-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GRnlWr/BKsWUqerRGVDau9i/Y35NHPZBgN9G3ASPHGyjz5ZkJkDPjvnfBf+ZFyBN 05OrOZACS/f0oAlrT5fM2g== 0000912057-01-539008.txt : 20020410 0000912057-01-539008.hdr.sgml : 20020410 ACCESSION NUMBER: 0000912057-01-539008 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: EQUITY RESIDENTIAL PROPERTIES TRUST CENTRAL INDEX KEY: 0000906107 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 363877868 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-12252 FILM NUMBER: 1782875 BUSINESS ADDRESS: STREET 1: TWO N RIVERSIDE PLZ STREET 2: STE 400 CITY: CHICAGO STATE: IL ZIP: 60606 BUSINESS PHONE: 3124741300 MAIL ADDRESS: STREET 1: TWO N RIVERSIDE PLAZA STREET 2: SUITE 450 CITY: CHICAGO STATE: IL ZIP: 60606 10-Q 1 a2063241z10-q.txt FORM 10-Q FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended SEPTEMBER 30, 2001 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number: 1-12252 EQUITY RESIDENTIAL PROPERTIES TRUST (Exact Name of Registrant as Specified in Its Charter) MARYLAND 13-3675988 (State or Other Jurisdiction of (I.R.S. Employer Identification No.) Incorporation or Organization) TWO NORTH RIVERSIDE PLAZA, CHICAGO, ILLINOIS 60606 (Address of Principal Executive Offices) (Zip Code) (312) 474-1300 (Registrant's Telephone Number, Including Area Code) 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 --- APPLICABLE ONLY TO CORPORATE USERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: At November 1, 2001, 270,800,114 of the Registrant's Common Shares of Beneficial Interest were outstanding. EQUITY RESIDENTIAL PROPERTIES TRUST CONSOLIDATED BALANCE SHEETS (AMOUNTS IN THOUSANDS EXCEPT FOR SHARE AMOUNTS) (UNAUDITED)
SEPTEMBER 30, DECEMBER 31, 2001 2000 -------------- ------------ ASSETS Investment in real estate Land $ 1,827,926 $ 1,770,019 Depreciable property 10,990,785 10,782,311 Construction in progress 81,062 39,130 -------------- ------------ 12,899,773 12,591,460 Accumulated depreciation (1,621,752) (1,352,236) -------------- ------------ Investment in real estate, net of accumulated depreciation 11,278,021 11,239,224 Real estate held for disposition 4,102 51,637 Cash and cash equivalents 110,807 23,772 Investment in mortgage notes, net - 77,184 Investments in unconsolidated entities 351,947 316,540 Rents receivable 4,070 1,801 Deposits - restricted 157,299 231,639 Escrow deposits - mortgage 79,350 70,470 Deferred financing costs, net 31,588 29,706 Rental furniture, net 23,897 60,183 Property and equipment, net 3,419 7,620 Goodwill, net 48,218 67,589 Other assets 101,899 86,601 -------------- ------------ Total assets $ 12,194,617 $ 12,263,966 ============== ============ LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Mortgage notes payable $ 3,268,935 $ 3,230,611 Notes, net 2,419,245 2,120,079 Lines of credit - 355,462 Accounts payable and accrued expenses 135,153 107,818 Accrued interest payable 77,769 51,877 Rents received in advance and other liabilities 70,535 100,819 Security deposits 48,632 46,272 Distributions payable 144,535 18,863 -------------- ------------ Total liabilities 6,164,804 6,031,801 -------------- ------------ COMMITMENTS AND CONTINGENCIES Minority Interests: Operating Partnership 631,221 609,734 Partially Owned Properties 3,538 2,884 -------------- ------------ Total Minority Interests 634,759 612,618 -------------- ------------ Shareholders' equity: Preferred Shares of beneficial interest, $.01 par value; 100,000,000 shares authorized; 11,387,345 shares issued and outstanding as of September 30, 2001 and 20,003,166 shares issued and outstanding as of December 31, 2000 967,741 1,183,136 Common Shares of beneficial interest, $.005 par value; 350,000,000 shares authorized; 270,375,138 shares issued and outstanding as of September 30, 2001 and 265,232,750 shares issued and outstanding as of December 31, 2000 1,352 1,326 Paid in capital 4,840,636 4,739,782 Employee notes (4,127) (4,346) Distributions in excess of accumulated earnings (385,160) (300,351) Accumulated other comprehensive income (25,388) - -------------- ------------ TOTAL SHAREHOLDERS' EQUITY 5,395,054 5,619,547 -------------- ------------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 12,194,617 $ 12,263,966 ============== ============
SEE ACCOMPANYING NOTES 2 EQUITY RESIDENTIAL PROPERTIES TRUST CONSOLIDATED STATEMENTS OF OPERATIONS (AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA) (UNAUDITED)
NINE MONTHS ENDED QUARTER ENDED SEPTEMBER 30, SEPTEMBER 30, ----------------------------- -------------------------- 2001 2000 2001 2000 ----------------------------- -------------------------- REVENUES Rental income $ 1,556,812 $ 1,454,019 $ 529,141 $ 501,279 Fee and asset management 5,805 4,711 1,665 1,876 Interest income - investment in mortgage notes 8,786 8,282 23 2,783 Interest and other income 18,240 19,009 6,529 10,624 Furniture income 45,051 15,167 15,024 15,167 ------------ ------------- ----------- ----------- Total revenues 1,634,694 1,501,188 552,382 531,729 ------------ ------------- ----------- ----------- EXPENSES Property and maintenance 420,365 369,452 143,715 141,607 Real estate taxes and insurance 143,015 141,420 46,240 46,419 Property management 56,302 56,204 19,760 18,444 Fee and asset management 5,358 3,647 1,888 1,545 Depreciation 341,014 334,840 115,908 110,328 Interest: Expense incurred 287,329 285,337 96,946 95,074 Amortization of deferred financing costs 4,338 4,063 1,528 1,360 General and administrative 23,604 19,354 9,525 6,138 Furniture expenses 45,390 10,361 14,891 10,361 Amortization of goodwill 2,852 767 928 767 Impairment on furniture rental business 60,000 - 60,000 - Impairment on technology investments 7,968 - 1,193 - ------------ ------------- ----------- ----------- Total expenses 1,397,535 1,225,445 512,522 432,043 ------------ ------------- ----------- ----------- Income before allocation to Minority Interests, income from investments in unconsolidated entities, net gain on sales of real estate, extraordinary items and cumulative effect of change in accounting principle 237,159 275,743 39,860 99,686 Allocation to Minority Interests: Operating Partnership (22,666) (32,388) (6,192) (13,256) Partially Owned Properties (1,523) 145 (1,285) (12) Income from investments in unconsolidated entities 20,252 14,589 8,029 5,525 Net gain on sales of real estate 100,132 165,025 53,567 77,373 ------------ ------------- ----------- ----------- Income before extraordinary items and cumulative effect of change in accounting principle 333,354 423,114 93,979 169,316 Extraordinary items (22) - (128) - Cumulative effect of change in accounting principle (1,270) - - - ------------ ------------- ----------- ----------- Net income 332,062 423,114 93,851 169,316 Preferred distributions (81,759) (83,597) (24,340) (27,943) ------------ ------------- ----------- ----------- Net income available to Common Shares $ 250,303 $ 339,517 $ 69,511 $ 141,373 ============ ============= =========== =========== Net income per share - basic $ 0.94 $ 1.31 $ 0.26 $ 0.54 ============ ============= =========== =========== Net income per share - diluted $ 0.93 $ 1.30 $ 0.26 $ 0.53 ============ ============= =========== =========== Weighted average Common Shares outstanding - basic 266,614 258,870 268,253 262,824 ============ ============= =========== =========== Weighted average Common Shares outstanding - diluted 294,661 289,894 296,391 304,988 ============ ============= =========== =========== Distributions declared per Common Share outstanding $ 1.2475 $ 1.1675 $ 0.4325 $ 0.4075 ============ ============= =========== ===========
SEE ACCOMPANYING NOTES 3 EQUITY RESIDENTIAL PROPERTIES TRUST CONSOLIDATED STATEMENTS OF CASH FLOWS (AMOUNTS IN THOUSANDS) (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, ----------------------------- 2001 2000 ----------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 332,062 $ 423,114 ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES: ALLOCATION TO MINORITY INTERESTS: Operating Partnership 22,666 32,388 Partially Owned Properties 1,523 (145) Cumulative effect of change in accounting principle 1,270 - Depreciation 349,313 335,844 Amortization of deferred financing costs 4,338 4,063 Amortization of discount on investment in mortgage notes (2,256) - Amortization of goodwill 2,852 767 Amortization of discounts and premiums on debt (1,424) (1,725) Amortization of deferred settlements on interest rate protection agreements 533 290 Impairment on furniture rental business 60,000 - Impairment on technology investments 7,968 - Income from investments in unconsolidated entities (20,252) (14,589) Net gain on sales of real estate (100,132) (165,025) Extraordinary items 22 - Unrealized gain on interest rate protection agreements (161) - Book value of furniture sales and rental buy outs 8,703 4,802 Compensation paid with Company Common Shares 12,298 4,300 CHANGES IN ASSETS AND LIABILITIES: (Increase) decrease in rents receivable (2,069) 44 Decrease in deposits - restricted 4,538 3,660 Additions to rental furniture (17,827) (7,477) (Increase) in other assets (17,630) (7,285) Increase in accounts payable and accrued expenses 25,535 39,186 Increase in accrued interest payable 25,702 22,612 (Decrease) in rents received in advance and other liabilities (7,628) (9,755) Increase in security deposits 885 14 ----------- ----------- Net cash provided by operating activities 690,829 665,083 ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Investment in real estate (296,710) (238,055) Improvements to real estate (108,310) (100,347) Additions to non-real estate property (5,210) (3,919) Interest capitalized for real estate under construction (2,159) (827) Proceeds from disposition of real estate, net 452,060 416,603 Investment in property and equipment (2,185) (416) Principal receipts on investment in mortgage notes 61,419 5,287 Investments in unconsolidated entities (69,195) (122,535) Distributions from unconsolidated entities 26,311 15,077 Proceeds from refinancing of unconsolidated entities, net 5,691 1,695 Proceeds from disposition of unconsolidated entities, net 359 4,602 Decrease (increase) in deposits on real estate acquisitions, net 98,582 (154,711) (Increase) decrease in mortgage deposits (4,167) 2,283 Purchase of management contract rights - (779) Consolidation of previously Unconsolidated Properties 52,841 (163) Business combinations, net of cash acquired (8,231) (71,228) Other investing activities, net 989 (2,950) ----------- ----------- Net cash provided by (used for) investing activities 202,085 (250,383) ----------- -----------
SEE ACCOMPANYING NOTES 4 EQUITY RESIDENTIAL PROPERTIES TRUST CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) (AMOUNTS IN THOUSANDS) (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, --------------------------- 2001 2000 --------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Loan and bond acquisition costs $ (4,383) (2,392) MORTGAGE NOTES PAYABLE: Proceeds, net 59,312 389,051 Lump sum payoffs (315,302) (119,412) Scheduled principal repayments (24,210) (19,930) Prepayment premiums (201) - NOTES, NET: Proceeds, net 299,316 - Lump sum payoffs - (208,000) Scheduled principal repayments (4,649) - LINES OF CREDIT: Proceeds 436,491 209,305 Repayments (791,953) (505,179) (Payments) proceeds from settlement of interest rate protection agreements (7,360) 7,055 Proceeds from sale of Common Shares 7,277 5,901 Proceeds from sale of Preferred Shares/Units 48,500 137,000 Proceeds from exercise of options 56,326 18,964 Redemption of Preferred Shares (210,500) - Payment of offering costs (1,535) (3,637) DISTRIBUTIONS: Common Shares (218,632) (197,113) Preferred Shares/Units (82,887) (80,412) Minority Interests - Operating Partnership (19,738) (18,923) Minority Interests - Partially Owned Properties (31,970) (617) Principal receipts on employee notes, net 219 254 Principal receipts on other notes receivable, net - 510 ------------ ---------- Net cash (used for) financing activities (805,879) (387,575) ------------ ---------- Net increase in cash and cash equivalents 87,035 27,125 Cash and cash equivalents, beginning of period 23,772 29,117 ------------ ---------- Cash and cash equivalents, end of period $ 110,807 $ 56,242 ============ ========== SUPPLEMENTAL INFORMATION: Cash paid during the period for interest $ 270,849 264,582 ============ ========== Mortgage loans assumed through real estate acquisitions $ 45,918 $ 38,442 ============ ========== Net real estate contributed in exchange for OP Units or preference units $ - $ 4,707 ============ ========== Mortgage loans (assumed) by purchaser in real estate dispositions $ (28,231) $ (220,000) ============ ========== Transfers to real estate held for disposition $ 4,102 224,553 ============ ========== Mortgage loans recorded as a result of consolidation of previously Unconsolidated Properties $ 301,502 $ 65,095 ============ ========== Net (assets) liabilities recorded as a result of consolidation of previously Unconsolidated Properties $ (20,839) 792 ============ ==========
SEE ACCOMPANYING NOTES 5 EQUITY RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. BUSINESS Equity Residential Properties Trust, formed in March 1993 ("EQR"), is a self-administered and self-managed equity real estate investment trust ("REIT"). As used herein, the term "Company" means EQR, and its subsidiaries, as the survivor of the mergers between EQR and each of Wellsford Residential Property Trust, Evans Withycombe Residential, Inc., Merry Land & Investment Company, Inc. and Lexford Residential Trust (collectively, the "Mergers"). The Company also includes the businesses formerly operated by Globe Business Resources, Inc. ("Globe"), Temporary Quarters, Inc. ("TQ") and Grove Property Trust ("Grove"). The Company has elected to be taxed as a REIT under Section 856(c) of the Internal Revenue Code 1986, as amended (the "Code"). The Company is engaged in the acquisition, disposition, ownership, management and operation of multifamily properties. As of September 30, 2001, the Company owned or had interests in a portfolio of 1,081 multifamily properties containing 225,590 apartment units (individually a "Property" and collectively the "Properties") consisting of the following:
Number of Number of Properties Units -------------------------------------------------------------- Wholly Owned Properties 961 201,089 Partially Owned Properties 36 6,963 Unconsolidated Properties 84 17,538 -------------------------------------------------------------- Total Properties 1,081 225,590 ==============================================================
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) and certain reclassifications considered necessary for a fair presentation have been included. Certain reclassifications have been made to the prior period financial statements in order to conform to the current year presentation. Operating results for the nine months ended September 30, 2001 are not necessarily indicative of the results that may be expected for the year ended December 31, 2001. The balance sheet at December 31, 2000 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. For further information, including definitions for capitalized terms, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 2000. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES In the normal course of business, the Company is exposed to the effect of interest rate changes. The Company limits these risks by following established risk management policies and procedures including the use of derivatives. 6 The Company has a policy of only entering into contracts with major financial institutions based upon their credit ratings and other factors. When viewed in conjunction with the underlying and offsetting exposure that the derivatives are designed to hedge, the Company has not sustained a material loss from those instruments nor does it anticipate any material adverse effect on its net income or financial position in the future from the use of derivatives. On January 1, 2001, the Company adopted SFAS No. 133/138, which requires an entity to recognize all derivatives as either assets or liabilities in the statement of financial position and to measure those instruments at fair value. Additionally, the fair value adjustments will affect either shareholders' equity or net income depending on whether the derivative instruments qualify as a hedge for accounting purposes and, if so, the nature of the hedging activity. When the terms of an underlying transaction are modified, or when the underlying transaction is terminated or completed, all changes in the fair value of the instrument are marked-to-market with changes in value included in net income each period until the instrument matures. Any derivative instrument used for risk management that does not meet the hedging criteria is marked-to-market each period. As of January 1, 2001, the adoption of the new standard resulted in derivative instruments reported on the balance sheet as liabilities of approximately $6.6 million; an adjustment of approximately $5.3 million to "Accumulated Other Comprehensive Income", which are gains and losses not affecting retained earnings in the Consolidated Statement of Shareholders' Equity; and a charge of approximately $1.3 million as a cumulative effect of change in accounting principle in the Consolidated Statement of Operations. The Company employs derivative financial instruments to hedge qualifying anticipated transactions. Gains and losses are deferred and recognized in net income in the same period that the underlying transaction occurs, expires or is otherwise terminated. As of September 30, 2001, there were approximately $25.4 million in deferred losses, net, included in accumulated other comprehensive income. At September 30, 2001, the Company had entered into swaps which have been designated as cash flow hedges with an aggregate notional amount of $626.4 million at interest rates ranging from 3.65125% to 6.15% maturing at various dates ranging from 2003 to 2007 with a net liability fair value of $27.1 million; and swaps which have been designated as fair value hedges with an aggregate notional amount of $296.4 million at interest rates ranging from 4.458% to 7.25% maturing at various dates ranging from 2003 to 2005 with a net asset fair value of $13.1 million. On September 30, 2001, the net derivative instruments were reported at their fair value as other liabilities of approximately $14.0 million. Within the next twelve months the Company expects to recognize an estimated $7.6 million of accumulated other comprehensive income as additional interest expense. OTHER In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No. 141, BUSINESS COMBINATIONS, and SFAS No. 142, GOODWILL AND OTHER INTANGIBLE ASSETS. SFAS Nos. 141 and 142 require companies to account for all business combinations using the purchase method of accounting and to eliminate the amortization of goodwill in favor of a periodic impairment based approach. SFAS Nos. 141 and 142 will be effective for fiscal years beginning after December 15, 2001. The Company will adopt the standards effective January 1, 2002, and does not anticipate that the adoptions will have a material impact on the Company's financial condition and results of operations. In August 2001, the FASB issued SFAS No. 144, ACCOUNTING FOR THE IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS, which is effective for fiscal years beginning after December 15, 2001. The Company will adopt the standard effective January 1, 2002, and does not anticipate that the adoption will have a material impact on the Company's financial condition and results of operations. 7 3. SHAREHOLDERS' EQUITY AND MINORITY INTERESTS On October 11, 2001, the Company effected a two-for-one split of its common shares and OP Units to shareholders and unit holders of record as of September 21, 2001. All Common Shares and OP Units presented have been retroactively adjusted to reflect the common share and OP Unit split. The following table presents the changes in the Company's issued and outstanding Common Shares for the nine months ended September 30, 2001:
========================================================== 2001 ---------------------------------------------------------- Common Shares outstanding at January 1, 265,232,750 COMMON SHARES ISSUED: Conversion of Series E Preferred Shares 212,444 Conversion of Series H Preferred Shares 6,972 Employee Share Purchase Plan 266,694 Dividend Reinvestment - DRIP Plan 28,462 Share Purchase - DRIP Plan 21,752 Exercise of options 2,712,714 Restricted share grants, net 756,598 Conversion of OP Units 1,136,752 ---------------------------------------------------------- Common Shares outstanding at September 30, 270,375,138 ==========================================================
The equity positions of various individuals and entities that contributed their properties to the Operating Partnership in exchange for OP Units are collectively referred to as the "Minority Interests - Operating Partnership". As of September 30, 2001, the Minority Interests - Operating Partnership held 23,876,662 OP Units. As a result, the Minority Interests - Operating Partnership had an 8.11% interest in the Operating Partnership at September 30, 2001. Assuming conversion of all OP Units into Common Shares, total Common Shares outstanding at September 30, 2001 would have been 294,251,800. Net proceeds from the Company's Common Share and Preferred Share offerings (including proceeds from exercise of options for Common Shares) are contributed by the Company to the Operating Partnership in return for an increased ownership percentage and are treated as capital transactions in the Company's Consolidated Financial Statements. As a result, the net offering proceeds from Common Shares are allocated between shareholders' equity and Minority Interests - Operating Partnership to account for the change in their respective percentage ownership of the underlying equity of the Operating Partnership. During the nine months ended September 30, 2001, the Company, through a subsidiary of the Operating Partnership, issued preference units with an equity value of $48.5 million, receiving net proceeds of $47.3 million: - 510,000 7.875% Series G Cumulative Redeemable Preference Units (known as "Preference Interests") with an equity value of $25.5 million. The liquidation value of these units is $50 per unit. The 510,000 units are exchangeable into 510,000 shares of 7.875% Series M-4 Cumulative Redeemable Preferred Shares of Beneficial Interest of the Company. Dividends for the Series G Preference Interests or the Series M-4 Preferred Shares are payable quarterly at the rate of $3.9375 per unit/share per year. - 190,000 7.625% Series H Cumulative Convertible Redeemable Preference Units with an equity value of $9.5 million. The liquidation value of these units is $50 per unit. The 190,000 units are exchangeable into 190,000 shares of 7.625% Series M-5 Convertible 8 Cumulative Redeemable Preferred Shares of Beneficial Interest of the Company or 287,052 Common Shares beginning March 2011. Dividends for the Series H Preference Interests or the Series M-5 Preferred Shares are payable quarterly at the rate of $3.8125 per unit/share per year. - 270,000 7.625% Series I Cumulative Convertible Redeemable Preference Units with an equity value of $13.5 million. The liquidation value of these units is $50 per unit. The 270,000 units are exchangeable into 270,000 shares of 7.625% Series M-6 Convertible Cumulative Redeemable Preferred Shares of Beneficial Interest of the Company or 392,634 Common Shares beginning June 2011. Dividends for the Series I Preference Interests or the Series M-6 Preferred Shares are payable quarterly at the rate of $3.8125 per unit/share per year. The value of the Preference Interests are included in Minority Interests - - Operating Partnership in the Consolidated Balance Sheets and the distributions incurred are included in preferred distributions in the Consolidated Statements of Operations. The Series M-4 Preferred Shares are not convertible into EQR Common Shares. The Series H Preference Interests and the Series M-5 Preferred Shares are convertible into EQR Common Shares at a conversion price ratio of 1.5108 common shares (equal to a conversion price of $33.095 per share) beginning in March 2011. The Series I Preference Interests and the Series M-6 Preferred Shares are convertible into EQR Common Shares at a conversion price ratio of 1.4542 common shares (equal to a conversion price of $34.38 per share) beginning in June 2011. The following table presents the Company's issued and outstanding Preferred Shares as of September 30, 2001 and December 31, 2000: 9
- ---------------------------------------------------------------------------------------------------------------- AMOUNTS IN THOUSANDS ----------------------------- ANNUAL DIVIDEND RATE PER SEPTEMBER DECEMBER SHARE (1) 30, 2001 31, 2000 - ---------------------------------------------------------------------------------------------------------------- Preferred Shares of beneficial interest, $.01 par value; 100,000,000 shares authorized: 9 3/8% Series A Cumulative Redeemable Preferred; liquidation (2) $ - $ 153,000 value $25 per share; 0 and 6,120,000 shares issued and outstanding at September 30, 2001 and December 31, 2000, respectively 9 1/8% Series B Cumulative Redeemable Preferred; liquidation $ 22.81252 125,000 125,000 value $250 per share; 500,000 shares issued and outstanding at September 30, 2001 and December 31, 2000 9 1/8% Series C Cumulative Redeemable Preferred; liquidation $ 22.81252 115,000 115,000 value $250 per share; 460,000 shares issued and outstanding at September 30, 2001 and December 31, 2000 8.60% Series D Cumulative Redeemable Preferred; liquidation $ 21.50000 175,000 175,000 value $250 per share; 700,000 shares issued and outstanding at September 30, 2001 and December 31, 2000 Series E Cumulative Convertible Preferred; liquidation value $ 1.75000 85,215 89,990 $25 per share; 3,408,618 and 3,599,615 shares issued and outstanding at September 30, 2001 and December 31, 2000, respectively 9.65% Series F Cumulative Redeemable Preferred; liquidation (2) - 57,500 value $25 per share; 0 and 2,300,000 shares issued and outstanding at September 30, 2001 and December 31, 2000, respectively 7 1/4% Series G Convertible Cumulative Preferred; liquidation $ 18.12500 316,175 316,175 value $250 per share; 1,264,700 shares issued and outstanding at September 30, 2001 and December 31, 2000 7.00% Series H Cumulative Convertible Preferred; liquidation $ 1.75000 1,351 1,471 value $25 per share; 54,027 and 58,851 shares issued and outstanding at September 30, 2001 and December 31, 2000, respectively 8.29% Series K Cumulative Redeemable Preferred; liquidation $ 4.14500 50,000 50,000 value $50 per share; 1,000,000 shares issued and outstanding at September 30, 2001 and December 31, 2000 7.625% Series L Cumulative Redeemable Preferred; liquidation $ 1.90625 100,000 100,000 value $25 per share; 4,000,000 shares issued and outstanding at September 30, 2001 and December 31, 2000 - ---------------------------------------------------------------------------------------------------------------- $ 967,741 $ 1,183,136 - ----------------------------------------------------------------------------------------------------------------
(1) Dividends on all series of Preferred Shares are payable quarterly at various pay dates. Dividend rates listed for Series B, C, D and G are Preferred Share rates and the equivalent Depositary Share annual dividend rates are $2.281252, $2.281252, $2.15 and $1.8125, respectively. (2) On June 25, 2001, the Company redeemed all of its outstanding Series A and F Cumulative Redeemable Preferred Shares at their liquidation values for total cash consideration of $210.5 million. 10 4. Real Estate Acquisitions During the nine months ended September 30, 2001, the Company acquired the eleven properties and one parcel of land listed below from unaffiliated parties for a total purchase price of $287.8 million.
--------------------------------------------------------------------------------------------------------------- ACQUISITION DATE NUMBER PRICE ACQUIRED PROPERTY LOCATION OF UNITS (IN THOUSANDS) --------------------------------------------------------------------------------------------------------------- 01/04/01 Suerte San Diego, CA 272 $ 37,500 02/08/01 Westside Villas VI Los Angeles, CA 18 4,550 02/15/01 Riverview Norwalk, CT 92 9,600 03/15/01 Grand Reserve at Eagle Valley Woodbury, MN 394 54,250 03/22/01 Legends at Preston Morrisville, NC 382 30,200 03/30/01 Mission Hills Oceanside, CA 282 26,750 03/30/01 River Oaks Oceanside, CA 280 26,250 05/18/01 Promenade at Aventura Aventura, FL 296 43,000 08/13/01 Vacant Land Westwood, MA 0 600 08/22/01 Shadetree West Palm Beach, FL 76 1,948 08/22/01 Suntree West Palm Beach, FL 67 1,944 09/26/01 Palladia Hillsboro, OR 497 51,250 --------------------------------------------------------------------------------------------------------------- 2,656 $ 287,842 ---------------------------------------------------------------------------------------------------------------
On July 2, 2001, the Company acquired an additional ownership interest in 21 previously Unconsolidated Properties containing 3,896 units. Prior to July 2, 2001, the Company accounted for this portfolio as in investment in mortgage notes. As a result of this additional ownership acquisition, the Company acquired a controlling interest, and as such, now consolidates these properties for financial reporting purposes. The Company recorded additional investments in real estate totaling $258.9 million in connection with this transaction. 5. REAL ESTATE DISPOSITIONS During the nine months ended September 30, 2001, the Company disposed of the thirty-seven properties and two vacant parcels of land listed below to unaffiliated parties. When combined with gains from the joint venture and unconsolidated property sale discussed below, the Company recognized a net gain of approximately $100.1 million on these sales. 11
------------------------------------------------------------------------------------------------------------ DISPOSITION DATE NUMBER PRICE DISPOSED PROPERTY LOCATION OF UNITS (IN THOUSANDS) ------------------------------------------------------------------------------------------------------------ 01/17/01 Meadowood II Indianapolis, IN 74 $ 1,300 01/31/01 Concorde Bridge Overland Park, KS 248 15,600 02/01/01 Springs of Country Woods Salt Lake City, UT 590 31,000 02/22/01 Riverview Estates Napoleon, OH 90 1,750 02/26/01 Chelsea Court Sandusky, OH 62 1,600 02/27/01 Concord Square Lawrenceburg, IN 48 1,200 02/28/01 Canyon Creek Tucson, AZ 242 9,220 03/06/01 Gentian Oaks Columbus, GA 62 1,620 03/06/01 Holly Park Columbus, GA 66 1,730 03/06/01 Stratford Lane I Columbus, GA 67 1,750 03/07/01 Estate on Quarry Lake Austin, TX 302 25,232 03/08/01 Meadowood Crawfordsville, IN 64 1,300 03/14/01 Mill Run Statesboro, GA 88 2,350 03/15/01 Laurel Court Fremont, OH 69 1,450 03/15/01 Regency Woods West Des Moines, IA 200 9,350 03/22/01 Vacant Land Richmond, VA 0 11,200 04/16/01 Rosewood Tampa, FL 66 1,650 04/25/01 Parkcrest Southfield, MI 210 12,950 04/27/01 Westwood Newark, OH 14 222 04/30/01 Desert Park Las Vegas, NV 368 9,900 05/15/01 Carleton Court Erie, PA 60 1,461 05/16/01 River Oak Louisville, KY 268 14,650 06/07/01 Willowood Milledgeville, GA 61 1,550 06/14/01 Quail Cove Salt Lake City, UT 420 20,000 06/15/01 Beckford Place Wapakoneta, OH 40 830 06/27/01 The Birches Lima, OH 58 1,120 06/28/01 Pelican Pointe I and II Jacksonville, FL 160 4,150 06/28/01 Vacant Land Jacksonville, FL 0 217 06/28/01 Camden Way I and II Kingsland, GA 118 2,000 07/11/01 Plantation Houston, TX 232 12,875 07/12/01 Wood Crest Villas Westland, MI 458 20,450 07/17/01 Hampshire Court Bluffton, IN 45 1,064 07/17/01 Meadowood Logansport, IN 42 993 07/17/01 Westwood Rochester, IN 42 993 07/19/01 Vista Pointe Irving, TX 231 17,200 07/31/01 Cedarwood Sabina, OH 31 385 08/09/01 Olentangy Commons Columbus, OH 827 53,000 08/31/01 Greenglen II Lima, OH 54 1,095 09/28/01 Glenview Huntsville, AL 90 1,687 ------------------------------------------------------------------------------------------------------------ 6,167 $ 298,094 ------------------------------------------------------------------------------------------------------------
On February 23, 2001, the Company entered into a joint venture with an unaffiliated joint venture partner ("JVP"). At closing, the Company sold and/or contributed eleven wholly owned properties containing 3,011 units valued at $202.5 million to the joint venture encumbered with $20.2 million in mortgage loans obtained on February 16, 2001. An additional $123.6 million of mortgage loans was obtained by the joint venture. The JVP contributed cash in an amount equal to 75% of the equity in the joint venture, which was then distributed to the Company. The Company retained a 25% interest in the joint venture along with the right to manage the properties. In accordance with the respective joint venture organization documents, the Company and the JVP both shall have the right, but not the obligation, to infuse additional cash into the joint venture. There are no other agreements that 12 require the Company or the JVP to infuse cash into each joint venture. In addition, the Company and the JVP have not guaranteed the mortgage indebtedness of the joint venture. As a result, the Company recognized 75% of the gain on the sales and/or contributions of property to the joint venture, which totaled approximately $36.4 million. The Company has classified its initial $3.4 million 25% interest in the joint venture (at carryover basis) as investments in unconsolidated entities and accounted for it under the equity method of accounting. On May 17, 2001, the Company sold its entire interest in one Unconsolidated Property containing 74 units for approximately $0.4 million. 6. Commitments to Acquire/Dispose of Real Estate At September 30, 2001, in addition to the Property that was subsequently acquired as discussed in Note 16 below, the Company had entered into separate agreements to acquire two multifamily properties containing 469 units from unaffiliated parties. The Company expects a combined purchase price of approximately $76.5 million, including the assumption of mortgage indebtedness of approximately $45.8 million. At September 30, 2001, in addition to the Properties that were subsequently disposed of as discussed in Note 16 below, the Company had entered into separate agreements to dispose of seven multifamily properties containing 1,460 units, one vacant land parcel and retail space at a consolidated property to unaffiliated parties. The Company expects a combined disposition price of approximately $65.6 million. The closings of these pending transactions are subject to certain contingencies and conditions; therefore, there can be no assurance that these transactions will be consummated or that the final terms thereof will not differ in material respects from those summarized in the preceding paragraphs. 7. INVESTMENTS IN UNCONSOLIDATED ENTITIES The Company has entered into two separate joint venture agreements with third party development companies whereby the Company contributes 25% to 30% of the development cost to the joint venture in return for preferential returns of 9.0% per annum. The basis of the Company's equity investments in these two joint ventures was $298.5 million and $235.9 million as of September 30, 2001 and December 31, 2000, respectively. The Company also has various other investments in unconsolidated entities with ownership interests ranging from 1.5% to 50.0%. The basis of these equity investments was $53.4 million and $80.6 million as of September 30, 2001 and December 31, 2000, respectively. These investments are accounted for under the equity method of accounting. 8. DEPOSITS - RESTRICTED Deposits-restricted as of September 30, 2001 primarily included the following: - deposits in the amount of $55.5 million held in third party escrow accounts to provide collateral for third party construction financing in connection with joint venture agreements; - approximately $39.2 million in tax-deferred (1031) exchange proceeds; and - approximately $62.6 million for tenant security, utility, and other deposits. 13 9. MORTGAGE NOTES PAYABLE As of September 30, 2001, the Company had outstanding mortgage indebtedness of approximately $3.3 billion. During the nine months ended September 30, 2001 the Company: - repaid $315.3 million of mortgages due at or prior to maturity and/or at the disposition date of the respective Property; - assumed $45.9 million of mortgage debt on four properties in connection with their acquisitions; - disposed of $28.2 million of mortgage debt assumed by the purchaser in connection with the disposition of certain properties; - obtained $26.0 million of new mortgage debt on previously unencumbered properties; - obtained $301.5 million of new mortgage debt on previously Unconsolidated Properties; and - received $33.3 million in construction loan draw proceeds on two properties. As of September 30, 2001, scheduled maturities for the Company's outstanding mortgage indebtedness are at various dates through October 1, 2033. The interest rate range on the Company's mortgage debt was 2.15% to 12.465% at September 30, 2001. During the nine months ended September 30, 2001, the weighted average interest rate on the Company's mortgage debt was 6.59%. 10. NOTES As of September 30, 2001, the Company had outstanding unsecured notes of approximately $2.4 billion. During the nine months ended September 30, 2001, the Company issued $300.0 million of ten-year 6.95% fixed-rate public unsecured notes and received net proceeds of $297.4 million. As of September 30, 2001, scheduled maturities for the Company's outstanding notes are at various dates through 2029. The interest rate range on the Company's notes was 4.75% to 9.375% at September 30, 2001. During the nine months ended September 30, 2001, the weighted average interest rate on the Company's notes was 6.88%. 11. LINES OF CREDIT The Company has a revolving credit facility to provide the Operating Partnership with potential borrowings of up to $700.0 million. As of September 30, 2001, no amounts were outstanding under this facility and $60.0 million was restricted on the line of credit. In connection with the Globe acquisition, the Company assumed a revolving credit facility with potential borrowings of up to $55.0 million. On May 31, 2001, this credit facility was terminated. 14 12. CALCULATION OF NET INCOME PER WEIGHTED AVERAGE COMMON SHARE The following tables set forth the computation of net income per share - basic and net income per share - diluted.
NINE MONTHS ENDED QUARTER ENDED SEPTEMBER 30, SEPTEMBER 30, ---------------------------------------------------------- 2001 2000 2001 2000 ---------------------------------------------------------- (AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS) NUMERATOR: Income before allocation to Minority Interests, income from investments in unconsolidated entities, net gain on sales of real estate, extraordinary items, cumulative effect of change in accounting principle and preferred distributions $ 237,159 $ 275,743 $ 39,860 $ 99,686 Allocation to Minority Interests: Operating Partnership (22,666) (32,388) (6,192) (13,256) Partially Owned Properties (1,523) 145 (1,285) (12) Income from investments in unconsolidated entities 20,252 14,589 8,029 5,525 Preferred distributions (81,759) (83,597) (24,340) (27,943) ----------- ------------ ------------ ----------- Income before net gain on sales of real estate, extraordinary items and cumulative effect of change in accounting principle 151,463 174,492 16,072 64,000 Net gain on sales of real estate 100,132 165,025 53,567 77,373 Extraordinary items (22) - (128) - Cumulative effect of change in accounting principle (1,270) - - - ----------- ------------ ------------ ----------- Numerator for net income per share - basic 250,303 339,517 69,511 141,373 Effect of dilutive securities: Allocation to Minority Interests - Operating Partnership 22,666 32,388 6,192 13,256 Distributions on convertible preferred shares/units 74 5,601 - 7,576 ----------- ------------ ----------- ----------- Numerator for net income per share - diluted $ 273,043 $ 377,506 $ 75,703 $ 162,205 =========== ============ =========== =========== DENOMINATOR: Denominator for net income per share - basic 266,614 258,870 268,253 262,824 Effect of dilutive securities: OP Units 24,189 24,766 23,960 24,640 Convertible preferred shares/units 82 4,816 - 15,554 Share options/restricted shares 3,776 1,442 4,178 1,970 ----------- ------------ ----------- ----------- Denominator for net income per share - diluted 294,661 289,894 296,391 304,988 =========== ============ =========== =========== Net income per share - basic $ 0.94 $ 1.31 $ 0.26 $ 0.54 =========== ============ =========== =========== Net income per share - diluted $ 0.93 $ 1.30 $ 0.26 $ 0.53 =========== ============ =========== ===========
15
NINE MONTHS ENDED QUARTER ENDED SEPTEMBER 30, SEPTEMBER 30, ---------------------------------------------------------- 2001 2000 2001 2000 ---------------------------------------------------------- (AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS) NET INCOME PER SHARE - BASIC: Income before net gain on sales of real estate, extraordinary items and cumulative effect of change in accounting principle per share - basic $ 0.60 $ 0.73 $ 0.08 $ 0.27 Net gain on sales of real estate 0.34 0.58 0.18 0.27 Extraordinary items - - - - Cumulative effect of change in accounting principle - - - - ---------------------------------------------------------- Net income per share - basic $ 0.94 $ 1.31 $ 0.26 $ 0.54 ========================================================== NET INCOME PER SHARE - DILUTED: Income before net gain on sales of real estate, extraordinary items and cumulative effect of change in accounting principle per share - diluted $ 0.59 $ 0.73 $ 0.08 $ 0.28 Net gain on sales of real estate 0.34 0.57 0.18 0.25 Extraordinary items - - - - Cumulative effect of change in accounting principle - - - - ---------------------------------------------------------- Net income per share - diluted $ 0.93 $ 1.30 $ 0.26 $ 0.53 ==========================================================
CONVERTIBLE PREFERRED SHARES/UNITS THAT COULD BE CONVERTED INTO 15,322,607 AND 13,922,972 WEIGHTED AVERAGE COMMON SHARES FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000, RESPECTIVELY, AND 15,626,902 AND 0 WEIGHTED AVERAGE COMMON SHARES FOR THE QUARTERS ENDED SEPTEMBER 30, 2001 AND 2000, RESPECTIVELY, WERE OUTSTANDING BUT WERE NOT INCLUDED IN THE COMPUTATION OF DILUTED EARNINGS PER SHARE BECAUSE THE EFFECTS WOULD BE ANTI-DILUTIVE. ON OCTOBER 11, 2001, THE COMPANY EFFECTED A TWO-FOR-ONE SPLIT OF ITS COMMON SHARES TO SHAREHOLDERS OF RECORD AS OF SEPTEMBER 21, 2001. ALL PER SHARE DATA AND NUMBERS OF COMMON SHARES HAVE BEEN RETROACTIVELY ADJUSTED TO REFLECT THE COMMON SHARE SPLIT. 13. Commitments and Contingencies The Company, as an owner of real estate, is subject to various environmental laws of Federal and local governments. Compliance by the Company with existing laws has not had a material adverse effect on the Company's financial condition and results of operations. However, the Company cannot predict the impact of new or changed laws or regulations on its current Properties or on properties that it may acquire in the future. The Company does not believe there is any litigation threatened against the Company other than routine litigation arising out of the ordinary course of business, some of which is expected to be covered by liability insurance, none of which is expected to have a material adverse effect on the consolidated financial statements of the Company. In regards to the funding of Properties in the development and/or earnout stage and the joint venture agreements with two multifamily residential real estate developers, the Company funded a net total of $109.5 million during the nine months ended September 30, 2001. During the fourth quarter of 2001, the Company expects to fund approximately $23.5 million in connection with these Properties. In 16 connection with one joint venture agreement, the Company has an obligation to fund up to an additional $6.5 million to guarantee third party construction financing. As of September 30, 2001, the Company has 19 projects under development with estimated completion dates ranging from December 31, 2001 through June 30, 2003. At any time following the completion of construction of any development property, the Company's joint venture partners have the right to cause the Company to acquire their respective interests in the completed projects at a mutually agreeable price. If the Company and the joint venture partner are unable to agree on a price, appraisals will be obtained by both parties. If the appraised values vary by more than 10%, both the Company and the joint venture partner will agree on a third appraiser to determine which original appraisal is closest to its determination of value. In connection with the Wellsford Merger, the Company provided a credit enhancement with respect to certain tax-exempt bonds issued to finance certain public improvements at a multifamily development project. As of September 30, 2001, this enhancement was still in effect at a commitment amount of $12.7 million. 14. ASSET IMPAIRMENT As of September 30, 2001, the Company recorded $60.0 million of asset impairment charges related to its furniture rental business. These charges were the result of review of the existing intangible and tangible assets reflected on the consolidated balance sheet as of September 30, 2001. The Company reviewed the current net book value taking into consideration existing business and economic conditions as well as projected operating cash flows. The impairment loss is reflected on the income statement in total expenses and includes the write-down of the following assets: a) goodwill of approximately $26.0 million; b) rental furniture, net of approximately $28.6 million; c) property and equipment, net of approximately $4.5 million; and d) other assets of approximately $0.9 million. For the nine months ended September 30, 2001, the Company recorded approximately $8.0 million of asset impairment charges related to its technology investments. These charges were the result of review of the existing investments reflected on the consolidated balance sheet. The Company reviewed the current relative value of each investment based on existing economic conditions and current events. These impairment losses are reflected on the income statement in total expenses and includes the write-down of assets classified as investments in unconsolidated entities. 15. REPORTABLE SEGMENTS Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by senior management. Senior management decides how resources are allocated and assesses performance on a monthly basis. The Company's primary business is owning, managing, and operating multifamily residential properties, which includes the generation of rental and other, related income through the leasing of apartment units to tenants. Senior management evaluates the performance of each of our apartment communities on an individual basis, however, each of our apartment communities has similar economic characteristics, residents and products and services so they have been aggregated into one reportable segment. The Company's rental real estate segment comprises approximately 95.2% and 96.9% of total revenues for the nine months ended September 30, 2001 and 2000, respectively, and approximately 95.8% and 94.3% of total revenues for the quarters ended September 30, 2001 and 2000, respectively. The primary financial measure for the Company's rental real estate segment is net operating income ("NOI"), which represents rental income less: 1) property and maintenance expense; 2) real estate 17 taxes and insurance expense; and 3) property management expense (all as reflected in the accompanying statements of operations). Current year NOI is compared to prior year NOI and current year budgeted NOI as a measure of financial performance. NOI from our rental real estate totaled approximately $937.1 million and $886.9 million for the nine months ended September 30, 2001 and 2000, respectively, and approximately $319.4 million and $294.8 million for the quarters ended September 30, 2001 and 2000, respectively. During the acquisition, development and/or disposition of real estate, the NOI return on total capitalized costs is the primary measure of financial performance (capitalization rate) the Company considers. The Company's fee and asset management activity and furniture rental/sales activities are immaterial and do not meet the threshold requirements of a reportable segment as provided for in SFAS No. 131. 16. SUBSEQUENT EVENTS Subsequent to September 30, 2001 and through November 7, 2001, the Company: - acquired one Property consisting of 296 units for approximately $23.7 million; - disposed of five Properties consisting of 636 units for approximately $22.1 million; - repaid $25.1 million of mortgage debt at or prior to maturity on five Properties; and - relinquished $1.1 million of mortgage debt assumed by the purchaser in connection with the disposition of two Properties. 18 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW For further information including definitions for capitalized terms, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 2000. Forward-looking statements in this report are intended to be made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The words "believes", "expects" and "anticipates" and other similar expressions that are predictions of or indicate future events and trends and which do not relate solely to historical matters identify forward-looking statements. Such forward-looking statements are subject to risks and uncertainties, which could cause actual results, performance, or achievements of the Company to differ materially from anticipated future results, performance or achievements expressed or implied by such forward-looking statements. Factors that might cause such differences include, but are not limited to, the following: - alternative sources of capital to the Company are more expensive than anticipated; - occupancy levels and market rents may be adversely affected by national and local economic and market conditions, which are beyond the Company's control; and - additional factors as discussed in Part I of the Annual Report on Form 10-K. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Company assumes no obligation to update or correct any of these forward-looking statements, in light of events or circumstances arising or existing after the date hereof. RESULTS OF OPERATIONS The following table summarizes the number of Properties and related units for the periods presented:
- ---------------------------------------------------------------------------------------------------------------- PORTFOLIO SUMMARY - ---------------------------------------------------------------------------------------------------------------- NINE MONTHS ENDED SEPTEMBER 30, - ---------------------------------------------------------------------------------------------------------------- 2001 2000 ---- ---- PROPERTIES UNITS PROPERTIES UNITS Beginning of period 1,104 227,704 1,064 226,317 Acquisitions 11 2,657 19 3,002 Dispositions (38) (6,241) (30) (7,354) Completed Developments 4 1,470 3 734 - ---------------------------------------------------------------------------------------------------------------- End of period 1,081 225,590 1,056 222,699 ================================================================================================================
In addition, the Company sold and/or contributed eleven wholly owned Properties containing 3,011 units to a joint venture entity during the nine months ended September 30, 2001. The Company sold and/or contributed 21 wholly owned properties containing 5,211 units to two joint venture entities during the nine months ended September 30, 2000. The Company retained a 25% interest along with the rights to manage these joint venture Properties. The Company's acquisition and disposition activity has impacted overall results of operations for the nine months and quarters ended September 30, 2001 and 2000. Significant changes in revenues and expenses have resulted primarily from the consolidation of previously Unconsolidated Properties and the acquisition of Globe, as well as the 2001 and the 2000 Acquired Properties, which have been partially offset by the disposition of the 2001 and the 2000 Disposed Properties. Significant change in expense 19 has also resulted from impairment charges (furniture rental and unconsolidated technology investments) recorded in 2001. This impact is discussed in greater detail in the following paragraphs. Properties that the Company owned for all of both the nine month periods ended September 30, 2001 and September 30, 2000 (the "Nine-Month 2001 Same Store Properties"), which represented 184,391 units, and Properties that the Company owned for all of both the quarters ended September 30, 2001 and September 30, 2000 (the "Third-Quarter 2001 Same Store Properties"), which represented 185,759 units, also impacted the Company's results of operations. Both the Nine-Month 2001 Same Store Properties and Third-Quarter 2001 Same Store Properties are discussed in the following paragraphs. COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 2001 TO NINE MONTHS ENDED SEPTEMBER 30, 2000 For the nine months ended September 30, 2001, income before allocation to Minority Interests, income from investments in unconsolidated entities, net gain on sales of real estate, extraordinary items and cumulative effect of change in accounting principle decreased by approximately $38.6 million when compared to the nine months ended September 30, 2000. Rental income from the Nine-Month 2001 Same Store Properties increased by approximately $58.9 million to $1.3 billion, or 4.7%, primarily as a result of higher rental rates charged to new tenants and tenant renewals and an increase in income from billing tenants for their share of utility costs as well as other ancillary services provided to tenants. For the remainder of 2001, the Company expects to achieve rental income increases of 3.75% to 4.0% from Same Store Properties. For 2002, the Company expects to see rental income within a range of being slightly lower by 0.05% to slightly higher by as much as 1.0%. These estimated increases are subject to certain risks and uncertainties including, but not limited to, maintaining an overall average occupancy rate of 93.5% to 94.0%. Property operating expenses from the Nine-Month 2001 Same Store Properties, which include property and maintenance, real estate taxes and insurance and an allocation of property management expenses, increased approximately $20.5 million or 4.5%. The increase in "same store" expenses is primarily attributable to a $4.8 million, or 6.5%, increase in utilities and a $8.3 million, or 7.3% increase in payroll costs. For the remainder of 2001, the Company expects to maintain expense growth at no more than 3.75% to 4.0% for the Same Store Properties. For 2002, the Company expects to maintain expense growth between a range of 1.5% to 2.25%. Rental income from properties other than Nine-Month 2001 Same Store Properties increased by approximately $43.9 million primarily as a result of revenue from the Company's corporate housing business and the acquisition of Properties during 2001, including the consolidation of previously Unconsolidated Properties. Interest income-investment in mortgage notes increased by approximately $0.5 million as a result of receiving deferred interest income on certain of the mortgage notes. The Company anticipates no additional interest income will be recognized on these mortgage notes in future quarters as the Company now consolidates the results related to these previously Unconsolidated Properties. Interest and other income decreased by approximately $0.8 million, primarily as a result of lower balances and related interest rates being earned on these investments. Property management expenses included off-site expenses associated with the self-management of the Company's Properties. These expenses increased by approximately $0.1 million. The Company continues to acquire properties in major metropolitan areas and dispose of assets in smaller multi-family rental markets where the Company does not have a significant management presence. As a result, the Company is able to achieve economies of scale by not increasing off-site management expenses as it 20 acquires additional properties. Fee and asset management revenues and fee and asset management expenses increased as a result of the Company continuing to manage Properties that were sold and/or contributed to various unconsolidated joint venture entities. As of September 30, 2001, the Company managed 15,948 units for third parties and the unconsolidated joint venture entities. Furniture income and furniture expenses are associated with the operation of the furniture rental business assumed in connection with the Globe acquisition, which occurred in July 2000. Furniture expenses include a depreciation charge on furniture held in inventory and property and equipment directly related to the furniture business. The Company recorded impairment charges totaling approximately $68.0 million, of which $60.0 million is related to the furniture rental business and approximately $8.0 million is related to certain investments in technology entities. See Footnote 14 in the Notes to the Consolidated Financial Statements for further discussion. Interest expense, including amortization of deferred financing costs, increased approximately $2.3 million. The effective interest cost on all of the Company's indebtedness for the nine months ended September 30, 2001 was 6.99% as compared to 7.25% for the nine months ended September 30, 2000. For the remainder of 2001, the Company expects its overall interest costs to decrease slightly due to lower variable interest rates. In connection with the scheduled maturity of $150 million of indebtedness due in November 2001, the Company anticipates to initially borrow under its line of credit to repay this indebtedness. The Company also expects to replace this indebtedness in the first quarter of 2002 for a similar amount and to incur interest costs approximating 6.5% to 7.0% per annum. General and administrative expenses, which include corporate operating expenses, increased approximately $4.3 million between the periods under comparison. This increase was primarily due to the addition of corporate personnel and higher overall compensation expenses including a current year expense associated with the vesting of restricted shares/awards to key employees in the past three years. Net gain on sales of real estate decreased approximately $64.9 million between the periods under comparison. This decrease is primarily the result of a fewer number of units sold during the nine months ended September 30, 2001 (9,252 units including the joint venture Properties) as compared to the nine months ended September 30, 2000 (12,565 units including the joint venture Properties). In addition, the Company sold older and more fully depreciated Properties during the nine months ended September 30, 2000 as compared to the nine months ended September 30, 2001. COMPARISON OF QUARTER ENDED SEPTEMBER 30, 2001 TO QUARTER ENDED SEPTEMBER 30, 2000 For the quarter ended September 30, 2001, income before allocation to Minority Interests, income from investments in unconsolidated entities, net gain on sales of real estate, extraordinary items and cumulative effect of change in accounting principle decreased by approximately $59.8 million when compared to the quarter ended September 30, 2000. Rental income from the Third-Quarter 2001 Same Store Properties increased by approximately $14.8 million to $444.6 million or 3.4% primarily as a result of higher rental rates charged to new tenants and tenant renewals and an increase in income from billing tenants for their share of utility costs as well as other ancillary services provided to tenants. For the remainder of 2001, the Company expects to achieve rental income increases of 3.75% to 4.0% from Same Store Properties. For 2002, the Company expects to see rental income within a range of being slightly lower by 0.05% to slightly higher by as much as 1.0%. These estimated increases are subject to certain risks and uncertainties including, but not limited to, maintaining an overall average occupancy rate of 93.5% to 94.0%. 21 Property operating expenses from the Third-Quarter 2001 Same Store Properties, which include property and maintenance, real estate taxes and insurance and an allocation of property management expenses, increased approximately $4.6 million or 2.9%. The increase in "same store" expenses is primarily attributable to a $1.3 million, or 3.4%, increase in real estate taxes and a $2.4 million, or 6.0% increase in payroll costs. For the remainder of 2001, the Company expects to maintain expense growth at no more than 3.75% to 4.0% for the Same Store Properties. For 2002, the Company expects to maintain expense growth between a range of 1.5% to 2.25%. Rental income from properties other than Third-Quarter 2001 Same Store Properties increased by approximately $13.1 million primarily as a result of revenue from the Company's corporate housing business and the acquisition of properties during the third quarter of 2001. Interest income-investment in mortgage notes decreased by approximately $2.8 million as a result of the Company receiving the final payment related to these notes prior to consolidation of these previously Unconsolidated Properties. Interest and other income decreased by approximately $4.1 million, primarily as a result of lower balances and related interest rates being earned on the Company's short-term investment accounts. Property management expenses included off-site expenses associated with the self-management of the Company's Properties. These expenses increased by approximately $1.3 million, primarily related to higher payroll costs and increased health costs for employees. Fee and asset management revenues and fee and asset management expenses increased slightly as a result of the Company continuing to manage Properties that were sold and/or contributed to various unconsolidated joint venture entities. Furniture income and furniture expenses are associated with the operation of the furniture rental business assumed in connection with the Globe acquisition, which occurred in July 2000. Furniture expenses include a depreciation charge on furniture held in inventory and property and equipment directly related to the furniture business. The Company recorded impairment charges totaling approximately $61.2 million, of which $60.0 million is related to the furniture rental business and approximately $1.2 million is related to certain investments in technology entities. See Footnote 14 in the Notes to the Consolidated Financial Statements for further discussion. Interest expense, including amortization of deferred financing costs, increased approximately $2.0 million. The effective interest cost on all of the Company's indebtedness for the quarter ended September 30, 2001 was 6.82% as compared to 7.28% for the quarter ended September 30, 2000. For the remainder of 2001, the Company expects its overall interest cost to decrease slightly due to lower variable interest rates. General and administrative expenses, which include corporate operating expenses, increased approximately $3.4 million between the periods under comparison. This increase was primarily due to the addition of corporate personnel and higher overall compensation expenses including a current year expense associated with the awarding of restricted shares to key employees in the past three years. Net gain on sales of real estate decreased approximately $23.8 million between the periods under comparison. This decrease is primarily the result of fewer units sold during the quarter ended September 30, 2001, which included 2,052 wholly owned units as compared to 3,959 wholly owned units sold in the quarter ended September 30, 2000. 22 LIQUIDITY AND CAPITAL RESOURCES As of January 1, 2001, the Company had approximately $23.8 million of cash and cash equivalents and the amounts available on the Company's lines of credit were $399.5 million, of which $53.5 million was restricted. After taking into effect the various transactions discussed in the following paragraphs and the net cash provided by operating activities, the Company's cash and cash equivalents balance at September 30, 2001 was approximately $110.8 million and the amount available on the Company's line of credit was $700.0 million, of which $60.0 million was restricted. Part of the Company's strategy in funding the purchase of multifamily properties, funding its Properties in the development and/or earnout stage and the funding of the Company's investment in two joint ventures with multifamily real estate developers is to utilize its lines of credit and to subsequently repay the lines of credit from the disposition of Properties, reinvestment of retained cash flows or the issuance of additional equity or debt securities. Continuing to utilize this strategy during the first nine months of 2001, the Company: - disposed of thirty-eight properties (including one Unconsolidated Property) and two vacant parcels of land and received net proceeds of $284.8 million; - issued $300.0 million of unsecured debt receiving net proceeds of $297.4 million; - sold and/or contributed eleven properties to a joint venture and received net proceeds of $167.6 million; - issued $48.5 million of three new series of Preference Interests and received net proceeds of $47.3 million; - obtained $59.3 million in new mortgage financing; and - received a $61.4 million pay-down of second and third mortgages on previously Unconsolidated Properties. During the nine months ended September 30, 2001, the Company: - reduced its line of credit borrowings by approximately $355.5 million; - funded $210.5 million to redeem all of its Series A and F Preferred Shares; - repaid approximately $315.3 million of mortgages due at or prior to maturity and/or at the disposition date of respective properties; - funded a net of $109.5 million related to the development, earnout and joint venture agreements; and - acquired eleven properties and vacant land for $288.9 million ($45.9 million of mortgage assumptions and $243.0 million of cash). The Company's total debt summary, as of September 30, 2001, included:
------------------------------------------------------------------------------ DEBT SUMMARY AS OF 9/30/01 ------------------------------------------------------------------------------ Weighted $ Millions Average Rate -------------------------------- Secured 3,269 6.73% Unsecured 2,419 6.88% -------------------------------- Total 5,688 6.79% Fixed Rate 5,123 6.98% Floating Rate 565 5.02% -------------------------------- Total 5,688 6.79% ABOVE TOTALS INCLUDE: Total Tax Exempt 945 5.00% Unsecured Revolving Credit Facility - - ------------------------------------------------------------------------------
23 Subsequent to September 30, 2001 and through November 7, 2001, the Company: - acquired one Property consisting of 296 units for approximately $23.7 million; - disposed of five Properties consisting of 636 units for approximately $22.1 million; - repaid $25.1 million of mortgage debt at or prior to maturity on five Properties; and - relinquished $1.1 million in mortgage debt assumed by the purchaser in connection with the disposition of two Properties. During the fourth quarter of 2001, the Company expects to fund approximately $23.5 million related to the development, earnout and joint venture agreements. In connection with one joint venture agreement, the Company has an obligation to fund up to an additional $6.5 million to guarantee third party construction financing. As of September 30, 2001, the Company has 19 projects under development with estimated completion dates ranging from December 31, 2001 through June 30, 2003. At any time following the completion of construction of any development property, the Company's joint venture partners have the right to cause the Company to acquire their respective interests in the completed projects at a mutually agreeable price. If the Company and the joint venture partner are unable to agree on a price, appraisals will be obtained by both parties. If the appraised values vary by more than 10%, both the Company and the joint venture partner will agree on a third appraiser to determine which original appraisal is closest to its determination of value. During the nine months ended September 30, 2001, the Company's total improvements to real estate approximated $108.3 million. Replacements, which includes new carpeting, appliances, mechanical equipment, fixtures, vinyl floors and blinds inside the unit approximated $42.8 million, or $210 per unit. Building improvements for the 1999, 2000 and 2001 Acquired Properties approximated $19.4 million, or $375 per unit. Building improvements for all of the Company's pre-1999 Acquired Properties approximated $38.9 million or $257 per unit. In addition, approximately $3.6 million was spent on six specific assets related to major renovations and repositioning of these assets. Also included in total improvements to real estate was approximately $3.6 million on commercial/other assets and Partially Owned Properties. Such improvements to real estate were primarily funded from net cash provided by operating activities. Total improvements to real estate budgeted for the remainder of 2001 are estimated to be approximately $25.0 million. During the nine months ended September 30, 2001, the Company's total non-real estate capital additions, such as computer software, computer equipment, and furniture and fixtures and leasehold improvements to the Company's property management offices and its corporate offices, was approximately $5.2 million. Such additions to non-real estate property were funded from net cash provided by operating activities. Total additions to non-real estate property budgeted for the remainder of 2001 are estimated to be approximately $0.9 million. The Company, through its Globe subsidiary, has a policy of capitalizing expenditures made for rental furniture and property and equipment. Globe purchases furniture to replace furniture that has been sold and to maintain adequate levels of rental furniture to meet existing and new customer needs. Expenditures for property and equipment that significantly enhance the value of existing assets or substantially extend the useful life of an asset are also capitalized. Expenditures for ordinary maintenance and repairs related to property and equipment are expensed as incurred. For the nine months ended September 30, 2001, total additions to rental furniture approximated $17.8 million and property and equipment approximated $2.2 million. Total additions to rental furniture and property and equipment budgeted for the remainder of 2001 are estimated to be approximately $1.0 million. Minority Interests as of September 30, 2001 increased by $22.1 million when compared to December 31, 2000. The primary factors that impacted this account during the quarter were: 24 - distributions declared to Minority Interests, which amounted to $30.1 million for the nine months ended September 30, 2001 (excluding preference unit/interest distributions); - the allocation of income from operations in the amount of $22.7 million; - the allocation of Minority Interests from Partially Owned Properties in the amount of $1.5 million; - the conversion of OP Units into Common Shares; and - the issuance of Common Shares, OP Units and Preference Interests during the nine months ended September 30, 2001. Total distributions paid in October 2001 amounted to approximately $146.4 million, which included distributions declared for the quarter ended September 30, 2001. The Company expects to meet its short-term liquidity requirements, including capital expenditures related to maintaining its existing Properties and certain scheduled unsecured note and mortgage note repayments, generally through its working capital, net cash provided by operating activities and borrowings under its line of credit. The Company considers its cash provided by operating activities to be adequate to meet operating requirements and payments of distributions. The Company also expects to meet its long-term liquidity requirements, such as scheduled unsecured note and mortgage debt maturities, property acquisitions, financing of construction and development activities and capital improvements through the issuance of unsecured notes and equity securities including additional OP Units and proceeds received from the disposition of certain Properties. In addition, the Company has certain uncollateralized Properties available to secure additional mortgage borrowings in the event that the public capital markets are unavailable to the Company or the cost of alternative sources of capital to the Company is too high. The Company has a revolving credit facility with Bank of America Securities LLC and Chase Securities Inc. acting as joint lead arrangers to provide the Operating Partnership with potential borrowings of up to $700 million. As of November 9, 2001, $35.0 million was outstanding under this facility. In connection with the Globe acquisition, the Company assumed a revolving credit facility with Fifth Third Bank with potential borrowings of up to $55.0 million. This credit facility was terminated on May 31, 2001. In connection with the Wellsford Merger, the Company provided a credit enhancement with respect to certain tax-exempt bonds issued to finance certain public improvements at a multifamily development project. As of November 7, 2001, this enhancement was still in effect at a commitment amount of $12.7 million. 25 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS There have been no new or significant developments related to the legal proceedings that were discussed in Part I, Item III of the Company's Form 10-K for the year ended December 31, 2000. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (A) Exhibits: 3.1 Fourth Amended and Restated Bylaws 12 Computation of Ratio of Earnings to Fixed Charges (B) Reports on Form 8-K: None 26 SIGNATURES Pursuant to the requirements 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. EQUITY RESIDENTIAL PROPERTIES TRUST Date: NOVEMBER 12, 2001 By: /s/ Bruce C. Strohm ----------------------------- Bruce C. Strohm Executive Vice President, General Counsel and Secretary Date: NOVEMBER 12, 2001 By: /s/ Michael J. Mchugh ----------------------------- Michael J. McHugh Executive Vice President, Chief Accounting Officer and Treasurer 27 EX-3.1 3 a2063241zex-3_1.txt EXHIBIT 3.1 EQUITY RESIDENTIAL PROPERTIES TRUST FOURTH AMENDED AND RESTATED BYLAWS ARTICLE I OFFICES Section 1. PRINCIPAL OFFICE. The principal office of the Trust shall be located at such place or places as the Board of Trustees may designate. Section 2. ADDITIONAL OFFICES. The Trust may have additional offices at such places as the Board of Trustees may from time to time determine or the business of the Trust may require. ARTICLE II MEETINGS OF SHAREHOLDERS Section 1. PLACE. All meetings of shareholders shall be held at the principal office of the Trust or at such other place within the United States as shall be stated in the notice of the meeting. Section 2. ANNUAL MEETING. An annual meeting of the shareholders for the election of Trustees and the transaction of any business within the powers of the Trust shall be held each year, after the delivery of the annual report referred to in Section 12 of this Article II, on a date and at the time set by the Board of Trustees. Failure to hold an annual meeting does not invalidate the Trust's existence or affect any otherwise valid acts of the Trust. Section 3. SPECIAL MEETINGS. (a) General. The Chairman of the Board or the President or one-third of the Trustees then in office may call special meetings of the shareholders. Subject to subsection (b) of this Section 3, a special meeting of shareholders shall also be called by the secretary upon the written request of the holders of shares entitled to cast not less than a majority of all the votes entitled to be cast at such meeting. (b) SHAREHOLDER REQUESTED SPECIAL MEETINGS. (1) Any shareholder of record seeking to have shareholders request a special meeting shall, by sending written notice to the secretary (the "Record Date Request Notice") by registered mail, return receipt requested, request the Board of Trustees to fix a record date to determine the shareholders entitled to request a special meeting (the "Request Record Date"). The Record Date Request Notice shall set forth the purpose of the meeting and the matters proposed to be acted on at it, shall be signed by one or more shareholders of record as of the date of signature (or their duly authorized proxies or other agents), shall bear the date of signature of each such shareholder (or proxy or other agent) and shall set forth all information relating to each such shareholder that must be disclosed in solicitations of proxies for election of trustees in an election contest (even if an election contest is not involved), or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and Rule 14a-11 thereunder. Upon receiving the Record Date Request Notice, the Board of Trustees may fix a Request Record Date. The Request Record Date shall not precede and shall not be more than ten days after the close of business on the date on which the resolution fixing the Request Record Date is adopted by the Board of Trustees. If the Board of Trustees, within ten days after the date on which a valid Record Date Request Notice is received, fails to adopt a resolution fixing the Request Record Date and make a public announcement of such Request Record Date, t Request Record Date shall be the close of business on the tenth day after the first date on which the Record Date Request Notice is received by the Secretary. (2) In order for any shareholder to request a special meeting, one or more written requests for a special meeting signed by shareholders of record (or their duly authorized proxies or other agents) as of the Request Record Date entitled to cast not less than a majority (the "Special Meeting Percentage") of all of the votes entitled to be cast at such meeting (the "Special Meeting Request) shall be delivered to the Secretary. In addition, the Special Meeting Request shall set forth the purpose of the meeting and the matters proposed to be acted on at it (which shall be limited to the matters set forth in the Record Date Request Notice received by the secretary), shall bear the date of signature of each such shareholder (or proxy or other agent) signing the Special Meeting Request, shall set forth the name and address, as they appear in the Trust's books, of each shareholder signing such request (or on whose behalf the Special Meeting Request is signed) and the class and number of shares of the Trust which are owned of record and beneficially by each such shareholder, shall be sent to the Secretary by registered mail, return receipt requested, and shall be received by the secretary within 60 days after the Request Record Date. Any requesting shareholder may revoke his, her or its request for a special meeting at any time by written revocation delivered to the Secretary. (3) The Secretary shall inform the requesting shareholders of the reasonably estimated cost of preparing and mailing the notice of meeting (including the Trust's proxy materials). The Secretary shall not be required to call a special meeting upon shareholder request and such meeting shall not be held unless, in addition to the documents required by paragraph (2) of this Section 3(b), the Secretary receives payment of such reasonably estimated cost prior to the mailing of any notice of the meeting. (4) Except as provided in the next sentence, any special meeting shall be held at such place, date and time as may be designated by the Chairman of the Board, the President or the Board of Trustees, whoever has called the meeting. In the case of any special meeting called by the Secretary upon the request of shareholders (a "Shareholder Requested Meeting"), such meeting shall be held at such place, date and time as may be designated by the Board of Trustees; PROVIDED, however, that the date of any Shareholder Requested Meeting shall be not more than 90 days after the record date for such meeting (the "Meeting Record Date"); and PROVIDED FURTHER that if the Board of Trustees fails to designate, within ten days after the date that a valid Special Meeting Request is actually received by the Secretary (the "Delivery Date"), a date and time for a Shareholder Requested Meeting, then such meeting shall be held at 2:00 p.m. local time on the 90th day after the Meeting Record Date or, if such 90th day is not a Business Day (as defined below), on the first preceding Business Day; and PROVIDED FURTHER that in the event that the Board of Trustees fails to designate a place for a Shareholder Requested Meeting within ten days after the Delivery Date, then such meeting shall be held at the principal executive offices of the Trust. In fixing a date for any special meeting, the Chairman of the Board, the 2 president or the Board of Trustees may consider such factors as he, she or it deems relevant within the good faith exercise of business judgment, including, without limitation, the nature of the matters to be considered, the facts and circumstances surrounding any request for meeting and any plan of the Board of Trustees to call an annual meeting or a special meeting. In the case of any Shareholder Requested Meeting, if the Board of Trustees fails to fix a Meeting Record Date that is a date within 30 days after the Delivery Date, then the close of business on the 30th day after the Delivery Date shall be the Meeting Record Date. (5) If at any time as a result of written revocations of requests for the special meeting, shareholders of record (or their duly authorized proxies or other agents) as of the Request Record Date entitled to cast less than the Special Meeting Percentage shall have delivered and not revoked requests for a special meeting, the Secretary may refrain from mailing the notice of the meeting or, if the notice of the meeting has been mailed, the Secretary may revoke the notice of the meeting at any time before ten days before the meeting if the Secretary has first sent to all other requesting shareholders written notice of such revocation and of intention to revoke the notice of the meeting. Any request for a special meeting received after a revocation by the Secretary of a notice of a meeting shall be considered a request for a new special meeting. (6) The Chairman of the Board, the President or the Board of Trustees may appoint regionally or nationally recognized independent inspectors of elections to act as the agent of the Trust for the purpose of promptly performing a ministerial review of the validity of any purported Special Meeting Request received by the Secretary. For the purpose of permitting the inspectors to perform such review, no such purported request shall be deemed to have been delivered to the Secretary until the earlier of (i) five Business Days after receipt by the Secretary of such purported request and (ii) such date as the independent inspectors certify to the Trust that the valid requests received by the Secretary represent at least a majority of the issued and outstanding shares that would be entitled to vote at such meeting. Nothing contained in this paragraph (6) shall in any way be construed to suggest or imply that the Trust or any shareholder shall not be entitled to contest the validity of any request, whether during or after such five Business Day period, or to take any other action (including, without limitation, the commencement, prosecution or defense of any litigation with respect thereto, and the seeking of injunctive relief in such litigation). (7) For purposes of these Bylaws, "Business Day" shall mean any day other than a Saturday, a Sunday or a day on which banking institutions in the State of Illinois are authorized or obligated by law or executive order to close. Section 4. NOTICE. Not less than ten nor more than 90 days before each meeting of shareholders, the secretary shall give to each shareholder entitled to vote at such meeting and to each shareholder not entitled to vote who is entitled to notice of the meeting written or printed notice stating the time and place of the meeting and, in the case of a special meeting or as otherwise may be required by any statute, the purpose for which the meeting is called, either by mail, electronic mail or other electronic means, or by presenting it to such shareholder personally or by leaving it at his residence or usual place of business. If mailed, such notice shall be deemed to be given when deposited in the United States mail addressed to the shareholder at his post office address as it appears on the records of the Trust, with postage thereon prepaid. 3 Section 5. SCOPE OF NOTICE. Any business of the Trust may be transacted at an annual meeting of shareholders without being specifically designated in the notice, except such business as is required by any statute to be stated in such notice. No business shall be transacted at a special meeting of shareholders except as specifically designated in the notice. Section 6. ORGANIZATION. At every meeting of the shareholders, the Chairman of the Board, if there be one, shall conduct the meeting or, in the case of vacancy in office or absence of the Chairman of the Board, one of the following officers present shall conduct the meeting in the order stated: the President, the Vice Presidents in their order of rank and seniority, or a Chairman chosen by the shareholders entitled to cast a majority of the votes which all shareholders present in person or by proxy are entitled to cast, shall act as Chairman, and the Secretary, or, in his absence, an assistant secretary, or in the absence of both the Secretary and assistant secretaries, a person appointed by the Chairman, shall act as Secretary. Section 7. QUORUM. At any meeting of shareholders, the presence in person or by proxy of shareholders entitled to cast a majority of all the votes entitled to be cast at such meeting shall constitute a quorum; but this section shall not affect any requirement under any statute or the Declaration of Trust of the Trust (the "Declaration of Trust") for the vote necessary for the adoption of any matter. If, however, such quorum shall not be present at any meeting of the shareholders, the shareholders entitled to vote at such meeting, present in person or by proxy, shall have the power to adjourn the meeting from time to time to a date not more than 120 days after the original record date without notice other than announcement at the meeting. At such adjourned meeting at which a quorum shall be present, any business may be transacted which might have been transacted at the meeting as originally notified. Section 8. VOTING. A plurality of all the votes cast at a meeting of shareholders duly called and at which a quorum is present shall be sufficient to elect a Trustee. Each share may be voted for as many individuals as there are Trustees to be elected and for whose election the share is entitled to be voted. A majority of the votes cast at a meeting of shareholders duly called and at which a quorum is present shall be sufficient to approve any other matter which may properly come before the meeting, unless more than a majority of the votes cast is required herein or by statute or by the Declaration of Trust. Unless otherwise provided in the Declaration of Trust, each outstanding share, regardless of class, shall be entitled to one vote on each matter submitted to a vote at a meeting of shareholders. Section 9. PROXIES. A shareholder may cast the votes entitled to be cast by the shares owned of record by him either in person or by proxy. A proxy may be executed or authorized in any manner not prohibited by law. Such proxy or evidence of authorization shall be filed with or delivered to the Secretary of the Trust before or at the time of the meeting. No proxy shall be valid after eleven months from the date of its execution or authorization, unless otherwise provided in the proxy. Section 10. VOTING OF SHARES BY CERTAIN HOLDERS. Shares of the Trust registered in the name of a corporation, partnership, limited liability company, trust or other entity, if entitled to be voted, may be voted by the president or a vice president, a general partner, member, manager or trustee thereof, as the case may be, or a proxy appointed by any of the foregoing 4 individuals, unless some other person who has been appointed to vote such shares pursuant to a bylaw or a resolution of the governing board of such corporation or other entity or agreement of the partners of the partnership presents a certified copy of such bylaw, resolution or agreement, in which case such person may vote such shares. Any trustee or other fiduciary may vote shares registered in his name as such fiduciary, either in person or by proxy. Shares of the Trust directly or indirectly owned by it shall not be voted at any meeting and shall not be counted in determining the total number of outstanding shares entitled to be voted at any given time, unless they are held by it in a fiduciary capacity, in which case they may be voted and shall be counted in determining the total number of outstanding shares at any given time. The Board of Trustees may adopt by resolution a procedure by which a shareholder may certify in writing to the Trust that any shares registered in the name of the shareholder are held for the account of a specified person other than the shareholder. The resolution shall set forth the class of shareholders who may make the certification, the purpose for which the certification may be made, the form of certification and the information to be contained in it; if the certification is with respect to a record date or closing of the share transfer books, the time after the record date or closing of the share transfer books within which the certification must be received by the Trust; and any other provisions with respect to the procedure which the Board of Trustees considers necessary or desirable. On receipt of such certification, the person specified in the certification shall be regarded as, for the purposes set forth in the certification, the shareholder of record of the specified shares in place of the shareholder who makes the certification. Notwithstanding any other provision contained herein or in the Declaration of Trust or these Bylaws, Title 3, Subtitle 7 of the Corporations and Associations Article of the Annotated Code of Maryland (or any successor statute) shall not apply to any acquisition by any person of shares of beneficial interest of the Trust. This section may be repealed, in whole or in part, at any time, whether before or after an acquisition of control shares and, upon such repeal, may, to the extent provided by any successor bylaw, apply to any prior or subsequent control share acquisition. Section 11. INSPECTORS. At any meeting of shareholders, the chairman of the meeting may appoint one or more persons as inspectors for such meeting. Such inspectors shall ascertain and report the number of shares represented at the meeting based upon their determination of the validity and effect of proxies, count all votes, report the results and perform such other acts as are proper to conduct the election and voting with impartiality and fairness to all the shareholders. Each report of an inspector shall be in writing and signed by him or by a majority of them if there is more than one inspector acting at such meeting. If there is more than one inspector, the report of a majority shall be the report of the inspectors. The report of the inspector or inspectors on the number of shares represented at the meeting and the results of the voting shall be PRIMA FACIE evidence thereof. Section 12. REPORTS TO SHAREHOLDERS. The Board of Trustees shall submit to the shareholders at or before the annual meeting of shareholders a report of the business and operations of the Trust during such fiscal year, containing 5 a balance sheet and a statement of income and surplus of the Trust, accompanied by the certification of an independent certified public accountant, and such further information as the Board of Trustees may determine is required pursuant to any law or regulation to which the Trust is subject. Within the earlier of 20 days after the annual meeting of shareholders or 120 days after the end of the fiscal year of the Trust, the Board of Trustees shall place the annual report on file at the principal office of the Trust. Section 13. NOMINATIONS AND PROPOSALS BY SHAREHOLDERS. (a) ANNUAL MEETINGS OF SHAREHOLDERS. (1) Nominations of persons for election to the Board of Trustees and the proposal of business to be considered by the shareholders may be made at an annual meeting of shareholders (i) pursuant to the Trust's notice of meeting, (ii) by or at the direction of the Board of Trustees or (iii) by any shareholder of the Trust who was a shareholder of record both at the time of giving of notice provided for in this Section 13(a) and at the time of the annual meeting, who is entitled to vote at the meeting and who complied with the notice procedures set forth in this Section 13(a). (2) For nominations or other business to be properly brought before an annual meeting by a shareholder pursuant to clause (iii) of paragraph (a) (1) of this Section 13, the shareholder must have given timely notice thereof in writing to the secretary of the Trust and such other business must otherwise be a proper matter for action by shareholders. To be timely, a shareholder's notice shall be delivered to the Secretary of the Trust at the principal executive offices of the Trust not later than the close of business on the 90th day nor earlier than the close of business on the 120th day prior to the first anniversary of the date of mailing of the notice of the preceding year's annual meeting; provided, however, that in the event that the date of the annual meeting is changed by more than 30 days from the anniversary date of the annual meeting held the prior year, to be timely the notice must be so delivered not earlier than the close of business on the 120th day prior to such annual meeting and not later than the close of business on the later of the 90th day prior to such annual meeting or the tenth day following the day on which public announcement of the date of such meeting is first made by the Trust. In no event shall the public announcement of a postponement or adjournment of an annual meeting to a later date or time commence a new time period for the giving of a shareholder's notice as described above. Such shareholder's notice shall set forth (i) as to each person whom the shareholder proposes to nominate for election or reelection as a Trustee all information relating to such person that is required to be disclosed in solicitations of proxies for election of Trustees in an election contest, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the "Exchange Act") (including such person's written consent to being named in the proxy statement as a nominee and to serving as a Trustee if elected); (ii) as to any other business that the shareholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting and any material interest in such business of such shareholder and of the beneficial owner, if any, on whose behalf the proposal is made; and (iii) as to the shareholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made, (x) the name and address of such shareholder, as they appear on the Trust's books, and of such beneficial owner and (y) the number of each class of shares of the Trust which are owned beneficially and of record by such shareholder and such beneficial owner. 6 (3) Notwithstanding anything in the second sentence of paragraph (a) (2) of this Section 13 to the contrary, in the event that the number of Trustees to be elected to the Board of Trustees is increased and there is no public announcement by the Trust naming all of the nominees for Trustee or specifying the size of the increased Board of Trustees at least 100 days prior to the first anniversary of the date of mailing of the notice of the preceding year's annual meeting, a shareholder's notice required by this Section 13(a) shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to the secretary at the principal executive offices of the Trust not later than the close of business on the tenth day following the day on which such public announcement is first made by the Trust. (b) SPECIAL MEETINGS OF SHAREHOLDERS. Only such business shall be conducted at a special meeting of shareholders as shall have been brought before the meeting pursuant to the Trust's notice of meeting. Nominations of persons for election to the Board of Trustees may be made at a special meeting of shareholders at which Trustees are to be elected (i) pursuant to the Trust's notice of meeting (ii) by or at the direction of the Board of Trustees or (iii) provided that the Board of Trustees has determined that Trustees shall be elected at such special meeting, by any shareholder of the Trust who was a shareholder of record both at the time of giving of notice provided for in this Section 13(b) and at the time of the special meeting, who is entitled to vote at the meeting and who complied with the notice procedures set forth in this Section 13(b). In the event the Trust calls a special meeting of shareholders for the purpose of electing one or more Trustees to the Board of Trustees, any such shareholder may nominate a person or persons (as the case may be) for election to such position as specified in the Trust's notice of meeting, if the shareholder's notice containing the information required by paragraph (a) (2) of this Section 13 shall be delivered to the secretary at the principal executive offices of the Trust not earlier than the close of business on the 120th day prior to such special meeting and not later than the close of business on the later of the 90th day prior to such special meeting or the tenth day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the Board of Trustees to be elected at such meeting. In no event shall the public announcement of a postponement or adjournment of a special meeting to a later date or time commence a new time period for the giving of a shareholder's notice as described above. (c) GENERAL. (1) Only such persons who are nominated in accordance with the procedures set forth in this Section 13 shall be eligible to serve as Trustees and only such business shall be conducted at a meeting of shareholders as shall have been brought before the meeting in accordance with the procedures set forth in this Section 13. The chairman of the meeting shall have the power and duty to determine whether a nomination or any business proposed to be brought before the meeting was made or proposed, as the case may be, in accordance with the procedures set forth in this Section 13 and, if any proposed nomination or business is not in compliance with this Section 13, to declare that such nomination or proposal shall be disregarded. (2) For purposes of this Section 13, "public announcement" shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable news service or in a document publicly filed by the Trust with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act. (3) Notwithstanding the foregoing provisions of this Section 13, a shareholder shall also comply with all applicable requirements of state law and of the Exchange Act and the 7 rules and regulations thereunder with respect to the matters set forth in this Section 13. Nothing in this Section 13 shall be deemed to affect any rights of shareholders to request inclusion of proposals in the Trust's proxy statement pursuant to Rule 14a-8 under the Exchange Act. Section 14. VOTING BY BALLOT. Voting on any question or in any election may be VIVA VOCE unless the presiding officer shall order or any shareholder shall demand that voting be by ballot. ARTICLE III TRUSTEES Section 1. GENERAL POWERS; QUALIFICATIONS; TRUSTEES HOLDING OVER. The business and affairs of the Trust shall be managed under the direction of its Board of Trustees. A Trustee shall be an individual at least 21 years of age who is not under legal disability. In case of failure to elect Trustees at an annual meeting of the shareholders, the Trustees holding over shall continue to direct the management of the business and affairs of the Trust until their successors are elected and qualify. Section 2. NUMBER. At any regular meeting or at any special meeting called for that purpose, a majority of the entire Board of Trustees may increase or decrease the number of Trustees; provided, however, that such action shall not affect the tenure of office of any Trustee. Section 3. ANNUAL AND REGULAR MEETINGS. An annual meeting of the Board of Trustees shall be held at least once per calendar year. The Board of Trustees may provide the time and place, either within or without the State of Maryland, for the holding of regular meetings of the Board of Trustees. Section 4. SPECIAL MEETINGS. Special meetings of the Board of Trustees may be called by or at the request of the Chairman of the Board or the president or by a majority of the Trustees then in office. The person or persons authorized to call special meetings of the Board of Trustees may fix any place, either within or without the State of Maryland, as the place for holding any special meeting of the Board of Trustees called by them. Section 5. NOTICE. Notice of any annual, regular or special meeting shall be given by telephone or written notice delivered personally, telegraphed, facsimile-transmitted or mailed to each Trustee at his business or residence address. Personally delivered or telegraphed notices shall be given at least two days prior to the meeting. Notice by mail shall be given at least five days prior to the meeting. Telephone or facsimile-transmission notice shall be given at least 24 hours prior to the meeting. If mailed, such notice shall be deemed to be given when deposited in the United States mail properly addressed, with postage thereon prepaid. If given by telegram, such notice shall be deemed to be given when the telegram is delivered to the telegraph company. Telephone notice shall be deemed given when the Trustee is personally given such notice in a telephone call to which he is a party. Facsimile-transmission notice shall be deemed given upon completion of the transmission of the message to the number given to the Trust by the Trustee and receipt of a completed confirmation indicating receipt. Neither the business to be transacted at, nor the purpose of, any annual, regular or special meeting of the Board of Trustees need be stated in the notice, 8 unless specifically required by statute or these Bylaws. Section 6. QUORUM. A majority of the Trustees then in office shall constitute a quorum for transaction of business at any meeting of the Board of Trustees, provided that, if less than a majority of such Trustees are present at said meeting, a majority of the Trustees present may adjourn the meeting from time to time without further notice, and provided further that if, pursuant to the Declaration of Trust or these Bylaws, the vote of a majority of a particular group of Trustees is required for action, a quorum must also include a majority of such group. Notwithstanding the foregoing, no quorum shall be less than a quorum required by Maryland law at the time of the meeting. The Trustees present at a meeting which has been duly called and convened may continue to transact business until adjournment, notwithstanding the withdrawal of enough Trustees to leave less than a quorum. Section 7. VOTING. The action of the majority of the Trustees present at a meeting at which a quorum is present shall be the action of the Board of Trustees, unless the concurrence of a greater proportion is required for such action by statute. Section 8. TELEPHONE MEETINGS. Trustees may participate in a meeting by means of a conference telephone or similar communications equipment if all persons participating in the meeting can hear each other at the same time. Participation in a meeting by these means shall constitute presence in person at the meeting. Section 9. INFORMAL ACTION BY TRUSTEES. Any action required or permitted to be taken at any meeting of the Board of Trustees may be taken without a meeting, if a consent in writing to such action is signed by each Trustee and such written consent is filed with the minutes of proceedings of the Board of Trustees. Section 10. VACANCIES. If for any reason any or all the Trustees cease to be Trustees, such event shall not terminate the Trust or affect these Bylaws or the powers of the remaining Trustees hereunder (even if fewer than a majority of Trustees remain). Any vacancy (including a vacancy created by an increase in the number of Trustees) shall be filled, at any regular meeting or at any special meeting, by a majority of the remaining Trustees, whether or not sufficient to constitute a quorum. A majority of the entire Board of Trustees shall fill a vacancy which results from an increase in the number of Trustees. Any individual so elected as Trustee shall hold office for the unexpired term of the Trustee he is replacing, if any. Section 11. COMPENSATION; FINANCIAL ASSISTANCE. (a) COMPENSATION. Trustees shall not receive any stated salary for their services as Trustees but, by resolution of the Board of Trustees, may receive compensation per year and/or per meeting and/or per visit to real property owned or to be acquired by the Trust and for any other service or activity performed or engaged in as Trustees. Trustees may be reimbursed for expenses of attendance, if any, at each annual, regular or special meeting of the Board of Trustees or of any committee thereof; and for their expenses, if any, in connection with each property visit and any other service or activity performed or engaged in as Trustees; but nothing herein contained shall be 9 construed to preclude any Trustees from serving the Trust in any other capacity and receiving compensation therefor. (b) FINANCIAL ASSISTANCE TO TRUSTEES. The Trust may lend money to, guarantee an obligation of or otherwise assist a Trustee or a trustee of its direct or indirect subsidiary. The loan, guarantee or other assistance may be with or without interest, unsecured, or secured in any manner that the Board of Trustees approves, including a pledge of Shares. Section 12. REMOVAL OF TRUSTEES. The shareholders may, at any time, remove any Trustee in the manner provided in the Declaration of Trust. Section 13. LOSS OF DEPOSITS. No Trustee shall be liable for any loss which may occur by reason of the failure of the bank, trust company, savings and loan association, or other institution with whom moneys or shares have been deposited. Section 14. SURETY BONDS. Unless required by law, no Trustee shall be obligated to give any bond or surety or other security for the performance of any of his duties. Section 15. RELIANCE. Each Trustee, officer, employee and agent of the Trust shall, in the performance of his duties with respect to the Trust, be fully justified and protected with regard to any act or failure to act in reliance in good faith upon the books of account or other records of the Trust, upon an opinion of counsel or upon reports made to the Trust by any of its officers or employees or by the adviser, accountants, appraisers or other experts or consultants selected by the Board of Trustees or officers of the Trust, regardless of whether such counsel or expert may also be a Trustee. Section 16. INTERESTED TRUSTEE TRANSACTIONS. Section 2-419 of the Maryland General Corporation Law (the "MGCL") shall be available for and apply to any contract or other transaction between the Trust and any of its Trustees or between the Trust and any other trust, corporation, firm or other entity in which any of its Trustees is a trustee or director or has a material financial interest. Section 17. CERTAIN RIGHTS OF TRUSTEES, OFFICERS, EMPLOYEES AND AGENTS. The Trustees shall have no responsibility to devote their full time to the affairs of the Trust. Any Trustee or officer, employee or agent of the Trust (other than a full-time officer, employee or agent of the Trust), in his personal capacity or in a capacity as an affiliate, employee, or agent of any other person, or otherwise, may have business interests and engage in business activities similar or in addition to those of or relating to the Trust. ARTICLE IV COMMITTEES Section 1. NUMBER, TENURE AND QUALIFICATIONS. The Board of Trustees may appoint from among its members an Executive Committee, an Audit Committee, a Compensation Committee and other committees, composed of one or more Trustees, to serve at the pleasure of the Board of Trustees. 10 Section 2. POWERS. The Board of Trustees may delegate to committees appointed under Section 1 of this Article any of the powers of the Trustees, except as prohibited by law. Section 3. MEETINGS. In the absence of any member of any such committee, the members thereof present at any meeting, whether or not they constitute a quorum, may appoint another Trustee to act in the place of such absent member. Notice of committee meetings shall be given in the same manner as notice for special meetings of the Board of Trustees. One-third, but not less than two (except for a one-member committee), of the members of any committee shall be present in person at any meeting of such committee in order to constitute a quorum for the transaction of business at such meeting, and the act of a majority present shall be the act of such committee. The Board of Trustees may designate a chairman of any committee, and such chairman or any two members (except for a one-member committee) of any committee may fix the time and place of its meetings unless the Board shall otherwise provide. In the absence or disqualification of any member of any such committee, the members thereof present at any meeting and not disqualified from voting, whether or not they constitute a quorum, may unanimously appoint another Trustee to act at the meeting in the place of such absent or disqualified members. Each committee shall keep minutes of its proceedings and shall report the same to the Board of Trustees at the next succeeding meeting, and any action by the committee shall be subject to revision and alteration by the Board of Trustees, provided that no rights of third persons shall be affected by any such revision or alteration. Section 4. TELEPHONE MEETINGS. Members of a committee of the Board of Trustees may participate in a meeting by means of a conference telephone or similar communications equipment if all persons participating in the meeting can hear each other at the same time. Participation in a meeting by these means shall constitute presence in person at the meeting. Section 5. INFORMAL ACTION BY COMMITTEES. Any action required or permitted to be taken at any meeting of a committee of the Board of Trustees may be taken without a meeting, if a consent in writing to such action is signed by each member of the committee and such written consent is filed with the minutes of proceedings of such committee. Section 6. VACANCIES. Subject to the provisions hereof, the Board of Trustees shall have the power at any time to change the membership of any committee, to fill all vacancies, to designate alternate members to replace any absent or disqualified member or to dissolve any such committee. 11 ARTICLE V OFFICERS Section 1. GENERAL PROVISIONS. The officers of the Trust shall include a president, a secretary and a treasurer and may include a Chairman of the Board, a vice Chairman of the Board, a chief executive officer, a chief operating officer, a chief financial officer, one or more vice presidents, one or more assistant secretaries and one or more assistant treasurers. In addition, the Board of Trustees may from time to time appoint such other officers with such powers and duties as it shall deem necessary or desirable. Each officer shall hold office until his successor is appointed and qualifies or until his death, resignation or removal in the manner hereinafter provided. Any two or more offices except president and vice president may be held by the same person. In its discretion, the Board of Trustees may leave unfilled any office except that of president and secretary. Appointment of an officer or agent shall not of itself create contract rights between the Trust and such officer or agent. Section 2. REMOVAL AND RESIGNATION. Any officer or agent of the Trust may be removed by the Board of Trustees if in its judgment the best interests of the Trust would be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person so removed. Any officer of the Trust may resign at any time by giving written notice of his resignation to the Board of Trustees, the Chairman of the Board, the president or the secretary. Any resignation shall take effect at any time subsequent to the time specified therein or, if the time when it shall become effective is not specified therein, immediately upon its receipt. The acceptance of a resignation shall not be necessary to make it effective unless otherwise stated in the resignation. Such resignation shall be without prejudice to the contract rights, if any, of the Trust. Section 3. VACANCIES. A vacancy in any office may be filled by the Board of Trustees for the balance of the term. Section 4. CHIEF EXECUTIVE OFFICER. The Board of Trustees may designate a chief executive officer from among the appointed officers. The chief executive officer shall have responsibility for implementation of the policies of the Trust, as determined by the Board of Trustees, and for the administration of the business affairs of the Trust. In the absence of both the chairman and vice Chairman of the Board, the chief executive officer shall preside over the meetings of the Board of Trustees and of the shareholders at which he shall be present. Section 5. CHIEF OPERATING OFFICER. The Board of Trustees may designate a chief operating officer from among the appointed officers. Said officer will have the responsibilities and duties as set forth by the Board of Trustees or the chief executive officer. Section 6. CHIEF FINANCIAL OFFICER. The Board of Trustees may designate a chief financial officer from among the appointed officers. Said officer will have the responsibilities and duties as set forth by the Board of Trustees or the chief executive officer. Section 7. CHAIRMAN AND VICE CHAIRMAN OF THE BOARD. The Chairman of the Board shall preside over the meetings of the Board of Trustees and of the shareholders at which he shall be present and shall in general oversee all of the business and affairs of the Trust. In the 12 absence of the Chairman of the Board, the vice Chairman of the Board shall preside at such meetings at which he shall be present. The chairman and the vice Chairman of the Board may execute any deed, mortgage, bond, contract or other instrument, except in cases where the execution thereof shall be expressly delegated by the Board of Trustees or by these Bylaws to some other officer or agent of the Trust or shall be required by law to be otherwise executed. The Chairman of the Board and the vice Chairman of the Board shall perform such other duties as may be assigned to him or them by the Board of Trustees. Section 8. PRESIDENT. In the absence of the chairman, the vice Chairman of the Board and the chief executive officer, the president shall preside over the meetings of the Board of Trustees and of the shareholders at which he shall be present. In the absence of a designation of a chief executive officer by the Board of Trustees, the president shall be the chief executive officer and shall be ex officio a member of all committees that may, from time to time, be constituted by the Board of Trustees. The president may execute any deed, mortgage, bond, contract or other instrument, except in cases where the execution thereof shall be expressly delegated by the Board of Trustees or by these Bylaws to some other officer or agent of the Trust or shall be required by law to be otherwise executed; and in general shall perform all duties incident to the office of president and such other duties as may be prescribed by the Board of Trustees from time to time. Section 9. VICE PRESIDENTS. In the absence of the president or in the event of a vacancy in such office, the vice president (or in the event there be more than one vice president, the vice presidents in the order designated at the time of their appointment or, in the absence of any designation, then in the order of their appointment) shall perform the duties of the president and when so acting shall have all the powers of and be subject to all the restrictions upon the president; and shall perform such other duties as from time to time may be assigned to him by the president or by the Board of Trustees. The Board of Trustees may designate one or more vice presidents as executive vice president or as vice president for particular areas of responsibility. Section 10. SECRETARY. The secretary shall (a) keep the minutes of the proceedings of the shareholders, the Board of Trustees and committees of the Board of Trustees in one or more books provided for that purpose; (b) see that all notices are duly given in accordance with the provisions of these Bylaws or as required by law; (c) be custodian of the trust records and of the seal of the Trust; (d) keep a register of the post office address of each shareholder which shall be furnished to the secretary by such shareholder; (e) have general charge of the share transfer books of the Trust; and (f) in general perform such other duties as from time to time may be assigned to him by the chief executive officer, the president or by the Board of Trustees. Section 11. TREASURER. The treasurer shall have the custody of the funds and securities of the Trust and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Trust and shall deposit all moneys and other valuable effects in the name and to the credit of the Trust in such depositories as may be designated by the Board of Trustees. He shall disburse the funds of the Trust as may be ordered by the Board of Trustees, taking proper vouchers for such disbursements, and shall render to the president and Board of Trustees, at the regular meetings of the Board of Trustees or whenever it may so require, an account of all his transactions as treasurer and of the financial condition of the Trust. 13 If required by the Board of Trustees, he shall give the Trust a bond in such sum and with such surety or sureties as shall be satisfactory to the Board of Trustees for the faithful performance of the duties of his office and for the restoration to the Trust, in case of his death, resignation, retirement or removal from office, of all books, papers, vouchers, moneys and other property of whatever kind in his possession or under his control belonging to the Trust. Section 12. ASSISTANT SECRETARIES AND ASSISTANT TREASURERS. The assistant secretaries and assistant treasurers, in general, shall perform such duties as shall be assigned to them by the secretary or treasurer, respectively, or by the president or the Board of Trustees. The assistant treasurers shall, if required by the Board of Trustees, give bonds for the faithful performance of their duties in such sums and with such surety or sureties as shall be satisfactory to the Board of Trustees. Section 13. SALARIES. The salaries and other compensation of the officers shall be fixed from time to time by the Board of Trustees and no officer shall be prevented from receiving such salary or other compensation by reason of the fact that he is also a Trustee. ARTICLE VI CONTRACTS, LOANS, CHECKS AND DEPOSITS Section 1. CONTRACTS. The Board of Trustees may authorize any officer or agent to enter into any contract or to execute and deliver any instrument in the name of and on behalf of the Trust and such authority may be general or confined to specific instances. Any agreement, deed, mortgage, lease or other document executed by one or more of the Trustees or by an authorized person shall be valid and binding upon the Board of Trustees and upon the Trust when authorized or ratified by action of the Board of Trustees. Section 2. CHECKS AND DRAFTS. All checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the Trust shall be signed by such officer or agent of the Trust in such manner as shall from time to time be determined by the Board of Trustees. Section 3. DEPOSITS. All funds of the Trust not otherwise employed shall be deposited from time to time to the credit of the Trust in such banks, trust companies or other depositories as the Board of Trustees may designate. 14 ARTICLE VII SHARES Section 1. CERTIFICATES. Each shareholder shall be entitled to a certificate or certificates which shall represent and certify the number of shares of each class of beneficial interests held by him in the Trust. Each certificate shall be signed by the chief executive officer, the president or a vice president and countersigned by the secretary or an assistant secretary or the treasurer or an assistant treasurer and may be sealed with the seal, if any, of the Trust. The signatures may be either manual or facsimile. Certificates shall be consecutively numbered; and if the Trust shall, from time to time, issue several classes of shares, each class may have its own number series. A certificate is valid and may be issued whether or not an officer who signed it is still an officer when it is issued. Each certificate representing shares which are restricted as to their transferability or voting powers, which are preferred or limited as to their dividends or as to their allocable portion of the assets upon liquidation or which are redeemable at the option of the Trust, shall have a statement of such restriction, limitation, preference or redemption provision, or a summary thereof, plainly stated on the certificate. In lieu of such statement or summary, the Trust may set forth upon the face or back of the certificate a statement that the Trust will furnish to any shareholder, upon request and without charge, a full statement of such information. Section 2. TRANSFERS. Certificates shall be treated as negotiable and title thereto and to the shares they represent shall be transferred by delivery thereof to the same extent as those of a Maryland stock corporation. Upon surrender to the Trust or the transfer agent of the Trust of a share certificate duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, the Trust shall issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. The Trust shall be entitled to treat the holder of record of any share or shares as the holder in fact thereof and, accordingly, shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of the State of Maryland. Notwithstanding the foregoing, transfers of shares of beneficial interest of the Trust will be subject in all respects to the Declaration of Trust and all of the terms and conditions contained therein. Section 3. REPLACEMENT CERTIFICATE. Any officer designated by the Board of Trustees may direct a new certificate to be issued in place of any certificate previously issued by the Trust alleged to have been lost, stolen or destroyed upon the making of an affidavit of that fact by the person claiming the certificate to be lost, stolen or destroyed. When authorizing the issuance of a new certificate, an officer designated by the Board of Trustees may, in his discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or the owner's legal representative to advertise the same in such manner as he shall require and/or to give bond, with sufficient surety, to the Trust to indemnify it against any loss or claim which may arise as a result of the issuance of a new certificate. Section 4. CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE. The 15 Board of Trustees may set, in advance, a record date for the purpose of determining shareholders entitled to notice of or to vote at any meeting of shareholders or determining shareholders entitled to receive payment of any dividend or the allotment of any other rights, or in order to make a determination of shareholders for any other proper purpose. Such date, in any case, shall not be prior to the close of business on the day the record date is fixed and shall be not more than 90 days and, in the case of a meeting of shareholders not less than ten days, before the date on which the meeting or particular action requiring such determination of shareholders of record is to be held or taken. In lieu of fixing a record date, the Board of Trustees may provide that the share transfer books shall be closed for a stated period but not longer than 20 days. If the share transfer books are closed for the purpose of determining shareholders entitled to notice of or to vote at a meeting of shareholders, such books shall be closed for at least ten days before the date of such meeting. If no record date is fixed and the share transfer books are not closed for the determination of shareholders, (a) the record date for the determination of shareholders entitled to notice of or to vote at a meeting of shareholders shall be at the close of business on the day on which the notice of meeting is mailed or the 30th day before the meeting, whichever is the closer date to the meeting; and (b) the record date for the determination of shareholders entitled to receive payment of a dividend or an allotment of any other rights shall be the close of business on the day on which the resolution of the Board of Trustees, authorizing the dividend or allotment of rights, is adopted. When a determination of shareholders entitled to vote at any meeting of shareholders has been made as provided in this section, such determination shall apply to any adjournment thereof, except when (i) the determination has been made through the closing of the transfer books and the stated period of closing has expired or (ii) the meeting is adjourned to a date more than 120 days after the record date fixed for the original meeting, in either of which case a new record date shall be determined as set forth herein. Section 5. STOCK LEDGER. The Trust shall maintain at its principal office or at the office of its counsel, accountants or transfer agent, an original or duplicate share ledger containing the name and address of each shareholder and the number of shares of each class held by such shareholder. The stock ledger may be kept in written form or in any other form which may be converted within a reasonable time into written form for visual inspection. Section 6. FRACTIONAL SHARES; ISSUANCE OF UNITS. The Board of Trustees may issue fractional shares or provide for the issuance of scrip, all on such terms and under such conditions as they may determine. Notwithstanding any other provision of the Declaration of Trust or these Bylaws, the Board of Trustees may issue units consisting of different securities of the Trust. Any security issued in a unit shall have the same characteristics as any identical securities issued by the Trust, except that the Board of Trustees may provide that for a specified period securities of the Trust issued in such unit may be transferred on the books of the Trust only in such unit. 16 ARTICLE VIII ACCOUNTING YEAR The Board of Trustees shall have the power, from time to time, to fix the fiscal year of the Trust by a duly adopted resolution. ARTICLE IX DISTRIBUTIONS Section 1. AUTHORIZATION. Dividends and other distributions upon the shares of beneficial interest of the Trust may be authorized and declared by the Board of Trustees, subject to the provisions of law and the Declaration of Trust. Dividends and other distributions may be paid in cash, property or shares of the Trust, subject to the provisions of law and the Declaration of Trust. Section 2. CONTINGENCIES. Before payment of any dividends or other distributions, there may be set aside out of any funds of the Trust available for dividends or other distributions such sum or sums as the Board of Trustees may from time to time, in its absolute discretion, think proper as a reserve fund for contingencies, for equalizing dividends or other distributions, for repairing or maintaining any property of the Trust or for such other purpose as the Board of Trustees shall determine to be in the best interest of the Trust, and the Board of Trustees may modify or abolish any such reserve in the manner in which it was created. ARTICLE X PROHIBITED INVESTMENTS AND ACTIVITIES Notwithstanding anything to the contrary in the Declaration of Trust, the Trust shall not enter into any transaction referred to in (i), (ii) or (iii) below which it does not believe is in the best interests of the Trust, and will not, without the approval of a majority of the disinterested Trustees, (i) acquire from or sell to any Trustee, officer or employee of the Trust, any corporation, partnership, joint venture, trust, employee benefit plan or other enterprise in which a Trustee, officer or employee of the Trust owns more than a one percent interest or any affiliate of any of the foregoing, any of the assets or other property of the Trust, except for the acquisition directly or indirectly of certain properties or interest therein, directly or indirectly, through entities in which it owns an interest in connection with the initial public offering of shares by the Trust or pursuant to agreements entered into in connection with such offering, which properties shall be described in the prospectus relating to such initial public offering, (ii) make any loan to or borrow from any of the foregoing persons or (iii) engage in any other transaction with any of the foregoing persons. Each such transaction will be in all respects on such terms as are, at the time of the transaction and under the circumstances then prevailing, fair and reasonable to the Trust. Subject to the provisions of the Declaration of Trust, the Board of Trustees may from time to time adopt, amend, revise or terminate any policy or policies with respect to investments by the Trust as it shall deem appropriate in its sole discretion. 17 ARTICLE XI SEAL Section 1. SEAL. The Board of Trustees may authorize the adoption of a seal by the Trust. The seal shall have inscribed thereon the name of the Trust and the year of its formation. The Board of Trustees may authorize one or more duplicate seals and provide for the custody thereof. Section 2. AFFIXING SEAL. Whenever the Trust is permitted or required to affix its seal to a document, it shall be sufficient to meet the requirements of any law, rule or regulation relating to a seal to place the word "(SEAL)" adjacent to the signature of the person authorized to execute the document on behalf of the Trust. 18 ARTICLE XII INDEMNIFICATION AND ADVANCE OF EXPENSES To the maximum extent permitted by Maryland law in effect from time to time, the Trust shall indemnify (a) any Trustee, officer or shareholder or any former Trustee, officer or shareholder (including among the foregoing, for all purposes of this Article XII and without limitation, any individual who, while a Trustee, officer or shareholder and at the express request of the Trust, serves or has served another real estate investment trust, corporation, partnership, joint venture, trust, employee benefit plan or any other enterprise as a director, officer, shareholder, partner or trustee of such real estate investment trust, corporation, partnership, joint venture, trust, employee benefit plan or other enterprise) who has been successful, on the merits or otherwise, in the defense of a proceeding to which he was made a party by reason of service in such capacity, against reasonable expenses incurred by him in connection with the proceeding, (b) any Trustee or officer or any former Trustee or officer against any claim or liability to which he may become subject by reason of such status unless it is established that (i) his act or omission was material to the matter giving rise to the proceeding and was committed in bad faith or was the result of active and deliberate dishonesty, (ii) he actually received an improper personal benefit in money, property or services or (iii) in the case of a criminal proceeding, he had reasonable cause to believe that his act or omission was unlawful and (c) each shareholder or former shareholder against any claim or liability to which he may become subject by reason of such status. In addition, the Trust shall, without requiring a preliminary determination of the ultimate entitlement to indemnification, pay or reimburse, in advance of final disposition of a proceeding, reasonable expenses incurred by a Trustee, officer or shareholder or former Trustee, officer or shareholder made a party to a proceeding by reason such status, provided that, in the case of a Trustee or officer, the Trust shall have received (i) a written affirmation by the Trustee or officer of his good faith belief that he has met the applicable standard of conduct necessary for indemnification by the Trust as authorized by these Bylaws and (ii) a written undertaking by or on his behalf to repay the amount paid or reimbursed by the Trust if it shall ultimately be determined that the applicable standard of conduct was not met. The Trust may, with the approval of its Board of Trustees, provide such indemnification or payment or reimbursement of expenses to any Trustee, officer or shareholder or any former Trustee, officer or shareholder who served a predecessor of the Trust and to any employee or agent of the Trust or a predecessor of the Trust. Neither the amendment nor repeal of this Article, nor the adoption or amendment of any other provision of the Declaration of Trust or these Bylaws inconsistent with this Article, shall apply to or affect in any respect the applicability of this Article with respect to any act or failure to act which occurred prior to such amendment, repeal or adoption. Any indemnification or payment or reimbursement of the expenses permitted by these Bylaws shall be furnished in accordance with the procedures provided for indemnification or payment or reimbursement of expenses, as the case may be, under Section 2-418 of the MGCL for directors of Maryland corporations. The Trust may provide to Trustees, officers and shareholders such other and further indemnification or payment or reimbursement of expenses, as the case may be, to the fullest extent permitted by the MGCL, as in effect from time to time, for directors of Maryland corporations. 19 ARTICLE XIII WAIVER OF NOTICE Whenever any notice is required to be given pursuant to the Declaration of Trust or Bylaws or pursuant to applicable law, a waiver thereof in writing, signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice. Neither the business to be transacted at nor the purpose of any meeting need be set forth in the waiver of notice, unless specifically required by statute. The attendance of any person at any meeting shall constitute a waiver of notice of such meeting, except where such person attends a meeting for the express purpose of objecting to the transaction of any business on the ground that the meeting is not lawfully called or convened. ARTICLE XIV AMENDMENT OF BYLAWS The Board of Trustees shall have the exclusive power to adopt, alter or repeal any provision of these Bylaws and to make new Bylaws. ARTICLE XV MISCELLANEOUS All references to the Declaration of Trust shall include any amendments and/or restatements thereto, whether effective prior or subsequent to the date hereof. 20 EX-12 4 a2063241zex-12.txt EXHIBIT 12 EXHIBIT 12 EQUITY RESIDENTIAL PROPERTIES TRUST CONSOLIDATED HISTORICAL COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES
HISTORICAL ------------------------------------------------------------------------------------------ 09/30/01 09/30/00 12/31/00 12/31/99 12/31/98 12/31/97 12/31/96 ------------------------------------------------------------------------------------------ (Amounts in thousands) Income before allocation to Minority Interests, income from investments in unconsolidated entities, net gain on sales of real estate, extraordinary items and cummulative effect of change in accounting principle $ 237,159 $ 275,743 $ 380,613 $ 319,842 $ 251,927 $ 176,014 $ 97,033 Interest and other financing costs 287,329 285,337 382,946 337,189 246,585 121,324 81,351 Amortization of deferred financing costs 4,338 4,063 5,473 4,084 2,757 2,523 4,242 Income from investments in unconsolidated entities (cash basis) 20,252 14,589 18,051 7,125 2,039 - - --------- ---------- ---------- ---------- ---------- ---------- ---------- EARNINGS BEFORE COMBINED FIXED CHARGES AND PREFERRED DISTRIBUTIONS 549,078 579,732 787,083 668,240 503,308 299,861 182,626 Depreciation/amortization 343,866 335,607 451,344 408,688 301,869 156,644 93,253 Non-real estate depreciation (4,787) (5,830) (12,093) (7,231) (5,361) (3,118) (2,079) Depreciation from Unconsolidated and Partially Owned Properties 6,989 (193) 1,244 1,009 183 - - Impairment on furniture rental business 60,000 - - - - - - Impairment on technology investments 7,968 - 1,000 - - - - Allocation to Minority Interests-Partially Owned Properties 1,523 (145) 132 - - - - --------- ---------- ---------- ---------- ----------- ---------- ---------- FUNDS FROM OPERATIONS BEFORE COMBINED FIXED CHARGES AND PREFERRED DISTRIBUTIONS $ 964,637 $ 909,171 $1,228,710 $1,070,706 $ 799,999 $ 453,387 $ 273,800 ========= ========== ========== ========== ========== ========== ========== Interest and other financing costs $ 287,329 $ 285,337 $ 382,946 $ 337,189 $ 246,585 $ 121,324 $ 81,351 Amortization of deferred financing costs 4,338 4,063 5,473 4,084 2,757 2,523 4,242 Interest capitalized for real estate under construction 2,159 827 1,325 1,493 1,620 - - --------- ---------- ---------- ---------- ---------- ---------- ---------- TOTAL COMBINED FIXED CHARGES 293,826 290,227 389,744 342,766 250,962 123,847 85,593 Preferred distributions 81,759 83,597 111,941 113,196 92,917 59,012 29,015 --------- ---------- ---------- ---------- ---------- ---------- ---------- TOTAL COMBINED FIXED CHARGES AND PREFERRED DISTRIBUTIONS $ 375,585 $ 373,824 $ 501,685 $ 455,962 $ 343,879 $ 182,859 $ 114,608 ========= ========== ========== ========== ========== ========== ========== RATIO OF EARNINGS BEFORE COMBINED FIXED CHARGES AND PREFERRED DISTRIBUTIONS TO TOTAL COMBINED FIXED CHARGES 1.87 2.00 2.02 1.95 2.01 2.42 2.13 ========= ========== ========== ========== ========== ========== ========== RATIO OF EARNINGS BEFORE COMBINED FIXED CHARGES AND PREFERRED DISTRIBUTIONS TO TOTAL COMBINED FIXED CHARGES AND PREFERRED DISTRIBUTIONS 1.46 1.55 1.57 1.47 1.46 1.64 1.59 ========= ========== ========== ========== ========== ========== ========== RATIO OF FUNDS FROM OPERATIONS BEFORE COMBINED FIXED CHARGES AND PREFERRED DISTRIBUTIONS TO TOTAL COMBINED FIXED CHARGES AND PREFERRED DISTRIBUTIONS 2.57 2.43 2.45 2.35 2.33 2.48 2.39 ========= ========== ========== ========== ========== ========== ==========
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