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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
December 5, 1996
Date of Report (Date of earliest event reported)
Commission File Number 1-12452
AVALON PROPERTIES, INC.
(Exact name of registrant as specified in its charter)
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<S> <C>
Maryland 06-1379111
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
15 River Road
Wilton, Connecticut 06897
(Address of principal executive offices) - (Zip Code)
(203) 761-6500
(Registrant's telephone number, including area code)
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AVALON PROPERTIES, INC.
CURRENT REPORT
ON FORM 8-K
ITEM 2. ACQUISITION OF ASSETS.
Since January 1, 1996, Avalon Properties, Inc. (the "Company") has purchased
four communities and has agreed to purchase one additional community.
The transactions are described as follows:
The Company acquired a fee simple interest in Avalon Chase (formerly Hunter's
Chase), in Marlton, New Jersey on January 4, 1996. This garden-style
community, completed in 1988, consists of 360 apartment homes. The community
was acquired, with cash proceeds drawn under the Company's revolving unsecured
credit facilities, from a co-mingled pension fund managed by Aetna Realty
Advisors for approximately $23,292,000.
The Company acquired a fee simple interest in Avalon Pines (formerly The
Huntington), a seven-year old garden apartment community in Virginia Beach,
Virginia on May 23, 1996. This community has 174 apartment homes. The
community was acquired from the Samani Family for approximately $8,420,000 with
cash proceeds drawn under the Company's revolving unsecured credit facilities.
In connection with this acquisition, the Company assumed a conventional loan
with an outstanding principal amount of approximately $5,600,000 and bearing an
8% annual fixed interest rate with a maturity date of December 2003. This
community was managed by the Company prior to its acquisition.
The Company acquired the 100% partnership interests in Avalon at Fairway Hills
II, two garden-style communities (formerly Greenbriar and Fairway Pointe) in
Columbia, Maryland on July 23, 1996. Greenbriar and Fairway Pointe, built in
1988 and 1987, respectively, contain a total of 527 apartment homes. These
communities were acquired from a pension fund managed by Aetna Realty Advisors
for approximately $32,430,000 with cash proceeds drawn under the Company's
revolving unsecured credit facilities. These communities and a Company-owned
community, Avalon Meadows (renamed Avalon at Fairway Hills I), are situated
within 0.5 miles of each other and are operated as two phases of one community.
The Company acquired a fee simple interest in Avalon at The Boulders (formerly
Boulder Springs), a garden-style apartment community located in Richmond,
Virginia on September 25, 1996. This ten-year old community has 284 apartment
homes. This community was acquired from Balcor Company for $14,831,000 with
cash proceeds drawn under the Company's revolving unsecured credit facilities.
The Company is expected to acquire a fee simple interest in Autumn Woods, a
garden-style community located in Fairfax, Virginia on December 11, 1996.
Completed in 1990, this community has 420 apartment homes. This community will
be acquired from H/P Companies L.C. for approximately $30,213,000. In
connection with this probable acquisition, the Company will assume a
conventional loan with an outstanding principal amount of approximately
$24,300,000 and bearing a 9.25% interest rate with a maturity date of November
1997. The Company expects to prepay the loan on August 1, 1997 at par with no
prepayment penalty.
Certain historical and pro forma financial information concerning these
communities is as set forth herein.
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ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
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(a) Financial Statements of Certain of Communities Acquired
PAGE
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Report of Independent Accountants 4
Combined Statement of Revenue and Certain Operating Expenses for
the Year Ended December 31, 1995 5
Notes to Combined Statement of Revenue and Certain Operating
Expenses 6
Estimates of Net Income and Funds from Operations of Certain Acquired
Communities (unaudited) 7
Notes to Estimates of Net Income and Funds from Operations of Certain
Acquired Communities (unaudited) 8
(b) Unaudited Pro Forma Financial Information 9
Pro Forma Condensed Consolidated Statement of Operations for the
Nine Months Ended September 30, 1996 10
Pro Forma Condensed Consolidated Statement of Operations for the
Year Ended December 31, 1995 11
Notes to Pro Forma Condensed Consolidated Statements of Operations 12
(c) Exhibits
N/A
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REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of Avalon Properties, Inc.
We have audited the accompanying combined statement of revenue and certain
operating expenses of the ACQUISITION COMMUNITIES, as described in the
accompanying Note 1 (the "Communities"), for the year ended December 31, 1995.
This combined statement is the responsibility of the management of the
Communities. Our responsibility is to express an opinion on the combined
statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the combined statement is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the combined statement. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of
the combined statement. We believe that our audit provides a reasonable basis
for our opinion.
The accompanying combined statement of revenue and certain operating expenses
has been prepared for the purpose of complying with the rules and regulations
of the Securities and Exchange Commission as described in Note 2, and is not
intended to be a complete presentation of the revenue and expenses of the
Communities.
In our opinion, the combined statement referred to above presents fairly, in
all material respects, the revenue and certain operating expenses described in
Note 2 of the Communities for the year ended December 31, 1995, in conformity
with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
New York, New York
December 5, 1996
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ACQUISITION COMMUNITIES
COMBINED STATEMENT OF REVENUE AND CERTAIN OPERATING EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
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REVENUE:
Rental income $9,425
Other income 3
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Total revenue 9,428
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CERTAIN OPERATING EXPENSES:
Operating and maintenance 2,554
Real estate taxes 967
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Total certain operating expenses 3,521
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Excess of revenue over certain operating expenses $5,907
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See the accompanying notes to the Combined Statement of Revenue
and Certain Operating Expenses.
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ACQUISITION COMMUNITIES
NOTES TO COMBINED STATEMENT OF REVENUE AND CERTAIN OPERATING
EXPENSES
1. ACQUISITION COMMUNITIES
The combined statement of revenue and certain operating expenses relates to
the operations of three residential apartment communities prior to the
acquisition by Avalon Properties, Inc. (the "Company"). These residential
apartment communities are Avalon Chase (formerly Hunter's Chase), located in
Marlton, New Jersey, Avalon Pines (formerly The Huntington), located in
Virginia Beach, Virginia and Avalon at Fairway Hills II (formerly Greenbriar
and Fairway Pointe), located in Columbia, Maryland (the "Acquisition
Communities"). Avalon purchased Avalon Chase on January 4, 1996, Avalon
Pines on May 23, 1996 and Avalon at Fairway Hills II on July 23, 1996.
2. BASIS OF PRESENTATION
The combined statement has been prepared on the accrual method of
accounting. Certain operating expenses include operating and maintenance
costs, real estate taxes, and insurance expenses relating to the operation
of the Acquisition Communities. In accordance with the regulations of the
Securities and Exchange Commission, mortgage interest, depreciation and
corporate expenses have been excluded from certain operating expenses, as
they are dependent upon a particular owner, purchase price or other
financial arrangement. Accordingly, the expenses reflected in the
accompanying statement may not be comparable to the expenses to be incurred
in the future operations of the Acquisition Communities.
3. REVENUE RECOGNITION
Apartment homes are leased to individual residents on short-term leases.
Rental income is recognized monthly as earned.
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ACQUISITION COMMUNITIES
ESTIMATES OF NET INCOME AND
FUNDS FROM OPERATIONS
OF
CERTAIN ACQUIRED COMMUNITIES
(UNAUDITED)
(DOLLARS IN THOUSANDS)
The following represents an estimate of the net income and Funds from
Operations expected to be generated from the operation of the subject
Acquisition Communities based upon the Combined Statement of Revenue and
Certain Operating Expenses for the year ended December 31, 1995. These
estimated results do not purport to represent results of operations for these
communities in the future and were prepared on the basis described in the
accompanying notes which should be read in conjunction herewith.
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ESTIMATED NET INCOME
Excess of revenues over certain operating expenses $5,907
Less: Estimated depreciation (Note 1) (1,478)
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Estimated net income $4,429
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ESTIMATED FUNDS FROM OPERATIONS
Estimated net income $4,429
Plus: Estimated depreciation (Note 1) 1,478
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Estimated Funds from Operations $5,907
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See the accompanying notes to Estimates of Net Income and Funds from Operations
of Certain Acquired Communities.
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ACQUISITION COMMUNITIES
NOTES TO ESTIMATES OF NET INCOME AND
FUNDS FROM OPERATIONS
OF
CERTAIN ACQUIRED COMMUNITIES
1. BASIS OF PRESENTATION
Depreciation has been estimated based upon an allocation of the purchase
prices for the subject Acquisition Communities to land (20%) and building
(80%) assuming a 40-year useful life applied on a straight line method. An
allocation of $1,500 per unit to furniture and fixtures assuming a 7-year
useful life has been applied on a straight line method.
No income taxes have been provided because the Company is taxed as a Real
Estate Investment Trust ("REIT") under the provisions of the Internal
Revenue Code. Accordingly, the Company does not pay Federal income tax when
income distributed to its stockholders is equal to at least 95% of REIT
taxable income and when certain other conditions are met.
2. FUNDS FROM OPERATIONS
Funds from Operations is determined in accordance with a resolution
adopted by the Board of Governors of the National Association of Real Estate
Investment Trusts, Inc. ("NAREIT"), and is defined as net income (loss)
(computed in accordance with generally accepted accounting principles),
excluding gains (or losses) from debt restructuring and sales of property,
plus depreciation of real estate and after adjustments for unconsolidated
partnerships and joint ventures.
3. ACQUISITION CONSIDERATIONS
In assessing the communities acquired, the Company's management considered
the existing leases, which are the primary source of revenue, the occupancy
rates, the competitive nature of the markets and comparative rental rates.
Furthermore, current and anticipated maintenance and repair costs, real
estate taxes and capital improvement requirements were evaluated.
Management is not aware of any material factors that would cause the
reported financial information in the accompanying Combined Statement of
Revenue and Certain Operating Expenses and Estimates of Net Income and Funds
from Operations of Certain Acquired Communities to be misleading.
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AVALON PROPERTIES, INC.
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following Unaudited Pro Forma Condensed Financial Information is based
upon the historical financial statements of Avalon Properties, Inc. (the
"Company").
The Unaudited Pro Forma Condensed Consolidated Statement of Operations for the
nine months ended September 30, 1996 and the year ended December 31, 1995 have
been presented as if the acquisition of the Acquisition Communities, the
acquisition of Avalon at The Boulders in September 1996 and the probable
acquisition of Autumn Woods which is scheduled to close on December 11, 1996
("Other Acquisitions") had occurred on January 1, 1995.
The unaudited Pro Forma Condensed Consolidated Statements of Operations for the
nine months ended September 30,1996 and for the year ended December 31, 1995
are not necessarily indicative of what the actual results of operations of the
Company would have been had the transactions been completed as of January 1,
1995 nor does it purport to represent the results of operations for future
periods.
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AVALON PROPERTIES, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
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<CAPTION>
THE ACQUISITION OTHER
COMPANY COMMUNITIES ACQUISITIONS PRO FORMA PRO FORMA
(a) (b) (c) ADJUSTMENTS CONSOLIDATED
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<S> <C> <C> <C> <C> <C>
Revenue
Rental income $89,286 $3,272 $4,637 $-- $97,195
Management fees 1,151 -- -- (20) (d) 1,131
Other income 313 4 -- 317
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Total revenue 90,750 3,272 4,641 (20) 98,643
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Expenses
Operating expenses 34,776 1,322 1,716 -- 37,814
Interest expense 7,093 -- -- 3,761 (e) 10,854
Depreciation and amortization 15,025 -- -- 1,265 (f) 16,290
General and administrative 2,846 -- -- -- 2,846
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Total expenses 59,740 1,322 1,716 5,026 67,804
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Equity in income of joint ventures 598 -- -- -- 598
Interest income 641 -- -- -- 641
Minority interest income 410 -- -- -- 410
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Income before extraordinary item 32,659 1,950 2,925 (5,046) 32,488
Extraordinary item (2,356) -- -- -- (2,356)
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Net income 30,303 1,950 2,925 (5,046) 30,132
Dividends attributable to preferred stock (6,070) -- -- -- (6,070)
---------- -------- -------- -------- ----------
Net income available to common
stockholders $24,233 $1,950 $2,925 ($5,046) $24,062
========== ======== ======== ======== ==========
Income per share before extraordinary item $1.07 $1.06
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Net income per share of common stock $.79 $.79
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Weighted average number of shares of
common stock 30,563,292 30,563,292
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</TABLE>
See accompanying notes to pro forma condensed consolidated statement of
operations.
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AVALON PROPERTIES, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THE ACQUISITION OTHER
COMPANY COMMUNITIES ACQUISITIONS PRO FORMA PRO FORMA
(a) (b) (c) ADJUSTMENTS CONSOLIDATED
----------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenue
Rental income $94,821 $9,425 $6,012 $-- $110,258
Management fees 1,926 -- -- (24) (d) 1,902
Other income 466 3 4 -- 473
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Total revenue 97,213 9,428 6,016 (24) 112,633
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Expenses
Operating expenses 36,143 3,521 1,875 -- 41,539
Interest expense 11,056 -- -- 7,976 (e) 19,032
Depreciation and amortization 16,558 -- -- 2,509 (f) 19,067
General and administrative 3,387 -- -- -- 3,387
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Total expenses 67,144 3,521 1,875 10,485 83,025
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Equity in income of joint ventures 440 -- -- -- 440
Interest income 953 -- -- -- 953
Minority interest income 633 -- -- -- 633
----------- ------- ------- ---------- -----------
Income before extraordinary item 32,095 5,907 4,141 (10,509) 31,634
Extraordinary item (1,158) -- -- -- (1,158)
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Net income $30,937 $5,907 $4,141 ($10,509) $30,476
=========== ======= ======= ========== ===========
Income per share before extraordinary item $ 1.13 $ 1.12
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Net income per share of common stock $ 1.09 $ 1.07
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Weighted average number of shares of
common stock 28,365,427 28,365,427
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</TABLE>
See accompanying notes to pro forma condensed consolidated statement of
operations.
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AVALON PROPERTIES, INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
a) Reflects the Company's historical consolidated statement of operations
for the nine months ended September 30, 1996 and the year ended December
31, 1995.
b) Reflects the combined statement of revenue and certain operating expenses
of the Acquisition Communities for the nine months ended September 30,
1996 prior to dates of acquisition and the historical combined statement
of revenue and certain operating expenses of the Acquisition Communities
for the year ended December, 31, 1995.
c) Reflects the historical combined statement of revenue and certain
operating expenses of Avalon at The Boulders and Autumn Woods for the nine
months ended September 30, 1996 and for the year ended December, 31, 1995.
d) Decrease relates to property management fee income earned from management
of Avalon Pines for the five months ended May 31, 1996 and for the year
ended December 31, 1995.
e) Increase relates to additional borrowings under the revolving unsecured
credit facilities to purchase the Acquisition Communities and the Other
Acquisitions prior to date of the acquisition for the nine months ended
September 30, 1996 and for the year ended December 31, 1995.
f) Increase in depreciation attributable to the increase in the basis of
real estate resulting from the purchase of the Acquisition Communities and
the Other Acquisitions prior to date of acquisition for the nine months
ended September 30, 1996 and the year ended December 31, 1995.
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SIGNATURE
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.
AVALON PROPERTIES, INC.
Date: December 5, 1996 By /s/ THOMAS J. SARGEANT
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Thomas J. Sargeant,
Chief Financial Officer, Treasurer and
Secretary (Principal Financial
and Accounting Officer)
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