Edgar Filing: SUMMIT PROPERTIES INC

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-Q

(MARK ONE)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2001

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to ________

COMMISSION FILE NUMBER 1-12792

SUMMIT PROPERTIES INC.
(Exact name of registrant as specified in its charter)

MARYLAND 56-1857807
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

309 E. MOREHEAD STREET
SUITE 200
CHARLOTTE, NORTH CAROLINA 28202
(Address of principal executive offices) (Zip code)

(704) 334-3000
(Registrant's telephone number, including area code)

N/A
(Former name, former address and former fiscal year, if changed since last
report)

Indicate by check whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.

26,635,702 shares of common stock, par value $.01 per share, outstanding as of
May 4, 2001
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2

SUMMIT PROPERTIES INC.
INDEX

PAGE
----

PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Consolidated Balance Sheets as of March 31, 2001 and
December 31, 2000 (Unaudited)............................. 3
Consolidated Statements of Earnings for the three months
ended March 31, 2001 and 2000 (Unaudited)................. 4
Consolidated Statement of Stockholders' Equity for the three
months ended March 31, 2001 (Unaudited)................... 5
Consolidated Statements of Cash Flows for the three months
ended March 31, 2001 and 2000 (Unaudited)................. 6
Notes to Consolidated Financial Statements (Unaudited)...... 7
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 13
Item 3 Quantitative and Qualitative Disclosures about Market
Risk...................................................... 25

PART II OTHER INFORMATION
Item 2 Changes in Securities....................................... 26
Item 5 Other Information........................................... 26
Item 6 Exhibits and Reports on Form 8-K............................ 26
Signatures.................................................. 27

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3

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

SUMMIT PROPERTIES INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
(UNAUDITED)

MARCH 31, DECEMBER 31,
2001 2000
---------- ------------

ASSETS
Real estate assets:
Land and land improvements................................ $ 184,494 $ 184,494
Buildings and improvements................................ 1,001,965 1,001,183
Furniture, fixtures and equipment......................... 77,171 74,920
---------- ----------
1,263,630 1,260,597
Less: accumulated depreciation............................ (156,942) (147,437)
---------- ----------
Operating real estate assets...................... 1,106,688 1,113,160
Construction in progress.................................. 206,594 167,462
---------- ----------
Net real estate assets............................ 1,313,282 1,280,622
Cash and cash equivalents................................... 2,440 3,148
Restricted cash............................................. 2,658 41,502
Investments in Summit Management Company and real estate
joint ventures............................................ (415) 736
Deferred financing costs, net of accumulated amortization of
$6,134 and $5,792 in 2001 and 2000, respectively.......... 7,449 7,760
Other assets................................................ 6,797 6,383
---------- ----------
Total assets................................................ $1,332,211 $1,340,151
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Notes payable............................................. $ 765,134 $ 763,899
Accrued interest payable.................................. 5,026 7,729
Accounts payable and accrued expenses..................... 13,870 20,415
Dividends and distributions payable....................... 14,366 13,481
Security deposits and prepaid rents....................... 4,038 3,959
---------- ----------
Total liabilities................................. 802,434 809,483
---------- ----------
Commitments and contingencies:
Minority interest of common unitholders in Operating
Partnership............................................... 56,363 55,730
Minority interest of preferred unitholders in Operating
Partnership............................................... 136,261 136,261
Stockholders' equity:
Preferred stock, $.01 par value -- 25,000,000 shares
authorized, no shares issued and outstanding........... -- --
Common stock, $.01 par value -- 100,000,000 shares
authorized, 26,631,102 and 26,431,086 shares issued and
outstanding in 2001 and 2000, respectively............. 266 264
Additional paid-in capital................................ 420,373 415,827
Accumulated deficit....................................... (67,127) (62,775)
Unamortized restricted stock compensation................. (2,068) (942)
Employee notes receivable................................. (14,291) (13,697)
---------- ----------
Total stockholders' equity........................ 337,153 338,677
---------- ----------
Total liabilities and stockholders' equity.................. $1,332,211 $1,340,151
========== ==========

See notes to consolidated financial statements.

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SUMMIT PROPERTIES INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)

THREE MONTHS ENDED
MARCH 31,
-------------------------
2001 2000
----------- -----------

Revenues:
Rental.................................................... $ 44,541 $ 41,242
Other property income..................................... 3,321 2,877
Interest.................................................. 758 1,074
Other income.............................................. 152 149
----------- -----------
Total revenues.................................... 48,772 45,342
----------- -----------
Expenses:
Property operating and maintenance:
Personnel.............................................. 3,359 2,856
Advertising and promotion.............................. 617 606
Utilities.............................................. 2,262 2,111
Building repairs and maintenance....................... 1,945 1,951
Real estate taxes and insurance........................ 5,413 4,741
Depreciation........................................... 9,476 8,900
Property supervision................................... 1,430 1,302
Other operating expenses............................... 699 676
----------- -----------
25,201 23,143
Interest.................................................. 9,971 8,964
Amortization.............................................. 343 248
General and administrative................................ 1,204 940
(Income) loss on equity investments:
Summit Management Company.............................. (352) 322
Real estate joint ventures............................. (82) (46)
----------- -----------
Total expenses.................................... 36,285 33,571
----------- -----------
Income before gain on sale of real estate assets, minority
interest of common unitholders in Operating Partnership
and dividends to preferred unitholders in Operating
Partnership............................................... 12,487 11,771
Gain on sale of real estate assets........................ -- 2,440
----------- -----------
Income before minority interest of common unitholders in
Operating Partnership and dividends to preferred
Unitholders in Operating Partnership...................... 12,487 14,211
Minority interest of common unitholders in Operating
Partnership............................................... (1,327) (1,567)
Dividends to preferred unitholders in Operating
Partnership............................................... (3,105) (3,105)
----------- -----------
Net income.................................................. $ 8,055 $ 9,539
=========== ===========
Per share data:
Net income -- basic and diluted........................... $ 0.30 $ 0.36
=========== ===========
Dividends declared........................................ $ 0.46 $ 0.44
=========== ===========
Weighted average shares -- basic.......................... 26,572,548 26,447,699
=========== ===========
Weighted average shares -- diluted........................ 26,866,277 26,531,721
=========== ===========

See notes to consolidated financial statements.

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SUMMIT PROPERTIES INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
(UNAUDITED)

UNAMORTIZED
ADDITIONAL RESTRICTED EMPLOYEE
COMMON PAID-IN ACCUMULATED STOCK NOTES
STOCK CAPITAL DEFICIT COMPENSATION RECEIVABLE TOTAL
------ ---------- ----------- ------------ ---------- --------

Balance, December 31, 2000......... $264 $415,827 $(62,775) $ (942) $(13,697) $338,677
Dividends........................ -- -- (12,407) -- -- (12,407)
Proceeds from dividend
reinvestment and stock
purchase plans................ 1 1,953 -- -- -- 1,954
Conversion of common units to
shares........................ -- 96 -- -- -- 96
Exercise of stock options........ -- 481 -- -- -- 481
Issuance of restricted stock
grants........................ 1 1,544 -- (1,545) -- --
Amortization of restricted stock
grants........................ -- -- -- 419 -- 419
Adjustment for minority interest
of common unitholders in
Operating Partnership......... -- 472 -- -- -- 472
Issuance of employee notes
receivable.................... -- -- -- -- (992) (992)
Repayments of employee notes
receivable.................... -- -- -- -- 398 398
Net income....................... -- -- 8,055 -- -- 8,055
---- -------- -------- ------- -------- --------
Balance, March 31, 2001............ $266 $420,373 $(67,127) $(2,068) $(14,291) $337,153
==== ======== ======== ======= ======== ========

See notes to consolidated financial statements.

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SUMMIT PROPERTIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)

THREE MONTHS ENDED
MARCH 31,
-------------------
2001 2000
-------- --------

Cash flows from operating activities:
Net income................................................ $ 8,055 $ 9,539
Adjustments to reconcile net income to net cash provided
by operating activities:
Minority interest of common unitholders in Operating
Partnership........................................... 1,327 1,567
(Income) loss on equity investments.................... (434) 276
Gain on sale of real estate assets..................... -- (2,440)
Depreciation and amortization.......................... 10,258 9,211
Increase in restricted cash............................ (898) (982)
(Increase) decrease in other assets.................... (206) 26
Decrease in accrued interest payable................... (2,703) (2,691)
Decrease in accounts payable and accrued expenses...... (339) (2,981)
Increase in security deposits and prepaid rents........ 79 7
-------- --------
Net cash provided by operating activities......... 15,139 11,532
-------- --------
Cash flows from investing activities:
Construction of real estate assets and land acquisitions,
net of payables........................................ (38,609) (29,517)
Proceeds from sale of communities......................... 39,742 22,678
Capitalized interest...................................... (3,290) (2,320)
Recurring capital expenditures, net of payables........... (1,002) (952)
Non-recurring capital expenditures........................ (2,130) (943)
-------- --------
Net cash used in investing activities............. (5,289) (11,054)
-------- --------
Cash flows from financing activities:
Net borrowings on line of credit.......................... 2,949 27,000
Debt issuance costs related to unsecured bonds and
medium-term notes...................................... (34) (16)
Repayments of mortgage debt............................... (1,405) (1,314)
Repayments of tax exempt bonds............................ (360) (360)
Net proceeds from dividend reinvestment and stock purchase
plans and exercise of stock options.................... 2,435 1,904
Dividends and distributions to unitholders................ (13,549) (13,164)
Repurchase of common stock................................ -- (6,333)
Acquisition of minority interest.......................... -- (1,759)
Issuance of employee notes receivable..................... (992) (7,331)
Repayments of employee notes receivable................... 398 294
-------- --------
Net cash used in financing activities............. (10,558) (1,079)
-------- --------
Net decrease in cash and cash equivalents................... (708) (601)
Cash and cash equivalents, beginning of year................ 3,148 4,130
-------- --------
Cash and cash equivalents, end of year...................... $ 2,440 $ 3,529
======== ========
Supplemental disclosure of cash flow information -- Cash
paid for interest, net of capitalized interest............ $ 12,674 $ 11,655
======== ========

See notes to consolidated financial statements.

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SUMMIT PROPERTIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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Unless the context otherwise requires, all references to "we", "our" or "us" in
this report refer collectively to Summit Properties Inc., a Maryland corporation
("Summit") and its subsidiaries, including Summit Properties Partnership, L.P.,
a Delaware limited partnership, (the "Operating Partnership"), considered as a
single enterprise. Summit is the sole general partner of the Operating
Partnership.

1. BASIS OF PRESENTATION

We have prepared the accompanying unaudited financial statements in accordance
with generally accepted accounting principles for interim financial information
and in conformity with the rules and regulations of the Securities and Exchange
Commission. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. We have included all adjustments (consisting only of
normal recurring adjustments) necessary for a fair presentation. The results of
operations for the three months ended March 31, 2001 are not necessarily
indicative of the results that may be expected for the full year. You should
read our December 31, 2000 audited financial statements and notes included in
our Annual Report on Form 10-K in conjunction with these interim statements.

We conduct substantially all of our business through the Operating Partnership.
Summit is the sole general partner and majority owner of the Operating
Partnership.

EARNINGS PER SHARE -- The only difference between "basic" and "diluted" weighted
average shares is the dilutive effect of our outstanding stock options. There
were 293,729 shares added to weighted average shares outstanding for the three
months ended March 31, 2001 and 84,022 shares added to weighted average shares
outstanding for the three months ended March 31, 2000.

RECLASSIFICATIONS -- Certain reclassifications have been made to the 2000
financial statements to conform to the 2001 presentation.

2. REAL ESTATE JOINT VENTURES

We obtained a 25% interest in a joint venture named Station Hill, LLC, in which
we and Hollow Creek, LLC, a subsidiary of a major financial services company,
are members, in exchange for the contribution of two communities in 1998.
Station Hill owns, and we thereby hold a 25% interest in, five apartment
communities that we previously owned. We sold these five communities to Hollow
Creek in 1998 and Hollow Creek concurrently contributed them to Station Hill for
a 75% joint venture interest. Station Hill is accounted for on the equity method
of accounting.

The following are condensed balance sheets and income statements for Station
Hill as of and for the three months ended March 31, 2001 and 2000 (in
thousands). The balance sheet and income statement below reflect the financial
position and operations of Station Hill in its entirety, not only our 25%
interest.

BALANCE SHEET
------------------
MARCH 31,
------------------
2001 2000
------- -------

Real estate assets, net..................................... $85,584 $88,534
Cash and cash equivalents................................... 1,748 2,041
Other assets................................................ 398 365
------- -------
Total assets...................................... $87,730 $90,940
======= =======
Mortgages payable........................................... $68,448 $69,264
Other liabilities........................................... 1,031 985
Partners' capital........................................... 18,251 20,691
------- -------
Total liabilities and partners' capital........... $87,730 $90,940
======= =======

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SUMMIT PROPERTIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
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INCOME STATEMENT
------------------
THREE MONTHS ENDED
MARCH 31,
------------------
2001 2000
------- -------

Revenues.................................................... $3,180 $3,029
Expenses:
Property operating........................................ 1,090 1,058
Interest.................................................. 1,148 1,171
Depreciation and amortization............................. 803 735
------ ------
Total expenses.................................... 3,041 2,964
------ ------
Net income.................................................. $ 139 $ 65
====== ======

We also own a 49% interest in a joint venture which is developing an apartment
community. This project is accounted for under the equity method of accounting
and, therefore, its operating results are presented in "(Income) loss on equity
investments: Real estate joint ventures" in our consolidated statements of
earnings. The construction costs are being funded through a separate loan to the
joint venture from an unrelated third party equal to 100% of the construction
costs. During the construction period, rather than equity contributions to the
joint venture, we have, under certain circumstances, subsequent to demand by the
third party lender, agreed to make contributions, which would reduce the
construction loan by an amount not to exceed 25% of the total construction loan
amount. Any such contribution would be deemed to be all, or a portion, of the
equity we would be required to contribute to the joint venture at the end of the
construction and lease-up period. We have the right to purchase our joint
venture partner's interest in the joint venture for a period of six months after
the project becomes stabilized. The project had not reached stabilization as of
March 31, 2001 and we have not made a determination about whether we will
exercise our option. If we do not exercise our option with respect to the joint
venture, we will be required to make a capital contribution of 25% of the joint
venture's total construction loan amount.

3. NOTES PAYABLE

During 2000, we obtained a new syndicated unsecured line of credit (credit
facility) in the amount of $225.0 million which replaced our $200.0 million
credit facility. The credit facility provides funds for new development,
acquisitions and general working capital purposes. The credit facility has a
three year term, expiring on September 26, 2003, with annual extension options
and bears interest at LIBOR plus 100 basis points. The spread component of the
aggregate interest rate will be reduced in the event of an upgrade of our
unsecured credit rating. The credit facility is repayable monthly on an interest
only basis with principal due at maturity.

On April 20, 2000, we commenced a new program for the sale by the Operating
Partnership of up to $250.0 million aggregate principal amount of Medium-Term
Notes due nine months or more from the date of issuance. We had Medium-Term
Notes with an aggregate principal amount of $52.0 million outstanding in
connection with the new MTN program at March 31, 2001.

On May 29, 1998, we established a program for the sale by the Operating
Partnership of up to $95.0 million aggregate principal amount of Medium-Term
Notes due nine months or more from the date of issuance. We had Medium-Term
Notes with an aggregate principal amount of $55.0 million outstanding in
connection with this initial MTN program at March 31, 2001.

4. DERIVATIVE FINANCIAL INSTRUMENTS

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SUMMIT PROPERTIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
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standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. It requires that
entities recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value. The
cumulative effect of adopting FAS 133 was not material to our financial
statements.

We are exposed to market risk, such as changes in interest rates. To manage the
volatility relating to interest rate risk, we may enter into interest rate
hedging arrangements from time to time. We do not utilize derivative financial
instruments for trading or speculative purposes.

At March 31, 2001, we had one interest rate swap with a notional amount of $30.0
million, relating to $30.0 million of 6.625% fixed rate notes issued under our
MTN program. Under the interest rate swap agreement, through the maturity date
of December 15, 2003, (a) we have agreed to pay to the counterparty the interest
on a $30.0 million notional amount at a floating interest rate of three-month
LIBOR plus 11 basis points, and (b) the counterparty has agreed to pay to us the
interest on the same notional amount at the fixed rate. The floating rate at
March 31, 2001 was 5.14%. The fair value of the interest rate swap was $1.6
million at March 31, 2001. The swap has been designated as a fair value hedge of
the underlying fixed rate debt obligation and has been recorded as a reduction
of the related debt instrument. We assume no ineffectiveness as the interest
rate swap meets the short-cut method conditions required under FAS 133 for fair
value hedges of debt instruments. Accordingly, no gains or losses were recorded
in income relative to our underlying debt and interest rate swap.

5. RESTRICTED STOCK

During the three months ended March 31, 2001, we granted 94,818 shares of
restricted stock valued at $1.2 million pursuant to our Performance Stock Award
Plan. One half of these shares vested on the date of grant, with the remaining
shares vesting in two equal annual installments beginning on January 1, 2002.
The value of the shares has been recorded as unamortized restricted stock
compensation and is shown as a separate component of stockholders' equity in the
accompanying balance sheet.

During the three months ended March 31, 2001 and 2000, we granted 11,668 and
63,138 shares, respectively, of restricted stock to employees under our 1994
Stock Option and Incentive Plan. The market value of the restricted stock grants
awarded during these three months in 2001 and 2000 totaled $292,000 and $1.1
million, respectively, which has been recorded as unamortized restricted stock
compensation and is shown as a separate component of stockholders' equity in the
accompanying balance sheet. Unearned compensation related to these restricted
stock grants is being amortized to expense over the vesting period which ranges
from three to five years.

6. SUPPLEMENTAL CASH FLOW INFORMATION

Non-cash investing and financing activities for the three months ended March 31,
2001 and 2000 are as follows:

A. We accrued dividends and distributions payable in the amounts of $14.4
million and $13.4 million at March 31, 2001 and 2000, respectively.

B. We issued 11,668 and 63,138 shares of restricted stock valued at
$292,000 and $1.1 million during the three months ended March 31, 2001
and 2000, respectively.

C. We issued 94,818 shares of restricted stock valued at $1.2 million
during the three months ended March 31, 2001 in connection with our
Performance Stock Award Plan. There were no such issuances of restricted
stock in connection with the plan during the three months ended March
31, 2000.

D. We issued 4,012 and 35,045 shares of common stock in exchange for 4,012
and 35,045 common units of limited partnership interest in the Operating
Partnership valued at $96,000 and $676,000 during the three months ended
March 31, 2001 and 2000, respectively.

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SUMMIT PROPERTIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
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E. The Operating Partnership issued 66,376 common units valued at $1.9
million during the three months ended March 31, 2001 in connection with
the purchase of a parcel of land.

7. MINORITY INTEREST

Minority interest of common unitholders consists of the following at March 31,
2001 and December 31, 2000 (in thousands):

2001 2000
------- -------

Minority interest of common unitholders in Operating
Partnership............................................... $56,823 $56,190
Minority interest in one operating community................ (460) (460)
------- -------
$56,363 $55,730
======= =======

As of March 31, 2001, there were 31,077,041 common units of limited partnership
interest outstanding of which 26,631,102, or 85.7%, were owned by Summit and
4,445,939, or 14.3%, were owned by other partners, including certain of our
officers and directors.

Proceeds from shares of our common stock issued are contributed to the Operating
Partnership for an equivalent number of common units. Total common stock issued
and the proceeds contributed to the Operating Partnership for an equivalent
number of common units was 117,000 and 113,000 shares valued at $2.5 million
($21.64 per share average) and $1.9 million ($16.92 per share average) for the
three months ended March 31, 2001 and 2000, respectively. No individual
transaction significantly changed our ownership percentage in the Operating
Partnership, which was 85.7% and 85.9% as of March 31, 2001 and 2000,
respectively.

Under certain circumstances, as required by the holders of common units, we may
issue shares of common stock in exchange for common units owned by other
partners on a one-for-one basis or may purchase common units for cash. Shares of
common stock exchanged for common units are valued based upon the market price
per share of our common stock at the date of the exchange. During the three
month period ended March 31, 2001, 4,012 common units valued a $96,000 were
exchanged for shares of common stock. During the three month period ended March
31, 2000, 35,045 common units valued at $676,000 were exchanged for shares of
common stock and 93,945 common units were exchanged for cash of $1.8 million.

We issued 66,376 common units as partial consideration for the purchase of a
parcel of land during the three months ended March 31, 2001. The value of the
common units issued was $1.9 million.

8. COMMITMENTS AND CONTINGENCIES

The estimated cost to complete seven development projects currently under
construction was $90.5 million at March 31, 2001. Anticipated construction
completion dates of the projects range from the third quarter of 2001 to the
first quarter of 2003.

On January 19, 2000, we entered into a Real Estate Purchase Agreement with a
third-party real estate developer. Under the terms of the agreement, we have
agreed to purchase a "Class A" mixed-use community, which will be called Summit
Brickell, and will be located in Miami, Florida. We expect to close on the
purchase of Summit Brickell during the second half of 2002 following its
completion and lease-up. The final purchase price will be determined based on
actual construction costs plus a bonus to the developer based on the capitalized
income of the property at the time of purchase. The purchase price is expected
to range from $50.5 million to $60.0 million. The purchase of Summit Brickell is
subject to customary closing conditions. We issued a letter of credit in the
amount of $13.0 million, which will serve as a credit enhancement to the
developer's construction loan. In the event that any amount under the letter of
credit is drawn upon, we will be treated as having issued a loan to the
developer in the amount of such draw. Any such loan will accrue interest at a
rate of 18% per year.

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SUMMIT PROPERTIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
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We have investments in two technology-related companies, Broadband Now, Inc. and
Yieldstar Technology LLC. Our investment in Broadband Now is $1.2 million and
our investment in Yieldstar is $137,000. The technology industry, including
sectors in which our investees operate, has recently suffered from a depressed
market valuation and decreased supply of capital. The inability of these
companies to acquire capital at a satisfactory price in the near future could
affect their ability to fund working capital requirements and could result in
the failure of those companies. In the event that our investments in these
technology-related companies are determined to be partially or fully impaired,
any resulting write-down of our investment(s) would not require cash payments,
but would have a negative impact on our net earnings and could adversely affect
the price of our common stock.

9. BUSINESS SEGMENTS

We report as a single business segment with activities related to the operation,
development and acquisition of "Class A" luxury apartments located primarily in
the southeastern, southwestern and mid-atlantic United States. We develop
apartments solely for our own use and do not perform development activities for
third parties.

10. PREFERRED UNITS

As of March 31, 2001, the Operating Partnership had outstanding 3.4 million
preferred units of limited partnership interest designated as 8.95% Series B
Cumulative Redeemable Perpetual Preferred Units. These preferred units are
redeemable by the Operating Partnership on or after April 29, 2004 for cash, or
at our option, shares of our 8.95% Series B Cumulative Redeemable Perpetual
Preferred Stock, or a combination of cash and stock. Holders of the Series B
preferred units have the right to exchange these preferred units for shares of
our Series B preferred stock on a one-for-one basis, subject to adjustment: (a)
on or after April 29, 2009, (b) if full quarterly distributions are not made for
six quarters, or (c) upon the occurrence of specified events related to the
treatment of the Operating Partnership or the preferred units for federal income
tax purposes. Distributions on the Series B preferred units are cumulative from
the date of original issuance and are payable quarterly at the rate of 8.95% per
year of the $25.00 original capital contribution. We made distributions to the
holders of the Series B preferred units in the aggregate amount of $1.9 million
during each of the three month periods ended March 31, 2001 and 2000.

As of March 31, 2001, the Operating Partnership had outstanding 2.2 million
preferred units of limited partnership interest designated as 8.75% Series C
Cumulative Redeemable Perpetual Preferred Units. The preferred units are
redeemable by the Operating Partnership on or after September 3, 2004 for cash.
Holders of the Series C preferred units have the right to exchange these
preferred units for shares of our Series C preferred stock on a one-for-one
basis, subject to adjustment: (a) on or after September 3, 2009, (b) if full
quarterly distributions are not made for six quarters, (c) upon the occurrence
of specified events related to the treatment of the Operating Partnership or the
preferred units for federal income tax purposes, or (d) if the holdings in the
Operating Partnership of the Series C unitholder exceed 18% of the total profits
of or capital interest in the Operating Partnership for a taxable year.
Distributions on the Series C preferred units are cumulative from the date of
original issuance and are payable quarterly at the rate of 8.75% per year of the
$25.00 original capital contribution. We made distributions to the holder of the
Series C preferred units in the aggregate amount of $1.2 million during each of
the three month periods ended March 31, 2001 and 2000.

11. COMMON STOCK REPURCHASE PROGRAM

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SUMMIT PROPERTIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
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March 31, 2001. During the year ended December 31, 2000, we repurchased 279,400
shares of our common stock under the common stock repurchase program for an
aggregate purchase price, including commissions, of $5.5 million, or an average
price of $19.80 per share.

During 2000, we completed a common stock repurchase program pursuant to which we
were authorized to purchase up to an aggregate of $50.0 million of our common
stock. The total number of shares of our common stock repurchased under this
program was 2.5 million shares for an aggregate purchase price, including
commissions, of $50.0 million, or an average price of $19.63 per share.

12. SUBSEQUENT EVENT

On May 9, 2001, the Operating Partnership issued $60.0 million of senior
unsecured notes through its new medium-term note program in two separate
transactions as follows: (a) $35.0 million of notes which are due on May 9, 2011
and bear interest at 7.703% per year and (b) $25.0 million of notes which are
due on May 9, 2006 and bear interest at 7.04% per year. Proceeds from the
issuance of these notes will be used to repay borrowings under our unsecured
credit facility.

12
13

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

This report contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended, including, without limitation, statements
relating to the operating performance of fully stabilized communities, the
development, acquisition or disposition of properties, anticipated construction
completion and lease-up dates, and estimated development costs. You can identify
forward-looking statements by the use of the words "believe," "expect,"
"anticipate," "intend," "estimate," "assume" and other similar expressions which
predict or indicate future events and trends and which do not relate to
historical matters. You should not rely on forward-looking statements, because
they involve known and unknown risks, uncertainties and other factors, some of
which are beyond our control. These risks, uncertainties and other factors may
cause our actual results, performance or achievements to be materially different
from the anticipated future results, performance or achievements expressed or
implied by the forward-looking statements. Factors that could have a material
adverse effect on our operations and future prospects include, but are not
limited to:

- economic conditions generally and the real estate market specifically,
including changes in occupancy rates and market rents;

- legislative/regulatory changes, including changes to laws governing the
taxation of real estate investment trusts, or REITs;

- availability of capital;

- changes in interest rates;

- uncertainties associated with our development activities, including the
failure to obtain zoning and other approvals and increases in construction
costs;

- the failure of acquisitions to yield expected results;

- the failure to sell communities marketed for sale or to sell communities in a
timely manner or on favorable terms;

- construction delays due to the unavailability of materials, weather conditions
or other delays;

- competition, which could limit our ability to secure attractive investment
opportunities, lease apartment homes or increase or maintain rents;

- supply and demand for apartment communities in our current and proposed market
areas, especially our core markets;

- changes in generally accepted accounting principles, or policies and
guidelines applicable to REITs; and

- those factors discussed in the sections entitled "Operating Performance of
Fully Stabilized Communities," on page 16 of this report and "Certain Factors
Affecting the Performance of Development Communities," on page 23 of this
report.

You should consider these risks and uncertainties when evaluating
forward-looking statements and you should not place undue reliance on such
statements. You should read the following discussion in conjunction with our
consolidated financial statements and notes, which accompany this report.

Summit is a real estate operating company that has elected REIT status and
focuses on the operation, development and acquisition of "Class A" luxury
apartment communities throughout the southeast, southwest and mid-atlantic
United States. We focus our efforts in seven core markets with particular
emphasis on the high growth areas of Washington, D.C., Southeast Florida and
Atlanta. Our other core markets are Dallas and Austin in Texas and Raleigh and
Charlotte in North Carolina.

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14

HISTORICAL RESULTS OF OPERATIONS

Our net income is generated primarily from operations of our apartment
communities. The changes in operating results from period to period reflect
changes in existing community performance and changes in the number of apartment
homes due to development, acquisition, or disposition of communities. Where
appropriate, comparisons are made on a "fully stabilized communities,"
"acquisition communities," "stabilized development communities," "communities in
lease-up" and "disposition communities" basis in order to adjust for changes in
the number of apartment homes. A community is deemed to be "stabilized" when it
has attained a physical occupancy level of at least 93%. A community that we
have acquired is deemed "fully stabilized" when we have owned it for one year or
more as of the beginning of the current year. A community that we have developed
is deemed "fully stabilized" when stabilized for the two prior years as of the
beginning of the current year. A community is deemed to be a "stabilized
development" community when stabilized as of the beginning of the current year
but not the entire two prior years. All communities information is presented
before real estate depreciation and amortization expense. A community's average
physical occupancy is defined as the number of apartment homes occupied divided
by the total number of apartment homes contained in the communities, expressed
as a percentage. Average physical occupancy has been calculated using the
average of the occupancy that existed on Sunday during each week of the period.
Average monthly rental revenue presented represents the average monthly net
rental revenue per occupied apartment home. Our methodology for calculating
average physical occupancy and average monthly rental revenue may differ from
the methodology used by other apartment companies and, accordingly, may not be
comparable to other apartment companies.

Results of Operations for the Three Months Ended March 31, 2001 and 2000

For the three months ended March 31, 2001, income before gain on sale of real
estate assets, minority interest of common unitholders in Operating Partnership
and dividends to preferred unitholders in Operating Partnership increased
$716,000 to $12.5 million from the three months ended March 31, 2000 primarily
due to increased property operating income generated by our portfolio of
communities, offset by increased interest costs primarily as a result of
increased average indebtedness outstanding.

14
15

OPERATING PERFORMANCE OF OUR PORTFOLIO OF COMMUNITIES

The operating performance of our communities for the three months ended March
31, 2001 and 2000 is summarized below (dollars in thousands):

THREE MONTHS ENDED MARCH 31,
----------------------------
2001 2000 % CHANGE
------- ------- --------

Property revenues:
Stabilized communities (1)............................. $30,420 $29,150 4.4%
Acquisition communities................................ 1,270 -- 100.0%
Stabilized development communities..................... 13,261 10,416 27.3%
Communities in lease-up................................ 2,911 982 196.4%
Communities sold....................................... -- 3,571 -100.0%
------- -------
Total property revenues.................................. 47,862 44,119 8.5%
------- -------
Property operating and maintenance expense:
Stabilized communities................................. 10,053 9,484 6.0%
Acquisition communities................................ 438 -- 100.0%
Stabilized development communities..................... 4,172 3,101 34.5%
Communities in lease-up................................ 1,062 515 106.2%
Communities sold....................................... -- 1,143 -100.0%
------- -------
Total property operating and maintenance expense......... 15,725 14,243 10.4%
------- -------
Property operating income................................ $32,137 $29,876 7.6%
======= =======
Apartment homes, end of period........................... 18,928 17,965 5.4%
======= =======

---------------

(1) Includes communities which were fully stabilized during the entire period
for each of the comparable periods presented.

A summary of our apartment homes (excluding joint ventures) for the three months
ended March 31, 2001 and 2000 is as follows:

2001 2000
------ ------

Apartment homes at January 1 of the year.................... 18,928 17,673
Developments which began rental operations during the
year...................................................... -- 410
Sale of apartment homes..................................... -- (118)
------ ------
Apartment homes at March 31 of the year..................... 18,928 17,965
====== ======

15
16

OPERATING PERFORMANCE OF FULLY STABILIZED COMMUNITIES

The operating performance of our communities stabilized prior to January 1, 1999
is summarized below (dollars in thousands except average monthly rental
revenue):

THREE MONTHS ENDED MARCH 31,
----------------------------
2001 2000 % CHANGE
------- ------- --------

Property revenues:
Rental................................................. $28,420 $27,208 4.5%
Other.................................................. 2,000 1,942 3.0%
------- -------
Total property revenues.................................. 30,420 29,150 4.4%
------- -------
Property operating and maintenance expense:
Personnel.............................................. 2,072 1,716 20.8%
Advertising and promotion.............................. 342 375 -8.8%
Utilities.............................................. 1,375 1,297 6.0%
Building repairs and maintenance....................... 1,317 1,328 -0.8%
Real estate taxes and insurance........................ 3,621 3,427 5.7%
Property supervision................................... 845 882 -4.2%
Other operating expense................................ 481 459 4.8%
------- -------
Total property operating and maintenance expense......... 10,053 9,484 6.0%
------- -------
Property operating income................................ $20,367 $19,666 3.6%
======= =======
Average physical occupancy............................... 93.6% 93.4% 0.2%
======= =======
Average monthly rental revenue........................... $ 918 $ 883 4.0%
======= =======
Number of apartment homes................................ 11,306 11,306
======= =======
Number of apartment communities.......................... 40 40
======= =======

The increase in property revenue from fully stabilized communities was primarily
the result of increases in average rental rates, as well as an improvement in
occupancy rates in 2001 when compared to 2000. The higher revenues were
primarily generated in our Florida, Washington, D.C., Wilmington, Delaware and
Austin, Texas markets. The increased revenues were offset by an increase of 6.0%
in property operating expenses, primarily personnel costs The increase in
personnel costs for the three months ended March 31, 2001 as compared to the
same period in 2000 was due primarily to the timing of adjustments made for the
change in estimate of workers' compensation costs in each year. As a percentage
of total property revenue, total property operating and maintenance expenses
increased for the three-month period to 33.0% in 2001 from 32.5% in 2000.

16
17

OPERATING PERFORMANCE OF ACQUISITION COMMUNITIES

Acquisition communities for the three months ended March 31, 2001 consist of
Summit Sweetwater and Summit Shiloh, representing a total of 490 apartment
homes, in each of which we acquired our joint venture partner's 51% interest on
August 1, 2000. The operations of these two communities for the three months
ended March 31, 2001 are summarized as follows (dollars in thousands except
average monthly rental revenue):

Property revenues:
Rental.................................................... $1,185
Other..................................................... 85
------
Total property revenues..................................... 1,270
Property operating and maintenance expense.................. 438
------
Property operating income................................... $ 832
======
Average physical occupancy.................................. 93.1%
======
Average monthly rental revenue.............................. $ 904
======
Number of apartment homes................................... 490
======

OPERATING PERFORMANCE OF STABILIZED DEVELOPMENT COMMUNITIES

We had fifteen development communities (Summit Ballantyne, Summit Sedgebrook,
Summit Governor's Village, Summit Lake, Summit Russett, Summit Westwood, Summit
New Albany, Summit Fair Lakes, Summit Doral, Summit Largo, Summit Hunter's
Creek, Summit Ashburn Farm, Summit Deer Creek, Summit Fairview and Reunion Park
by Summit) which were stabilized during the entire three months ended March 31,
2001, but were stabilized subsequent to January 1, 1999. Summit Fairview is an
existing community which underwent major renovations during 1999 and 2000. Its
operating results are included in results of stabilized development communities
as it reached stabilization after renovation during 2000. The operating
performance of these fifteen communities for the three months ended March 31,
2001 and 2000 is summarized below (dollars in thousands except average monthly
rental revenue):

THREE MONTHS
ENDED MARCH 31,
----------------
2001 2000
------- ------

Property revenues:
Rental.................................................... $12,362 $9,748
Other..................................................... 899 668
------- ------
Total property revenues..................................... 13,261 10,416
Property operating and maintenance expense.................. 4,172 3,101
------- ------
Property operating income................................... $ 9,089 $7,315
======= ======
Average physical occupancy.................................. 93.0% 82.5%
======= ======
Average monthly rental revenue.............................. $ 967 $ 860
======= ======
Number of apartment homes................................... 4,668 4,668
======= ======

The unleveraged yield on investment for the stabilized development communities,
defined as property operating income for the three months ended March 31, 2001
on an annualized basis over total development cost, was 10.4%.

17
18

OPERATING PERFORMANCE OF COMMUNITIES IN LEASE-UP

We had seven communities in lease-up during the three months ended March 31,
2001. Six of the seven communities in lease-up are new developments and one of
the communities in lease-up, Summit Lenox, is an existing community that
underwent major renovations during 1999 and 2000. A community in lease-up is
defined as one which has commenced rental operations but was not stabilized as
of the beginning of the current year. A summary of the six new development
communities in lease-up as of March 31, 2001 is as follows (dollars in
thousands):

TOTAL ACTUAL/ % LEASED
NUMBER OF ACTUAL/ ANTICIPATED Q1 2001 AS OF
APARTMENT ESTIMATED CONSTRUCTION ANTICIPATED AVERAGE MARCH 31,
COMMUNITY HOMES COST COMPLETION STABILIZATION OCCUPANCY 2001
--------- --------- --------- ------------ ------------- --------- ---------

Summit Russett II -- Laurel, MD....... 112 $ 10,600 Q4 2000 Q2 2001 59.3% 72.2%
Summit Grandview -- Charlotte, NC..... 266 51,200 Q4 2000 Q4 2001 57.8% 75.9%
Summit Deerfield -- Cincinnati, OH (1)
(2)................................. 498 41,500 Q3 2001 Q2 2002 25.8% 39.6%
Summit Overlook -- Raleigh, NC (2).... 320 25,500 Q3 2001 Q1 2002 2.8% 15.6%
Summit Crest -- Raleigh, NC (2)....... 438 30,700 Q3 2001 Q2 2002 11.6% 33.6%
Summit Peachtree City -- Atlanta, GA
(2)................................. 399 31,500 Q4 2001 Q4 2002 3.9% 15.6%
----- --------
2,033 $191,000
===== ========

---------------

(1) Summit Deerfield is under contract for sale, expected during 2001, as part
of our strategy to exit the midwest markets. We do not expect to realize a
loss on sale of Summit Deerfield, which is subject to customary closing
conditions.
(2) The related assets of these properties are included in the "Construction in
progress" category at March 31, 2001.

In addition to the communities listed in the table above, Summit Lenox in
Atlanta, Georgia is an existing community which underwent major renovations
during 1999 and 2000. The renovations included upgrades of the interior of the
apartment homes (new cabinets, fixtures and other interior upgrades), upgrades
to the parking lots and landscaping, as well as exterior painting of buildings.
The renovations required certain apartment homes to be unavailable for rental
over the course of the project. The operations of Summit Lenox are included in
results of our lease-up communities due to the renovation work. The renovation
work at Summit Lenox was substantially complete at March 31, 2001, but had not
yet reached stabilization after renovation.

All communities listed above were in lease-up during the three months ended
March 31, 2001. Summit Crest, Summit Overlook and Summit Peachtree City did not
have operating activity during the three months ended March 31, 2000 and,
therefore, the number of apartment homes and operating activity shown below for
2000 does not include these three communities.

The operating performance of our lease-up communities for the three months ended
March 31, 2001 and 2000 is summarized below (dollars in thousands):

THREE MONTHS
ENDED MARCH 31,
---------------
2001 2000
------ ------

Property revenues:
Rental.................................................... $2,575 $ 941
Other..................................................... 336 41
------ ------
Total property revenues..................................... 2,911 982
Property operating and maintenance expense.................. 1,062 515
------ ------
Property operating income................................... $1,849 $ 467
====== ======
Number of apartment homes................................... 2,464 1,307
====== ======

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19

OPERATING PERFORMANCE OF DISPOSITION COMMUNITIES

We did not dispose of any communities during the three months ended March 31,
2001. The information in the table below represents operating results for the
three months ended March 31, 2000 for the following communities sold during 2000
(referred to in this report using former community names): Summit Creekside,
Summit Eastchester, Summit Sherwood, Summit Blue Ash, Summit Park, Summit River
Crossing and Summit Village (dollars in thousands):

Property revenues:
Rental.................................................... $3,345
Other..................................................... 226
------
Total property revenues..................................... 3,571
Property operating and maintenance expense.................. 1,143
------
Property operating income................................... $2,428
======
Number of apartment homes................................... 1,676
======

OPERATING PERFORMANCE OF SUMMIT MANAGEMENT COMPANY

The operating performance of Summit Management Company and its wholly-owned
subsidiary, Summit Apartment Builders, Inc., for the three months ended March
31, 2001 and 2000 is summarized below (in thousands):

THREE MONTHS ENDED MARCH 31,
----------------------------
2001 2000 % CHANGE
------ ------ --------

Revenues:
Management fees charged to Operating Partnership..... $1,936 $1,468 31.9%
Third party management fee revenue................... 234 278 -15.8%
Construction revenue................................. 755 808 -6.6%
Gain on sale of real estate assets................... -- 238 -100.0%
Other revenue........................................ 77 72 6.9%
------ ------
Total revenue........................................ 3,002 2,864 4.8%
------ ------
Expenses:
Operating............................................ 2,420 2,571 -5.9%
Depreciation......................................... 80 86 -7.0%
Amortization......................................... 75 76 -1.3%
Interest............................................. 75 453 -83.4%
------ ------
Total expenses....................................... 2,650 3,186 -16.8%
------ ------
Net income (loss)...................................... $ 352 $ (322) 209.3%
====== ======

The increase in management fees charged to the Operating Partnership for the
three-month period was primarily the result of an 8.5% increase in property
revenues at our communities, as well as an increase in fees earned from managing
our communities in lease-up. The decrease in operating expenses during the
period was a result of a decrease in the number of management personnel at the
Management Company in 2001 as compared to 2000. In addition, interest expense
decreased due to an inter-company loan, which was repaid during 2000. Property
management revenues included property management fees from third parties of
$234,000 for the three months ended March 31, 2001 and $278,000 for the same
period in 2000. Property management fees from third parties as a percentage of
total property management revenues were 10.8% for the three months ended March
31, 2001 and 15.9% for the same period in 2000. We expect third party management
revenues as a percentage of total property management revenues to continue to
decline.

All of the construction revenue during the three month periods ended March 31,
2001 and 2000 was from contracts with Summit.

19
20

OTHER INCOME AND EXPENSES

Interest expense increased by $1.0 million for the three months ended March 31,
2001 compared with the same period in 2000. This increase was primarily the
result of an increase in our average indebtedness outstanding, which increased
by $102.2 million. In addition, the effective interest rate increased to 6.88%
from 6.75% for the three months ended March 31, 2001 as compared to the same
period in 2000.

Depreciation expense increased $576,000, or 6.5%, for the three months ended
March 31, 2001 as compared with the same period in 2000, primarily due to the
initiation of depreciation on recently developed communities.

General and administrative expenses increased $264,000, or 28.1%, for the three
months ended March 31, 2001 as compared to the same period in 2000. This
increase was primarily the result of an increase in compensation costs of
$87,000 due to performance stock grants which vested during the three months
ended March 31, 2001, as well as an increase in the reserve for the costs of
abandoned pursuit projects of $90,000. As a percentage of revenues, general and
administrative expenses were 2.5% for the three months ended March 31, 2001 and
2.1% for the same period in 2000.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity

Our net cash provided by operating activities increased from $11.5 million for
the three months ended March 31, 2000 to $15.1 million for the same period in
2001, primarily due to a $2.3 million increase in property operating income and
a $2.6 million decrease in cash used in accounts payable and accrued expenses.

Net cash used in investing activities decreased from $11.1 million for the three
months ended March 31, 2000 to $5.3 million for the same period in 2001 due to a
$17.1 million increase in proceeds from the sale of communities offset by a $9.1
million increase in construction and land acquisition activity. Property sale
proceeds from six of seven communities sold during 2000 were placed in escrow in
accordance with like-kind exchange income tax rules and regulations. Proceeds
from the sale of communities represent funds expended from these like-kind
exchange escrows. In the event proceeds from these property sales are not fully
invested in qualified like-kind property during the required time period, a
special distribution may be made or company level tax may be incurred.

Net cash used in financing activities increased from $1.1 million during the
three months ended March 31, 2000 to $10.6 million for the same period in 2001
primarily due to a decrease in net borrowings on our credit facility of $24.1
million offset by a decrease in the repurchase of common stock of $6.3 million
and common units of $1.8 million, and a decrease in cash used for employee notes
receivable from $7.3 million during the three months in 2000 compared to $1.0
million for the same period in 2001.

The ratio of earnings to fixed charges was 1.36 for the three months ended March
31, 2001 as compared to 1.60 for the three months ended March 31, 2000. The
decrease is primarily the result of the absence of gain on property dispositions
during the first quarter of 2001 as compared to the same period in 2000.

We have elected to be taxed as a real estate investment trust under Sections 856
and 860 of the Internal Revenue Code of 1986, as amended. REITs are subject to a
number of organizational and operational requirements, including a requirement
that 90% of ordinary taxable income be distributed. As a REIT, we generally will
not be subject to federal income tax on net income to the extent income is
distributed.

Our outstanding indebtedness at March 31, 2001 totaled $765.1 million. This
amount included $301.6 million of fixed rate conventional mortgages, $37.0
million of variable rate tax-exempt bonds, $278.0 million of fixed rate
unsecured notes, $4.0 million of tax-exempt fixed rate mortgages, and $144.5
million under our unsecured credit facility.

We expect to meet our liquidity requirements over the next twelve months,
including recurring capital expenditures relating to maintaining our existing
communities, primarily through our working capital, net cash provided by
operating activities and borrowings under our unsecured credit facility. We
consider our cash provided by operating activities to be adequate to meet
operating requirements and payments of dividends and

20
21

distributions during the next twelve months. We expect to meet our long-term
liquidity requirements, such as scheduled mortgage debt maturities, property
acquisitions, financing of construction and development activities and other
non-recurring capital improvements, through the issuance of unsecured notes and
equity securities, from undistributed cash flow, from proceeds received from the
disposition of certain communities and, in connection with the acquisition of
land or improved property, through the issuance of common units.

Credit Facility

We have a syndicated unsecured line of credit in the amount of $225.0 million.
The unsecured credit facility provides funds for new development, acquisitions
and general working capital purposes. The unsecured credit facility has a
three-year term with two one-year extension options and initially bears interest
at LIBOR plus 100 basis points based upon our current credit rating of BBB- by
Standard & Poor's Rating Services and Baa3 by Moody's Investors Service. The
interest rate will be reduced in the event an upgrade of our unsecured credit
rating is obtained. The unsecured credit facility also provides a bid option
sub-facility equal to a maximum of 50% of the total facility ($112.5 million).
This sub-facility provides us with the option to place borrowings in a fixed
LIBOR contract up to 180 days.

Medium-Term Notes

Derivative Financial Instruments

On January 1, 2001, we adopted Statement of Financial Accounting Standard No.
133, "Accounting for Derivative Instruments and Hedging Activities", as amended.
FAS 133 establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. It requires that entities recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. The cumulative effect of
adopting FAS 133 was not material to our financial statements.

At March 31, 2001, we had one interest rate swap with a notional amount of $30.0
million, relating to $30.0 million of 6.625% fixed rate notes issued under our
MTN Program. Under the interest rate swap agreement, through the maturity date
of December 15, 2003, (a) we have agreed to pay to the counterparty the interest
on a $30.0 million notional amount at a floating interest rate of three-month
LIBOR plus 11 basis points, and (b) the counterparty has agreed to pay to us the
interest on the same notional amount at the fixed rate. The floating rate at
March 31, 2001 was 5.14%. The fair value of the interest rate swap was $1.6
million at March 31, 2001. The swap has been designated as a fair value hedge of
the underlying fixed rate debt obligation and has been recorded as a reduction
of the related debt instrument. We assume no ineffectiveness as the interest
rate swap meets the short-cut method conditions required under FAS 133 for fair
value hedges of debt instruments. Accordingly, no gains or losses were recorded
in income relative to our underlying debt and interest rate swap.

21
22

Preferred Units

Common Stock Repurchase Program

On March 12, 2000, our Board of Directors authorized a common stock repurchase
program pursuant to which we are authorized to purchase up to an aggregate of
$25.0 million of currently issued and outstanding shares of our common stock.
All repurchases have been, and will be, made on the open market at prevailing
prices or in privately negotiated transactions. This authority may be exercised
from time to time and in such amounts as market conditions warrant. We did not
repurchase any shares of our common stock during the three months ended March
31, 2001. During the year ended December 31, 2000, we repurchased 279,400 shares
of our common stock under the common stock repurchase program for an aggregate
purchase price, including commissions, of $5.5 million, or an average price of
$19.80 per share.

Employee Loan Program

Our Board of Directors believes that ownership of our common stock by our
executive officers and certain other qualified employees will align the
interests of these officers and employees with the interests of our
stockholders. To this end, our Board of Directors approved and we instituted a
loan program under which we may lend amounts to certain of our executive
officers and other qualified employees to (a) finance the purchase of our common
stock on the open market at then-current market prices, (b) finance the payment
of the exercise price of one or more stock options to purchase shares of our
common stock, or (c) finance the annual tax liability or other expenses of an
executive officer related to the vesting of shares of common stock which
constitute a portion of a restricted stock award granted to the executive
officer. We have amended the terms of the loan program from time to time since
its inception in 1997. The relevant officer or employee has executed a
Promissory Note and Security

22
23

Agreement related to each loan extended. These notes bear interest at the
applicable federal rate as established by the Internal Revenue Service, are full
recourse to the officers and employees and are collateralized by the shares of
our common stock which are the subject of the loans.

COMMUNITIES BEING MARKETED FOR SALE

At March 31, 2001, we had two apartment communities under contract for sale with
a net book value of $58.4 million. We do not anticipate incurring a loss on any
individual apartment community sale. Proceeds from the sale of the communities
are expected to be used to fund future development. The two apartment
communities held for sale represented 2.5% of property operating income for all
of our communities for the three months ended March 31, 2001. The sale of these
communities is subject to customary closing conditions. We cannot assure you
that these communities or other communities that we market for sale will be sold
in a timely manner or on favorable terms or at all.

DEVELOPMENT ACTIVITY

Our construction in progress at March 31, 2001 is summarized as follows (dollars
in thousands):

TOTAL ESTIMATED ANTICIPATED
APARTMENT ESTIMATED COST TO COST TO CONSTRUCTION
COMMUNITY HOMES COSTS DATE COMPLETE COMPLETION
--------- --------- --------- -------- --------- ------------

Summit Deerfield -- Cincinnati, OH (1)
(3)...................................... 498 $ 41,500 $ 38,344 $ 3,156 Q3 2001
Summit Overlook-Raleigh, NC (1)............ 320 25,500 19,182 6,318 Q3 2001
Summit Crest-Raleigh, NC (1)............... 438 30,700 25,670 5,030 Q3 2001
Summit Peachtree City -- Atlanta, GA (1)... 399 31,500 29,016 2,484 Q4 2001
Summit Grand Parc -- Washington, DC........ 105 29,400 14,812 14,588 Q1 2002
Summit Brookwood -- Atlanta, GA............ 359 41,500 8,300 33,200 Q4 2002
Summit Valley Brook -- Philadelphia, PA.... 352 37,000 11,247 25,753 Q1 2003
Other development and construction costs
(2)...................................... -- -- 60,023 --
----- -------- -------- -------
2,471 $237,100 $206,594 $90,529
===== ======== ======== =======

---------------

(1) These communities were in lease-up at March 31, 2001.
(2) Consists primarily of land held for development and other pre-development
costs.
(3) Summit Deerfield is under contract for sale, expected in 2001, as part of
our strategy to exit the midwest markets. We do not expect to realize a loss
upon sale of Summit Deerfield, which is subject to customary closing
conditions.

Estimated costs to complete the development communities represent substantially
all of our material commitments for capital expenditures at March 31, 2001.

Certain Factors Affecting the Performance of Development Communities

We are optimistic about the operating prospects of the communities under
construction. However, as with any development effort, there are uncertainties
and risks associated with the communities described above. While we have
prepared development budgets and have estimated completion and stabilization
target dates based on what we believe are reasonable assumptions in light of
current conditions, there can be no assurance that actual costs will not exceed
current budgets or that we will not experience construction delays due to the
unavailability of materials, weather conditions or other events.

Other development risks include the possibility of incurring additional costs or
liabilities resulting from defects in construction material, and the possibility
that financing may not be available on favorable terms, or at all, to pursue or
complete development activities. Similarly, market conditions at the time these
communities become available for leasing will affect the rental rates that may
be charged and the period of time necessary to achieve stabilization, which
could make one or more of the development communities unprofitable or result in
achieving stabilization later than currently anticipated.

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In addition, we are conducting feasibility and other pre-development work for
ten communities. We could abandon the development of any one or more of these
potential communities in the event that we determine that market conditions do
not support development, financing is not available on favorable terms or other
circumstances exist which may prevent development. Similarly, there can be no
assurance that, if we do pursue one or more of these potential communities, we
will be able to complete construction within the currently estimated development
budgets or construction can be started at the time currently anticipated.

COMMITMENTS AND CONTINGENCIES

On January 19, 2000, we entered into a Real Estate Purchase Agreement with a
third-party real estate developer. Under the terms of the agreement, we have
agreed to purchase a "Class A" mixed-use community, which will be called Summit
Brickell, and will be located in Miami, Florida. We expect to close on the
purchase of Summit Brickell during the second half of 2002 following its
completion and lease-up. The final purchase price will be determined based on
actual construction costs plus a bonus to the developer based on the capitalized
income of the property at the time of purchase. The purchase price is expected
to range from $50.5 million to $60.0 million. The purchase price of Summit
Brickell is subject to customary closing conditions. We issued a letter of
credit in the amount of $13.0 million, which will serve as a credit enhancement
to the developer's construction loan. In the event that any amount under the
letter of credit is drawn upon, we shall be treated as having issued a loan to
the developer in the amount of such draw. Any such loan will accrue interest at
a rate of 18% per year.

We have investments in two technology-related companies, Broadband Now, Inc. and
Yieldstar Technology LLC. Our investment in Broadband Now is $1.2 million and
our investment in Yieldstar is $137,000. The technology industry, including
sectors in which our investees operate, has recently suffered from a depressed
market valuation and decreased supply of capital. The inability of these
companies to acquire capital at a satisfactory price in the near future could
affect their ability to fund working capital requirements and could result in
the failure of those companies. In the event that our investments in these
technology-related companies are determined to be partially or fully impaired,
any resulting write-down of our investment(s) would not require cash payments
but would have a negative impact on our net earnings and could adversely affect
the price of our common stock.

FUNDS FROM OPERATIONS

We consider funds from operations ("FFO") to be an appropriate measure of
performance of an equity REIT. We compute FFO in accordance with standards
established by the National Association of Real Estate Investment Trusts
("NAREIT"). FFO, as defined by NAREIT, represents net income (loss) excluding
gains or losses from sales of property, plus depreciation of real estate assets,
and after adjustments for unconsolidated partnerships and joint ventures, all
determined on a consistent basis in accordance with generally accepted
accounting principles ("GAAP"). Funds Available for Distribution ("FAD") is
defined as FFO less capital expenditures funded by operations (recurring capital
expenditures). Our methodology for calculating FFO and FAD may differ from the
methodology for calculating FFO and FAD utilized by other real estate companies,
and accordingly, may not be comparable to other real estate companies. FFO and
FAD do not represent amounts available for management's discretionary use
because of needed capital expenditures or expansion, debt service obligations,
property acquisitions, development, dividends and distributions or other
commitments and uncertainties. FFO and FAD should not be considered as
alternatives to net income (determined in accordance with GAAP) as an indication
of our financial performance or to cash flows from operating activities
(determined in accordance with GAAP) as a measure of our liquidity, nor are they
indicative of funds available to fund our cash needs, including our ability to
make dividend or distribution payments. We believe FFO and FAD are helpful to
investors as measures of our performance because, along with cash flows from
operating activities, financing activities and investing activities, they
provide investors with an understanding of our ability to incur and service debt
and make capital expenditures.

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FFO and FAD for the three months ended March 31, 2001 and 2000 are calculated as
follows (dollars in thousands):

THREE MONTHS ENDED MARCH 31,
----------------------------
2001 2000
------------ ------------

Net income................................................ $ 8,055 $ 9,539
Minority interest of unitholders in Operating
Partnership............................................. 1,327 1,567
Gain on sale of real estate assets........................ -- (2,440)
Gain on sale of real estate assets -- Management
Company................................................. -- (238)
----------- -----------
Adjusted net income..................................... 9,382 8,428
Depreciation:
Real estate assets...................................... 9,386 8,852
Real estate joint ventures.............................. 198 184
----------- -----------
Funds from Operations..................................... 18,966 17,464
Recurring capital expenditures (1)...................... (1,002) (952)
----------- -----------
Funds Available for Distribution.......................... $ 17,964 $ 16,512
=========== ===========
Non-recurring capital expenditures (2).................... $ 2,130 $ 943
=========== ===========
Cash flow provided by (used in):
Operating activities.................................... $ 15,139 $ 11,532
Investing activities.................................... (5,289) (11,054)
Financing activities.................................... (10,558) (1,079)
Weighted average shares and units outstanding -- basic.... 30,998,481 30,805,689
=========== ===========
Weighted average shares and units outstanding - diluted... 31,292,210 30,889,711
=========== ===========

---------------

(1) Recurring capital expenditures are expected to be funded from operations and
consist primarily of interior painting, carpets, new appliances, vinyl,
blinds, tile, and wallpaper. In contrast, non-recurring capital
expenditures, such as major improvements, new garages and access gates, are
expected to be funded by financing activities and, therefore, are not
included in the calculation of FAD.
(2) Non-recurring capital expenditures for the three months ended March 31, 2001
and 2000 primarily consist of: $133,000 and $134,000 for major renovations
in 2001 and 2000, respectively; $91,000 and $41,000 for access gates and
security fences in 2001 and 2000, respectively; and $892,000 and $644,000 in
other revenue enhancement expenditures in 2001 and 2000, respectively.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There has been no material change in our market risk since the filing of our
Annual Report on Form 10-K for the year ended December 31, 2000.

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PART II

ITEM 2. CHANGES IN SECURITIES

On February 1, 2001, we issued to a limited partner of the Operating Partnership
4,012 shares of our common stock in exchange for the corresponding number of
common units. Such shares of our common stock were issued in reliance upon an
exemption from registration under Section 4(2) of the Securities Act of 1933, as
amended. In light of the information obtained by us in connection with such
transaction, we believe that we may rely upon such exemption.

ITEM 5. OTHER INFORMATION

Succession Plan

On March 28, 2001, we announced a succession plan pursuant to which William F.
Paulsen, Co-Chairman of the Board of Directors and Chief Executive Officer, will
transition from his position as Chief Executive Officer effective July 1, 2001.
Mr. Paulsen intends to remain as Co-Chairman of the Board of Directors at that
time. Steven R. LeBlanc, President and Chief Operating Officer, will succeed Mr.
Paulsen in the role of Chief Executive Officer. At the same time, Michael L.
Schwarz, Executive Vice President and Chief Financial Officer, will assume Mr.
LeBlanc's responsibilities for property operations.

Medium-Term Note Program

On May 8, 2001, our program for the sale by the Operating Partnership of up to
$250.0 million aggregate principal amount of Medium-Term Notes due nine months
or more from the date of issuance was amended to allow the Operating Partnership
to accept offers to purchase its Medium-Term Notes through additional agents and
dealers. The program was commenced on April 20, 2000, with J.P. Morgan
Securities Inc., First Union Securities, Inc., Merrill Lynch, Pierce, Fenner &
Smith Incorporated and Morgan Stanley & Co. Incorporated as the exclusive
agents. Offers through additional agents and dealers are required to be made on
substantially the same terms as those applicable to sales of Medium-Term Notes
through the original agents.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

3.1 Bylaws of Summit Properties Inc. (incorporated herein by
reference to Exhibit 3.2 to Summit's Registration Statement
on Form S-11, Registration No. 33-90706).
*3.2 First Amendment to Bylaws of Summit Properties Inc.
*3.3 Second Amendment to Bylaws of Summit Properties Inc.
*10.1 Promissory Note and Security Agreement, dated February 6,
2001, evidencing a loan of $107,032 to Randall M. Ell for
the purpose of purchasing shares of common stock of Summit
Properties Inc.
*10.2 First Amendment to Distribution Agreement dated as of May 8,
2001, by and among Summit Properties Inc., Summit Properties
Partnership, L.P. and the agents named therein.
*12.1 Statement Regarding Calculation of Ratio of Earnings to
Fixed Charges for the three months ended March 31, 2001.

---------------

* Filed herewith

(b) Reports on Form 8-K

We did not file any reports on Form 8-K in the first quarter of 2001.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

SUMMIT PROPERTIES INC.

May 9, 2001 /s/ WILLIAM F. PAULSEN
-------------------------------------------- --------------------------------------------
(Date) William F. Paulsen,
Co-Chairman of the Board of Directors
and Chief Executive Officer

May 9, 2001 /s/ MICHAEL L. SCHWARZ
-------------------------------------------- --------------------------------------------
(Date) Michael L. Schwarz,
Executive Vice President -- Operations
and Chief Financial Officer