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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
October 15, 1997
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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Maryland 06-1379111
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State or other jurisdiction of (I.R.S. Employer
incorporation) Identification No.)
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 5. OTHER.
Since January 1, 1997, Avalon Properties, Inc. (the "Company") has purchased
three communities.
The transactions are described as follows:
The Company acquired a 99% general partner interest in a "DownREIT" partnership
which acquired Avalon at Ballston-Vermont and Quincy Towers, two high-rise
apartment communities (formerly Ballston Place and Quincy Place), in Arlington,
Virginia on January 9, 1997. Ballston Place and Quincy Place, completed in 1989,
consist of 454 apartment homes. The communities were contributed to the DownREIT
partnership by Quincy Station Apartments Limited Partnership, Aubrey's Road II
Associates Limited Partnership and Ballston Place Associates Limited Partnership
in exchange for a combination of (i) limited partnership interests in the
newly-formed DownREIT partnership, (ii) cash drawn under the Company's unsecured
bank credit facilities (the "Unsecured Facilities") and (iii) the assumption of
certain existing indebtedness secured by the communities by the DownREIT
partnership. The aggregate contribution value was approximately $45,698,000.
These communities and a Company-owned community, Avalon at Ballston, are
situated within walking distance of each other and are operated as two phases of
one community.
The Company acquired a fee simple interest in Avalon at Center Place (formerly
Center Place), a high-rise apartment community in Providence, Rhode Island on
May 16, 1997. Center Place, completed in late 1991, consists of 225 apartment
homes. The property is subject to a 149 year ground lease that expires in 2141.
The community was acquired from Parcel Five Limited Partnership for
approximately $26,000,000 with cash proceeds drawn under the Company's Unsecured
Facilities. This community was managed by the Company prior to its acquisition.
The Company acquired a fee simple interest in Avalon at Providence Park, a
garden-style community (formerly Providence Park) in Fairfax City, Virginia on
June 27, 1997. Providence Park, built in 1988, contains a total of 140 apartment
homes. This community was acquired from BDW Corporation for approximately
$10,750,000 with cash proceeds drawn under the Company's Unsecured Facilities.
Certain historical and pro forma financial information concerning these
communities is as set forth in Item 7 of this report.
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ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
<TABLE>
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(a) Financial Statements of Certain 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, 1996 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
Six Months Ended June 30, 1997 10
Pro Forma Condensed Consolidated Statement of Operations for the
Year Ended December 31, 1996 11
Notes to Pro Forma Condensed Consolidated Statements of Operations 12
(c) Exhibits
N/A
</TABLE>
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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 defined in the
accompanying Note 1, for the year ended December 31, 1996. This combined
statement is the responsibility of the management of the Acquisition
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
Acquisition 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 Acquisition Communities for the year ended December 31, 1996, in
conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
New York, New York
September 22, 1997
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ACQUISTION COMMUNITIES
COMBINED STATEMENT OF REVENUE AND CERTAIN OPERATING EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
REVENUE:
Rental income $9,030
Other income 445
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Total revenue 9,475
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CERTAIN OPERATING EXPENSES:
Operating and maintenance 2,675
Real estate taxes 855
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Total certain operating expenses 3,530
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Excess of revenue over certain operating expenses $5,945
=========
</TABLE>
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 at Ballston-Vermont and Quincy Towers
(formerly Ballston Place and Quincy Place), located in Arlington, Virginia
and Avalon at Center Place (formerly Center Place), located in Providence,
Rhode Island (the "Acquisition Communities"). Avalon purchased Avalon at
Ballston-Vermont and Quincy Towers on January 9, 1997 and Avalon at Center
Place on May 16, 1997.
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, 1996. 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.
<TABLE>
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ESTIMATED NET INCOME
Excess of revenues over certain operating expenses $5,945
Less: Estimated depreciation (Note 1) (1,559)
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Estimated net income $4,386
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ESTIMATED FUNDS FROM OPERATIONS
Estimated net income $4,386
Plus: Estimated depreciation (Note 1) 1,559
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Estimated Funds from Operations $5,945
===============
</TABLE>
See the accompanying notes to unaudited 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
(UNAUDITED)
1. BASIS OF PRESENTATION
Depreciation has been estimated based upon an allocation of the purchase
prices for the subject Acquisition Communities to furniture and fixtures,
to land and to building. The allocation of the purchase price to fixtures
is based on an estimated value of $1,500 per apartment home. The balance
of the purchase price is then allocated 20% to land and 80% to building.
Furniture and fixtures are depreciated on a straight line basis over 7
years, and buildings are depreciated on a straight line basis over 40 years.
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
six months ended June 30, 1997 and the year ended December 31, 1996 have been
presented as if the acquisition of the Acquisition Communities as well as Avalon
at Providence Park in June 1997, had occurred on January 1, 1996.
The Unaudited Pro Forma Condensed Consolidated Statement of Operations for the
six months ended June 30, 1997 and the year ended December 31, 1996 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, 1996 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 SIX MONTHS ENDED JUNE 30, 1997
(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
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Revenue
Rental income $77,526 $1,501 $ 735 $ -- $79,762
Management fees 499 -- -- (34) (d) 465
Other income 273 149 -- -- 422
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Total revenue 78,298 1,650 735 (34) 80,649
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Expenses
Operating expenses 27,761 742 243 -- 28,747
Interest expense 7,639 -- -- 1,013 (e) 8,652
Depreciation and amortization 13,527 -- -- 329 (f) 13,856
General and administrative 2,199 -- -- -- 2,199
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Total expenses 51,126 742 243 1,342 53,454
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Equity in income of joint ventures 2,346 -- -- -- 2,346
Interest income 495 -- -- -- 495
Minority interest 142 -- -- -- 142
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Income before extraordinary item 30,155 907 492 (1,376) 30,179
Extraordinary item (1,183) -- -- -- (1,183)
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Net income 28,972 907 492 (1,376) 28,996
Dividends attributable to preferred stock (9,828) -- -- -- (9,828)
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Net income available to common stockholders
$19,144 $907 $ 492 ($1,376) $19,168
=============== ============ ============= ============= ==============
Income per share before extraordinary item $ .59 $ .59
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Net income per share of common stock $ .55 $ .55
=============== ==============
Weighted average number of shares of
common stock 34,635,347 34,635,347
=============== ==============
</TABLE>
See accompanying notes to unaudited 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, 1996
(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
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<S> <C> <C> <C> <C> <C>
Revenue
Rental income $123,354 $9,030 $1,444 $ -- $133,828
Management fees 1,439 -- -- (90) (d) 1,349
Other income 420 445 1 -- 866
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Total revenue 125,213 9,475 1,445 (90) 136,043
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Expenses
Operating expenses 47,155 3,530 461 -- 51,146
Interest expense 9,545 -- -- 5,036 (e) 14,581
Depreciation and amortization 20,956 -- -- 1,800 (f) 22,756
General and administrative 3,807 -- -- -- 3,807
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Total expenses 81,463 3,530 461 6,836 92,290
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Equity in income of joint ventures 1,025 -- -- -- 1,025
Interest income 887 -- -- -- 887
Minority interest 495 -- -- -- 495
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Income before gain on sale of communities and
extraordinary item 46,157 5,945 984 (6,926) 46,160
Gain on sale of communities 7,850 -- -- -- 7,850
Extraordinary item (2,356) -- -- -- (2,356)
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Net income 51,651 5,945 984 (6,926) 51,654
Dividends attributable to preferred stock (10,422) -- -- -- (10,422)
--------------- ------------- ------------- -------------- --------------
Net income available to common stockholders
$41,229 $5,945 $984 (6,926) $41,232
=============== ============= ============= ============== ==============
Income per share before extraordinary item $ 1.42 $ 1.42
=============== ==============
Net income per share of common stock $ 1.34 $ 1.34
=============== ==============
Weighted average number of shares of
common stock 30,739,504 30,739,504
=============== ==============
</TABLE>
See accompanying notes to unaudited 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 statements of operations for
the six months ended June 30, 1997 and the year ended December 31, 1996.
b) Reflects the combined statement of revenue and certain operating expenses of
the Acquisition Communities for the six months ended June 30, 1997 prior to
date of acquisition and the historical combined statement of revenue and
certain operating expenses of the Acquisition Communities for the year ended
December, 31, 1996.
c) Reflects the historical combined statement of revenue and certain operating
expenses of Avalon at Providence Park for the six months ended June 30, 1997
and for the year ended December, 31, 1996.
d) Decrease relates to property management fee income earned from management of
Avalon at Center Place for the five months ended May 31, 1997 and for the
year ended December 31, 1996.
e) Increase relates to additional borrowings under the revolving unsecured
credit facilities to purchase the Acquisition Communities prior to date of
the acquisition for the six months ended June 30, 1997 and for the year
ended December 31, 1996.
f) Increase in depreciation attributable to the increase in the basis of real
estate resulting from the purchase of the Acquisition Communities prior to
date of acquisition for the six months ended June 30, 1997 and the year
ended December 31, 1996.
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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: October 10, 1997 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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