ITEM 2. Properties.
For information regarding the Company's properties, see Item 1 - "Business."
ITEM 3.

ITEM 3. Legal Proceedings.
As of December 31, 1995, there are no material pending legal proceedings to which the Company or its property is subject.
ITEM 4.

ITEM 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of security holders during the fourth quarter of 1995.
PART II
ITEM 5.

ITEM 5. Market for Registrant's Common Equity and Related Stockholder Matters.
The Company's common stock is listed and traded on the New York Stock Exchange ("NYSE") and on the Pacific Stock Exchange ("PSE") under the symbol "SWP."
The following table sets forth the high and low prices per common share on the NYSE, for the two-year period ended December 31, 1995:
At February 15, 1996, management estimated that there were approximately 609 holders of record of the Company's common stock. The closing price of the common stock on February 15, 1996 was $14.50.
Because the Company's securities are listed on a national stock exchange, they are marginable if they otherwise meet the minimum price requirements for marginability.
The Company paid a dividend of $.22 per share for first quarter of 1994; $.23 per share for each of the second, third and fourth quarters of 1994; and $.25 per share for each of the four quarters of 1995. The Company has raised its quarterly dividend to $.26 per share for the quarter ending March 31, 1996.
ITEM 6.

ITEM 6. Selected Financial Data.
The following table sets forth selected financial data with respect to the Company and its subsidiaries for each of the five years in the period ended December 31, 1995 and should be read in conjunction with the Consolidated Financial Statements and Notes thereto which are contained elsewhere in this report (in thousands, except per share data):
NOTES TO SELECTED FINANCIAL DATA:
(1) Earnings per share is based on the net income or loss attributable to the common stock and the weighted average number of shares of common stock and dilutive common stock equivalents outstanding during the periods presented. Earnings per share for the year ended December 31, 1995 was based on 18,627,322 weighted average shares of common stock outstanding during the period (15,633,291 in 1994, 8,099,900 in 1993, 961,870 in 1992, and 708,391 in 1991).
The 1995, 1994 and 1993 per share computations include options and warrants outstanding during the period to purchase common stock, as calculated by application of the "treasury stock" method. Under generally accepted accounting principles, the Company's debentures were not common stock equivalents and therefore were not considered in the primary earnings per share computations; the debentures were antidilutive to the computation of fully-diluted earnings per share.
For periods prior to 1993, SRL's preferred depositary receipts were not common stock equivalents, and were not considered in primary earnings per share computation; SRL's warrants, options, and specified acquisition convertible limited partnership interests were antidilutive to the computation of fully-diluted earnings per share.
(2) The Company paid a dividend of $.175 per share for the fourth quarter of 1992; $.20 per share for each of the first, second and third quarters of 1993; $.22 per share for each of the fourth quarter of 1993 and the first quarter of 1994; $.23 per share for each of the second, third and fourth quarters of 1994; and $.25 per share for each of the four quarters of 1995. The Company has raised its quarterly dividend to $.26 per share for the quarter ending March 31, 1996.
(3) The Reorganization of SRL into the Company has been accounted for similar to a pooling of interests and has been applied by restating the financial statements of SRL, with the only impact being the classification of certain equity accounts and disclosures with respect to earnings per share.
ITEM 7.

ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis should be read in conjunction with the Selected Financial Data and the Consolidated Financial Statements and Notes appearing elsewhere herein.
Results of Operations
Year ended December 31, 1995 compared to year ended December 31, 1994. Rental revenues in 1995 were $70,396,000, an increase of 22% from $57,625,000 for 1994. This increase was due to the acquisition of eight apartment properties in 1994, an approximate 4% rental rate increase on existing properties and the first contribution from the Company's development properties. Other income was $1,466,000 in 1995, compared to $1,303,000 for 1994. Total revenues were $71,862,000 in 1995, compared to $58,928,000 for 1994.
Operating expenses (property operating expenses plus general and administrative expenses) were $35,038,000 for 1995, compared to $30,083,000 for the same period in 1994. This increase was primarily attributable to the acquisition of eight apartment properties in 1994 and initial operating expenses from three of the Company's development properties.
Net operating income per unit (total revenues less operating expenses, divided by the weighted average number of apartment unit owned during the period) increased in 1995 for the seventh consecutive year. Net operating income per unit in 1995 was $2,826, a 4% increase from $2,713 in 1994. This increase is the result of increases in both gross income and operating expenses per unit of 4%.
Interest on debt was $10,878,000 for 1995, compared to $8,470,000 for 1994. This increase is primarily attributable to interest on the construction loans and the line of credit.
Additions to property in 1995 were $6,441,000 compared to $7,764,000 in 1994. Depreciation and amortization expense increased $2,461,000 in 1995 compared to 1994 as a result of a full year of depreciation on the properties acquired in 1994, depreciation on completed construction and depreciation on capitalized improvements made to the properties.
Year Ended December 31, 1994 Compared to Year Ended December 31, 1993. Rental revenues in 1994 were $57,625,000, an 80% increase from $31,959,000 in 1993. This increase was due primarily to the acquisition of 26 apartment properties in 1993 and 1994, and to an approximate 2% increase in economic occupancy and a 5% increase in rental rates. Other income was $1,303,000 in 1994, compared to $1,131,000 for 1993. Total revenues were $58,928,000 in 1994, compared to $33,090,000 for 1993.
Operating expenses (property operating expenses plus general and administrative expenses) were $30,083,000 for 1994, compared to $17,868,000 for the same period in 1993. This increase was attributable to the acquisition of 26 apartment properties during 1993 and 1994.
Net operating income per unit (total revenues less operating expenses, divided by the weighted average number of apartment units owned during the period) in 1994 was $2,713, a 25% increase from $2,176 in 1993. This increase is due to an increase in gross income per unit of 10% and a decrease in operating expenses per unit of 2% (which is the result of a combination of expense control at the property level and general and administrative expenses being spread over a larger number of units).
Interest on fixed-rate mortgage debt and the debentures was $8,470,000 for 1994, compared to $5,146,000 for 1993. This increase is primarily attributable to the REMIC financing which closed in December 1993 and June 1994.
Additions to property in 1994 were $7,764,000 compared to $3,615,000 in 1993. Depreciation and amortization expense increased $3,694,000 in 1994 compared to 1993 as a result of the acquisition of properties and capitalized improvements made to the properties. About 71% of the 1994 additions to property was for improvements to building exteriors, parking lots, unit interiors, exterior lighting, carports and limited access perimeter fencing.
Liquidity and Capital Resources
Cash and cash equivalents at December 31, 1995 aggregated $2,406,000, compared to $1,334,000 at December 31, 1994. In addition, the Company has accumulated cash reserves of $4,643,000 to fund recurring additions to its properties. The estimate of the requirements for these reserves is based on the replacement cost and useful lives of exterior paint, boilers, roofs, asphalt and miscellaneous items. Annual cash reserve requirements in 1996 are estimated to be $105 per unit. Management anticipates that cash generated from property operations and cash on hand will be adequate to fund working capital requirements for the foreseeable future.
In September 1994, the Company obtained a revolving line of credit in the maximum amount of $75,000,000. The Company can currently draw up to a total of $41,800,000 on the line of credit, which amount may be increased as additional properties are added as security for the loan. At December 31, 1995, the outstanding balance on the line of credit was $16,500,000.
At December 31, 1995, the Company had an interest rate swap agreement with a notional amount of $48,851,000. The Company has entered into the interest rate swap agreement to convert floating rate liabilities to fixed rate liabilities. The agreement fixes the interest rate on the Company's expected variable rate debt at 7.9% through April 1997. The Company does not hold or issue interest rate swap agreements for trading purposes. The Company is exposed to possible credit risk if the counterparty fails to perform, however, this risk is minimized by entering into the agreement with a highly rated counterparty. At December 31, 1995, there were no defaults under this agreement.
The Company plans to complete construction of four properties and additions or modifications to three existing properties in 1996 and 1997. The total cost of the four properties and one addition currently under construction is estimated to be $109,500,000, and the Company has construction loans available totaling $68,506,000. The Company has committed to fund the remaining $40,994,000 from available funds or draws on the Company's line of credit. As of December 1995, the Company has funded all but $3,814,000 of its commitment.
SWP plans to spend approximately $4,000,000 in 1996 on capital improvements to increase the revenue-generating capabilities of its existing properties. Funds for these improvements will come from cash on hand or cash generated from property operations.
SWP plans to repay the $8,873,000 mortgage on Sunset Pointe Apartments on March 1, 1996, with funds from its line of credit.
ITEM 8.

ITEM 8. Financial Statements and Supplementary Data.
The independent auditor's report, consolidated financial statements and schedule listed in the accompanying index are filed as part of this report. See Index to Consolidated Financial Statements and Consolidated Financial Statement Schedule on page.
ITEM 9.

ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
Not applicable.
PART III
ITEM 10.

ITEM 10. Directors and Executive Officers of the Registrant.
Directors and Officers of the Company
The Bylaws of the Company and the provisions of the Maryland General Corporation Law (the "Maryland Law"), under which the Company was formed, generally provide that the Company will be managed by its Board of Directors, which may appoint officers to handle the administration of the Company. The Bylaws of the Company further provide that a majority of the Company's Board of Directors shall at all times consist of independent Directors.
The Directors and Officers of the Company as of February 15, 1996 are:
Name Age Principal Occupation
John S. Schneider.................. 57 Chairman of the Board and Chief Executive Officer Robert F. Sherman.................. 53 President, Chief Operating Officer and Director Lewis H. Sandler................... 59 Executive Vice President,Secretary, General Counsel and Director Mark J. Sandler.................... 53 Director Ira T. Wender...................... 69 Director Larrie A. Weil..................... 52 Director Robert W. Scharar.................. 46 Director David L. Johnston.................. 51 Executive Vice President - Real Estate Investments Diana M. Laing..................... 41 Executive Vice President, Chief Financial Officer and Treasurer
John S. Schneider has been Chief Executive Officer of the Company and its predecessor-in-interest, SRL, since 1983 and is the Chairman of the Board of Directors. He is primarily responsible for the overall direction of the Company. Mr. Schneider graduated from the Harvard Business School in 1967 and was employed by the investment banking firm of Donaldson, Lufkin and Jenrette until 1973, when he cofounded a predecessor firm to SWP.
Robert F. Sherman has been in charge of SWP's (or its predecessors') management division since 1973 and is President and Chief Operating Officer and a Director of the Company, in charge of management services and responsible for the on-site management of the properties owned or managed by the Company. Mr. Sherman has served as president of both the National Apartment Association and the Dallas Apartment Association, and has been a director of the National, Texas and Dallas Apartment Associations.
Lewis H. Sandler has been General Counsel of the Company and its predecessors since 1983 and is Executive Vice President, Secretary, General Counsel and a Director of the Company. He was admitted to the Bar of the State of New York in 1962 and has since then been a practicing attorney. He was admitted to the Bar of the State of Texas in 1981. He has acted as counsel to Messrs. Schneider and Sherman, and their respective companies and partnerships, since 1973.
Mark J. Sandler was a senior managing director of Bear, Stearns & Co. Inc., an investment banking firm, in charge of its real estate operations from prior to 1987 until his retirement in October 1988. Since that time, Mr. Sandler has managed his personal and family investments. Mr. Sandler is a Director of the Company and a member of the Compensation and Audit Committees. Mark Sandler is not related to Lewis Sandler.
Ira T. Wender is a former partner and is currently of counsel to the law firm of Patterson, Belknap, Webb & Tyler, New York, NY, since July 1986. He is also a Director of Dime Savings Bank of New York and REFAC Technology, Inc. Mr. Wender is a Director of the Company and a member of the Compensation and Audit Committees.
Larrie A. Weil has been President and Chief Executive Officer of QuickCall Corporation, an international producer and distributor of wireless pay phones, since June 1995. On January 4, 1996, QuickCall Corporation filed a voluntary petition under Chapter 11, of the Federal Bankruptcy Code. From March 1991 to June 1995, he was a principal and in charge of corporate finance for Barre & Company, Inc., an investment banking firm. From 1985 to 1989, he was employed by Underwood, Neuhaus & Co., Incorporated, an investment banking firm, serving as Chief Operating Officer from 1987 to 1989 and from January 1990 to March 1992 as President of its successor, 909 Corp. He was Senior Vice President of Eppler, Guerin & Turner, Inc., an investment banking firm, from 1981 to 1985. Mr. Weil is a Chartered Financial Analyst. Mr. Weil is a Director of the Company and a member of the Compensation and Audit Committees.
Robert W. Scharar is President and a Director of FCA Corporation, a registered investment advisor which he founded in 1983. He is also president and a director of FCA Investment Company, a Small Business Investment Company, and serves as a trustee of First Commonwealth Mortgage Trust and of United Investors Realty Trust, both of which are REITs. Mr. Scharar is also past president of the American Association of Attorneys - CPAs. Mr. Scharar is a Director of the Company and a member of the Compensation and Audit Committees.
David L. Johnston has been Executive Vice President - Real Estate Investments since joining the Company in October 1992. From 1989 to 1992, Mr. Johnston was Senior Vice President of Property Company of America, responsible for the Southwestern Region, acquiring approximately 5,000 apartment units for that company. From 1982 to 1988, he was a Division President and Senior Partner of the Trammell Crow Residential Company. During his more than 20 years of real estate experience, Mr. Johnston has developed more than 10,000 apartment units, primarily in Texas.
Diana M. Laing has been employed by the Company and its predecessors since 1982. She is Executive Vice President and Chief Financial Officer of the Company. She has previously served as Controller, Treasurer and Vice President-Finance of the Company and its predecessors. Ms. Laing is a Certified Public Accountant and a member of the American Institute of CPA's and the Texas Society of CPA's. Ms. Laing is a Director of Sterling House Corporation, a publicly-traded operator of assisted living centers.
ITEM 11.

ITEM 11. Executive Compensation.
General
.........The following table sets forth certain information regarding the annual compensation the Company paid to the Chief Executive Officer and to the four executive officers each of whose aggregate remuneration exceeded $100,000 during 1995:
Indemnification. The Charter and Bylaws of the Company provide for indemnification of the officers and Directors of the Company to the fullest extent permitted under Maryland Law and permit the indemnification, at the discretion of the Board of Directors, of all other persons permitted to be indemnified to the extent the Board deems advisable as permitted under such law. The Charter also contains a provision that limits the liability of the Directors to the Company and its stockholders for monetary damages for a breach of a Director's duty of care.
Employment Agreements. The Company has entered into employment agreements with each of Messrs. Schneider, Sherman, Sandler and Johnston and Ms. Laing for the payment of certain severance compensation in the event of the voluntary or involuntary termination of their employment. These agreements, which may be terminated by either party upon 90 days' notice, also provide for annual incentive compensation calculated as a percentage of base salary, based upon the increase in funds from operations per share of common stock for the current year over the prior year. Such agreements also provide that in the event of termination of employment by the Company (other than for cause or in the event of death) the executive is entitled to severance pay equal to at least his then current annual base salary plus the unpaid portion of any incentive/bonus compensation payable and/or earned in that year. In the event of termination, at the option of the executive, the Company is obligated to repurchase the common stock owned by him at the then market price per share. If the executive proposes to sell 10% or more of his current holdings of common stock, such shares are subject to the Company's right of first refusal at the then market price during the term of employment and for a period of one year thereafter.
ITEM 12.

ITEM 12. Security Ownership of Certain Beneficial Owners and Management.
As of February 15, 1996, there were 20,413,649 shares of common stock outstanding. In addition, there were vested options to purchase 420,200 shares of common stock at exercise prices ranging from $11.00 to $13.00 per share. The following ownership tables do not include ownership of shares which are represented by unvested options to purchase common stock.
The following table sets forth certain information as to the number of shares of common stock beneficially owned as of February 15, 1996 by each person (including any "group" as that term is used in Section 13(d)(3) of the Exchange Act) who is known to the Company to own beneficially 5% or more of the common stock:
The following table sets forth certain information as to the number of shares of common stock beneficially owned as of February 15, 1996, by each Director and nominee for Director, by each of the named Executive Officers, and by all officers and Directors of the Company as a group:
ITEM 13.

ITEM 13. Certain Relationships and Related Transactions.
Except as hereafter noted, there have been no transactions, or series of similar transactions, since the beginning of the Company's last fiscal year, nor are there any currently proposed transactions, or series of similar transactions, to which the Company or any of its subsidiaries was or is to be a party, in which the amount involved exceeds $60,000, and in which any director or officer of the Company (or any investor beneficially owning more than 5% of any class of the Company's voting securities) had, or will have, a direct or indirect material interest.
During 1995, the Company accepted notes receivable totaling $1,945,000 from certain officers and directors to exercise options to purchase common stock. The notes receivable, which mature on December 31, 2002, are in amounts up to 80% of the option exercise price and bear interest at the Applicable Federal Rate (as published by the Internal Revenue Service) at the date of exercise. Principal in the amount of 50% of the exercise price will be forgiven ratably over seven years beginning January 1, 1997, contingent upon continued service as an officer or director and the absence of any default on the notes. The balance of such loans will be payable ratably over the same period. The loans are secured by the common stock purchased. Options to purchase 275,000 shares of common stock were exercised, and 85,967 previously issued shares of common stock were applied (at the market price of such shares at the date of such application) to the exercise price of the options and were retired.
PART IV
ITEM 14.

ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) The index to the audited Consolidated Financial Statements and Consolidated Financial Statement Schedule is included on page of this report.
(b) Reports on Form 8-K for the quarter ended December 31, 1995:
None
(c) Exhibits:
Filed herewith or incorporated herein by Number Title reference
3.1 Articles of Incorporation of the Exhibit No. 99.1 to Form 10-Q for Company, as amended the quarter ended June 30, 1994 (File No. 1-11224)
3.2 Bylaws of the Company Exhibit No. 3.2 to Amendment No. 2 to Form S-4 filed July 8, 1992 (File No. 33-48122)
3.3 Rights Agreement dated August 17, 1994 Exhibit No. 1 to Form 8-K filed between South West Property Trust Inc. August 17, 1994 and Society National Bank, as Rights (File No. 1-11224) Agent
4.1 Form of Indenture governing the Exhibit No. 4.1 to Amendment No. 2 Convertible Debentures to Form S-11 filed July 8, 1992 (File No. 33-48121)
4.2 Form of Convertible Debenture Exhibit No. 4.2 to Amendment No. 2 to Form S-11 filed July 8, 1992 (File No. 33-48121)
4.3 Form of Certificate representing Exhibit No. 4.1 to Form S-2 filed common stock of the Company March 15, 1993 (File No. 33-59528)
10.1 Employment Agreement between the Company Exhibit No. 10.1 to Form 10-K for and John S. Schneider the year ended December 31, 1994 (File No. 1-11224)
10.2 Employment Agreement between the Company Exhibit No. 10.2 to Form 10-K for and Lewis H. Sandler the year ended December 31, 1994 (File No. 1-11224)
10.3 Employment Agreement between the Exhibit No. 10.3 to Form 10-K for Company and Robert F. Sherman the year ended December 31, 1994 (File No. 1-11224)
10.4 1992 Stock Option Plan (as amended) Exhibit No. 10.5 to Amendment No. 3 to Form S-4 filed July 22, (File No. 33-48122)
Filed herewith or incorporated herein by Number Title reference
10.5 Lease Agreement dated March 14, 1994 Exhibit No. 10.4 to Form 10-K for between Sterling Plaza Limited the year ended December 31, 1994 Partnership, as landlord, and the (File No. 1-11224) Company, as Tenant
10.7 Dividend and Interest Reinvestment and Exhibit No. 10.1 to Post-Effective Share Purchase Plan Amendment No. 2 to Form S-3 filed February 10, 1995 (File No. 33-59526)
10.8 Credit Agreement dated December 1, Exhibit No. 99.1 to Form 8-K dated 1993 among SWP Properties, Inc., SWP December 23, 1993 Woodscape Properties, Inc., and SWP (File No. 1-11224) Creeks Properties, Inc. and National Westminster Bank, PLC
10.9 Collection Account Agreement dated Exhibit No.99.2 to Form 8-K dated December 1, 1993 among SWP Properties, December 23, 1993 Inc., SWP Woodscape Properties, Inc. (File No. 1-11224) and SWP Creeks Properties, Inc. (Mortgagor), Norwest Bank Minnesota, N.A. (Account Agent),Southwestern Property Trust, Inc. (PropertyManager), and Norwest Bank Minnesota,N.A. (Trustee)
10.10 Property Management Agreement dated Exhibit No. 99.3 to Form December 1, 1993 for properties covered 8-K dated December 23, 1993 by the Credit Agreement described in Exhibit No. 10.8 hereto between SWP Properties, Inc., SWP (File No. 1-11224) Woodscape Properties, Inc., SWP Creeks Properties, Inc., and Southwestern Property Trust, Inc.
10.11 Property Manager Subordination Agreement Exhibit No. 99.4 to Form 8-K dated December 1, 1993 between National dated December 23, 1993 Westminster Bank, PLC, and Southwestern (File No. 1-11224) Property Trust, Inc.
10.12 Certificate Purchase Agreement dated Exhibit No. 99.5 to Form 8-K December 22, 1993 between SWP dated December 23, 1993 Depositor, Inc, Southwestern Property (File No. 1-11224) Trust, Inc., and National Westminster Bank, PLC
10.13 Loan Purchase Agreement dated December 22, Exhibit No. 99.6 to Form 8-K 1993 between National Westminster Bank, PLC dated December 23, 1993 and SWP Depositor, Inc. (File No. 1-11224)
10.14 Employment Agreement between the Company Exhibit No. 10.14 to Form and David L. Johnston 10-K for the year ended December 31, 1994 (File No. 1-11224)
10.15 Employment Agreement between the Company Exhibit No. 10.15 to Form and Diana M. Laing 10-K for the year ended December 31, 1994 (File No. 1-11224)
10.16 Credit Agreement dated March 1, 1994 Exhibit No. 99.1 to Form 10-Q between SWP REMIC Properties II-A, L.P. for quarter ended March 31, and National Westminster Bank, PLC, 1994 New York Branch (File No. 1-11224)
10.17 Property Management Agreement dated Exhibit No. 99.2 to Form March 10, 1994 between SWP REMIC 10-Q for quarter ended Properties II-A, L.P. and Southwestern March 31, 1994 Property Trust, Inc. (File No. 1-11224)
10.18 Property Manager Subordination Exhibit No. 99.3 to Form 10-Q Agreement datedMarch 10, 1994 between for quarter ended March 31, National WestminsterBank, PLC, and 1994 Southwestern Property Trust, Inc. (File No. 1-11224)
10.19 Note Purchase Agreement dated March Exhibit No. 99.4 to Form 10-Q 10, 1994 between SWP Depositor, Inc., for quarter ended March 31, Southwestern Property Trust, Inc. and 1994 National Westminster Bank, PLC (File No. 1-11224)
10.20 Form of Promissory Note dated March 10, Exhibit No.99.5 to Form 10-Q 1994 in connection with REMIC Financing for quarter ended March 31, (File No. 1-11224)
10.21 Form of Mortgage dated March 10, 1994 Exhibit No. 99.6 to Form 10-Q in connection with REMIC Financing for quarter ended March 31, (File No. 1-11224)
10.22 Indenture dated March 10, 1994 between Exhibit No. 99.1 to Form 10-Q SWP Depositor, Inc. and Bankers Trust for quarter ended June 30, Company, as Trustee 1994 (File No. 1-11224)
10.23 Loan Purchase Agreement dated June 30, Exhibit No. 99.2 to Form 10-Q 1994, between National Westminster Bank, for quarter ended June 30, PLC and SWP Depositor, Inc. 1994 (File No. 1-11224)
10.24 Collection Account Agreement dated Exhibit No. 99.3 to Form 10-Q June 30, 1994 among SWP REMIC Properties for quarter ended June 30, II-A, L.P., BankersTrust Company, as 1994 Account Agent, South West Property Trust, (File No. 1-11224) as Property Manager, and Bankers Trust Company, as Indenture Trustee
10.25 Line of Credit Agreement dated Exhibit No. 99.7 to Form 10-Q September 15, 1994 between South West for quarter ended September Properties, L.P., South West Property 30, 1994 Trust Inc. and Lehman Brothers Holdings (File No. 1-11224) Inc.
10.26 Promissory Note dated September 15, 1994 Exhibit No. 99.8 to Form 10-Q made by South West Properties, L.P. in for quarter ended September 30, favor of Lehman Brothers Holdings Inc. 1994 in the principal amount of $41,000,000 (File No. 1-11224)
10.27 Form of Deed of Trust and Security Exhibit No. 99.9 to Form 10-Q dAgreement ated September 15, 1994 for quarter ended September 30, from South West Properties, L.P. in 1994 favor of Robert J. Banta, as trustee, (File No. 1-11224) and Lehman Brothers Holdings Inc., as beneficiary
22.1 Subsidiaries of the Registrant Filed herewith
23.1 Consent of Ernst & Young LLP Filed herewith
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SOUTH WEST PROPERTY TRUST INC.
By: /s/ JOHN S. SCHNEIDER John S. Schneider, Chairman of the Board and Chief Executive Officer
February 26, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated.
Capacities in Signature which signed Date
/s/ JOHN S. SCHNEIDER Chairman of the Board, February 26, 1996 - ------------------------------- and Chief Executive Officer John S. Schneider
/s/ ROBERT F. SHERMAN President, Chief Operating February 26, 1996 - ------------------------------- Officer and Director Robert F. Sherman
/s/ LEWIS H. SANDLER Executive Vice President, February 26, 1996 - ------------------------------- Secretary, General Counsel Lewis H. Sandler and Director
/s/ DIANA M. LAING Executive Vice President, February 26, 1996 - ------------------------------- Chief Financial Officer and Diana M. Laing Treasurer (Principal Financial and Accounting Officer)
- ---------------------- Director Mark J. Sandler
- ---------------------- Director Ira T. Wender
/s/ LARRIE A. WEIL Director February 26, 1996 - ---------------------- Larrie A. Weil
- ---------------------- Director Robert W. Scharar
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND CONSOLIDATED FINANCIAL STATEMENT SCHEDULE
Report of Independent Auditors............................................. Consolidated Financial Statements: Consolidated Statements of Operations for the years ended December 31, 1995, 1994 and 1993................................ Consolidated Balance Sheets at December 31, 1995 and 1994............ Consolidated Statements of Stockholders' Equity (Deficit) for the years ended December 31, 1995, 1994 and 1993............ Consolidated Statements of Cash Flows for the years ended December 31, 1995, 1994 and 1993................................ Notes to Consolidated Financial Statements........................... Consolidated Financial Statement Schedule: Schedule III - Real Estate and Accumulated Depreciation....................
All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and therefore have been omitted.
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders South West Property Trust Inc.
We have audited the accompanying consolidated balance sheets of South West Property Trust Inc. ("SWP") and subsidiaries as of December 31, 1995 and 1994, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1995. Our audits also included the consolidated financial statement schedule of SWP listed in the Index at. These financial statements and schedule are the responsibility of SWP's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of SWP and subsidiaries at December 31, 1995 and 1994, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
ERNST & YOUNG LLP
Dallas, Texas January 30, 1996
See accompanying notes.
SOUTH WEST PROPERTY TRUST INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) SOUTH WEST PROPERTY TRUST INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization - South West Property Trust Inc., formerly Southwestern Property Trust, Inc. ("SWP" or the "Company"), a Maryland corporation, was formed in 1992 for the purpose of acquiring all of the assets subject to the liabilities of Southwest Realty, Ltd. ("SRL") in connection with the reorganization of SRL into a corporation which would elect to qualify as a real estate investment trust ("REIT") for federal income tax purposes.
Consolidation and presentation - The consolidated financial statements include the accounts of the Company, its wholly owned corporate subsidiaries, and the partnerships in which the Company owns at least a 50% controlling interest. The portion of net income or loss attributable to minority interests in consolidated partnerships is presented as a single line item in the Company's statement of operations. Investments in partnerships in which the Company owns less than a 50% interest are accounted for on the equity method. All significant intercompany accounts and transactions have been eliminated in consolidation. Certain prior year amounts have been reclassified to conform to the current presentation.
Use of estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
Properties - Properties are stated at the Company's cost or the historical cost of SRL. For financial reporting purposes, the properties are depreciated over their estimated useful lives ranging from 5 to 35 years using the straight-line method.
In March 1995, the FASB issued Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, which requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. Statement 121 also addresses the accounting for long-lived assets that are expected to be disposed of. The Company adopted Statement 121 in 1995 and the adoption has no effect.
Income taxes - The Company has elected to be taxed as a REIT and intends to operate in such manner as to continue to qualify as a REIT under the Internal Revenue Code. Under the Internal Revenue Code, if certain requirements are met in a taxable year, a corporation that is treated as a REIT will generally not be subject to federal income tax with respect to income which it distributes to its stockholders. The Company made distributions in excess of its taxable income for 1995, 1994 and 1993. Accordingly, no provision for income taxes has been reflected in the statements of operations.
Earnings and profits, which will determine the taxability of distributions to stockholders, will differ from net income reported for financial reporting purposes, due primarily to differences in the historical cost and tax bases of the assets and the estimated useful lives used to compute depreciation.
Cash and cash equivalents - Cash and cash equivalents consist primarily of cash in demand deposit and money market accounts and short-term commercial paper carried at cost, which approximates fair value. Highly liquid debt instruments purchased with a maturity of three months or less are considered to be cash equivalents.
Cash reserved for additions to property - At December 31, 1995 and 1994, the Company has set aside cash reserves in the amount of $2,230,000 and $1,123,000, respectively, to provide for the payment of planned additions to its wholly-owned properties. In addition, reserves in the amount of $2,413,000 and $2,794,000 at December 31, 1995 and 1994, respectively, are being held by trustees and certain mortgage holders for recurring replacements to the properties which secure the REMIC Financing (see Note 5) and two other first mortgages. The carrying amount of these deposits approximates their fair value.
Escrow deposits - Escrow deposits consist of amounts on deposit with lenders for payment of property taxes and insurance premiums.
Deferred charges - Deferred charges include loan origination costs, commitment fees and debt issue costs which are amortized over the life of the related debt.
Other assets - Other assets consist primarily of office furniture, fixtures and equipment, miscellaneous accounts receivable and prepaid expenses. Furniture, fixtures and equipment are depreciated over their estimated useful lives ranging from three to five years using the straight-line method.
Revenue recognition - The apartment properties are leased to individual tenants on short-term leases. Rental revenue is recognized monthly as it is earned.
Earnings per share - Earnings per share is based on the net income or loss attributable to the common stock and the weighted average number of shares of common stock and dilutive common stock equivalents outstanding during the periods presented. Earnings per share for the years ended December 31, 1995, 1994 and 1993 were based on 18,627,322, 15,633,291 and 8,099,900, respectively, weighted average shares of common stock outstanding.
The number of shares assumed outstanding related to options to purchase common stock has been calculated by application of the treasury stock method. The Company's Debentures were not common stock equivalents as defined under generally accepted accounting principles and, therefore, during the years they were outstanding, were not considered in the primary earnings per share computations and are antidilutive to the computation of fully-diluted earnings per share.
NOTE 2 - ACQUISITION OF PROPERTIES
In August 1995, the Company sold the Meridian Business Park located in Oklahoma City, Oklahoma, for total consideration of $3,000,000. In September 1995, the Company sold the third-party property management business in Little Rock, Arkansas, for total consideration of $25,000. The Company recognized a net gain on the sale of real estate assets of $10,000 from these two transactions.
In August 1995, the Company acquired the remaining ownership interests in Foxfire Apartments, Phases I and II, located in Dallas, Texas, for a gross purchase price of $5,493,000 and subject to two first mortgage loans. Prior to the purchase, the Company held a 5% interest in the partnership which owned Phase I of the property. The Company sold its partnership interest immediately prior to this acquisition for $128,000.
In March, May and June 1994, the Company purchased six apartment properties (in separate transactions) aggregating 1,734 units for a total purchase price of $50,350,000. Funds for the acquisitions came primarily from the second phase of the REMIC Financing which closed on June 30, 1994 (see Note 5). The properties are located in Fort Worth and Euless, Texas; Little Rock, Arkansas; and Raleigh, North Carolina. In September and November 1994, the Company purchased two apartment properties (in separate transactions) aggregating 600 units for a total purchase price of $22,633,000. Funds for the acquisitions came primarily from draws on the line of credit (see Note 7). The properties are located in Las Vegas, Nevada, and Grapevine, Texas (a Dallas suburb).
In January 1993, the Company acquired the 316-unit Bluff Creek Apartments in Oklahoma City, Oklahoma, for $6,250,000. The acquisition was financed, in part, by a new three-year first mortgage loan in the amount of $3,468,000 which was repaid in June 1993. Prior to this acquisition, the Company held a 32% interest in the partnership that owned the property. On June 4, 1993, the Company acquired ten properties totaling 2,588 apartment units located in the Dallas metropolitan area, San Antonio and El Paso, Texas, and Phoenix, Arizona, for an aggregate cost of approximately $73,836,000. The Company acquired three other apartment properties in 1993 (in separate transactions) aggregating 674 units for a total purchase price of $17,450,000. The properties are located in San Antonio, Corpus Christi and Houston, Texas. Funds for these acquisitions came primarily from the net proceeds from the sale of common stock (see Note 11). On December 23, 1993, the Company acquired five properties totaling 1,349 apartment units located in the Dallas metropolitan area and Albuquerque, New Mexico, for an aggregate price of approximately $43,610,000. Funds for this acquisition came primarily from the net proceeds from the first phase of the REMIC Financing which closed December 22, 1993 (see Note 5).
NOTE 4 - MORTGAGE NOTES RECEIVABLE
As of December 31, 1994, the Company had a seven-year purchase money all-inclusive note receivable collateralized by the Highland Oaks Apartments with a balance outstanding of $3,636,000. Monthly installments of $31,875, including principal and interest at 9.625% per annum, were payable on the underlying first mortgage loan until its maturity in April 1995. In February 1995, the maturity date was extended to April 30, 1995. On April 27, 1995, the borrower repaid the notes.
On June 4, 1993, the Company acquired the first mortgage loan on the Phase I Foxfire Apartments in Dallas (in which the Company held a 5% partnership interest) for $2,645,000. Under the terms of a modified loan agreement, the Company also advanced an additional $162,000 for capital improvements to the property. On June 16, 1995, the borrower repaid the note in full.
In 1993, the Company purchased for $4,751,000 the first mortgage loans on the Phase II Foxfire Apartments in Dallas and the Pecan Grove Apartments in Austin. The Company also held the first mortgage loan on the Windridge Apartments. As a result of the Company's 1994 purchase of the remaining partnership interests in the Pecan Grove Apartments and the Windridge Apartments, the related notes receivable and notes payable have been discharged. The Company held a majority interest in the Phase II Foxfire Apartments and accordingly, the mortgage note receivable held by the Company and the related mortgage note payable have been eliminated for consolidated financial reporting purposes at December 31, 1994. In June 1995, the partnership owning the Phase II Foxfire Apartments refinanced its mortgage and repaid the Company's mortgage note receivable.
NOTE 5 - MORTGAGE LOANS PAYABLE
General - Mortgage loans payable are collateralized by land, buildings and improvements and are non-recourse to the Company. Such debt bears interest at a weighted average rate of approximately 7.9%, and consists of interest rates ranging from 7.01% to 8.50%. Such debt has a weighted average maturity of 5.4 years, with maturity or call dates ranging from 1996 to 2025. The carrying values of the mortgage loans payable approximate fair value.
REMIC Financing - The Company, through wholly-owned subsidiaries, closed a $100,000,000 first mortgage financing package (the "REMIC Financing"). The two $50,000,000 phases of the REMIC Financing closed on June 30, 1994 and December 22, 1993. The REMIC Financing is collateralized by 27 of the Company's wholly-owned properties, bears interest at an average fixed rate of 7.75% per annum and is non-recourse to the Company. Monthly principal and interest payments in the amount of $821,893 are required. The first phase of the REMIC Financing matures on December 10, 2000, at which time the principal balance of this phase is expected to be approximately $39,953,000, and the second phase of the REMIC Financing matures on February 10, 2001, at which time the principal balance of this phase is expected to be approximately $41,735,000. The balance of the REMIC Financing as of December 31, 1995 and 1994 was $96,212,000 and $98,511,000, respectively.
The REMIC Financing requires that a debt service coverage ratio of not less than 1.9 to 1.0 be maintained on the mortgaged properties (to be computed quarterly on the basis of the trailing four quarters). If such debt service coverage ratio falls to less than 1.6 to 1.0, after notice and failure to cure (which could be effected by paying down the principal), the Company is required to deposit all collections from the mortgaged properties into a debt service coverage reserve account until such time as the debt service coverage ratio equals or exceeds 1.9 to 1.0. As of December 31, 1995, the Company is in compliance.
The mortgage loan documents also require the Company to maintain escrow deposits with the REMIC trustees for: (i) "basic carrying costs," i.e., insurance premiums, property taxes and management fees; (ii) capital improvements, at a rate of $100 per year per apartment unit; and (iii) tenant security deposits. As of December 31, 1995 and 1994, the Company had such escrow deposits with the REMIC trustees aggregating $8,347,000 and $8,258,000, respectively.
Other Mortgage Loans - In addition to the REMIC Financing, the Company has five non-recourse first mortgages payable including: (i) a first mortgage payable secured by the Sunset Pointe Apartments in the principal amount of $8,873,000, which matures on June 1, 1996, bears interest at 8.5%, requires monthly interest only payments of $62,850 through March 1, 1996 and monthly payments of $105,937 from April 1, 1996 through June 1, 1996; (ii) a first mortgage payable secured by the Turtle Creek Apartments in the principal amount of $5,110,000, which bears interest at 8.5%, requires monthly payments of principal and interest of $40,353 and matures on October 1, 1999; (iii) a first mortgage payable secured by the High Ridge Apartments in the principal amount of $4,693,000, which bears interest at 8.5%, requires monthly payments of principal and interest of $36,335 and matures on January 1, 2000; (iv) a first mortgage payable secured by Phase I of the Foxfire Apartments in the principal amount of $2,791,000, which bears interest at the cost of funds index, as published by the San Francisco National Bank, plus 2.75%, adjusted monthly, requires monthly payments of principal and interest of $20,073 and matures on July 1, 2025; and (v) a first mortgage payable secured by Phase II of the Foxfire Apartments in the principal amount of $997,000, which bears interest at the cost of funds index, as published by the San Francisco National Bank, plus 2.75%, adjusted monthly, requires monthly payments of principal and interest of $7,169 and matures on July 1, 2025.
In June 1994, the Company closed a construction mortgage note in the maximum amount of $10,864,000 for the development of the Oak Forest Apartments. The note which is recourse to the Company, bears interest at LIBOR plus 2.25% and has an original maturity date of June 30, 1997, with two optional one-year extensions. At December 31, 1995, the outstanding balance of the note was $10,609.000.
Under the terms of the loans, principal amortization requirements at December 31, 1995 are as follows for each of the next five years (in thousands):
During 1993, the Company purchased the first mortgage loans on the Phase II Foxfire Apartments in Dallas and the Pecan Grove Apartments in Austin (properties in which the Company held, majority interests). The Pecan Grove first mortgage loan had a balance of $3,785,000 at December 31, 1993. The loan was discharged when the Company purchased the balance of the ownership interest in the Pecan Grove Apartments in 1994. The Phase II Foxfire (Dallas) first mortgage loan had a balance of $1,023,000 at December 31, 1994. Concurrent with the Company's acquisition of the loan, the mortgage note agreement was modified whereby an additional $74,000 was advanced to the property for capital improvements. In June 1995, the partnership that owned Phase II Foxfire refinanced the note. In August 1995, the Company purchased the remaining interest in the property and assumed the mortgage payable.
As a result of the sale of common stock in June 1993, the Company retired all of the remaining first mortgage indebtedness on its wholly-owned properties for $11,836,000 and purchased the first mortgage note underlying the mortgage note receivable on the Highland Oaks Apartments for $3,188,000 (see Note 4). Interest rates on these mortgage loans ranged from 8.75% to 9.5% per annum.
NOTE 6 - CONSTRUCTION LOANS PAYABLE
The construction projects are financed with construction loans for approximately 70% of the estimated project costs. The Company funds the initial 30% of the estimated project costs from available funds or from draws on its line of credit (see Note 7). Thereafter, construction lenders fund construction costs upon periodic draws in accordance with specific construction loan agreements.
On January 13, 1994, the Company closed a construction mortgage note in the maximum amount of $19,800,000 for the development of the Promontory Pointe Apartments in San Antonio, Texas. The note, which is recourse to the Company, bears interest at a variable rate based on LIBOR plus 2.25% and has an original maturity date of January 13, 1996, with an optional six-month extension. In December 1995, the mortgage note was modified whereby the original maturity was extended to July 12, 1996, with three optional one-year extensions. At December 31, 1995 and 1994, the outstanding balance was $17,573,000 and $4,584,000, respectively.
In June 1994, the Company closed a construction mortgage note in the maximum amount of $7,354,000 for the development of Ashley Oaks Phase II in San Antonio, Texas. The note, which is recourse to the Company, bears interest at LIBOR plus 2.25% with an original maturity date of June 30, 1997, with two optional one-year extensions. At December 31, 1995, the outstanding balance of this note is $6,297,000. At December 31, 1994, no draws had been funded on this note.
In December 1994, the Company closed a construction mortgage note in the maximum amount of $12,402,000 for the development of the Sierra Palms Apartments in Chandler, Arizona. The note, which is recourse to the Company, bears interest at a variable rate based on LIBOR plus 2.25% and has an original maturity date of December 29, 1996, with three optional one-year extensions. At December 31, 1995, the outstanding balance was $3,884,000. At December 31, 1994, no draws had been funded on this note.
In April 1995, the Company closed a construction mortgage note in the maximum amount of $10,700,000 for the development of the Copper Mill Apartments in Durham, North Carolina. The note, which is recourse to the Company, bears interest at a variable rate based on LIBOR plus 2% and has an original maturity date of April 13, 1997, with three one-year extensions, each at the Company's option. At December 31, 1995, the outstanding balance was $4,501,000.
In September 1995, the Company closed a construction mortgage loan in the maximum amount of $18,250,000 for the development of the Providence Court Apartments in Charlotte, North Carolina. The note, which is recourse to the Company, bears interest at a variable rate based on LIBOR plus 2% and has an original maturity date of March 12, 1998, with two one-year and one six-month extensions, each at the Company's option. At December 31, 1995, the outstanding balance was $1,000.
For the years ended December 31, 1995 and 1994, the Company has capitalized interest expense of approximately $2,561,000 and $739,000, respectively, related to construction and development of properties.
At December 31, 1995, the Company had an interest rate swap agreement with a notional amount of $48,851,000. The Company has entered into the interest rate swap agreement to convert floating rate liabilities to fixed rate liabilities. The agreement fixes the interest rate on the Company's expected variable rate debt at 7.9% through April 1997. The Company does not hold or issue interest rate swap agreements for trading purposes. The Company is exposed to possible credit risk if the counterparty fails to perform, however, this risk is minimized by entering into the agreement with a highly rated counterparty. At December 31, 1995, there were no defaults under this agreement.
NOTE 7 - REVOLVING LINE OF CREDIT
On September 15, 1994, the Company obtained a revolving line of credit in the maximum amount of $75,000,000. The line of credit, which is recourse to the Company, has a revolving period of 18 months, with a one-year extension at the lender's option, followed by an amortization period of two years. In October 1995, the Company requested and received a one-year extension to March 1997. The extension modified the interest rate during the revolving period from LIBOR plus 1.75% to LIBOR plus 1.50%. The agreement requires quarterly payments of a non-use fee equal to .25% per year calculated on the average unused portion of the line of credit. The Company can currently draw up to a total of $41,800,000 on the line of credit, which is secured by first liens on seven of the Company's wholly-owned properties. This amount may be increased as additional properties are added as security for the line of credit.
NOTE 8 - CONVERTIBLE DEBENTURES
In 1992, the Company concluded an initial public offering of $55,000,000 in principal amount of 8% Convertible Debentures Due 2003. The Debentures could be converted into shares of common stock at any time after October 15, 1993 on the basis of $10.00 per share. In September 1995, the Company called the Debentures for redemption on October 16, 1995. As of October 16, 1995, $8,875,000 of the outstanding Debentures at September 30, 1995, were converted to 887,500 shares of common stock. The remaining $14,000 in Debentures were redeemed on October 16, 1995.
During the year ended December 31, 1995 prior to call date, $4,640,000 in principal amount of Debentures due were converted to 464,000 shares of common stock. In addition, $220,000 of accrued Debenture interest that was forfeited by Debenture holders and $409,000 of unamortized Debenture issue costs were reclassified to equity.
During the year ended December 31, 1994, $14,849,000 in principal amount of Debentures was converted to 1,484,900 shares of common stock. In addition, $115,000 of accrued Debenture interest that was forfeited by Debenture holders during 1994 and $617,000 of unamortized Debenture issue costs were reclassified to equity.
NOTE 9 - RELATED PARTY TRANSACTIONS
The Company - The Company generally receives a computer services fee, and property and asset management fees in consideration for services provided for properties in which the Company has ownership interests. The Company received fees for these services aggregating $68,000 in 1995, $75,000 in 1994 and $92,000 in 1993 from affiliated, unconsolidated partnerships which have been included in other income for financial reporting purposes.
In connection with the Company's acquisition of the remaining partnership interests in the Sunflower Apartments in 1993, two of the Executive Officers and a Director of the Company received a total of $172,000 as consideration for their partnership interests.
NOTE 10 - COMMITMENTS AND CONTINGENCIES
Office and equipment leases - The Company is obligated under a five-year lease for its main office in Dallas, Texas, which commenced in 1994. The Company is also obligated under leases for its regional offices. The regional office leases have terms ranging from nine months to five years. Minimum annual future rental payments under all leases are $278,000 in 1996, $248,000 in 1997, $234,000 in 1998, $171,000 in 1999 and $7,000 in 2000. The related rental expense in 1995, 1994 and 1993 was $261,000, $243,000 and $120,000, respectively.
NOTE 11 - STOCKHOLDERS' EQUITY (DEFICIT)
Capital stock - Common stockholders are entitled to one vote for each share held on all matters presented for a vote of stockholders. There is no right of cumulative voting in connection with the election of Directors. Stockholders are entitled to receive pro rata, any dividends declared by the Board of Directors in their discretion from funds legally available therefor. Upon liquidation or dissolution, stockholders are entitled to share ratably in all assets available for distribution to the stockholders, subject to the right of the holders of the Debentures then outstanding and to the rights of any preferred class of the Company's securities (if any are outstanding). The common stock issued is fully paid and non-assessable, has no conversion rights, and is not subject to redemption, except under certain circumstances determined by the Board of Directors.
The Company declared a special dividend to each record holder of shares of common stock on March 17, 1995, of one non-transferable right for each share held on such date. Four rights entitled the holder to purchase one share of common stock at a price of $11.875 per share (the "Rights Transaction"). On April 10, 1995, the Rights Transaction concluded with 985,440 shares purchased for total proceeds of $11,702,100. The net proceeds of approximately $11,400,000 were used to repay a portion of the line of credit.
In April 1995, the Company concluded a public offering of 1,714,560 shares of common stock at a price of $11.875 per share for gross proceeds of $20,360,400. The net proceeds of approximately $18,600,000 were used to repay a portion of the line of credit. During 1995, non-qualified options were exercised to purchase 275,000 shares of common stock at exercise prices ranging from $11.00 to $13.00. As of December 31, 1995, the Company had outstanding 20,319,405 shares of common stock and 1,718,000 non-qualified options to purchase common stock (of which 204,500 were vested) at exercise prices ranging from $11.00 to $13.00 per share.
On June 3, 1993, the Company closed its public offering of 10,350,000 shares of common stock at a price of $13.50 per share. The net proceeds from the offering (in the amount of $130,684,000) and the net proceeds from the REMIC Financing (See Note 5) were applied as follows: (i) approximately $141,146,000 (aggregate purchase price) to acquire a total of 19 apartment properties totaling 4,927 units (see Note 2); (ii) approximately $10,820,000 to acquire first mortgage debt on certain properties in which the Company held an interest; (iii) approximately $8,407,000 to retire all of the remaining debt on its wholly-owned properties; (iv) $12,500,000 to repay the revolving line of credit debt; and (v) approximately $2,600,000 as a reserve for additions to properties.
During 1994, non-qualified options were exercised to purchase 55,000 shares of common stock at an exercise price of $11.00 each. In addition, $14,849,000 in principal amount of Debentures were converted to 1,484,900 shares of common stock. As of December 31, 1994, the Company had outstanding 16,182,019 shares of common stock and non-qualified options to purchase 1,467,000 shares of common stock (of which 161,500 were vested) at exercise prices ranging from $11.00 to $13.625 per share. The Company also had outstanding $13,529,000 in principal amount of Debentures (convertible into 1,352,900 shares of common stock).
During 1995, the Company accepted notes receivable totaling $1,945,000 from certain officers and directors to exercise options to purchase common stock. The notes receivable, which mature on December 31, 2002, are in amounts up to 80% of the option exercise price and bear interest at the Applicable Federal Rate (as published by the Internal Revenue Service) at the date of exercise. Principal in the amount of 50% of the exercise price will be forgiven ratably over seven years beginning January 1, 1997, contingent upon continued service as an officer or director and the absence of any default on the notes. The balance of such loans will be payable ratably over the same period. The loans are secured by the common stock purchased. Options to purchase 275,000 shares of common stock were exercised, and 85,967 previously issued shares of common stock were applied (at the market price of such shares at the date of such application) to the exercise price of the options and were retired.
Effective April 1, 1994, the Company entered into an employment agreement with an officer of the Company, Senior Vice President for the Charlotte Regional Office of the Company. In connection with this agreement, the officer purchased from the Company 115,000 shares of the Company's common stock for approximately $1,509,000 ($13.125 per share). In January 1995, his employment agreement was terminated, and pursuant to that agreement, the Company repurchased such shares at the purchase price he paid and cancelled such shares.
For the Company to qualify as a REIT under the Internal Revenue Code, not more than 50% in value of its outstanding common stock may be owned, directly or indirectly, by five or fewer individuals. In order to meet these requirements, the Directors of the Company are given power to refuse to recognize the transfer of a sufficient number of shares of common stock to maintain or bring the ownership of common stock of the Company into conformity with such requirements and to refuse the transfer of common stock to persons whose acquisitions thereof would result in a violation of such requirements.
Dividends - The Company paid dividends of $.25 per share of common stock for the first three quarters of 1995. The Company also declared a dividend of $.25 per share for the fourth quarter of 1995 (which it paid on January 17, 1996). Eighty-seven percent of the dividends paid in 1995 were characterized as ordinary income and eight percent of the dividends were characterized as capital gains for federal income tax purposes and five percent of the 1995 dividends were a return of capital.
The Company paid dividends of $.22 per share of common stock for the first quarter of 1994. The Company paid dividends of $.23 per share of common stock for the second, third and fourth quarters of 1994. Eighty-seven percent of the dividends paid in 1994 were characterized as ordinary income for federal income tax purposes and 13 percent of the 1994 dividends were a return of capital.
The characterization of the dividends for federal income tax purposes is made based upon the earnings and profits of the Company, as defined in the Internal Revenue Code, for the years ended December 31, 1995, 1994 and 1993, respectively.
Beginning in 1995, the Company introduced a dividend reinvestment program that will allow its shareholders to acquire additional common shares from the Company at a 5% discount to the fair market price. The dividend reinvestment program also permits stockholders to purchase a limited number of additional shares of common stock on the same basis by making optional cash payments.
Stock Option Plans - In May 1992, the Company adopted an incentive and non-qualified stock option plan (the "Stock Option Plan") for the purpose of attracting and retaining the Company's directors, executive officers and other key employees (including any officer or director who is also an employee). A maximum of 1,200,000 shares of common stock were reserved for issuance under the Stock Option Plan. The Stock Option Plan allows for the grant of "incentive" and "non-qualified" options (within the meaning of the Internal Revenue Code) that are exercisable at a price that is at least equal to the fair market value of the shares of common stock at the date of the grant as established by the Compensation Committee of the Board of Directors. In May 1994, the Company's stockholders approved an amendment to the Stock Option Plan that increased the amount of shares reserved for issuance under the Stock Option Plan by 600,000 shares to a maximum of 1,800,000 shares. In 1995, the Company's stockholders approved the 1995 Omnibus Incentive Plan, which provides for the granting of stock options, SAR's, restricted shares and performance units. Under the 1995 plan, 3,000,000 shares were reserved for issuance subject to the limitation that the aggregate number of shares underlying outstanding awards (including those outstanding under the 1992 plan) not exceed approximately 10% of the Company's outstanding capital stock on a fully diluted basis. The shares vest over a period of up to 5 years and once vested must be exercised within 5 years. The Company accounts for its options to purchase shares of common stock in accordance with APB No. 25.
During 1993, the Company granted options covering 75,000 shares of common stock to other key employees of the Company. These options also vest 20% per year over five years. The options have an exercise price equal to the closing market price of the stock at the date of grant (exercise prices range from $13.625 to $14.75); and once vested, these options may be exercised over a period of five years from the date of vesting.
During 1994, the Company granted 600,000 options to purchase a like number of shares of common stock at an exercise price of $13.00 and 100,000 options to purchase a like number of shares at $11.00. The exercise prices reflect the closing price of the shares on the date of each grant. The options vest over a period of up to five years (the first vesting date generally being one year from the date of grant). Once vested, these options may be exercised over a period of five years from the date of vesting. Additionally, 233,000 options previously granted were forfeited (and became available for reissuance) due to employee attrition.
During 1995, 626,000 options to purchase shares of common stock at exercise prices ranging from $11.50 to $13.00 each were granted pursuant to the Company's non-qualified employee stock option plan, and 100,000 options previously granted were forfeited due to employee attrition. As of December 31, 1995, the Company had outstanding 1,718,000 options to purchase common stock (of which 204,500 are vested).
Rights Agreement - In August 1994, the Company declared a dividend of one right (the "Right") for each outstanding share of the Company's common stock. The Rights do not become detached from the common stock until the occurrence of a triggering event such as a tender offer or acquisition by a person (or related parties) of 10% or more of the Company's outstanding common stock. At that time, the Rights (which expire in August 2004) may be exercised, except by the party causing the triggering event, to purchase for $30 an amount of common stock from the Company having an aggregate market value of $60.
NOTE 12 - PROFIT SHARING AND SAVINGS PLAN
The Company has a 401(k) plan for all full-time employees who have been employed for at least 12 months. Eligible employees may contribute up to 15% of their gross pay, subject to certain limitations. In 1995, 1994 and 1993 the Company matched 50% of the amount contributed by the employee, up to 10% of the employee's gross pay. In 1995, 1994 and 1993, expenses include $76,000, $53,000 and $44,000, respectively, representing the employer's matching contribution to the plan.
NOTE 13 - QUARTERLY FINANCIAL DATA (Unaudited)
Unaudited summarized financial data by quarter for 1995 and 1994 is as follows (in thousands, except per share data):
Exhibit 22.1
Subsidiaries of the Registrant
SOUTH WEST PROPERTY TRUST INC. SUBSIDIARIES AND AFFILIATES OF THE COMPANY As of December 31, 1995
SWP Properties, Inc. SWP REMIC Properties II-A, L.P. SWP Creeks Properties, Inc. Windridge Apartments SWP Woodscape Properties, Inc. Pecan Grove Apartments SWPT II Arizona Properties, Inc. Westlake Villas Apartments SWP REMIC Properties II, Inc. Foxfire (Amarillo) Apartments South West REIT Holding, Inc. Woodtrail Apartments SWP Developers, Inc. Bluffs Apartments Little Rock Apartment Management, Inc. Chandlers Mill Apartments SWP Depositor, Inc. Alvarado Apartments SRL Amarillo Investors, Inc. Catalina Apartments SWP Arkansas Properties, Inc. Citiscape Apartments Turtle Creek Apartments Park Trails Apartments MF-SWP Joint Venture Pavilion Apartments Promontory Pointe Apartments Preston Oaks Apartments SWP Creeks, L.P. Vista Point Apartments Creeks Apartments South West Properties, L.P. SWP Woodscape I, L.P. Sunflower Apartments Woodscape Apartments Shadow Lake Apartments SWP Properties I, L.P. Hunters Ridge Apartments Rock Creek Apartments Timbercreek Apartments Bluff Creek Apartments Southern Oaks Apartments Preston Trace Apartments Oak Park Apartments Wimbledon Court Apartments Dove Park Apartments Autumnwood Apartments Sunset Pointe Apartments Cobblestone Apartments Ashley Oaks 2 Apartments Summergate Apartments Oak Forest Apartments Lakeridge Apartments Foxfire (Dallas) Apartments Ryan's Mill Apartments High Ridge Apartments Greenway Park Apartments Sierra Palms Apartments Ashley Oaks Apartments Copper Mill Apartments Providence Court Apartments
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements (Form S-3 No. 33-70858, Form S-3 No. 33-59526, Form S-8 No. 33-67452 (pertaining to the 1992 Nonqualified Stock Option Plan) of South West Property Trust Inc. and in the related Prospectuses of our report dated January 30, 1996, with respect to the consolidated financial statements and schedule of South West Property Trust Inc. included in this Annual Report (Form 10-K) for the year ended December 31, 1995.
ERNST & YOUNG LLP
Dallas, Texas February 20, 1996