10-Q/A 1 d10qa.txt FORM 10-Q/A SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ___________________ FORM 10-Q/A X Quarterly Report Pursuant to Section 13 or 15(d) --- of the Securities Exchange Act of 1934 For the quarter ended March 31, 2001 or Transition Report Pursuant to Section 13 or 15(d) ---- of the Securities Exchange Act of 1934 For the period from to Commission File Number: 1934 Act File Number: 1-13174 CHARLES E. SMITH RESIDENTIAL REALTY, INC. (Exact name of registrant as specified in its charter) Maryland 54-1681655 (State of other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 2345 Crystal Drive Crystal City, VA 22202 (Address of principal (Zip Code) executive offices) Registrant's telephone number including area code: (703) 920-8500 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Shares of Common Stock (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No____ ----- As of April 20, 2001, there were 22,740,634 shares of Common Stock of the Registrant issued and outstanding. -------------------------------------------------------------------------------- This Form 10-Q/A is being filed for the sole purpose of adding the review report of the independent accountants of the Company to the financial statements presented; these statements are otherwise unchanged from those previously filed on Form 10-Q. CHARLES E. SMITH RESIDENTIAL REALTY, INC. FORM 10-Q INDEX Pages ----- PART I: FINANCIAL INFORMATION Item 1: Financial Statements Report of Independent Public Accountants 3 Charles E. Smith Residential Realty, Inc. Financial Statements as of March 31, 2001 and December 31, 2000, Filed as a Part of This Report Consolidated Balance Sheets 4 Consolidated Statements of Operations 5 Consolidated Statements of Shareholders' Equity 6 Condensed Consolidated Statements of Cash Flows 7 Notes to Consolidated Financial Statements 8 Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations 15 PART II: OTHER INFORMATION 26 SIGNATURES 27 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Charles E. Smith Residential Realty, Inc.: We have reviewed the accompanying condensed consolidated balance sheet of Charles E. Smith Residential Realty, Inc. (a Maryland real estate investment trust) and subsidiaries as of March 31, 2001, and the related condensed consolidated statements of operations and cash flows for the three-month period then ended. These financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the financial statements referred to above for them to be in conformity with accounting principles generally accepted in the United States. /s/ Arthur Andersen LLP April 18, 2001 Vienna, Virginia 3 CHARLES E. SMITH RESIDENTIAL REALTY, INC. CONSOLIDATED BALANCE SHEETS (Dollars in Thousands)

The accompaning notes are an tegral part of these consolidated statements. 4 CHARLES E. SMITH RESIDENTIAL REALTY, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in Thousands, Except Per Share Data) (Unaudited)

See accompanying notes are an integral part of these consolidated statements 5 CHARLES E. SMITH RESIDENTIAL REALTY, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Dollars in Thousands)

The accompanying notes are an integral part of these consolidated satements. 6 CHARLES E. SMITH RESIDENTIAL REALTY, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in Thousands) (Unaudited)

The accompanying notes are an integral part of these consolidated statements. 7 CHARLES E. SMITH RESIDENTIAL REALTY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. BASIS OF PRESENTATION The accompanying interim financial statements include all of the accounts of Charles E. Smith Residential Realty, Inc. (the "Company"), Charles E. Smith Residential Realty L.P. (the "Operating Partnership") and its subsidiary financing partnerships, and Smith Realty Company ("SRC"). The Company consolidates the Operating Partnership due to the Company's control as sole general partner. On January 1, 2001, the Company began consolidating SRC due to the Company's 99% controlling interest in SRC. All significant intercompany balances and transactions have been eliminated. The financial information furnished is unaudited, and in management's opinion, includes all adjustments (consisting only of normal, recurring adjustments), that are necessary for a fair presentation of financial position as of March 31, 2001 and the results of operations for the interim periods ended March 31, 2001 and 2000. Such interim results are not necessarily indicative of the operating results for a full year. The accompanying financial statements should be read in conjunction with the audited financial statements and related footnotes appearing in the Company's Annual Report on Form 10-K. The Company, through the Operating Partnership and its subsidiaries, is engaged in the ownership, operation, management, leasing, acquisition, and development of real estate properties, primarily residential multifamily properties. As of March 31, 2001, the Operating Partnership owned 59 operating multifamily properties containing 27,186 apartment units, had 480 units under construction at one owned site, had 226 units under construction at one site for which the Company owned substantially all of the economic interest, and had an agreement to purchase 383 units at one additional site. The Operating Partnership also had interests in four operating multifamily properties totaling 1,724 apartment units and in one property under construction totaling 630 units. In addition, the Operating Partnership owned one freestanding retail shopping center aggregating 205,000 square feet. The Company's properties are located in the Washington, D.C., Chicago, Boston and Southeast Florida metropolitan areas. 2. DEBT In February 2001, the Company closed on two unsecured credit facilities totaling $150 million from bank groups led by PNC Bank, N.A., as administrative agent, which refinanced existing credit facilities scheduled to mature in March 2001. Draws upon the new lines are subject to certain unencumbered asset requirements and bear interest based on London Interbank Offer Rate (LIBOR) plus an applicable margin of 85 to 125 basis points based on the leverage ratio of the Company. If the Company chooses to and obtains an Investment Grade Rating the applicable margin will be between 62.5 and 100 basis points over LIBOR based on such rating. The Company also pays a quarterly fee ranging from 0.125% to 0.20% on the full amount available under the lines of credit, depending upon the applicable leverage ratio or investment rating. The line of credit 8 agreements contain certain restrictive covenants, including maintenance of minimum equity value, debt to equity ratios and debt service coverage requirements. In March 2001, the Company closed on two second mortgage loans totaling $31.1 million. The $23.4 million loan has a fixed interest rate of 6.795% and is collateralized by Crystal Towers. The $7.7 million loan has a fixed interest rate of 6.62% and is collateralized by 2000 Commonwealth. The loans require monthly payments of interest only and mature coterminous with their respective first mortgages in January 2006 and January 2007, respectively. In March 2001, the Company refinanced an existing $12.3 million mortgage loan on The Consulate with a $27.0 million mortgage loan. The new loan has a fixed interest rate of 6.7% and requires monthly payments of interest only through March 2011, at which time principal amortization begins using a 30-year amortization schedule with a balloon payment due March 2012. 3. INVESTMENT IN AND ADVANCES TO PROPERTY SERVICE BUSINESSES In January 2001 the Company and the Property Service Businesses ("PSB") elected to treat each PSB as a taxable REIT subsidiary. In addition, SRC also converted the Company's 99% non-voting stock into voting stock resulting in the Company's control of SRC. Accordingly, the Company began consolidating the financial results of SRC in 2001 instead of using the equity method of accounting. This had no impact to net income but simply changed the financial statement presentation of SRC's results. In February 2001, Consolidated Engineering Services, Inc. ("CES") acquired Commonwealth Air Conditioning and Heating, Inc., one of the largest independent service contractors in the metropolitan Boston, Massachusetts area. The purchase price of $19.1 million consisted of 100,310 shares of common stock (purchased by CES from the Company) and cash. CES funded the transaction through the Operating Partnership in exchange for a promissory note. In March 2001, CES closed on a twelve-month $50 million line of credit with PNC Bank and Commerzbank replacing an expiring facility. The line is guaranteed by the Operating Partnership and bears interest based on LIBOR plus an applicable margin of 75 to 115 basis points based on the leverage ratio of the Company. The current borrowing rate is LIBOR plus 100 basis points. CES also pays a quarterly fee of 10 basis points on the full amount available under the line. 4. INVESTMENT IN UNCONSOLIDATED PROPERTIES In February 2001, the Company entered into and funded a $23.8 million participating loan collateralized by Plaza 440, a 457-unit luxury high-rise property in downtown Chicago. The loan, which matures September 1, 2009, provides the Company with a 90% participation in the property cash flow after debt service if certain minimum property performance thresholds are met. Otherwise, the Company will earn a fixed interest rate of 7%. The loan is subordinate to a first mortgage of $63 million at 7%. After two years, the loan agreement provides the Company the option to convert its 9 loan to an ownership interest. Simultaneous with the loan transaction, Smith Realty Company entered into a multi-year property management agreement with the owner. 5. SHAREHOLDERS' EQUITY The following table sets forth the Company's issued and outstanding preferred shares:

10 6. PER SHARE DATA Earnings per common share of the Company for the three months ended March 31, 2001 and 2000 is computed based on weighted average common shares/units outstanding during the period as follows (in millions):

/1/ Represents Operating Partnership units not held by the Company Operating Partnership units not held by the Company may be redeemed at the Unitholders' sole discretion. Such redemption may be made for cash at the then fair value of the Company's common stock, or, at the option of the Company, for shares of common stock of the Company on a one-for-one basis, which does not have a dilutive effect. A total of 289,742 Operating Partnership units were redeemed for shares of common stock during the three months ended March 31, 2001. A reconciliation of income and shares used to calculate basic and diluted earnings per common share for the three months ended March 31, 2001 follows (dilutive securities had no effect on earnings for the three months ended March 31, 2000):

/(1)/ Adjustment to numerator reflects change in the Minority Interest share of income based on ownership calculation including common stock equivalents. 11 7. SEGMENT REPORTING Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by senior management in deciding how to allocate resources and in assessing performance. Property Segments The Company's primary business is the ownership and operation of multifamily residential real estate. As such, the residential rental properties constitute the four primary operating segments -- Core, Acquisition/Disposition, Redevelopment and Development portfolios -- depending upon the maturity and nature of each property. Core consists of multifamily properties, other than Redevelopment or Development, which have been owned more than one full calendar year. Therefore, the 2001 Core represents properties owned as of December 31, 1999. Acquisition/Disposition consists of purchased properties which have not yet reflected one full calendar year of operations and disposed properties. Redevelopment includes purchased properties in which the Company is making significant renovations to reposition the property in the market place. Properties will remain in the Redevelopment Portfolio until one full calendar year of operating results is reflected subsequent to completion of the renovations. Development consists of properties which the Company has constructed or is in the process of constructing which have not yet had a full calendar year of stabilized operating results. On the first of January each year, Acquisition, Redevelopment and Development properties that meet the one- year requirement are transferred to the Core portfolio. The Company's fifth property segment is the Retail portfolio, which reflects results for the one free standing retail property. The Company evaluates performance for the Property Segments based on Net Operating Income ("NOI") which is the difference between Rental Revenue and Operating Expenses (which primarily excludes interest expense, general and administrative costs and depreciation). Property Service Business Segment The Company also evaluates the separate financial information of the Property Service Businesses. These businesses provide professional services such as property management, furnished corporate apartment rentals, engineering and technical consulting, and construction management to both Company-owned properties and properties owned by third parties. Given the similarities in the nature of services, customers and distribution methods, the Company considers the Property Service Businesses to be one segment. The Company evaluates performance for the Property Service Business segment based on Funds from Operations ("FFO"), which is defined using the revised definition adopted by the National Association of Real Estate Investment Trusts ("NAREIT") as net income (loss) (computed in accordance with generally accepted accounting principles) excluding gains (or losses) from debt restructuring and sale of property, plus depreciation/amortization of assets unique to the real estate industry. Depreciation/amortization of assets not unique to the industry, such as amortization of deferred financing costs, goodwill and non-real estate assets, is not added back. The accounting policies for all segments are the same as those described in the summary of significant accounting policies in the Company's Annual Report on Form 10-K. 12 Information concerning operations by segment for the three months ended March 31, 2001 and 2000 were as follows (in thousands):

13 Property Service Business Segment

14 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. CHARLES E. SMITH RESIDENTIAL REALTY, INC. June 22, 2001 By: /s/ W. D. Minami ---------------------------------------------- W. D. Minami Executive Vice President, Chief Operating Officer and Chief Financial Officer Charles E. Smith Residential Realty, Inc. (on behalf of the Registrant and as Principal Financial Officer) By: /s/ Steven E. Gulley --------------------------------------------- Steven E. Gulley Chief Accounting Officer Charles E. Smith Residential Realty, Inc.

SMITH CHARLES E RESIDENTIAL REALTY INC 10-Q/A