UNITED STATES
FORM 10-Q
(Mark One)
| [X] | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF |
| For the quarterly period ended September 30, 2001 |
OR
| [ ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) |
| For the transition period from to |
Commission file number 1-12792
SUMMIT PROPERTIES INC.
(704) 334-3000
Maryland
56-1857807
(State or other jurisdiction of
(I.R.S. Employer
incorporation or organization)
Identification No.)
309 E. Morehead Street
Suite 200
Charlotte, North Carolina
28202
(Address of principal executive offices)
(Zip code)
N/A
Indicate by check 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 ISSUERS:
Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date.
26,988,014 shares of common stock, par value $.01 per share, outstanding as of November 7, 2001
SUMMIT PROPERTIES INC.
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PART I
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Financial Information
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Item 1
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Financial Statements
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Consolidated Balance Sheets as of
September 30, 2001 and December 31, 2000 (Unaudited)
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Consolidated Statements of Earnings for the three
and nine months ended September 30, 2001 and 2000
(Unaudited)
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Consolidated Statement of Stockholders’
Equity for the nine months ended September 30, 2001
(Unaudited)
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Consolidated Statements of Cash Flows for the
nine months ended September 30, 2001 and 2000 (Unaudited)
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Notes to Consolidated Financial Statements
(Unaudited)
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Item 2
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Management’s Discussion and Analysis of
Financial Condition and Results of Operations
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Item 3
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Quantitative and Qualitative Disclosures about
Market Risk
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PART II
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Other Information
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Item 2
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Changes in Securities
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Item 6
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Exhibits and Reports on Form 8-K
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Signatures
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2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SUMMIT PROPERTIES INC.
See notes to consolidated financial statements.
3
SUMMIT PROPERTIES INC.
See notes to consolidated financial statements.
4
SUMMIT PROPERTIES INC.
See notes to consolidated financial statements.
5
SUMMIT PROPERTIES INC.
See notes to consolidated financial statements.
6
SUMMIT PROPERTIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Unless the context otherwise requires, all references to
“we,” “our” or “us” in this report
refer collectively to Summit Properties Inc., a Maryland
corporation (“Summit”), and its subsidiaries,
including Summit Properties Partnership, L.P. , a Delaware
limited partnership (the “Operating Partnership”),
considered as a single enterprise. Summit is the sole general
partner of the Operating Partnership.
1. BASIS OF PRESENTATION
We have prepared the accompanying unaudited financial statements
in accordance with generally accepted accounting principles for
interim financial information and in conformity with the rules
and regulations of the Securities and Exchange Commission.
Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles
for complete financial statements. We have included all
adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation. The results of operations for
the nine months ended September 30, 2001 are not
necessarily indicative of the results that may be expected for
the full year. You should read our December 31, 2000
audited financial statements and notes included in our Annual
Report on Form 10-K in conjunction with these interim
statements.
We conduct substantially all of our business through the
Operating Partnership. Summit is the sole general partner and
majority owner of the Operating Partnership.
Recently Issued Accounting Standards
—
On June 29, 2001, the Financial Accounting Standards Board
approved Statement of Financial Accounting Standards
(SFAS) No. 141, “Business Combinations” and
No. 142, “Goodwill and Other Intangible Assets”.
SFAS No. 141 will require that the purchase method of
accounting be used for all business combinations initiated after
June 30, 2001 and that the use of the pooling-of-interest
method is no longer allowed. SFAS No. 142 requires that
upon adoption, amortization of goodwill will cease and instead,
the carrying value of goodwill will be evaluated for impairment
on an annual basis. Identifiable intangible assets will continue
to be amortized over their useful lives and reviewed for
impairment in accordance with SFAS No. 121,
“Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of”. SFAS No. 142 is
effective for fiscal years beginning after December 15,
2001. We are evaluating the impact of the adoption of these
standards and have not yet determined the effect of adoption on
our financial position and results of operations.
The Financial Accounting Standards Board has approved SFAS
No. 143, “Accounting for Asset Retirement
Obligations” and No. 144, “Accounting for the
Impairment or Disposal of Long-Lived Assets”. SFAS
No. 143 addresses financial accounting and reporting for
obligations associated with the retirement of tangible
long-lived assets and the associated asset retirement costs,
including legal obligations that result from the acquisition,
construction, development and/or the normal operation of
long-lived assets. It requires that the fair value of a
liability for an asset retirement obligation be recognized in
the period in which it is incurred if a reasonable estimate of
fair value can be made. The associated asset retirement costs
are capitalized as part of the carrying amount of the long-lived
asset. SFAS No. 143 is effective for fiscal years beginning
after June 15, 2002. SFAS No. 144 supersedes SFAS
No. 121, “Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of” and
Accounting Principles Bulletin No. 30, “Reporting the
Results of Operations — Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual
and Infrequently Occurring Events and Transactions”. Along
with establishing a single accounting model, based on the
framework established in SFAS No. 121, for long-lived
assets to be disposed of by sale, this standard retains the
basic provisions of APB 30 for the presentation of
discontinued operations in the income statement but broadens
that presentation to include a component of an entity. SFAS
No. 144 is effective for fiscal years beginning after
December 15, 2001. We are evaluating the impact of the
adoption of these standards and have not yet determined the
effect of adoption on our financial position and results of
operations.
Earnings per Share
— The only difference
between “basic” and “diluted” weighted
average shares is the dilutive effect of our outstanding stock
options. There were 376,859 and 322,792 shares added to
weighted
7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) — (Continued)
average shares outstanding for the three and nine months ended
September 30, 2001, respectively, and 270,421 and
171,956 shares added to weighted average shares outstanding
for the three and nine months ended September 30, 2000,
respectively.
Reclassifications
— Certain
reclassifications have been made to the 2000 financial
statements to conform to the 2001 presentation.
2. REAL ESTATE JOINT VENTURES
We own a 25% interest in a joint venture named Station Hill,
LLC, in which we and Hollow Creek, LLC, a subsidiary of a major
financial services company, are members. In exchange for our
interest in Station Hill, we contributed one phase of each of
two communities. We sold three communities and one phase of each
of the two communities contributed to Station Hill to Hollow
Creek and Hollow Creek concurrently contributed them to Station
Hill for a 75% joint venture interest. The two phases
contributed to Station Hill and the two phases sold to Hollow
Creek are now considered two communities and, therefore, we
currently own a 25% interest in four communities owned by
Station Hill. Station Hill is accounted for on the equity method
of accounting.
On August 1, 2001, Station Hill sold an apartment community
located in Tampa, Florida formerly known as Summit Station (230
apartment homes) for $11.9 million. The disposition of
Summit Station resulted in the recognition of a gain on sale by
Station Hill of $1.1 million. The purchaser of Summit
Station assumed an $8.3 million mortgage and paid the
balance of the purchase price in cash.
The following are condensed balance sheets and income statements
for Station Hill as of, and for the nine months ended,
September 30, 2001 and 2000. The balance sheets and income
statements below reflect the financial position and operations
of Station Hill in its entirety, not only our 25% interest
(amounts in thousands).
8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) — (Continued)
We also own a 49% interest in a joint venture which developed an
apartment community in Atlanta, Georgia. This project is
accounted for under the equity method of accounting and,
therefore, its operating results are presented in “(Income)
loss on equity investments: Real estate joint ventures” in
our consolidated statements of earnings. The construction costs
were funded through a separate loan to the joint venture from an
unrelated third party equal to 100% of the construction costs.
We have the option to purchase our partner’s interest in
the joint venture for a period of four months after the project
becomes stabilized. The project reached stabilization on
September 1, 2001, and we have not yet decided whether we
will exercise our option. If we do not exercise our option, we
will be required to make a capital contribution of 25% of the
joint venture’s total construction loan amount which was
$26.9 million at September 30, 2001.
On May 25, 2001, we contributed $4.2 million for a 29.78%
interest in a joint venture that owns substantially all of the
interests in a limited liability company that will develop an
apartment community in Miami, Florida. The community will
consist of 323 apartment homes and 17,795 square feet of
office/retail space. The construction costs are being funded
through the equity which the joint venture contributed to the
limited liability company and by a loan to that company from an
unrelated third party. In the event that construction costs
exceed the construction loan amount, we have agreed to lend to
the joint venture, which will in turn advance to the limited
liability company, the amount required to fund such cost
overruns. This loan would accrue interest at the rate of 11% per
year. Upon completion of construction, the joint venture will
pay, or refinance, the construction loan. In the event the
limited liability company defaults on the construction loan, we
have the right, under certain circumstances, to cure the
defaults, keep the construction loan in place and complete
construction of the community. The joint venture has also
acquired an adjacent piece of land. We are serving as the
managing member of the joint venture, and Summit Management
Company will be the property management company for the project.
This project is accounted for on the equity method of accounting.
3. COMMUNITY DISPOSITIONS
During the nine months ended September 30, 2001, we sold
four apartment communities and one parcel of land for an
aggregate sales price of $62.5 million. The four
communities sold were the former Summit Palm Lake
(304 apartment homes) located in West Palm Beach, Florida,
Summit Arbors and Summit Radbourne (an aggregate of 345
apartment homes) both located in Charlotte, North Carolina and
Summit Lofts (200 apartment homes) located in Palm Harbour,
Florida. The parcel of land was located in Richmond, Virginia.
The disposition of these four communities and parcel of land
resulted in the recognition of a net gain on sale of
$13.9 million.
The proceeds from Summit Palm Lake, Summit Lofts and the parcel
of land, a total of $34.8 million, were used to repay
amounts outstanding under our unsecured line of credit. The
purchaser of Summit Arbors and
9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) — (Continued)
Summit Radbourne assumed $8.5 million in mortgages and
exchanged 741,148 common units valued at $17.6 million as
consideration in the transaction.
4. NOTES PAYABLE
We have a syndicated unsecured line of credit in the amount of
$225.0 million. The credit facility provides funds for new
development, acquisitions and general working capital purposes.
Loans under the credit facility bear interest at LIBOR plus 100
basis points. The spread component of the aggregate interest
rate will be reduced in the event of an upgrade of our unsecured
credit rating. The credit facility is repayable monthly on an
interest only basis with principal due at maturity. The credit
facility’s initial three-year term was scheduled to expire
on September 26, 2003. On July 6, 2001, we closed on a
one-year extension option under this credit facility. The new
maturity date is September 26, 2004, and all other terms
and covenants of the credit facility remain unchanged.
On April 20, 2000, we commenced a new program for the sale
by the Operating Partnership of up to $250.0 million
aggregate principal amount of medium-term notes due nine months
or more from the date of issuance. During the nine months ended
September 30, 2001, the Operating Partnership issued
medium-term notes with an aggregate principal amount of
$60.0 million in connection with the new MTN program,
including (a) $25.0 million of notes which are due on
May 9, 2006 and bear interest at 7.04% per year and
(b) $35.0 million of notes which are due on
May 9, 2011 and bear interest at 7.703% per year. We had
medium-term notes with an aggregate principal amount of
$112.0 million outstanding in connection with the new MTN
program at September 30, 2001.
On May 29, 1998, we established a program for the sale by
the Operating Partnership of up to $95.0 million aggregate
principal amount of medium-term notes due nine months or more
from the date of issuance. We had medium-term notes with an
aggregate principal amount of $25.0 million outstanding in
connection with this MTN program at September 30, 2001. As
a result of the commencement of the $250.0 million MTN
program, we cannot issue any additional notes under the
$95.0 million MTN program.
5. DERIVATIVE FINANCIAL INSTRUMENTS
We are exposed to capital market risk, such as changes in
interest rates. To manage the volatility relating to interest
rate risk, we may enter into interest rate hedging arrangements
from time to time. We do not utilize derivative financial
instruments for trading or speculative purposes.
On January 1, 2001, we adopted Statement of Financial
Accounting Standard No. 133, “Accounting for
Derivative Instruments and Hedging Activities,” as amended.
FAS 133 establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. It
requires that entities recognize all derivatives as either
assets or liabilities in the statement of financial position and
measure those instruments at fair value. The cumulative effect
of adopting FAS 133 was not material to our financial
statements.
At September 30, 2001, we had one interest rate swap with a
notional amount of $30.0 million, relating to
$30.0 million of 6.625% fixed rate notes issued under our
MTN program. Under the interest rate swap agreement, through the
maturity date of December 15, 2003, (a) we have agreed
to pay to the counterparty the interest on a $30.0 million
notional amount at a floating interest rate of three-month LIBOR
plus 11 basis points, and (b) the counterparty has agreed
to pay to us the interest on the same notional amount at the
fixed rate. The floating rate at September 30, 2001 was
3.26%. The fair value of the interest rate swap was
$2.4 million at September 30, 2001. The swap has been
designated as a fair value hedge of the underlying fixed rate
debt obligation and has been recorded as a reduction of the
related debt instrument. We assume no ineffectiveness as the
interest rate swap meets the short-cut method conditions
required under FAS 133 for
10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) — (Continued)
fair value hedges of debt instruments. Accordingly, no gains or
losses were recorded in income relative to our underlying debt
and interest rate swap.
6. RESTRICTED STOCK
During the nine months ended September 30, 2001, we granted
94,818 shares of restricted stock valued at $1.2 million
pursuant to our Performance Stock Award Plan. One half of these
shares vested on the date of grant, with the remaining shares
vesting in two equal annual installments on January 1, 2002
and January 1, 2003. The value of the unvested shares has
been recorded as unamortized restricted stock compensation and
is shown as a separate component of stockholders’ equity in
the accompanying balance sheet.
During the nine months ended September 30, 2001 and 2000,
we granted 11,804 (net of 12,202 forfeited shares for terminated
employees) and 72,805 shares, respectively, of restricted stock
to employees under our 1994 Stock Option and Incentive Plan. The
market value of the restricted stock grants awarded during these
nine months in 2001 and 2000 totaled $375,000 (net of $234,000
in forfeited shares for terminated employees) and
$1.3 million, respectively, which has been recorded as
unamortized restricted stock compensation and is shown as a
separate component of stockholders’ equity in the
accompanying balance sheet. Unearned compensation related to
these restricted stock grants is being amortized to expense over
the vesting period which ranges from three to five years.
7. SUPPLEMENTAL CASH FLOW INFORMATION
Non-cash investing and financing activities for the nine months
ended September 30, 2001 and 2000 are as follows:
11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) — (Continued)
8. MINORITY INTEREST
Minority interest of common unitholders consists of the
following at September 30, 2001 and December 31, 2000 (in
thousands):
As of September 30, 2001, the Operating Partnership had
30,549,930 common units of limited partnership interest
outstanding of which 26,987,034, or 88.3%, were owned by Summit
and 3,562,896, or 11.7%, were owned by other partners, including
certain of our officers and directors.
Proceeds from the issuance of shares of our common stock are
contributed to the Operating Partnership for an equivalent
number of common units. Total common stock issued, and the
proceeds contributed to the Operating Partnership for an
equivalent number of common units, was 335,000 and
325,000 shares valued at $7.5 million ($22.47 per
share average) and $5.5 million ($17.58 per share average)
for the nine months ended September 30, 2001 and 2000,
respectively. No individual transaction significantly changed
our ownership percentage in the Operating Partnership, which was
88.3% and 85.8% as of September 30, 2001 and
December 31, 2000, respectively.
Under certain circumstances, as required by the holders of
common units, we may issue shares of common stock in exchange
for common units owned by other partners on a one-for-one basis
(subject to adjustment) or may purchase common units for cash.
Shares of common stock exchanged for common units are valued
based upon the market price per share of our common stock at the
date of the exchange. During the nine-month period ended
September 30, 2001, 145,907 common units valued at
$3.9 million were exchanged for shares of common stock.
During the nine-month period ended September 30, 2000,
43,545 common units valued at $875,000 were exchanged for shares
of common stock and 93,945 common units were exchanged for cash
of $1.8 million.
We issued 66,376 common units at a price of $28.625 per unit as
partial consideration for the purchase of a building and a
parcel of land during the nine months ended September 30,
2001.
During the nine months ended September 30, 2001, the
purchaser of the former Summit Radbourne and Summit Arbors
communities exchanged 741,148 common units valued at
$17.6 million as partial consideration for such purchase.
We issued 96,455 common units valued at $2.2 million in
connection with the purchase of our joint venture partner’s
interest in two communities during the nine months ended
September 30, 2000.
9. COMMITMENTS AND CONTINGENCIES
The estimated cost to complete the five development projects
currently under construction was $64.0 million at
September 30, 2001. Anticipated construction completion
dates of the projects range from the fourth quarter of 2001 to
the first quarter of 2003.
On January 19, 2000, we entered into a Real Estate Purchase
Agreement with a third-party real estate developer. Under the
terms of the agreement, we have agreed to purchase a
“Class A” mixed-use community, which will be
called Summit Brickell and will be located in Miami, Florida. We
expect to close on the purchase of Summit Brickell during the
second half of 2002 following its completion and achievement of
85% occupancy. The final purchase price will be determined based
on actual construction costs plus a bonus to the developer based
on the capitalized income of the property at the time of
purchase. The purchase price is
12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) — (Continued)
expected to range from $50.5 million to $60.0 million.
The purchase of Summit Brickell is subject to customary closing
conditions. We issued a letter of credit in the amount of
$13.0 million, which serves as a credit enhancement to the
developer’s construction loan. In the event that the letter
of credit is drawn upon, we will be treated as having issued a
loan to the developer in the amount of such draw. Any such loan
will accrue interest at a rate of 18% per year.
We have employment agreements with two of our former executive
officers both of whom resigned from such executive positions,
but who remain as employees and have agreed to provide various
services to us from time to time over the next ten years. Each
employment agreement requires that we pay to the former officers
a base salary aggregating up to $2.1 million over the
period from July 1, 2001 to December 31, 2011. Either
party can terminate the employment agreements, effective
20 business days after written notice is given. The full
base salary amount due shall be payable through 2011 whether or
not the agreements are terminated earlier in accordance with
their terms.
10. BUSINESS SEGMENTS
We are an established leader in the operation, development and
acquisition of “Class A” luxury apartments
located in the southeastern, southwestern and mid-atlantic
United States. We develop apartments solely for our own use and
do not perform development activities for third parties. We
evaluate each community’s performance individually.
However, because of the similar economic characteristics and
services provided to our residents at each community, our
communities have been aggregated into one reportable segment,
apartment operations. This segment generated 98.4% and 98.0% of
our total revenues for the nine months ended September 30,
2001 and 2000, respectively.
11. PREFERRED UNITS
As of September 30, 2001, the Operating Partnership had
outstanding 3.4 million preferred units of limited
partnership interest designated as 8.95% Series B
Cumulative Redeemable Perpetual Preferred Units. These preferred
units are redeemable by the Operating Partnership on or after
April 29, 2004 for cash, or at our option, shares of our
8.95% Series B Cumulative Redeemable Perpetual Preferred
Stock, or a combination of cash and stock. Holders of the
Series B preferred units have the right to exchange these
preferred units for shares of our Series B preferred stock
on a one-for-one basis, subject to adjustment: (a) on or
after April 29, 2009, (b) if full quarterly
distributions are not made for six quarters, or (c) upon
the occurrence of specified events related to the treatment of
the Operating Partnership or the preferred units for federal
income tax purposes. Distributions on the Series B
preferred units are cumulative from the date of original
issuance and are payable quarterly at the rate of 8.95% per year
of the $25.00 original capital contribution. We made
distributions to the holders of the Series B preferred
units in the aggregate amount of $5.7 million during each
of the nine-month periods ended September 30, 2001 and 2000.
As of September 30, 2001, the Operating Partnership had
outstanding 2.2 million preferred units of limited
partnership interest designated as 8.75% Series C
Cumulative Redeemable Perpetual Preferred Units. The preferred
units are redeemable by the Operating Partnership on or after
September 3, 2004 for cash. Holders of the Series C
preferred units have the right to exchange these preferred units
for shares of our Series C preferred stock on a one-for-one
basis, subject to adjustment: (a) on or after
September 3, 2009, (b) if full quarterly distributions
are not made for six quarters, (c) upon the occurrence of
specified events related to the treatment of the Operating
Partnership or the preferred units for federal income tax
purposes, or (d) if the holdings in the Operating
Partnership of the Series C unitholder exceed 18% of the
total profits of or capital interest in the Operating
Partnership for a taxable year. Distributions on the
Series C preferred units are cumulative from the date of
original issuance and are payable quarterly at the rate of 8.75%
per year of the $25.00 original capital contribution. We made
distributions to the holder of the Series C preferred units
in the aggregate amount of $3.6 million during each of the
nine-month periods ended September 30, 2001 and 2000.
13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) — (Continued)
12. COMMON STOCK REPURCHASE PROGRAM
On March 12, 2000, our Board of Directors authorized a
common stock repurchase program pursuant to which we were
authorized to purchase up to an aggregate of $25.0 million
of currently issued and outstanding shares of our common stock.
During the three months ended September 30, 2001, our Board
of Directors increased the size of this common stock repurchase
program to $56.0 million. All repurchases have been, and
will be, made on the open market at prevailing prices or in
privately negotiated transactions. This authority may be
exercised from time to time and in such amounts as market
conditions warrant. We did not repurchase any shares of our
common stock during the nine months ended September 30,
2001. During the year ended December 31, 2000, we
repurchased 279,400 shares of our common stock under the common
stock repurchase program for an aggregate purchase price,
including commissions, of $5.5 million, or an average price
of $19.80 per share.
During 2000, we completed a common stock repurchase program
pursuant to which we were authorized to purchase up to an
aggregate of $50.0 million of our common stock. The total
number of shares of our common stock repurchased under this
program was 2.5 million shares for an aggregate purchase
price, including commissions, of $50.0 million, or an
average price of $19.63 per share.
13. IMPAIRMENT LOSS
Management considers events and circumstances that may indicate
impairment of an investment, including operating performance and
cash flow projections. Management determined during the second
quarter of 2001 that our investments in Broadband Now, Inc. and
Yieldstar Technology LLC were impaired and that such impairment
was other than temporary. As a result, we recorded an impairment
loss in the amount of $1.2 million, which represents our entire
investments in these two technology companies. We have no other
technology company investments.
14. SUBSEQUENT EVENTS
Subsequent to September 30, 2001, we sold three apartment
communities formerly known as Summit Stony Point
(250 apartment homes) located in Richmond, Virginia, Summit
Gateway (212 apartment homes) located in Tampa, Florida and
Summit Deerfield (498 apartment homes) located in
Cincinnati, Ohio for $77.1 million in the aggregate. The
disposition of these communities resulted in the recognition of
a gain on sale of $10.2 million in the aggregate. The net
proceeds of $4.3 million from the disposition of Summit
Gateway were placed into escrow in accordance with like-kind
exchange rules and regulations and are expected to be used to
fund development activities. Net proceeds in the aggregate
amount of $57.1 million from the disposition of Summit
Stony Point and Summit Deerfield were used to repay amounts
outstanding under our unsecured credit facility.
14
This report contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of
1934, as amended, including, without limitation, statements
relating to the operating performance of fully stabilized
communities, the development, acquisition or disposition of
properties, anticipated construction commencement and completion
and lease-up dates, and estimated development costs. You can
identify forward-looking statements by the use of the words
“believe,” “expect,” “anticipate,”
“intend,” “estimate,” “assume” and
other similar expressions which predict or indicate future
events and trends and which do not relate to historical matters.
You should not rely on forward-looking statements, because they
involve known and unknown risks, uncertainties and other
factors, some of which are beyond our control. These risks,
uncertainties and other factors may cause our actual results,
performance or achievements to be materially different from the
anticipated future results, performance or achievements
expressed or implied by the forward-looking statements. Factors
that could have a material adverse effect on our operations and
future prospects include, but are not limited to:
You should consider these risks and uncertainties when
evaluating forward-looking statements and you should not place
undue reliance on such statements. These forward-looking
statements represent our estimates and assumptions only as of
the date of this report. We do not undertake to update these
forward-looking statements. You should read the following
discussion in conjunction with our unaudited consolidated
financial statements and notes which accompany this report, and
our audited financial statements for the year ended
December 31, 2000 and notes included in our annual report
on Form 10-K.
Summit is a real estate operating company that has elected REIT
status and focuses on the operation, development and acquisition
of “Class A” luxury apartment communities located
in the southeastern, southwestern and mid-atlantic United
States. We focus our efforts in seven core markets, with
particular
15
We have experienced weakening fundamentals in all of our markets
during the year, particularly during the three months ended
September 30, 2001. This weakness has been due to the
downturn in the national economy, as well as declining economic
conditions in our core markets, especially Atlanta, Austin,
Charlotte and Raleigh. Local demand for apartment homes has
declined due to lower job growth in many of our markets, and
there has been a decrease in the number of potential residents
visiting our communities. We also have experienced increased
turnover in resident occupancy. Although the current political
and economic environment is unpredictable, we expect these
trends to continue for the next few quarters.
HISTORICAL RESULTS OF OPERATIONS
Our net income is generated primarily from operations of our
apartment communities. The changes in operating results from
period to period reflect changes in existing community
performance and changes in the number of apartment homes due to
development, acquisition, or disposition of communities. Where
appropriate, comparisons are made on a “fully stabilized
communities,” “acquisition communities,”
“stabilized development communities,”
“communities in lease-up” and “disposition
communities” basis in order to adjust for changes in the
number of apartment homes. We consider a community to be
“stabilized” when it has attained a physical occupancy
level of at least 93%. A community that we have acquired is
deemed “fully stabilized” when we have owned it for
one year or more as of the beginning of the current year. A
community that we have developed is deemed “fully
stabilized” when stabilized for the two prior years as of
the beginning of the current year. A community is deemed to be a
“stabilized development” community when stabilized as
of the beginning of the current year but not the entire two
prior years. A community in lease-up is defined as one that has
commenced rental operations but was not stabilized as of the
beginning of the current year. A community’s average
physical occupancy is defined as the number of apartment homes
occupied divided by the total number of apartment homes
contained in the communities, expressed as a percentage. Average
physical occupancy has been calculated using the average of the
occupancy that existed on Sunday during each week of the period.
Average monthly rental revenue presented represents the average
monthly net rental revenue per occupied apartment home. Our
methodology for calculating average physical occupancy and
average monthly rental revenue may differ from the methodology
used by other apartment companies and, accordingly, may not be
comparable to other apartment companies. All communities’
information is presented before real estate depreciation and
amortization expense.
Results of Operations for the Three and
Nine Months Ended September 30, 2001 and 2000
Income before gain on sale of real estate assets, impairment
loss on investments in technology companies, minority interest
of common unitholders in the Operating Partnership, dividends to
preferred unitholders in the Operating Partnership and
extraordinary items remained stable at $11.7 million for the
three months ended September 30, 2001 and 2000 and
increased from $34.9 million to $36.6 million for the nine-month
periods ended September 30, 2001 and 2000, respectively,
primarily due to increased property operating income generated
by our portfolio of communities, offset by increased interest
costs primarily as a result of increased average indebtedness
outstanding.
16
Operating Performance of Our Portfolio of Communities
The operating performance of our communities for the three and
nine months ended September 30, 2001 and 2000 is summarized
below (dollars in thousands). All property operating and
maintenance expense amounts in this Management’s Discussion
and Analysis section is presented before depreciation.
A summary of our apartment homes (excluding joint ventures) for
the nine months ended September 30, 2001 and 2000 is as
follows:
17
Operating Performance of Fully Stabilized Communities
The operating performance of our communities stabilized prior to
January 1, 1999 is summarized below (dollars in thousands
except average monthly rental revenue):
For the three-month period, property revenues declined due to
lower occupancy levels as a result of a decline in job growth
throughout our markets. The increase in other property revenues
is the result of increases in such income items as water
sub-meter income, trash fees and redecorating fees. Property
revenues increased for the nine-month period primarily in our
Washington, D.C. and Southeast Florida markets, offset by weaker
performance in our other markets. The decrease in advertising
costs for the three and nine-month periods is primarily due to a
reduction in media advertising and locator fees. Other operating
expenses have increased for both the three and nine-month
periods primarily due to amounts expended for internet
connectivity projects in 2001. As a percentage of total property
revenue, total property operating and maintenance expenses
increased to 34.4% for the three months ended September 30,
2001 from 33.2% for the three months ended September 30,
2000, and increased to 33.5% for the nine months ended
September 30, 2001 from 32.9% for the nine months ended
September 30, 2000.
18
Operating Performance of Acquisition Communities
Acquisition communities for the three and nine months ended
September 30, 2001 consist of Summit Sweetwater and Summit
Shiloh, both located in Atlanta, Georgia, representing a total
of 490 apartment homes, in each of which we acquired our joint
venture partner’s 51% interest on August 1, 2000. The
operations of these two communities for the three and nine
months ended September 30, 2001 and 2000 are summarized as
follows (dollars in thousands except average monthly rental
revenue):
Operating Performance of Stabilized Development
Communities
We had fifteen stabilized development communities (Summit
Ballantyne, Summit Sedgebrook, Summit Governor’s Village,
Summit Lake, Summit Russett I, Summit Westwood, Summit New
Albany, Summit Fair Lakes, Summit Doral, Summit Largo, Summit
Hunter’s Creek, Summit Ashburn Farm, Summit Deer Creek,
Summit Fairview and Reunion Park by Summit) at
September 30, 2001. Summit Fairview is an existing
community which underwent major renovations during 1999 and
2000. Its operating results are included in results of
stabilized development communities as it reached stabilization
after renovation subsequent to January 1, 1999. The
operating performance of these fifteen communities for the three
and nine months ended September 30, 2001 and 2000 is
summarized below (dollars in thousands except average monthly
rental revenue):
19
Operating Performance of Communities in Lease-up
We had seven communities in lease-up during the nine months
ended September 30, 2001. Six of the seven communities in
lease-up are new developments and one of the communities in
lease-up, Summit Lenox, is an existing community that underwent
major renovations during 1999 and 2000. A summary of the six new
development communities in lease-up as of September 30,
2001 is as follows (dollars in thousands):
The actual stabilization dates for our communities in lease-up
may be later than anticipated if economic conditions in the
relevant markets continue to decline or do not recover in a
timely manner. The rental rates that we charge may also be less
than expected, and we may need to offer rent concessions to
residents.
In addition to the communities listed in the table above, Summit
Lenox in Atlanta, Georgia is an existing community that
underwent major renovations during 1999 and 2000. The
renovations included upgrades of the interior of the apartment
homes (new cabinets, fixtures and other interior upgrades),
upgrades to the parking lots and landscaping, as well as
exterior painting of buildings. The renovations required certain
apartment homes to be unavailable for rental over the course of
the project. The operations of Summit Lenox are included in the
results of our lease-up communities due to the renovation work.
The renovation work at Summit Lenox was complete at
September 30, 2001. Summit Lenox was 89.6% occupied at
September 30, 2001.
The operating performance of our lease-up communities for the
three and nine months ended September 30, 2001 and 2000 is
summarized below (dollars in thousands):
Operating Performance of Disposition Communities
We sold the former Summit Palm Lake community on June 1,
2001 (304 apartment units), the former Summit Arbors and Summit
Radbourne communities on June 27, 2001 (345 apartment
homes) and the former Summit Lofts community on August 1,
2001 (200 apartment homes). The information in the table below
represents operating results for the three and nine months ended
September 30, 2001 for these
20
Operating Performance of Summit Management Company
The operating performance of Summit Management Company and its
wholly-owned subsidiary, Summit Apartment Builders, Inc., for
the three and nine months ended September 30, 2001 and 2000
is summarized below (in thousands):
The decrease in management fees charged to the Operating
Partnership for the three-month period is primarily due to the
absence of fees earned from managing lease-up communities as a
result of the stage of development of such communities during
the third quarter of 2001. The increase in management fees
charged to the Operating Partnership for the nine-month period
in 2001 was primarily the result of a 5.8% increase in property
revenues at our communities for that period over the previous
year, as well as an increase in fees earned during the first six
months of the year from managing our communities in lease-up.
Operating expenses for the three-month period remained stable,
increasing by only $56,000. The decrease in operating expenses
during the nine-month period was a result of a decrease in the
number of management personnel at Summit Management Company in
2001 as compared to 2000. In addition, interest expense for the
nine-month period decreased due to the repayment of an
inter-company loan during 2000.
21
Property management revenues included property management fees
from third parties of $194,000 and $633,000 for the three and
nine months ended September 30, 2001 and $279,000 and $829,000
for the same periods in 2000. Property management fees from
third parties as a percentage of total property management
revenues were 12.0% and 11.2% for the three and nine months
ended September 30, 2001 and 15.9% and 16.1% for the same
periods in 2000. We expect third-party management revenues as a
percentage of total property management revenues to continue to
decline.
All of the construction revenue during the nine-month periods
ended September 30, 2001 and 2000 was from contracts with Summit.
Other Income and Expenses
Interest expense decreased by $156,000, or 1.5%, and increased
by $1.5 million, or 5.4%, for the three and nine months ended
September 30, 2001 compared with the same periods in 2000.
The decrease for the three-month period was primarily due to a
decrease in our average interest rate from 2000 to 2001 of
0.43%, as well as the assumption of Summit Radbourne’s
9.80% mortgage by the purchaser of that community at the end of
the second quarter of 2001. The increase for the nine-month
period was primarily the result of an increase in our average
indebtedness outstanding, which increased by $69.3 million, or
10.1%, from 2000 to 2001.
Depreciation expense increased $232,000 and $1.5 million, or
2.4% and 5.3%, for the three and nine months ended
September 30, 2001 as compared with the same periods in
2000, primarily due to the initiation of depreciation on
recently developed communities as well as the depreciation of
communities acquired during the second half of 2000, offset by
the absence of depreciation on communities sold during 2001.
General and administrative expenses increased $814,000 and $1.2
million, or 76.9% and 39.6%, for the three and nine months ended
September 30, 2001 as compared to the same periods in 2000.
This increase was primarily the result of an increase in
compensation costs of $299,000 due to performance stock grants
which partially vested during the nine months ended
September 30, 2001, as well as an increase in the reserve
for the costs of abandoned pursuit projects of $350,000 during
2001. We also increased several operating accruals by a total of
$330,000 during 2001. As a percentage of revenues, general and
administrative expenses were 3.8% and 2.8% for the three and
nine months ended September 30, 2001 and 2.2% and 2.1% for
the same periods in 2000.
Management considers events and circumstances that may indicate
impairment of an investment, including operating performance and
cash flow projections. Management determined during the three
months ended June 30, 2001 that our investments in
Broadband Now, Inc. and Yieldstar Technology LLC were impaired
and that such impairment was other than temporary. As a result,
we recorded an impairment loss during the period in the amount
of $1.2 million, which represents our entire investments in
these two technology companies. We have no other technology
company investments.
Liquidity and Capital Resources
Liquidity
Our net cash provided by operating activities increased from
$49.7 million for the nine months ended September 30, 2000
to $63.2 million for the same period in 2001, primarily due to a
$5.0 million increase in property operating income as well as a
$9.0 million increase in cash provided by accounts payable and
accrued expenses.
Net cash used in investing activities decreased from $90.1
million for the nine months ended September 30, 2000 to
$34.1 million for the same period in 2001 due to a $41.4 million
decrease in construction spending and a $33.1 million reduction
in cash used for the purchase of communities, offset by a
decrease in proceeds from the sale of communities of $10.7
million and an increase in cash used for investments in real
estate joint ventures of $4.1 million. Property sale proceeds
from six of seven communities sold during 2000 were placed in
escrow in accordance with like-kind exchange income tax rules
and regulations. In addition to the cash proceeds received in
connection with 2001 dispositions, proceeds from the sale of
communities represent funds expended from these like-kind
exchange escrows. In the event proceeds from these property
sales are not fully
22
Net cash provided by financing activities was $39.1 million for
the nine months ended September 30, 2000. Net cash used in
financing activities was $29.6 million for the nine months ended
September 30, 2001. The increase in cash used in financing
activities is primarily due to a decrease in mortgage debt
proceeds of $47.9 million and an increase in repayments on our
unsecured credit facility of $74.2 million, offset by a decrease
in cash used for the repurchase of common stock and common units
in the aggregate of $9.8 million, a decrease in cash used for
employee notes receivable of $6.4 million, a decrease in
repayments on unsecured notes of $15.0 million and an increase
in the net proceeds from borrowings on unsecured medium-term
notes of $19.9 million which were used to repay amounts
outstanding on our unsecured credit facility.
The ratio of earnings to fixed charges was 1.61 for the nine
months ended September 30, 2001 as compared to 2.02 for the
nine months ended September 30, 2000. The decrease is
primarily due to a decrease in gain on sale of communities from
the nine months ended September 30, 2000 to the same period
in 2001.
We have elected to be taxed as a real estate investment trust
under Sections 856 through 860 of the Internal Revenue Code of
1986, as amended. REITs are subject to a number of
organizational and operational requirements, including a
requirement that 90% of ordinary taxable income be distributed.
As a REIT, we generally will not be subject to federal income
tax on net income to the extent income is distributed.
Our outstanding indebtedness at September 30, 2001 totaled
$764.5 million. This amount included $290.8 million of fixed
rate conventional mortgages, $36.7 million of variable rate
tax-exempt bonds, $308.0 million of fixed rate unsecured notes,
$4.0 million of tax-exempt fixed rate mortgages, and $125.0
million under our unsecured credit facility.
We expect to meet our liquidity requirements over the next
twelve months, including recurring capital expenditures relating
to maintaining our existing communities, primarily through our
working capital, net cash provided by operating activities and
borrowings under our unsecured credit facility. We consider our
cash provided by operating activities to be adequate to meet
operating requirements and payments of dividends and
distributions during the next twelve months. We expect to meet
our long-term liquidity requirements, such as scheduled mortgage
debt maturities, property acquisitions, financing of
construction and development activities and other non-recurring
capital improvements, through the issuance of unsecured notes
and equity securities, from undistributed cash flow, from
proceeds received from the disposition of certain communities
and, in connection with the acquisition of land or improved
property, through the issuance of common units.
Credit Facility
We have a syndicated unsecured line of credit in the amount of
$225.0 million. The unsecured credit facility provides funds for
new development, acquisitions and general working capital
purposes. Loans under the unsecured credit facility initially
bear interest at LIBOR plus 100 basis points based upon our
current credit rating of BBB- by Standard & Poor’s
Rating Services and Baa3 by Moody’s Investors Service. The
interest rate will be reduced in the event of an upgrade of our
unsecured credit rating. The unsecured credit facility also
provides a bid option sub-facility equal to a maximum of 50% of
the total facility ($112.5 million). This sub-facility provides
us with the option to place borrowings in a fixed LIBOR contract
up to 180 days. The credit facility’s initial
three-year term was scheduled to expire on September 26,
2003. On July 6, 2001, we closed on a one-year extension
option under the credit facility. The new maturity date is
September 26, 2004. All other terms and covenants remain
unchanged.
Medium-Term Notes
On April 20, 2000, we commenced a new program for the sale
by the Operating Partnership of up to $250.0 million aggregate
principal amount of medium-term notes due nine months or more
from the date of issuance. During the nine months ended
September 30, 2001, the Operating Partnership issued
medium-term notes with an aggregate principal amount of $60.0
million in connection with the new MTN program, including
(a) $25.0 million of notes which are due on May 9,
2006 and bear interest at 7.04% per year and (b) $35.0
23
On May 29, 1998, we established a program for the sale by
the Operating Partnership of up to $95.0 million aggregate
principal amount of medium-term notes due nine months or more
from the date of issuance. We had medium-term notes with an
aggregate principal amount of $25.0 million outstanding in
connection with this MTN program at September 30, 2001. As
a result of the commencement of the $250.0 million MTN program,
we cannot issue any additional notes under the $95.0 million MTN
program.
Derivative Financial Instruments
We are exposed to capital market risk, such as changes in
interest rates. To manage the volatility relating to interest
rate risk, we may enter into interest rate hedging arrangements
from time to time. We do not utilize derivative financial
instruments for trading or speculative purposes.
On January 1, 2001, we adopted Statement of Financial
Accounting Standard No. 133, “Accounting for
Derivative Instruments and Hedging Activities,” as amended.
FAS 133 establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. It
requires that entities recognize all derivatives as either
assets or liabilities in the statement of financial position and
measure those instruments at fair value. The cumulative effect
of adopting FAS 133 was not material to our financial statements.
At September 30, 2001, we had one interest rate swap with a
notional amount of $30.0 million, relating to $30.0 million of
6.625% fixed rate notes issued under our MTN program. Under the
interest rate swap agreement, through the maturity date of
December 15, 2003, (a) we have agreed to pay to the
counterparty the interest on a $30.0 million notional amount at
a floating interest rate of three-month LIBOR plus 11 basis
points, and (b) the counterparty has agreed to pay to us
the interest on the same notional amount at the fixed rate. The
floating rate at September 30, 2001 was 3.26%. The fair
value of the interest rate swap was $2.4 million at
September 30, 2001. The swap has been designated as a fair
value hedge of the underlying fixed rate debt obligation and has
been recorded as a reduction of the related debt instrument. We
assume no ineffectiveness as the interest rate swap meets the
short-cut method conditions required under FAS 133 for fair
value hedges of debt instruments. Accordingly, no gains or
losses were recorded in income relative to our underlying debt
and interest rate swap.
Preferred Units
As of September 30, 2001, the Operating Partnership had
outstanding 3.4 million preferred units of limited partnership
interest designated as 8.95% Series B Cumulative Redeemable
Perpetual Preferred Units. These preferred units are redeemable
by the Operating Partnership on or after April 29, 2004 for
cash, or at our option, shares of our 8.95% Series B
Cumulative Redeemable Perpetual Preferred Stock, or a
combination of cash and stock. Holders of the Series B
preferred units have the right to exchange these preferred units
for shares of our Series B preferred stock on a one-for-one
basis, subject to adjustment: (a) on or after
April 29, 2009, (b) if full quarterly distributions
are not made for six quarters, or (c) upon the occurrence
of specified events related to the treatment of the Operating
Partnership or the preferred units for federal income tax
purposes. Distributions on the Series B preferred units are
cumulative from the date of original issuance and are payable
quarterly at the rate of 8.95% per year of the $25.00 original
capital contribution. We made distributions to the holders of
the Series B preferred units in the aggregate amount of
$5.7 million during each of the nine-month periods ended
September 30, 2001 and 2000.
As of September 30, 2001, the Operating Partnership had
outstanding 2.2 million preferred units of limited partnership
interest designated as 8.75% Series C Cumulative Redeemable
Perpetual Preferred Units. The preferred units are redeemable by
the Operating Partnership on or after September 3, 2004 for
cash. Holders of the Series C preferred units have the
right to exchange these preferred units for shares of our
Series C preferred stock on a one-for-one basis, subject to
adjustment: (a) on or after September 3, 2009,
(b) if full quarterly distributions are not made for six
quarters, (c) upon the occurrence of specified events
related to the
24
Common Stock Repurchase Program
On March 12, 2000, our Board of Directors authorized a
common stock repurchase program pursuant to which we were
authorized to purchase up to an aggregate of $25.0 million of
currently issued and outstanding shares of our common stock.
During the three months ended September 30, 2001, the Board
of Directors increased the size of this common stock repurchase
program to $56.0 million. All repurchases have been, and will
be, made on the open market at prevailing prices or in privately
negotiated transactions. This authority may be exercised from
time to time and in such amounts as market conditions warrant.
We did not repurchase any shares of our common stock during the
nine months ended September 30, 2001. During the year ended
December 31, 2000, we repurchased 279,400 shares of our
common stock under the common stock repurchase program for an
aggregate purchase price, including commissions, of $5.5
million, or an average price of $19.80 per share.
During 2000, we completed a common stock repurchase program
pursuant to which we were authorized to purchase up to an
aggregate of $50.0 million of our common stock. The total number
of shares of our common stock repurchased under this program was
2.5 million shares for an aggregate purchase price, including
commissions, of $50.0 million, or an average price of $19.63 per
share.
Employee Loan Program
Our Board of Directors believes that ownership of our common
stock by our executive officers and certain other qualified
employees will align the interests of these officers and
employees with the interests of our stockholders. To this end,
our Board of Directors approved, and we instituted, a loan
program under which we may lend amounts to certain of our
executive officers and other qualified employees to
(a) finance the purchase of our common stock on the open
market at then-current market prices, (b) finance the
payment of the exercise price of one or more stock options to
purchase shares of our common stock, or (c) finance the
annual tax liability or other expenses of an executive officer
related to the vesting of shares of common stock which
constitute a portion of a restricted stock award granted to the
executive officer. We have amended the terms of the loan program
from time to time since its inception in 1997. The relevant
officer or employee has executed a Promissory Note and Security
Agreement related to each loan extended. These notes bear
interest at the applicable federal rate as established by the
Internal Revenue Service, are full recourse to the officers and
employees and are collateralized by the shares of our common
stock which are the subject of the loans.
Communities Being Marketed for Sale
At September 30, 2001, we had three communities under
contract for sale. These three communities, the former Summit
Gateway, Summit Stony Point and Summit Deerfield, were sold
subsequent to September 30, 2001 for an aggregate sales
price of $77.1 million. The total proceeds received upon sale of
these three communities were $61.4 million, $4.3 million of
which was placed into escrow with a qualified intermediary in
accordance with like-kind exchange income tax rules and
regulations and are expected to be used to fund future
development communities. The remaining proceeds were used to
reduce amounts outstanding under our unsecured credit facility.
The sale of these three communities resulted in an aggregate
gain on sale of $10.2 million.
Subsequent to September 30, 2001, we executed contracts for
the sale of two apartment communities. The net book value of the
real estate assets of these communities was $19.2 million at
September 30, 2001. We do not expect to incur a loss upon
sale of either of these communities. Proceeds from the sale of
the communities are expected to be used to fund future
development. The two apartment communities held for sale
represented
25
Development Activity
Our construction in progress at September 30, 2001 is
summarized as follows (dollars in thousands):
Estimated costs to complete the development communities
represent substantially all of our material development
commitments for capital expenditures at September 30, 2001.
We have curtailed, and may continue to curtail, our development
spending in an effort to increase our financial flexibility in
the current economic environment.
Certain Factors
Affecting the Performance of Development Communities
We are optimistic about the operating prospects of the
communities under construction. However, as with any development
effort, there are uncertainties and risks associated with the
communities described above. While we have prepared development
budgets and have estimated completion and stabilization target
dates based on what we believe are reasonable assumptions in
light of current conditions, there can be no assurance that
actual costs will not exceed current budgets or that we will not
experience construction delays due to the unavailability of
materials, weather conditions or other events. We also may be
unable to obtain, or experience delays in obtaining, all
necessary zoning, land-use, building, occupancy, and other
required governmental permits and authorizations.
Other development risks include the possibility of incurring
additional costs or liabilities resulting from defects in
construction material, and the possibility that financing may
not be available on favorable terms, or at all, to pursue or
complete development activities. Similarly, economic and market
conditions at the time these communities become available for
leasing will affect the rental rates that may be charged and the
period of time necessary to achieve stabilization, which could
make one or more of the development communities unprofitable or
result in achieving stabilization later than currently
anticipated.
In addition, we are conducting feasibility and other
pre-development work for nine communities. We could abandon the
development of any one or more of these potential communities in
the event that we determine that economic or market conditions
do not support development, financing is not available on
favorable terms or other circumstances exist which may prevent
development. Similarly, there can be no assurance that, if we do
pursue one or more of these potential communities, we will be
able to complete construction within the currently estimated
development budgets or construction can be started at the time
currently anticipated.
26
Commitments and Contingencies
The estimated cost to complete the five development projects
currently under construction was $64.0 million at
September 30, 2001. Anticipated construction completion
dates of the projects range from the fourth quarter of 2001 to
the first quarter of 2003.
On January 19, 2000, we entered into a Real Estate Purchase
Agreement with a third-party real estate developer. Under the
terms of the agreement, we have agreed to purchase a
“Class A” mixed-use community, which will be
called Summit Brickell and will be located in Miami, Florida. We
expect to close on the purchase of Summit Brickell during the
second half of 2002 following its completion and achievement of
85% occupancy. The final purchase price will be determined based
on actual construction costs plus a bonus to the developer based
on the capitalized income of the property at the time of
purchase. The purchase price is expected to range from $50.5
million to $60.0 million. The purchase of Summit Brickell is
subject to customary closing conditions. We issued a letter of
credit in the amount of $13.0 million, which serves as a credit
enhancement to the developer’s construction loan. In the
event that the letter of credit is drawn upon, we will be
treated as having issued a loan to the developer in the amount
of such draw. Any such loan will accrue interest at a rate of
18% per year.
We have employment agreements with two of our former executive
officers, both of whom resigned from such executive positions,
but who remain as employees and have agreed to provide various
services to us from time to time over the next ten years. Each
employment agreement requires that we pay to the former officers
a base salary aggregating up to $2.1 million over the period
from July 1, 2001 to December 31, 2011. Either party can
terminate the employment agreements, effective 20 business days
after written notice is given. The full base salary amount due
shall be payable through 2011 whether or not the agreements are
terminated earlier in accordance with their terms.
Funds From Operations
We consider funds from operations (“FFO”) to be an
appropriate measure of performance of an equity REIT. We compute
FFO in accordance with standards established by the National
Association of Real Estate Investment Trusts
(“NAREIT”). FFO, as defined by NAREIT, represents net
income (loss) excluding gains or losses from sales of
property, plus depreciation of real estate assets, and after
adjustments for unconsolidated partnerships and joint ventures,
all determined on a consistent basis in accordance with
generally accepted accounting principles (“GAAP”).
Funds Available for Distribution (“FAD”) is defined as
FFO less capital expenditures funded by operations (recurring
capital expenditures). Our methodology for calculating FFO and
FAD may differ from the methodology for calculating FFO and FAD
utilized by other real estate companies, and accordingly, may
not be comparable to other real estate companies. FFO and FAD do
not represent amounts available for management’s
discretionary use because of needed capital expenditures or
expansion, debt service obligations, property acquisitions,
development, dividends and distributions or other commitments
and uncertainties. FFO and FAD should not be considered as
alternatives to net income (determined in accordance with GAAP)
as an indication of our financial performance or to cash flows
from operating activities (determined in accordance with GAAP)
as a measure of our liquidity, nor are they indicative of funds
available to fund our cash needs, including our ability to make
dividend or distribution payments. We believe FFO and FAD are
helpful to investors as measures of our performance because,
along with cash flows from operating activities, financing
activities and investing activities, they provide investors with
an understanding of our ability to incur and service debt and
make capital expenditures.
27
FFO and FAD for the three and nine months ended
September 30, 2001 and 2000 are calculated as follows
(dollars in thousands):
There has been no material change in our market risk since the
filing of our Annual Report on Form 10-K for the year ended
December 31, 2000.
28
September 30,
December 31,
2001
2000
$
188,287
$
184,494
1,065,272
1,001,183
81,400
74,920
1,334,959
1,260,597
(164,136
)
(147,437
)
1,170,823
1,113,160
134,649
167,462
1,305,472
1,280,622
2,653
3,148
3,847
41,809
3,088
736
7,607
7,760
8,087
6,076
$
1,330,754
$
1,340,151
$
764,485
$
763,899
6,315
7,729
24,184
20,415
14,129
13,481
3,812
3,959
812,925
809,483
44,553
55,730
136,261
136,261
—
—
270
264
419,300
415,827
(65,644
)
(62,775
)
(1,455
)
(942
)
(15,456
)
(13,697
)
337,015
338,677
$
1,330,754
$
1,340,151
Three Months Ended
Nine Months Ended
September 30,
September 30,
2001
2000
2001
2000
$
45,377
$
44,653
$
135,629
$
128,257
3,483
3,442
10,236
9,555
458
665
1,724
2,404
202
155
707
468
49,520
48,915
148,296
140,684
3,487
3,542
10,164
9,661
467
739
1,718
1,987
2,363
2,290
6,824
6,426
2,248
2,183
6,314
6,295
5,117
4,982
15,878
14,285
9,858
9,626
29,385
27,910
1,418
1,308
4,310
3,766
857
751
2,345
2,112
25,815
25,421
76,938
72,442
9,933
10,089
30,089
28,544
382
256
1,079
731
1,872
1,058
4,217
3,020
89
123
(396
)
685
(271
)
249
(232
)
397
37,820
37,196
111,695
105,819
11,700
11,719
36,601
34,865
2,788
21,346
13,570
29,232
—
—
(1,217
)
—
14,488
33,065
48,954
64,097
(1,296
)
(4,211
)
(5,280
)
(7,703
)
(3,105
)
(3,105
)
(9,315
)
(9,315
)
10,087
25,749
34,359
47,079
—
(111
)
—
(111
)
$
10,087
$
25,638
$
34,359
$
46,968
$
0.38
$
0.98
$
1.29
$
1.79
$
0.37
$
0.97
$
1.27
$
1.78
$
0.38
$
0.97
$
1.29
$
1.78
$
0.37
$
0.97
$
1.27
$
1.77
$
0.4625
$
0.4375
$
1.3875
$
1.3125
26,875,264
26,296,521
26,712,772
26,322,037
27,252,123
26,566,942
27,035,564
26,493,993
Unamortized
Additional
Restricted
Employee
Common
Paid-in
Accumulated
Stock
Notes
Stock
Capital
Deficit
Compensation
Receivable
Total
$
264
$
415,827
$
(62,775
)
$
(942
)
$
(13,697
)
$
338,677
—
—
(37,228
)
—
—
(37,228
)
3
6,314
—
—
—
6,317
1
3,907
—
—
—
3,908
1
1,013
—
—
—
1,014
1
898
—
(1,630
)
—
(731
)
—
—
1,117
—
1,117
—
(8,659
)
—
—
—
(8,659
)
—
—
—
—
(3,093
)
(3,093
)
—
—
—
—
1,334
1,334
—
—
34,359
—
—
34,359
$
270
$
419,300
$
(65,644
)
$
(1,455
)
$
(15,456
)
$
337,015
Nine Months Ended
September 30,
2001
2000
$
34,359
$
46,968
—
111
5,280
7,703
1,217
—
(13,570
)
(29,232
)
(628
)
1,082
31,562
29,229
(266
)
(2,627
)
(2,276
)
(1,371
)
(1,414
)
(2,418
)
9,015
7
(86
)
302
63,193
49,754
(85,760
)
(127,131
)
—
(33,127
)
72,950
83,677
(9,053
)
(7,594
)
(4,075
)
—
(3,736
)
(4,006
)
(4,447
)
(1,957
)
(34,121
)
(90,138
)
(17,003
)
57,175
29,399
9,545
—
47,912
—
(15,000
)
(4,061
)
(7,175
)
(620
)
(885
)
6,600
5,503
(42,123
)
(39,811
)
—
(8,024
)
—
(1,759
)
1,334
1,044
(3,093
)
(9,472
)
(29,567
)
39,053
(495
)
(1,331
)
3,148
4,130
$
2,653
$
2,799
$
31,503
$
30,962
Balance Sheet
2001
2000
$
74,783
$
87,493
1,653
2,176
354
408
$
76,790
$
90,077
$
59,729
$
68,863
1,217
1,448
15,844
19,766
$
76,790
$
90,077
Income Statement
2001
2000
$
9,235
$
9,267
3,253
3,331
3,339
3,474
2,357
2,256
8,949
9,061
286
206
1,082
—
$
1,368
$
206
A.
We accrued dividends and distributions payable in the amounts of
$14.1 million and $13.4 million at September 30, 2001
and 2000, respectively.
B.
We issued 11,804 (net of 12,202 forfeited shares for terminated
employees) and 72,805 shares of restricted stock valued at
$375,000 (net of $234,000 in forfeited shares for terminated
employees) and $1.3 million during the nine months ended
September 30, 2001 and 2000, respectively.
C.
We issued 94,818 shares of restricted stock valued at
$1.2 million during the nine months ended
September 30, 2001 in connection with our Performance Stock
Award Plan. There were no such issuances of restricted stock in
connection with the plan during the nine months ended
September 30, 2000.
D.
We issued 145,907 and 43,545 shares of common stock in
exchange for 145,907 and 43,545 common units of limited
partnership interest in the Operating Partnership valued at
$3.9 million and $875,000 during the nine months ended
September 30, 2001 and 2000, respectively.
E.
The Operating Partnership issued 66,376 common units at a price
of $28.625 per unit during the nine months ended
September 30, 2001 in connection with the purchase of a
building and a parcel of land.
F.
As partial consideration for the purchase of the former Summit
Radbourne and Summit Arbors communities on June 27, 2001,
the purchaser assumed mortgages with an aggregate balance of
$8.5 million at the date of sale, and exchanged 741,148
common units valued at $17.6 million.
G.
We purchased our joint venture partner’s interest in each
of two communities during the nine months ended
September 30, 2000 at an aggregate purchase price of
approximately $36.0 million. The acquisitions were
primarily financed with the issuance of 96,455 common units in
the aggregate valued at $2.2 million, as well as the
payment of $33.7 million in cash in the aggregate.
2001
2000
$
45,013
$
56,190
(460
)
(460
)
$
44,553
$
55,730
ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
•
economic conditions generally and the real estate market
specifically, including changes in occupancy rates and rents,
the continuing deceleration of economic conditions in our
markets, and the failure of national and local economic
conditions to rebound in a timely manner;
•
legislative/ regulatory changes, including changes to laws
governing the taxation of real estate investment trusts
(“REITS”);
•
availability and cost of capital;
•
changes in interest rates;
•
uncertainties associated with our development activities,
including the failure to obtain zoning and other approvals,
actual costs exceeding our budgets, and increases in
construction costs;
•
the failure of acquisitions to yield expected results;
•
the failure to sell communities marketed for sale, including
properties currently under contract for sale which are subject
to customary closing conditions, or to sell communities in a
timely manner or on favorable terms;
•
construction delays due to the unavailability of materials,
weather conditions or other delays;
•
competition, which could limit our ability to secure attractive
investment opportunities, lease apartment homes or increase or
maintain rents;
•
supply and demand for apartment communities in our current and
proposed market areas, especially our core markets described
below;
•
changes in generally accepted accounting principles, or policies
and guidelines applicable to REITs; and
•
those factors discussed below and in the sections entitled
“Operating Performance of Communities in Lease-Up” and
“Certain Factors Affecting the Performance of Development
Communities,” on pages 20 and 26 of this report.
Three Months Ended
Nine Months Ended
September 30,
September 30,
2001
2000
% Change
2001
2000
% Change
$
28,371
$
28,424
-0.2%
$
85,109
$
83,332
2.1%
1,287
894
44.0%
3,855
894
331.2%
13,695
13,050
4.9%
40,717
35,159
15.8%
5,346
1,067
401.0%
11,957
2,991
299.8%
161
4,660
-96.5%
4,227
15,436
-72.6%
48,860
48,095
1.6%
145,865
137,812
5.8%
9,748
9,442
3.2%
28,532
27,380
4.2%
445
289
54.0%
1,319
289
356.4%
4,177
3,822
9.3%
12,436
9,977
24.6%
1,514
487
210.9%
3,861
1,515
154.9%
73
1,755
-95.8%
1,405
5,371
-73.8%
15,957
15,795
1.0%
47,553
44,532
6.8%
$
32,903
$
32,300
1.9%
$
98,312
$
93,280
5.4%
18,079
18,094
-0.1%
18,079
18,094
-0.1%
2001
2000
18,928
17,673
—
1,284
—
490
(849
)
(1,353
)
18,079
18,094
Three Months Ended
Nine Months Ended
September 30,
September 30,
2001
2000
% Change
2001
2000
% Change
$
26,352
$
26,484
-0.5%
$
79,251
$
77,711
2.0%
2,019
1,940
4.1%
5,858
5,621
4.2%
28,371
28,424
-0.2%
85,109
83,332
2.1%
2,024
1,929
4.9%
5,822
5,401
7.8%
229
366
-37.4%
856
1,086
-21.2%
1,336
1,251
6.8%
3,818
3,606
5.9%
1,420
1,348
5.3%
3,961
3,909
1.3%
3,438
3,311
3.8%
10,243
9,761
4.9%
790
794
-0.5%
2,375
2,325
2.2%
511
443
15.3%
1,457
1,292
12.8%
9,748
9,442
3.2%
28,532
27,380
4.2%
$
18,623
$
18,982
-1.9%
$
56,577
$
55,952
1.1%
92.9%
95.6%
-2.7%
93.2%
94.7%
-1.5%
$
924
$
903
2.3%
$
924
$
894
3.4%
10,457
10,457
10,457
10,457
36
36
36
36
Three Months Ended
Nine Months Ended
September 30,
September 30,
2001
2000
2001
2000
$
1,178
$
827
$
3,571
$
827
109
67
284
67
1,287
894
3,855
894
445
289
1,319
289
$
842
$
605
$
2,536
$
605
92.5%
93.1%
92.5%
93.1%
$
892
$
912
$
900
$
912
490
490
490
490
Three Months Ended
Nine Months Ended
September 30,
September 30,
2001
2000
2001
2000
$
12,699
$
12,082
$
37,861
$
32,622
996
968
2,856
2,537
13,695
13,050
40,717
35,159
4,177
3,822
12,436
9,977
$
9,518
$
9,228
$
28,281
$
25,182
94.8%
92.2%
94.4%
86.1%
$
970
$
927
$
968
$
875
4,668
4,668
4,668
4,668
Total
Actual/
% Leased
Number of
Actual/
Anticipated
Actual/
Q3 2001
as of
Apartment
Estimated
Construction
Anticipated
Average
September 30,
Community
Homes
Cost
Completion
Stabilization
Occupancy
2001
112
$
10,700
Q4 2000
Q2 2001
95.7
%
87.5
%
266
51,500
Q4 2000
Q4 2001
85.1
%
91.7
%
498
45,200
Q3 2001
Q2 2002
60.8
%
67.3
%
438
32,400
Q3 2001
Q2 2002
50.8
%
70.1
%
399
33,400
Q3 2001
Q4 2002
32.1
%
42.4
%
320
27,400
Q4 2001
Q1 2002
41.6
%
50.3
%
2,033
$
200,600
(1)
Summit Deerfield was sold on October 12, 2001 as part of
our strategy to exit the midwest markets.
(2)
The related assets of this property are included in the
“Construction in progress” category at
September 30, 2001.
Three Months Ended
Nine Months Ended
September 30,
September 30,
2001
2000
2001
2000
$
5,001
$
952
$
11,005
$
2,769
345
115
952
222
5,346
1,067
11,957
2,991
1,514
487
3,861
1,515
$
3,832
$
580
$
8,096
$
1,476
2,464
2,464
2,464
2,464
Three Months Ended
Nine Months Ended
September 30,
September 30,
2001
2000
2001
2000
$
147
$
4,306
$
3,941
$
14,328
14
354
286
1,108
161
4,660
4,227
15,436
73
1,755
1,405
5,371
$
88
$
2,905
$
2,822
$
10,065
200
2,045
849
2,525
Three Months Ended
Nine Months Ended
September 30,
September 30,
2001
2000
% Change
2001
2000
% Change
$
1,418
$
1,477
-4.0%
$
5,010
$
4,292
16.7%
194
279
-30.5%
633
829
-23.6%
701
496
41.3%
2,255
2,085
8.2%
—
—
0.0%
—
238
-100.0%
120
99
21.2%
372
234
59.0%
2,433
2,351
3.5%
8,270
7,678
7.7%
2,293
2,237
2.5%
7,186
7,276
-1.2%
80
86
-7.0%
239
257
-7.0%
74
76
-2.6%
224
227
-1.3%
75
75
0.0%
225
603
-62.7%
2,522
2,474
1.9%
7,874
8,363
-5.8%
$
(89
)
$
(123
)
27.6%
$
396
$
(685
)
157.8%
Total
Estimated
Anticipated
Apartment
Estimated
Cost To
Cost To
Construction
Community
Homes
Costs
Date
Complete
Completion
320
$
27,400
$
26,674
$
726
Q4 2001
105
35,900
21,155
14,745
Q2 2002
50
3,900
1,292
2,608
Q2 2002
359
41,500
15,212
26,288
Q4 2002
352
37,000
17,349
19,651
Q1 2003
—
—
52,967
—
1,186
$
145,700
$
134,649
$
64,018
(1)
This community was in lease-up at September 30, 2001.
(2)
Consists primarily of land held for development and other
pre-development costs.
Three Months Ended
Nine Months Ended
September 30,
September 30,
2001
2000
2001
2000
$
10,087
$
25,638
$
34,359
$
46,968
—
111
—
111
1,296
4,211
5,280
7,703
(2,788
)
(21,346
)
(13,570
)
(29,232
)
(271
)
—
(271
)
—
—
—
—
(238
)
8,324
8,614
25,798
25,312
9,768
9,563
29,115
27,741
282
578
856
1,176
18,374
18,755
55,769
54,229
(1,201
)
(1,729
)
(3,736
)
(4,006
)
$
17,173
$
17,026
$
52,033
$
50,223
$
748
$
1,562
$
4,447
$
1,957
$
26,463
$
16,878
$
63,193
$
49,754
(21,062
)
(55,748
)
(34,121
)
(90,138
)
(5,252
)
38,718
(29,567
)
39,053
30,502,457
30,664,610
30,868,393
30,667,450
30,879,316
30,935,031
31,191,185
30,839,406
(1)
Recurring capital expenditures are expected to be funded from
operations and consist primarily of interior painting, carpets,
new appliances, vinyl, blinds, tile, and wallpaper. In contrast,
non-recurring capital expenditures, such as major improvements,
new garages and access gates, are expected to be funded by
financing activities and, therefore, are not included in the
calculation of FAD.
(2)
Non-recurring capital expenditures for the nine months ended
September 30, 2001 and 2000 primarily consist of: $646,000 and
$1.2 million for major renovations in 2001 and 2000,
respectively; $120,000 and $53,000 for access gates and security
fences in 2001 and 2000, respectively; $2.1 million and $80,000
in other revenue enhancement expenditures in 2001 and 2000,
respectively; and $1.5 million in fixed asset additions,
including management information systems expenditures and other
property improvements, during the nine months ended
September 30, 2001.
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
PART II
During the three months ended September 30, 2001, we issued
to limited partners of the Operating Partnership 141,895 shares
of common stock in exchange for the corresponding number of
common units. These shares of our common stock were issued in
reliance upon an exemption from registration under
Section 4(2) of the Securities Act of 1933, as amended. In
light of the information obtained by us in connection with these
transactions, we believe that we may rely on this exemption.
(a) Exhibits
(b) Reports on Form 8-K
We did not file any reports on Form 8-K during the third
quarter of 2001.
29
ITEM 2.
CHANGES IN SECURITIES
ITEM 6.
EXHIBITS AND REPORTS ON FORM 8-K
Employment Agreement, dated February 15,
1999, by and among William B. McGuire, Jr., Summit Properties
Inc. and Summit Management Company, as restated on
August 24, 2001.
Statement Regarding Calculation of Ratio of
Earnings to Fixed Charges for the nine months ended
September 30, 2001.
*
Filed herewith
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.
SUMMIT PROPERTIES INC.
November 12, 2001
(Date)
/s/ STEVEN R. LEBLANC
Steven R. LeBlanc,
President and Chief Executive Officer
November 12, 2001
(Date)
/s/ MICHAEL L. SCHWARZ
Michael L. Schwarz,
Executive Vice President — Operations
and Chief Financial Officer
30
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
THE EMPLOYMENT AGREEMENT (the "Agreement"), made and entered into on the 15th day of February, 1999, by and between WILLIAM B. McGUIRE, JR., an individual resident of the State of North Carolina (the "Executive"), and SUMMIT PROPERTIES INC., a Maryland corporation, and SUMMIT MANAGEMENT COMPANY, a Maryland corporation., (Summit Properties Inc. and Summit Management Company are referred to herein collectively as the "Company"), is hereby amended and restated as follows this 24th day of August, 2001;
WITNESSETH:
WHEREAS, the Company desires to employ Executive, and Executive desires to be employed by the Company on the terms and conditions contained in this Agreement;
NOW, THEREFORE, in consideration of the mutual promises and agreements contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties to this Agreement, intending to be legally bound, hereby agree as follows:
1.
Employment
Subject to the terms of this Agreement, the Company hereby employs Executive, and Executive hereby accepts such employment with the Company. Executive shall serve in the capacity of Co-Chairman of the Board of Directors of Summit Properties Inc. (the "Board") and shall have the duties, rights and responsibilities normally associated with such position consistent with the Bylaws of Summit Properties Inc. together with such other reasonable duties relating to the operation of the business of the Company and its affiliates as may be assigned to him from time to time by the Board. Through June 30, 2004 Executive shall devote a portion of his business time, skills and efforts to rendering services on behalf of the Company and its affiliates in substantially the same fashion as he has rendered such services to the Company previous to the date of this Agreement. Executive shall exercise such care as is customarily required by executives undertaking similar duties for entities similar to the Company. The Company acknowledges that effective July 1, 2004 Executive shall determine how much of his time during normal business hours he will devote to the business and affairs of the Company. The Company further acknowledges that Executive intends to pursue other business interests during the Term of this Agreement subject to the restrictions of a non-competition agreement between Executive and the Company dated as of February 15, 2000 (the "Noncompetition Agreement").
2.
Compensation; Expenses
2.1 Base Salary. Executive's current Base Salary is Two Hundred Twenty Thousand dollars ($220,000) per annum and will remain at this level through December 31, 2001. Effective January 1, 2002, and for the balance of the Term, Executive's Base Salary shall be reduced to Two Hundred Thousand dollars ($200,000) per annum unless Executive ceases to be an employee member of the Board in which case Executive's base salary shall be reduced to One Hundred Seventy Five
Thousand dollars ($175,000) per annum. The Base Salary, less all applicable withholding taxes, shall be paid to Executive in accordance with the payroll procedures in effect with respect to officers of the Company.
2.2 Incentive Compensation. In addition to the Base Salary payable to Executive pursuant to Paragraph 2.1 and any special compensatory arrangements which the Company provides for Executive, Executive is currently entitled to participate in any incentive compensation plans in effect with respect to senior officers of the Company, with the criteria for Executive's participation in such plans to be established by the Committee in its sole discretion. Effective January 1, 2002, Executive shall no longer be eligible to participate in such plans for senior officers with respect to his service on and after January 1, 2002.
2.3 Stock Options. Executive shall at the discretion of the Board be entitled to participate in employee stock option plans from time to time established for the benefit of employees of the Company in accordance with the terms and conditions of such plans. Subsequent to January 1, 2002, so long as Executive remains a member of the Board, the Company shall use reasonable efforts in recommending to the Board the grant of options to Executive in such amounts and at such times as those options received by non-employee members of the Board. All existing equity based incentives held by Executive shall remain in place and continue with their current vesting schedule.
2.4 Expenses. Executive shall be reimbursed for all reasonable business related expenses incurred by Executive at the request of or on behalf of the Company.
2.5 Participation in Employee Benefit Plans. Executive shall be entitled to participate in such medical, dental, disability, hospitalization, life insurance, profit sharing and other benefit plans as the Company shall maintain from time to time for the benefit of executive officers of the Company, on the terms and subject to the conditions set forth in such plans.
2.6 Office Space and Secretarial and MIS Support. During the Term of this Agreement, Executive shall have the use of his current or comparable office space, comparable secretarial and comparable MIS support at the expense of the Company.
2.7 Vacation. In addition to Company holidays, Executive is currently entitled to receive such paid vacation time each year during the term of this Agreement consistent with vacation policies of the Company for its executive officers. Said paid vacation time shall initially be twenty days. Any unused vacation days in any year may not be carried over to subsequent years, and Executive shall receive no additional compensation for any unused vacation days.
2.7 Perquisites. Executive shall be entitled to receive such individual perquisites as are consistent with the Company's policies applicable to its executive officers until June 30, 2004.
3.
Term of Employment
3.1 Term. The term of this Agreement shall continue until December
31, 2011 (the "Term"). However, either Company or Executive
may terminate this Agreement, subject to the provisions of
Section 4 below, upon the date twenty (20) business days after
written notice is given to the other party by either the
Company or Executive that the employment relationship shall
terminate. Such termination notice may be given by either
party without cause and for any or no reason.
4.
Compensation upon Termination of Employment
In the event Executive's employment with the Company is terminated; 1) by the Company or Executive for any reason prior to the expiration of the Term or, 2) upon expiration of the Term, Executive shall be entitled to receive the following:
(i) Base Salary. The Company shall continue to pay Executive's Base Salary for the remainder of the Term to the extent termination has occurred prior to the expiration of the Term.
(ii) Stock Options. All stock options and restricted stock held by Executive shall become fully vested upon his termination of employment, and subject to the terms of the Company's Amended and Restated 1994 Stock Option and Incentive Plan, all such stock options shall remain outstanding for the remainder of their original terms.
(iii) Stock Loans. Any loan from the Company to Executive pursuant to the Company's Employee Loan Plan shall continue in place for the remainder of its term.
(iv) Employee Benefit Plans. If termination occurs prior to the end of the Term, Executive and, if applicable, eligible dependents shall continue to participate in the Company's health, dental, disability, and life plans for the remainder of the Term on the same terms and conditions as an active employee. At the end of the Term, Executive may elect to continue in the Company's life insurance plan for his life, and Executive and eligible dependents may elect to continue in the Company's health and dental plans until the last to die of him and his spouse at a cost no greater than the group rates applicable to active employees in effect from time to time. Notwithstanding the foregoing, Executive's continuation in the foregoing plans is subject to the ability of the Company to make such coverage available on a commercially reasonable basis.
(v) Office Space and Secretarial and MIS Support. For the remainder of his life, Executive shall continue to have the use of his then current or
comparable office space, comparable secretarial and comparable MIS support at the expense of the Company.
5.
Miscellaneous
5.1. Binding Effect. This Agreement shall inure to the benefit of and shall be binding upon Executive and his executor, administrator, heirs, personal representative and assigns, and the Company and its successors and assigns; provided, however, that Executive shall not be entitled to assign or delegate any of his rights or obligations hereunder without the prior written consent of Company; and further provided that the Company shall not be entitled to assign or delegate any of its rights or obligations hereunder except to a corporation, partnership or other business entity that is, directly or indirectly, controlled by or under common control with Summit Properties Inc.
5.2. Construction of Agreement. No provision of this Agreement or any related document shall be construed against or interpreted to the disadvantage of any party hereto by any court or other governmental or judicial authority by reason of such party having or being deemed to have structured or drafted such provision.
5.3. Amendment; Waiver. Except as otherwise expressly provided in this Agreement, no amendment, modification or discharge of this Agreement shall be valid or binding unless set forth in writing and duly executed by each of the parties hereto. Any waiver by any party or consent by any party to any variation from any provision of this Agreement shall be valid only if in writing and only in the specific instance in which it is given, and no such waiver or consent shall be construed as a waiver of any other provision or as a consent with respect to any similar instance or circumstance.
5.4. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of North Carolina.
5.5. Survival of Agreements. All covenants and agreements made herein shall survive the execution and delivery of this Agreement and the termination of Executive's employment hereunder for any reason.
5.6. Headings. The section and paragraph headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.
5.7. Notices. All notices, requests, consents and other communications hereunder shall be in writing and shall be deemed to be given when delivered personally or mailed first class, registered or certified mail, postage prepaid, in either case, addressed as follows:
(a) If to Executive:
William B. McGuire, Jr.
1227 Scotland Avenue
Charlotte, NC 28207
(b) If to the Company, addressed to:
Summit Properties Inc.
309 E. Morehead Street, Suite 200
Charlotte, North Carolina 28202
Attn: Michael G. Malone
5.8. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument.
5.9. Entire Agreement. This Agreement, together with the Non-Competition Agreement dated February 15, 2000, and Indemnification Agreement dated July 20, 1999, constitute the entire agreement of the parties with respect to the subject matter hereof and upon the date first written above, will supersede and replace all prior agreements, written and oral, between the parties hereto or with respect to the subject matter hereof. This Agreement may be modified only by a written instrument signed by each of the parties hereto.
6.0. Executive Severance Agreement. Effective as of the date of this Agreement, the Executive Severance Agreement between the Company and the Executive dated April 2, 1997, shall be terminated and of no further force or effect.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.
SUMMIT PROPERTIES INC.
By: /S/ Steven R. LeBlanc
---------------------
Name: Steven R. LeBlanc
Title: President
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SUMMIT MANAGEMENT COMPANY
By: /S/ Steven R. LeBlanc ---------------------- Name: Steven R. LeBlanc Title: Vice President |
Collectively, the "Company"
/S/ William B. McGuire, Jr. [SEAL] --------------------------- William B. McGuire, Jr. |
"Executive"
EXHIBIT 12.1
SUMMIT PROPERTIES INC.
CALCULATION OF RATIO OF EARNINGS TO FIXED CHARGES
NINE MONTHS ENDED SEPTEMBER 30, 2001
(DOLLARS IN THOUSANDS)
Earnings:
Income before minority interest of common unitholders in Operating Partnership,
dividends to preferred unitholders in Operating Partnership and extraordinary items ....... $48,954
Interest:
Expense incurred ......................................................................... 30,089
Amortization of deferred financing costs ................................................. 1,079
Rental fixed charges ..................................................................... 254
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Total .................................................................................... $80,376
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Fixed charges:
Interest expense ............................................................................ $30,089
Interest capitalized ........................................................................ 9,035
Dividends to preferred unitholders in Operating Partnership ................................. 9,315
Rental fixed charges ........................................................................ 254
Amortization of deferred financing costs .................................................... 1,079
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Total .................................................................................... $49,772
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Ratio of earnings to fixed charges ................................................................. 1.61
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