. Cozad obtained a M.B.A. from The University of Chicago; prior 15 thereto, an analyst with LaSalle Partners Limited, where he provided corporate real estate services to major institutions from 1986 to 1989. Mr. Cozad is registered with the National Association of Securities Dealers, Inc. JAMES L. EVANS--41--Senior Vice President of Capital Markets Group since December 1994; from December 1992 to November 1994, Managing Director of Copley Real Estate Advisors, where he was responsible for all acquisitions in Southern California and worked on capital raising and asset management; prior thereto, Mr. Evans was a real estate lending officer at Chemical Bank. Mr. Evans is registered with the National Association of Securities Dealers, Inc. GERARD DE GUNZBURG--47--Vice President of Capital Markets Group in its New York office since January 1993; from June 1988 to December 1992, a consultant to American and European companies; prior thereto, Director and Partner of Lincoln Property Company, Europe, where he arranged real estate financing from 1976 to 1988. Mr. de Gunzburg is registered with the National Association of Securities Dealers, Inc. ALISON C. HEFELE--35--Vice President of Capital Markets Group since February 1994, where she provides capital markets services for affiliates of the firm; from January 1990 to February 1994, Vice President with Prudential Real Estate Investors (strategic planning and business development for institutional real estate investment management services); from September 1985 to January 1990, a management consultant with McKinsey & Company; prior thereto, a financial analyst with Morgan Stanley Realty Inc. Ms. Hefele is registered with the National Association of Securities Dealers, Inc. JAMES H. POLK III--52--Trustee of PTR; Managing Director of Capital Markets Group since August 1992. Mr. Polk has been affiliated with the REIT Manager since March 1991; prior thereto, he was President of PTR for sixteen years. He is registered with the National Association of Securities Dealers, Inc. and is a past President of the National Association of Real Estate Investment Trusts, Inc. INSURANCE PTR carries comprehensive general liability coverage on its owned properties, with limits of liability of $50 million per property and per occurrence (subject to appropriate deductibles), to insure against liability claims and provide for the costs of defense. Similarly, PTR is insured against the risk of direct physical damage in amounts necessary to reimburse PTR on a replacement cost basis for costs incurred to repair or rebuild each property, including loss of rental income during the reconstruction period. COMPETITION Within its geographic areas of operation, PTR is subject to competition from a variety of investors, including insurance companies, pension funds, corporate and individual real estate developers and investors and other REITs with investment objectives similar to those of PTR. Some of these competitors have substantial financial resources and staffs and long operating histories. As an owner of real estate properties, PTR competes with other owners of similar properties in connection with their financing, sale, lease or other disposition and use. ENVIRONMENTAL MATTERS Many jurisdictions have adopted laws and regulations relating to environmental controls and the development of real estate. Such laws and regulations could affect existing PTR properties and/or operate to reduce the number and attractiveness of investment opportunities available to PTR. The effect upon PTR of the application of such laws and regulations cannot be predicted. Such laws and regulations have not had a material effect on PTR's financial condition and results of operations to date. PTR is not aware of any environmental condition on any of its properties which is likely to have a material adverse effect on PTR's financial condition or results of operations. EMPLOYEES All management activities of PTR are performed by the REIT Manager. PTR has no employees. 16 EXECUTIVE OFFICERS All executive functions of PTR are performed by the REIT Manager. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations--REIT Management Agreement." The executive officers of the REIT Manager are:
NAME AGE TITLE ---- --- ----- C. Ronald Blankenship................... 45 Chairman David C. Dressler, Jr................... 41 Managing Director Constance B. Moore...................... 39 Managing Director R. Scot Sellers......................... 38 Managing Director John H. Gardner, Jr..................... 41 Senior Vice President K. Bruce Webster........................ 38 Senior Vice President Paul E. Szurek.......................... 34 Secretary and General Counsel
See "--Officers of PTR and Directors and Officers of the REIT Manager and Relevant Affiliates" for descriptions of the REIT Manager's executive officers. ITEM 2. PROPERTIES The information in the following table is as of December 31, 1994 for properties owned at December 31, 1994 and as of March 23, 1995 for properties acquired since December 31, 1994 (dollars in thousands).
RENTABLE UNITS OR TOTAL YEAR ACQUIRED PERCENTAGE SQUARE PTR EXPECTED OR COMPLETED LEASED(1) FOOTAGE INVESTMENT(2) COST(3) ------------- ---------- -------- ------------- -------- PROPERTIES OWNED AT DE- CEMBER 31, 1994: PROPERTIES STABILIZED AT DECEMBER 31, 1994: Albuquerque, New Mexi- co: Commanche Wells...... 1994 95.5% 179 $ 4,999 $ 5,212 Corrales Pointe...... 1993 99.5 208 6,461 6,856 Entrada Pointe....... 1994 98.1 208 6,892 7,656 Pavilions Phase I.... 1991 94.6 118 7,355 7,355 Pavilions Phase II*.. 1992 94.6 122 8,025 8,239 Sandia Ridge......... 1992 97.8 272 7,344 7,375 Vista del Sol........ 1993 99.4 168 5,899 6,013 Wellington Place..... 1993 100.0 280 9,602 10,316 Austin, Texas: Anderson Mill Oaks... 1993 98.0 350 12,132 12,350 Cannon Place......... 1993 97.3 184 6,675 6,711 La Mirage*........... 1994 99.1 348 16,989 17,121 The Ridge............ 1993 99.4 326 10,316 10,393 Rock Creek........... 1993 98.4 314 9,862 9,924 Saddle Brook*........ 1994 98.1 308 13,216 13,231 Shadowood............ 1993 99.2 235 6,453 6,497 Spyglass............. 1992 97.3 298 10,391 10,483 Dallas, Texas: Apple Ridge.......... 1993 98.4 304 10,669 10,841 Custer Crossing...... 1993 97.5 244 10,285 10,432 Homestead Village-- Coit Road*.......... 1994 87.0 134 3,408 3,461 Homestead Village-- North Richland Hills*.............. 1994 90.0 134 3,513 3,566 Homestead Village-- Skillman*........... 1992 87.2 133 3,069 3,069 Homestead Village-- Stemmons Phase I*... 1992 95.4 132 3,189 3,189 Homestead Village-- Tollway*............ 1993 88.9 120 2,726 2,726 Indian Creek......... 1993 97.3 328 10,696 10,710 Quail Run............ 1993 98.6 278 10,821 11,019 Post Oak Ridge....... 1993 98.8 486 14,799 14,992 Somerset............. 1993 94.9 372 14,755 15,102 Summerstone.......... 1993 100.0 192 6,980 6,984 Woodland Park........ 1993 94.0 216 7,072 7,300
(see notes following table) 17
RENTABLE UNITS OR TOTAL YEAR ACQUIRED PERCENTAGE SQUARE PTR EXPECTED OR COMPLETED LEASED(1) FOOTAGE INVESTMENT(2) COST(3) ------------- ---------- -------- ------------- -------- Denver, Colorado: Cambrian............. 1993 98.4% 383 $ 11,947 $ 12,010 The Cedars........... 1993 97.6 408 16,691 16,957 Fox Creek Phase I.... 1993 100.0 175 6,116 6,401 Hickory Ridge........ 1992 97.2 688 23,182 23,623 Reflections Phase I.. 1993 99.0 208 8,680 8,715 Silvercliff(4)....... 1994 97.8 312 16,142 16,304 Sunwood.............. 1992 95.5 156 5,985 6,081 El Paso, Texas: Cielo Vista.......... 1993 87.8 378 6,094 6,501 The Crest*........... 1992 94.0 232 7,961 7,968 Doubletree........... 1993 96.8 284 6,121 6,185 Las Flores*.......... (5) 93.6 468 8,003 8,165 Mountain Village..... 1992 98.6 288 7,078 7,251 Park Place, Phase I*(6)............... 1989 91.1 160 4,458 4,596 Park Place, Phase II*(6).............. 1991 91.1 132 4,133 4,133 The Phoenix*......... 1993 89.6 336 9,924 10,001 Shadow Ridge Phase I. 1991 92.8 208 5,367 5,409 Spring Park*(6)...... 1990 93.9 180 5,212 5,266 Tigua Village*....... (7) 93.4 184 2,149 2,256 Houston, Texas: Braeswood Park(8).... 1993 96.7 240 12,434 12,660 Chasewood(9)......... 1994 95.0 260 13,512 13,576 Cranbrook Forest..... 1993 98.1 261 6,823 7,057 Homestead Village-- Park Ten*........... 1994 59.4 135 3,886 3,921 Homestead Village-- West by Northwest*.. 1994 92.4 134 3,426 3,466 Pineloch............. 1993 89.8 440 13,351 13,775 Plaza del Oro........ 1994 93.4 348 11,609 12,255 Seahawk(10).......... 1994 97.8 224 8,391 8,454 Weslayan Oaks........ 1993 96.4 84 3,914 3,944 Woodside Village..... 1975 98.4 196 6,391 6,681 Oklahoma City, Oklaho- ma: Cimarron Trail....... 1994 97.8 228 6,676 7,037 Warrington........... 1993 96.1 204 5,897 6,219 Omaha, Nebraska: Apple Creek(11)...... 1994 96.1 384 13,402 13,632 Phoenix, Arizona: Bay Club............. 1993 98.7 472 14,785 14,854 Dobson Bay Club...... 1992 97.6 166 6,139 6,190 Moorings at Mesa Cove................ 1992 96.1 406 16,961 17,132 Papago Crossing...... 1992 96.1 180 3,706 3,814 Pheasant Run......... 1993 98.8 248 8,570 8,686 Presidio at South Mountain(12)........ 1993 98.5 600 31,214 31,332 The Ridge............ 1993 97.6 380 12,613 12,637 San Antigua*......... 1994 99.7 320 21,338 23,864 San Marin*........... 1993 99.3 276 17,941 17,971 San Marina........... 1992 97.0 400 6,832 6,874 San Marquis South*... 1994 99.2 264 12,373 13,462 Sunstone............. 1993 100.0 242 10,447 10,491 Superstition Park.... 1992 96.3 376 12,385 12,518 San Antonio, Texas: Applegate............ 1993 94.5 344 9,821 10,294 Camino Real.......... 1993 93.8 176 6,140 6,179 Cobblestone Village.. 1992 93.5 184 4,382 4,636 Contour Place........ 1992 88.1 126 2,572 2,591 The Crescent*........ 1994 97.4 306 15,552 15,574 The Gables........... 1993 97.4 192 6,907 7,091 Lakeside Villas...... 1992 91.8 292 13,520 13,770
(see notes following table) 18
RENTABLE UNITS OR TOTAL YEAR ACQUIRED PERCENTAGE SQUARE PTR EXPECTED OR COMPLETED LEASED(1) FOOTAGE INVESTMENT(2) COST(3) ------------- ---------- -------- ------------- -------- Marbach Park......... 1993 93.1% 304 $ 7,746 $ 8,117 Oakhampton Place..... 1992 93.9 280 12,125 12,305 Palisades Park....... 1993 85.4 328 8,005 8,292 Panther Springs...... 1993 86.4 88 3,968 3,997 The Pond............. 1993 89.9 328 11,764 11,959 Rancho Mirage........ 1993 91.7 254 4,697 4,751 Towne East Village... 1993 88.0 100 2,397 2,543 Villas of Castle Hills............... 1993 95.7 163 5,851 5,972 Villas of St. Tropez Phase I............. 1992 92.3 273 10,674 10,864 Santa Fe, New Mexico: The Enclave.......... 1992 97.6 204 9,699 9,719 The Meadows of Santa Fe*................. 1994 95.3 296 12,759 12,759 Rancho Vizcaya....... 1991 96.2 212 11,969 12,042 Tucson, Arizona: Cobble Creek......... 1992 96.0 301 7,650 7,716 Craycroft Gardens.... 1992 99.0 101 1,930 1,956 Haystack............. 1993 98.5 272 6,687 7,138 Sonoran Terraces..... 1992 97.9 374 17,773 17,980 Tierra Antigua....... 1992 95.9 147 5,425 5,464 Sundown Village Phase I................... 1993 99.6 250 8,413 8,490 Villa Caprice........ 1993 97.4 268 8,648 8,758 Windsail(13)......... 1993 98.3 300 9,811 9,861 Tulsa, Oklahoma: Southern Slope....... 1993 96.5 142 5,266 5,451 ----- ------ -------- -------- Subtotals/Average.. 95.8% 26,244 $917,003 $935,716 ----- ------ -------- -------- PROPERTIES PRE-STABI- LIZED AT DECEMBER 31, 1994: Dallas, Texas: Timber Ridge......... 1994 98.8% 160 $ 6,648 $ 7,030 El Paso, Texas: Shadow Ridge Phase II*................. 1994 92.8 144 6,700 6,899 Houston, Texas: Beverly Palms........ 1994 98.9 362 9,818 10,187 Brompton Court(14)... 1994 85.5 794 27,651 30,510 Homestead Village-- Bammel-Westfield*... 1994 77.8 134 3,443 3,455 Homestead Village-- Fuqua*.............. 1994 69.2 134 3,327 3,367 Homestead Village-- Westheimer*......... 1994 68.8 134 3,973 4,007 Phoenix, Arizona: Foxfire.............. 1994 100.0 188 7,209 7,221 North Mountain Vil- lage................ 1994 98.8 568 18,214 18,374 Peaks at Papago Park Phase I............. 1994 98.7 624 27,908 28,088 Scottsdale Greens.... 1994 85.3 644 25,078 27,078 San Antonio, Texas: Dymaxion Phase I..... 1994 97.9 190 4,438 4,574 Homestead Village-- Fredricksburg*...... 1994 66.1 136 4,040 4,098 The Waters of North- ern Hills........... 1994 85.6 305 8,539 8,739 San Diego, California: Scripps Landing...... 1994 96.3 160 9,021 9,090 Tierrasanta Ridge.... 1994 83.8 340 19,078 19,603 Tucson, Arizona: Rio Cancion.......... 1994 97.9 379 19,213 19,477 ----- ------ -------- -------- Subtotals/Average.. 90.4% 5,396 $204,298 $211,797 ----- ------ -------- -------- DEVELOPMENTS UNDER CON- STRUCTION AT DECEMBER 31, 1994: Albuquerque, New Mexi- co: La Paloma............ 1993 N/A 424 $ 18,210 $ 24,497 La Ventana........... 1994 N/A 192 3,905 12,043 Austin, Texas: Homestead Village-- Burnet Road......... 1994 N/A 133 1,837 4,060 Hunters' Run......... 1993 N/A 240 7,642 11,727 Ridgeline Village II. 1993 N/A 456 2,956 24,856
(see notes following table) 19
RENTABLE UNITS OR TOTAL YEAR ACQUIRED PERCENTAGE SQUARE PTR EXPECTED OR COMPLETED LEASED(1) FOOTAGE INVESTMENT(2) COST(3) ------------- ---------- -------- ------------- -------- Dallas, Texas: Homestead Village-- South Arlington..... 1994 N/A 141 $ 2,415 $ 3,987 Homestead Village-- West Arlington...... 1993 N/A 138 2,523 3,979 Homestead Village-- Stemmons Phase II... 1992 N/A 57 654 1,466 Denver, Colorado: Reflections Phase II. 1993 N/A 208 3,799 11,428 El Paso, Texas: Acacia Park.......... 1993 N/A 336 11,825 13,703 Patriot Apartments... 1993 N/A 320 4,525 12,320 Houston, Texas: Homestead Village-- Medical Center...... 1994 N/A 165 1,791 5,299 Homestead Village-- Stafford............ 1993 N/A 134 3,628 3,638 Homestead Village-- Willowbrook......... 1994 N/A 138 1,231 3,916 Memorial Oaks Phase I................... 1994 N/A 360 5,169 18,769 Phoenix, Arizona: San Marquis North.... 1993 N/A 208 9,118 10,829 San Antonio, Texas: Homestead Village-- I10/DeZavala........ 1994 N/A 142 1,806 4,337 Homestead Village-- 281/Bitters......... 1994 N/A 154 2,046 4,685 Medical Drive........ 1993 N/A 276 3,543 13,340 Sterling Heights..... 1993 N/A 224 7,722 12,032 Tucson, Arizona: Sundown Village Phase II.................. 1993 N/A 80 4,056 4,473 --- ----- -------- -------- Subtotals.......... N/A 4,526 $100,401 $205,384 --- ----- -------- -------- DEVELOPMENTS IN PLANNING AT DECEMBER 31, 1994 Albuquerque, New Mexi- co: Seven Bar Ranch Phase I................... 1994 N/A 368 $ 2,056 $ 18,293 Seven Bar Ranch Phase II.................. 1994 N/A 252 1,409 12,527 Austin, Texas: Hobby Horse.......... 1993 N/A 168 890 10,158 Hobby Horse Railroad. 1993 N/A 168 828 8,575 Ridgeline Village I.. 1993 N/A 168 1,060 9,039 Ridgeline Village III................. 1993 N/A 448 2,645 26,305 Dallas, Texas: Homestead Village-Ft. Worth............... 1994 N/A 99 540 2,803 Homestead Village-Las Colinas............. 1994 N/A 150 867 4,545 Denver, Colorado: Fox Creek Phase II(15).............. 1993 N/A 120 -- 6,000 Homestead Village- Denver Tech Center.. 1994 N/A 158 1,042 5,122 Homestead Village- Iliff............... 1994 N/A 138 761 4,445 Houston, Texas: Memorial Heights Phase I............. 1994 N/A 360 3,757 17,955 Memorial Heights Phase II............ 1994 N/A 476 4,946 24,146 Memorial Oaks Phase II.................. 1994 N/A 264 3,621 13,449 Phoenix, Arizona: Homestead Village- Scottsdale.......... 1994 N/A 121 1,071 4,075 Peaks at Papago Park Phase II............ 1994 N/A 144 1,020 6,957 San Antonio, Texas: Villas of St. Tropez Phase II............ 1994 N/A 96 713 4,272 Santa Fe, New Mexico: St. Francis.......... 1994 N/A 176 2,238 10,232 Tucson, Arizona: Ventana Canyon....... 1993 N/A 432 3,730 26,093 --- ----- -------- -------- Subtotals.......... N/A 4,306 $ 33,194 $214,991 --- ----- -------- --------
(see notes following table) 20
RENTABLE UNITS OR TOTAL YEAR ACQUIRED PERCENTAGE SQUARE PTR EXPECTED OR COMPLETED LEASED(1) FOOTAGE INVESTMENT(2) COST(3) ------------- ---------- -------- ------------- ---------- LAND HELD FOR FUTURE MULTIFAMILY DEVELOPMENT AT DECEMBER 31, 1994 El Paso, Texas: West Ten Apart- ments(16)........... 1994 N/A -- $ 1,576 $ -- San Antonio, Texas: Dymaxion Phase II(17).............. 1994 N/A -- 546 -- Indian Trails Phase II(18).............. 1994 N/A -- 864 -- Walker Ranch Phase I(19)............... 1994 N/A -- 2,490 -- Walker Ranch Phase II(20).............. 1994 N/A -- 1,858 -- Walker Ranch Phase III(21)............. 1994 N/A -- 643 -- ----- ------- ---------- ---------- Total Development Land.............. N/A N/A $ 7,977 $ -- ----- ------- ---------- ---------- Total Multifamily Owned at December 31, 1994.......... 94.9% 40,472 $1,262,873 $1,567,888 ----- ------- ---------- ---------- HOTEL (ROOMS) OWNED AT DECEMBER 31, 1994: San Francisco, Cali- fornia: Wharf Holiday Inn(22)............. 1971/90/92 82.8 338 $ 22,870 $ 22,870 ----- ------- ---------- ---------- OFFICE/INDUSTRIAL (SQUARE FEET) OWNED AT DECEMBER 31, 1994: Dallas, Texas: Irving Blvd.......... 1977 100.0% 37,200 $ 541 $ 541 Texas Commerce Bank Bldg.(23)........... 1985 97.4 114,600 2,815 2,815 El Paso, Texas: Vista Industrial..... 1989 100.0 130,000 3,134 3,134 Ontario, California: Ontario Industrial Building............ 1987 100.0 127,600 3,992 3,992 ----- ------- ---------- ---------- Total Office/Industrial. 99.0% 409,400 $ 10,482 $ 10,482 ----- ------- ---------- ---------- Other.................. 100.0% 10,000 $ 63 $ 63 ----- ------- ---------- ---------- Total Properties Owned at December 31, 1994.......... $1,296,288 $1,601,303 ---------- ---------- PROPERTIES ACQUIRED SINCE DECEMBER 31, 1994 AND THROUGH MARCH 23, 1995: PROPERTIES STABILIZED AT MARCH 23, 1995: Las Vegas, Nevada: Horizons at Peccole Ranch+.............. 1995 96.3% 408 $ 21,152 $ 21,326 King's Crossing+..... 1995 97.7 440 19,023 19,273 Sunterra+............ 1995 99.8 444 13,910 13,976 Portland, Oregon: Club at the Green+... 1995 100.0 254 10,933 11,041 Knight's Castle+..... 1995 96.6 296 13,086 13,097 Squire's Court+...... 1995 97.9 235 10,865 10,867 Riverwood Heights+... 1995 99.2 240 9,860 9,975 Salt Lake City, Utah: Greenpointe+......... 1995 98.4 192 5,941 6,054 Mountain Shadow+..... 1995 99.0 174 5,545 5,565 Seattle, Washington: Double Tree Phase I+. 1995 99.6 245 10,323 10,344 ----- ------- ---------- ---------- Subtotals/Average.. 98.3% 2,928 $ 120,638 $ 121,518 ----- ------- ---------- ---------- PROPERTIES PRE-STABI- LIZED AT MARCH 23, 1995: Las Vegas, Nevada: Anchor Village+...... 1995 88.8% 896 $ 39,358 $ 41,539 The Hamptons+........ 1995 95.1 492 19,727 19,998 Omaha, Nebraska: Oak Brook............ 1995 99.0 162 7,464 7,464 Portland, Oregon: Meridian at Murrayhill+......... 1995 97.4 312 16,780 16,810
(see notes following table) 21
RENTABLE UNITS OR TOTAL YEAR ACQUIRED PERCENTAGE SQUARE PTR EXPECTED OR COMPLETED LEASED(1) FOOTAGE INVESTMENT(2) COST(3) ------------- ---------- -------- ------------- ---------- Salt Lake City, Utah: Cherry Creek+........ 1995 98.7% 225 $ 8,601 $ 8,836 Seattle, Washington: Logan's Ridge+....... 1995 99.6 258 13,000 13,226 Mantanza Creek+...... 1995 95.4 152 6,773 6,879 Walden Pond+......... 1995 99.1 316 13,556 13,656 ---- ----- ---------- ---------- Subtotals/Average.. 94.7% 2,813 $ 125,259 $ 128,408 ---- ----- ---------- ---------- DEVELOPMENTS IN PLANNING AT MARCH 23, 1995: Austin, Texas: Homestead Village-- Round Rock.......... 1995 N/A 157 $ 820 $ 4,978 Phoenix, Arizona: Homestead Village-- Baseline............ 1995 N/A 138 861 4,020 Reno, Nevada: Reno Vista Ridge+.... 1995 N/A 324 2,290 17,966 Salt Lake City, Utah: Remington+........... 1995 N/A 288 2,557 15,121 ---- ----- ---------- ---------- Subtotals.......... 907 $ 6,528 $ 42,085 ----- ---------- ---------- Total Properties Acquired Since De- cember 31, 1994... 6,648 $ 252,425 $ 292,011 ----- ---------- ---------- Total Properties Owned at March 23, 1995.............. $1,548,713 $1,893,314 ========== ==========
-------- *Property developed by PTR. +Property acquired by PTR in the Merger. (1) Represents percentage leased at December 31, 1994 for properties owned at December 31, 1994 and March 23, 1995 for properties acquired since December 31, 1994. (2) Represents cost, which is not in excess of net realizable value, as of December 31, 1994 for properties owned at December 31, 1994 and as of March 23, 1995 for properties acquired since December 31, 1994. (3) Represents cost, including planned renovations, for properties owned at March 23, 1995. Represents budgeted development cost, which includes the cost of land, fees, permits, payments to contractors, architectural and engineering fees and interest and property taxes to be capitalized during the construction period, for properties under development. Does not include land held for future development, which is less than 1% of assets based on cost. (4) The Silvercliff apartments are subject to a deed of trust securing long term mortgage debt of $7.6 million. (5) 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. The entire project is subject to a deed of trust securing long term mortgage debt of $6.0 million. (6) The Spring Park apartments and the Park Place apartments are subject to deeds of trust securing long term mortgage debt aggregating $11.4 million. (7) Phase I (84 units) was developed in 1970 and Phase II (100 units) was developed in 1978. The entire project is subject to deeds of trust securing long term mortgage debt aggregating $1.0 million. (8) The Braeswood Park apartments are subject to a deed of trust securing long term mortgage debt of $7.0 million. (9) The Chasewood apartments are subject to a deed of trust securing long term mortgage debt of $9.6 million. (10) The Seahawk apartments are subject to a deed of trust securing long term mortgage debt of $5.6 million. 22 (11) The Apple Creek apartments are subject to a deed of trust securing long term mortgage debt of $11.1 million. (12) The Presidio at South Mountain apartments are subject to a deed of trust securing long term mortgage debt of $14.7 million. (13) The Windsail apartments are subject to a deed of trust securing long term mortgage debt of $4.9 million. (14) The Brompton Court apartments are subject to a deed of trust securing long term mortgage debt of $14.8 million. (15) Subsequent to December 31, 1994, PTR determined that current market conditions were favorable to develop this tract of land, which was acquired incidentally with and is contiguous to the land for Fox Creek Phase I. Therefore, at December 31, 1994 no cost had been allocated to this parcel. (16) 25.30 acres of undeveloped land. (17) 6.49 acres of undeveloped land. (18) 25.58 acres of undeveloped land. (19) 38.7 acres of undeveloped land. (20) 30.5 acres of undeveloped land. (21) 10.3 acres of undeveloped land. (22) PTR owns the building and land leased to Holiday Inns of America, Inc. at Fisherman's Wharf in San Francisco. The lease with Holiday Inns expires in 2018. Occupancy represents average occupancy for the one-year period ended December 31, 1994. (23) PTR owns this property through a 40% owned joint venture. PORTFOLIO COMPOSITION The following table indicates the composition of PTR's properties at March 23, 1995:
PERCENTAGE OF NUMBER OF ASSETS BASED PROPERTIES ON COST(1) ---------- ------------- Multifamily...................................... 180 98% Office/Industrial................................ 4 1 Hotel............................................ 1 1 --- --- Total.......................................... 185 100% === ===
-------- (1) Represents cost, including planned renovations, for properties owned at March 23, 1995. Represents budgeted development cost, which includes the cost of land, fees, permits, payments to contractors, architectural and engineering fees and interest and property taxes to be capitalized during the construction period, for properties under development. Does not include land held for future development, which is less than 1% of assets based on cost. 23 GEOGRAPHIC DISTRIBUTION PTR's multifamily and non-multifamily properties are located in 21 metropolitan areas in 11 states. The table below demonstrates the geographic distribution of PTR's property investments at March 23, 1995:
PERCENTAGE OF NUMBER OF ASSETS BASED PROPERTIES ON COST(1) ---------- ------------- Albuquerque, New Mexico.......................... 12 7% Austin, Texas.................................... 16 10 Dallas/Fort Worth, Texas......................... 21 7 Denver, Colorado................................. 11 6 El Paso, Texas/Las Cruces, New Mexico............ 15 5 Houston, Texas................................... 22 12 Las Vegas, Nevada................................ 5 6 Oklahoma City, Oklahoma.......................... 2 1 Omaha, Nebraska.................................. 2 1 Ontario, California.............................. 1 * Phoenix, Arizona................................. 21 15 Portland, Oregon/Vancouver, Washington........... 6 4 Reno, Nevada..................................... 1 1 Salt Lake City, Utah............................. 4 2 San Antonio, Texas............................... 24 10 San Diego, California............................ 2 2 San Francisco, California........................ 1 1 Santa Fe, New Mexico............................. 4 2 Seattle, Washington.............................. 3 2 Tucson, Arizona.................................. 11 6 Tulsa, Oklahoma.................................. 1 * --- --- Total.......................................... 185 100% === ===
-------- * Less than 1%. (1) Represents cost, including planned renovations, for properties owned at March 23, 1995. Represents budgeted development cost, which includes the cost of land, fees, permits, payments to contractors, architectural and engineering fees and interest and property taxes to be capitalized during the construction period, for properties under development. Does not include land held for future development, which is less than 1% of assets based on cost. ITEM 3. LEGAL PROCEEDINGS On March 17, 1995, the United States District Court for the Western District of Texas, El Paso Division granted defendants' motion to dismiss, with prejudice, the action entitled Ferro v. C. Ronald Blankenship, et al. (Case No. EP 95 CA 004) filed on January 4, 1995 by a party alleging to be a shareholder of PTR against PTR, PACIFIC, Security Capital Group and the individual members of the Board. The lawsuit had alleged breaches of fiduciary duties and other matters pertaining to the Merger. PTR believes that the lawsuit was without merit and will not have any material adverse effect on PTR's financial condition or results of operations. 24 PTR is a party to various claims and routine litigation arising in the ordinary course of business. PTR does not believe that the results of all claims and litigation, individually or in the aggregate, will have a material adverse effect on its 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 "PTR." The following table sets forth the high and low sale prices of the Common Shares as reported in the New York Stock Exchange Composite Tape by CompuServe, and distributions declared, for the periods indicated.
HIGH LOW DISTRIBUTIONS ------ ------ ------------- 1993 First Quarter............................... $ 20 $ 14 $0.205 Second Quarter.............................. 19 5/8 17 1/8 0.205 Third Quarter............................... 21 5/8 18 3/8 0.205 Fourth Quarter.............................. 21 1/2 17 5/8 0.205 1994 First Quarter............................... 21 5/8 18 1/4 0.250(1) Second Quarter.............................. 20 1/8 17 3/4 0.250 Third Quarter............................... 18 7/8 17 5/8 0.250 Fourth Quarter.............................. 18 3/8 15 1/2 0.250 1995 First Quarter (through March 30)............ 18 3/8 16 5/8 0.2875(2)
--------
(1) Declared in the fourth quarter of 1993 for payment in the first quarter of 1994. (2) Declared in the fourth quarter of 1994 and paid February 13, 1995 to holders of record on February 2, 1995. As of March 30, 1995, PTR had approximately 3,500 record holders of Common Shares and in excess of 22,500 record and beneficial holders of Common Shares. PTR, in order to qualify as a REIT, is required to make distributions (other than capital gain distributions) to its 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 noncash income. PTR's distribution strategy is to distribute what it believes is a conservative percentage of its cash flow, permitting PTR to retain funds for capital improvements and other investments while funding its distributions. PTR has paid 76 consecutive quarterly cash distributions. PTR announces 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 6, 1994 board meeting, the Board announced a projected increase in the annual distribution level from $1.00 to $1.15 per Common Share. The payment of distributions is subject to the discretion of the Board and is dependent upon the financial condition and operating results of PTR. 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 PTR's current and accumulated earnings 25 and profits (calculated for tax purposes) constitute a return of capital rather than a dividend and reduce the shareholder's basis in his or her Common Shares. To the extent that a distribution exceeds both current and accumulated earnings and profits and the shareholder's basis in his or her Common Shares, it will generally be treated as gain from the sale or exchange of that shareholder's Common Shares. PTR annually notifies shareholders of the taxability of distributions paid during the preceding year. The following summarizes the taxability of distributions paid in 1994, 1993 and 1992 in respect of the Common Shares.
YEAR ENDED DECEMBER 31, ----------------- 1994 1993 1992 ----- ----- ----- Per Common Share: Ordinary Income....................................... $0.68 $0.65 $0.67 Capital Gains......................................... -- 0.11 0.03 Return of Capital..................................... 0.32 0.06 -- ----- ----- ----- Total............................................... $1.00 $0.82 $0.70 ===== ===== =====
On July 21, 1994, in addition to the distributions paid, PTR redeemed the shareholder purchase rights issued pursuant to the Rights Agreement dated as of February 23, 1990, as amended. Pursuant to the redemption, each holder of record at the close of business on July 21, 1994 received $0.01 per shareholder purchase right. The redemption price was paid on August 12, 1994 and is taxable as ordinary income for federal income tax purposes. No portion of the 1992 distributions constituted return of capital, due to certain acquisition and sale transactions consummated in 1992 that increased reported earnings and profits for 1992. Under federal income tax rules, PTR's earnings and profits are first allocated to its Preferred Shares, which increases the portion of the Common Shares distribution classified as return of capital. PTR's tax returns have not been examined by the Internal Revenue Service and, therefore, the taxability of distributions is subject to change. The portion of distributions characterized as return of capital results primarily from the excess of distributions over earnings, primarily because non-cash charges such as depreciation are added to earnings in determining distribution levels. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations--Results of Operations." For federal income tax purposes, the following summary reflects the taxability of dividends paid on Preferred Shares for the period from the date of issuance (November 29, 1993) through December 31, 1993 and the estimated taxability for 1994:
DATE OF ISSUANCE TO 1994 12/31/93 ----- ----------- Per Preferred Share: Ordinary income....................................... $1.75 $.1231 Capital gains......................................... -- .0227 ----- ------ Total............................................... $1.75 $.1458 ===== ======
PTR's tax return for the year ended December 31, 1994 has not been filed, and the taxability information for 1994 is based upon the best available data. PTR's tax returns have not been examined by the Internal Revenue Service and, therefore, the taxability of the dividends is subject to change. 26 ITEM 6. SELECTED FINANCIAL DATA The following table sets forth selected financial data for PTR and should be read in conjunction with the financial statements included or incorporated by reference herein (dollars in thousands, except per share data).
YEAR ENDED DECEMBER 31, ---------------------------------------------------- 1994 1993 1992 1991 1990 ---------- --------- --------- -------- -------- OPERATIONS SUMMARY: Rental Income.......... $ 183,472 $ 76,129 $ 30,970 $ 14,721 $ 12,207 Total Revenues......... 186,105 78,418 32,779 15,817 13,314 General and Administra- tive Expenses......... 784 660 436 697 1,241 REIT Management Fee.... 13,182 7,073 2,711 793 -- Earnings from Opera- tions(1).............. 46,719 23,191 9,037 2,078 1,969 Gain (loss) on Sale of Investments........... -- 2,302 (51) (611) 101 Preferred Share Divi- dends Paid............ 16,100 1,341 -- -- -- Net Earnings Attribut- able to Common Shares................ 30,619 24,152 8,986 1,467 2,070 Common Share Distribu- tions Paid(2)(3)...... $ 46,121 $ 29,162 $ 13,059 $ 4,179 $ 4,259 PER SHARE DATA: Net Earnings Attribut- able to Common Shares................ $ 0.66 $ 0.66 $ 0.46 $ 0.21 $ 0.41 Common Share Distribu- tions Paid(2)(3)...... 1.00 0.82 0.70 0.64 0.84 Preferred Share Divi- dends Paid............ $ 1.75 $ 0.1458 $ -- $ -- $ -- Weighted Average Common Shares Outstanding........... 46,734 36,549 19,435 7,123 5,071 OTHER DATA: Funds from Operations Attributable to Common Shares(4)...... $ 58,208 $ 36,422 $ 15,268 $ 5,404 $ 4,335 Net Cash Provided by Operating Activities.. 94,625 49,247 20,252 6,092 1,647 Net Cash Used by In- vesting Activities.... (368,515) (529,065) (229,489) (33,553) (12,905) Net Cash Provided by Financing Activities.. $ 276,457 $ 478,345 $ 185,130 $ 57,259 $ 9,941 DECEMBER 31, ---------------------------------------------------- 1994 1993 1992 1991 1990 ---------- --------- --------- -------- -------- FINANCIAL POSITION: Real Estate Owned, at cost.................. $1,296,288 $ 872,610 $ 337,274 $117,572 $ 84,892 Total Assets........... 1,295,778 890,301 342,235 141,020 81,544 Line of Credit......... 102,000 51,500 54,802 101 8,522 Long Term Debt......... 200,000 -- -- -- -- Mortgages Payable...... 93,624 48,872 30,824 35,772 32,599 Total Liabilities...... 455,136 135,284 94,186 38,707 44,138 Shareholders' Equity... $ 840,642 $ 755,017 $ 248,049 $102,313 $ 37,406 Number of Common Shares Outstanding........... 50,456 44,645 27,034 13,161 5,071
-------- (1) Earnings from operations for the year ended December 31, 1994 and the year ended December 31, 1993 reflect a $1.6 million and a $2.3 million provision, respectively, for possible losses relating to investments in non-multifamily properties. (2) The 1994 amount includes a distribution of $0.25 per Common Share which was declared by the Board on December 28, 1993 and paid on February 18, 1994. 27 (3) The 1994 amount excludes the distribution of $.2875 per Common Share which was declared by the Board on December 6, 1994 and paid on February 13, 1995 to holders of record on February 2, 1995. (4) Funds from Operations means net earnings computed in accordance with generally accepted accounting principles ("GAAP"), excluding gains (or losses) from debt restructuring and sales of property, plus depreciation and certain amortization, and after adjustments for unconsolidated partnerships and joint ventures. PTR believes that Funds from Operations is helpful in understanding a property portfolio in that such calculation reflects cash flow from operating activities and the properties' ability to support interest payments and general operating expenses before the impact of certain activities, such as gains or losses from property sales and changes in accounts receivable and accounts payable. Funds from Operations should not be considered as an alternative to net earnings or any other GAAP measurement of performance as an indicator of PTR's operating performance or as an alternative to cash flows from operating, investing or financing activities as a measure of liquidity. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW PTR's operating results depend primarily upon income from multifamily properties, which is substantially influenced by (i) the demand for and supply of multifamily units in PTR's target market and submarkets, (ii) operating expense levels, (iii) the effectiveness of property-level operations and (iv) the pace and price at which PTR can develop and acquire additional multifamily properties. Capital and credit market conditions that affect PTR's cost of equity and debt capital also influence operating results. PTR's target market and submarkets have benefitted substantially in recent periods from demographic trends (including job and population growth) that increase the demand for multifamily units while financing constraints (specifically, reduced availability of development capital) have limited new construction to levels substantially below construction activity prior to 1986. Consequently, rental rates for multifamily units have increased more than the inflation rate for the last two years and are expected to continue experiencing such increases for 1995. Expense levels also influence operating results, and rental expenses (other than real estate taxes) for multifamily properties have generally increased at approximately the same rate as rents for the past year and are expected to increase at a comparable rate for 1995. REIT Management believes that development of multifamily properties from the ground up that are built for long term ownership and are designed to meet broad renter preferences and demographic trends will provide a greater source of long term cash flow growth. Therefore, while land prices are favorable, PTR has acquired and will acquire, on an unleveraged basis, prudent amounts of zoned land for future multifamily development. At March 23, 1995 land held for future development was less than 1% of assets based on cost. The REIT Manager believes PTR's ability to compete is significantly enhanced relative to other companies because of the REIT Manager's depth of development and acquisition expertise, its local market presence and PTR's access to investment capital. MERGER AND CONCURRENT SUBSCRIPTION OFFERING On March 23, 1995, PTR completed the Merger. In the Merger, each outstanding share of PACIFIC common stock was converted into the right to receive 0.611 of a Common Share. As a result, 8,468,460 Common Shares were issued in the Merger in exchange for all of the outstanding shares of PACIFIC common stock. Additionally, PTR changed its name from Property Trust of America to Security Capital Pacific Trust to more accurately reflect its newly expanded target market. PTR will continue to be traded on the NYSE under the symbol "PTR". The Merger expands PTR's target market to include a six-state region of the western United States with 129 submarkets. As a result, PTR is well-positioned to deploy capital in the geographic areas of the United States that the REIT Manager believes are expected to provide some of the most attractive multifamily growth opportunities. 28 Concurrently with the consummation of the Merger, PTR completed a subscription offering pursuant to which PTR received subscriptions for $216.6 million (13.2 million Common Shares). The subscription offering was designed to allow shareholders of PTR to purchase Common Shares at the same price PACIFIC shareholders were acquiring Common Shares in the Merger ($16.375 per Common Share). Security Capital Group purchased $50 million (3.1 million Common Shares) in the subscription offering pursuant to the oversubscription privilege. RESULTS OF OPERATIONS 1994 COMPARED TO 1993 During 1994, PTR acquired 20 multifamily properties aggregating 6,626 units for a total purchase price, including planned renovations, of approximately $266.0 million. In addition, PTR completed development of 15 multifamily properties aggregating 3,061 units in 1994 with a completed cost of $127.9 million. At December 31, 1994 PTR had 21 multifamily properties under construction with a budgeted completed cost of $205.4 million and had in the final planning stages an estimated 4,306 multifamily units with an aggregate estimated investment cost of $215.0 million. During 1993, PTR acquired 53 multifamily properties aggregating 13,772 units for a total purchase price, including planned renovations, of approximately $453.7 million, most of which was invested in the fourth quarter of 1993. In addition, PTR completed development of three multifamily properties aggregating 732 units in 1993. The percentage of PTR's total rental income generated by multifamily properties was 98.3% and 93.2% for the years ended December 31, 1994 and 1993, respectively. This percentage will continue to increase throughout 1995 due to the Merger, past and ongoing multifamily property developments and acquisitions and the periodic sale of non-multifamily properties. During the period prior to a property being stabilized (see "Item 1. Business--Investment Analysis"), the REIT Manager's asset managers and the property managers begin implementing expense controls, reconfigure the resident mix, supervise renovations and implement a strategy to increase rental income. The full benefits of these changes are not reflected until after the properties are stabilized. As of March 23, 1995, 80.5% of the operating multifamily portfolio was stabilized as compared to 47% at December 31, 1993. Property Operations Including the newly developed and acquired assets, net earnings increased $21.2 million (83.3%) for 1994 over 1993. The increased net earnings related primarily to property revenue increases of $107.3 million (141.0%), partially offset by higher rental expenses, which increased by $48.5 million (159.2%) for the period. Depreciation expense increased $14.1 million (134.2%) for 1994 over 1993. These increases are due to multifamily acquisitions and multifamily developments placed in service and to rental rate increases. For operating multifamily properties, which comprise 97.1% of PTR's total operating properties based on cost at December 31, 1994, rental expenses were 43.6% and 42.2% of rental revenues during the year ended December 31, 1994 and 1993, respectively. Multifamily Properties Fully Operating Throughout Both Periods For the 29 multifamily properties that were fully operating throughout both 1994 and 1993, property level earnings before interest, income taxes, depreciation and amortization ("EBITDA") as a percentage of PTR's aggregate investment in these properties increased to 11.14% in 1994 from 10.68% in 1993. EBITDA does not represent and should not be substituted for net earnings as defined by GAAP and is not indicative of cash flows from operations or that cash flows are sufficient to fund all cash needs. This increase in return on investment, which is a function of rental rate growth, occupancy levels, expense rate growth and capital expenditure levels, is attributable primarily to growth in rental rates. This increase in return on investment was achieved at the same time that PTR increased its investment in these properties by $2.8 million (1.1% of 29 total investment in these properties) as a result of renovation and other capital expenditures. The 6.8% increase in rental income (the majority resulting from a 6.42% rental rate increase) for such properties for 1994 as compared to 1993 was offset by increases in rental expenses, primarily due to real estate taxes and turnover expenses. Interest Income Interest income for 1994 increased 15.0%, primarily resulting from the addition of 4 purchase money notes aggregating $12.4 million received in 1993 in conjunction with property sales. Interest Expense Interest expense increased $15.5 million (395.6%) for 1994 as compared to 1993. The increase is primarily attributable to interest expense of $12.9 million resulting from the issuance of $200 million of long term notes in February 1994, as more fully discussed under "--Liquidity and Capital Resources--Financing Activities." Mortgage interest expense decreased $288,000 (41.6%) for 1994, compared to 1993. The decrease is attributable to interest savings resulting from prepayments and payoffs aggregating $10.5 million on mortgages during 1994 and an increase of $3.2 million (114%) in capitalized interest during 1994 over 1993 due to increased levels of multifamily development activity. Line of credit interest expense for 1994 was $2.9 million higher than for 1993, principally because of higher average outstanding balances, higher interest rates and amortization of additional loan costs (commitment fees, title policies and legal expenses) relating to PTR's revolving credit facility which was increased from $200 million to $275 million during 1994. Average borrowings were approximately $59.9 million (with an average interest rate of 7.4%) during 1994, as compared to average borrowings of $40.6 million (with an average interest rate of 6.3%) during 1993. General and Administrative Expense including REIT Management Fee The REIT Management fee paid by PTR fluctuates with the level of PTR's pre- REIT Management fee cash flow and therefore increased by $6.1 million (86.4%) in 1994 as compared to 1993 because cash flow increased substantially (see "-- REIT Management Agreement" below). As PTR arranges amortizing long term debt as more fully described in "--Liquidity and Capital Resources" below, the REIT Management fee will effectively decline in proportion to PTR's earnings from operations because actual or assumed regularly scheduled principal payments, as defined in such agreement, associated with the long term debt will be deducted from the cash flow amount on which the REIT Management fee is based. Provision for Possible Loss PTR develops and acquires properties with a view to effective long term operation and ownership. Based upon PTR's market research and in an effort to optimize its portfolio allocation, PTR may from time to time seek to dispose of assets that in management's view do not meet PTR's long term investment criteria and redeploy the proceeds therefrom, preferably through like-kind exchanges, into assets that it believes provide better long term growth opportunities. PTR is a minority partner with a 40% interest in a partnership that owns and operates an office building near Dallas, Texas. During the first quarter of 1994, the partnership adopted a strategy of disposing of the property rather than continuing to hold the property as a long term investment. As a result, the managing partner evaluated the building for net realizable value, which resulted in a provision for possible loss of $4 million. PTR's share of the loss provision is $1.6 million as reflected in the December 31, 1994 statement 30 of earnings. PTR's net carrying value after the provision is $2.8 million. This provision has no impact on cash flow from operating activities nor does PTR have any financial obligation to the partnership. PTR focuses its investment and development activities on multifamily properties. PTR will continue to aggressively manage its non-multifamily properties in order to maximize cash flow, and dispositions of such non- multifamily properties may occur as opportunities arise. Properties are periodically evaluated for net realizable value and provisions for possible losses are made if required. Preferred Share Dividend In November 1993, PTR issued $230 million of Preferred Shares at $25 per share that are entitled to receive an annual dividend of $1.75 per share (7.0% annual dividend rate), which amounted to $16.1 million for 1994 compared to $1.3 million for 1993. The Preferred Share dividends do not reduce the amount PTR has budgeted for Common Share distributions but do increase the percentage of the Common Share distribution that constitutes a non-taxable return of capital. 1993 COMPARED TO 1992 During 1993, PTR acquired 53 multifamily properties aggregating 13,772 units for a total purchase price, including planned renovations, of approximately $453.7 million, most of which was invested in the fourth quarter of 1993. In addition, PTR completed development of three multifamily properties aggregating 732 units in 1993. During 1992, PTR acquired 20 multifamily properties aggregating 5,512 units for a total purchase price, including planned renovations, of approximately $183.0 million, most of which was invested after April 30, 1992. In addition, two multifamily properties aggregating 354 units then under development were completed in 1992. In addition, rental rates from multifamily assets that were stabilized (see "Item 1. Business--Investment Analysis") during the fourth quarter of 1992 and throughout 1993 increased 6.98%. The percentage of PTR's total rental income generated by multifamily properties was 93.2% in 1993 and 76.4% in 1992. This percentage will continue to increase in future periods due to multifamily properties acquired in 1993 and 1994 as discussed above and the sale of non-multifamily properties as discussed below. During the period prior to a property being stabilized (see "Item 1. Business--Investment Analysis"), the REIT Manager's asset managers and the property managers begin implementing expense controls, reconfigure the resident mix, supervise renovations and implement a strategy to increase rental income. The full benefits of these changes are not reflected until after the properties are stabilized. As of December 31, 1993, 47% of the operating multifamily portfolio was stabilized as compared to 59% at December 31, 1992. For operating multifamily properties, rental expenses were 42.2% of rental revenues during 1993, compared to 42.1% in 1992. Including the newly acquired and developed assets, net earnings increased $16.5 million (184%) for 1993 over 1992. The increased net earnings related primarily to property revenue increases of $45.2 million (145.8%), partially offset by higher rental expenses, which increased by $19.0 million (165.7%) for the period. Depreciation expense increased $5.2 million (97.9%) for 1993 over 1992. This increase is due to multifamily acquisitions and multifamily developments placed in service. Properties Fully Operating Throughout Both Periods Multifamily. Rental income for the nine multifamily properties fully operating throughout both years increased approximately $705,800 (6.4%) for 1993, compared to 1992, partially offset by increases in rental expenses of $410,100 (9.0%) and depreciation of $72,700 (4.6%). The increase primarily related to a 5.74% 31 average rental rate increase. Due primarily to commencement of major renovations at one of these properties and the temporary effects of a new development in one submarket, average occupancy decreased from 94.4% in 1992 to 92.8% in 1993. Non-Multifamily. Rental income, rental expenses and depreciation for non- multifamily properties owned throughout both years decreased $107,300 (3.1%), $420,300 (97.5%) and $44,000 (8.1%), respectively, for 1993, compared to 1992. The decrease in rental expense was primarily due to a decrease in land lease expense as a result of PTR's acquisition of the land underlying PTR's Holiday Inn building in San Francisco. Not included in these results are operating results from the eight non-multifamily properties sold during 1993. All Properties. For multifamily properties that were fully operating throughout both years and non-multifamily properties that were owned throughout both years, taken as a whole, rental income increased $598,600 (4.2%), rental expenses decreased $10,200 (.2%), and depreciation increased $83,900 (4.0%). Net income from property operations, after depreciation, for these properties increased $524,800 (7.2%) for 1993 over 1992. Interest Income Interest income for 1993 increased 26.5%, primarily resulting from the addition of five purchase money notes aggregating $6.8 million received in 1992 and four purchase money notes aggregating $12.4 million received in 1993 in conjunction with property sales. Interest Expense Mortgage interest expense decreased $1.4 million (66.3%) for 1993, compared to 1992. The decrease is attributable to interest savings resulting from prepayments and pay offs aggregating $8.1 million on mortgages during 1993, an increase of $1.8 million (184.9%) in capitalized interest during 1993 over 1992 due to increased levels of multifamily development activity, and lower interest rates on an adjustable rate mortgage. Line of credit interest expense for 1993 was $2.1 million higher than for 1992, principally because of higher average outstanding balances and amortization of additional loan costs (commitment fees, title policies and legal expenses) relating to PTR's revolving credit facility, which was increased from $72 million to $200 million during 1993. Average borrowings were approximately $40.6 million (with an average interest rate of 6.3%) during 1993, as compared to average borrowings of $12.7 million (with an average interest rate of 6.6%) during 1992. General and Administrative Expense including REIT Management Fee The REIT Management fee paid by PTR fluctuates with the level of PTR's pre- REIT Management fee cash flow and therefore increased by $4.4 million (161%) in 1993 as compared to 1992 because cash flow increased substantially. See "--REIT Management Agreement." As PTR arranges amortizing long term debt as more fully described in "--Liquidity and Capital Resources" below, the REIT Management fee will effectively decline in proportion to PTR's earnings from operations because actual or assumed regularly scheduled principal payments, as defined in such agreement, associated with the long term debt will be deducted from the cash flow amount on which the REIT Management fee is based. Property Sales and Provisions PTR sold eight non-multifamily properties during 1993 at an aggregate gain of $2.3 million. The overall result of these dispositions, net of provisions for possible losses ($2.3 million), was immaterial to PTR's financial position and results of operations. The provision for possible losses ($2.3 million) relates to the write-down to the lower of cost and net realizable value of two non- multifamily properties, Academy Mart Shopping Center and Ontario Industrial Building. The Academy Mart Shopping Center was sold in the third 32 quarter of 1993. A provision of $1.2 million to reduce the property to its net realizable value was made in the second quarter. The single tenant occupant of the Ontario Industrial Building had indicated to PTR that it was not going to renew its lease which expired in early 1994. After reviewing the market conditions, it was determined that a write-down of $1.1 million was appropriate, which was recorded in the second quarter. ENVIRONMENTAL MATTERS PTR does not expect any environmental condition on its properties to have a material adverse affect upon its results of operations or financial position. LIQUIDITY AND CAPITAL RESOURCES The REIT Manager considers PTR's liquidity and ability to generate cash to be adequate and expects it to continue to be adequate to meet PTR's development, acquisition, operating, debt service and shareholder distribution requirements. Net cash flow provided by operating activities increased by $45.4 million (92.1%) for the year ended December 31, 1994 as compared to 1993. Net cash flow provided by operating activities increased by $29 million (143.2%) for 1993 as compared to 1992. These increases are due primarily to multifamily property acquisitions and developments as described under "--Results of Operations" above. Investing Activities During the year ended December 31, 1994, PTR invested $381.2 million for the development, acquisition and renovation of multifamily properties and land, net of $56.6 million in mortgages assumed. During the year ended December 31, 1993, PTR invested $536.5 million for the acquisition, development and renovation of multifamily properties and land, net of $27 million in mortgages assumed. These developments, acquisitions and renovations were financed with cash on hand and borrowings under PTR's revolving line of credit, which were repaid with the proceeds from PTR's equity and debt offerings. PTR's investing activities used $160.6 million (30%) less cash in 1994 as compared to 1993 as a result of lower levels of multifamily property acquisitions and $299.6 million (131%) more cash in 1993 as compared to 1992 as a result of an increase in multifamily property acquisitions and developments. At March 23, 1995, PTR had unfunded development commitments for developments under construction of $96.8 million. Additionally, the land PTR owned or controlled through letters of intent or contingent contracts at such date, subject to PTR's final due diligence, will allow for the development of 8,197 additional multifamily units, which will be an important generator of growth for PTR in 1995 and beyond. The foregoing developments are subject to a number of conditions, and PTR cannot predict with certainty that any of them will be consummated. Financing Activities PTR's financing activities for the year ended December 31, 1994 provided $276.5 million compared to $478.3 million in 1993 as a result of fewer acquisitions. Net proceeds of equity offerings aggregated $101.1 million in 1994 as compared to $514.2 million in 1993. PTR also received proceeds from long term debt of $200 million in 1994. PTR's 1993 financing activities provided $293.2 million (158%) more cash flow than 1992 financing activities. The increase in cash flow provided by financing activities was primarily due to increased offering proceeds: net proceeds from equity offerings aggregating $514.2 million in 1993 as compared to $143.2 million in 1992. Proceeds from these offerings were used for development, acquisition and renovation of multifamily properties or to repay revolving credit balances incurred for such purposes and, in 1992, to purchase the land under the Holiday Inn. 33 On August 4, 1994, PTR consummated a conversion of its $200 million revolving line of credit facility with TCB and the other participating lenders into an unsecured facility, which was increased to $275 million and extended to August 15, 1996 on October 27, 1994 and was further increased to $350 million on March 23, 1995. The line of credit may annually be extended for an additional year with the approval of TCB and the other participating lenders. Borrowings bear interest at the greater of prime or the federal funds rate plus 0.5% or, at PTR's option, LIBOR plus 1.625% (which can vary from LIBOR plus 1.25% to LIBOR plus 2.0% based upon the rating of PTR's senior unsecured debt). Additionally, there is a commitment fee, ranging from 0.125% to 0.25% per annum on the average unfunded line of credit balance. All debt incurrences are subject to covenants that PTR maintain (i) an interest coverage ratio of not less than 2:1, (ii) a debt to tangible net worth ratio no greater than 1:1, (iii) a fixed charge ratio of no less than 1.4:1 and (iv) an unencumbered pool of real estate properties of which certain properties must meet certain occupancy requirements and which have an aggregate historical cost of at least 175% of unsecured indebtedness. PTR is in compliance with all debt covenants. Giving effect to the use of the proceeds from the subscription offering that closed on March 23, 1995, there would be no borrowings outstanding under the line of credit at March 23, 1995. PTR expects to finance developments, acquisitions and renovations with cash on hand and borrowings under its line of credit prior to arranging long term capital in order to efficiently respond to market opportunities while minimizing the amount of cash invested in short term investments at lower yields. PTR believes that its current conservative ratio of long term debt to total long term capitalization, the sum of long term debt and shareholders' equity (26% at December 31, 1994 and 22% at March 23, 1995 on a pro forma basis, giving effect to the Merger and the concurrent subscription offering and property acquisitions through March 23, 1995), provides it considerable flexibility to prudently utilize long term debt as a future financing tool. PTR intends to limit the sum of long term debt and line of credit debt to less than 50% of the sum of total book capitalization. PTR expects to fund additional growth for the foreseeable future through further issuances of unsecured long term, fixed rate amortizing debt securities similar to the Notes issued in February 1994 and through its asset optimization strategy. Based on the Merger, its recent subscription offering, debt issuance capacity, asset optimization strategy and current real estate and debt market conditions, PTR believes it has reached an optimal level of equity capitalization. Hence, PTR has no plans to raise additional capital through the equity markets. No assurance can be given that changes in market conditions or other factors will not affect these plans. On March 23, 1995, PTR raised $216.3 million of net proceeds from a subscription offering of 13.2 million Common Shares at a price of $16.375 per Common Share, which was the same price per Common Share on which the exchange ratio for the Merger was based. The subscription offering closed concurrently with the consummation of the Merger. The subscription offering was designed to allow shareholders the opportunity to purchase Common Shares at the same price at which PACIFIC shareholders acquired Common Shares in the Merger and to maintain PTR's balance sheet ratios. Each holder of record of Common Shares on February 21, 1995 was entitled to subscribe for one Common Share for every 1.94 Common Shares held of record on such date and was entitled to oversubscribe for additional Common Shares to the extent that other shareholders did not fully subscribe for all Common Shares to which they were entitled. Security Capital Group acquired 3,053,435 Common Shares in the subscription offering pursuant to the oversubscription privilege. On August 16, 1994, PTR raised $101.8 million of net proceeds from a rights offering of 5,593,718 Common Shares at a price of $18.25 per Common Share. PTR's shareholders of record on July 21, 1994 received a distribution of one right for each Common Share held of record. Eight rights were required to purchase one Common Share for $18.25 in the rights offering. Security Capital Group exercised in full its rights to acquire Common Shares in the offering at the same price paid by the public ($18.25 per Common Share) and acquired additional rights in open market purchases. Proceeds from the offering were used to 34 fund developments and to invest in additional multifamily properties in PTR's target market and to repay borrowings under PTR's line of credit. On February 8, 1994, PTR issued $100 million of 6.875% Senior Notes due 2008 (the "2008 Notes") and $100 million of 7.5% Senior Notes due 2014 (the "2014 Notes," together with the 2008 Notes collectively referred to as the "Notes"). The 2008 Notes bear interest at 6.875% per annum and require annual principal payments of $12.5 million, commencing February 15, 2001. The 2014 Notes bear interest at 7.5% per annum and require aggregate annual principal payments of $10 million in 2009, $12.5 million in 2010, $15 million in 2011, $17.5 million in 2012, $20 million in 2013 and $25 million in 2014. In February 1994, PTR received $1.3 million in settlement of an interest protection agreement in the form of a Forward Treasury Lock Agreement entered into with an investment banker on January 28, 1994. The agreement included a determination date of February 1, 1994 and a settlement date of February 2, 1994. The notional amounts were $100 million with a reference price of 100.90625% and $75 million with a reference price of 110.4375%. On February 2, 1994, the settlement prices were 100.32813% and 109.46875%, respectively. There are no such agreements currently outstanding. Collectively, the Notes have an average life to maturity of 14.25 years and an average effective interest cost, inclusive of offering discounts, issuance costs and an interest rate protection agreement, of 7.37% per annum. The Notes are redeemable at any time at the option of PTR, in whole or in part, at a redemption price equal to the sum of the principal amount of the Notes being redeemed plus accrued interest thereon to the redemption date plus a yield to maturity adjustment. The Notes are governed by the terms and provisions of an indenture agreement (the "Indenture") between PTR and State Street Bank and Trust Company, as trustee. Under the terms of the Indenture, PTR can incur additional debt only if, after giving effect to the debt being incurred and application of proceeds therefrom, (i) the ratio of debt to total assets, as defined in the Indenture, does not exceed 60%), (ii) the ratio of secured debt to total assets, as defined in the Indenture, does not exceed 40%, and (iii) PTR's pro forma interest coverage ratio, as defined in the Indenture, for the four preceding fiscal quarters is not less than 1.5. PTR is in compliance with all debt covenants. Distributions PTR's current distribution policy is to pay quarterly distributions to holders of Common Shares based upon what it believes to be a prudent percentage of cash flow. Because depreciation is a non-cash expense, cash flow typically will be greater than net earnings attributable to Common Shares. Therefore, quarterly distributions paid will generally be higher than quarterly net earnings attributable to Common Shares. Distributions paid on Common Shares exceeded net earnings attributable to Common Shares by $15.5 million, $5.0 million and $4.1 million for 1994, 1993 and 1992, respectively, resulting in corresponding decreases in shareholders' equity for each of the respective periods. PTR announces 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 6, 1994 board meeting, the Board announced a projected increase in the annual distribution level from $1.00 to $1.15 per Common Share. The payment of distributions is subject to the discretion of the Board and is dependent upon the financial condition and operating results of PTR. Pursuant to the terms of the Preferred Shares, PTR is restricted from declaring or paying any distributions with respect to its Common Shares unless all cumulative distributions with respect to the Preferred Shares have been paid or sufficient funds have been set aside for distributions that have been declared for the then current distribution period with respect to the Preferred Shares. Funds from Operations means net earnings computed in accordance with GAAP, excluding gains (or losses) from debt restructuring and sales of property, plus depreciation and certain amortization, and after 35 adjustments for unconsolidated partnerships and joint ventures. PTR believes that Funds from Operations is helpful in understanding a property portfolio in that such calculation reflects cash flow from operating activities and the properties' ability to support interest payments and general operating expenses before the impact of certain activities, such as gains or losses from property sales and changes in accounts receivable and accounts payable. Funds from Operations attributable to Common Shares increased $21.8 million (60%) to $58.2 million for 1994 from $36.4 million for 1993, and increased from $15.3 million to $36.4 million from 1992 to 1993. The increases resulted primarily from increased properties in operation. Funds from Operations should not be considered as an alternative to net earnings or any other GAAP measurement of performance as an indicator of PTR's operating performance or as an alternative to cash flows from operating, investing or financing activities as a measure of liquidity. REIT MANAGEMENT AGREEMENT Effective March 1, 1991, PTR entered into a REIT management agreement (as amended and restated, the "REIT Management Agreement") with the REIT Manager to provide management services to PTR. All officers of PTR are employees of the REIT Manager and PTR has no employees. See "Item 1. Business--The REIT Manager" for a description of the services included in the REIT Management fee. The REIT Management Agreement requires PTR to pay a base annual fee of $855,000 plus 16% of cash flow as defined in the REIT Management Agreement ("Cash Flow") in excess of $4,837,000. In the REIT Management Agreement, Cash Flow is calculated by reference to PTR's cash flow from operations before deducting (i) fees paid to the REIT Manager, (ii) extraordinary expenses incurred at the request of the independent Trustees of PTR, and (iii) 33% of any interest paid by PTR on convertible subordinated debentures (of which there have been none since inception of the REIT Management Agreement); and, after deducting actual or assumed regularly scheduled principal and interest payments for long term debt. The REIT Management Agreement provides that the long term debt described above under "--Liquidity and Capital Resources" will be treated as having regularly scheduled principal and interest payments like a 20-year, level monthly payment, fully amortizing mortgage, and the assumed principal and interest payments will be deducted from cash flow in determining the fee for future periods. Cash Flow does not include realized gains from dispositions of investments or income from cash equivalent investments. The REIT Manager also receives a fee of .25% per year on the average daily balance of cash equivalent investments. REIT management fees aggregated $13,182,000, $7,073,000 and $2,711,000 for the years ended December 31, 1994, 1993 and 1992, respectively. PTR is obligated to reimburse the REIT Manager for certain expenses incurred by the REIT Manager on behalf of PTR, primarily travel expenses incurred in seeking financing, property acquisitions, property sales, property development and similar activities on behalf of PTR. The REIT Management Agreement is renewable by PTR annually, subject to a determination by the independent Trustees that the REIT Manager's performance has been satisfactory and that the compensation payable to the REIT Manager is fair. PTR may terminate the REIT Management Agreement on 60 days' notice. Because of the year-to-year nature of the agreement, its maximum effect on PTR's results of operations cannot be predicted, other than that REIT Management fees will generally increase or decrease in proportion to cash flow increases or decreases. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA PTR's Balance Sheets as of December 31, 1994 and 1993, its Statements of Earnings, Shareholders' Equity and Cash Flows for each of the years in the three-year period ended December 31, 1994 and Schedule III--Real Estate and Accumulated Depreciation, together with the report of KPMG Peat Marwick 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 8 of Notes to Financial Statements. 36 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE MATTERS Not applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT For information regarding executive officers of PTR's REIT Manager, see "Item 1. Business--Officers of PTR and Directors and Officers of the REIT Manager and Relevant Affiliates." The other information required by this Item 10 is incorporated herein by reference to the description under the captions "Election of Trustees" and "Compliance with Section 16(a) of the Securities Exchange Act of 1934" in PTR's definitive proxy statement for its annual meeting of shareholders scheduled to be held June 13, 1995 (the "1995 Proxy Statement"). ITEM 11. EXECUTIVE COMPENSATION Incorporated herein by reference to the description under the captions "Trustee Compensation," "PTR Officers--Employees of the REIT Manager" and "Performance Graph" in the 1995 Proxy Statement. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Incorporated herein by reference to the description under the caption "Principal Shareholders" in the 1995 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 1995 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 Schedules: 1. Financial Statements: See Index to Financial Statements on page 38 of this report. 2. Financial Statement Schedules: Schedule III. 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, 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:
ITEMS FINANCIAL DATE REPORTED STATEMENTS ---- -------- ---------- November 30, 1994 Items 5, 7 Yes
(c) Exhibits: The Exhibits required by Item 601 of Regulation S-K are listed in the Index to Exhibits, which is incorporated herein by reference. 37 INDEX TO FINANCIAL STATEMENTS AND SCHEDULE SECURITY CAPITAL PACIFIC TRUST: Independent Auditors' Report............................................. 39 Balance Sheets as of December 31, 1994 and 1993.......................... 40 Statements of Earnings for the years ended December 31, 1994, 1993 and 1992.................................................................... 41 Statements of Shareholders' Equity for the years ended December 31, 1994, 1993 and 1992........................................................... 42 Statements of Cash Flows for the years ended December 31, 1994, 1993 and 1992.................................................................... 43 Notes to Financial Statements............................................ 44 Schedule III--Real Estate and Accumulated Depreciation as of December 31, 1994.................................................................... 56
38 INDEPENDENT AUDITORS' REPORT The Board of Trustees and Shareholders SECURITY CAPITAL PACIFIC TRUST: We have audited the financial statements of SECURITY CAPITAL PACIFIC TRUST (formerly Property Trust of America) as listed in the accompanying index. In connection with our audits of the financial statements, we also have audited the financial statement schedule listed in the accompanying index. These financial statements and financial statement schedule are the responsibility of the Trust's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of SECURITY CAPITAL PACIFIC TRUST as of December 31, 1994 and 1993, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 1994, in conformity with generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. KPMG PEAT MARWICK LLP El Paso, Texas February 28, 1995, except as to Note 10, which is as of March 23, 1995. 39 SECURITY CAPITAL PACIFIC TRUST BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31, -------------------- ASSETS 1994 1993 ------ ---------- -------- Real estate.............................................. $1,296,288 $872,610 Less accumulated depreciation............................ 46,199 22,022 ---------- -------- 1,250,089 850,588 Mortgage notes receivable................................ 22,597 22,624 ---------- -------- Total investments.................................... 1,272,686 873,212 Cash and cash equivalents................................ 8,092 5,525 Accounts receivable...................................... 1,657 763 Other assets............................................. 13,343 10,801 ---------- -------- Total assets......................................... $1,295,778 $890,301 ========== ======== LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------ Liabilities: Line of credit......................................... $ 102,000 $ 51,500 Long term debt......................................... 200,000 -- Mortgages payable...................................... 93,624 48,872 Distributions payable.................................. 14,506 11,161 Accounts payable....................................... 17,230 13,514 Accrued expenses and other liabilities................. 27,776 10,237 ---------- -------- Total liabilities.................................... 455,136 135,284 ---------- -------- Shareholders' equity: Series A Preferred shares (9,200,000 shares authorized and issued; stated liquidation preference of $25 per share)................................................ 230,000 230,000 Common shares (shares issued--50,620,516 in 1994 and 44,809,208 in 1993)................................... 50,621 44,809 Additional paid-in capital............................. 622,161 523,053 Distributions in excess of net earnings................ (60,211) (40,916) Treasury shares (164,478 in 1994 and 164,474 in 1993).. (1,929) (1,929) ---------- -------- Total shareholders' equity........................... 840,642 755,017 ---------- -------- Total liabilities and shareholders' equity........... $1,295,778 $890,301 ========== ========
The accompanying notes are an integral part of the financial statements. 40 SECURITY CAPITAL PACIFIC TRUST STATEMENTS OF EARNINGS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED DECEMBER 31, ------------------------ 1994 1993 1992 -------- ------- ------- Revenues: Rental income...................................... $183,472 $76,129 $30,970 Interest........................................... 2,633 2,289 1,809 -------- ------- ------- 186,105 78,418 32,779 -------- ------- ------- Expenses: Rental expenses.................................... 79,013 30,484 11,473 Depreciation....................................... 24,614 10,509 5,311 Interest........................................... 19,442 3,923 3,214 General and administrative, including REIT manage- ment fee.......................................... 13,966 7,733 3,147 Provision for possible loss on investments......... 1,600 2,270 400 Other.............................................. 751 308 197 -------- ------- ------- 139,386 55,227 23,742 -------- ------- ------- Earnings from operations............................. 46,719 23,191 9,037 Gain (loss) on sale of investments, net.............. -- 2,302 (51) -------- ------- ------- Net earnings......................................... 46,719 25,493 8,986 Less Series A Preferred share dividends.............. 16,100 1,341 -- -------- ------- ------- Net earnings attributable to common shares......... $ 30,619 $24,152 $ 8,986 ======== ======= ======= Weighted average common shares outstanding........... 46,734 36,549 19,435 ======== ======= ======= Per share net earnings attributable to common shares. $ 0.66 $ 0.66 $ 0.46 ======== ======= =======
The accompanying notes are an integral part of the financial statements. 41 SECURITY CAPITAL PACIFIC TRUST STATEMENTS OF SHAREHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 1992, 1993, AND 1994 (IN THOUSANDS)
SHARES OF BENEFICIAL INTEREST $1 PAR VALUE ------------------- SERIES A PREFERRED SHARES AT COMMON DISTRIBUTIONS AGGREGATE SHARES ADDITIONAL IN EXCESS LIQUIDATION AT PAR PAID-IN OF NET TREASURY PREFERENCE VALUE CAPITAL EARNINGS SHARES TOTAL ----------- ------- ---------- ------------- -------- -------- Balances at December 31, 1991................... $ -- $13,264 $110,867 $(20,672) $(1,146) $102,313 Net earnings.......... -- -- -- 8,986 -- 8,986 Common Share distribu- tions................ -- -- -- (13,059) -- (13,059) Sale of shares, net of expenses............. -- 13,241 129,992 -- -- 143,233 Dividend Reinvestment and Share Purchase Plan, net... -- 471 4,995 -- -- 5,466 Exercise of stock op- tions, net........... -- 215 1,564 -- -- 1,779 Cost of treasury shares exchanged..... -- -- -- -- (669) (669) -------- ------- -------- -------- ------- -------- Balances at December 31, 1992................... -- 27,191 247,418 (24,745) (1,815) 248,049 Net earnings.......... -- -- -- 25,493 -- 25,493 Common share distribu- tions paid........... -- -- -- (29,162) -- (29,162) Common share distribu- tions accrued.............. -- -- -- (11,161) -- (11,161) Preferred share divi- dends paid........... -- -- -- (1,341) -- (1,341) Sale of shares, net of expenses............. 230,000 17,072 267,122 -- -- 514,194 Dividend Reinvestment and Share Purchase Plan, net... -- 449 7,522 -- -- 7,971 Exercise of stock op- tions, net........... -- 97 991 -- -- 1,088 Cost of treasury shares purchased..... -- -- -- -- (114) (114) -------- ------- -------- -------- ------- -------- Balances at December 31, 1993................... 230,000 44,809 523,053 (40,916) (1,929) 755,017 Net earnings.......... -- -- -- 46,719 -- 46,719 Common share distribu- tions paid........... -- -- -- (34,960) -- (34,960) Redemption of share- holder purchase rights...... -- -- -- (448) -- (448) Common share distribu- tions accrued.............. -- -- -- (14,506) -- (14,506) Preferred share divi- dends paid........... -- -- -- (16,100) -- (16,100) Sale of shares, net of expenses............. 5,594 95,482 -- -- 101,076 Dividend Reinvestment and Share Purchase Plan, net... -- 216 3,607 -- -- 3,823 Exercise of stock op- tions, net........... -- 2 19 -- -- 21 -------- ------- -------- -------- ------- -------- Balances at December 31, 1994................... $230,000 $50,621 $622,161 $(60,211) $(1,929) $840,642 ======== ======= ======== ======== ======= ========
The accompanying notes are an integral part of the financial statements. 42 SECURITY CAPITAL PACIFIC TRUST STATEMENTS OF CASH FLOWS (IN THOUSANDS)
YEAR ENDED DECEMBER 31, ------------------------------- 1994 1993 1992 --------- --------- --------- Operating activities: Net earnings................................ $ 46,719 $ 25,493 $ 8,986 Adjustments to reconcile net earnings to cash flows provided by operating activities Depreciation and amortization............. 26,517 12,219 5,657 Provision for possible loss on invest- ments.................................... 1,600 2,270 400 Loss (gain) on investment properties...... -- (2,302) 51 Other, net................................ -- 83 174 Increase in accounts payable................ 3,463 9,996 2,565 Increase in accrued real estate taxes....... 7,874 2,156 1,718 Increase in accrued interest on long term debt....................................... 5,391 -- -- Increase in accrued expenses and other lia- bilities................................... 4,264 3,039 1,443 Net change in other operating assets........ (1,203) (3,707) (742) --------- --------- --------- Net cash flow provided by operating activ- ities.................................... 94,625 49,247 20,252 --------- --------- --------- Investing activities: Real estate investments..................... (380,688) (536,622) (231,159) Mortgage notes receivable................... 27 1,323 1,141 Sale of investment properties, net.......... 12,146 6,389 615 Other....................................... -- (155) (86) --------- --------- --------- Net cash flow used in investment activi- ties..................................... (368,515) (529,065) (229,489) --------- --------- --------- Financing activities: Proceeds from sale of shares, net of ex- penses..................................... 101,076 514,194 143,233 Proceeds from line of credit................ 266,250 282,500 175,099 Proceeds from dividend reinvestment and share purchase plan, net................... 3,823 7,971 5,466 Proceeds from long term debt................ 200,000 -- -- Proceeds from exercise of stock options, net........................................ 21 1,088 1,110 Distributions paid on common shares......... (46,121) (29,162) (13,059) Redemption of shareholder purchase rights... (448) -- -- Dividends paid on preferred shares.......... (16,100) (1,341) -- Debt issuance costs incurred................ (4,422) (3,109) (1,373) Payments on line of credit.................. (215,750) (285,802) (120,398) Regularly scheduled principal payments on mortgages payable.......................... (1,398) (682) (513) Prepayment of mortgages payable............. (10,474) (7,198) (4,435) Purchase of treasury shares................. -- (114) -- --------- --------- --------- Net cash flow provided by financing activ- ities.................................... 276,457 478,345 185,130 --------- --------- --------- Net increase (decrease) in cash and cash equivalents.................................. 2,567 (1,473) (24,107) Cash and cash equivalents at beginning of year......................................... 5,525 6,998 31,105 --------- --------- --------- Cash and cash equivalents at end of year...... $ 8,092 $ 5,525 $ 6,998 ========= ========= ========= Non-cash investing and financing activities: Receipt of purchase money notes from sale of non-multifamily properties................................. -- $ 12,413 $ 6,779 Assumption of mortgages payable upon pur- chase of multifamily properties............ $ 56,624 $ 26,952 $ -- Accrual of common share distributions....... $ 14,506 $ 11,161 $ --
The accompanying notes are an integral part of the financial statements. 43 SECURITY CAPITAL PACIFIC TRUST NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1994 (1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Business SECURITY CAPITAL PACIFIC TRUST ("PTR"), formerly Property Trust of America, is an equity real estate investment trust, organized under the laws of the state of Maryland, which primarily owns, develops, acquires and operates income-producing multifamily properties in the western United States. Principles of Financial Presentation The accounts of PTR and its wholly owned subsidiaries are consolidated in the accompanying financial statements. All significant intercompany accounts and transactions have been eliminated in consolidation. Cash and Cash Equivalents PTR considers 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 is carried at cost, which is not in excess of net realizable value. Costs directly related to the acquisition (including certain renovation costs identified during PTR's pre-acquisition due diligence), development or improvement of real estate, are capitalized. Costs incurred in connection with the pursuit of unsuccessful acquisitions or developments are expensed at the time the pursuit is abandoned. Depreciation is computed over the expected useful lives of depreciable property on a straight-line basis. Properties are depreciated principally over the following useful lives: Buildings and improvements... 20-40 years Furnishings and other........ 2-10 years
Repairs and Maintenance Repairs and maintenance, other than acquisition related renovation expenditures, are expensed as incurred. PTR expenses carpet and appliance repairs and replacements after any acquisition related renovation expenditures for such items have been incurred. Interest During 1994, 1993 and 1992, the total interest paid in cash on all outstanding debt, net of interest capitalized, was $11,949,000, $2,231,000 and $2,654,000, respectively. PTR capitalizes interest as part of the cost of real estate properties under development. Interest capitalized during 1994, 1993 and 1992 aggregated $6,029,000, $2,818,000 and $989,000, 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 incurrence or renewal of debt are capitalized, included with 44 SECURITY CAPITAL PACIFIC TRUST NOTES TO FINANCIAL STATEMENTS--(CONTINUED) other assets and amortized over the term of the related loan in the case of incurrence costs or twelve months in the case of renewal costs. Amortization of loan costs included in interest expense for the years ended December 31, 1994, 1993 and 1992 was $1,903,000, $1,845,000, and $426,000, respectively. Revenue Recognition Rental and interest income are recorded on the accrual method of accounting. A provision for possible loss is made when collection of receivables is considered doubtful. Federal Income Taxes PTR has made an election to be taxed as a real estate investment trust under the Internal Revenue Code of 1986, as amended. PTR believes it qualifies as a real estate investment trust. Accordingly, no provisions have been made for federal income taxes in the accompanying financial statements. Per Share Data Per share data is computed based upon the weighted average number of Common Shares of Beneficial Interest, par value $1.00 per share ("Common Shares"), outstanding during the period. Exercise of the outstanding stock options would not have a material dilutive effect on earnings per share. The assumed conversion of Cumulative Convertible Series A Preferred Shares of Beneficial Interest, par value $1.00 per share ("Preferred Shares"), is anti-dilutive in 1994 and 1993. Reclassifications Certain of the 1993 and 1992 financial statements and notes to financial statements amounts have been reclassified to conform to the 1994 presentation. (2) REAL ESTATE Investments Investments in real estate, at cost, were as follows (dollar amounts in thousands):
DECEMBER 31, ----------------------------------- 1994 1993 ----------------- ----------------- INVESTMENT UNITS INVESTMENT UNITS ---------- ------ ---------- ------ Multifamily: Operating properties................ $1,121,301 31,640 $730,994 22,493 Developments under construction..... 100,401 4,526 84,395 3,048 Developments in planning............ 33,194 4,306 17,490 2,550 Land held for future development.... 7,977 -- 4,208 -- ---------- ------ -------- ------ Total Multifamily................. 1,262,873 40,472 837,087 28,091 ====== ====== Non-multifamily....................... 33,415 35,523 ---------- -------- Total real estate................. $1,296,288 $872,610 ========== ========
At December 31, 1994 PTR had unfunded commitments for developments under construction of $115.7 million. 45 SECURITY CAPITAL PACIFIC TRUST NOTES TO FINANCIAL STATEMENTS--(CONTINUED) The change in investments in real estate, at cost, consisted of the following (in thousands):
1994 1993 1992 ---------- -------- -------- Balance at January 1..................... $ 872,610 $337,274 $117,572 Acquisitions and renovation expenditures. 270,024 449,500 188,411 Development expenditures, including land acquisitions............................ 155,849 108,056 41,733 Acquisitions of land held for future development............................. 7,977 4,208 -- Capital improvements..................... 3,912 1,639 1,015 Real estate sold......................... (12,287) (24,953) (10,814) Provisions for possible losses........... (1,600) (2,270) (400) Other.................................... (197) (844) (243) ---------- -------- -------- Balance at December 31................... $1,296,288 $872,610 $337,274 ========== ======== ========
Gains and Losses from Sales of Real Estate PTR develops and acquires properties with a view to effective long term operation and ownership. Based upon PTR's market research and in an effort to optimize its portfolio allocation, PTR may from time to time seek to dispose of assets that in management's view do not meet PTR's long term investment criteria and redeploy the proceeds therefrom, preferably through like kind exchanges, into assets that it believes provide better long term growth opportunities. PTR focuses its investment and development activities on multifamily properties. PTR will continue to aggressively manage its non-multifamily properties in order to maximize cash flow, and disposition of such non- multifamily properties may occur as opportunities arise. Properties are periodically evaluated for net realizable value and provisions for possible losses are made if required. PTR is a minority partner with a 40% interest in a partnership which owns and operates an office building near Dallas, Texas. During the first quarter of 1994, the partnership adopted a strategy of disposing of the property rather than continuing to hold the property as a long term investment. As a result, the managing partner evaluated the building for net realizable value which resulted in a provision for possible loss of $4 million. PTR's share of the loss provision is $1.6 million as reflected in the December 31, 1994 statement of earnings. PTR's net carrying value after the provision is $2.8 million. This provision has no impact on cash flow from operating activities nor does PTR have any financial obligation to the partnership. (3) BORROWINGS Line of Credit During 1994, PTR converted its $200 million revolving line of credit facility with Texas Commerce Bank, National Association, as agent bank for a group of lenders ("TCB"), into an unsecured facility and increased this line of credit from $200 million to $275 million. Borrowings bear interest at the greater of prime or federal funds rate plus 1/2% or at PTR's option, LIBOR plus 1.75% to 2% (varying depending upon the rating of PTR's senior unsecured debt by Standard & Poor's Corporation--1.75% at December 31, 1994). Additionally, there is a commitment fee of .125% per annum of the unfunded line of credit balance. The TCB line matures August 1996 and may annually be extended for an additional year with the approval of TCB. All debt incurrences are subject to covenants, as more fully described in the loan agreement. PTR was in compliance with all covenants at December 31, 1994. (See Note 10.) 46 SECURITY CAPITAL PACIFIC TRUST NOTES TO FINANCIAL STATEMENTS--(CONTINUED) A summary of PTR's line of credit borrowings is as follows (dollars in thousands):
YEAR ENDED DECEMBER 31, ------------------------- 1994 1993 1992 -------- -------- ------- Total line of credit........................... $275,000 $200,000 $86,370 Borrowings outstanding at December 31.......... 102,000 51,500 54,802 Weighted average daily borrowings.............. 59,890 40,555 12,694 Maximum borrowings outstanding at any month end........................................... $124,000 $ 83,010 $63,550 Weighted average daily interest rate........... 7.4% 6.3% 6.6% Weighted average interest rate at December 31.. 7.8% 6.0% 6.2%
Long Term Debt On February 8, 1994, PTR issued $100 million of 6.875% Senior Notes due 2008 ("the 2008 Notes") and $100 million of 7.5% Senior Notes due 2014 ("the 2014 Notes", collectively referred to as "the Notes"). The 2008 Notes bear interest at 6.875% per annum and require annual principal payments of $12.5 million, commencing February 15, 2001. The 2014 Notes bear interest at 7.5% per annum and require annual principal payments of $10 million in 2009, $12.5 million in 2010, $15 million in 2011, $17.5 million in 2012, $20 million in 2013 and $25 million in 2014. Collectively, the Notes have an average life to maturity of 14.25 years and an average effective interest cost, net of offering discounts, issuance costs and proceeds from an interest rate protection agreement, of 7.37% per annum. The Notes are redeemable any time at the option of PTR, in whole or in part, at a redemption price equal to the sum of the principal amount of the Notes being redeemed plus accrued interest thereon to the redemption date plus a yield to maturity adjustment. The Notes are governed by the terms and provisions of an indenture agreement ("the Indenture") between PTR and State Street Bank and Trust Company, as trustee. Under the terms of the Indenture, PTR can incur additional debt only if, after giving effect to the debt being incurred and application of proceeds therefrom, (i) the ratio of debt to total assets, as defined in the Indenture, does not exceed 60%, (ii) the ratio of secured debt to total assets, as defined in the Indenture, does not exceed 40%, and (iii) PTR's pro forma interest coverage ratio, as defined in the Indenture, for the four preceding fiscal quarters is not less than 1.5. As of December 31, 1994, PTR was in compliance with all debt covenants. Based on market borrowing rates available to PTR for long term debt with similar terms and maturities, the fair value of long term debt was approximately $175.9 million at December 31, 1994, compared to book value of $200 million. 47 SECURITY CAPITAL PACIFIC TRUST NOTES TO FINANCIAL STATEMENTS--(CONTINUED) Mortgages Payable Mortgages payable consisted of the following at December 31, 1994 (dollars in thousands):
BALLOON PAYMENT INTEREST MATURITY PERIODIC PAYMENT PRINCIPAL DUE AT PROPERTY RATE DATE TERMS BALANCE MATURITY -------- -------- -------- ---------------- --------- -------- CONVENTIONAL FIXED RATE Braeswood Park........ 7.500% 01/01/98 (1) $ 7,008 $6,635 Brompton Court........ 8.375% 09/01/00 (1) 14,750 13,340 Chasewood............. 6.750% 06/01/97 (1) 9,612 9,303 Park Place I & II..... 10.250% 11/01/00 (1) 7,091 6,645 Presidio at South Mountain............. 8.500% 10/01/97 (1) 14,742 14,337 Seahawk............... 8.040% 01/10/98 (1) 5,577 5,350 Silvercliff........... 7.650% 11/10/97 (1) 7,550 7,304 Spring Park........... 10.125% 09/27/00 (1) 4,330 4,063 Tigua Village I....... 10.000% 08/01/95 (1) 305 303 Tigua Village II...... 9.750% 05/01/97 (1) 703 677 ------- 71,668 ------- TAX EXEMPT FIXED RATE Windsail.............. 8.875% 02/01/99 (1) 4,888 4,675 ------- TAX EXEMPT FLOATING RATE Apple Creek........... (2) 09/01/07 interest only 11,100 11,100 ------- COMBINED(3) Las Flores............ 7.750% 03/01/25 fully amortizing 5,968 -- ------- $93,624 =======
-------- (1) Amortizing monthly with a balloon payment due at maturity. (2) Adjusted weekly by the remarketing agent. Weighted average daily interest rate was 5.68% for 1994. (3) In 1990, the Las Flores apartments were refinanced pursuant to multi-family bonds aggregating $6.2 million. 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. Mortgages payable are secured by real estate with an aggregate undepreciated cost of $156,510,000 at December 31, 1994. Based on market borrowing rates available to PTR for mortgages with similar terms and average maturities, the fair value of mortgages payable was approximately $96,493,000 and $51,350,000 as compared to a book value of $93,624,000 and $48,872,000 at December 31, 1994 and 1993, respectively. The mortgages which secure tax exempt housing bonds contain covenants which require that a minimum percentage of units (generally 20% to 30%) be rented to individuals whose income does not exceed levels specified by U.S. Government programs. The tax exempt floating rate mortgage is secured by a letter of credit of $12,195,000. The fee for this letter of credit is 1.6% per annum of the outstanding mortgage payable balance. This letter of credit contains certain covenants, all of which PTR was in compliance with at December 31, 1994. The change in mortgages payable consisted of the following (in thousands):
1994 1993 1992 ------- ------- ------- Balances at January 1.......................... $48,872 $30,824 $35,772 Notes originated or assumed.................... 56,624 26,952 -- Principal payments............................. (11,872) (7,880) (4,948) Liquidated upon sale of properties............. -- (1,024) -- ------- ------- ------- Balance at December 31......................... $93,624 $48,872 $30,824 ======= ======= =======
48 SECURITY CAPITAL PACIFIC TRUST NOTES TO FINANCIAL STATEMENTS--(CONTINUED) Approximate principal payments due during each of the years in the five-year period ending December 31, 1999 are as follows (in thousands):
LONG TERM MORTGAGES DEBT TOTAL --------- -------- -------- 1995.......................................... $ 1,938 $ -- $ 1,938 1996.......................................... 1,008 -- 1,008 1997.......................................... 37,228 -- 37,228 1998.......................................... 7,142 -- 7,142 1999.......................................... 5,181 -- 5,181 Thereafter.................................... 41,127 200,000 241,127 ------- -------- -------- $93,624 $200,000 $293,624 ======= ======== ========
(4) DISTRIBUTIONS PTR's current policy is to pay distributions to shareholders based upon funds from operations and aggregating annually at least 95% of its taxable income. Funds from operations is not to be construed as a substitute for "net earnings" in evaluating operating results nor as a substitute for "cash flow" in evaluating liquidity. Funds from operations for the three years ended December 31, 1994 was as follows (dollars in thousands):
1994 1993 1992 ------- ------- ------- Net earnings attributable to common shares...... $30,619 $24,152 $ 8,986 Add (Deduct): Depreciation and amortization............... 25,989 12,219 5,657 Provision for possible loss on investments.. 1,600 2,270 400 Gain on sale of investments................. -- (2,302) 51 Other....................................... -- 83 174 ------- ------- ------- Funds from operations attributable to common shares......................................... 58,208 36,422 15,268 Distributions paid to common shareholders ...... 46,121 29,162 13,059 ------- ------- ------- Excess of funds from operations after distribu- tions ......................................... $12,087 $ 7,260 $ 2,209 ======= ======= ======= Weighted average shares outstanding............. 46,734 36,549 $19,435 ======= ======= =======
For federal income tax purposes, the following summarizes the taxability of distributions paid on Common Shares in 1993 and 1992 and the estimated taxability for 1994:
YEAR ENDED DECEMBER 31, --------------- 1994 1993 1992 ----- ---- ---- Per Common Share: Ordinary income......................................... $ .68 $.65 $.67 Capital gains........................................... -- .11 .03 Return of capital....................................... .32 .06 -- ----- ---- ---- Total................................................. $1.00 $.82 $.70 ===== ==== ====
On December 6, 1994 PTR declared a distribution of $.2875 per Common Share payable on February 13, 1995 to shareholders of record as of February 2, 1995. At the same time, PTR announced that it plans to pay a total distribution of $1.15 per Common Share in 1995. 49 SECURITY CAPITAL PACIFIC TRUST NOTES TO FINANCIAL STATEMENTS--(CONTINUED) On July 21, 1994, in addition to the distributions paid, PTR redeemed the shareholder purchase rights issued pursuant to the Rights Agreement dated as of February 23, 1990, as amended. Pursuant to the redemption, each holder of record at the close of business on July 21, 1994 was entitled to receive $0.01 per shareholder purchase right. The redemption price was paid on August 12, 1994 and is taxable as ordinary income for federal income tax purposes. For federal income tax purposes, the following summary reflects the taxability of dividends paid on Preferred Shares for the period from the date of issuance (November 29, 1993) through December 31, 1993 and the estimated taxability for 1994:
DATE OF ISSUANCE 1994 12/31/93 ----- -------- Per Preferred Share: Ordinary income.......................................... $1.75 $.1231 Capital gains............................................ -- .0227 ----- ------ Total.................................................. $1.75 $.1458 ===== ======
PTR's tax return for the year ended December 31, 1994 has not been filed, and the taxability information for 1994 is based upon the best available data. PTR's tax returns have not been examined by the Internal Revenue Service and, therefore, the taxability of the dividends is subject to change. (5) MORTGAGE NOTES RECEIVABLE The change in investments in mortgage notes receivable, which have originated principally in connection with PTR's sale of non-multifamily properties, consisted of the following (in thousands):
1994 1993 1992 ------- ------- ------- Balances at January 1 ......................... $22,624 $10,981 $ 5,343 Notes originated............................... 162 12,966 6,779 Collection of principal........................ (189) (1,323) (1,141) ------- ------- ------- Balance at December 31......................... $22,597 $22,624 $10,981 ======= ======= =======
Interest rates on mortgage notes receivable range from 7.5% to 11% with a weighted average rate of 9.19%. Maturity dates on mortgage notes receivable range from 1995 to 2008. The aggregate face amount of mortgage notes receivable at December 31, 1994 was $24,176,000. Aggregate cost for federal income tax purposes was the same as the balance at December 31 for the three years shown above. The carrying value of mortgage notes receivable at December 31, 1994 and 1993 approximates fair value. (6) SHAREHOLDERS' EQUITY Shares of Beneficial Interest At December 31, 1994, 150,000,000 Shares of Beneficial Interest, $1.00 par value per share, were authorized. PTR's Board of Trustees is authorized to issue, from the authorized but unissued shares of PTR, preferred shares in series and to establish from time to time the number of preferred shares to be included in 50 SECURITY CAPITAL PACIFIC TRUST NOTES TO FINANCIAL STATEMENTS--(CONTINUED) such series and to fix the designation and any preferences, conversion and other rights, voting powers, restrictions, limitations as to distributions, qualifications and terms and conditions of redemption of the shares of each series. Preferred Shares The Preferred Shares have a liquidation preference of $25 per share for an aggregate liquidation preference of $230,000,000 plus any accrued but unpaid distributions. The net proceeds (after underwriting commission and other offering costs) of the Preferred Shares issued was $219,670,000. Holders of the Preferred Shares are entitled only to limited voting rights under certain conditions. Each Preferred Share is convertible, in whole or in part, at the option of the holder at any time, unless previously redeemed, into 1.2162 of PTR's Common Shares (a conversion price of $20.56 per share). Distributions on the Preferred Shares are cumulative in an amount per share equal to the greater of $1.75 per annum or the annualized quarterly PTR distribution rate on the Common Shares into which the Preferred Shares are convertible, payable quarterly in arrears on the last day of March, June, September and December of each year. The Preferred Shares are redeemable at the option of PTR after November 30, 2003. Option Plan In January 1987, PTR adopted its Share Option Plan for Outside Trustees (the "1987 Plan"). Under the 1987 Plan, there are 126,000 Common Shares approved which can be granted to non-employee Trustees. All options granted are for a term of five years and are exercisable in whole or in part. The exercise price of the options granted may not be less than the fair market value on the date of grant. At December 31, 1994 there were 20,000 options for Common Shares outstanding and exercisable under the 1987 Plan at exercise prices ranging from $10.625 to $18.875 per Common Share. Ownership Restrictions and Significant Shareholder PTR's Restated Declaration of Trust and the Articles Supplementary, restrict beneficial ownership (or ownership generally attributed to a person under the REIT tax rules) of PTR's outstanding shares by a single person, or persons acting as a group, to 9.8% of the Common Shares and 25% of the Preferred Shares. The purpose of these provisions are to assist in protecting and preserving PTR's REIT status and to protect the interests of shareholders in takeover transactions by preventing the acquisition of a substantial block of shares unless the acquiror makes a cash tender offer for all outstanding shares. For PTR 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 PTR'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, and thus assists the Trustees in protecting and preserving PTR's REIT status for tax purposes. Common Shares owned by a person or group of persons in excess of the 9.8% limit are subject to redemption by PTR. The provision does not apply where a majority of the Board of Trustees, in its sole and absolute discretion, waives such limit after determining that the eligibility of PTR to qualify as a REIT for federal income tax purposes will not be jeopardized or the disqualification of PTR as a REIT is advantageous to the shareholders. The Board of Trustees has permitted Security Capital Group Incorporated (which reflects the imminent name change from Security Capital Realty Incorporated, referred to herein as "Security Capital Group"), the owner of the REIT Manager (see Note 7), to acquire up to 49% of PTR's outstanding Common Shares. Security Capital Group's ownership of Common Shares is attributed for tax purposes to its shareholders. 51 SECURITY CAPITAL PACIFIC TRUST NOTES TO FINANCIAL STATEMENTS--(CONTINUED) Security Capital Group owned 31.85% of PTR's total outstanding Common Shares at December 31, 1994 (See Note 10). Pursuant to an agreement between Security Capital Group and PTR, Security Capital Group has agreed to acquire no more than 49% of the Common Shares outstanding, except pursuant to an all-cash tender offer for all Common Shares held open for 90 days. Security Capital Group would have no limitation on making a tender offer if an unrelated third party commences such a tender offer. Shareholder Purchase Rights On February 23, 1990, PTR declared a dividend distribution of one shareholder purchase right ("Right") for each outstanding Common Share to be distributed to all holders of record of the Common Shares on February 23, 1990. Each Right entitled the holder to purchase one Common Share for an exercise price of $32.50 per share, subject to adjustment as provided in the Rights Agreement. The Rights were exercisable only if a person or group acquired 20% or more of PTR's Common Shares (32% in the case of Security Capital Group and certain defined affiliates) or announced a tender offer for 25% or more of the Common Shares. Under certain circumstances, including a shareholder acquisition of 20% or more of the Common Shares, each Right would entitle the holder to purchase Common Shares or securities of the acquiring company, which would have a dilutive effect on the acquiring company and deter it from taking coercive actions against PTR shareholders. The Rights held by certain 20% shareholders would be exercisable. On July 11, 1994, the Board of Trustees of PTR announced the redemption, effective at the close of business on July 21, 1994, of the shareholder purchase rights issued pursuant to the Rights Agreement, dated as of February 23, 1990, as amended. Pursuant to the redemption, each holder of record at the close of business on July 21, 1994 was entitled to receive $0.01 per shareholder purchase right. The redemption price was paid on August 12, 1994. In addition, the Board of Trustees declared a distribution of one preferred share purchase right (a "Purchase Right") for each Common Share outstanding, payable to holders of Common Shares of record at the close of business on July 21, 1994. Each Purchase Right entitles the holder under certain circumstances to purchase from PTR one one-hundredth of a share of Series B Junior Participating Preferred Share, par value $1.00 per share (the "Participating Preferred Shares"), at a price of $60.00 per one one-hundredth of a Participating Preferred Share, subject to adjustment. Purchase Rights are exercisable when a person or group of persons acquires 20% or more of the outstanding Common Shares (49% in the case of Security Capital Group and certain defined affiliates) or announces a tender offer for 25% or more of the outstanding Common Shares. 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 PTR pursuant to certain mergers 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 PTR or any other form of consideration determined by PTR's Board of Trustees. Shelf Registration On May 13, 1994 and December 1, 1994, PTR filed additional shelf registration statements with the Securities and Exchange Commission. PTR registered an aggregate of $650 million of securities ($325 million of securities in each shelf registration statement) which can be issued in the form of debt securities, preferred shares of beneficial interest, common shares of beneficial interest, shareholder purchase rights or subscription rights for common shares of beneficial interest. As of December 31, 1994, $564.8 million in securities were available to be issued under PTR's shelf registrations. (See Note 10) 52 SECURITY CAPITAL PACIFIC TRUST NOTES TO FINANCIAL STATEMENTS--(CONTINUED) (7) REIT MANAGEMENT AND PROPERTY MANAGEMENT AGREEMENTS Effective March 1, 1991, PTR entered into a REIT management agreement (the "REIT Management Agreement") with Security Capital Pacific Incorporated (the "REIT Manager"), formerly Security Capital (Southwest) Incorporated to provide management services to PTR. The REIT Manager is a subsidiary of Security Capital Group (see note 6). All officers of PTR are employees of the REIT Manager and PTR has no employees. The REIT Manager provides both strategic and day-to-day management of PTR, including research, investment analysis, acquisition and development, asset management, capital markets, legal and accounting services. The REIT Management Agreement requires PTR to pay a base annual fee of $855,000 plus 16% of cash flow as defined in the REIT Management Agreement ("Cash Flow") in excess of $4,837,000. In the REIT Management Agreement, Cash Flow is calculated by reference to PTR's cash flow from operations before deducting (i) fees paid to the REIT Manager, (ii) extraordinary expenses incurred at the request of the independent Trustees of PTR, and (iii) 33% of any interest paid by PTR on convertible subordinated debentures (of which there has been none since inception of the REIT Management Agreement); and, after deducting actual or assumed regularly scheduled principal and interest payments on long term debt. The REIT Management Agreement has been amended so that the long term senior notes described in Note 3 will be treated as if they had regularly scheduled principal and interest payments like a 20-year level monthly payment, fully amortizing mortgage and the assumed principal and interest payments will be deducted from cash flow in determining the fee for future periods. Cash Flow does not include realized gains from dispositions of investments or income from cash equivalent investments. The REIT Manager also receives a fee of .25% per year on the average daily balance of cash equivalent investments. REIT management fees aggregated $13,182,000, $7,073,000 and $2,711,000 for the years ended December 31, 1994, 1993 and 1992, respectively. PTR is obligated to reimburse the REIT Manager for certain expenses incurred by the REIT Manager on behalf of PTR, primarily travel expenses incurred in seeking financing, property acquisitions and developments, property sales and similar activities on behalf of PTR. The REIT Management Agreement is renewable by PTR annually, subject to a determination by the independent Trustees that the REIT Manager's performance has been satisfactory and that the compensation payable to the REIT Manager is fair. PTR may terminate the REIT Management Agreement on 60 days' notice. Because of the year-to-year nature of the agreement, its maximum effect on PTR's results of operations cannot be predicted, other than that REIT management fees will generally increase or decrease in proportion to cash flow increases or decreases. SCG Realty Services Incorporated ("SCG Realty Services") has managed and currently manages a substantial majority of PTR's operating multifamily properties. For the years ended December 31, 1994, 1993 and 1992, PTR paid SCG Realty Services aggregate fees of $7,148,000, $3,862,000 and $1,424,000, respectively. In addition to property management, SCG Realty Services has performed certain due diligence services for PTR's acquisitions. Effective October 1, 1994, SCG Realty Services no longer performed due diligence services for PTR. Security Capital Group is the sole shareholder of SCG Realty Services. Rates for services performed by SCG Realty Services are subject to annual approval by PTR's independent Trustees (who receive an annual review from an independent third party) and are at rates prevailing in the markets in which PTR operates. 53 SECURITY CAPITAL PACIFIC TRUST NOTES TO FINANCIAL STATEMENTS--(CONTINUED) (8) SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) Selected quarterly financial data (in thousands except for per share amounts) for 1994 and 1993 is as follows:
THREE MONTHS ENDED ---------------------------------------- 3-31 6-30 9-30 12-31 TOTAL ------- ------- ------- ------- -------- 1994: Rental Income................. $37,414 $43,390 $50,299 $52,369 $183,472 ======= ======= ======= ======= ======== Earnings from operations...... 9,512 10,765 12,727 13,715 46,719 Less Series A Preferred Share dividends.................... 4,025 4,025 4,025 4,025 16,100 ------- ------- ------- ------- -------- Net earnings attributable to Common Shares................ $ 5,487 $ 6,740 $ 8,702 $ 9,690 $ 30,619 ======= ======= ======= ======= ======== Net earnings per Common Share. $ 0.12 $ 0.15 $ 0.18 $ 0.19 $ 0.66 ======= ======= ======= ======= ======== Funds from operations attrib- utable to common shares...... $12,722 $13,271 $15,323 $16,892 $ 58,208 ======= ======= ======= ======= ======== Weighted Average Shares 44,668 44,724 47,051 50,413 46,734 ======= ======= ======= ======= ======== 1993: Rental Income................. $14,099 $16,881 $19,872 $25,277 $ 76,129 ======= ======= ======= ======= ======== Earnings from operations...... 4,488 3,347 6,454 8,902 23,191 Gain on sale of investments... -- 2,302 -- -- 2,302 Less Series A Preferred Share dividends.................... -- -- -- 1,341 1,341 ------- ------- ------- ------- -------- Net earnings attributable to Common Shares................ $ 4,488 $ 5,649 $ 6,454 $ 7,561 $ 24,152 ======= ======= ======= ======= ======== Net earnings per Common Share. $ 0.15 $ 0.16 $ 0.18 $ 0.17 $ 0.66 ======= ======= ======= ======= ======== Funds from operations attrib- utable to common shares...... $ 6,716 $ 8,350 $ 9,513 $11,843 $ 36,422 ======= ======= ======= ======= ======== Weighted Average Shares 30,742 35,263 35,742 44,620 36,549 ======= ======= ======= ======= ========
(9) COMMITMENTS AND CONTINGENCIES PTR is a party to various claims and routine litigation arising in the ordinary course of business. PTR does not believe that the results of all claims and litigation, individually or in the aggregate, will have a material adverse effect on its business, financial position or results of operations. PTR is subject to environmental regulations related to the ownership, operation, development and acquisition of real estate. As part of due diligence procedures, since 1984 PTR has conducted Phase I environmental assessments on each property prior to acquisition. The cost of complying with environmental regulations was not material to PTR's results of operations for any of the years in the three year period ended 54 SECURITY CAPITAL PACIFIC TRUST NOTES TO FINANCIAL STATEMENTS--(CONCLUDED) December 31, 1994. PTR is not aware of any environmental condition on any of its properties which is likely to have a material adverse effect on PTR's financial condition or results of operations. (10) SUBSEQUENT EVENTS On March 23, 1995, PTR acquired Security Capital Pacific Incorporated ("PACIFIC"). PACIFIC was a private multifamily REIT controlled by Security Capital Group, PTR's principal shareholder. Under the terms of the merger PTR issued 8,468,460 shares to PACIFIC stockholders which represented .611 Common Shares of PTR for each share of PACIFIC common stock. The exchange ratio was fixed on the date of the Merger Agreement (December 6, 1994) and was based on PTR's then trading price per Common Share of $16.375. PTR changed its name to Security Capital Pacific Trust in conjunction with the merger in order to more accurately reflect PTR's expanded target market. Concurrently with the consummation of the merger, PTR completed a subscription offering of Common Shares pursuant to which PTR received subscriptions for $216.6 million (13.2 million Common Shares). The subscription offering was designed to allow shareholders of PTR to purchase Common Shares at the same price PACIFIC shareholders were acquiring Common Shares in the Merger ($16.375 per Common Share). Security Capital Group purchased $50 million (3.1 million) of Common Shares of the subscription offering. Concurrent with the merger, PTR increased its unsecured revolving line of credit facility to $350 million and received a reduction in the interest rate to the greater of prime or the federal funds rate plus 0.50% or, at PTR's option, LIBOR plus 1.625% (which can vary from LIBOR plus 1.25% to LIBOR plus 2.0% based upon the rating of PTR's senior unsecured debt). In connection with such merger, PTR paid off the balance outstanding ($51.9 million) on PACIFIC's line of credit and assumed the following mortgages relating to PACIFIC properties acquired (unaudited, dollars in thousands):
PRINCIPAL BALLOON PERIODIC BALANCE AT PAYMENT INTEREST MATURITY PAYMENT MARCH 23, DUE AT PROPERTY RATE DATE TERMS 1995 MATURITY -------- -------- -------- -------- ---------- -------- CONVENTIONAL FIXED RATE: Sunterra................... 8.250% 03/01/00 (1) $ 8,368 $ 7,597 Greenpointe................ 8.500% 03/01/00 (1) 3,737 3,403 Mountain Shadow............ 8.500% 03/01/00 (1) 3,431 3,124 Knight's Castle............ 6.560% 10/01/96 (1) 7,714 7,498 Anchor Village............. 7.875% 12/01/98 (1) 26,742 25,105 ------- 49,992 ------- TAX EXEMPT FIXED RATE: Cherry Creek............... various various (1) 4,410 2,630 ------- $54,402 =======
-------- (1) Amortizing monthly with a balloon payment due at maturity. On March 17, 1995, the United States District Court for the Western District of Texas, El Paso Division granted defendants' motion to dismiss with prejudice the action entitled Ferro v. C. Ronald Blankenship, et al. (Case No. EP 95 CA 004) filed on January 4, 1995 by a party alleging to be a shareholder of PTR against PTR, PACIFIC, Security Capital Group and the individual members of the PTR Board. The lawsuit had alleged breaches of fiduciary duties and other matters pertaining to the merger of PACIFIC with and into PTR. PTR believes that the lawsuit was without merit and will not have any material adverse effect on PTR's financial condition or results of operations. 55 SCHEDULE III SECURITY CAPITAL PACIFIC TRUST REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 1994 (IN THOUSANDS)
GROSS AMOUNT AT WHICH INITIAL COST TO CARRIED AT DECEMBER 31, PTR COSTS 1994 ------------------ CAPITALIZED ------------------------- BUILDINGS SUBSE- BUILDINGS ACCUMU- CON- ENCUM- AND QUENT TO AND LATED DE- STRUCTION YEAR PROPERTIES BRANCES LAND IMPROVEMENTS ACQUISITION LAND IMPROVEMENTS TOTALS PRECIATION YEAR ACQUIRED ---------- ------- ----- ------------ ----------- ----- ------------ ------ ---------- --------- -------- MULTIFAMILY: Albuquerque, New Mexi- co: Commanche Wells....... -- $ 719 $4,072 $ 208 $ 719 $4,280 $4,999 $ 79 1985 1994 Corrales Pointe....... -- 944 5,351 166 944 5,517 6,461 172 1986 1993 Entrada Pointe........ -- 1,014 5,744 134 1,014 5,878 6,892 150 1986 1994 La Ventana............ -- 2,210 -- 1,695 2,302 1,603 3,905 (b) (b) 1994 La Paloma............. -- 4,135 -- 14,075 4,242 13,968 18,210 9 (b) 1993 Pavilions I & II...... -- 2,182 7,624 5,574 2,182 13,198 15,380 1,084 1992 1991 Sandia Ridge.......... -- 1,339 5,358 647 1,339 6,005 7,344 481 1986 1992 Seven Bar Ranch Phase I.................... -- 1,299 -- 758 1,302 755 2,057 (b) (b) 1994 Seven Bar Ranch Phase II................... -- 1,298 -- 111 1,298 111 1,409 (b) (b) 1994 Vista del Sol......... -- 1,105 4,419 375 1,105 4,794 5,899 192 1987 1993 Wellington Place...... -- 1,881 7,523 198 1,881 7,721 9,602 270 1981 1993 Austin, Texas: Anderson Mill Oaks.... -- 1,794 10,165 173 1,794 10,338 12,132 304 1984 1993 Cannon Place.......... -- 1,220 4,879 576 1,220 5,455 6,675 152 1984 1993 Hobby Horse........... -- 257 -- 633 764 126 890 (b) (b) 1993 Hobby Horse Railroad.. -- 788 -- 40 789 39 828 (b) (b) 1993 Homestead Village-- Burnet Road.......... -- 525 -- 1,312 544 1,293 1,837 (b) (b) 1994 Hunters' Run.......... -- 1,400 -- 6,242 1,412 6,230 7,642 (b) (b) 1993 La Mirage............. -- 2,350 -- 14,639 2,966 14,023 16,989 354 1994 1992 The Ridge............. -- 1,669 6,675 1,972 1,669 8,647 10,316 329 1978 1993 Ridgeline Village I... -- 672 -- 388 687 373 1,060 (b) (b) 1993 Ridgeline Village II.. -- 1,823 -- 1,133 1,865 1,091 2,956 (b) (b) 1993 Ridgeline Village III. -- 1,792 -- 853 1,833 812 2,645 (b) (b) 1993 Rock Creek............ -- 1,311 7,431 1,120 1,311 8,551 9,862 222 1979 1993 Saddle Brook.......... -- 800 -- 12,416 1,148 12,068 13,216 351 1994 1992 Shadowood............. -- 1,197 4,787 469 1,197 5,256 6,453 186 1985 1993 Spyglass.............. -- 1,744 6,976 1,671 1,744 8,647 10,391 446 1981 1992 Dallas, Texas: Apple Ridge........... -- 1,986 7,942 741 1,986 8,683 10,669 248 1984 1993 Custer Crossing....... -- 1,532 8,683 70 1,532 8,753 10,285 259 1985 1993 Homestead Village-- Skillman............. -- 400 -- 2,669 400 2,669 3,069 187 1993 1992 Homestead Village-- Stemmons Phase I..... -- 356 -- 2,833 356 2,833 3,189 168 1993 1992 Homestead Village-- Tollway.............. -- 275 -- 2,451 353 2,373 2,726 205 1993 1993 Homestead Village-- North Richland Hills. -- 470 -- 3,043 544 2,969 3,513 121 1994 1993 Homestead Village-- Coit Road............ -- 425 -- 2,983 496 2,912 3,408 120 1994 1993 Homestead Village-- West Arlington -- 585 -- 1,938 603 1,920 2,523 (b) (b) 1993 Homestead Village-- South Arlington...... -- 550 -- 1,865 569 1,846 2,415 (b) (b) 1994 Homestead Village-- Stemmons Phase II.... -- -- -- 654 -- 654 654 (b) (b) 1992 Homestead Village--Ft. Worth................ -- 350 -- 190 369 171 540 (b) (b) 1994 Homestead Village--Las Colinas.............. -- 800 -- 67 802 65 867 (b) (b) 1994 Indian Creek.......... -- 1,582 8,962 152 1,582 9,114 10,696 268 1985 1993 Post Oak Ridge........ -- 2,137 12,111 551 2,137 12,662 14,799 363 1983 1993 Quail Run............. -- 1,613 9,140 68 1,613 9,208 10,821 274 1983 1993 Somerset.............. -- 2,908 11,632 215 2,908 11,847 14,755 365 1986 1993
(see notes following table) 56
GROSS AMOUNT AT WHICH INITIAL COST TO CARRIED AT DECEMBER 31, PTR COSTS 1994 ------------------ CAPITALIZED ------------------------- BUILDINGS SUBSE- BUILDINGS ACCUMU- CON- ENCUM- AND QUENT TO AND LATED DE- STRUCTION YEAR PROPERTIES BRANCES LAND IMPROVEMENTS ACQUISITION LAND IMPROVEMENTS TOTALS PRECIATION YEAR ACQUIRED ---------- ------- ----- ------------ ----------- ----- ------------ ------ ---------- --------- -------- Summerstone........... -- 1,028 5,823 129 1,028 5,952 6,980 176 1983 1993 Timber Ridge.......... -- 997 5,651 -- 997 5,651 6,648 26 1984 1994 Woodland Park......... -- 1,386 5,543 143 1,386 5,686 7,072 176 1986 1993 Denver, Colorado: Cambrian.............. -- 2,256 9,026 665 2,256 9,691 11,947 391 1983 1993 The Cedars............ -- 3,128 12,512 1,051 3,128 13,563 16,691 542 1984 1993 Fox Creek Phase I..... -- 1,167 4,669 280 1,167 4,949 6,116 160 1984 1993 Hickory Ridge......... -- 4,402 17,607 1,173 4,402 18,780 23,182 1,099 1984 1992 Homestead Village-- Denver Tech Center... -- 876 -- 166 876 166 1,042 (b) (b) 1994 Homestead Village-- Iliff................ -- 615 -- 146 615 146 761 (b) (b) 1994 Reflections Phase I... -- 1,591 6,362 727 1,591 7,089 8,680 282 1980 1993 Reflections Phase II.. -- 805 -- 2,994 839 2,960 3,799 (b) (b) 1993 Silvercliff........... 7,550 2,410 13,656 76 2,410 13,732 16,142 257 1991 1994 Sunwood............... -- 1,030 4,596 359 1,030 4,955 5,985 265 1981 1992 El Paso, Texas: Acacia Park........... -- 1,130 -- 10,695 1,176 10,649 11,825 15 (b) 1993 Cielo Vista........... -- 1,111 4,445 538 1,111 4,983 6,094 186 1962 1993 The Crest............. -- 865 -- 7,096 1,026 6,935 7,961 628 1991 1992 Doubletree............ -- 1,106 4,423 592 1,106 5,015 6,121 213 1980 1993 Las Flores............ 5,968 625 6,624 754 625 7,378 8,003 2,971 (a) (a) Mountain Village...... -- 1,203 4,824 1,051 1,203 5,875 7,078 532 1982 1992 Patriot Apartments.... -- 1,027 -- 3,498 1,036 3,489 4,525 (b) (b) 1993 The Phoenix........... -- 454 -- 9,470 658 9,266 9,924 489 1993 1993 Shadow Ridge Phase I.. -- 584 3,993 790 584 4,783 5,367 434 1991 1991 Shadow Ridge Phase II. -- 940 -- 5,760 1,084 5,616 6,700 67 1994 1993 Spring Park........... 4,330 734 4,428 50 734 4,478 5,212 764 1990 1989 Tigua Village......... 1,008 161 146 1,842 161 1,988 2,149 1,075 (f) (f) Houston, Texas: Beverly Palms......... -- 1,393 7,893 532 1,393 8,425 9,818 200 1970 1994 Braeswood Park........ 7,008 1,861 10,548 25 1,862 10,572 12,434 315 1984 1993 Brompton Court........ 14,750 4,058 22,993 600 4,058 23,593 27,651 265 1972 1994 Chasewood............. 9,612 2,016 11,427 69 2,016 11,496 13,512 211 1992 1994 Cranbrook Forest...... -- 1,326 5,302 195 1,326 5,497 6,823 171 1984 1993 Homestead Village-- West by Northwest.... -- 519 -- 2,907 568 2,858 3,426 115 1994 1993 Homestead Village--Fu- qua.................. -- 416 -- 2,911 491 2,836 3,327 74 1994 1993 Homestead Village-- Westheimer........... -- 796 -- 3,177 897 3,076 3,973 33 1994 1993 Homestead Village-- Park Ten............. -- 791 -- 3,095 860 3,026 3,886 30 1994 1993 Homestead Village-- Stafford............. -- 575 -- 3,053 592 3,036 3,628 7 1994 1993 Homestead Village-- Bammel-Westfield..... -- 516 -- 2,927 595 2,848 3,443 27 1994 1993 Homestead Village-- Medical Center....... -- 1,530 -- 261 1,530 261 1,791 (b) (b) 1994 Homestead Village-- Willowbrook.......... -- 575 -- 656 584 647 1,231 (b) (b) 1994 Memorial Oaks Phase I. -- 4,372 -- 797 4,372 797 5,169 (b) (b) 1994 Memorial Oaks Phase II................... -- 3,206 -- 415 3,206 415 3,621 (b) (b) 1994 Memorial Heights Phase I.................... -- 3,150 -- 607 3,267 490 3,757 (b) (b) 1994 Memorial Heights Phase II................... -- 4,166 -- 780 4,319 627 4,946 (b) (b) 1994 Pineloch.............. -- 1,980 11,221 150 1,980 11,371 13,351 336 1984 1993 Plaza Del Oro......... -- 1,713 9,706 190 1,713 9,896 11,609 134 1984 1994 Seahawk............... 5,577 1,258 7,125 8 1,258 7,133 8,391 134 1984 1994 Weslayan Oaks......... -- 581 3,293 40 581 3,333 3,914 104 1984 1993 Woodside Village...... -- 710 2,811 2,870 710 5,681 6,391 2,148 1972 1975 Las Cruces, New Mexico: Park Place I & II..... 7,091 992 7,409 190 992 7,599 8,591 1,201 1991 1989 Oklahoma City, Oklaho- ma: Cimarron Trail........ -- 981 5,591 104 981 5,695 6,676 77 1984 1994 Warrington............ -- 882 4,883 132 882 5,015 5,897 158 1984 1993
(see notes following table) 57
GROSS AMOUNT AT WHICH INITIAL COST TO CARRIED AT DECEMBER 31, PTR COSTS 1994 ------------------ CAPITALIZED ------------------------- BUILDINGS SUBSE- BUILDINGS ACCUMU- CON- ENCUM- AND QUENT TO AND LATED DE- STRUCTION YEAR PROPERTIES BRANCES LAND IMPROVEMENTS ACQUISITION LAND IMPROVEMENTS TOTALS PRECIATION YEAR ACQUIRED ---------- ------- ----- ------------ ----------- ----- ------------ ------ ---------- --------- -------- Omaha, Nebraska: Apple Creek............ 11,100 1,953 11,069 380 1,953 11,449 13,402 153 1987 1994 Phoenix, Arizona: Bay Club............... -- 2,797 11,188 800 2,797 11,988 14,785 380 1985 1993 Dobson Bay Club........ -- 1,132 4,529 478 1,132 5,007 6,139 463 1986 1992 Foxfire................ -- 1,055 5,976 178 1,055 6,154 7,209 110 1985 1994 Homestead Village-- Scottsdale............ -- 876 -- 195 944 127 1,071 (b) (b) 1994 Moorings at Mesa Cove.. -- 3,261 13,045 655 3,261 13,700 16,961 723 1985 1992 North Mountain Village. -- 2,704 15,323 187 2,704 15,510 18,214 318 1986 1994 Papago Crossing........ -- 630 2,519 557 630 3,076 3,706 156 1980 1992 Peaks at Papago Park Phase I............... -- 4,131 23,408 369 4,131 23,777 27,908 445 1988 1994 Peaks at Papago Park Phase II.............. -- 1,000 -- 20 1,000 20 1,020 (b) (b) 1994 Pheasant Run........... -- 1,607 6,428 535 1,607 6,963 8,570 221 1985 1993 Presidio at South Moun- tain.................. 14,742 4,638 26,280 296 4,638 26,576 31,214 787 1989 1993 The Ridge.............. -- 1,852 10,492 269 1,852 10,761 12,613 314 1987 1993 San Antigua............ -- 4,200 -- 17,138 4,705 16,633 21,338 362 1994 1991 San Marin.............. -- 3,332 -- 14,609 3,798 14,143 17,941 900 1993 1993 San Marina............. -- 1,208 4,831 793 1,208 5,624 6,832 579 1986 1992 San Marquis North...... -- 1,215 -- 7,903 1,247 7,871 9,118 5 (b) 1993 San Marquis South...... -- 2,312 -- 10,061 2,665 9,708 12,373 225 1994 1993 Scottsdale Greens...... -- 3,489 19,774 1,815 3,489 21,589 25,078 522 1980 1994 Sunstone............... -- 1,542 8,738 167 1,542 8,905 10,447 261 1986 1993 Superstition Park...... -- 2,340 9,362 683 2,340 10,045 12,385 520 1985 1992 San Antonio, Texas: Applegate.............. -- 1,455 8,248 118 1,455 8,366 9,821 247 1983 1993 Camino Real............ -- 1,084 4,338 718 1,084 5,056 6,140 241 1979 1993 Cobblestone Village.... -- 786 3,120 476 786 3,596 4,382 372 1984 1992 Contour Place.......... -- 456 1,829 287 456 2,116 2,572 236 1984 1992 The Crescent........... -- 1,145 -- 14,407 1,647 13,905 15,552 410 1994 1992 Dymaxion............... -- 683 3,740 15 683 3,755 4,438 9 1984 1994 The Gables............. -- 1,025 5,809 73 1,025 5,882 6,907 174 1983 1993 Homestead Village-- Fredricksburg......... -- 800 -- 3,240 892 3,148 4,040 27 1994 1993 Homestead Village--I- 10/De Zavala ......... -- 844 -- 962 846 960 1,806 (b) (b) 1994 Homestead Village-- 281/Bitters........... -- 1,000 -- 1,046 1,007 1,039 2,046 (b) (b) 1994 Lakeside Villas........ -- 2,597 10,388 535 2,597 10,923 13,520 638 1986 1992 Marbach Park........... -- 1,122 6,361 263 1,122 6,624 7,746 191 1985 1993 The Waters at Northern Hills................. -- 1,252 7,091 196 1,252 7,287 8,539 161 1982 1994 Medical Drive.......... -- 1,631 -- 1,912 1,634 1,909 3,543 (b) (b) 1993 Oakhampton Place....... -- 2,292 9,170 663 2,292 9,833 12,125 573 1984 1992 Palisades Park......... -- 1,167 6,613 225 1,167 6,838 8,005 198 1983 1993 Panther Springs........ -- 585 3,317 66 585 3,383 3,968 99 1985 1993 The Pond............... -- 1,728 9,794 242 1,728 10,036 11,764 293 1982 1993 Rancho Mirage.......... -- 724 2,871 1,102 724 3,973 4,697 124 1974 1993 Sterling Heights....... -- 1,644 -- 6,078 1,736 5,986 7,722 (b) (b) 1993 Towne East............. -- 350 1,985 62 350 2,047 2,397 59 1983 1993 Villas of Castle Hills. -- 1,037 4,148 666 1,037 4,814 5,851 159 1971 1993 Villas of St. Tropez Phase I............... -- 2,013 8,054 607 2,013 8,661 10,674 506 1982 1992 Villas of St. Tropez Phase II.............. -- 605 -- 108 606 107 713 (b) (b) 1994 San Diego, California: Scripps Landing........ -- 1,332 7,550 139 1,332 7,689 9,021 202 1985 1994 Tierrasanta Ridge...... -- 2,859 16,130 89 2,859 16,219 19,078 260 1994 1994 Santa Fe, New Mexico: The Enclave............ -- 1,810 7,242 647 1,810 7,889 9,699 413 1986 1992 The Meadows of Santa Fe.................... -- 760 -- 11,999 992 11,767 12,759 255 1994 1993 Rancho Vizcaya......... -- 1,906 9,458 605 1,906 10,063 11,969 948 1990 1991 St. Francis............ -- 1,941 -- 297 1,972 266 2,238 (b) (b) 1994 Tucson, Arizona: Cobble Creek........... -- 1,422 5,690 538 1,422 6,228 7,650 571 1980 1992
(see notes following table) 58
GROSS AMOUNT AT WHICH INITIAL COST TO PTR COSTS CARRIED AT DECEMBER 31, 1994 --------------------- CAPITALIZED -------------------------------- BUILDINGS SUBSE- BUILDINGS ACCUMU- CON- ENCUM- AND QUENT TO AND LATED DE- STRUCTION PROPERTIES BRANCES LAND IMPROVEMENTS ACQUISITION LAND IMPROVEMENTS TOTALS PRECIATION YEAR ---------- ------- -------- ------------ ----------- -------- ------------ ---------- ---------- --------- Craycroft Gar- dens........... -- 348 1,392 190 348 1,582 1,930 123 1963 Haystack........ -- 966 5,474 247 966 5,721 6,687 165 1979 Rio Cancion..... -- 2,854 16,175 184 2,854 16,359 19,213 335 1984 Sonoran Terrac- es............. -- 3,020 14,150 603 3,020 14,753 17,773 1,452 1986 Sundown Village Phase I........ -- 1,606 6,424 383 1,606 6,807 8,413 317 1984 Sundown Village Phase II....... -- 403 -- 3,653 414 3,642 4,056 (b) (b) Tierra Antigua.. -- 992 3,967 466 992 4,433 5,425 362 1979 Ventana Canyon.. -- 3,177 -- 553 3,188 542 3,730 (b) (b) Villa Caprice... -- 1,279 7,248 121 1,279 7,369 8,648 217 1972 Windsail........ 4,888 1,852 7,407 552 1,852 7,959 9,811 333 1986 Tulsa, Oklahoma: Southern Slope.. -- 779 4,413 74 779 4,487 5,266 143 1982 ------- -------- -------- -------- -------- ---------- ---------- ------- Total Multifami- ly............. $93,624 $230,036 $746,562 $278,298 $235,796 $1,019,100 $1,254,896 $42,104 ------- -------- -------- -------- -------- ---------- ---------- ------- LAND HELD FOR FU- TURE MULTIFAMILY DEVELOPMENT: El Paso, Texas: West Ten Apart- ments.......... -- 1,576 -- -- 1,576 -- 1,576 -- N/A San Antonio, Tex- as: Dymaxion Phase II............. -- 546 -- -- 546 -- 546 -- N/A Indian Trails Phase II....... -- 864 -- -- 864 -- 864 -- N/A Walker Ranch Phase I........ -- 2,078 -- 412 2,141 349 2,490 -- N/A Walker Ranch Phase II....... -- 1,635 -- 223 1,685 173 1,858 -- N/A Walker Ranch Phase III...... -- 552 -- 91 569 74 643 -- N/A ------- -------- -------- -------- -------- ---------- ---------- ------- Total Develop- ment Land...... $ -- $ 7,251 $ -- $ 726 $ 7,381 $ 596 $ 7,977 $ -- ------- -------- -------- -------- -------- ---------- ---------- ------- HOTEL: San Francisco, California: Wharf Holiday Inn............ $ -- $ 12,861 $ 1,935 $ 8,074 $ 12,861 $ 10,009 $ 22,870 $ 2,838 1972 ------- -------- -------- -------- -------- ---------- ---------- ------- OFFICE / INDUS- TRIAL: Dallas, Texas: Irving Blvd..... -- 109 303 129 109 432 541 219 1968 Texas Commerce Bank Building.. -- -- 4,616 (1,801) -- 2,815 2,815 -- 1984 El Paso, Texas: Vista Industri- al............. -- 567 2,504 63 567 2,567 3,134 374 1987 Ontario, Califor- nia: Ontario Indus- trial Building. -- 1,200 3,828 (1,036)(c) 1,200 2,792 3,992 628 1987 ------- -------- -------- -------- -------- ---------- ---------- ------- Total Office/Industrial. $ -- $ 1,876 $ 11,251 $ (2,645) $ 1,876 $ 8,606 $ 10,482 $ 1,221 ------- -------- -------- -------- -------- ---------- ---------- ------- OTHER............ $ -- $ 16 $ 46 $ 1 $ 16 $ 47 $ 63 $ 36 1971 ------- -------- -------- -------- -------- ---------- ---------- ------- Total............ $93,624 $252,040 $759,794 $284,453 $257,930 $1,038,358 $1,296,288 $46,199 ======= ======== ======== ======== ======== ========== ========== ======= YEAR PROPERTIES ACQUIRED ---------- -------- Craycroft Gar- dens........... 1992 Haystack........ 1993 Rio Cancion..... 1994 Sonoran Terrac- es............. 1992 Sundown Village Phase I........ 1993 Sundown Village Phase II....... 1993 Tierra Antigua.. 1992 Ventana Canyon.. 1993 Villa Caprice... 1993 Windsail........ 1993 Tulsa, Oklahoma: Southern Slope.. 1993 Total Multifami- ly............. LAND HELD FOR FU- TURE MULTIFAMILY DEVELOPMENT: El Paso, Texas: West Ten Apart- ments.......... 1994 San Antonio, Tex- as: Dymaxion Phase II............. 1994 Indian Trails Phase II....... 1994 Walker Ranch Phase I........ 1994 Walker Ranch Phase II....... 1994 Walker Ranch Phase III...... 1994 Total Develop- ment Land...... HOTEL: San Francisco, California: Wharf Holiday Inn............ 1975 OFFICE / INDUS- TRIAL: Dallas, Texas: Irving Blvd..... 1977 Texas Commerce Bank Building.. 1985 El Paso, Texas: Vista Industri- al............. 1989 Ontario, Califor- nia: Ontario Indus- trial Building. 1987 Total Office/Industrial. OTHER............ 1972 Total............
------- (a) 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. (b) As of 12/31/94, property was undergoing development. (c) The Ontario Industrial property was written down by $1,100,000 in June 1993 to more properly reflect the property's net realizable value. (d) As of December 31, 1994, the aggregate cost and net investment cost for federal income tax purposes of PTR's investment in real estate amounted to $1,283,894,000 and $1,238,634,000, respectively. (e) Other investments represent PTR's ownership percentage in a joint venture, as well as investment in a financing lease. (f) Phase I (84 units) was developed in 1970 and Phase II (100 units) was developed in 1981. 59 The following is a reconciliation of the carrying amount and related accumulated depreciation of PTR's investment in real estate, at cost (in thousands):
CARRYING AMOUNTS 1994 1993 1992 ---------------- ---------- -------- -------- Balance at January 1........................ $ 872,610 $337,274 $117,572 Acquisitions, including renovation expendi- tures...................................... 270,024 449,500 188,411 Development expenditures, including land ac- quisition.................................. 155,849 108,056 41,733 Acquisition of land held for future develop- ment....................................... 7,977 4,208 -- Capital improvements........................ 3,912 1,639 1,015 Real estate sold............................ (12,287) (24,953) (10,814) Provision for possible losses............... (1,600) (2,270) (400) Other....................................... (197) (844) (243) ---------- -------- -------- Balance at December 31...................... $1,296,288 $872,610 $337,274 ========== ======== ======== ACCUMULATED DEPRECIATION 1994 1993 1992 ------------------------ ---------- -------- -------- Balance at January 1........................ $ 22,022 $ 19,360 $ 17,742 Depreciation for the year................... 24,614 10,241 5,045 Accumulated depreciation of real estate sold....................................... (151) (7,429) (3,370) Other....................................... (286) (150) (57) ---------- -------- -------- Balance at December 31...................... $ 46,199 $ 22,022 $ 19,360 ========== ======== ========
60 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each of Security Capital Pacific Trust, a real estate investment trust, and the undersigned Trustees and officers of Security Capital Pacific Trust, hereby constitutes and appoints C. Ronald Blankenship, William Kell, Paul E. Szurek, Ariel Amir, Edward J. Schneidman and Michael T. Blair its or his true and lawful attorneys-in-fact and agents, for it or him and in its or his 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 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. 61 SECURITY CAPITAL PACIFIC 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. SECURITY CAPITAL PACIFIC TRUST /s/ C. Ronald Blankenship By: _________________________________ C. Ronald Blankenship Chairman (Principal Executive Officer) Date: March 30, 1995 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/ C. Ronald Blankenship Chairman (Principal March 30, 1995 ____________________________________ Executive Officer) and C. Ronald Blankenship Trustee /s/ William Kell Vice President (Principal March 30, 1995 ____________________________________ Financial and Accounting William Kell Officer) /s/ James A. Cardwell Trustee March 30, 1995 ____________________________________ James A. Cardwell /s/ John T. Kelley III Trustee March 30, 1995 ____________________________________ John T. Kelley III /s/ Calvin K. Kessler Trustee March 30, 1995 ____________________________________ Calvin K. Kessler /s/ William G. Myers Trustee March 30, 1995 ____________________________________ William G. Myers /s/ James H. Polk III Trustee March 30, 1995 ____________________________________ James H. Polk III /s/ John C. Schweitzer Trustee March 30, 1995 ____________________________________ John C. Schweitzer
62 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.
SEQUENTIALLY NUMBERED NUMBER DESCRIPTION PAGE ------ ----------- ------------ 4.1 Restated Declaration of Trust of PTR (Incorporated by reference to Exhibit 4 to PTR's Form 10-Q for the quarter ended June 30, 1991). 4.2 First Certificate of Amendment of Restated Declaration of Trust of PTR (Incorporated by reference to Exhibit 4 to PTR's Form 10-Q for the quarter ended June 30, 1992). 4.3 Second Certificate of Amendment of Restated Declaration of Trust of PTR (Incorporated by reference to Exhibit 3.1 to PTR's Form 8-K dated May 3, 1994). 4.4 Third Articles of Amendment of Restated Declaration of Trust of PTR (Incorporated by reference to Exhibit 4.4 to PTR's Registration Statement No. 33-86444). 4.5 Articles Supplementary relating to PTR's Cumulative Convertible Series A Preferred Shares of Beneficial Interest (Incorporated by reference to Exhibit 3.1 to PTR's Form 8-K dated November 22, 1993). 4.6 Articles of Merger of PACIFIC with and into PTR. 4.7 Bylaws of PTR (Incorporated by reference to Exhibit 4.1 to PTR's Form 8-K dated November 22, 1993). 4.8 Indenture, dated as of February 1, 1994, between PTR and Morgan Guaranty Trust Company of New York, as Trustee, relating to PTR's unsecured senior debt securities (Incorporated by reference to Exhibit 4.2 to PTR's Form 10-K for the year ended December 31, 1993). 4.9 First Supplemental Indenture, dated as of February 2, 1994, among PTR, 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 PTR's Form 10-K for the year ended December 31, 1993). 4.10 6 7/8% Senior Note due February 15, 2008 (Incorporated by reference to Exhibit 4.4 to PTR's Form 10-K for the year ended December 31, 1993). 4.11 7 1/2% Senior Note due February 15, 2014 (Incorporated by reference to Exhibit 4.5 to PTR's Form 10-K for the year ended December 31, 1994). 4.12 Rights Agreement (the "Rights Agreement") dated as of July 21, 1994 between PTR and Chemical Bank, including form of Rights Certificate (Incorporated by reference to Exhibit 4.2 to PTR's Form 8-K dated July 19, 1994). 4.13 First Amendment dated as of February 8, 1995 to the Rights Agreement. 10.1 1987 Share Option Plan for Outside Trustees (Incorporated by reference to Exhibit 10.5 to PTR's Form 10-K for the year ended December 31, 1986). 10.2 Second Amended and Restated Investor Agreement dated as of July 11, 1994 between PTR and Security Capital Group (Incorporated by reference to Exhibit 10.1 to PTR's Form 8-K dated July 19, 1994). 10.3 Form of Indemnification Agreement entered into between PTR and all of its officers and Trustees (Incorporated by reference to Exhibit 10.50 to Registration Statement No. 33-43201).
63
SEQUENTIALLY NUMBERED NUMBER DESCRIPTION PAGE ------ ----------- ------------ 10.4 Supplemental Investment Agreement dated as of October 1, 1991, by and between PTR and Security Capital Group (Incorporated by reference to Exhibit 10.70 to Registration Statement No. 33-43201). 10.5 Second Supplemental Investment Agreement dated as of December 7, 1993 between PTR and Security Capital Group (Incorporated by reference to Exhibit 10.2 to PTR's Form 8-K dated May 3, 1994). 10.6 Third Supplemental Investment Agreement dated as of December 6, 1994 between PTR and Security Capital Group. 10.7 Management Agreement dated as of September 1, 1991 between PTR and SCG Realty Services (Incorporated by reference to Exhibit 19.2 to PTR's Form 10-Q for the quarter ended September 30, 1991). 10.8 Letter Amendment dated as of November 1, 1993 to Management Agreement between PTR and SCG Realty Services. 10.9 Letter Amendment dated as of October 1, 1994 to Management Agreement between PTR and SCG Realty Services. 10.10 Amended and Restated Credit Agreement dated as of March 23, 1995 among PTR, Texas Commerce Bank National Association and Wells Fargo Realty Advisors Funding, Incorporated, as co-agents, and the banks named therein. 10.11 Third Amended and Restated REIT Management Agreement dated as of March 1, 1994 between PTR and the REIT Manager (Incorporated by reference to Exhibit 10.2 to PTR's Form 10-Q for the quarter ended September 30, 1994). 10.12 First Amendment to Third Amended and Restated REIT Management Agreement, dated October 1, 1994 between PTR and the REIT Manager. 10.13 Second Amendment to Third Amended and Restated REIT Management Agreement, dated December 6, 1994 between PTR and the REIT Manager. 10.14 Third Amendment to Third Amended and Restated REIT Management Agreement, dated March 23, 1995 between PTR and the REIT Manager. 10.15 Agreement and Plan of Merger dated as of December 6, 1994 among PTR, PACIFIC and Security Capital Group. (Incorporated by Reference to Exhibit 2.1 to Registration Statement No. 33-87184). 23.1 Consent of KPMG Peat Marwick LLP. 24.1 Power of Attorney (included at page 61). 27.1 Financial Data Schedule.
64 EX-4.6 2 ARTICLES OF MERGER EXHIBIT 4.6 ARTICLES OF MERGER Merging SECURITY CAPITAL PACIFIC INCORPORATED (a corporation of the State of Maryland) Into PROPERTY TRUST OF AMERICA (a real estate investment trust of the State of Maryland) Security Capital Pacific Incorporated, a corporation organized and existing under the laws of the State of Maryland ("PACIFIC"), and Property Trust of America, a real estate investment trust organized and existing under the laws of the State of Maryland ("PTR"), agree that PACIFIC shall be merged with and into PTR. The terms and conditions of the merger and the mode of carrying the same into effect are as herein set forth in these Articles of Merger. FIRST: The parties to these Articles of Merger are Property Trust of America, a real estate investment trust organized and existing under the laws of the State of Maryland, and Security Capital Pacific Incorporated, a corporation organized and existing under the laws of the State of Maryland. SECOND: PACIFIC shall be merged with and into PTR in accordance with the Corporations and Associations Article of the Annotated Code of Maryland (the "Maryland Code"), and PTR shall survive the merger and continue under the name "Security Capital Pacific Trust" (the "Surviving Entity"). At the effective time of the merger (the "Effective Time"), the separate existence of PACIFIC shall cease in accordance with the provisions of the Maryland Code. From and after the Effective Time, the Surviving Entity shall continue its existence under the name "Security Capital Pacific Trust," shall succeed to all of the properties, liabilities and other assets and shall be subject to all of the liabilities and obligations of PACIFIC without further action by either of the parties hereto, and will continue to be governed by the laws of the State of Maryland, including the Maryland Code. At the Effective Time, the bylaws of PTR in effect immediately prior to the Effective Time shall become the bylaws of the Surviving Entity and the trustees and officers in office of PTR immediately prior to the Effective Time shall be the trustees and officers of the Surviving Entity, all of whom shall hold their trusteeships and offices until the election and qualification of their respective successors or until their tenure is otherwise terminated in accordance with the declaration of trust and bylaws of the Surviving Entity. THIRD: The resident agent and office of each of PACIFIC and PTR is located at 11 East Chase Street, Baltimore, State of Maryland 21202. The principal office of each of PACIFIC and PTR is located at 7777 Market Center Avenue, City of El Paso, State of Texas 79912. Neither PACIFIC nor PTR owns any interest in land in any county in the State of Maryland. FOURTH: The terms and conditions of the transaction set forth in these Articles of Merger were advised, authorized and approved by each party to these Articles of Merger in the manner and by the vote required by PACIFIC's articles of incorporation or PTR's declaration of trust, as the case may be, and the laws of the State of Maryland. FIFTH: The merger was duly (a) advised by the board of directors of PACIFIC by the adoption of a resolution declaring that the merger set forth in these Articles of Merger was advisable on substantially the terms and conditions set forth or referred to in the resolution and directing that the proposed merger be submitted for consideration at a special meeting of the shareholders of PACIFIC and (b) approved by the shareholders of PACIFIC by the vote required by its articles of incorporation and the Maryland Code. SIXTH: The merger was duly (a) advised by the board of trustees of PTR by the adoption of a resolution declaring that the merger set forth in these Articles of Merger was advisable on substantially the terms and conditions set forth or referred to in the resolution and directing that the proposed merger be submitted for consideration at a special meeting of the shareholders of PTR and (b) approved by the shareholders of PTR by the vote required by its declaration of trust and the Maryland Code. SEVENTH: At the Effective Time, Article 1, Section 1 of the declaration of trust of PTR shall be amended to read in its entirety as follows and such declaration of trust, as so amended, shall become the declaration of trust of the Surviving Entity: " SECTION 1. NAME. The Trust created by this Declaration of Trust is herein referred to as the "Trust" and shall be known by the name "Security Capital Pacific Trust." So far as may be practicable, legal and convenient, the affairs of the Trust shall be conducted and transacted under that name, which name shall not refer to the Trustees individually or personally or to the beneficiaries or Shareholders of the Trust, or to any officers, employees or agents of the Trust. Under circumstances in which the Trustees determine that the use of the name "Security Capital Pacific Trust" is not practicable, legal or convenient, they may as appropriate use their names with suitable reference to their trustee status, or some other suitable designation, or they may adopt another name under which the Trust may hold property or operate in any jurisdiction which name shall not, to the knowledge of the Trustees, refer to beneficiaries or Shareholders of the Trust. Legal title to all the properties subject from time to time to this Declaration of Trust shall be transferred to, 2 vested in, and held by the Trust in its own name or by the Trustees as joint tenants with right of survivorship as Trustees of this Trust, except that the Trustees shall have the power to cause legal title to any property of this Trust to be held by and/or in the name of one or more of the Trustees, or any other person as nominee, on such terms, in such manner, and with such powers as the Trustees may determine, provided that the interest of the Trust therein is appropriately protected. The Trust shall have the authority to operate under an assumed name or names in such state or states or any political subdivision thereof where it would be legal, practical or convenient to operate in the name of the Trust. The Trust shall have the authority to file such assumed name certificates or other instruments in such places as may be required by applicable law to operate under such assumed name or names. If for any reason neither Security Capital (Southwest) Incorporated, a Delaware corporation, nor any affiliate thereof, nor any other affiliate of Security Capital Realty Incorporated, a Maryland corporation, shall any longer be rendering to the Trust the services of Advisor, as defined in Article 4, Section 7 hereof, to be rendered pursuant to the contract referred to in Article 4, Section 7 hereof, and any renewal or extension of such contract, then, if requested in writing by Security Capital Realty Incorporated or its successor to do so, the Trustees shall forthwith and are hereby required and authorized, without further vote or consent of the Shareholders, to (a) cease to use the name "Security Capital" or any name or names similar thereto, (b) amend this Article 1, Section 1 to change the name of the Trust to one which does not include the name "Security Capital" or any name or names similar thereto, and (c) cause to be executed and delivered all instruments necessary to evidence such change of name in each public registry where the name of the Trust shall have been registered and to disclaim any right, title or interest in or to the name "Security Capital."" These amendments do not increase the authorized capital of PTR. EIGHTH: The total number of shares of beneficial interest of all classes which PTR has authority to issue is one hundred fifty million (150,000,000) shares of beneficial interest, of the par value of one dollar ($1.00) each, all such shares having an aggregate par value of one hundred fifty million dollars ($150,000,000). Of such one hundred fifty million shares of beneficial interest, nine million two hundred thousand have been classified as Cumulative Convertible Series A Preferred Shares of Beneficial Interest. The total number of shares of stock of all classes which PACIFIC has authority to issue is two hundred fifty million (250,000,000) shares of common stock, of the par value of one cent ($0.01) each, all such shares having an aggregate par value of two million five hundred thousand dollars ($2,500,000). 3 NINTH: At the Effective Time, each issued share common stock of PACIFIC shall automatically and without further action by either of the parties hereto be converted into 0.611 common shares of beneficial interest of PTR. At the Effective Time, each right, option or warrant to acquire a share of common stock of PACIFIC shall automatically be converted into a right, option or warrant to acquire 0.611 common shares of beneficial interest of PTR. At the Effective Time, each issued share of beneficial interest of PTR issued immediately prior to the Effective Time shall not be converted or exchanged in any manner but shall remain issued. TENTH: The parties hereto intend that the execution of these Articles of Merger constitutes the adoption of a "plan of reorganization" within the meaning of Treasury Regulations (S) 1.368-1(c). 4 IN WITNESS WHEREOF, Security Capital Pacific Incorporated, a Maryland corporation, and Property Trust of America, a Maryland real estate investment trust, the entities parties to the merger, have caused these Articles of Merger to be signed in their respective names and on their behalf and witnessed or attested all as of the 23rd day of March 1995. Each of the individuals signing these Articles of Merger on behalf of Security Capital Pacific Incorporated or Property Trust of America acknowledges these Articles of Merger to be the act of such respective entity and, as to all other matters or facts required to be verified under oath, that to the best of his or her knowledge, information and belief, these matters are true in all material respects, and that this statement is made under the penalties of perjury. SECURITY CAPITAL PACIFIC INCORPORATED, a Maryland corporation By: /s/ David C. Dressler, Jr. ---------------------------- David C. Dressler, Jr. Senior Vice President Attest: /s/ Leanne L. Gallagher ------------------------ Leanne L. Gallagher Assistant Secretary PROPERTY TRUST OF AMERICA, a Maryland real estate investment trust By: /s/ C. Ronald Blankenship ------------------------------ C. Ronald Blankenship, Trustee By: /s/ Calvin K. Kessler ------------------------------ Calvin K. Kessler, Trustee By: /s/ James H. Polk, III ------------------------------ James H. Polk, III, Trustee By: /s/ John C. Schweitzer ------------------------------ John C. Schweitzer, Trustee By: /s/ William G. Myers ------------------------------ William G. Myers, Trustee By: /s/ John T. Kelley ------------------------------ John T. Kelley, III, Trustee By: /s/ James A. Cardwell ----------------------------- James A. Cardwell, Trustee 5 EX-4.13 3 RIGHTS AGREEMENT EXHIBIT 4.13 FIRST AMENDMENT TO RIGHTS AGREEMENT This First Amendment (this "Amendment") to that certain Rights Agreement dated as of July 21, 1994 (the "Agreement") is made and entered into as of February 8, 1995 by and between Property Trust of America, a Maryland real estate investment trust (the "Trust"), and Chemical Bank, a New York banking corporation (the "Rights Agent"). WHEREAS, pursuant to the authority contained in Section 27 of the Agreement, the Trust and the Rights Agent desire to amend the Agreement as set forth in this Amendment. NOW, THEREFORE, in consideration of the foregoing, the parties hereto agree that the Agreement is hereby amended by amending and restating the definition of "REALTY Group" in Section 1 of the Agreement as follows: "REALTY Group" shall mean REALTY, together with its wholly owned subsidiaries and any Person that owns, directly or indirectly, more than 20% of REALTY's then outstanding voting securities. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the day and year above written. PROPERTY TRUST OF AMERICA By: /s/ Paul E. Szurek ---------------------------------- Name: Paul E. Szurek ---------------------------------- Title: Secretary --------------------------------- CHEMICAL BANK By: /s/ Joseph J. Carraturo ----------------------------------- Name: Joseph J. Carraturo ----------------------------------- Title: Assistant Vice President ---------------------------------- EX-10.6 4 INVEST AGREEMENT EXHIBIT 10.6 THIRD SUPPLEMENTAL INVESTMENT AGREEMENT THIS THIRD SUPPLEMENTAL INVESTMENT AGREEMENT (this "Agreement") is made and entered into as of December 6, 1994, by and between Property Trust of America, a Maryland real estate investment trust (the "Company"), and Security Capital Realty Incorporated, a Maryland corporation (the "Purchaser"). WHEREAS, the parties hereto have entered into a Supplemental Investment Agreement dated as of October 1, 1991 and a Second Supplemental Investment Agreement dated as of December 7, 1993; and WHEREAS, the Purchaser desires to purchase additional common shares of beneficial interest, $1.00 par value per share, of the Company (the "Shares") in the Company's proposed subscription offering; and WHEREAS, the Purchaser is willing to purchase such Shares upon the terms and conditions set forth herein; NOW, THEREFORE, in consideration of the foregoing and of the mutual representations, warranties and agreements contained herein, the parties hereto agree as follows: 1. Purchase of Shares. Subject to the terms and conditions set forth herein, the Purchaser agrees to subscribe for and purchase a minimum of $50 million of Shares in the Company's proposed subscription offering (the "Offering"), the closing of which will occur simultaneously with, and will be conditioned upon, the closing of the proposed merger of Security Capital Pacific Incorporated with and into the Company; provided, however, that the $50 million minimum purchase amount of the Purchaser shall be reduced by one dollar for each dollar of subscriptions that the Company receives from parties other than the Purchaser in the Offering. 2. Representations and Warranties of the Company. The Company hereby represents and warrants to the Purchaser as follows: (a) Due Organization and Qualification. The Company is a real estate investment trust duly organized, validly existing and in good standing under the laws of the State of Maryland, with full power to own its properties and to conduct its business as now conducted. The Company is duly qualified to do business, and is in good standing, in each jurisdiction where such qualification is required, except where the failure to so qualify will not have a material adverse effect on the Company and its subsidiaries taken as a whole. (b) Authorization. The Company has the requisite power to enter into this Agreement and to carry out its obligations hereunder. This Agreement has been duly authorized, executed and delivered by the Company and constitutes a valid and binding agreement of the Company enforceable in accordance with its terms, except to the extent that its enforceability may be limited by applicable bankruptcy, insolvency, reorganization or other laws affecting the enforcement of creditors' rights generally or by general equitable principles and except as the enforceability of rights to indemnification or contribution hereunder may be limited by applicable federal or state securities laws or rules. Neither the execution and delivery of this Agreement, the consummation of the transactions contemplated hereby, nor compliance with the terms, conditions or provisions of this Agreement will result in a violation or breach of any of the terms, conditions or provisions of the Company's Restated Declaration of Trust, as amended and supplemented (the "Declaration of Trust"), or bylaws or any material agreement or instrument to which the Company is a party or by which the Company or any of its properties is bound, or constitute a default or create a right of termination or acceleration thereunder, or result in the creation or imposition of any security interest, mortgage, lien, charge or encumbrance of any nature whatsoever upon the Company or any of its properties or assets, which in any such case would have a material adverse effect on the Company and its subsidiaries taken as a whole. (c) Issuance. The Shares, when sold and delivered by the Company to the Purchaser pursuant to this Agreement, will be duly authorized, validly issued and, when paid for, will be fully paid and, except as described in the prospectus supplement relating to the Offering, nonassessable. 3. Representations and Warranties of the Purchaser. The Purchaser hereby represents and warrants to the Company as follows: (a) Due Organization. The Purchaser is a corporation duly organized, validly existing and in good standing under the laws of the State of Maryland, with full power to own its properties and to conduct its business as now conducted. (b) Authorization. The Purchaser has the requisite power to enter into this Agreement and to carry out its obligations hereunder. This Agreement has been duly authorized, executed and delivered by the Purchaser and constitutes a valid and binding agreement of the Purchaser enforceable in accordance with its terms, except to the extent that its enforceability may be limited by applicable bankruptcy, insolvency, reorganization or other laws affecting the enforcement of creditors' rights generally or by general equitable principles and except as the enforceability of rights to indemnification or contribution hereunder may be limited by applicable federal or state securities laws or rules. Neither the execution and delivery of this Agreement, the consummation of the transactions contemplated hereby, nor compliance with the terms, conditions or provisions of this Agreement will result in a violation or breach of any of the terms, conditions or provisions of the Purchaser's charter or bylaws. 4. Conditions to the Obligations of the Company. The obligations of the Company under this Agreement are subject to the fulfillment of each of the following conditions: 2 (a) Representations and Warranties. The representations and warranties in this Agreement made by the Purchaser shall be true in all material respects on the date hereof. (b) Performance. The Purchaser shall have performed and complied in all material respects with all agreements required by this Agreement to be performed or complied with by the Purchaser. (c) Merger Closing. The merger of Security Capital Pacific Incorporated with and into the Company shall have occurred simultaneously with the closing of the Offering. 5. Conditions to the Obligations of the Purchaser. The obligations of the Purchaser under this Agreement are subject to the fulfillment of each of the following conditions: (a) Representations and Warranties. The representations and warranties in this Agreement made by the Company shall be true in all material respects on the date hereof. (b) Performance. The Company shall have performed and complied in all material respects with all agreements required by this Agreement to be performed or complied with by the Company. (c) Merger Closing. The merger of Security Capital Pacific Incorporated with and into the Company shall have occurred simultaneously with the closing of the Offering. (d) Offering. The Shares shall have been offered and sold in the Offering pursuant to an effective registration statement under the Securities Act of 1933, as amended (the "Securities Act") and a prospectus supplement specifically relating to the Offering. The Offering shall have complied in all material respects with the Securities Act and all applicable rules and regulations of the Securities and Exchange Commission (the "Commission") and all applicable state securities laws. (e) Listing on NYSE. The Shares to be sold to the Purchaser in the Offering shall have been approved for listing on the New York Stock Exchange, subject to official notice of issuance. (f) Material Adverse Change. There shall not have occurred since the date hereof any material adverse change in the business, properties or financial condition of the Company not caused by any action of the Purchaser or any of its affiliates (other than the Company). 6. Registration Rights. (a) Demand. If at any time after the second anniversary of the date of this Agreement, the Purchaser is unable to sell any of its Registrable Securities (as hereinafter 3 defined) pursuant to Rule 144 under the Securities Act for any reason (including the volume and holding period limitations) the Purchaser may request one registration of all or any part of its Registrable Securities pursuant to Rule 415 under the Securities Act by delivering written notice to the Company specifying the number of Registrable Securities that the Purchaser desires to sell and the Company shall use its reasonable efforts to effect the registration of such Registrable Securities under the Securities Act. (b) Registration Procedures. If and whenever the Company is required by any of the provisions of this Section 6 to use its reasonable efforts to effect the registration of any of the Registrable Securities under the Securities Act, the Company shall: (i) prepare and file with the Commission a registration statement with respect to such securities and use its reasonable efforts to cause such registration statement to become effective and remain effective for as long as shall be necessary to complete the distribution of at least 90% of the Registrable Securities so registered; (ii) prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective for so long as shall be necessary to complete the distribution of at least 90% of the Registrable Securities so registered and to comply with the provisions of the Securities Act with respect to the sale or other disposition of all securities covered by such registration statement whenever the Purchaser shall desire to sell or otherwise dispose of Registrable Securities within such period; (iii) furnish to the Purchaser such number of copies of such registration statement, each amendment and supplement thereto, the prospectus included in such registration statement, including any preliminary prospectus, and any amendment or supplement thereto, and such other documents, as the Purchaser may reasonably request in order to facilitate the sale or other disposition of the Registrable Securities owned by the Purchaser; (iv) use its reasonable efforts to register and qualify the securities covered by such registration statement under the securities laws of such jurisdictions as the Purchaser may reasonably request, and do any and all other acts and things reasonably requested by the Purchaser to assist the Purchaser to consummate the public sale or other disposition in such jurisdictions of the Registrable Securities owned by the Purchaser, except that the Company shall not for any such purpose be required to qualify to do business as a foreign corporation in any jurisdiction wherein it is not so qualified or to file therein any general consent to service of process; (v) otherwise use its reasonable efforts to comply with all applicable rules and regulations of the Commission, and make available to its security holders, as soon as reasonably practicable, an earning statement covering a period of at least twelve months, beginning with the first fiscal quarter beginning after the effective date of the registration 4 statement, which earning statement shall satisfy the provisions of Section 11(a) of the Securities Act; and (vi) notify the Purchaser, at any time when a prospectus is required to be delivered under the Securities Act, of the happening of any event of which it has knowledge as a result of which the prospectus included in such registration statement, as then in effect, contains an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing. (c) Company's Ability to Postpone. The Company shall have the right to postpone the filing of a registration statement under this Section 6 for a reasonable period of time (not exceeding 60 days) if the Company furnishes the Purchaser with a certificate signed by the Chairman of the Board or the President of the Company stating that, in its good faith judgment, the Company's Board of Trustees has determined that effecting the registration at such time would adversely affect a material financing, acquisition, disposition of assets or stock, merger or other comparable transaction or would require the Company to make public disclosure of information not otherwise required to be disclosed at such time, the public disclosure of which would have a material adverse effect upon the Company. (d) Expenses. (i) Except as set forth in Section 6(d)(ii), all expenses incurred in the registration of Registrable Securities under this Agreement shall be paid by the Purchaser. The expenses shall include, without limitation, the expenses of preparing the registration statement and the prospectus used in connection therewith and any amendment or supplement thereto, printing and photocopying expenses, fees and disbursements of the Purchaser's counsel, all registration and filing fees under federal and state securities laws, and expenses of complying with the securities laws of any jurisdictions. (ii) The Company shall pay the expenses of any audits to which the Company shall agree and that shall be necessary to comply with government requirements in connection with such registration. (e) Indemnification. In the event any Registrable Securities are included in a registration statement under this Section 6: (i) Indemnity by Company. Without limitation of any other indemnity provided to the Purchaser, to the extent permitted by law, the Company will indemnify and hold harmless the Purchaser and its officers and directors and each individual, partnership, corporation, trust or unincorporated organization (a "Person") if any, who controls the Purchaser (within the meaning of the Securities Act or the Securities Exchange Act of 1934, as amended (the "Exchange Act")), against any losses, claims, damages, liabilities and expenses (joint or 5 several) to which they may become subject under the Securities Act, the Exchange Act or any other federal or state law, insofar as such losses, claims, damages, liabilities and expenses (or actions in respect thereof) arise out of or are based upon any of the following statements, omissions or violations (collectively a "Violation"): (A) any untrue statement or alleged untrue statement of a material fact contained in any registration statement (including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto), (B) the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, or (C) any violation or alleged violation by the Company of the Securities Act, the Exchange Act, any state securities law or any rule or regulation promulgated under the Securities Act, the Exchange Act or any state securities law, and the Company will reimburse the Purchaser and its officers and directors and any controlling person thereof for any reasonable legal or other expenses incurred by them in connection with investigating or defending any such loss, claim, damage, liability, expense or action; provided, however, that the Company shall not be liable in any such case for any such loss, claim, damage, liability, expense or action to the extent that it arises out of or is based upon a Violation that occurs in reliance upon and in conformity with written information furnished expressly for use in connection with such registration by the Purchaser or any officer, director or controlling person thereof. (ii) Indemnity by the Purchaser. In connection with any registration statement in which the Purchaser is participating, the Purchaser will furnish to the Company in writing such information and affidavits as the Company reasonably requests for use in connection with any such registration statement or prospectus and, to the extent permitted by law, will indemnify the Company, its trustees and officers and each Person who controls the Company (within the meaning of the Securities Act or Exchange Act) against any losses, claims, damages, liabilities and expenses resulting from any Violation, but only to the extent that such Violation is contained in any information or affidavit so furnished in writing by the Purchaser; provided, that the obligation to indemnify will be several and not joint and several with any other Person and will be limited to the net amount received by the Purchaser from the sale of securities pursuant to such registration statement. (iii) Notice; Right to Defend. Promptly after receipt by an indemnified party under this Section 6(e) of notice of the commencement of any action (including any governmental action), such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 6(e), deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in, and, if the indemnifying party agrees in writing that it will be responsible for any costs, expenses, judgments, damages and losses incurred by the indemnified party with respect to such claim, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with counsel mutually satisfactory to the parties; provided, however, that an indemnified party shall have the right to retain its own counsel, with the fees and expenses to be paid by the indemnifying party, if the indemnified party reasonably believes that representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due 6 to actual or potential differing interests between such indemnified party and any other party represented by such counsel in such proceeding. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action shall relieve such indemnifying party of any liability to the indemnified party under this Section 6(e) only if and to the extent that such failure is prejudicial to its ability to defend such action, and the omission so to deliver written notice to the indemnifying party will not relieve it of any liability that it may have to any indemnified party other than under this Section 6(e). (iv) Contribution. If the indemnification provided for in this Section 6(e) is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any loss, liability, claim, damage or expense referred to herein, then the indemnifying party, in lieu of indemnifying such indemnified party hereunder, shall contribute to the amount paid or payable by such indemnified party as a result of such loss, liability, claim, damage or expense in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and of the indemnified party on the other hand in connection with the statements or omissions that resulted in such loss, liability, claim, damage or expense as well as any other relevant equitable considerations. The relevant fault of the indemnifying party and the indemnified party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the indemnifying party or by the indemnified party and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. Notwithstanding the foregoing, the amount the Purchaser shall be obligated to contribute pursuant to this Section 6(e)(iv) shall be limited to an amount equal to the proceeds to the Purchaser of the securities sold pursuant to the registration statement that gives rise to such obligation to contribute (less the aggregate amount of any damages that the Purchaser has otherwise been required to pay in respect of such loss, claim, damage, liability or action or any substantially similar loss, claim, damage, liability or action arising from the sale of such securities). (v) Survival of Indemnity. The indemnification provided by this Section 6(e) shall be a continuing right to indemnification and shall survive the registration and sale of any securities by any Person entitled to indemnification hereunder and the expiration or termination of this Agreement. (f) Limitations on Registration Rights. (i) The Company shall not, without the prior written consent of the Purchaser include in any registration in which the Purchaser has a right to participate pursuant to this Agreement any securities of any Person other than the Purchaser. (ii) The Purchaser shall not, without the prior written consent of the Company, effect any public sale or distribution (including sales pursuant to Rule 144 under the Securities Act) of securities of the Company during any period commencing 30 days prior to (or 7 such later date as the Purchaser is first notified or otherwise aware of the filing or proposed filing of a registration statement) and ending 60 days after the effective date of any registration statement filed by the Company on behalf of any Person (including the Company), other than a registration statement on Form S-8 or any successor form. (g) Registrable Security. The term Registrable Security means (i) any Shares issued to the Purchaser pursuant to the terms of this Agreement and (ii) any Shares or other securities that may subsequently be issued with respect to such Shares as a result of a stock split or dividend or any sale, transfer, assignment or other transaction by the Company involving the Shares and any securities into which the Shares may thereafter be changed as a result of merger, consolidation, recapitalization or otherwise. As to any particular Registrable Securities, such securities will cease to be Registrable Securities when they have been resold to the public pursuant to an offering registered under the Securities Act or sold to the public through a broker, dealer or market maker in compliance with Rule 144 under the Securities Act. (h) Assignment. The Purchaser may assign without the consent of the Company its rights under this Section 6 with respect to any Registrable Securities to any party to whom it pledges, assigns or hypothecates such Registrable Securities. 7. Rule 144. In order to permit the Purchaser to sell the Registrable Securities it holds, if it so desires, from time to time pursuant to Rule 144 under the Securities Act, or any successor to such rule, the Company shall keep available adequate current public information and file with the Commission in a timely manner all reports and other documents required of the Company under the Exchange Act. 8. Miscellaneous. (a) Survival of Representations, Warranties and Agreements. All representations, warranties and agreements contained herein shall survive the execution of this Agreement and shall remain in full force and effect following the consummation of the sale and purchase of the Shares. (b) Successors and Assigns. This Agreement shall be binding upon, and inure to the benefit of, the parties hereto and their respective heirs, personal representatives, successors, assigns and affiliates, but shall not be assignable by any party hereto without the prior written consent of the other party hereto, except as set forth in Section 6(h). (c) Notices. Any notice or other communication provided for herein or given hereunder to a party hereto shall be in writing and shall be given by delivery, by telex, telecopier or by mail (registered or certified mail, postage prepaid, return receipt requested) to the respective parties as follows: 8 If to the Company: Property Trust of America 7777 Market Center Avenue El Paso, Texas 79912 Attention: Paul E. Szurek Facsimile: (915) 877-3301 If to the Purchaser: Security Capital Realty Incorporated 7777 Market Center Avenue El Paso, Texas 79912 Attention: Paul E. Szurek Facsimile: (915) 877-3301 or to such other address with respect to a party as such party shall notify the other in writing. (d) Amendment. This Agreement may be amended only by a writing duly executed by both the Company and the Purchaser. (e) Severability. Insofar as is possible, each provision of this Agreement shall be interpreted so as to render it valid and enforceable under applicable law and severable from the remainder of this Agreement. A finding that any such provision is invalid or unenforceable in any jurisdiction shall not affect the validity or enforceability of any other provision or the validity or enforceability of such provision under the laws of any other jurisdiction. (f) Captions. The Section and Paragraph captions herein are for convenience of reference only, do not constitute part of this Agreement and shall not be deemed to limit or otherwise affect any of the provisions hereof. (g) Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which shall constitute one and the same instrument. (h) Governing Law. This Agreement shall be governed by, and construed and enforced in accordance with, the internal laws of the State of Maryland. (i) Limitation of Liability. Under the terms of the Declaration of Trust, all persons dealing with the Company shall look solely to the Company property for satisfaction of claims of any nature, and no trustee, officer, agent or shareholder of the Company shall be held liable to any person in tort, contract or otherwise as a result of the execution and delivery of this Agreement by the Company. 9 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and delivered as of the day and year first above written. PROPERTY TRUST OF AMERICA By: /s/ Paul E. Szurek -------------------------- Name: Paul E. Szurek ------------------------ Title: Secretary ---------------------- SECURITY CAPITAL REALTY INCORPORATED By: /s/ Anthony R. Manno -------------------------- Name: Anthony R. Manno ------------------------ Title: Managing Director ----------------------- 10 EX-10.8 5 LETTER EXHIBIT 10.8 November 1, 1993 Mr. Paul E. Szurek Secretary Property Trust of America 1790 Commerce Park Drive El Paso, Texas 79912 Re: AMENDMENT TO MANAGEMENT AGREEMENT Dear Paul: This letter shall serve as an Amendment to the original property management agreement dated September 1, 1991 between Property Trust of America ("PTR") and WilsonSchanzer, Inc. and each subsequent Annexation letter. It is understood and agreed that effective October 1, 1993, PTR agrees to pay WilsonSchanzer, Inc. the following property management fees with respect to each property owned by PTR and managed by WilsonSchanzer, Inc.: 1. MANAGEMENT FEE: A fee of 4% of the monthly gross collections. 2. MODERNIZATION, REHAB OR CONSTRUCTION - WHETHER PLANNED OR DUE TO NATURAL DISASTER: Fees to be negotiated on a project-by-project basis. 3. DIRECT COSTS AND OTHER CHARGES: Reimbursement to WilsonSchanzer, Inc. of the actual costs approved pursuant to the November 16, 1993 Memorandum of Chris Harris, which is attached hereto and incorporated herein by reference, under the column titled "New Agreement." 4. COURTROOM TESTIMONY AND PLANS: A range of $30 to $150 per hour for preparation, depositions, and court time. THE FOLLOWING COSTS AND CHARGES IN THE ORIGINAL AGREEMENT ARE HEREBY ELIMINATED: CORPORATE CHARGES, THE DIRECT COSTS OF OVERNIGHT MAIL, COURIER SERVICES, LONG DISTANCE AND FACSIMILE, AND TRAINING COSTS. Yours truly, AGREED TO: WilsonSchanzer, Inc. /s/ C. Christopher Harris /s/ Paul E. Szurek _______________________________ _______________________________ C. Christopher Harris Paul E. Szurek, Secretary Chief Financial Officer Property Trust of America 11-01-93 Date:_______________________ EX-10.9 6 LETTER EXHIBIT 10.9 October 1, 1994 Mr. Paul E. Szurek Secretary Property Trust of America 7777 Market Center Avenue El Paso, Texas 79912 Re: AMENDMENT TO MANAGEMENT AGREEMENT Dear Paul: This letter shall serve as an Amendment to the original property management agreement dated September 1, 1991 between Property Trust of America ("PTR") and SCG Realty Services Incorporated (formerly known as WilsonSchanzer, Inc.) ("SCG Realty Services"), each subsequent Annexation letter, and the Amendment to the Management Agreement dated November 1, 1993. It is understood and agreed that effective October 1, 1994, PTR agrees to pay SCG Realty Services the following property management fees with respect to each property owned by PTR and managed by SCG Realty Services: 1. MANAGEMENT FEE: A fee of 4% of the monthly gross collections except for properties of 350 units or larger where the fee will be set at 3.75%. 2. MODERNIZATION, REHAB OR CONSTRUCTION - WHETHER PLANNED OR DUE TO NATURAL DISASTER: Fees to be negotiated on a project-by-project basis. 3. DIRECT COSTS AND OTHER CHARGES: Reimbursement to SCG Realty Services of the actual costs approved. 4. COURTROOM TESTIMONY AND PLANS: A range of $30 to $150 per hour for preparation, depositions, and court time. THE FOLLOWING COSTS AND CHARGES IN THE ORIGINAL AGREEMENT ARE HEREBY ELIMINATED: ALL CORPORATE CHARGES AND TRAINING COSTS PLUS THE DIRECT COSTS OF OVERNIGHT MAIL, COURIER SERVICES, LONG DISTANCE AND FACSIMILE COSTS TO THE EXTENT ORIGINATING OFFSITE OR AT THE CORPORATE LEVEL. Yours truly, AGREED TO: SCG Realty Services Incorporated /s/ Patrick R. Whelan /s/ Paul E. Szurek _______________________________ Paul E. Szurek, Secretary Patrick R. Whelan Property Trust of America President 10-1-94 Date:_______________________ EX-10.10 7 CREDIT AGREEMENT EXHIBIT 10.10 AMENDED AND RESTATED CREDIT AGREEMENT ------------------------------------- THIS AMENDED AND RESTATED CREDIT AGREEMENT (the "Agreement") is made and entered into as of March 23, 1995, by and among SECURITY CAPITAL PACIFIC TRUST, a Maryland real estate investment trust, formerly known as PROPERTY TRUST OF AMERICA (the "Borrower"), the financial institutions (including TCB and Wells Fargo Realty Advisors Funding, Incorporated, the "Lenders") which are now or may hereafter become signatory hereto, TEXAS COMMERCE BANK NATIONAL ASSOCIATION, a national banking association ("TCB"), as administrative agent for Lenders (in such capacity, "Agent"), and WELLS FARGO REALTY ADVISORS FUNDING, INCORPORATED, as co-agent for Lenders (in such capacity, "Co-Agent"). W I T N E S S E T H: - - - - - - - - - - WHEREAS, the Borrower, the Agent and some of the Lenders (the "Existing Lenders") entered into an Amended and Restated Credit Agreement dated as of October 27, 1994 (the "Original Credit Agreement"); and WHEREAS, the Borrower, the Agent, the Co-Agent, and the Lenders desire to amend and restate the Original Credit Agreement upon the terms and conditions hereinafter set forth; NOW, THEREFORE in consideration of the mutual covenants, agreements and undertakings herein contained, the parties hereto agree as follows: 1. Definitions. ----------- Unless a particular word or phrase is otherwise defined or the context otherwise requires, capitalized words and phrases used in Credit Documents have the meanings provided below. Accounts, Equipment and Inventory shall have the respective meanings assigned to them in the Texas Business and Commerce Code in force on the date the document using such term was executed. Adjusted Eurodollar Interbank Rate shall mean, with respect to each Interest Period applicable to a Eurodollar Rate Borrowing, a rate per annum equal to the quotient, expressed as a percentage, of (a) the Eurodollar Interbank Rate with respect to such Interest Period divided by (b) 1.0000 minus the Eurodollar Reserve Requirement in effect on each day during such Interest Period. Affiliate shall mean any Person controlling, controlled by or under common control with any other Person. For purposes of this definition, "control" (including "controlled by" and "under common control with") means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities or otherwise. Annual Audited Financial Statements shall mean the annual financial statements of a Person, including all notes thereto, which statements shall include a balance sheet as of the end of such fiscal year and an income statement and a statement of cash flows, all setting forth in comparative form the corresponding figures from the previous fiscal year, all prepared in conformity with Generally Accepted Accounting Principles and accompanied by a report and opinion of independent certified public accountants satisfactory to the Agent, which shall state that such financial statements, in the opinion of such accountants, present fairly the financial position of such Person as of the date thereof and the results of its operations for the period covered thereby in conformity with Generally Accepted Accounting Principles. Such statements shall be accompanied by a certificate of such accountants that in making the appropriate audit and/or investigation in connection with such report and opinion, such accountants did not become aware of any Default or, if in the opinion of such accountant any such Default exists, a description of the nature and status thereof. The Annual Audited Financial Statements shall be prepared on a consolidated basis in accordance with Generally Accepted Accounting Principles. Applicable Margin shall mean 1.75% for Eurodollar Rate Borrowings and zero for Base Rate Borrowings through and including March 31, 1995, and thereafter the following percentage which will be in effect when and for so long as the Borrower has received the corresponding S&P Rating or Moody's Rating, whichever is lower:
S&P RATING/ APPLICABLE MARGIN ----------- ---------------------------- MOODY'S RATING EURODOLLAR RATE RATE BASE -------------- --------------- --------- BORROWING BORROWING --------------- --------- A/A2 or better 1.250% 0 A-/A3 1.375% 0 BBB+/Baa1 1.500% 0 BBB/Baa2 1.625% 0 BBB-/Baa3 1.750% 0 Worse than BBB-/Baa3 2.000% .50%
Base Rate shall mean for any day a rate per annum equal to the Applicable Margin on that day plus the greater on a daily basis of (a) the Prime Rate for that day, or (b) the Federal Funds Effective Rate for that day plus one-half of one percent (1/2%). Base Rate Borrowing shall mean that portion of the principal balance of the Loans at any time bearing interest at the Base Rate. Borrower's REIT Manager shall mean Security Capital (Southwest) Incorporated, manager to the Borrower, or any successor manager to the Borrower permitted by this Agreement. Business Day shall mean a day other than (a) a day when the main office of the Agent is not open for business, or (b) a day that is a federal banking holiday in the United States of America. Ceiling Rate shall mean, on any day, the maximum nonusurious rate of interest permitted for that day by whichever of applicable federal or Texas laws permits the higher interest rate, stated as a rate per annum. On each day, if any, that Chapter One establishes the Ceiling Rate, the Ceiling Rate shall be the "indicated rate ceiling" (as defined in Chapter One) for that day. The Agent may from time to time, as to current and future balances, implement any other ceiling under Chapter One by notice to the Borrower, if and to the extent permitted by Chapter One. Without notice to the Borrower or any other person or entity, the Ceiling Rate shall automatically fluctuate upward and downward as and in the amount by which such maximum nonusurious rate of interest permitted by applicable law fluctuates. -2- Chapter One shall mean Chapter One of Title 79, Texas Revised Civil Statutes, 1925, as amended. Code shall mean the Internal Revenue Code of 1986, as amended, as now or hereafter in effect, together with all regulations, rulings and interpretations thereof or thereunder by the Internal Revenue Service. Commitment shall mean the commitment of the Lenders to lend funds under Section 2.1 of this Agreement, other than Swing Loans. Construction Interest shall mean Borrower's interest expense for the construction of projects, which is capitalized in accordance with Generally Accepted Accounting Principles. Coverage Ratio shall mean the ratio of (a) the Borrower's Funds From Operations plus all of the Borrower's Interest Expense for the period used to calculate Funds From Operations, to (b) dividends of any kind or character or other proceeds paid or payable with respect to any Disqualified Stock plus all of the Borrower's Interest Expense, in each case for the period used to calculate the Funds From Operations. Credit Documents shall mean this Agreement, the Notes, all instruments, certificates and agreements now or hereafter executed or delivered to the Agent or the Lenders pursuant to any of the foregoing, and all amendments, modifications, renewals, extensions, increases and rearrangements of, and substitutions for, any of the foregoing. Debt to Tangible Net Worth Ratio shall mean the ratio of Indebtedness to Tangible Net Worth. Disqualified Stock shall mean any of the Borrower's capital stock which by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable or exercisable) (a) matures or is subject to mandatory redemption, pursuant to a sinking fund obligation or otherwise, (b) is convertible into or exchangeable or exercisable for Indebtedness or Disqualified Stock, (c) is redeemable at the option of the holder of such stock, or (d) otherwise requires any payments by Borrower, in each case on or before the Maturity Date. Eurodollar Business Day shall mean a Business Day on which transactions in United States dollar deposits between banks may be carried on in the London Eurodollar interbank market. Eurodollar Interbank Rate shall mean, for each Interest Period, the rate of interest per annum, rounded, if necessary, to the next highest whole multiple of one-sixteenth percent (1/16%), quoted by Agent at or before 11:00 a.m., London time (or as soon thereafter as practicable), on the date two (2) Eurodollar Business Days before the first day of such Interest Period, to be the arithmetic average of the prevailing rates per annum at the time of determination and in accordance with the then existing practice in the applicable market, for the offering to Agent by one or more prime banks selected by Agent in its sole discretion, in whatever Eurodollar interbank market may be selected by Agent in its sole discretion, of deposits in United States dollars for delivery on the first day of such Interest Period and having a maturity equal to the length of such Interest Period and in an amount equal (or as nearly equal as may be) to the Eurodollar Rate Borrowing to which such Interest Period relates. Each -3- determination by Agent of the Eurodollar Interbank Rate shall be prima facie evidence thereof. Eurodollar Rate shall mean for any day a rate per annum equal to the sum of the Applicable Margin for that day plus the Adjusted Eurodollar Interbank Rate in effect on the first day of the Interest Period for the applicable Eurodollar Rate Borrowing. Each Eurodollar Rate is subject to adjustments for reserves, insurance assessments and other matters as provided for in Section 3.5 hereof. Eurodollar Rate Borrowing shall mean that portion of the principal balance of the Loans at any time bearing interest at a Eurodollar Rate. Eurodollar Reserve Requirement shall mean, on any day, that percentage (expressed as a decimal fraction and rounded, if necessary, to the next highest one ten thousandth) which is in effect on such day for determining all reserve requirements (including, without limitation, basic, supplemental, marginal and emergency reserves) applicable to "Eurocurrency liabilities," as currently defined in Regulation D, all as specified by any Governmental Authority, including but not limited to those imposed under Regulation D. Each determination of the Eurodollar Reserve Requirement by Agent shall be prima facie evidence thereof. Event of Default shall mean any of the events specified as an event of default in Section 7 of this Agreement, and Default shall mean any of such events, whether or not any requirement for notice, grace or cure has been satisfied. Federal Funds Effective Rate shall to the extent necessary be determined by the Agent separately for each day and shall for each such day be a rate per annum equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published for each such day (or if any such day is not a Business Day, for the next immediately preceding Business Day) by the Federal Reserve Bank of New York, or if the weighted average of such rates is not so published for any such day which is a Business Day, the average of the quotations for any such day on such transactions received by the Agent from three Federal funds brokers of recognized standing selected by the Agent. Fixed Charge Coverage Ratio shall mean the ratio of (a) the Borrower's Funds From Operations plus all of the Borrower's Interest Expense for the period used to calculate Funds From Operations, less Unit Capital Expenditures, to (b) dividends of any kind or character or other proceeds paid or payable with respect to any Disqualified Stock, plus all of the principal payable and principal paid on the Borrower's Indebtedness other than (i) in the case of the Borrower, any scheduled principal payments on the Term Loan and (ii) any regularly scheduled principal payments on any Indebtedness which pays such Indebtedness in full, to the extent the amount of such final scheduled principal payment is greater than the scheduled principal payment immediately preceding such final scheduled principal payment, plus all of the Borrower's Interest Expense, in each case for the period used to calculate the Funds From Operations. Funding Loss shall mean, with respect to (a) Borrower's payment or prepayment of principal of a Eurodollar Rate Borrowing -4- on a day other than the last day of the applicable Interest Period; (b) Borrower's failure to borrow a Eurodollar Rate Borrowing on the date specified by Borrower; (c) Borrower's failure to make any prepayment of the Loans (other than Base Rate Borrowings) on the date specified by Borrower, or (d) any cessation of a Eurodollar Rate to apply to the Loans or any part thereof pursuant to Section 3.5, in each case whether voluntary or involuntary, any direct loss, expense, penalty, premium or liability incurred by any Lender (including but not limited to any loss or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by a Lender to fund or maintain a Loan). Funds From Operations shall mean gross cash revenues (excluding unforfeited security deposits) actually received by the Borrower, less all cash disbursements characterized as expenses and all proper charges against income, plus depreciation of Property and deferred taxes, reserves and other non-cash charges, all determined in accordance with Generally Accepted Accounting Principles; provided, that there shall not be included in such revenues (i) any proceeds of any insurance policy other than rental or business interruption insurance received by the Borrower, (ii) any gain which is classified as "extraordinary" in accordance with Generally Accepted Accounting Principles, or (iii) any capital gains. Funds From Operations will be calculated, on an annualized basis, on the four (4) calendar quarters immediately preceding the date of the calculation. Funds From Operations shall not be increased or decreased by gains or losses from sales of Property. Funds From Operations shall be calculated on a consolidated basis in accordance with Generally Accepted Accounting Principles. Generally Accepted Accounting Principles shall mean, as to a particular Person, such accounting practice as, in the opinion of the independent accountants of recognized national standing regularly retained by such Person and acceptable to the Agent, conforms at the time to generally accepted accounting principles, consistently applied. Generally Accepted Accounting Principles means those principles and practices (a) which are recognized as such by the Financial Accounting Standards Board, (b) which are applied for all periods after the date hereof in a manner consistent with the manner in which such principles and practices were applied to the most recent audited financial statements of the relevant Person furnished to the Lenders or where a change therein has been concurred in by such Person's independent auditors, and (c) which are consistently applied for all periods after the date hereof so as to reflect properly the financial condition, and results of operations and changes in financial position, of such Person. If there is a change in such accounting practice as to the Borrower that could affect the Borrower's ability to comply with the terms of this Agreement, the parties hereto agree to review and discuss such changes in accounting practice and the terms of this Agreement for a period of no more than thirty (30) days with a view to amending this Agreement so that the financial measures of the Borrower's operating performance and financial condition are substantially the same after such change as they were immediately before such change. Governmental Authority shall mean any foreign governmental authority, the United States of America, any State of the United States and any political subdivision of any of the foregoing, and any agency, department, commission, board, bureau, court or other -5- tribunal having jurisdiction over the Agent, any Lender or the Borrower or their respective Property. Historical Value shall mean the purchase price of Property (including improvements) and ordinary related purchase transaction costs, plus the cost of subsequent capital improvements made by the Borrower, less any provision for losses, all determined in accordance with Generally Accepted Accounting Principles. If the Property is purchased as a part of a group of properties, the Historical Value shall be calculated based upon a reasonable allocation of the aggregate purchase price by the Borrower for all purposes, and consistent with Generally Accepted Accounting Principles. Indebtedness shall mean and include, without duplication (1) all obligations for borrowed money, (2) all obligations evidenced by bonds, debentures, notes or other similar agreements, (3) all obligations to pay the deferred purchase price of Property or services, except trade accounts payable arising in the ordinary course of business (unless included in (7) below), (4) all guaranties, endorsements and other contingent obligations in respect of, or any obligations to purchase or otherwise acquire, Indebtedness of others, (5) all Indebtedness secured by any Lien existing on any interest of the Person with respect to which Indebtedness is being determined in Property owned subject to such Lien whether or not the Indebtedness secured thereby shall have been assumed, (6) the pro rata share of all Indebtedness of an Unconsolidated Affiliates, and (7) accounts payable, dividends of any kind or character or other proceeds payable with respect to any stock and accrued expenses which in the aggregate are in excess of four percent (4%) of the value of the assets of the Borrower, in each case including Non-recourse Debt. Indebtedness shall be calculated on a consolidated basis in accordance with Generally Accepted Accounting Principles including, to the extent required by the foregoing definition, any of its Unconsolidated Affiliates. Interest Expense shall mean all of a Person's paid, accrued or capitalized interest expense on such Person's Indebtedness (whether direct, indirect or contingent, and including, without limitation, interest on all convertible debt), but excluding Construction Interest. Interest Options shall mean the Base Rate and the Eurodollar Rate, and "Interest Option" means either of them. Interest Payment Dates shall mean (a) for Base Rate Borrowings, the first (1st) day of each calendar month and the Maturity Date; and (b) for Eurodollar Rate Borrowings, the first (1st) day of each calendar month, the end of the applicable Interest Period, and the Maturity Date. Interest Period shall mean, for each Eurodollar Rate Borrowing, a period commencing on the date such Eurodollar Rate Borrowing was made and ending on the numerically corresponding day which is, subject to availability, one (1), two (2), three (3) or six (6) months thereafter; provided, (v) any Interest Period which would otherwise end on a day which is not a Eurodollar Business Day shall be extended to the next succeeding Eurodollar Business Day, unless such Eurodollar Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Eurodollar Business Day; (w) any Interest Period which begins on the last Eurodollar Business Day of a calendar month (or on a day for which there is -6- no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Eurodollar Business Day of the appropriate calendar month; (x) no Interest Period shall ever extend beyond the Maturity Date; and (y) Interest Periods shall be selected by Borrower in such a manner that the Interest Period with respect to any portion of the Loans which shall become due shall not extend beyond such due date. Legal Requirement shall mean any law, statute, ordinance, decree, requirement, order, judgment, rule, regulation (or interpretation of any of the foregoing) of, and the terms of any license or permit issued by, any Governmental Authority. Lender Commitment means, for any Lender, the amount set forth opposite such Lender's name on its signature page of this Agreement, or as may hereafter become a signatory hereto. Lien shall mean any mortgage, pledge, charge, encumbrance, security interest, collateral assignment or other lien or restriction of any kind, whether based on common law, constitutional provision, statute or contract, and shall include reservations, exceptions, encroachments, easements, rights of way, covenants, conditions, restrictions, leases and other title exceptions. Loans shall mean the Loans described in Sections 2.1 and 2.2 hereof. Loan shall mean any such Loan. Majority Lenders shall mean the Lenders with an aggregate amount of at least sixty-six and 67/100 percent (66.67%) of the amount of the Commitment then outstanding. Material Adverse Change shall mean a change which could reasonably be expected to have a Material Adverse Effect. Material Adverse Effect means a material adverse effect on (a) the financial condition, or results of operations of Borrower and its Subsidiaries taken as a whole, (b) the ability of Borrower to perform its obligations under any Credit Document to which it is a party, (c) the validity or enforceability of any of such Credit Documents, or (d) the rights and remedies of Lenders and Agent under any of the Credit Documents. Maturity Date shall mean (a) the Revolving Credit Termination Date prior to any conversion of the Loans to the Term Loan, and (b) the Termination Date as to the Term Loan. Moody's Rating shall mean the senior unsecured debt rating from time to time received by the Borrower from Moody's Investor Service. Non-recourse Debt shall mean any Indebtedness the payment of which the Borrower or any of its Subsidiaries is not obligated to make other than to the extent of any security therefor. Notes shall mean the promissory notes of the Borrower described in Section 2.1 hereof, including the Swing Loan Note, any and all renewals, extensions, modifications, rearrangements and replacements thereof and any and all substitutions therefor, and Note shall mean any one of them. Obligations shall mean, as at any date of determination thereof, the sum of (a) the aggregate amount of Loans outstanding -7- hereunder plus (b) all other liabilities, obligations and Indebtedness of any Parties under any Credit Document. Officer's Certificate shall mean a certificate in the form attached hereto as Exhibit A. Organizational Documents shall mean, with respect to a corporation, the certificate of incorporation, articles of incorporation and bylaws of such corporation; with respect to a partnership, the partnership agreement establishing such partnership; with respect to a joint venture, the joint venture agreement establishing such joint venture, and with respect to a trust, the instrument establishing such trust; in each case including any and all modifications thereof as of the date of the Credit Document referring to such Organizational Document and any and all future modifications thereof which are consented to by the Lenders. Opinion Letters shall mean the opinion letters of independent counsel for the Borrower, each in Proper Form. Parties shall mean all Persons other than the Agent, the Co-Agent or any Lender executing any Credit Document. Past Due Rate shall mean, on any day, a rate per annum equal to the Ceiling Rate for that day, or only if applicable law imposes no maximum nonusurious rate of interest for that day, then the Past Due Rate for that day shall be a rate per annum equal to the Base Rate plus an additional three percent (3%) per annum, but in any event not to exceed the Ceiling Rate. Percentage shall mean the amount, expressed as a percentage, of each Lender Commitment as compared to the Commitment, set forth opposite the Lender's name on its signature page of this Agreement, or as may hereafter become signatory hereto. Permitted Encumbrances shall mean (a) encumbrances consisting of zoning restrictions, easements, or other restrictions on the use of real property, provided that such items do not materially impair the use of such property for the purposes intended and none of which is violated in any material respect by existing or proposed structures or land use; (b) the following: (i) Liens for taxes not yet due and payable, or being diligently contested in good faith, or where no Material Adverse Effect could reasonably be expected to result from such nonpayment or the imposition of such Lien; or (ii) materialmen's, mechanic's, warehousemen's and other like Liens arising in the ordinary course of business, securing payment of Indebtedness whose payment is not yet due, or that are being contested in good faith by appropriate proceedings diligently conducted, and for or against which the Borrower has established adequate reserves in accordance with Generally Accepted Accounting Principles; (c) Liens for taxes, assessments and governmental charges or assessments that are being contested in good faith by appropriate proceedings diligently conducted, and for or against which the Borrower has established adequate reserves in accordance with Generally Accepted Accounting Principles; (d) Liens on real property which are insured around or against by title insurance; (e) Liens securing assessments or charges payable to a property owner association or similar entity which assessments are not yet due and payable or are being diligently contested in good faith; and (f) Liens securing this Agreement and Indebtedness hereunder. -8- Person shall mean any individual, corporation, trust, unincorporated organization, Governmental Authority or any other form of entity. Prime Rate shall mean, as of a particular date, the prime rate of interest per annum most recently determined by the Agent and thereafter entered in the minutes of the Agent's Loan and Discount Committee, automatically fluctuating upward or downward with and at the time specified in each such determination without notice to Borrower or any other Person; each change in the Prime Rate shall be effective on the date such change is determined; which Prime Rate may not necessarily represent the Agent's lowest or best rate actually charged to a customer. Proper Form shall mean in form and substance satisfactory to the Lenders. Property shall mean any interest in any kind of property or asset, whether real, personal or mixed, tangible or intangible. Quarterly Unaudited Financial Statements shall mean the quarterly financial statements of a Person, including all notes thereto, which statements shall include a balance sheet as of the end of such quarter and an income statement for such fiscal quarter, and for the fiscal year to date, a statement of cash flows for such quarter and for the fiscal year to date, subject to normal year- end adjustments, and a detailed listing of the Borrower's Property and the Historical Value thereof, all setting forth in comparative form the corresponding figures for the corresponding fiscal period of the preceding year (or, in the case of the balance sheet, the end of the preceding fiscal year), prepared in accordance with Generally Accepted Accounting Principles except that the Quarterly Unaudited Financial Statements may contain condensed footnotes as permitted by regulations of the United States Securities and Exchange Commission, and certified as true and correct by a managing director or vice president of Borrower's REIT Manager. The Quarterly Unaudited Financial Statements shall be prepared on a consolidated basis in accordance with Generally Accepted Accounting Principles. Rate Designation Date shall mean 10:00 a.m., Houston, Texas time, on the date three (3) Eurodollar Business Days preceding the first day of any proposed Interest Period. Rate Designation Notice shall mean a written notice substantially in the form of Exhibit B. Regulation D shall mean Regulation D of the Board of Governors of the Federal Reserve System from time to time in effect and shall include any successor or other regulation relating to reserve requirements applicable to member lenders of the Federal Reserve System. Revolving Credit Termination Date shall mean the earlier to occur of (a) August 13, 1996 as the same may hereafter be accelerated pursuant to the provisions of any of the Credit Documents, and (b) the date on which the Loans are converted into the Term Loan pursuant to Section 2.2 hereof. S&P Rating shall mean the senior unsecured debt rating from time to time received by the Borrower from Standard & Poor's Corporation. -9- Stated Rate shall, on any day, mean whichever of the Base Rate or the Eurodollar Rate has been designated and provided pursuant to this Agreement; provided, that if on any day such rate shall exceed the Ceiling Rate for that day, the Stated Rate shall be fixed at the Ceiling Rate on that day and on each day thereafter until the total amount of interest accrued at the Stated Rate on the unpaid principal balance of the Notes equals the total amount of interest which would have accrued if there had been no Ceiling Rate. If the Notes mature (or are prepaid) before such equality is achieved, then, in addition to the unpaid principal and accrued interest then owing pursuant to the other provisions of the Credit Documents, Borrower promises to pay on demand to the order of the holders of the Notes interest in an amount equal to the excess (if any) of (a) the lesser of (i) the total interest which would have accrued on the Notes if the Stated Rate had been defined as equal to the Ceiling Rate from time to time in effect and (ii) the total interest which would have accrued on the Notes if the Stated Rate were not so prohibited from exceeding the Ceiling Rate, over (b) the total interest actually accrued on the Notes to such maturity (or prepayment) date. Subsidiary shall mean, as to a particular parent entity, any entity of which more than fifty percent (50%) of the indicia of voting equity or ownership rights (whether outstanding capital stock or otherwise) is at the time directly or indirectly owned by, such parent entity, or by one or more of its other Subsidiaries. Swing Loan shall mean a Loan made pursuant to Section 2.1(c) hereof. Swing Loan Note shall mean that certain promissory note dated of even date herewith in the original principal amount of $200,000,000.00 executed by the Borrower payable to the order of TCB. Tangible Net Worth shall mean total assets (valued at cost less depreciation), less (1) all intangibles and (2) all liabilities (including contingent and indirect liabilities), all determined in accordance with Generally Accepted Accounting Principles. The term "intangibles" shall include, without limitation, (i) deferred charges, (ii) the amount of any write-up in the book value of any assets contained in any balance sheet resulting from revaluation thereof or any write-up in excess of the cost of such assets acquired, and (iii) the aggregate of all amounts appearing on the assets side of any such balance sheet for franchises, licenses, permits, patents, patent applications, copyrights, trademarks, trade names, goodwill, treasury stock, experimental or organizational expenses and other like intangibles. The term "liabilities" shall include, without limitation, (i) Indebtedness secured by Liens on Property of the Person with respect to which Tangible Net Worth is being computed whether or not such Person is liable for the payment thereof, (ii) deferred liabilities, and (iii) obligations under leases which have been capitalized. Tangible Net Worth shall be calculated on a consolidated basis in accordance with Generally Accepted Accounting Principles. Taxes means any tax, levy, impost, duty, charge or fee. Term Loan has the meaning given it in Section 2.2 hereof. -10- Termination Date means the date two (2) years after the Revolving Credit Termination Date, as the same may hereafter be accelerated pursuant to the provisions of any of the Credit Documents. Unconsolidated Affiliate shall mean, in respect of any Person, any other Person in whom such Person holds a voting equity or ownership interest and whose financial results would not be consolidated under Generally Accepted Accounting Principles with the financial results of such Person on the consolidated financial statements of such Person. Unit Capital Expenditure shall mean, on an annual basis, an amount equal to the product of (a) the number of apartment units contained in each completed, operating Property owned by Borrower, any Subsidiary, and any Unconsolidated Affiliate, pro rated with respect to Unconsolidated Affiliates to reflect Borrower's interest in such Unconsolidated Affiliate, multiplied by (b) $200.00 prorated to reflect the period of completion, operation and ownership of the Property by Borrower, the Subsidiary or the Unconsolidated Affiliate. The following terms shall have the respective meanings ascribed to them in the Uniform Commercial Code as enacted and in force in the State of Texas on the date hereof: accessions, continuation statement, fixtures, general intangibles, proceeds, security interest and security agreement. 2. The Loans. --------- 2.1 Advances. (a) Subject to the terms and conditions of this Agreement, each Lender severally agrees to make Loans (other than Swing Loans) prior to the Revolving Credit Termination Date to the Borrower not to exceed an amount (in the aggregate, the "Commitment") at any one time outstanding equal to the Lender's Lender Commitment. Each such request for a Loan by Borrower shall be deemed a request for a Loan from each Lender equal to such Lender's Percentage of the aggregate amount so requested, and such aggregate amount shall be in an amount equal to a multiple of $250,000.00 or the difference between the Commitment and the aggregate principal balance of the Notes, whichever is less. Each repayment of the Loans shall be deemed a repayment of each Lender's Loan equal to such Lender's Percentage of the amount so repaid. The obligations of the Lenders hereunder are several and not joint, and the preceding two sentences will give rise to certain inappropriate results if special provisions are not made to accommodate the failure of a Lender to fund a Loan as and when required by this Agreement; therefore, notwithstanding anything herein to the contrary, (A) no Lender shall be required to make Loans at any one time outstanding in excess of such Lender's Percentage of the Commitment and (B) if a Lender fails to make a Loan as and when required hereunder and Borrower subsequently makes a repayment on the Loans, such repayment shall be split among the non-defaulting Lenders ratably in accordance with their respective Percentages until each Lender has its Percentage of all of the outstanding Loans, and the balance of such repayment shall be divided among all of the Lenders in accordance with their respective Percentages. Notwithstanding the foregoing, borrowings and payments of Swing Loans shall be for TCB's own account. The Loans (other than Swing Loans) shall be evidenced by the Notes substantially in the form of Exhibit C attached hereto. The Borrower, the Agent and the Lenders agree -11- that Chapter 15 of the Texas Credit Code shall not apply to this Agreement, the Notes or any Loan. (b) The Borrower shall give the Agent notice of each borrowing to be made hereunder as provided in Section 3.1 hereof, and the Agent shall deliver same to each Lender promptly thereafter. Not later than 11:00 a.m., Houston, Texas time, on the date specified for each such borrowing hereunder other than Swing Loans, each Lender shall make available the amount of the Loan, if any, to be made by it on such date to the Agent at the Agent's principal office in Houston, Texas, in immediately available funds, for the account of the Borrower. Such amounts received by the Agent will be held in Agent's general ledger account. The amounts so received by the Agent shall, subject to the terms and conditions of this Agreement, be made available to the Borrower by wiring or otherwise transferring, in immediately available funds not later than 12:00 noon, Houston, Texas time, such amount to an account designated by the Borrower and maintained with Texas Commerce Bank National Association in El Paso, Texas or any other account or accounts which the Borrower may from time to time designate to the Agent by a written notice as the account or accounts to which borrowings hereunder are to be wired or otherwise transferred. TCB shall make available the amount of each Swing Loan by depositing the same in immediately available funds, in the foregoing account by 12:00 noon, Houston, Texas time, on the date of the borrowing. (c) Subject to the terms and conditions hereof, if necessary to meet the Borrower's funding deadlines, TCB agrees to make Swing Loans to the Borrower at any time on or prior to the Revolving Credit Termination Date, not to exceed an amount at any one time outstanding equal to the lesser of (i) $200,000,000.00, or (ii) the difference between the Commitment and the unpaid principal balance of all Loans. Swing Loans shall constitute "Loans" for all purposes hereunder, except that Swing Loans shall not be considered a utilization of any Lender's Lender Commitment. Notwithstanding the foregoing, the aggregate amount of all Loans (including, without limitation, all Swing Loans) shall not at any time exceed the Commitment. Each request for a Swing Loan shall be in an amount equal to a multiple of $250,000.00. If necessary to meet the Borrower's funding deadlines, the Agent may treat any Request for Loan as a request for a Swing Loan from TCB and TCB may fund it as a Swing Loan. Within two (2) Business Days after each Swing Loan is funded, TCB shall request that each Lender, and each Lender shall, on the first Business Day after such request is made, purchase a portion of any one or more Swing Loans in an amount equal to that Lender's Percentage of such Swing Loans by funding under such Lender's Note, such purchase to be made in accordance with the terms of Section 2.1(b) of this Agreement just as if the Lender were funding directly to the Borrower under its Note (such that all Lenders other than TCB shall fund only under their respective Note and not under the Swing Loan Note). Unless the Agent knew or should have known when TCB funded a Swing Loan that the Borrower had not satisfied the conditions in this Agreement to obtain a Loan, each Lender's obligation to purchase an interest in the Swing Loans shall be absolute and unconditional and shall not be affected by any circumstance, including, without limitation, (i) any set-off, counterclaim, recoupment, defense or other right which such Lender or any other Person may have against TCB or any other Person for any reason whatsoever; (ii) the occurrence or continuance of a Default or Event of Default or the termination of any Lender Commitment; (iii) any adverse change in the condition (financial or otherwise) of the Borrower -12- or any of its Subsidiaries; (iv) any breach of this Agreement or any other Credit Documents by the Borrower, any of its Subsidiaries, the Agent or any other Lender; or (v) any other circumstance, happening or event whatsoever, whether or not similar to any of the foregoing. Any portion of a Swing Loan not so purchased and converted may be treated by TCB as a Loan which was not funded by the non-purchasing Lenders as contemplated in Section 2.1(a) of this Agreement, and as a funding by TCB under the Commitment in excess of TCB's Percentage. Each Swing Loan, once so sold, shall cease to be a Swing Loan for the purposes of this Agreement, but shall be a Loan made under the Commitment and each Lender's Lender Commitment. The Swing Loans shall be evidenced by the Swing Loan Note substantially in the form of Exhibit C-1 attached hereto. 2.2 Term Loan Conversion. (a) Subject to the terms and conditions of this Agreement, if any Extension Request (as defined in Section 9) shall be denied, the Borrower may elect to convert the aggregate unpaid principal amount of the Loans (other than the Swing Loans) outstanding on the date one (1) year prior to the then existing Revolving Credit Termination Date into a term loan owing to each of the Lenders (each a "Term Loan"), so long as (i) the Borrower has given the Agent at least fifteen (15) days prior written notice of the Borrower's intention to so convert the Loans, (ii) no amounts remain unpaid under the Swing Loan Note, and (iii) the conditions to make a Loan set forth in Section 3 are satisfied as of the date of the conversion. Upon the effectiveness of the conversion of the aggregate unpaid principal amount of the Loans into the Term Loan as contemplated by this Section, the Borrower shall have no further right to receive, and no Lender shall have the obligation to make, any advances of Loans. (b) The Borrower shall repay the principal balance of the Term Loans in eight (8) equal quarterly installments due on November 13 first following the Revolving Credit Termination Date, and continuing on the thirteenth (13th) day of each subsequent February, May, August and November until the Term Loan is paid in full. The amount of each aggregate quarterly principal installment shall be equal to the result of dividing the aggregate unpaid principal balance of the Loans on the Revolving Credit Termination Date by eight (8). Accrued and unpaid interest on the unpaid principal balance of the Term Loan shall continue to be due and payable on the Interest Payment Dates. The entire unpaid principal balance, and all accrued and unpaid interest thereon, of the Term Loan, together with all other amounts due under this Agreement, shall be due and payable in full on the Termination Date. 2.3 Payments. (a) Except to the extent otherwise provided herein, all payments of principal, interest and other amounts to be made by the Borrower hereunder, under the Notes and under the other Credit Documents shall be made in immediately available funds to the Agent at its principal office in Houston, Texas (or in the case of a successor Agent, at the principal office of such successor Agent in the United States), not later than 12:00 noon Houston, Texas time on the date on which such payment shall become due (each such payment made after such time on such due date to be deemed to have been made on the next succeeding Business Day). (b) The Borrower may, at the time of making each payment hereunder, under any Note or under any other Credit Document, -13- specify to the Agent the Loans or other amounts payable by the Borrower hereunder or thereunder to which such payment is to be applied (and in the event that it fails so to specify, such payment shall be applied to the Loans (first to the Swing Loans) or, if no Loans are outstanding, to other amounts then due and payable, provided that if no Loans or other amounts are then due and payable or an Event of Default has occurred and is continuing, the Agent may apply such payment to the Obligations in such order as it may elect in its sole discretion, but subject to the other terms and conditions of this Agreement, including without limitation Section 2.4 hereof). Each payment received by the Agent hereunder, under any Note or under any other Credit Document for the account of a Lender shall be paid promptly to such Lender, in immediately available funds. If the Agent receives a payment for the account of a Lender prior to 12:00 noon Houston, Texas time, such payment must be delivered to the Lender on that same day and if it is not so delivered due to the fault of the Agent, the Agent shall pay to the Lender entitled to the payment the interest accrued on the amount of the payment pursuant to said Lender's Note from the date the Agent receives the payment to the date the Lender received the payment. The Agent may apply payments received from the Borrower to pay any unpaid principal and interest on the Swing Loans before making payment to each Lender of amounts due under the Notes other than the Swing Loan Note. (c) If the due date of any payment hereunder or under any Note falls on a day which is not a Business Day or a Eurodollar Business Day, as the case may be, the due date for such payments shall be extended to the next succeeding Business Day or Eurodollar Business Day, respectively, and interest shall be payable for any principal so extended for the period of such extension; provided, however, that with respect to Eurodollar Rate Borrowings if such extension would cause the Eurodollar Business Day of payment to fall in another calendar month, the payment shall be due on the Eurodollar Business Day next preceding the due date of the payment. (d) The Borrower shall give the Agent at least one (1) Business Day's prior written notice of the Borrower's intent to make any payment of principal or interest under the Credit Documents not scheduled to be paid under the Credit Documents. Any such notification of payment shall be irrevocable after it is made by the Borrower. Upon receipt by the Agent of such notification of payment, it shall deliver same to the other Lenders. 2.4 Pro Rata Treatment. Except to the extent otherwise provided herein: (a) each borrowing from the Lenders under Section 2.1(a) hereof shall be made ratably from the Lenders on the basis of their respective Percentages, each payment of the Fee (hereinafter defined) shall be made for the account of the Lenders, and shall be applied, prorata, according to the Lenders' respective Lender Commitment; and (b) each payment by the Borrower of principal or interest on the Loans other than the Swing Loans, of any other sums advanced by the Lenders pursuant to the Credit Documents, and of any other amount owed to the Lenders other than the Fee, payments of Swing Loans, or any other sums designated by this Agreement as being owed to a particular Lender, shall be made to the Agent for the account of the Lenders pro rata in accordance with the respective unpaid principal amounts of the Loans (other than Swing Loans) held by the Lenders. Payments of Swing Loans shall be for TCB's own account. -14- 2.5 Non-Receipt of Funds by the Agent. Unless the Agent shall have been notified by a Lender or the Borrower (the "Payor") prior to the date on which such Lender is to make payment to the Agent of the proceeds of a Loan (or purchase of a portion of a Swing Loan) to be made by it hereunder or the Borrower is to make a payment to the Agent for the account of one or more of the Lenders, as the case may be (such payment being herein called the "Required Payment"), which notice shall be effective upon receipt, that the Payor does not intend to make the Required Payment to the Agent, the Agent may assume that the Required Payment has been made and may, in reliance upon such assumption (but shall not be required to), make the amount thereof available to the intended recipient on such date and, if the Payor has not in fact made the Required Payment to the Agent, the recipient of such payment shall, on demand, pay to the Agent the amount made available by the Agent together with interest thereon in respect of the period commencing on the date such amount was so made available by the Agent until the date the Agent recovers such amount at a rate per annum equal to (a) the Past Due Rate for such period if the recipient returning a Required Payment is the Borrower, or (b) the Federal Funds Effective Rate for such period if the recipient returning a Required Payment is the Agent or a Lender. 2.6 Sharing of Payments, Etc. The Borrower agrees that, in addition to (and without limitation of) any right of set-off, bankers' lien or counterclaim a Lender may otherwise have, each Lender shall be entitled, at its option, to offset balances held by it for the account of the Borrower at any of its offices, against any principal of or interest on any of such Lender's Loans to the Borrower hereunder, or other Obligations of the Borrower hereunder, which is not paid (regardless of whether such balances are then due to the Borrower), in which case it shall promptly notify the Borrower and the Agent thereof, provided that such Lender's failure to give such notice shall not affect the validity thereof. If a Lender shall obtain payment of any principal of or interest on any Loan made by it under this Agreement (other than Swing Loans made by TCB), or other Obligation then due to such Lender hereunder, through the exercise of any right of set-off, banker's lien, counterclaim or similar right, or otherwise, it shall promptly purchase from the other Lenders portions of the Loans made or other Obligations held (other than Swing Loans made by TCB), by the other Lenders in such amounts, and make such other adjustments from time to time as shall be equitable to the end that all the Lenders shall share the benefit of such payment (net of any expenses which may be incurred by such Lender in obtaining or preserving such benefit) pro rata in accordance with the unpaid principal and interest on the Obligations then due to each of them. To such end all the Lenders shall make appropriate adjustments among themselves (by the resale of participations sold or otherwise) if such payment is rescinded or must otherwise be restored. Nothing contained herein shall require any Lender to exercise any such right or shall affect the right of any Lender to exercise, and retain the benefits of exercising, any such right with respect to any other indebtedness or obligation of the Borrower. 2.7 Fees. The Borrower shall pay to the Agent for the account of each Lender fees (collectively, the "Fee") equal to (a) an amount payable as a commitment fee by the Borrower to the Agent for the account of each Lender equal to the portion of the daily unused amount of the Commitment listed below multiplied by the corresponding rate per annum applicable to that portion: -15- Unused Commitment Rate ----------------- ---- Up to but not including $115,000,000 0.1250% $115,000,000 up to and including $230,000,000 0.1875% Over $230,000,000 0.2500% such commitment fee to be payable in arrears on or before the tenth (10th) day of each April, July, October and January, and (b) if the Revolving Credit Termination Date is extended pursuant to Section 9 of this Agreement, or if the Loans are converted to the Term Loan pursuant to Section 2.2 of this Agreement, an amount payable as an extension or conversion fee, as the case may be, by the Borrower to the Agent for the account of each Lender that extends or converts, as the case may be, equal to one-fourth of one percent (1/4%) of (i) each Lender's Lender Commitment at that time if the Revolving Credit Termination Date is extended, or (ii) the aggregate unpaid principal balance of each Loan payable to each Lender on the Revolving Credit Termination Date, if converted to a Term Loan. The Fee shall not be refundable (except as required by Section 3.1(c) of this Agreement). Any portion of the Fee which is not paid by the Borrower when due shall bear interest at the Past Due Rate from the date due until the date paid by the Borrower. The Fee shall be calculated on the actual number of days elapsed in a year deemed to consist of 360 days. 3. Conditions. ---------- 3.1 All Loans. The obligation of any Lender to make any Loan is subject to the accuracy of all representations and warranties of the Borrower on the date of such Loan, to the performance by the Borrower of its obligations under the Credit Documents and to the satisfaction of the following further conditions: (a) the Agent shall have received the following, all of which shall be duly executed and in Proper Form: (1) a Request for Loan, substantially in the form of Exhibit D and an Officer's Certificate in the form of Exhibit A (i) by 9:00 a.m., Houston, Texas time, one (1) Business Day before the date (which shall also be a Business Day) of the proposed Loan which is to be a Base Rate Borrowing (other than Swing Loans), (ii) by 9:00 a.m., Houston, Texas time, on the same Business Day of any proposed Swing Loan, provided that prior to 5:00 p.m., Houston, Texas time one (1) Business Day before the date of the proposed Swing Loan, Borrower shall have notified TCB, in writing or by telephone, of its intent to submit a request for a Swing Loan, or (iii) by the Rate Designation Date of the proposed Loan which is to be a Eurodollar Rate Borrowing; and (2) such other documents as the Agent may reasonably require to satisfy itself or the request of any Lender; (b) no Default or Event of Default shall have occurred and be continuing; (c) the making of the Loan shall not be prohibited by any Legal Requirement (in which event the applicable portion of the Fee will not be charged to the Borrower); (d) the Borrower shall have paid all legal fees and expenses of the type described in Section 5.10 hereof through the date of such Loan; and (e) in the case of a Loan other than a Swing Loan, all Swing Loans then outstanding shall have been paid or shall be paid with the proceeds of such Loan. 3.2 First Loan. In addition to the matters described in Section 3.1 hereof, the obligation of the Lenders to make the first Loan hereunder is subject to the receipt by the Lenders of -16- each of the following, in Proper Form: (a) the Notes, executed by the Borrower; (b) a certificate executed by the Secretary of the Borrower dated as of the date hereof; (c) a certificate from the Secretary of State or other appropriate public official of Maryland as to the continued existence and good standing of the Borrower; (d) a certificate from the appropriate public official of every state where the location of the Borrower's Property requires it to be qualified to do business as to the due qualification and good standing of the Borrower; (e) a legal opinion from independent counsel for the Borrower as to the matters set forth on Exhibit E acceptable to the Lenders; (f) policies of insurance addressed to the Agent reflecting the insurance required by Section 5.7 hereof; and (g) an Officer's Certificate in the form of Exhibit A; and to the further condition that, at the time of the initial Loan, all legal matters incident to the transactions herein contemplated shall be satisfactory to Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P., counsel for the Agent. 3.3 Options Available. The outstanding principal balance of the Notes shall bear interest at the Base Rate; provided, that (1) all past due amounts, both principal and accrued interest, shall bear interest at the Past Due Rate, and (2) subject to the provisions hereof, Borrower shall have the option of having all or any portion of the principal balance of the Notes, other than the Swing Loan Note, from time to time outstanding bear interest at a Eurodollar Rate. The records of the Lenders with respect to Interest Options, Interest Periods and the amounts of Loans to which they are applicable shall be prima facie evidence thereof. Interest on the Loans shall be calculated at the Base Rate except where it is expressly provided pursuant to this Agreement that a Eurodollar Rate is to apply. 3.4 Designation and Conversion. Borrower shall have the right to designate or convert its Interest Options in accordance with the provisions hereof. Provided no Event of Default has occurred and is continuing and subject to the provisions of Section 3.5, Borrower may elect to have a Eurodollar Rate apply or continue to apply to all or any portion of the principal balance of the Notes, other than the Swing Loan Note. Each change in Interest Options shall be a conversion of the rate of interest applicable to the specified portion of the Loans, but such conversion shall not change the respective outstanding principal balance of the Notes. The Interest Options shall be designated or converted in the manner provided below: (a) Borrower shall give Agent telephonic notice, promptly confirmed by a Rate Designation Notice. Each such telephonic and written notice shall specify the amount of Loan which is the subject of the designation, if any; the amount of borrowings into which such borrowings are to be converted or for which an Interest Option is designated; the proposed date for the designation or conversion and the Interest Period, if any, selected by Borrower. Such telephonic notice and the Rate Designation Notice shall be irrevocable and shall be given to Agent no later than the applicable Rate Designation Date. The Agent shall promptly deliver the Rate Designation Notice to the Lenders. (b) No more than twelve (12) Eurodollar Rate Borrowings with twelve (12) Interest Periods shall be in effect at any time. (c) Each designation or conversion of a Eurodollar Rate Borrowing shall occur on a Eurodollar Business Day. -17- (d) Except as provided in Section 3.5 hereof, no Eurodollar Rate Borrowing shall be converted on any day other than the last day of the applicable Interest Period. (e) Unless a Rate Designation Notice to the contrary is received as provided in this Agreement, each Eurodollar Rate Borrowing will convert to a Base Rate Borrowing after the expiration of the Interest Period. 3.5 Special Provisions Applicable to Eurodollar Rate Borrowings. (a) Options Unlawful. If the adoption of any applicable Legal Requirement or any change in any applicable Legal Requirement or in the interpretation or administration thereof by any Governmental Authority or compliance by the Lenders with any request or directive (whether or not having the force of law) of any central bank or other Governmental Authority shall at any time make it unlawful or impossible for any Lender to permit the establishment of or to maintain any Eurodollar Rate Borrowing, the commitment of the Lenders to establish or maintain such Eurodollar Rate Borrowing shall forthwith be suspended until such condition shall cease to exist and Borrower shall forthwith, upon demand by Agent to Borrower, (1) convert the Eurodollar Rate Borrowing with respect to which such demand was made to a Base Rate Borrowing; (2) pay all accrued and unpaid interest to date on the amount so converted; and (3) pay any amounts required to compensate the Lenders for any additional cost or expense which the Lenders may incur as a result of such adoption of or change in such Legal Requirement or in the interpretation or administration thereof and any Funding Loss which the Lenders may incur as a result of such conversion. If, when Agent so notifies Borrower, Borrower has given a Rate Designation Notice specifying a Eurodollar Rate Borrowing but the selected Interest Period has not yet begun, such Rate Designation Notice shall be deemed to be of no force and effect, as if never made, and the balance of the Loans specified in such Rate Designation Notice shall bear interest at the Base Rate until a different available Interest Option shall be designated in accordance herewith. (b) Increased Cost of Borrowings. If the adoption of any applicable Legal Requirement or any change in any applicable Legal Requirement or in the interpretation or administration thereof by any Governmental Authority or compliance by any Lender with any request or directive of general applicability (whether or not having the force of law) of any central bank or Governmental Authority shall at any time as a result of any portion of the principal balance of the Notes being maintained on the basis of a Eurodollar Rate: (1) subject any Lender (or make it apparent that any Lender is subject) to any Taxes, or any deduction or withholding for any Taxes, on or from any payment due under any Eurodollar Rate Borrowing or other amount due hereunder, other than income and franchise taxes of the United States and its political subdivisions; or (2) change the basis of taxation of payments due from Borrower to any Lender under any Eurodollar Rate Borrowing (otherwise than by a change in the rate of taxation of the overall net income of a Lender); or -18- (3) impose, modify, increase or deem applicable any reserve requirement (excluding that portion of any reserve requirement included in the calculation of the applicable Eurodollar Rate), special deposit requirement or similar requirement (including, but not limited to, state law requirements and Regulation D) imposed, modified, increased or deemed applicable by any Governmental Authority against assets held by any Lender, or against deposits or accounts in or for the account of any Lender, or against loans made by any Lender, or against any other funds, obligations or other property owned or held by any Lender; or (4) impose on any Lender any other condition regarding any Eurodollar Rate Borrowing; and the result of any of the foregoing is to increase the cost to any Lender of agreeing to make or of making, renewing or maintaining such Eurodollar Rate Borrowing, or reduce the amount of principal or interest received by any Lender, then, upon demand by Agent, Borrower shall pay to such Lender, from time to time as specified by such Lender, additional amounts which shall compensate such Lender for such increased cost or reduced amount. Agent will promptly notify Borrower in writing of any event which will entitle any Lender to additional amounts pursuant to this paragraph. A Lender's determination of the amount of any such increased cost, increased reserve requirement or reduced amount shall be prima facie evidence thereof. Borrower shall have the right, if it receives from Agent any notice referred to in this paragraph, upon three Business Days' notice to Agent, either (i) to repay in full (but not in part) any borrowing with respect to which such notice was given, together with any accrued interest thereon, or (ii) to convert the Eurodollar Rate Borrowing which is the subject of the notice to a Base Rate Borrowing; provided, that any such repayment or conversion shall be accompanied by payment of (x) the amount required to compensate a Lender for the increased cost or reduced amount referred to in the preceding paragraph; (y) all accrued and unpaid interest to date on the amount so repaid or converted, and (z) any Funding Loss which any Lender may incur as a result of such repayment or conversion. (c) Inadequacy of Pricing and Rate Determination. If for any reason with respect to any Interest Period Agent shall have determined (which determination shall be prima facie evidence thereof) that: (1) Agent is unable through its customary general practices to determine any applicable Eurodollar Rate, or (2) by reason of circumstances affecting the applicable market generally, Agent is not being offered deposits in United States dollars in such market, for the applicable Interest Period and in an amount equal to the amount of any applicable Eurodollar Rate Borrowing requested by Borrower, or -19- (3) any applicable Eurodollar Rate will not adequately and fairly reflect the cost to the Lenders of making and maintaining such Eurodollar Rate Borrowing hereunder for any proposed Interest Period, then Agent shall give Borrower notice thereof and thereupon, (A) any Rate Designation Notice previously given by Borrower designating the applicable Eurodollar Rate Borrowing which has not commenced as of the date of such notice from Agent shall be deemed for all purposes hereof to be of no force and effect, as if never given, and (B) until Agent shall notify Borrower that the circumstances giving rise to such notice from Agent no longer exist, each Rate Designation Notice requesting the applicable Eurodollar Rate shall be deemed a request for a Base Rate Borrowing, and any applicable Eurodollar Rate Borrowing then outstanding shall be converted, without any notice to or from Borrower, upon the termination of the Interest Period then in effect with respect to it, to a Base Rate Borrowing. (d) Funding Losses. Borrower shall indemnify the Agent and each Lender against and hold the Agent and each Lender harmless from any Funding Loss. This agreement shall survive the payment of the Notes. A certificate as to any additional amounts payable pursuant to this subsection and setting forth the reasons for the Funding Loss submitted by Agent to Borrower shall be prima facie evidence thereof. 3.6 Funding Offices; Adjustments Automatic; Calculation Year. Any Lender may, if it so elects, fulfill its obligation as to any Eurodollar Rate Borrowing by causing a branch or affiliate of such Lender to make such Loan and may transfer and carry such Loan at, to, or for the account of, any branch office or affiliate of such Lender; provided, that in such event for the purposes of this Agreement such Loan shall be deemed to have been made by such Lender and the obligation of Borrower to repay such Loan shall nevertheless be to such Lender and shall be deemed held by it for the account of such branch or affiliate. Without notice to Borrower or any other person or entity, each rate required to be calculated or determined under this Agreement shall automatically fluctuate upward and downward in accordance with the provisions of this Agreement. 3.7 Funding Sources, Payment Obligations. Notwithstanding any provision of this Agreement to the contrary, each Lender shall be entitled to fund and maintain its funding of all or any part of the Loans in any manner it sees fit, it being understood, however, that for the purposes of this Agreement all determinations hereunder shall be made as if each Lender had actually funded and maintained each Eurodollar Rate Borrowing during each Interest Period through the purchase of deposits having a maturity corresponding to such Interest Period and bearing an interest rate equal to the Eurodollar Rate for such Interest Period. Notwithstanding the foregoing, Funding Losses, increased costs and other obligations relating to Eurodollar Rate Borrowings described in Section 3.5 of this Agreement will only be paid by the Borrower as and when actually incurred by the Lenders. 3.8 Mitigation, Non-Discrimination. (a) Each Lender will notify the Borrower through the Agent of any event occurring -20- after the date of this Agreement which will require or enable such Lender to take the actions described in Sections 3.5(a) or (b) of this Agreement as promptly as practicable after it obtains knowledge thereof and determines to request such action, and (if so requested by the Borrower through the Agent) will designate a different lending office of such Lender for the applicable Eurodollar Rate Borrowing or will take such other action as the Borrower reasonably requests if such designation or action is consistent with the internal policy of such Lender and legal and regulatory restrictions, can be undertaken at no additional cost, will avoid the need for, or reduce the amount of, such action and will not, in the sole opinion of such Lender, be disadvantageous to such Lender (provided that such Lender will have no obligation to designate a different lending office which is located in the United States of America). (b) None of the Lenders shall be able to pass through to the Borrower changes and costs under Section 3.5 of this Agreement on a discriminating basis, such that such changes and costs are not also passed through by each Lender to other customers of such Lender similarly situated where such customer is subject to documents providing for such pass through. (c) If any Lender elects under Section 3.5 of this Agreement to suspend or terminate the availability of Eurodollar Rate Borrowings for any material period of time, and the event giving rise to such election is not generally applicable to all of the Lenders, the Borrower may within sixty (60) days after notification of such Lender's election, and so long as no Event of Default is then in existence, either (i) demand that such Lender, and upon such demand, such Lender shall promptly, assign its Lender Commitment to another financial institution subject to and in accordance with the provisions of Section 10.6 of this Agreement for a purchase price equal to the unpaid balance of principal, accrued interest, the unpaid balance of the Fee and expenses owing to such Lender pursuant to this Agreement, or (ii) pay such Lender the unpaid balance of principal, accrued interest, the unpaid balance of the Fee and expenses owing to such Lender pursuant to this Agreement, whereupon, such Lender shall no longer be a party to this Agreement or have any rights or obligations hereunder or under any other Credit Documents, and the Commitment shall immediately and permanently be reduced by an amount equal to the Lender Commitment of such Lender. 4. Representations and Warranties. ------------------------------ To induce the Lenders to enter into this Agreement and to make the Loans, the Borrower represents and warrants to the Agent and the Lenders as follows: 4.1. Organization. The Borrower is duly organized, validly existing and in good standing as a real estate investment trust under the laws of the state of Maryland; has all power and authority to conduct its business as presently conducted; and is duly qualified to do business and in good standing in every state where the location of its Property requires it to be qualified to do business, unless the failure to be so qualified could not reasonably be expected to have a Material Adverse Effect. 4.2 Financial Statements. The financial statements delivered to the Agent fairly present, in accordance with Generally Accepted Accounting Principles (provided, however, that the Quarterly Unaudited Financial Statements are subject to -21- normal year-end adjustments and may contain condensed footnotes as permitted by regulations of the United States Securities and Exchange Commission), the financial condition and the results of operations of the Borrower as at the dates and for the periods indicated. No Material Adverse Change has occurred since the dates of such financial statements. The Borrower is not subject to any instrument or agreement which would materially prevent it from conducting its business as it is now conducted or as it is contemplated to be conducted. 4.3 Enforceable Obligations; Authorization. The Credit Documents are legal, valid and binding obligations of the Parties, enforceable in accordance with their respective terms, except as may be limited by bankruptcy, insolvency and other laws affecting creditors' rights generally and by general equitable principles. The execution, delivery and performance of the Credit Documents have all been duly authorized by all necessary action; are within the power and authority of the Parties; do not and will not contravene or violate any Legal Requirement or the Organizational Documents of the Parties; do not and will not result in the breach of, or constitute a default under, any agreement or instrument by which the Parties or any of their respective Property may be bound or affected, except where such breach or default could not reasonably be expected to have a Material Adverse Effect; and do not and will not result in the creation of any Lien upon any Property of any of the Parties except as expressly contemplated therein. All necessary permits, registrations and consents for such making and performance have been obtained except where the lack thereof could not reasonably be expected to have a Material Adverse Effect. 4.4 Other Debt. The Borrower is not in default in the payment of any other Indebtedness or under any agreement, mortgage, deed of trust, security agreement or lease to which it is a party which default could reasonably be expected to have a Material Adverse Effect. 4.5 Litigation. There is no litigation or administrative proceeding pending or, to the knowledge of the Borrower, threatened against, or any outstanding judgment, order or decree affecting, the Borrower before or by any Governmental Authority which is not adequately covered by insurance or which, if determined adversely to the Borrower could reasonably be expected to have a Material Adverse Effect. The Borrower is not in default with respect to any judgment, order or decree of any Governmental Authority which default could reasonably be expected to have a Material Adverse Effect. 4.6 Taxes. The Borrower has filed all tax returns required to have been filed and paid all taxes shown thereon to be due, except those for which extensions have been obtained, those which are being contested in good faith and those for which the Borrower's failure to file a return or pay could not reasonably be expected to have a Material Adverse Effect. 4.7 Regulation U. None of the proceeds of any Loan will be used for the purpose of purchasing or carrying directly or indirectly any margin stock or for any other purpose that would constitute this transaction a "purpose credit" within the meaning of Regulation U of the Board of Governors of the Federal Reserve System. 4.8 Subsidiaries. The Borrower has no Subsidiaries which individually or in the aggregate own more than twenty-five -22- percent (25%) in value of the Borrower's and the Subsidiaries' consolidated assets determined in accordance with Generally Accepted Accounting Principles. Each of the Borrower's Subsidiaries is a "qualified REIT subsidiary" under Section 856 of the Code. 4.9 Securities Act of 1933. Other than the Agent's efforts in syndicating the Loans (for which the Agent is responsible) neither the Borrower nor any agent acting for it has offered the Notes or any similar obligation of the Borrower for sale to or solicited any offers to buy the Notes or any similar obligation of the Borrower from any Person other than the Agent or any Lender, and neither the Borrower nor any agent acting for it will take any action which would subject the sale of the Note to the provisions of Section 5 of the Securities Act of 1933, as amended. 4.10 No Contractual or Corporate Restrictions. The Borrower is not a party to, or bound by, any contract, agreement or charter or other corporate restriction materially and adversely affecting its business, Property, assets, operations or condition, financial or otherwise. 4.11 Investment Company Act Not Applicable. The Borrower is not an "investment company", or a company "controlled" by an "investment company", within the meaning of the Investment Company Act of 1940, as amended. 4.12 Public Utility Holding Company Act Not Applicable. The Borrower is not a "holding company", or a "subsidiary company" of a "holding company", or an "affiliate" of a "holding company", or an affiliate of a "subsidiary company" of a "holding company", as such terms are defined in the Public Utility Holding Company Act of 1935, as amended. 4.13 ERISA Not Applicable. The Borrower is not subject to any requirements of the Employee Retirement Income Security Act of 1974 as amended from time to time, or any rules, regulations, rulings or interpretations adopted by the Internal Revenue Service or the Department of Labor thereunder. 5. Affirmative Covenants. --------------------- The Borrower covenants and agrees with the Agent and the Lenders that prior to the termination of this Agreement it will do, and if necessary cause to be done, each and all of the following: 5.1 Taxes, Insurance, Existence, Regulations, Property, etc. At all times (a) pay when due all taxes and governmental charges of every kind upon it or against its income, profits or Property, unless and only to the extent that the same shall be contested in good faith and reserves which are adequate under Generally Accepted Accounting Principles have been established therefor, or unless such failure to pay could not reasonably be expected to have a Material Adverse Effect; (b) do all things necessary to preserve its existence, qualifications, rights and franchises in all States where such qualification is necessary or desirable, except where failure to obtain the same could not reasonably be expected to have a Material Adverse Effect; (c) comply with all applicable Legal Requirements in respect of the conduct of its business and the ownership of its Property except where failure to so comply could not reasonably be expected to have a Material Adverse Effect; and (d) cause its Property to be protected, maintained and kept in good repair -23- (reasonable wear and tear excepted) and make all replacements and additions to its Property as may be reasonably necessary to conduct its business. 5.2 Financial Statements and Information. Furnish to the Agent each of the following: (a) as soon as available and in any event within 90 days after the end of each fiscal year of the Borrower, Annual Audited Financial Statements of the Borrower (which shall include an unaudited statement of Funds From Operations); (b) as soon as available and in any event within 45 days after the end of each quarter (except the last quarter) of each fiscal year of the Borrower, Quarterly Unaudited Financial Statements of the Borrower (which shall include a statement of Funds From Operations); (c) concurrently with the financial statements provided for in Subsections 5.2(a) and (b) hereof, an Officer's Certificate, together with such schedules, computations and other information (including, without limitation, if provided to Borrower information as to Unconsolidated Affiliates of the Borrower), in reasonable detail, as may be required by the Agent to demonstrate compliance with the covenants set forth herein or reflecting any non-compliance therewith as of the applicable date, all certified as true, correct and complete by a managing director, vice president or controller of Borrower's REIT Manager; (d) promptly after the filing thereof, all reports to or filings made by the Borrower or any of its Subsidiaries with the Securities and Exchange Commission, including, without limitation, registration statements and reports on Forms 10-K, 10-Q and 8-K (or their equivalents); (e) within two (2) Business Days after the receipt thereof, a copy of the notification to the Borrower of the Borrower's S&P Rating or Moody's Rating, or change therein, and (f) such other information relating to the financial condition and affairs of the Borrower as from time to time may be reasonably requested by any Lender. The Agent will send to each Lender the information received by the Agent pursuant to this Section 5.2 promptly after the receipt thereof by Agent. 5.3 Financial Tests. Have and maintain, on a consolidated basis in accordance with Generally Accepted Accounting Principles: (a) a Debt to Tangible Net Worth Ratio no greater than 1.0:1.0 at all times; (b) a Coverage Ratio of not less than 2.0:1.0 at all times; and (c) a Fixed Charge Coverage Ratio of not less than 1.4:1.0 at all times. 5.4 Inspection. In order to permit the Agent to ascertain compliance with the Credit Documents, permit the Agent to inspect its Property, to examine its files, books and records and make and take away copies thereof, and to discuss its affairs with its officers and accountants, all at such times and intervals and to such extent as a Lender may reasonably desire. 5.5 Further Assurances. Promptly execute and deliver any and all other and further instruments which may be requested by the Agent to cure any defect in the execution and delivery of any Credit Document or more fully to describe particular aspects of the Borrower's agreements set forth in the Credit Documents or so intended to be. 5.6 Books and Records. Maintain books of record and account in accordance with Generally Accepted Accounting Principles. 5.7 Insurance. Maintain insurance with such insurers, on such of its properties, in such amounts and against such risks as -24- is consistent with insurance maintained by businesses of comparable type and size in the industry, and furnish the Agent satisfactory evidence thereof promptly upon request. 5.8 Notice of Certain Matters. Notify the Agent promptly upon acquiring knowledge of the occurrence of any of the following: the institution or threatened institution of any lawsuit or administrative proceeding affecting the Borrower in which the claim exceeds $250,000.00 and if determined adversely could have a Material Adverse Effect; when the Borrower believes that there has been a Material Adverse Change; or the occurrence of any Event of Default or any Default. The Borrower will notify the Agent in writing at least thirty (30) Business Days prior to the date that the Borrower changes its name or the location of its chief executive office or principal place of business or the place where it keeps its books and records. 5.9 Use of Proceeds. The proceeds of the Loans will be used for general business purposes including (without limitation) for acquisition of multi-family real estate properties, for the development and enhancement of multi-family real estate properties, or for the costs of construction of multi-family real estate projects owned or to be acquired by the Borrower. Notwithstanding the foregoing, none of the proceeds of the Loans will be used to finance, fund or complete any hostile acquisition of any Person. 5.10 Expenses of and Claims Against the Agent and the Lenders. To the extent not prohibited by applicable law, the Borrower will pay all reasonable costs and expenses incurred to third parties and reimburse the Agent and each Lender, as the case may be, for any and all reasonable expenditures of every character incurred or expended from time to time, in connection with (a) regardless of whether a Default or Event of Default shall have occurred, the Agent's preparation, negotiation and completion of the Credit Documents, and (b) during the continuance of an Event of Default, all costs and expenses relating to the Agent's and such Lender's exercising any of its rights and remedies under this or any other Credit Document, including, without limitation, attorneys' fees, legal expenses, and court costs; provided, that no rights or option granted by the Borrower to the Agent or any Lender or otherwise arising pursuant to any provision of this or any other instrument shall be deemed to impose or admit a duty on the Agent or any Lender to supervise, monitor or control any aspect of the character or condition of any property or any operations conducted in connection with it for the benefit of the Borrower or any other person or entity other than the Agent or such Lender. Notwithstanding the foregoing, the Borrower shall not be charged with any cost or expense incurred by the Agent or any Lender relating to disputes or claims among or between the Agent, the Lenders, or any of them unless during the continuance of an Event of Default and related to details of enforcement of the Lenders' rights under the Credit Documents. 5.11 Legal Compliance; Indemnification. The Borrower shall operate its Property and businesses in full compliance with all Legal Requirements. It shall not constitute an Event of Default if there is a failure to comply with any Legal Requirement which failure could not reasonably be expected to have a Material Adverse Effect. The Borrower shall indemnify the Agent and each Lender, their directors, officers, employees and shareholders (the "Indemnified Parties") for and defend and hold the Indemnified Parties harmless against any and all claims, demands, -25- liabilities, causes of action, penalties, obligations, damages, judgments, deficiencies, losses, costs or expenses (including, without limitation, interest, penalties, attorneys' fees, and amounts paid in settlement) threatened or incurred by reason of, arising out of or in any way related to any failure of the Borrower to so comply with the provisions of any Legal Requirement, this Agreement or the other Credit Documents, and any and all matters arising out of any act, omission, event or circumstance, regardless of whether the act, omission, event or circumstance constituted a violation of any such Legal Requirement, this Agreement or the other Credit Documents at the time of its existence or occurrence. THE BORROWER SHALL INDEMNIFY THE AGENT AND EACH LENDER PURSUANT TO THIS SECTION REGARDLESS OF WHETHER THE ACT, OMISSION, FACTS, CIRCUMSTANCES OR CONDITIONS GIVING RISE TO SUCH INDEMNIFICATION WERE CAUSED IN WHOLE OR IN PART BY THE AGENT'S OR SUCH LENDER'S NEGLIGENCE (SIMPLE, BUT NOT GROSS NEGLIGENCE). The Borrower will comply with all Legal Requirements to maintain, and will at all times qualify as and maintain, its status as a real estate investment trust under Section 856(c)(1) of the Code. 5.12 Borrower's Performance. If the Borrower should fail to comply with any of the agreements, covenants or obligations of the Borrower under this Agreement or any other Credit Document, then the Agent (in the Borrower's name or in Agent's name) may perform them or cause them to be performed for the account of the Borrower and at the Borrower's sole expense, but shall not be obligated to do so. Any and all expenses thus incurred or paid by the Agent and by any Lender shall be the Borrower's demand obligations to the Agent or such Lender and shall bear interest from the date of demand therefor until the date that the Borrower repays it to the Agent or the applicable Lender at the Past Due Rate. Upon making any such payment or incurring any such expense, the Agent or the applicable Lender shall be fully subrogated to all of the rights of the Person receiving such payment. Any amounts owing by the Borrower to the Agent or any Lender pursuant to this provision or any other provision of this Agreement shall automatically and without notice be secured by any collateral provided by the Credit Documents. The amount and nature of any such expense and the time when paid shall, absent manifest error, be fully established by the affidavit of the Agent or the applicable Lender or any of the Agent's or the applicable Lender's officers or agents. 5.13 Professional Services. Promptly upon the Agent's request to satisfy itself or the request of any Lender, the Borrower, at the Borrower's sole cost and expense, provided, however, that so long as no Event of Default has occurred and is continuing, such items will not be at the Borrower's expense, shall: (a) allow an inspection and/or appraisal of the Borrower's Property to be made by a Person approved by the Agent in its sole discretion; and (b) if the Agent believes that an Event of Default has occurred or is about to occur, cause to be conducted or prepared any other written report, summary, opinion, inspection, review, survey, audit or other professional service relating to the Borrower's Property or any operations in connection with it (all as designated in the Agent's request), including, without limitation, any accounting, auctioneering, architectural, consulting, engineering, design, legal, management, pest control, surveying, title abstracting or other technical, managerial or professional service relating to such property or its operations. -26- 5.14 Capital Adequacy. (a) If after the date of this Agreement, the Agent or any Lender shall have determined that the adoption or effectiveness of any applicable law, rule or regulation regarding capital adequacy of general applicability, or any change therein, or any change in the interpretation or administration thereof by any Governmental Authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by the Agent or any Lender with any request or directive regarding capital adequacy of general applicability (whether or not having the force of law) of any such Governmental Authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on the Agent's or any Lender's capital as a consequence of its obligations hereunder to a level below that which the Agent or such Lender could have achieved but for such adoption, change or compliance (taking into consideration the Agent's or such Lender's policies with respect to capital adequacy) by an amount deemed by the Agent or such Lender to be material, then from time to time, the Borrower shall pay to the Agent or such Lender such additional amount or amounts as will compensate the Agent or such Lender for such reduction. (b) A certificate of the Agent or such Lender setting forth such amount or amounts as shall be necessary to compensate the Agent or such Lender as specified in Section 5.14(a) hereof and making reference to the applicable law, rule or regulation shall be delivered as soon as practicable to the Borrower and shall be prima facie evidence thereof. The Borrower shall pay the Agent or such Lender the amount shown as due on any such certificate within fourteen (14) Business Days after the Agent or such Lender delivers such certificate. In preparing such certificate, the Agent or such Lender may employ such assumptions and allocations of costs and expenses as it shall in good faith deem reasonable and may use any reasonable averaging and attribution method. 5.15 Property Pool. The Borrower will at all times own fee simple title to real estate properties that are not mortgaged, pledged, hypothecated, or encumbered in any manner other than Permitted Encumbrances (the "Pool") with an aggregate Historical Value of at least one hundred seventy-five percent (175%) of the Borrower's unsecured Indebtedness outstanding from time to time, with the following characteristics: (a) the Pool must include income producing operating properties (the "Operating Sub-Pool") with an aggregate Historical Value of at least one hundred fifty percent (150%) of the Borrower's unsecured Indebtedness outstanding from time to time, (b) the properties included in the Operating Sub- Pool must have an aggregate occupancy level based on bona fide tenant leases requiring current rent payments of at least ninety percent (90%), with each individual property in the Operating Sub-Pool having such an occupancy level of at least eighty percent (80%), where the occupancy level is the average of the occupancy level for each of the immediately preceding three (3) months, (c) the aggregate Historical Value of the properties included in the Operating Sub-Pool that are located in any one Standard Metropolitan Statistical Area, may not be more than twenty-five percent (25%) of the aggregate Historical Value of the Operating Sub-Pool, (d) the aggregate Historical Value of properties included in the Operating Sub-Pool that are not in cities included as one of the Borrower's proposed target market cities (as listed on Exhibit F attached hereto and hereby made a part hereof) may not be more than twenty percent (20%) of the aggregate Historical Value of the Operating Sub-Pool, (e) the aggregate Historical Value of the properties included in the -27- Operating Sub-Pool that are located in the State of California may not be more than thirty-five percent (35%) of the aggregate Historical Value of the Operating Sub-Pool, (f) the average age of the properties included in the Operating Sub-Pool shall not exceed the sum of ten (10) years increased by one (1) year on each December 31 after December 31, 1994, (g) the percentage of one bedroom and efficiency (less than one bedroom or a one bedroom combination) units to total units in the properties included in the Operating Sub-Pool shall not exceed sixty-five percent (65%) in the aggregate, (h) any properties added to the Operating Sub-Pool after the date of this Agreement must be multifamily properties, and (i) the Borrower must have received from third party independent environmental consultants, written assessments for each property in, or to be added to, the Operating Sub-Pool that do not disclose any material environmental conditions or risks related to such properties. 6. Negative Covenants. ------------------ The Borrower covenants and agrees with the Agent and the Lenders that prior to the termination of this Agreement it will not do any of the following: 6.1 Indebtedness. Create, incur, suffer or permit to exist, or assume or guarantee, directly or indirectly, contingently or otherwise, or become or remain liable with respect to any Indebtedness with a final maturity of five (5) years or less (not including any renewal or extension options) in excess of $400,000,000.00 in the aggregate, in all cases whether direct, indirect, absolute, contingent or otherwise; except (a) Non-recourse Debt, (b) Indebtedness in the final five (5) years or less of a full payment amortization schedule providing for periodic payments over the remaining life where no more than fifty percent (50%) of the original loan amount is amortized in said final five (5) year or less period, (c) credit enhancement provided by or on behalf of the Borrower for tax exempt bonds if said credit enhancement has an expiration date or a maturity date of one (1) year or more, and (d) Indebtedness incurred by Borrower under its medium term note program consisting of fixed rate, unsecured, recourse notes issued under the Indenture described in Section 7.1(b) of this Agreement not to exceed $100,000,000.00 in the aggregate. For the purposes of the foregoing calculation under (b) above, simultaneously issued tranches of Indebtedness under the same indenture shall be combined and treated as a single debt issuance. 6.2 Mergers, Consolidations and Acquisitions of Assets. In any single transaction or series of related transactions, directly or indirectly: (a) liquidate or dissolve; (b) other than a merger or consolidation in which the Borrower is the surviving entity and the value of the assets of the other party to such merger or consolidation is less than twenty percent (20%) of the value of the assets of the Borrower on a consolidated basis (in accordance with Generally Accepted Accounting Principles) after such merger or consolidation, be a party to any merger or consolidation; (c) other than a merger or consolidation in which the Borrower is the surviving entity and the value of the assets of the other party to such merger or consolidation is less than twenty percent (20%) of the value of the assets of the Borrower on a consolidated basis (in accordance with Generally Accepted Accounting Principles) after such merger or consolidation, acquire all or substantially all of the assets of any Person, or any shares of stock of or similar interest in any other Person; or (d) except for periodic sales not exceeding -28- twenty-five percent (25%) of the Borrower's total assets on a consolidated basis (in accordance with Generally Accepted Accounting Principles) in any calendar year, or sales or leases executed in the ordinary course of business, sell, convey or lease all or any substantial part of its assets. 6.3 Redemption. At any time redeem, retire or otherwise acquire, directly or indirectly, any shares of its capital stock if such action would cause the Borrower to not be in compliance with this Agreement. 6.4 Nature of Business; Management. Change the nature of its business or enter into any business which is substantially different from the business in which it is presently engaged; amend the Borrower's agreements with Borrower's REIT Manager if such amendments would materially increase amounts payable thereunder to Borrower's REIT Manager or which would violate any provision of the Credit Documents; or terminate or allow the termination (whether voluntary or involuntary) of the Borrower's agreements with Borrower's REIT Manager unless within thirty (30) days thereafter Borrower's REIT Manager is replaced by an advisor or management team pursuant to an agreement which is in compliance with the requirements of the North American Security Administrators Association's Statement of Policy for Real Estate Investment Trusts and which is otherwise satisfactory to the Agent and the Majority Lenders. 6.5 Transactions with Related Parties. Enter into any transaction or agreement with any officer, director, or holder of more than five percent (5%) (based on voting rights) of the issued and outstanding capital stock of the Borrower (or any Affiliate of the Borrower), unless the same is upon terms substantially similar to those obtainable from qualified wholly unrelated sources, or complies with the requirements of the Statement of Policy for Real Estate Investment Trusts promulgated by the North American Security Administrators Association, as amended from time to time. 6.6 Loans and Investments. Make any loan, advance, extension of credit or capital contribution to, or make or have any investment in, any Person, or make any commitment to make any such extension of credit or investment, except (a) travel advances in the ordinary course of business to officers, employees and agents; (b) readily marketable securities issued or fully guaranteed by the United States of America (or investments or money market accounts consisting of the same); (c) commercial paper rated "Prime 1" by Moody's Investors Service, Inc. or A-1 by Standard and Poor's Corporation (or investments or money market accounts consisting of the same); (d) certificates of deposit or repurchase certificates issued by financial institutions acceptable to the Agent (or investments or money market accounts consisting of the same), all of the foregoing b, c and d not having a maturity of more than one (1) year from the date of issuance thereof; (e) securities received in settlement of liabilities created in the ordinary course of business, or securities in other real estate investment trusts received in exchange for Property sold to such real estate investment trusts so long as the market value of such securities does not exceed ten percent (10%) of the value of the assets of the Borrower on a consolidated basis (in accordance with Generally Accepted Accounting Principles) prior to such investment; (f) investments in Subsidiaries through which the Borrower invests in real estate assets and acquisition and/or construction loans encumbered by Property of or to be acquired by the Borrower; (g) investments in -29- Unconsolidated Affiliates through which the Borrower invests in real estate assets and acquisition and/or construction loans encumbered by Property of or to be acquired by the Borrower so long as the aggregate amount of such investments does not exceed ten percent (10%) of the value of the assets of the Borrower on a consolidated basis (in accordance with Generally Accepted Accounting Principles); (h) loans, advances, and extensions of credit to PTR Development Services secured by valid and enforceable first priority liens on real estate; and (i) loans, advances, and extensions of credit to Persons (who are not Affiliates of the Borrower) secured by valid and enforceable first priority liens on real estate for the purpose of acquiring and developing multifamily properties for eventual ownership by, or to be acquired by, the Borrower prior to, or within a reasonable period of time consistent with a business purpose after, the completion of construction or development of such multifamily property. The Borrower will not mortgage, pledge, hypothecate or encumber in any manner the loans, advances or extensions of credit made pursuant to Sections 6.6(h) or (i). 6.7 Limiting Agreements. Without affecting the provisions of Section 5.15 of this Agreement, but cumulative of and in addition thereto: (a) Except for the Indenture dated February 1, 1994 between the Borrower and Morgan Guaranty Trust Company of New York, as Trustee, neither Borrower nor any of its Subsidiaries has entered into, and after the date hereof, neither Borrower nor any of its Subsidiaries shall enter into, any agreement, instrument or transaction which has or may have the effect of prohibiting or limiting Borrower's ability to pledge to Agent as security for the Loans assets now or hereafter owned by Borrower up to the value described in this Section 6.7. Borrower shall take, and shall cause its Subsidiaries to take, such actions as are necessary (including, without limitation, otherwise limiting the amount of secured indebtedness of the Borrower and its Subsidiaries) to preserve the right and ability of Borrower to pledge assets up to the value described in this Section 6.7 as security for the Loans without any such pledge after the date hereof causing or permitting the acceleration (after the giving of notice or the passage of time, or otherwise) of any other indebtedness of Borrower or any of its Subsidiaries. For the purpose of this paragraph, the Historical Value of the assets to be kept available by Borrower to be pledged as security for the Loans shall be assets having an aggregate Historical Value of not less than one hundred thirty-three percent (133%) of the Commitment; provided however that the foregoing shall not be construed as a maximum amount of collateral which could be required or accepted by the Lenders under any other agreement or in any proceeding. (b) Borrower shall, upon demand, provide to the Lenders such evidence as the Lenders may reasonably require to evidence Borrower's compliance with this covenant, which evidence shall include, without limitation (i) copies of any agreements or instruments which would in any way restrict or limit Borrower's ability to pledge assets as security for indebtedness, or which provide for the occurrence of a default (after the giving of notice or the passage of time, or otherwise) if assets are pledged in the future as security for indebtedness of the Borrower or any of its Subsidiaries, (ii) a summary of the total debt of Borrower and its Subsidiaries, and (iii) a summary of any of such debt which is secured by any mortgage, pledge, lien, charge, encumbrance or other security interest. -30- (c) Nothing in this covenant shall be construed as an obligation of Borrower to, or request by the Lenders that Borrower, grant any mortgage, pledge or security interest in any of its properties. 6.8 Nature of Assets. (a) In its own name or the name of any of its Subsidiaries, own or lease, directly or indirectly, land not improved for multifamily use, other than land that is either under development or planned for commencement of development within one (1) year from the date it was acquired, with an aggregate Historical Value in excess of ten percent (10%) of the value of the assets of the Borrower on a consolidated basis (in accordance with Generally Accepted Accounting Principles), or (b) allow the Historical Value of the income producing properties owned or leased, directly or indirectly, by the Borrower and its Subsidiaries which are not multifamily properties, to exceed five percent (5%) of the value of the assets of the Borrower on a consolidated basis (in accordance with Generally Accepted Accounting Principles). 7. Events of Default and Remedies. ------------------------------ 7.1. Events of Default. If any of the following events shall occur, then, as to the events described in Sections 7.1(b), (c), and (d), if the event has not been waived, cured or remedied within twenty (20) days after the Agent gives the Borrower notice of such event, at any time thereafter, and as to all of the other events described herein, at any time, the Agent may do any or all of the following: (1) without notice to the Borrower, declare the Notes to be, and thereupon the Notes shall forthwith become, immediately due and payable, together with all accrued interest thereon, without notice of any kind, notice of acceleration or of intention to accelerate, presentment and demand or protest, all of which are hereby expressly waived; (2) without notice to the Borrower, terminate the Commitment; (3) exercise, as may any other Lender, its rights of offset against each account and all other Property of the Borrower in the possession of the Agent or any such Lender, which right is hereby granted by the Borrower to the Agent and each Lender; and (4) exercise any and all other rights pursuant to the Credit Documents: (a) The Borrower shall fail to pay or prepay any principal of or interest on the Notes or any fee or any other obligation hereunder within five (5) days after it was due; or (b) The Borrower shall (i) fail to pay when due, or within any applicable period of grace, any principal of or interest on any other Indebtedness or Disqualified Stock in excess of $5,000,000.00 in principal amount; or (ii) fail to comply with Section 1004 of the Indenture dated February 1, 1994 between the Borrower and Morgan Guaranty Trust Company of New York, as Trustee, as said Section 1004 may be amended with the consent of the Majority Lenders; or (c) Any written representation or warranty made in any Credit Document by or on behalf of the Borrower, when taken as a whole shall prove to have been incorrect, false or misleading in any material respect; or (d) Default shall occur in the punctual and complete performance of any covenant of the Borrower or any other Person contained in any Credit Document not specifically set forth in this Section; or -31- (e) A final judgment or judgments in the aggregate for the payment of money in excess of $5,000,000.00 shall be rendered against the Borrower and the same shall remain undischarged for a period of thirty (30) days during which execution shall not be effectively stayed; or (f) Any court shall finally determine, that the Agent or any Lender does not have a valid Lien as provided for herein on any security which may have been provided to the Agent or any Lender by the Borrower under the Credit Documents, or such other Person; or (g) Any order shall be entered in any proceeding against the Borrower decreeing the dissolution, liquidation or split-up thereof, and such order shall remain in effect for more than thirty (30) days; or (h) The Borrower shall make a general assignment for the benefit of creditors or shall petition or apply to any tribunal for the appointment of a trustee, custodian, receiver or liquidator of all or any substantial part of its business, estate or assets or shall commence any proceeding under any bankruptcy, reorganization, arrangement, insolvency, readjustment of debt, dissolution or liquidation law of any jurisdiction, whether now or hereafter in effect; or (i) Any such petition or application shall be filed or any such proceeding shall be commenced against the Borrower and the Borrower by any act or omission shall indicate approval thereof, consent thereto or acquiescence therein, or an order shall be entered appointing a trustee, custodian, receiver or liquidator of all or any substantial part of the assets of the Borrower or granting relief to the Borrower or approving the petition in any such proceeding, and such order shall remain in effect for more than ninety (90) days; or (j) The Borrower shall fail generally to pay its debts as they become due or suffer any writ of attachment or execution or any similar process to be issued or levied against it or any substantial part of its Property which is not released, stayed, bonded or vacated within thirty (30) days after its issue or levy; or (k) The Borrower shall have concealed, removed, or permitted to be concealed or removed, any part of its Property, with intent to hinder, delay or defraud its creditors or any of them, or made or suffered a transfer of any of its Property which may be fraudulent under any bankruptcy, fraudulent conveyance or similar law; or shall have made any transfer of its Property to or for the benefit of a creditor at a time when other creditors similarly situated have not been paid. 7.2 Remedies Cumulative. No remedy, right or power conferred upon the Agent or the Lenders is intended to be exclusive of any other remedy, right or power given hereunder or now or hereafter existing at law, in equity, or otherwise, and all such remedies, rights and powers shall be cumulative. -32- 8. The Agent. --------- 8.1 Appointment, Powers and Immunities. (a) Each Lender hereby irrevocably appoints and authorizes the Agent to act as its agent hereunder and under the other Credit Documents with such powers as are specifically delegated to the Agent by the terms hereof and thereof, together with such other powers as are reasonably incidental thereto. The Agent (i) shall not have any duties or responsibilities except those expressly set forth in this Agreement and the other Credit Documents, and shall not by reason of this Agreement or any other Credit Document be a trustee for any Lender; (ii) shall not be responsible to any Lender for any recitals, statements, representations or warranties contained in this Agreement or any other Credit Document, or in any certificate or other document referred to or provided for in, or received by any of them under, this Agreement or any other Credit Document, or for the value, validity, effectiveness, genuineness, enforceability, execution, filing, registration, collectibility, recording, perfection, existence or sufficiency of this Agreement or any other Credit Document or any other document referred to or provided for herein or therein or any property covered thereby or for any failure by any Party or any other Person to perform any of its obligations hereunder or thereunder, and shall not have any duty to inquire into or pass upon any of the foregoing matters; (iii) shall not be required to initiate or conduct any litigation or collection proceedings hereunder or any other Credit Document except to the extent requested by the Majority Lenders; (iv) SHALL NOT BE RESPONSIBLE FOR ANY MISTAKE OF LAW OR FACT OR ANY ACTION TAKEN OR OMITTED TO BE TAKEN BY IT HEREUNDER OR UNDER ANY OTHER CREDIT DOCUMENT OR ANY OTHER DOCUMENT OR INSTRUMENT REFERRED TO OR PROVIDED FOR HEREIN OR THEREIN OR IN CONNECTION HEREWITH OR THEREWITH, INCLUDING, WITHOUT LIMITATION, PURSUANT TO ITS OWN NEGLIGENCE, BUT NOT INCLUDING AND EXCEPT FOR THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF THE AGENT; (v) shall not be bound by or obliged to recognize any agreement among or between the Borrower, the Agent, and any Lender other than this Agreement and the other Credit Documents, regardless of whether the Agent has knowledge of the existence of any such agreement or the terms and provisions thereof; (vi) shall not be charged with notice or knowledge of any fact or information not herein set out or provided to the Agent in accordance with the terms of this Agreement or any other Credit Document; (vii) shall not be responsible for any delay, error, omission or default of any mail, telegraph, cable or wireless agency or operator, and (viii) shall not be responsible for the acts or edicts of any Governmental Authority. The Agent may employ agents and attorneys-in-fact and shall not be responsible for the negligence or misconduct of any such agents or attorneys-in-fact selected by it with reasonable care. (b) Except as specifically provided to the contrary in Section 8.3 of this Agreement, without the prior written consent of all of the Lenders, Agent shall not (i) modify or amend in any respect whatsoever the interest rate provisions of the Credit Documents, (ii) increase the Commitment above $350,000,000.00, (iii) extend the Maturity Date other than in accordance with the express provisions of the Credit Documents, (iv) make or consent to any materially adverse amendment, modification or waiver of any of the terms, covenants, provisions or conditions of the Credit Documents, (v) waive, compromise or settle any material claim against Borrower or other person or entity liable for payment of the Loan in whole or part or for the observance and performance by the Borrower of any of the terms, covenants, provisions and conditions of the Credit Documents, or release the -33- Borrower from any material obligation or liability under the Credit Documents, or (vi) waive any material monetary default (that is, one that can be cured by the payment of money) under the Credit Documents. In its capacity as lead lender and servicer and without obtaining the prior consent of Lenders, Agent may (1) extend for reasonable periods the time for the observance or performance by Borrower of the terms and conditions other than the payment terms of the Credit Documents, provided that in the reasonable judgment of Agent such extension will not have a materially adverse effect on the Loan or Borrower's performance of its obligations under the Credit Documents, (2) agree or consent to any non- material amendment, modification or waiver of the terms, covenants, provisions or conditions of the Credit Documents, (3) waive, compromise or settle any non- material claim against the Borrower or release the Borrower from any non- material obligation or liability under the Credit Documents, (4) waive any non- material default under the Credit Documents, and (5) do or perform any act or thing which in Agent's reasonable judgment is necessary to enable Agent to discharge and perform its duties under this Agreement. From time to time upon Agent's request, each Lender shall execute and deliver such documents and instruments as may be reasonably necessary to enable Agent to effectively administer and service the Loan in its capacity as lead lender and servicer and in the manner contemplated by the provisions of this Agreement. (c) All information provided to the Agent under or pursuant to the Credit Documents, and all rights of the Agent to receive or request information, or to inspect information or Property, shall be by the Agent on behalf of the Lenders. If any Lender requests that it be able to receive or request such information, or make such inspections, in its own right rather than through the Agent, the Borrower will cooperate with the Agent and such Lender in order to obtain such information or make such inspection as such Lender may reasonably require. (d) The Borrower shall be entitled to rely upon a written notice or a written response from the Agent as being pursuant to concurrence or consent of the Majority Lenders unless otherwise expressly stated in the Agent's notice or response. 8.2 Reliance. The Agent shall be entitled to rely upon any certification, notice or other communication (including any thereof by telephone, telex, telecopy, telegram or cable) believed by it to be genuine and correct and to have been signed or sent by or on behalf of the proper Person or Persons, and upon advice and statements of legal counsel (which may be counsel for the Borrower), independent accountants and other experts selected by the Agent. The Agent shall not be required in any way to determine the identity or authority of any Person delivering or executing the same. As to any matters not expressly provided for by this Agreement or any other Credit Document, the Agent shall in all cases be fully protected in acting, or in refraining from acting, hereunder and thereunder in accordance with instructions of the Majority Lenders, and any action taken or failure to act pursuant thereto shall be binding on all of the Lenders. If any order, writ, judgment or decree shall be made or entered by any court affecting the rights, duties and obligations of the Agent under this Agreement or any other Credit Document, then and in any of such events the Agent is authorized, in its sole discretion, to rely upon and comply with such order, writ, judgment or decree which it is advised by legal counsel of its own choosing is binding upon it under the terms of this Agreement, the relevant Credit Document or otherwise; and if the -34- Agent complies with any such order, writ, judgment or decree, then it shall not be liable to any Lender or to any other Person by reason of such compliance even though such order, writ, judgment or decree may be subsequently reversed, modified, annulled, set aside or vacated. 8.3 Defaults. The Agent shall not be deemed to have constructive knowledge of the occurrence of a Default (other than the non-payment of principal of or interest on Loans) unless it has received notice from a Lender or the Borrower specifying such Default and stating that such notice is a "Notice of Default". In the event that the Agent receives such a notice of the occurrence of a Default, or whenever the Agent has actual knowledge of the occurrence of a Default, the Agent shall give prompt written notice thereof to the Lenders (and shall give each Lender prompt notice of each such non-payment). The Agent shall (subject to Section 8.7 hereof) take such action with respect to such Default as shall be directed by the Majority Lenders and within its rights under the Credit Documents and at law or in equity, provided that, unless and until the Agent shall have received such directions, the Agent may (but shall not be obligated to) take such action, or refrain from taking such action, permitted hereby with respect to such Default as it shall deem advisable in the best interests of the Lenders and within its rights under the Credit Documents in order to preserve, protect or enhance the collectibility of the Loans, at law or in equity. Provided, however, that if there is an occurrence of an Event of Default, then in no event or under any circumstances shall (a) the interest rate applicable to the Loan be modified, (b) the Commitment or the maximum principal amount of the Loans be increased above $350,000,000.00, (c) the Maturity Date be extended other than as provided for in this Agreement, (d) any material claim against Borrower be waived, compromised or settled or the Borrower released from any material obligation or liability under the Credit Documents, (e) any material monetary default (that is, one that can be cured by the payment of money) under the Credit Documents be waived, or (f) any of the actions described in Section 8.1(b)(i) through (vi) of this Agreement be taken, without in each instance the written consent of Agent and all of the Lenders. 8.4 Rights as a Lender. With respect to the Commitment and the Loans made, Agent, in its capacity as a Lender hereunder shall have the same rights and powers hereunder as any other Lender and may exercise the same as though it were not acting in its agency capacity, and the term "Lender" or "Lenders" shall, unless the context otherwise indicates, include the Agent in its individual capacity. The Agent may (without having to account therefor to any other Lender) as a Lender, and to the same extent as any other Lender, accept deposits from, lend money to and generally engage in any kind of banking, trust, letter of credit, agency or other business with the Borrower (and any of its Affiliates) as if it were not acting as the Agent but solely as a Lender. The Agent may accept fees and other consideration from the Borrower (in addition to the fees heretofore agreed to between the Borrower and the Agent) for services in connection with this Agreement or otherwise without having to account for the same to the Lenders. 8.5 Indemnification. The Lenders agree to indemnify the Agent, its officers, directors, agents and Affiliates, ratably in accordance with each Lender's respective Percentage, for any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of -35- any kind and nature whatsoever (INCLUDING BUT NOT LIMITED TO, THE CONSEQUENCES OF THE NEGLIGENCE OF THE AGENT) which may be imposed on, incurred by or asserted against the Agent in any way relating to or arising out of this Agreement or any other Credit Document or any other documents contemplated by or referred to herein or therein, or the transactions contemplated hereby or thereby (including, without limitation, interest, penalties, reasonable attorneys' fees and amounts paid in settlement in accordance with the terms of this Section 8, but excluding, unless a Default has occurred and is continuing, normal administrative costs and expenses incident to the performance of its agency duties hereunder) or the enforcement of any of the terms hereof or thereof or of any such other documents, INCLUDING BUT NOT LIMITED TO THE NEGLIGENCE OF THE AGENT, provided that no Lender shall be liable for any of the foregoing to the extent they arise from the gross negligence or willful misconduct of the party to be indemnified, or from the Agent's default in the express obligations of the Agent to the Lenders provided for in this Agreement. The obligations of the Lenders under this Section 8.5 shall survive the termination of this Agreement and the repayment of the Obligations. 8.6 Non-Reliance on Agent and Other Lenders. Each Lender agrees that it has received current financial information with respect to the Borrower and that it has, independently and without reliance on the Agent or any other Lender and based on such documents and information as it has deemed appropriate, made its own credit analysis of the Borrower and decision to enter into this Agreement and that it will, independently and without reliance upon the Agent or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own analysis and decisions in taking or not taking action under this Agreement or any of the other Credit Documents. The Agent shall not be required to keep itself informed as to the performance or observance by any Party of this Agreement or any of the other Credit Documents or any other document referred to or provided for herein or therein or to inspect the properties or books of the Borrower or any Party except as specifically required by the Credit Documents. Except for notices, reports and other documents and information expressly required to be furnished to the Lenders by the Agent hereunder or the other Credit Documents, the Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the affairs, financial condition or business of the Borrower or any other Party (or any of their affiliates) which may come into the possession of the Agent. Each Lender assumes all risk of loss in connection with its Percentage in the Loans to the full extent of its Percentage therein. The Agent assumes all risk of loss in connection with its Percentage in the Loans to the full extent of its Percentage therein. 8.7 Failure to Act. Except for action expressly required of the Agent, as the case may be, hereunder, or under the other Credit Documents, the Agent shall in all cases be fully justified in failing or refusing to act hereunder and thereunder unless it shall receive further assurances to its satisfaction by the Lenders of their indemnification obligations under Section 8.5 hereof against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. 8.8 Resignation of Agent. Subject to the appointment and acceptance of a successor Agent as provided below, the Agent may -36- resign at any time by giving notice thereof to the Lenders and the Borrower. Upon any such resignation, (i) the Majority Lenders without the consent of the Borrower shall have the right to appoint a successor Agent so long as such successor Agent is also a Lender at the time of such appointment and (ii) the Majority Lenders shall have the right to appoint a successor Agent that is not a Lender at the time of such appointment so long as the Borrower consents to such appointment (which consent shall not be unreasonably withheld). If no successor Agent shall have been so appointed by the Majority Lenders and accepted such appointment within 30 days after the retiring Agent's giving of notice of resignation, then the retiring Agent may, on behalf of the Lenders, and with the consent of the Borrower which shall not be unreasonably withheld, appoint a successor Agent. Any successor Agent shall be a bank which has an office in the United States and a combined capital and surplus of at least $250,000,000.00. Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations as Agent thereafter arising hereunder and under any other Credit Documents, but shall not be discharged from any liabilities for its actions as Agent prior to the date of discharge. Such successor Agent shall promptly specify by notice to the Borrower its principal office referred to in Section 2.1 and Section 2.3 hereof. After any retiring Agent's resignation hereunder as Agent, the provisions of this Section 8 shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as the Agent. 8.9 No Partnership. Neither the execution and delivery of this Agreement nor any of the other Credit Documents nor any interest the Lenders, the Agent or any of them may now or hereafter have in all or any part of the Obligations shall create or be construed as creating a partnership, joint venture or other joint enterprise between the Lenders or among the Lenders and the Agent. The relationship between the Lenders, on the one hand, and the Agent, on the other, is and shall be that of principals and agent only, and nothing in this Agreement or any of the other Credit Documents shall be construed to constitute the Agent as trustee or other fiduciary for any Lender or to impose on the Agent any duty, responsibility or obligation other than those expressly provided for herein and therein. 9. Renewal and Extension. --------------------- Neither the Agent nor any Lenders have any agreement or obligation to extend or renew the Revolving Credit Termination Date. But in the event such an extension is requested by the Borrower and any Lender decides to consider such renewal and extension request, such request and consideration will be governed by the following terms and conditions: 9.1 Procedure for Consideration of Renewal and Extension Requests. (a) The Borrower may request the Agent and the Lenders to extend the current Revolving Credit Termination Date by successive one (1) year intervals by executing and delivering to the Agent a written request for extension at least seventy-five (75) days (but not more than ninety (90) days) prior to the date one (1) year prior to the current Revolving Credit Termination -37- Date (the "Extension Request"). If all of the Lenders shall have notified the Agent on or prior to the date which is forty-five (45) days prior to the date one (1) year prior to the current Revolving Credit Termination Date that they accept such Extension Request, the Revolving Credit Termination Date shall be extended for one (1) year. If any Lender shall not have notified Agent on or prior to the date which is forty-five (45) days prior to the date one (1) year prior to the current Revolving Credit Termination Date that it accepts such Extension Request, the Revolving Credit Termination Date shall not be extended. The Agent shall promptly notify the Borrower whether the Extension Request has been accepted or rejected as well as which Lender or Lenders rejected the Borrower's Extension Request (each such Lender a "Rejecting Lender"). (b) Notwithstanding the preceding subsection (a), within thirty (30) days after notification from the Agent that the Extension Request has been rejected (a "Notice of Rejection"), and provided that the aggregate amount of Lender Commitments of the Rejecting Lenders does not exceed fifteen percent (15%) of the Commitment, the Borrower may either (i) demand that the Rejecting Lender, and upon such demand the Rejecting Lender shall promptly, assign its Lender Commitment to another financial institution subject to and in accordance with the provisions of Section 10.6 of this Agreement for a purchase price equal to the unpaid balance of principal, accrued interest, the unpaid balance of the Fee and expenses owing to the Rejecting Lender pursuant to this Agreement, or (ii) pay to the Rejecting Lender the unpaid balance of principal, accrued interest, the unpaid balance of the Fee and expenses owing to the Rejecting Lender pursuant to this Agreement, whereupon the Rejecting Lender shall no longer be a party to this Agreement or have any rights or obligations hereunder or under any other Credit Documents, and the Commitment shall immediately and permanently be reduced by an amount equal to the Lender Commitment of the Rejecting Lender. If all Rejecting Lenders have either assigned their Lender Commitments to other financial institutions as contemplated by the preceding clause (i) or have been paid the amounts specified in the preceding clause (ii), then the Borrower's Extension Request which was initially rejected shall be deemed to have been granted and accordingly the Revolving Credit Termination Date shall be extended by one (1) year, otherwise the Revolving Credit Termination Date shall not be extended. If the aggregate of Lender Commitments of the Rejecting Lenders exceeds fifteen percent (15%) of the Commitment, the Revolving Credit Termination Date shall not be extended. 9.2 Conditions to Renewal and Extension. Any agreement of the Lenders to extend the Revolving Credit Termination Date under Section 9.1 of this Agreement shall be conditioned upon, among other things, the following terms and conditions (which shall be in addition to those required by Sections 3 and 9.1 of this Agreement): (a) Execution by the Borrower of a renewal and extension agreement for each Note in Proper Form. (b) Such other documents, instruments and items as Agent or any Lender shall require in its sole discretion. 9.3 No Obligation to Renew and Extend. Notwithstanding the procedures and terms and conditions for any renewal and extension of the Revolving Credit Termination Date, neither the Agent nor any Lender has any obligation, commitment or present intent to -38- extend the Revolving Credit Termination Date, and the Revolving Credit Termination Date may not be extended except in accordance with a written agreement signed by the Agent, the Lenders, the Borrower and any other Person to be charged with compliance therewith. 10. Miscellaneous. ------------- 10.1. No Waiver. No waiver of any Default shall be deemed to be a waiver of any other Default. No failure to exercise or delay in exercising any right or power under any Credit Document shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power preclude any further or other exercise thereof or the exercise of any other right or power. No amendment, modification or waiver of any Credit Document shall be effective unless the same is in writing and signed by the Person against whom such amendment is sought to be enforced. No notice to or demand on the Borrower or any other Person shall entitle the Borrower or any other Person to any other or further notice or demand in similar or other circumstances. 10.2 Notices. All notices under the Credit Documents shall be in writing and either (i) delivered against receipt therefor, or (ii) mailed by registered or certified mail, return receipt requested, in each case addressed as set forth herein, or to such other address as a party may designate. Notices shall be deemed to have been given (whether actually received or not) when delivered (or, if mailed, on the next Business Day). Provided, however, that as between the Agent and the Lenders and among the Lenders, notice may be given by telecopy or facsimile effective upon the earlier of actual receipt or confirmation of receipt by telephone. 10.3 Venue. HARRIS COUNTY, TEXAS SHALL BE A PROPER PLACE OF VENUE TO ENFORCE PAYMENT OR PERFORMANCE OF THIS AGREEMENT AND THE OTHER CREDIT DOCUMENTS, UNLESS THE AGENT SHALL GIVE ITS PRIOR WRITTEN CONSENT TO A DIFFERENT VENUE. THE BORROWER HEREBY IRREVOCABLY SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS IN THE STATE OF TEXAS AND AGREES AND CONSENTS THAT SERVICE OF PROCESS MAY BE MADE UPON IT IN ANY PROCEEDING ARISING OUT OF ANY OF THE CREDIT DOCUMENTS BY SERVICE OF PROCESS AS PROVIDED BY TEXAS LAW. THE BORROWER HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO ANY OF THE CREDIT DOCUMENTS IN THE DISTRICT COURTS OF HARRIS COUNTY, TEXAS, OR IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF TEXAS, HOUSTON DIVISION, AND HEREBY FURTHER IRREVOCABLY WAIVES ANY CLAIMS THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. THE BORROWER (A) AGREES TO DESIGNATE AND MAINTAIN AN AGENT FOR SERVICE OF PROCESS IN THE STATE OF TEXAS IN CONNECTION WITH ANY SUCH SUIT, ACTION OR PROCEEDING AND TO DELIVER TO THE AGENT EVIDENCE THEREOF AND (B) IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH SUIT, ACTION OR PROCEEDING BY NOTICE GIVEN AS PROVIDED FOR IN THIS AGREEMENT. NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE AGENT OR THE LENDERS TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE BORROWER IN ANY JURISDICTION OR TO SERVE PROCESS IN ANY MANNER PERMITTED BY APPLICABLE LAW. THE BORROWER HEREBY IRREVOCABLY AGREES THAT ANY LEGAL ACTION OR PROCEEDING AGAINST THE AGENT OR ANY LENDER ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR THE OTHER -39- CREDIT DOCUMENTS SHALL BE BROUGHT AND MAINTAINED IN THE DISTRICT COURTS OF HARRIS COUNTY, TEXAS, OR THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF TEXAS, HOUSTON DIVISION. 10.4 Choice of Law. THIS AGREEMENT, THE NOTES AND THE OTHER CREDIT DOCUMENTS HAVE BEEN NEGOTIATED, EXECUTED AND DELIVERED IN THE STATE OF TEXAS AND SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS, INCLUDING ALL APPLICABLE FEDERAL LAW, FROM TIME TO TIME IN FORCE IN THE STATE OF TEXAS. 10.5 DTPA Waiver. The Borrower hereby waives all rights, remedies, claims, demands and causes of action based upon or related to the Texas Deceptive Trade Practices-Consumer Protection Act as described in the Texas Business & Commerce Code, Sections 17.41 et. seq. as the same pertains or may pertain to this Agreement, any of the other Credit Documents, or any of the transactions contemplated herein or therein. In furtherance of said waiver, the Borrower hereby represents and warrants to the Agent and the Lenders that (a) the Borrower is represented by legal counsel in connection with the negotiations, execution and delivery of this Agreement and the other Credit Documents; (b) the Borrower has a choice other than to enter into said waiver in that it can obtain the Loan from another institution; and (c) the Borrower does not consider itself to be in a significantly disparate bargaining position relative to the Agent and the Lenders with respect to this Agreement and the other Credit Documents. 10.6 Survival; Parties Bound; Successors and Assigns. All representations, warranties, covenants and agreements made by or on behalf of the Borrower in connection herewith shall survive the execution and delivery of the Credit Documents, shall not be affected by any investigation made by any Person, and shall bind the Borrower and its successors, trustees, receivers and assigns and inure to the benefit of the successors and assigns of the Agent and the Lenders; provided, however, that the Borrower may not assign or transfer any of its rights or obligations hereunder without the prior written consent of the Agent and all of the Lenders, and any such assignment or transfer without such consent shall be null and void. Any assignment or sale of an interest in all or any part of the Loans or a Lender Commitment shall (a) include the voting rights attributable thereto, and (b) require the consent of the Borrower and the Agent if to a Person not already a Lender, such consent not to be unreasonably withheld. None of the Lenders may assign or sell participations in all or part of any Loans other than Swing Loans, the Notes other than the Swing Loan Note, or the Commitment to any Person not already a Lender without the prior written approval of the Agent, the Borrower, and all of the other Lenders (in each case such approval not to be unreasonably withheld), but assignments and participations of all or any part of the Loans, the Notes or the Commitment may be made by and between the Lenders without the prior written consent of the Borrower or any other Lender. The Agent will not assign or sell participations in $30,000,000.00 of its Lender Commitment to any Person other than an Affiliate of the Agent. The term of this Agreement shall be until the final maturity of the Notes and the payment of all amounts due under the Credit Documents. 10.7 Counterparts. This Agreement may be executed in several identical counterparts, and by the parties hereto on separate counterparts, and each counterpart, when so executed and delivered, shall constitute an original instrument, and all such -40- separate counterparts shall constitute but one and the same instrument. 10.8. Usury Not Intended; Refund of Any Excess Payments. It is the intent of the parties in the execution and performance of this Agreement to contract in strict compliance with the usury laws of the State of Texas and the United States of America from time to time in effect. In furtherance thereof, the Agent, the Lenders and the Borrower stipulate and agree that none of the terms and provisions contained in this Agreement or the other Credit Documents shall ever be construed to create a contract to pay for the use, forbearance or detention of money with interest at a rate in excess of the Ceiling Rate and that for purposes hereof "interest" shall include the aggregate of all charges which constitute interest under such laws that are contracted for, reserved, taken, charged or received under this Agreement. In determining whether or not the interest paid or payable, under any specific contingency, exceeds the Ceiling Rate, the Borrower, the Agent and the Lenders shall, to the maximum extent permitted under applicable law, (a) characterize any nonprincipal payment as an expense, fee or premium rather than as interest, (b) exclude voluntary prepayments and the effects thereof, and (c) "spread" the total amount of interest throughout the entire contemplated term of the Loans. The provisions of this paragraph shall control over all other provisions of the Credit Documents which may be in apparent conflict herewith. 10.9 Captions. The headings and captions appearing in the Credit Documents have been included solely for convenience and shall not be considered in construing the Credit Documents. 10.10 Severability. If any provision of any Credit Documents shall be invalid, illegal or unenforceable in any respect under any applicable law, the validity, legality and enforceability of the remaining provisions shall not be affected or impaired thereby. 10.11 Disclosures. Every reference in the Credit Documents to disclosures of the Borrower to the Agent and the Lenders in writing, to the extent that such references refer to disclosures at or prior to the execution of this Agreement, shall be deemed strictly to refer only to written disclosures delivered to the Agent and the Lenders in an orderly manner concurrently with the execution hereof. 10.12 NO NOVATION. THE PARTIES HERETO HAVE ENTERED INTO THIS AGREEMENT AND THE OTHER CREDIT DOCUMENTS SOLELY TO AMEND, RESTATE AND RESTRUCTURE THE TERMS OF, AND THE OBLIGATIONS TO THE EXISTING LENDERS OWING UNDER AND IN CONNECTION WITH, THE ORIGINAL CREDIT AGREEMENT. THE PARTIES DO NOT INTEND THIS AGREEMENT NOR THE TRANSACTIONS CONTEMPLATED HEREBY TO BE, AND THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED HEREBY SHALL NOT BE CONSTRUED TO BE, A NOVATION OF ANY OF THE OBLIGATIONS OWING BY THE BORROWER UNDER OR IN CONNECTION WITH THE ORIGINAL CREDIT AGREEMENT. 10.13 LIMITATION OF LIABILITY. NO OBLIGATION OR LIABILITY WHATSOEVER OF THE BORROWER WHICH MAY ARISE AT ANY TIME UNDER THIS AGREEMENT OR ANY OBLIGATION OR LIABILITY WHICH MAY BE INCURRED BY IT PURSUANT TO ANY OTHER CREDIT DOCUMENT SHALL BE PERSONALLY BINDING UPON, NOR SHALL RESORT FOR THE ENFORCEMENT THEREOF BE HAD TO THE PRIVATE PROPERTY OF, ANY OF THE BORROWER'S TRUSTEES OR SHAREHOLDERS REGARDLESS OF WHETHER SUCH OBLIGATION OR LIABILITY IS IN THE NATURE OF CONTRACT, TORT OR OTHERWISE. -41- 10.14 ENTIRE AGREEMENT. THIS AGREEMENT AND THE OTHER CREDIT DOCUMENTS TOGETHER CONSTITUTE A WRITTEN AGREEMENT AND REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date set forth above. SECURITY CAPITAL PACIFIC TRUST /s/ Thomas L. Poe By:___________________________ Thomas L. Poe Name:_________________________ Vice President Title:________________________ Address: 7777 Market Center Avenue El Paso, Texas 79912 Attention: Secretary -42- Lender Commitment: $50,000,000.00 TEXAS COMMERCE BANK Percentage: 14.285714% NATIONAL ASSOCIATION, as Agent and as a Lender /s/ Brian M. Kouns By:___________________________ Brian M. Kouns Name:_________________________ Vice President Title:________________________ Address: 712 Main Street Houston, Texas 77002 Attention: Manager, Real Estate Group Telecopy No.: 713-216-7713 Telephone No.: Brian Kouns 713-216-5133 Lender Commitment: $50,000,000.00 WELLS FARGO REALTY ADVISORS Percentage: 14.285714% FUNDING, INCORPORATED, as Co-Agent and as a Lender /s/ Robert W. Belson By:___________________________ Robert W. Belson Name:_________________________ Vice President Title:________________________ /s/ Matoka D. Benefield By:___________________________ Matoka D. Benefield Name:_________________________ Assistant Secretary Title:________________________ Address: 2859 Paces Ferry Road Suite 1210 Atlanta, Georgia 30339 Attention: Bob Belson Telecopy No: 404-435-2262 Telephone No. Bob Belson 404-435-3800 -43- Lender Commitment: $30,000,000.00 GUARANTY FEDERAL BANK, F.S.B. Percentage: 8.571429% /s/ Phyllis Milstead By:___________________________ Phyllis Milstead Name:_________________________ Vice President Title:________________________ Address: 301 Congress, Suite 1075 Austin, Texas 78701 Attention: Phyllis Milstead Telecopy No.: 512-320-1041 Telephone No.: Phyllis Milstead 512-320-1007 Lender Commitment: $20,000,000.00 NORWEST BANK NEW MEXICO, Percentage: 5.714286% NATIONAL ASSOCIATION /s/ Bill Synnamon By:___________________________ Bill Synnamon Name:_________________________ Managing Officer Title:________________________ Address: 1048 Paseo de Peralta Santa Fe, New Mexico 87501 Attention: Bill Synnamon Telecopy No.: 505-983-6232 Telephone No.: Bill Synnamon 505-984-8500 Lender Commitment: $10,000,000.00 STATE NATIONAL BANK Percentage: 2.857143% /s/ Robert A. Estrada By:___________________________ Robert A. Estrada Name:_________________________ Senior Vice President Title:________________________ Address: 221 North Kansas El Paso, Texas 79901 Attention: Robert A. Estrada Telecopy No.: 915-546-4345 Telephone No.: Robert A. Estrada 915-546-4699 -44- Lender Commitment: $30,000,000.00 THE FIRST NATIONAL BANK OF Percentage: 8.571429% BOSTON /s/ Daniel J. Sullivan By:___________________________ Daniel J. Sullivan Name:_________________________ Vice President Title:________________________ Address: 400 Perimeter Center Terrace Suite 745 Atlanta, Georgia 30346 Attention: Daniel J. Sullivan Telecopy No.: 404-393-4166 Telephone No.: Daniel J. Sullivan 404-390-6565 Lender Commitment: $25,000,000.00 BANK OF AMERICA NATIONAL TRUST Percentage: 7.142857% AND SAVINGS ASSOCIATION /s/ Mary Bowman By:___________________________ Mary Bowman Name:_________________________ Vice President Title:________________________ Address: 555 South Flower Street 6th Floor Los Angeles, California 90071 Attention: Kelly M. Allred Telecopy No.: 213-228-5389 Telephone No.: Kelly M. Allred 213-228-4027 Lender Commitment: $25,000,000.00 FIRST INTERSTATE BANK OF TEXAS, Percentage: 7.142857% N.A. /s/ Todd Graham By:___________________________ Todd Graham Name:_________________________ Vice President Title:________________________ Address: 1000 Louisiana 3rd Floor - Real Estate Houston, Texas 77002 Attention: Todd C. Graham Telecopy No: 713-250-4894 Telephone No. Todd C. Graham 713-250-1621 -45- Lender Commitment: $25,000,000.00 FLEET NATIONAL BANK Percentage: 7.142857% /s/ John G. Christensen By:___________________________ John G. Christensen Name:_________________________ Vice President Title:________________________ Address: 111 Westminster, Suite 800 Providence, Rhode Island 02903 Attention: John Christensen Telecopy No: 401-278-3674 Telephone No. John Christensen 401-278-6328 Lender Commitment: $20,000,000.00 THE NIPPON CREDIT BANK, LTD. Percentage: 5.714286% /s/ Neil J. Crawford By:____________________________ Neil J. Crawford Name:__________________________ Assistant Vice President Title:_________________________ Address: 245 Park Avenue 30th Floor New York, New York 10167 Attention: Neil Crawford Telecopy No: 212-490-3895 Telephone No. Neil Crawford 212-984-1319 Lender Commitment: $15,000,000.00 BANK HAPOALIM, B.M., Percentage: 4.285714% Los Angeles Branch /s/ Robert Polleb By:___________________________ Robert Polleb Name:_________________________ Vice President Title:________________________ By: /s/ C. M. Ciebiera Name: C. M. Ciebiera Title: Vice President Address: 6222 Wilshire Blvd. Los Angeles, California 90048 Attention: Shohre Afshar or Lori Lake Telecopy No: 213-937-1439 Telephone No. Shohre Afshar or Lori Lake 213-937-2322 -46- Lender Commitment: $15,000,000.00 CORESTATES BANK, N.A. Percentage: 4.285714% /s/ Kathleen M. Palmer By:____________________________ Kathleen M. Palmer Name:__________________________ Vice President Title:_________________________ Address: 1339 Chestnut Street Real Estate Department Philadelphia, Pennsylvania 19107 Attention: R. Scott Relick Telecopy No: 215-786-6381 Telephone No. R. Scott Relick 215-786-4224 Lender Commitment: $17,500,000.00 BANK ONE, ARIZONA, NA Percentage: 5.000000% /s/ Daniel A. Nunes By:____________________________ Daniel A. Nunes Name:__________________________ Assistant Vice President Title:_________________________ Address: Real Estate Banking Group 241 N. Central, 20th Floor Phoenix, Arizonia 85004 Attention: Daniel Nunes Telecopy No: 602-221-2977 Telephone No. Daniel Nunes 602-221-1909 Lender Commitment: $17,500,000.00 UNION BANK Percentage: 5.000000% /s/ Michael Stirrat By:____________________________ Michael Stirrat Name:__________________________ Vice President Title:_________________________ /s/ Kathy Ormseth By:____________________________ Kathy Ormseth Name:__________________________ Vice President & Manager Title:_________________________ Address: Real Estate Capital Markets Division 99 Almaden Boulevard San Jose, California 95113 Attention: Michael Stirrat Telecopy No: 408-294-6631 Telephone No. Michael Stirrat 408-279-7222 -47- -48- The undersigned legal counsel for the Borrower signs this Agreement not as a party hereto but solely for the purpose of complying with the provisions of Section 17.42(a)(3) of the Texas Deceptive Trade Practices-Consumer Protection Act described in Section 10.5. MAYER, BROWN & PLATT /s/ Edward J. Schneidman By:___________________________ Edward J. Schneidman Name:_________________________ EXHIBITS -------- A - Officer's Certificate B - Rate Designation Notice C - Note Form C-1 - Swing Loan Note D - Request for Loan E - Legal Opinion F - Target Market Cities -49- EX-10.12 8 MGMT. AGMT. EXHIBIT 10.12 FIRST AMENDMENT TO THIRD AMENDED AND RESTATED REIT MANAGEMENT AGREEMENT THIS FIRST AMENDMENT TO THIRD AMENDED AND RESTATED REIT MANAGEMENT AGREEMENT (this "Amendment") is made and entered into as of the 1st day of October, 1994, by and between Property Trust of America, a Maryland real estate investment trust (the "Trust"), and Security Capital (Southwest) Incorporated, a Delaware corporation (the "REIT Manager"). WHEREAS, the Trust and the REIT Manager are parties to that certain Third Amended and Restated REIT Management Agreement, dated as of the 1st day of March, 1994 (the "Agreement"), pursuant to which the REIT Manager provides strategic planning, day-to-day management, accounting, reporting, financing and other services to the Trust, subject to the supervision of the Board of Trustees of the Trust; and WHEREAS, the REIT Manager receives a monthly fee pursuant to the Agreement based on the Trust's cash flow and the REIT Manager also currently receives incentive fees on gains realized by the Trust on sales, exchanges or other dispositions of Trust assets; and WHEREAS, the REIT Manager believes that it is important for the Trust to continue to evaluate its assets and from time to time exchange assets with less favorable cash flow prospects for assets with greater cash flow prospects, and the REIT Manager believes that incentive fees should not be paid on exchanges of assets because they do not generate capital gain proceeds for distribution to the Trust's shareholders and the Trust and the REIT Manager desire to amend the Agreement accordingly; and WHEREAS, the Agreement currently provides for a term ending on December 31, 1994, renewable annually by the Trust, and the Trust and the REIT Manager desire to amend the Agreement to provide for a term ending on March 1, 1995, renewable annually by the Trust; NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Trust and the REIT Manager agree that the Agreement is hereby amended as follows: A. Section 1.1(r) of the Agreement is amended and restated in its entirety as follows: (r) "Sale" means any sale or other disposition for cash proceeds of any Trust Property or interest therein, condemnation, recovery of damage award or insurance proceeds (other than business or rental interruption insurance proceeds and the portion of any condemnation or damage award or insurance proceeds used to repair or restore a Trust Property). B. Section 3.1(b)(1)(ii) of the Agreement is amended and restated in its entirety as follows: (ii) In the event that the REIT Manager accomplishes an exchange transaction that is nontaxable under the Code with respect to any Trust Property, for purposes of computing the Incentive REIT Management Fee (or, in the case of Trust Properties acquired or placed in service after March 1, 1991, the offset against Incentive REIT Management Fees pursuant to Section 3.1(b)(1)(i)) related to a subsequent Sale of the Trust Property received in exchange for the original Trust Property, the original cost of the new Trust Property shall be deemed to be the same as the original cost plus the cost of any subsequent capital improvements of the original Trust Property exchanged for such new Trust Property. C. Section 4.2 of the Agreement is amended by deleting the date "December 31, 1994" from the first sentence thereof and replacing such date with the date "March 1, 1995." -2- IN WITNESS WHEREOF, the Trust and the REIT Manager have executed this Amendment as of the day and year first above written. PROPERTY TRUST OF AMERICA By: /s/ Paul E. Szurek ------------------------------------- Paul E. Szurek Secretary Address: 7777 Market Center Avenue El Paso, Texas 79912 SECURITY CAPITAL (SOUTHWEST) INCORPORATED By: /s/ Constance B. Moore -------------------------------------- Constance B. Moore Managing Director Address: 125 Lincoln Avenue Santa Fe, New Mexico 87501 -3- EX-10.13 9 MGMT. AGMT. EXHIBIT 10.13 SECOND AMENDMENT TO THIRD AMENDED AND RESTATED REIT MANAGEMENT AGREEMENT THIS SECOND AMENDMENT TO THIRD AMENDED AND RESTATED REIT MANAGEMENT AGREEMENT (this "Amendment") is made and entered into as of the 6th day of December, 1994, by and between Property Trust of America, a Maryland real estate investment trust (the "Trust"), and Security Capital (Southwest) Incorporated, a Delaware corporation (the "REIT Manager"). WHEREAS, the Trust and the REIT Manager are parties to that certain Third Amended and Restated REIT Management Agreement, dated as of March 1, 1994, as amended by that certain First Amendment thereto, dated as of October 1, 1994 (as so amended, the "Agreement"), pursuant to which the REIT Manager provides strategic planning, day-to-day management, accounting, reporting, financing and other services to the Trust, subject to the supervision of the Board of Trustees of the Trust; and WHEREAS, the REIT Manager receives a monthly fee pursuant to the Agreement based on the Trust's cash flow and the REIT Manager also currently is entitled to receive incentive fees on gains realized by the Trust on dispositions of Trust assets; and WHEREAS, the REIT Manager believes that it is important for the Trust to continue to evaluate its assets and from time to time dispose of assets with less favorable cash flow prospects and the REIT Manager believes that incentive fees should not be paid on such dispositions so that the Trust may more fully invest the proceeds in new-income producing assets and the Trust and the REIT Manager desire to amend the Agreement to eliminate the payment of all incentive fees to the REIT Manager under the Agreement; and WHEREAS, the Agreement currently prohibits the REIT Manager from recommending or consummating any transaction which would involve the acquisition by the Trust of property in which the REIT Manager or an Affiliate thereof has an ownership interest; and WHEREAS, the Trust and the REIT Manager desire to amend the Agreement to provide that the REIT Manager may recommend and consummate transactions which involve the acquisition or sale by the Trust of property from or to PTR Development Services Incorporated ("PTR Development Services") or in which PTR Development Services has an interest provided that the Trust owns a substantial majority of the economic interest in PTR Development Services and that a majority of the Trustees of the Trust (including a majority of the Independent Trustees) not otherwise interested in such transaction approve the transaction as being fair, competitive and commercially reasonable and no less favorable to the Trust than acquisitions or sales between unaffiliated parties under similar circumstances; NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Trust and the REIT Manager agree that the Agreement is hereby amended as follows: A. Sections 1.1(j), 1.1(o), 1.1(r) and 3.1(b) of the Agreement are deleted in their entirety; provided, however, that the various sections and paragraphs of the Agreement shall not be renumbered in any way as a result of such deletions. B. Clause (v) of Section 1.1(t) is deleted in its entirety and clause (vi) of such section is renumbered as clause (v) thereof. C. Section 3.1(c) of the Agreement is amended by deleting the words "and the Incentive REIT Management Fee, if any," from clause (ii) of the first sentence thereof and by deleting the words "and Incentive REIT Management Fee" from the second sentence thereof. D. Section 3.6(a) of the Agreement is amended by (i) deleting the period at the end of the first sentence of such section and replacing it with the clause: "; provided, however, that the REIT Manager may recommend and consummate transactions which involve the acquisition or sale by the Trust of property from or to PTR Development Services Incorporated ("PTR Development Services") or in which PTR Development Services has an interest, provided that the Trust owns a substantial majority of the economic interest in PTR Development Services and that a majority of the Trustees of the Trust (including a majority of the Independent Trustees) not otherwise interested in such transaction approve the transaction as being fair, competitive and commercially reasonable and no less favorable to the Trust than acquisitions or sales between unaffiliated parties under similar circumstances." and (ii) deleting the period at the end of the second sentence of such section and replacing it with the clause: "; provided, however, that PTR Development Services may purchase or otherwise acquire from the Trust any Trust Property, subject to and in accordance with the provisions of the first sentence of this Section 3.6 (a)." E. Section 4.3 of the Agreement is amended by deleting the words ", and thereafter shall pay any fees payable to the REIT Manager pursuant to Section 3.1(b) hereof" at the end of such section. -2- IN WITNESS WHEREOF, the Trust and the REIT Manager have executed this Amendment as of the day and year first above written. PROPERTY TRUST OF AMERICA By: /s/ Paul E. Szurek ----------------------- Paul E. Szurek Secretary Address: 7777 Market Center Avenue El Paso, Texas 79912 SECURITY CAPITAL (SOUTHWEST) INCORPORATED By: /s/ Constance B. Moore ----------------------- Constance B. Moore Managing Director Address: 125 Lincoln Avenue Santa Fe, New Mexico 87501 -3- EX-10.14 10 MGMT. AGMT. EXHIBIT 10.14 THIRD AMENDMENT TO THIRD AMENDED AND RESTATED REIT MANAGEMENT AGREEMENT THIS THIRD AMENDMENT TO THIRD AMENDED AND RESTATED REIT MANAGEMENT AGREEMENT (this "Amendment") is made and entered into as of the 23rd day of March, 1995, by and between Security Capital Pacific Trust (formerly known as Property Trust of America), a Maryland real estate investment trust (the "Trust"), and Security Capital Pacific Incorporated (formerly known as Security Capital (Southwest) Incorporated), a Delaware corporation (the "REIT Manager"). WHEREAS, the Trust and the REIT Manager are parties to that certain Third Amended and Restated REIT Management Agreement, dated as of March 1, 1994, as amended by that certain First Amendment thereto, dated as of October 1, 1994 and as further amended by that certain Second Amendment thereto, dated as of December 6, 1994 (as so amended, the "Agreement"), pursuant to which the REIT Manager provides strategic planning, day-to-day management, accounting, reporting, financing and other services to the Trust, subject to the supervision of the Board of Trustees of the Trust; and WHEREAS, the Agreement currently provides for a term ending on March 1, 1995, renewable annually by the Trust, and the Trust and the REIT Manager desire to amend the Agreement to provide for a term ending on June 30, 1995, renewable annually by the Trust; NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Trust and the REIT Manager agree that the Agreement is hereby amended as follows: A. Section 4.2 of the Agreement is amended by deleting the date "March 1, 1995" from the first sentence thereof and replacing such date with the date "June 30, 1995." IN WITNESS WHEREOF, the Trust and the REIT Manager have executed this Amendment as of the day and year first above written. SECURITY CAPITAL PACIFIC TRUST By: /s/ Paul E. Szurek ------------------------ Paul E. Szurek Secretary Address: 7777 Market Center Avenue El Paso, Texas 79912 SECURITY CAPITAL PACIFIC INCORPORATED By: /s/ Constance B. Moore ------------------------- Constance B. Moore Managing Director Address: 125 Lincoln Avenue Santa Fe, New Mexico 87501 2 EX-23.1 11 CONSENT EXHIBIT 23.1 INDEPENDENT AUDITORS' CONSENT The Board of Trustees Security Capital Pacific Trust: We consent to incorporation by reference in the registration statements No. 33-86444 (Form S-3), No. 33-78402 (Form S-3), No. 33-71040 (Form S-3), No. 33- 44631 (Form S-3) and No. 33-25317 (Form S-8) of Security Capital Pacific Trust (formerly Property Trust of America) of our report dated February 28, 1995, except as to note 10, which is as of March 23, 1995, relating to the balance sheets of Security Capital Pacific Trust as of December 31, 1994 and 1993, and the related statements of earnings, shareholders' equity, and cash flows and related schedule for each of the years in the three-year period ended December 31, 1994, which report appears in the December 31, 1994 annual report on Form 10-K of Security Capital Pacific Trust. KPMG Peat Marwick LLP El Paso, Texas March 29, 1995 EX-27.1 12 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the Form 10-K for the year ended December 31, 1994 and is qualified in its entirety by reference to such financial statements. 1,000 YEAR DEC-31-1994 JAN-01-1994 DEC-31-1994 8,092 0 24,254 0 0 0 1,296,288 46,199 1,295,778 0 93,624 50,621 0 230,000 560,021 1,295,778 183,472 186,105 0 118,344 0 1,600 19,442 30,619 0 30,619 0 0 0 30,619 0.66 0.66