GBP Gables Residential Trust

Gables Residential (NYSE:GBP) (the "Company") today reported earnings for the second quarter. Net income available to common shareholders was $0.54 per diluted share. Funds from operations ("FFO") available to common shareholders was $0.40 per diluted share and adjusted funds from operations ("AFFO") available to common shareholders was $0.88 per diluted share. Each of these metrics includes expenses of approximately $0.09 per diluted share associated with the Company's previously announced plan of merger. Excluding the impact of these merger-related expenses, the Company's FFO was in line with its previous earnings guidance for the quarter. Net income available to common shareholders for the quarter was $15.8 million, or $0.54 per diluted share, compared to $15.3 million, or $0.52 per diluted share, for the comparable period of 2004. The second quarter 2005 results included gains from real estate asset sales of $18.7 million, or $16.6 million, net of $2.1 million of minority interest, or $0.56 per diluted share. The second quarter 2004 results included gains from real estate asset sales of $14.2 million, or $12.4 million, net of $1.8 million of minority interest, or $0.42 per diluted share. For the first six months of 2005, net income available to common shareholders was $55.6 million, or $1.89 per diluted share, compared to $20.4 million, or $0.70 per diluted share, for the comparable period of 2004. For the first six months of 2005, results included gains from real estate asset sales of $53.4 million, or $47.1 million, net of $6.3 million of minority interest, or $1.60 per diluted share. For the first six months of 2004, results included gains from real estate asset sales of $17.0 million, or $14.9 million, net of $2.1 million of minority interest, or $0.51 per diluted share. FFO available to common shareholders for the quarter was $13.3 million, or $0.40 per diluted share. FFO available to common shareholders for the second quarter of 2004 was $18.5 million, or $0.55 per diluted share, after a supplemental adjustment of $1.0 million to exclude debt extinguishment costs associated with the sale of real estate assets, or $17.5 million, or $0.52 per diluted share, including such costs. FFO available to common shareholders for the first six months of 2005 was $37.8 million, or $1.14 per diluted share, after a supplemental adjustment of $0.1 million to exclude debt extinguishment costs associated with the sale of real estate assets, or $37.7 million, or $1.13 per diluted share, including such costs. FFO available to common shareholders for the first six months of 2004 was $36.1 million, or $1.08 per diluted share, after a supplemental adjustment of $1.0 million to exclude debt extinguishment costs associated with the sale of real estate assets, or $35.1 million, or $1.05 per diluted share, including such costs. The FFO metric excludes gain on sale of operating real estate assets and real estate asset depreciation and amortization. A reconciliation of net income to FFO is included on page 14. AFFO available to common shareholders, which treats recurring value retention capital expenditures as period costs and includes economic gains and losses on asset sales, was $29.1 million, or $0.88 per diluted share, for the quarter, compared to $22.2 million, or $0.66 per diluted share, for the comparable period of 2004. AFFO available to common shareholders for the first six months of 2005 was $42.3 million, or $1.27 per diluted share, compared to $35.5 million, or $1.06 per diluted share, for the comparable period of 2004. Economic gains and losses represent the gains and losses on sales of assets in accordance with GAAP, less accumulated depreciation through the date of sale. A reconciliation of net income to FFO and to AFFO is included on page 14. A summary of the Company's results over the last five years, including AFFO is included on page 15. This earnings release is available on Gables Residential's website at www.gables.com. Please click on "Investor Relations" then "Financial Information/Earnings Releases" or go directly to this web address: www.gables.com/q205earningsrelease. The Company produces Earnings Release Supplements ("the Supplements") that provide detailed information regarding the financial position and operating results of the Company. These Supplements are available via the Company's website and through e-mail distribution. Access to the Supplements through the Company's website is available at www.gables.com/financialreports. If you would like to receive future press releases via e-mail, please register through the Company's website at www.gables.com/mailalerts. Some items referenced in the earnings release may require Adobe Acrobat 6.0 Reader. If you do not have Adobe Acrobat 6.0 Reader, you may download it at the following website: www.adobe.com/products/acrobat/readstep2.html. The Company will not host an earnings conference call this quarter due to its previously announced plan of merger. Same-Store Operating Results for the Second Quarter 2005 On a year-over-year basis, total property revenues increased 2.9% and property operating and maintenance expenses increased 4.9%, resulting in a 1.7% increase in property net operating income ("NOI") for the second quarter. On a sequential-quarter basis, total property revenues increased 0.9% and property operating and maintenance expenses increased 2.1%, resulting in a 0.1% increase in property NOI. The number of apartment homes included in the year-over-year and sequential same-store results as a percentage of the Company's total stabilized portfolio at June 30, 2005 is 68% and 75%, respectively. The Company does not include its proportionate share of joint venture results in its same-store pool of assets. A detail of the year-over-year and sequential-quarter same-store results by market is presented on pages 16 and 17, respectively. Investment and Disposition Activity During the quarter, the Company acquired seven communities comprising 945 apartment homes in three markets for a total of $80 million. In its Dallas EPN zones, the Company acquired Gables Katy Trail (158 apartment homes), Gables Uptown Tower (196 apartment homes), Carlisle on the Creek (176 apartment homes) and Saltillo (79 apartment homes). In the Buckhead EPN of Atlanta, the Company acquired two adjacent communities, Northmoor and Lindview, comprising a total of 224 apartment homes. The Company also acquired Memorial Hills (112 apartment homes) in the River Oaks EPN of Houston. On a year-to-date basis, the Company has acquired nine communities comprising 1,660 apartment homes located in EPN zones in four of its markets for a total of $172 million. The Company has $323 million of assets in various stages of development with approximately $167 million of costs remaining to be incurred at June 30, 2005. In addition, the Company has development rights for the future development of an estimated 2,305 apartment homes in ten communities for total budgeted costs estimated to be approximately $400 million as outlined in page 30 of the press release including the Supplements. During the quarter, the Company sold its remaining asset in Tampa, Gables Beach Park (166 apartment homes), to a condominium converter for $41.2 million. The related gain on sale of real estate assets in accordance with GAAP was $18.7 million, or $0.56 per diluted share. The economic gain for this sale transaction was $17.8 million, or $0.54 per diluted share, after taking into account $0.9 million of accumulated depreciation. On a year-to-date basis, the Company has sold seven real estate assets comprising 2,045 apartment homes in four markets for a total of $168.5 million. The related gain on sale of real estate assets in accordance with GAAP was $53.4 million, or $1.60 per diluted share. The economic gain for these transactions was $8.3 million, or $0.25 per diluted share, after taking into account $0.1 million of associated debt extinguishment costs and $45.0 million of accumulated depreciation. Promotion of Sue Ansel to COO During the quarter, the Company announced that Sue Ansel was promoted to Chief Operating Officer. Ms. Ansel previously served as a Senior Vice President with responsibility for the Company's apartment operations and asset management functions in Dallas, Austin, Houston, San Diego and the Inland Empire, which includes a portfolio of over 15,000 apartment homes. In addition to her operating experience, she has been involved in the development, acquisition and ancillary service businesses during her 18- year tenure with the Company. Agreement and Plan of Merger with ING Clarion On June 7, 2005, the Company entered into an agreement and plan of merger pursuant to which a newly formed affiliate of ING Clarion Partners, LLC, an indirect wholly owned subsidiary of ING Groep, N.V., will acquire the Company and its subsidiaries through the mergers of Gables Residential Trust and Gables Realty Limited Partnership with merger subsidiaries of the ING Groep, N.V. (the "merger"). Pursuant to the terms of the agreement and plan of merger, each issued and outstanding common share of beneficial interest of the Company will be converted into the right to receive $43.50 in cash, without interest. In addition, holders of common shares will receive additional merger consideration that represents a pro-rata portion of the monthly dividend allocable to the month in which the mergers are closed and will be based on the number of days having elapsed in such monthly period (the "pro-rata dividend"). Each existing common unit of limited partnership in the Company's Operating Partnership (other than common units held by the Company) will be converted into and cancelled in exchange for the right to receive (1) $43.50 in cash, without interest, plus a distribution equal to the pro-rata dividend or (2) if the holder so elects, a Class A common unit of limited partnership interest in the surviving partnership and a distribution equal to the pro-rata dividend, provided that the issuance of Class A common units would be exempt from registration under the Securities Act and applicable state securities laws. Holders of not more than $75 million of existing common units in the Operating Partnership in the aggregate may elect to receive Class A common units (any excess will be subject to pro-rata reduction among all holders electing to receive Class A common units). Completion of the merger, which is expected to occur by the end of the third quarter of 2005, is subject to approval by the Company's common shareholders and certain other customary closing conditions. The merger has been unanimously approved by the Company's Board of Trustees, which will recommend that the common shareholders approve the merger. Gables expects to continue to pay regular monthly dividends at an annualized rate of $2.41 per share through the closing of the merger, including a pro-rated dividend for the month in which the merger closes. Earnings Guidance The Company is not providing earnings guidance this quarter due to the pending merger. Discontinued Operations The Company adopted SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," effective January 1, 2002. This standard requires, among other things, that operating results of certain real estate assets sold or held for sale subsequent to January 1, 2002, be reflected as discontinued operations in the statements of operations for all periods presented. The Company evaluates, in the ordinary course of its business, the continued ownership of its assets relative to available opportunities to acquire and develop new assets and relative to available equity and debt capital financing. The Company sells assets if it determines that such sales are the most attractive sources of capital for redeployment in its business, for repayment of debt, for repurchases of stock, and for other uses. The Company expects to reclassify historical operating results whenever necessary in order to comply with the requirements of SFAS No. 144. Non-GAAP Financial Measures and Other Terms This release, including the Supplements, contains certain non-GAAP financial measures and other terms. The Company's definition and calculation of these non-GAAP financial measures and other terms may differ from the definitions and methodologies used by other REITs and, accordingly, may not be comparable. The non-GAAP financial measures referred to below should not be considered as alternatives to net income or other GAAP measures as indicators of the Company's performance. Additional information regarding these items and other non-GAAP financial measures and terms used in this release, including the Supplements, can be found elsewhere herein. Funds From Operations (FFO) is used by industry analysts and investors as a supplemental operating performance measure of an equity real estate investment trust ("REIT"). The Company calculates FFO in accordance with the definition that was adopted by the Board of Governors of the National Association of Real Estate Investment Trusts ("NAREIT"). FFO, as defined by NAREIT, represents net income (loss) determined in accordance with generally accepted accounting principles ("GAAP"), excluding extraordinary items as defined under GAAP and gains or losses from sales of previously depreciated operating real estate assets as defined under GAAP, plus certain non-cash items, such as real estate asset depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. Historical cost accounting for real estate assets in accordance with GAAP implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values instead have historically risen or fallen with market conditions, many industry investors and analysts have considered presentation of operating results for real estate companies that use historical cost accounting to be insufficient by themselves. Thus, NAREIT created FFO as a supplemental measure of REIT operating performance that excludes historical cost depreciation, among other items, from GAAP net income. The use of FFO, combined with the required primary GAAP presentations, has improved the understanding of operating results of REITs among the investing public and made comparisons of REIT operating results more meaningful. Management generally considers FFO to be a useful measure for reviewing the comparative operating and financial performance of the Company (although it should be reviewed in conjunction with net income which remains the primary measure of performance) because by excluding gains or losses related to sales of previously depreciated operating real estate assets and excluding real estate asset depreciation and amortization, FFO can help users compare the operating performance of a company's real estate between periods or as compared to different companies. The Company presents FFO with a supplemental adjustment to exclude debt extinguishment costs associated with the sale of real estate assets. These debt extinguishment costs are incurred when the sale of an asset encumbered by debt requires the Company to pay the extinguishment costs prior to the debt's stated maturity and to write-off unamortized loan costs at the date of the extinguishment. Such costs are excluded from the gain on sale of real estate assets reported in accordance with GAAP. However, the Company views the debt extinguishment costs associated with the sale of real estate assets as an incremental cost of the sale transaction because the Company extinguished the debt in connection with the consummation of the sale transaction and the Company had no intent to extinguish the debt absent such transaction. The Company believes that this supplemental adjustment more appropriately reflects the results of its operations exclusive of the impact of its sale transactions. Adjusted Funds From Operations (AFFO) represents FFO less recurring value retention capital expenditures, plus economic gains and losses from sales of previously depreciated operating real estate assets. The Company believes AFFO is a useful supplemental operating performance metric because AFFO results in a more comprehensive evaluation of the way the Company operates its business. The Company modified its definition of AFFO for reporting purposes in the second quarter of 2004 to include economic gains and losses from sales of previously depreciated operating real estate assets because the Company believes inclusion of economic gains and losses on asset sales reflects the results of its investment activities which are a fundamental component of its business strategy. Prior period presentation of AFFO has been conformed accordingly. Management generally considers AFFO to be a useful measure for reviewing the comparative operating and financial performance of the Company (although it should be reviewed in conjunction with net income which remains the primary measure of performance) because by including gains or losses related to sales of previously depreciated operating real estate assets and excluding real estate asset depreciation and amortization, AFFO can help users understand the financial performance of a company's operating and investment results over time. Economic Gains and Losses on Sale of Real Estate Assets represent the gains or losses on sale in accordance with GAAP, less accumulated depreciation through the date of sale. As such, economic gains and losses reflect the cash proceeds from a sale less the cash invested in the sold community. The Company treats debt extinguishment costs associated with the sale as a reduction to the economic gains and losses because it believes such costs represent an incremental cost of the sale transaction. Recurring Value Retention Capital Expenditures represent costs typically incurred every year during the life of a community, such as expenditures for carpet, vinyl flooring, appliances, mechanical equipment and fixtures. To the extent such costs are incurred in connection with a major renovation of a community, they are excluded from this category. Non-recurring Capital Expenditures represent costs that are generally incurred in connection with a major project impacting an entire community, such as roof replacement, parking lot resurfacing, exterior painting and siding replacement. These costs are not incurred on a regular basis and may not occur or reoccur during the anticipated hold period of an asset. To the extent such costs are incurred in connection with a major renovation of a community, they are excluded from this category. Value Enhancing Capital Expenditures represent costs for which an incremental value is expected to be achieved from increasing the NOI potential for a community or recharacterizing the quality of the income stream with an anticipated reduction in potential sales cap rate for items such as replacement of wood siding with a masonry-based Hardi-Board product, amenity upgrades and additions, installation of security gates and additions of covered parking. To the extent such costs are incurred in connection with a major renovation of a community, they are excluded from this category. Property Net Operating Income (NOI) is used by industry analysts, investors and Company management to measure operating performance of the Company's properties. NOI represents total property revenues less property operating and maintenance expenses (as reflected in the accompanying statements of operations). Accordingly, NOI excludes certain expenses included in the determination of net income such as property management and other indirect operating expenses, interest expense and depreciation and amortization expense. These items are excluded from NOI in order to provide results that are more closely related to a property's results of operations. Certain items, such as interest expense, while included in FFO and net income, do not affect the operating performance of a real estate asset and are often incurred at the corporate level as opposed to the property level. As a result, management uses only those income and expense items that are incurred at the property level to evaluate a property's performance. Real estate asset depreciation and amortization is excluded from NOI for the same reasons that it is excluded from FFO pursuant to NAREIT's definition. Stabilized Occupancy is defined as the earlier to occur of (i) 93% physical occupancy or (ii) one year after completion of construction. For purposes of evaluating comparative operating performance, the Company categorizes its operating communities based on the period each community reaches a stabilized occupancy and operating expense level. For purposes of the period-end community charts, once a development community has reached a stabilized occupancy level, it is reclassified from the Development/Lease-up Communities chart to the Stabilized Communities chart. Physical Occupancy represents gross potential rent less physical vacancy loss as a percentage of gross potential rent. Economic Occupancy represents actual rent revenue collected divided by gross potential rent. Thus, economic occupancy differs from physical occupancy in that it takes into account concessions, non-revenue producing apartment homes and delinquencies. Gross Potential Rent is determined by valuing occupied apartment homes at contract rates and vacant units at market rates. Income Available for Debt Service and Preferred Dividends represents net income available to common shareholders before interest expense and credit enhancement fees, preferred dividends, original issuance costs associated with redemption of preferred shares, income taxes, depreciation, amortization, minority interest, gain on sale of real estate assets, debt extinguishment costs associated with the sale of real estate assets, long-term compensation expense, extraordinary items and unusual items, all from both continuing and discontinued operations, as applicable. Management generally considers income available for debt service and preferred dividends to be an appropriate supplemental measure to net income of the operating performance of the Company because it helps investors to understand the ability of the Company to incur and service its debt and preferred stock obligations. Forward-Looking Statements Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995: This release, including the Supplements, contains forward-looking statements within the meaning of federal securities laws. These forward-looking statements reflect the Company's current views with respect to the future events or financial performance discussed in this release, based on management's beliefs and assumptions and information currently available. When used, the words "believe," "anticipate," "estimate," "project," "should," "expect," "plan," "assume" and similar expressions that do not relate solely to historical matters identify forward-looking statements. Forward-looking statements in this release include, without limitation, statements relating to the Company's ability to produce total returns through monthly dividends and share price changes that exceed the NAREIT apartment sector index and the anticipated closing of the Company's proposed merger by the end of the third quarter of 2005. Forward-looking statements are subject to risks, uncertainties and assumptions and are not guarantees of future events or performance, which may be affected by known and unknown risks, trends and uncertainties. Should one or more of these risks or uncertainties materialize, or should the Company's assumptions prove incorrect, actual results may vary materially from those anticipated, projected or implied in the forward-looking statements. Factors that may cause such a variance include, among others: the delay in or failure to close the merger; local and national economic and market conditions, including changes in occupancy rates, rental rates, and job growth; the demand for apartment homes in the Company's markets; the uncertainties associated with the Company's current real estate development, including actual costs exceeding the Company's budgets; changes in construction costs; construction delays due to the unavailability of materials or weather conditions; the failure to sell assets on favorable terms, in a timely manner or at all; the failure of acquisitions to yield anticipated results; the cost and availability of financing; changes in interest rates; competition; the effects of the Company's accounting and other policies; and additional factors discussed from time to time in the Company's filings with the Securities and Exchange Commission. The Company expressly disclaims any responsibility to update forward-looking statements to reflect changes in underlying assumptions or factors, new information, future events or otherwise. About Gables With a mission of Taking Care of the Way People Live(R), Gables Residential has received national recognition for excellence in the management, development, acquisition and construction of luxury multifamily communities in high job growth markets. The Company's strategic objective is to produce total returns through monthly dividends and share price changes that exceed the NAREIT apartment sector index. The Company has a research-driven strategy focused on markets characterized by high job growth and resiliency to national economic downturns. Within these markets, the Company targets Established Premium Neighborhoods(TM) ("EPN's"), generally defined as areas with high per square foot prices for single-family homes. By investing in resilient, demand-driven markets and EPN(TM) locations with barriers to entry, the Company expects to achieve its strategic objective. The Company is one of the largest apartment operators in the nation and currently manages 41,029 apartment homes in 158 communities. The Company owns or has an interest in 84 communities with 21,163 stabilized apartment homes located primarily in Atlanta, Houston, South Florida, Austin, Dallas, Washington, D.C. and San Diego/Inland Empire and has an additional 11 communities with 2,673 apartment homes under development or lease-up. For further information, please contact Gables Investor Relations at (800) 371-2819 or access Gables Residential's website at www.gables.com. -0- *T GABLES RESIDENTIAL Consolidated Statements of Operations June 30, 2005 (Unaudited and amounts in thousands, except for per share data) Three months ended Six months ended June 30, June 30, ------------------ ------------------- 2005 2004 2005 2004 --------- --------- --------- --------- Revenues: Rental revenues $ 51,941 $ 45,380 $101,004 $ 90,139 Other property revenues 4,334 3,829 7,939 7,191 --------- --------- --------- --------- Total property revenues 56,275 49,209 108,943 97,330 --------- --------- --------- --------- Property management revenues 2,176 2,078 4,410 4,232 Ancillary services revenues 817 1,337 1,896 2,551 Interest income 123 32 210 40 Other revenues 87 453 385 859 --------- --------- --------- --------- Total other revenues 3,203 3,900 6,901 7,682 --------- --------- --------- --------- Total revenues 59,478 53,109 115,844 105,012 --------- --------- --------- --------- Expenses: Property operating and maintenance (exclusive of items shown below) 21,446 17,897 41,301 35,621 Real estate asset depreciation and amortization 12,905 11,412 25,161 23,165 Property management (owned and third party) 4,165 4,113 8,741 8,399 Ancillary services 845 1,010 1,710 2,074 Interest expense and credit enhancement fees 12,228 9,485 23,625 18,827 Amortization of deferred financing costs 382 426 874 840 General and administrative 2,925 2,751 6,075 5,725 Corporate asset depreciation and amortization 953 714 1,878 1,212 Unusual items 2,828 - (472) - --------- --------- --------- --------- Total expenses 58,677 47,808 108,893 95,863 --------- --------- --------- --------- Income from continuing operations before equity in income of joint ventures, gain on sale and minority interest 801 5,301 6,951 9,149 Equity in income of joint ventures 476 60 961 544 Gain on sale of technology investment - - 5,838 - Minority interest of common unitholders in Operating Partnership 100 (399) (1,115) (674) --------- --------- --------- --------- Income from continuing operations 1,377 4,962 12,635 9,019 Operating income from discontinued operations, net of minority interest (2) 983 350 2,088 Gain on sale of discontinued operations, net of minority interest 16,588 12,419 47,127 14,498 Debt extinguishment costs associated with the sale of real estate assets, net of minority interest - (862) (137) (862) --------- --------- --------- --------- Income from discontinued operations, net of minority interest 16,586 12,540 47,340 15,724 Net income 17,963 17,502 59,975 24,743 Dividends to preferred shareholders (2,193) (2,193) (4,387) (4,387) --------- --------- --------- --------- Net income available to common shareholders $ 15,770 $ 15,309 $ 55,588 $ 20,356 --------- --------- --------- --------- Weighted average number of common shares outstanding - basic 29,283 29,258 29,351 29,119 Weighted average number of common shares outstanding - diluted 33,128 33,548 33,302 33,487 Per Common Share Information- Basic: Income (loss) from continuing operations (net of preferred dividends) $ (0.03) $ 0.09 $ 0.28 $ 0.16 Income from discontinued operations, net of minority interest $ 0.57 $ 0.43 $ 1.61 $ 0.54 Net income available to common shareholders $ 0.54 $ 0.52 $ 1.89 $ 0.70 Per Common Share Information- Diluted: Income (loss) from continuing operations (net of preferred dividends) $ (0.03) $ 0.09 $ 0.28 $ 0.16 Income from discontinued operations $ 0.56 $ 0.43 $ 1.61 $ 0.54 Net income available to common shareholders $ 0.54 $ 0.52 $ 1.89 $ 0.70 *T -0- *T GABLES RESIDENTIAL Funds From Operations and Adjusted Funds From Operations June 30, 2005 (Unaudited and amounts in thousands, except for per share data) Three months ended Six months ended June 30, June 30, -------------------- ------------------ 2005 2004 2005 2004 --------- --------- --------- --------- Net income available to common shareholders $ 15,770 $ 15,309 $ 55,588 $ 20,356 Minority interest of common unitholders in Operating Partnership: Continuing operations (100) 399 1,115 674 Discontinued operations 2,126 1,795 6,312 2,263 --------- --------- --------- --------- Total 2,026 2,194 7,427 2,937 --------- --------- --------- --------- Real estate asset depreciation and amortization: Wholly-owned real estate assets - continuing operations 12,905 11,412 25,161 23,165 Wholly-owned real estate assets - discontinued operations 67 2,268 370 4,739 Joint venture real estate assets 1,271 495 2,525 886 --------- --------- --------- --------- Total 14,243 14,175 28,056 28,790 --------- --------- --------- --------- Gain on sale of operating real estate assets: Wholly-owned real estate assets - discontinued operations (18,714) (14,198) (53,411) (16,580) Joint venture real estate assets - - - (432) --------- --------- --------- --------- Total (18,714) (14,198) (53,411) (17,012) --------- --------- --------- --------- FFO available to common shareholders - diluted (a) $ 13,325 $ 17,480 $ 37,660 $ 35,071 --------- --------- --------- --------- Debt extinguishment costs associated with the sale of real estate assets - 986 156 986 --------- --------- --------- --------- FFO available to common shareholders, after a supplemental adjustment to exclude debt extinguishment costs associated with the sale of real estate assets - diluted (b) $ 13,325 $ 18,466 $ 37,816 $ 36,057 --------- --------- --------- --------- Recurring value retention capital expenditures: Carpet and flooring (1,179) (1,261) (2,174) (2,306) Appliances (135) (173) (251) (339) Other additions and improvements (742) (1,193) (1,436) (2,066) --------- --------- --------- --------- Total (2,056) (2,627) (3,861) (4,711) --------- --------- --------- --------- Economic gain on sale of operating real estate assets: Gain on sale of operating real estate assets 18,714 14,198 53,411 17,012 Less: accumulated depreciation (907) (6,866) (44,957) (11,912) Less: debt extinguishment costs associated with the sale of real estate assets - (986) (156) (986) --------- --------- --------- --------- Economic gain on sale of operating real estate assets 17,807 6,346 8,298 4,114 --------- --------- --------- --------- AFFO available to common shareholders - diluted (c) $ 29,076 $ 22,185 $ 42,253 $ 35,460 --------- --------- --------- --------- Average common shares outstanding - basic (d) 29,283 29,258 29,351 29,119 Incremental shares from assumed conversions of: Common units 3,724 4,203 3,840 4,250 Stock options 100 73 91 104 Other 21 14 20 14 --------- --------- --------- --------- Average common shares outstanding - diluted (e) 33,128 33,548 33,302 33,487 --------- --------- --------- --------- Ownership of Operating Partnership's average common units outstanding: Gables Residential (f) 88.72% 87.44% 88.43% 87.26% Minority interest 11.28% 12.56% 11.57% 12.74% --------- --------- --------- --------- Total 100.00% 100.00% 100.00% 100.00% --------- --------- --------- --------- Per common share data - basic: FFO available to common shareholders ((a)*(f))/(d) $ 0.40 $ 0.52 $ 1.13 $ 1.05 FFO available to common shareholders, after a supplemental adjustment to exclude debt extinguishment costs associated with the sale of real estate assets ((b)*(f))/(d) $ 0.40 $ 0.55 $ 1.14 $ 1.08 AFFO available to common shareholders ((c)*(f))/(d) $ 0.88 $ 0.66 $ 1.27 $ 1.06 Per common share data - diluted: FFO available to common shareholders (a)/(e) $ 0.40 $ 0.52 $ 1.13 $ 1.05 FFO available to common shareholders, after a supplemental adjustment to exclude debt extinguishment costs associated with the sale of real estate assets (b)/(e) $ 0.40 $ 0.55 $ 1.14 $ 1.08 AFFO available to common shareholders (c)/(e) $ 0.88 $ 0.66 $ 1.27 $ 1.06 *T -0- *T GABLES RESIDENTIAL Net Income, FFO, AFFO and Dividends - Five Year History June 30, 2005 (Unaudited and amounts in thousands, except for per share data) Years ended December 31, ----------------------------- 2000 2001 2002 --------- --------- --------- Net income available to common shareholders $ 57,579 $ 55,074 $ 45,661 Add: Minority interest of common unitholders in Operating Partnership 16,359 14,249 11,077 Add: Real estate asset depreciation and amortization 45,289 49,313 49,400 Less: Gain on sale of operating real estate assets (28,622) (34,110) (30,346) --------- --------- --------- FFO available to common shareholders - diluted 90,605 84,526 75,792 Add: Debt extinguishment costs associated with the sale of real estate assets - - - --------- --------- --------- FFO available to common shareholders, after a supplemental adjustment to exclude debt extinguishment costs associated with the sale of real estate assets - diluted 90,605 84,526 75,792 Less: Recurring value retention capital expenditures (10,910) (11,797) (13,077) Add: Economic gain on sale of operating real estate assets: Gain on sale of operating real estate assets per GAAP 28,622 34,110 30,346 Less: accumulated depreciation (19,232) (13,114) (13,393) Less: debt extinguishment costs associated with the sale of real estate assets - - - --------- --------- --------- Economic gain on sale of operating real estate assets 9,390 20,996 16,953 --------- --------- --------- AFFO available to common shareholders - diluted $ 89,085 $ 93,725 $ 79,668 --------- --------- --------- Average common shares outstanding - diluted 30,439 30,314 30,684 Per common share data - diluted: Net income available to common shareholders $ 2.43 $ 2.29 $ 1.85 FFO available to common shareholders $ 2.98 $ 2.79 $ 2.47 FFO available to common shareholders, after a supplemental adjustment to exclude debt extinguishment costs associated with the sale of real estate assets $ 2.98 $ 2.79 $ 2.47 Recurring value retention capital expenditures $ (0.36) $ (0.39) $ (0.43) Economic gain on sale of operating real estate assets $ 0.31 $ 0.69 $ 0.55 --------- --------- --------- AFFO available to common shareholders $ 2.93 $ 3.09 $ 2.60 --------- --------- --------- Dividends $ 2.20 $ 2.34 $ 2.41 --------- --------- --------- AFFO available to common shareholders less dividends $ 0.73 $ 0.75 $ 0.19 --------- --------- --------- Six months Years ended ended December 31, June 30, ------------------- --------- 2003 2004 2005 --------- --------- --------- Net income available to common shareholders $ 49,062 $ 82,892 $ 55,588 Add: Minority interest of common unitholders in Operating Partnership 9,690 11,901 7,427 Add: Real estate asset depreciation and amortization 53,989 57,991 28,056 Less: Gain on sale of operating real estate assets (37,693) (73,341) (53,411) --------- --------- --------- FFO available to common shareholders - diluted 75,048 79,443 37,660 Add: Debt extinguishment costs associated with the sale of real estate assets - 1,623 156 --------- --------- --------- FFO available to common shareholders, after a supplemental adjustment to exclude debt extinguishment costs associated with the sale of real estate assets - diluted 75,048 81,066 37,816 Less: Recurring value retention capital expenditures (10,498) (9,775) (3,861) Add: Economic gain on sale of operating real estate assets: Gain on sale of operating real estate assets per GAAP 37,693 73,341 53,411 Less: accumulated depreciation (20,725) (49,981) (44,957) Less: debt extinguishment costs associated with the sale of real estate assets - (1,623) (156) --------- --------- --------- Economic gain on sale of operating real estate assets 16,968 21,737 8,298 --------- --------- --------- AFFO available to common shareholders - diluted $ 81,518 $ 93,028 $ 42,253 --------- --------- --------- Average common shares outstanding - diluted 31,452 33,559 33,302 Per common share data - diluted: Net income available to common shareholders $ 1.87 $ 2.82 $ 1.89 FFO available to common shareholders $ 2.39 $ 2.37 $ 1.13 FFO available to common shareholders, after a supplemental adjustment to exclude debt extinguishment costs associated with the sale of real estate assets $ 2.39 $ 2.42 $ 1.14 Recurring value retention capital expenditures $ (0.33) $ (0.29) $ (0.12) Economic gain on sale of operating real estate assets $ 0.54 $ 0.65 $ 0.25 --------- --------- --------- AFFO available to common shareholders $ 2.59 $ 2.77 $ 1.27 --------- --------- --------- Dividends $ 2.41 $ 2.41 $ 1.21 --------- --------- --------- AFFO available to common shareholders less dividends $ 0.18 $ 0.36 $ 0.06 --------- --------- --------- *T -0- *T GABLES RESIDENTIAL Results of Property Operations - Year-over-Year Comparisons - Second Quarter June 30, 2005 (Unaudited and amounts in thousands, except for property data) The combined operating performance for all of the Company's wholly-owned communities that are included in continuing operations for the three months ended June 30, 2005 ("2Q 2005") and June 30, 2004 ("2Q 2004") is as follows: Number of 2Q 2005 Apt. Homes 2Q 2005 2Q 2004 $ Change % Change ------- -------- -------- -------- -------- Rental and other property revenues: Same-store communities (1) 13,454 $41,182 $40,020 $ 1,162 2.9% (A) Triple net master lease communities 728 1,864 1,862 2 0.1% Communities stabilized in 2Q 2005, but not in 2Q 2004 1,337 4,721 1,702 3,019 177.4% Communities not stabilized in 2Q 2005 (2) 3,335 8,508 3,170 5,338 168.4% Sold communities (3) - - 2,455 (2,455) -100.0% ------- -------- -------- -------- -------- Total property revenues 18,854 $56,275 $49,209 $ 7,066 14.4% ------- -------- -------- -------- -------- Property operating and maintenance expenses (4): Same-store communities (1) $15,877 $15,140 $ 737 4.9% (A) Triple net master lease communities 218 216 2 0.9% Communities stabilized in 2Q 2005, but not in 2Q 2004 2,054 626 1,428 228.1% Communities not stabilized in 2Q 2005 (2) 3,297 951 2,346 246.7% Sold communities (3) - 964 (964) -100.0% -------- -------- -------- -------- Total property operating and maintenance expenses $21,446 $17,897 $ 3,549 19.8% -------- -------- -------- -------- Property net operating income (NOI) (5): Same-store communities (1) $25,305 $24,880 $ 425 1.7% (A) Triple net master lease communities 1,646 1,646 - 0.0% Communities stabilized in 2Q 2005, but not in 2Q 2004 2,667 1,076 1,591 147.9% Communities not stabilized in 2Q 2005 (2) 5,211 2,219 2,992 134.8% Sold communities (3) - 1,491 (1,491) -100.0% -------- -------- -------- -------- Total property net operating income (NOI) $34,829 $31,312 $ 3,517 11.2% -------- -------- -------- -------- Total property NOI as a percentage of total property revenues 61.9% 63.6% - -1.7% -------- -------- -------- -------- (1) Communities that were owned and fully stabilized throughout both 2Q 2005 and 2Q 2004 ("same-store"). (2) Communities that were under development/lease-up, in renovation or not fully operational, acquired, or had not reached a stabilized operating expense level subsequent to April 1, 2005, as applicable. Includes the results of Belmar, Carlisle on the Creek, Gables Camino Real, Gables Floresta, Gables Grandview, Gables Katy Trail, Gables Lenox Hills, Gables Rock Springs I, II and III, Gables Town Place, Gables Uptown Tower, Lindview, Memorial Hills, Northmoor and Saltillo. (3) Communities that were sold subsequent to April 1, 2004. Includes the results of Gables Palma Vista, Gables Wellington and Gables Woodley Park which are now owned by the Company's NYSTRS joint ventures that were formed during 2004. (4) Represents direct property operating and maintenance expenses as reflected in the Company's consolidated statements of operations and excludes certain expenses included in the determination of net income such as property management and other indirect operating expenses, interest expense and depreciation and amortization expense. (5) Calculated as total property revenues less property operating and maintenance expenses as reflected above. (A) Additional information for the 53 same-store communities by market is as follows: Number of % of Physical Economic Apartment 2Q 2005 Occupancy Occupancy Market Homes NOI in 2Q 2005 in 2Q 2005 -------------------- ------------ ------------ ------------ ---------- Houston 3,857 23.4% 95.1% 93.8% South Florida 2,398 22.8% 95.9% 94.8% Atlanta 3,322 21.2% 93.6% 91.7% Dallas 1,879 16.0% 95.5% 94.1% Austin 1,916 14.7% 91.3% 90.3% Washington, D.C. 82 1.9% 97.0% 96.8% ------------ ------------ ------------ ---------- Totals 13,454 100.0% 94.5% 93.1% ------------ ------------ ------------ ---------- % Change from 2Q 2004 to 2Q 2005 in ------------------------------------------------- Economic Market Occupancy Revenues Expenses NOI -------------------- ------------ ------------ ------------ ---------- Houston 3.2% 1.5% 5.6% -1.2% South Florida 2.1% 5.2% 5.3% 5.2% Atlanta 2.8% 2.4% 0.8% 3.5% Dallas 2.2% 2.1% 7.6% -1.1% Austin 2.5% 3.5% 5.6% 2.1% Washington, D.C. 0.5% 3.0% 15.9% -1.7% ------------ ------------ ------------ ---------- Totals 2.6% 2.9% 4.9% 1.7% ------------ ------------ ------------ ---------- *T -0- *T GABLES RESIDENTIAL Results of Property Operations - Sequential-Quarter Comparisons June 30, 2005 (Unaudited and amounts in thousands, except for property data) The combined operating performance for all of the Company's wholly-owned communities that are included in continuing operations for the three months ended June 30, 2005 ("2Q 2005") and March 31, 2005 ("1Q 2005") is as follows: Number of 2Q 2005 Apt. Homes 2Q 2005 1Q 2005 $ Change % Change ------- -------- -------- -------- -------- Rental and other property revenues: (6) Same-store communities (1) 14,791 $45,903 $45,498 $ 405 0.9% (A) Triple net master lease communities 728 1,864 1,864 - 0.0% Communities stabilized in 2Q 2005, but not in 1Q 2005 - - - - - Communities not stabilized in 2Q 2005 (2) 3,335 8,508 5,306 3,202 60.3% Sold communities (3) - - - - - ------- -------- -------- -------- -------- Total property revenues 18,854 $56,275 $52,668 $ 3,607 6.8% ------- -------- -------- -------- -------- Property operating and maintenance expenses (4): Same-store communities (1) $17,931 $17,566 $ 365 2.1% (A) Triple net master lease communities 218 218 - 0.0% Communities stabilized in 2Q 2005, but not in 1Q 2005 - - - - Communities not stabilized in 2Q 2005 (2) 3,297 2,071 1,226 59.2% Sold communities (3) - - - - -------- -------- -------- -------- Total property operating and maintenance expenses $21,446 $19,855 $ 1,591 8.0% -------- -------- -------- -------- Property net operating income (NOI) (5): Same-store communities (1) $27,972 $27,932 $ 40 0.1% (A) Triple net master lease communities 1,646 1,646 - 0.0% Communities stabilized in 2Q 2005, but not in 1Q 2005 - - - - Communities not stabilized in 2Q 2005 (2) 5,211 3,235 1,976 61.1% Sold communities (3) - - - - -------- -------- -------- -------- Total property net operating income (NOI) $34,829 $32,813 $ 2,016 6.1% -------- -------- -------- -------- Total property NOI as a percentage of total property revenues 61.9% 62.3% - -0.4% -------- -------- -------- -------- (1) Communities that were owned and fully stabilized throughout both 2Q 2005 and 1Q 2005 ("same-store"). (2) Communities that were under development/lease-up, in renovation or not fully operational, acquired, or had not reached a stabilized operating expense level subsequent to April 1, 2005, as applicable. Includes the results of Belmar, Carlisle on the Creek, Gables Camino Real, Gables Floresta, Gables Grandview, Gables Katy Trail, Gables Lenox Hills, Gables Rock Springs I, II and III, Gables Town Place, Gables Uptown Tower, Lindview, Memorial Hills, Northmoor and Saltillo. (3) Communities that were sold subsequent to January 1, 2005. (4) See (4) on page 16. (5) Calculated as total property revenues less property operating and maintenance expenses as reflected above. (6) The results reported for 1Q 2005 in the earnings release dated May 3, 2005 have been restated to reflect the results of Gables Beach Park as discontinued operations pursuant to SFAS No. 144. Gables Beach Park was sold in 2Q 2005 and contributed $757 in total property revenues, $248 in property operating and maintenance expenses and $509 in property NOI to the 1Q 2005 results. (A) Additional information for the 60 same-store communities by market is as follows: Number of % of Physical Economic Apartment 2Q 2005 Occupancy Occupancy Market Homes NOI in 2Q 2005 in 2Q 2005 -------------------- ------------ ------------ ------------ ---------- Houston 4,169 23.0% 94.7% 91.8% Atlanta 3,918 22.9% 93.8% 90.2% South Florida 2,398 20.6% 95.9% 94.8% Dallas 2,308 18.5% 94.4% 93.0% Austin 1,916 13.3% 91.3% 90.3% Washington, D.C. 82 1.7% 97.0% 96.8% ------------ ------------ ------------ ---------- Totals 14,791 100.0% 94.2% 92.1% ------------ ------------ ------------ ---------- % Change from 1Q 2005 to 2Q 2005 in ------------------------------------------------- Economic Market Occupancy Revenues Expenses NOI -------------------- ------------ ------------ ------------ ---------- Houston 0.4% 1.1% -2.1% 3.4% Atlanta -0.5% -0.5% 3.8% -3.2% South Florida -0.7% 0.7% 4.5% -1.2% Dallas 2.2% 3.4% -0.4% 6.1% Austin -3.8% -0.4% 7.7% -5.1% Washington, D.C. 1.1% 3.2% 4.6% 2.4% ------------ ------------ ------------ ---------- Totals -0.2% 0.9% 2.1% 0.1% ------------ ------------ ------------ ---------- *T