<PAGE> 1
As filed with the Securities and Exchange Commission on September 3, 1998
REGISTRATION STATEMENT NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
-------------------------
AVALON BAY COMMUNITIES, INC.
(Exact name of Registrant as specified in its charter)
-------------------------
Maryland 77-0404318
(State of incorporation) (I.R.S. Employer Identification Number)
2900 EISENHOWER AVENUE, SUITE 300
ALEXANDRIA, VIRGINIA 22314
(703) 329-6300
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
-------------------------------
RICHARD L. MICHAUX
CHIEF EXECUTIVE OFFICER
AVALON BAY COMMUNITIES, INC.
2900 EISENHOWER AVENUE, SUITE 300
ALEXANDRIA, VIRGINIA 22314
(703) 329-6300
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
----------------------------
WITH COPIES TO:
DAVID W. WATSON, P.C.
GOODWIN, PROCTER & HOAR LLP
EXCHANGE PLACE
BOSTON, MASSACHUSETTS 02109-2881
(617) 570-1000
Approximate date of commencement of proposed sale to the public: From time to
time after this Registration Statement becomes effective.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this form is used to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act Registration Statement number of the earlier
effective registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
Registration Statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
-----------------------------
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
=================================================================================================================================
<C> <S> <S> <S> <S>
Title of Securities Being Amount to be Registered Proposed Maximum Proposed Maximum Aggregate Amount of
Registered Registered Offering Price Per Unit(1) Offering Price Registration Fee
- ---------------------------------------------------------------------------------------------------------------------------------
Common Stock, $.01 par 482,313 shares $33.0625 $15,946,474 $4,704.21
value(2)
=================================================================================================================================
</TABLE>
(1) Based upon the average of the high and low sales prices reported on the
New York Stock Exchange on September 1, 1998, and estimated solely for the
purpose of calculating the registration fee pursuant to Rule 457(c) of the
Securities Act of 1933, as amended.
(2) This Registration Statement also relates to the rights (the "Rights") to
purchase shares of Series E Junior Participating Cumulative Preferred Stock
of the Registrant which are attached to all shares of Common Stock
outstanding as of, and issued subsequent to, March 10, 1998, pursuant to
the terms of the Registrant's Shareholder Rights Agreement, dated March 9,
1998. Until the occurrence of certain prescribed events, the Rights are not
exercisable, are evidenced by the certificates for Common Stock and will be
transferred with and only with such stock.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL NOR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED SEPTEMBER 3, 1998
PROSPECTUS
482,313 SHARES
AVALON BAY COMMUNITIES, INC.
COMMON STOCK
---------------
This Prospectus relates to the offer and sale of up to 482,313 shares (the
"Shares") of common stock, par value $.01 per share (the "Common Stock"), of
Avalon Bay Communities, Inc. (the "Company"), to the extent the Company may in
the future elect to issue such shares to the holders of units of limited
partnership interest (the "Units") in Avalon DownREIT V, L.P., a Delaware
limited partnership (the "Partnership"), which may be sold by the holders
thereof (the holders of the Shares are collectively referred to herein as the
"Selling Stockholders"). The Company is the surviving entity from the merger
(the "Merger") of Avalon Properties, Inc. ("Avalon") with and into Bay Apartment
Communities, Inc. (sometimes hereinafter referred to as "Bay" before the Merger
and the "Company" after the Merger) on June 4, 1998. Concurrently with the
Merger, the Company changed its name from Bay Apartment Communities, Inc. to
Avalon Bay Communities, Inc. Under the terms of the Agreement of Limited
Partnership of the Partnership, holders of Units in the Partnership have the
right to require the Partnership to redeem their Units for cash, subject to
certain conditions. The Company may, however, elect to deliver an equivalent
number of shares of Common Stock to the holders of Units in satisfaction of the
Partnership's obligation to redeem the Units for cash.
The Company is registering the Shares pursuant to the Company's obligations
under three registration rights agreements. The registration of the Shares does
not necessarily mean that all of the Shares will be issued by the Company in
satisfaction of the Unit holders' redemption rights or that any of the Shares
will be offered or sold by the Selling Stockholders. See "Plan of Distribution"
and "Selling Stockholders."
Each of the Selling Stockholders, directly or through agents, dealers or
underwriters, may offer and sell all or a portion of the Shares offered hereby
from time to time on terms to be determined at the time of sale. To the extent
required by law, the names of any such agent, dealer or underwriter, any
applicable commissions or discounts and any other required information with
respect to a particular offer will be set forth in an accompanying Prospectus
Supplement. See "Plan of Distribution." Each Selling Stockholder reserves the
right to accept and, together with such Selling Stockholder's agents, dealers or
underwriters, to reject, in whole or in part, any proposed purchase of Shares to
be made directly or through agents, dealers or underwriters. The Selling
Stockholders and any agents, dealers or underwriters that participate with the
Selling Stockholders in the distribution of the Shares may be deemed to be
"underwriters" within the meaning of the Securities Act of 1933, as amended (the
"Securities Act"), in which case any commissions received by them and any profit
on the resale of the Shares purchased by them may be deemed underwriting
commissions or discounts under the Securities Act. See "Registration Rights" for
indemnification arrangements between the Company and the Selling Stockholders.
The Common Stock is listed on the New York Stock Exchange (the "NYSE") and
the Pacific Exchange (the "PCX") under the symbol "AVB." On August 26, 1998, the
last reported sale price for the Common Stock on the NYSE was $33 11/16 per
share. The Company will not receive any proceeds from the sale of Shares by the
Selling Stockholders, but has agreed to bear certain expenses of the
registration of such Shares under federal and state securities laws.
SEE "RISK FACTORS" COMMENCING ON PAGE 4 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE SHARES OFFERED
HEREBY.
-------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
-------------------
The date of this Prospectus is September __, 1998.
<PAGE> 3
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-3 under the Securities Act of
1933, as amended (the "Securities Act"), with respect to the Securities. This
Prospectus, which constitutes part of the Registration Statement, omits certain
of the information contained in the Registration Statement and the exhibits
thereto on file with the Commission pursuant to the Securities Act and the rules
and regulations of the Commission thereunder. The Registration Statement,
including exhibits thereto, may be inspected and copied at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, and at the Commission's Regional Offices at 7 World
Trade Center, 13th Floor, New York, New York 10048, and Northwestern Atrium
Center, 500 W. Madison Street, Suite 1400, Chicago, Illinois 60661-2511, and
copies may be obtained at the prescribed rates from the Public Reference Section
of the Commission at its principal office in Washington, D.C. In addition, the
Company is required to file electronic versions of these documents with the
Commission through the Commission's Electronic Data Gathering, Analysis and
Retrieval (EDGAR) system, and such electronic versions are available to the
public at the Commission's World-Wide Web Site, http://www.sec.gov. Statements
contained in this Prospectus as to the contents of any contract or other
document referred to are not necessarily complete, and in each instance
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports and proxy statements and other information with the
Commission. Such reports, proxy statements and other information can be
inspected and copied at the locations described above. Copies of such materials
can be obtained via EDGAR or by mail from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, at
prescribed rates. In addition, the Company's Common Stock, 8.50% Series C
Cumulative Redeemable Preferred Stock, par value $.01 per share (the "Series C
Preferred Stock"), 8.00% Series D Cumulative Redeemable Preferred Stock, par
value $.01 per share (the "Series D Preferred Stock"), 9.00% Series F Cumulative
Redeemable Preferred Stock, par value $.01 per share (the "Series F Preferred
Stock"), and 8.96% Series G Cumulative Redeemable Preferred Stock, par value
$.01 per share (the "Series G Preferred Stock"), are listed on the NYSE and the
PCX, and such reports and information can be inspected at the NYSE, 20 Broad
Street, New York, New York 10005, and at the PCX, 301 Pine Street, San
Francisco, California 94104.
In accordance with Section 2-210 of the Maryland General Corporation Law,
as amended (the "MGCL"), the Board of Directors has authorized the issuance of
some or all of the shares of any or all of its classes or series of stock
without certificates. In addition, the Company has the authority to designate
and issue more than one class or series of stock having various preferences,
conversion and other rights, voting powers, restrictions, limitations as to
dividends, qualifications, and terms and conditions of redemption. See
"Description of Preferred Stock" and "Description of Common Stock." The
Company's Charter imposes limitations on the ownership and transfer of the
Company's stock. See "Restrictions on Transfers of Stock." The Company will
furnish a full statement of the relative rights and preferences of each class or
series of stock of the Company which has been so designated and any restrictions
on the ownership or transfer of stock of the Company to any stockholder upon
request and without charge. Written requests for such copies should be directed
to: Avalon Bay Communities, Inc., 2900 Eisenhower Avenue, Suite 300, Alexandria,
Virginia 22314, Attention: Chief Financial Officer.
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<PAGE> 4
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed by the Company with the Commission
pursuant to the Exchange Act are incorporated by reference in this Prospectus:
(i) Annual Report on Form 10-K for the fiscal year ended December 31, 1997, (ii)
Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 1998, (iii)
Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 1998, (iv)
Current Report on Form 8-K filed January 8, 1998, (v) Current Report on Form 8-K
filed January 21, 1998, (vi) Current Report on Form 8-K filed March 11, 1998,
(vii) Current Report on Form 8-K filed March 27, 1998, (viii) Current Report on
Form 8-K filed April 16, 1998, (ix) Current Report on Form 8-K filed April 22,
1998, (x) Current Report on Form 8-K filed June 19, 1998, as amended by Form
8-K/A filed June 26, 1998, (xi) Current Report on Form 8-K filed July 9, 1998,
(xii) Current Report on Form 8-K filed August 5, 1998, (xiii) the description of
the Company's Common Stock contained in the Company's Registration Statement on
Form 8-B dated June 7, 1995, and (xiv) the description of the Company's Rights
to purchase shares of the Company's Series E Junior Participating Cumulative
Preferred Stock par value $.01 per share, contained in the Company's
Registration Statement of Form 8-A filed March 11, 1998.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the offering of all Securities shall be deemed to be
incorporated by reference in this Prospectus and to be a part hereof from the
date of filing of such documents. The Company will provide, without charge, to
each person, including any beneficial owner, to whom a copy of this Prospectus
is delivered, at the request of such person, a copy of any or all of the
documents incorporated herein by reference (other than exhibits thereto, unless
such exhibits are specifically incorporated by reference into such documents).
Written requests for such copies should be directed to: Avalon Bay Communities,
Inc., 2900 Eisenhower Avenue, Suite 300, Alexandria, Virginia 22314, Attention:
Chief Financial Officer (Tel. # (703) 329-6300). In addition, the public may
read and copy any materials filed by the Company with the Commission at the
Commission's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C.
20549. The public may obtain information on the operation of the Pubic Reference
Room by calling the Commission at 1-800-SEC-0330.
Any statement contained herein or in a document incorporated or deemed to
be incorporated herein by reference shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
(or in an applicable Prospectus Supplement) or in any subsequently filed
document that is incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed to
constitute a part of this Prospectus or any Prospectus Supplement, except as so
modified or superseded.
3
<PAGE> 5
FORWARD-LOOKING STATEMENTS
This Prospectus, including the information incorporated by reference,
contains forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
The words "believe," "expect," "anticipate," "intend," "estimate," "assume" and
other similar expressions which are predictions of or indicate future events and
trends and which do not relate solely to historical matters identify
forward-looking statements. In addition, information concerning acquisition,
construction, reconstruction, development, redevelopment, occupancy and
completion of the Company's communities and related cost and EBITDA estimates
are forward-looking statements. Reliance should not be placed on forward-looking
statements because they involve known and unknown risks, uncertainties and other
factors, which are in some cases beyond the control of the Company and may cause
the actual results, performance or achievements of the Company to differ
materially from anticipated future results, performance or achievements
expressed or implied by such forward-looking statements.
Factors that might cause such a difference include, but are not limited to,
the following: the Company may fail to secure or may abandon development or
redevelopment opportunities; construction or reconstruction costs of a community
may exceed original estimates; construction or reconstruction and lease-up may
not be completed on schedule, resulting in increased debt service expense and
construction or reconstruction costs and reduced rental revenues; occupancy
rates and market rents may be adversely affected by local economic and market
conditions which are beyond management's control; financing may not be
available, or may not be available on favorable terms; the Company's cash flow
may be insufficient to meet required payments of principal and interest;
existing indebtedness may mature in an unfavorable credit environment,
preventing such indebtedness from being refinanced, or, if refinanced, causing
such refinancing to occur on terms that are not as favorable as the terms of
existing indebtedness; and unanticipated expenses or delays in resolving "Year
2000" issues either by the Company or by those with whom the Company does
business. In addition, the factors described under "Risk Factors" in this
Prospectus may result in such differences. Prospective purchasers of the Shares
offered hereby should carefully review all of these factors, which may not be an
exhaustive list of such factors.
RISK FACTORS
A purchase of the Shares of Common Stock involves various risks.
Prospective purchasers should consider the following risk factors:
FAILURE TO MANAGE RAPID GROWTH AND INTEGRATE OPERATIONS FOLLOWING THE RECENT
MERGER
The Company is currently in a period of rapid growth as a result of the
Merger and through the acquisition and development of additional apartment
communities. As of August 10, 1998, after completing the Merger, the Company
owned 145 apartment communities with approximately 42,318 apartment homes (in
each case, including those under development and redevelopment), an increase of
23,677 in the number of apartment homes in Bay's pre-Merger portfolio. The
integration of the departments, systems, operating procedures and information
technologies of Bay and Avalon, as well as future acquisitions and developments,
will present a significant challenge to Management. The failure to successfully
integrate those systems and procedures into one operating philosophy could have
a material adverse effect on the results of operations and financial condition
of the Company. There can be no assurance that the Merged Company will be able
to integrate and manage these operations effectively or maintain or improve the
historical financial performances of Bay and Avalon.
POSSIBILITY THAT THE EXPECTED BENEFITS OF THE MERGER WILL NOT BE REALIZED
The Company expects that the Merger will result in reduced expenses, which
could have a favorable effect on the Company's Funds From Operation ("FFO")
per share on a pro forma basis for the second half of fiscal year 1998 and for
future periods. However, no assurance can be given that the anticipated expense
reductions will be realized or that unanticipated costs will not arise as a
result of the Merger. For example, although we believe that we have reasonably
estimated the likely costs of integrating the operations of Bay and Avalon, as
well as the incremental costs of operating as a combined company, it is possible
that unexpected future operating expenses (such as increased personnel costs,
increased property taxes or increased travel expenses) could have a material
adverse effect on the results of operations and financial condition of the
Company. If the expected savings are not realized or unexpected costs are
incurred, the Merger could have a significant adverse effect on the Company's
FFO per share.
4
<PAGE> 6
INABILITY TO CONTINUE EXTERNAL GROWTH RATE
As of June 30, 1998, the Company had a real estate asset base in excess of
$3.6 billion, which is significantly larger than the asset base managed by the
respective management teams of Bay and Avalon in the past. This should make it
possible for the Company to access capital for the acquisition, development and
redevelopment of apartment communities on terms more favorable than those
available to companies with a smaller asset base. However, we may be forced to
limit our acquisition, development and redevelopment activities as we attempt to
integrate the two companies' operations. Furthermore, as a result of the
Company's revised minimum required target returns, particularly for new
community acquisitions that do not require redevelopment, and current market
conditions, we anticipate that acquisition activity will diminish significantly
for the remainder of 1998. Accordingly, there can be no assurances that the
external growth rate of the Company will equal or exceed the historical external
growth rates of either Bay or Avalon.
DEVELOPMENT, REDEVELOPMENT AND ACQUISITION RISKS
We intend to continue to develop and redevelop apartment home communities
using integrated development, redevelopment and underwriting policies derived
from the respective strengths of Bay and Avalon. In addition to the risk that we
will be unable to successfully integrate the development and redevelopment as
well as construction and reconstruction policies of Bay and Avalon, other risks
associated with the Company's development and redevelopment activities may
include: development and redevelopment opportunities explored by the Company may
be abandoned; construction and reconstruction costs of a community may exceed
original estimates due to increased materials, labor or other costs, which could
make completion of the community uneconomical; occupancy rates and rents at a
newly completed development or redevelopment community may fluctuate depending
on a number of factors, including market and general economic conditions, and
may not be sufficient to make the original estimated unleveraged returns on cost
for the community; financing may not be available on favorable terms for the
development or redevelopment of a community; and construction or reconstruction
and lease-up may not be completed on schedule, resulting in increased debt
service expense and construction or reconstruction costs. Development activities
are also subject to risks relating to the inability to obtain, or delays in
obtaining, all necessary zoning, land-use, building, occupancy, and other
required governmental permits and authorizations. The occurrence of any of the
events described above could have a material adverse effect on the Company's
ability to achieve its projected yields on communities under development or
redevelopment and could prevent the Company from making expected distributions
to stockholders. See "--Real Estate Investment Risks."
Construction costs have been increasing in the Company's target markets.
The cost to develop new communities and redevelop acquired communities has, in
some cases, exceeded Management's original estimates. We may experience similar
cost increases in the future. There can be no assurance that we will be able to
charge rents upon completing the development or redevelopment of communities
that will be sufficient to offset the effects of any increases in construction
or reconstruction costs.
Acquisitions entail risks that investments will fail to generate expected
returns and that estimates of the costs of improvements to bring an acquired
community up to standards established for the market position intended for that
community will prove inaccurate. Acquisitions also involve general investment
risks associated with any new real estate investment. Although we will undertake
an evaluation of the physical condition of each new community before it is
acquired, certain defects or necessary repairs may not be detected until after
the community is acquired, which could significantly increase our total
acquisition costs.
NEW MARKETS
The Company (including Avalon before the Merger) has expanded its ownership
and operations of apartment communities into new markets in recent years. In
1996, Bay expanded its operations beyond its then-current Northern California
market areas into certain Southern California (including Orange, Los Angeles and
San Diego Counties) and Pacific Northwest markets. Similarly, before the Merger,
Avalon had expanded its operations beyond its historical Mid-Atlantic and
Northeast market areas into certain Midwest and Pacific Northwest markets. We
intend to make other selective investments in these markets from time to time
and may also make other selective investments in high barrier-to-entry markets
outside of our current market areas if appropriate opportunities arise. We have
significant management expertise in Northern California, the Mid-Atlantic and
the Northeast. However, this expertise may not assist us in our expansion into
new markets. Like the risks associated with the addition of a substantial number
of new communities, our entry into new market areas will require, among other
things, that we successfully apply our experience to these new market areas.
While we intend to maintain a management team in each expansion market, we may
be exposed to risks associated with, among other things, (i) a lack of market
knowledge and understanding
5
<PAGE> 7
of the local economy, (ii) an inability to obtain land for development and to
identify property acquisition opportunities, (iii) an inability to obtain
construction tradespeople, (iv) sudden adverse shifts in supply and demand
factors and (v) an unfamiliarity with local governmental and permitting
procedures.
DEPENDENCE ON PRIMARY MARKETS
Bay's historical experience is in Northern California (primarily in the San
Francisco Bay Area), where 41 of the Company's 145 communities are located.
Avalon's historical experience is in the Mid-Atlantic and Northeast markets,
where 68 of the Company's 145 communities are located. Consequently, economic
conditions in these markets will significantly influence the future performance
of the Company. As a result of the Merger, the Company has a more geographically
diverse portfolio, which should provide additional stability in the event of
adverse economic conditions in any one region or market. However, a decline in
the economy in one or more of these markets, or in the United States generally,
may materially and adversely affect our operating results and our ability to
make expected distributions to stockholders.
REAL ESTATE FINANCING RISKS
No Limitation on Debt. The ratio of debt to total market capitalization of
the Company immediately following the Merger on June 4, 1998 was 32%. Certain
debt covenants in credit facilities and senior unsecured debt offerings of the
Company limit the amount of debt that can be incurred, but the charter and
bylaws of the Company do not contain any limitation on the amount of
indebtedness the Company may incur. Without restrictions in the Company's
charter or bylaws, the Company could increase the amount of outstanding
indebtedness at any time.
Existing Debt Maturities, Balloon Payments and Refinancing Risks. We are
subject to the risks normally associated with debt financing, including the risk
that our cash flow will be insufficient to meet required payments of principal
and interest. We anticipate that only a small portion of the principal of the
Company's indebtedness will be repaid prior to maturity. Although the Company
may be able to use its cash flow to make future principal payments, there can be
no assurances that sufficient cash flow will be available to make all required
principal payments. Therefore, it may be necessary to refinance at least a
portion of its outstanding debt as it matures. Accordingly, there is a risk that
existing indebtedness will not be able to be refinanced or that the terms of any
refinancing will not be as favorable as the terms of the existing indebtedness.
Risk of Rising Interest Rates. We expect to incur variable rate
indebtedness under credit facilities or in connection with the acquisition,
construction and reconstruction of multifamily apartment communities in the
future, as well as for other purposes. Accordingly, increases in interest rates
will increase our interest costs (to the extent that the related indebtedness is
not protected by interest rate protection arrangements).
Bond Compliance Requirements. Certain of the Company's apartment
communities are financed with obligations issued by various local government
agencies or instrumentalities, the interest on which is exempt from federal
income taxation. These obligations are commonly referred to as "tax-exempt
bonds." Compared to unsecured debt, tax-exempt bonds are less cost competitive
than in prior years and, moreover, generally must be secured by communities.
Because of the Company's greater access to unsecured debt compared to prior
years and the required encumbrances for tax-exempt bonds, we expect that our use
of tax-exempt bonds to finance communities will decline. Under the terms of
tax-exempt bonds, we will have to comply with various restrictions on the use of
the communities financed by such bonds, including a requirement that a
percentage of apartments be made available to low and middle income households.
The bond compliance requirements for the Company's current tax-exempt bonds, and
the requirements of any future tax-exempt bond financing of the Company, may
have the effect of limiting the Company's income from communities subject to
such financing. In addition, certain of the tax-exempt bond financing documents
require that a financial institution (the "credit enhancer") guarantee payment
of principal of, and interest on, the bonds, which may take the form of a letter
of credit, surety bond, guarantee agreement or other additional collateral. If
the credit enhancer defaults in its credit enhancement obligations, or we are
unable to renew the applicable credit enhancement or otherwise post satisfactory
collateral, a default will occur under the applicable tax-exempt bonds and the
community could be foreclosed upon.
REAL ESTATE INVESTMENT RISKS
General Risks. Real property investments are subject to varying degrees of
risk. The yields available from equity investments in real estate depend on the
amount of income generated and expenses incurred. If the communities
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do not generate revenues sufficient to meet operating expenses, including debt
service and capital expenditures, the Company's cash flow and ability to pay
distributions to its stockholders will be adversely affected.
An apartment community's revenues and value may be adversely affected by a
number of factors, including the national economic climate; the local economic
climate (which may be adversely impacted by plant closings, industry slowdowns
and other factors); local real estate conditions (such as an oversupply of or a
reduced demand for apartment homes); the perceptions by prospective residents of
the safety, convenience and attractiveness of the community; the ability of the
owner to provide adequate management, maintenance and insurance; and increased
operating costs (including real estate taxes and utilities). Certain significant
expenditures associated with each equity investment (such as mortgage payments,
if any, real estate taxes, insurance and maintenance costs) are generally not
reduced when circumstances cause a reduction in income from the investment. If a
community is mortgaged to secure payment of indebtedness, and if we are unable
to meet the mortgage payments, a loss could be sustained as a result of
foreclosure on the community or the exercise of other remedies by the mortgagee.
In addition, real estate values and income from communities are also affected by
such factors as the cost of compliance with government regulations, including
zoning and tax laws, interest rate levels and the availability of financing.
Operating Risks. Each of the Company's communities is subject to all of the
operating risks common to apartment communities in general, any and all of which
might adversely affect apartment home occupancy or rental rates. Increases in
unemployment and a decline in household formation might adversely affect
occupancy or rental rates. Increases in operating costs due to inflation and
other factors may not be offset by increased rents. Residents may be unable or
unwilling to pay rent increases. Rent control or rent stabilization laws or
other laws regulating housing are applicable in certain of the cities in the
markets where the Company owns communities and may be enacted in the future in
other locations where the Company's communities are located or may be acquired;
compliance with these laws may prevent us from raising rents to offset increases
in operating costs. Similarly, the local rental market may limit the extent to
which rents may be increased to meet increased expenses without decreasing
occupancy rates. If any of the above occurs, the Company's ability to achieve
its desired yields on its communities and to make expected distributions to
stockholders could be adversely affected.
Market Illiquidity. Equity real estate investments are relatively illiquid.
This illiquidity will tend to limit our ability to vary our portfolio promptly
in response to changes in economic or other conditions. In addition, our ability
to sell communities held for fewer than four years will be limited by the
Internal Revenue Code of 1986, as amended (the "Code"), which may affect our
ability to sell communities without adversely affecting returns to stockholders.
Competition. There are numerous housing alternatives that compete with the
Company's apartment communities in attracting residents. The communities compete
directly with other rental apartments and single-family homes that are available
for rent in the markets in which the communities are located. The communities
also compete for residents with the new and existing single-family home markets.
The number of competitive residential communities in a particular area could
have a material adverse effect on our ability to lease apartment homes and on
the rents charged. In addition, competitors for acquisitions and development
communities may have greater resources than the Company, thereby putting us at a
competitive disadvantage.
NATURAL DISASTERS
Many of the Company's West Coast communities are located in the general
vicinity of active earthquake faults. In July 1998, the Company obtained a
seismic risk analysis from an engineering firm which estimated the probable
maximum damage ("PMD") for each of the 60 communities that the Company owned at
that time and for each of the five communities under development, individually
and for all of those communities combined. To establish a PMD, the engineers
first define a severe earthquake event for the applicable geographic area, which
is an earthquake that has only a 10% likelihood of occurring over a 50-year
period. The PMD is determined as the structural and architectural damage and
business interruption loss that has a 10% probability of being exceeded in the
event of such an earthquake. Because a significant number of the Company's
communities are located in the San Francisco Bay Area, the engineers' analysis
defined an earthquake on the Hayward Fault with a Richter Scale magnitude of 7.1
as a severe earthquake with a 10% probability of occurring within a 50-year
period. The engineers then established an aggregate PMD at that time of $113
million for the 60 West Coast communities that the Company owned at that time
and the five communities under development. The $113 million PMD for those
communities was a PMD level that the engineers expected to be exceeded only 10%
of the time in the event of such a severe earthquake. The actual aggregate PMD
could be higher or lower as a result of variations in soil classifications and
structural vulnerabilities. For each community, the engineers' analysis
calculated an individual PMD as a percentage of the community's replacement cost
and projected revenues. No assurance can be given that an earthquake would not
cause damage or
7
<PAGE> 9
losses greater than the PMD assessments indicate, that future PMD levels will
not be higher than the current PMD levels for the Company's communities located
on the West Coast, or that future acquisitions or developments will not have PMD
assessments indicating the possibility of greater damage or losses than
currently indicated.
In August 1998, the Company renewed its earthquake insurance, both for
physical damage and lost revenue, with respect to all communities it owned at
that time and all of the communities under development. For any single
occurrence, the Company self-insures the first $25 million of loss, and has in
place $75 million of coverage above this amount. In addition, the Company's
general liability and property casualty insurance provides coverage for personal
liability and fire damage. In the event that an uninsured disaster or a loss in
excess of insured limits were to occur, the Company could lose its capital
invested in the affected community, as well as anticipated future revenue from
that community, and would continue to be obligated to repay any mortgage
indebtedness or other obligations related to the community. Any such loss could
materially and adversely affect the business of the Company and its financial
condition and results of operations.
INCLEMENT WEATHER
The Company's communities in the Northeast and Midwest expose the Company
to risks associated with inclement winter weather, including increased costs for
the removal of snow and ice, as well as delays in the construction,
reconstruction, development or redevelopment of apartment communities. In
addition, such inclement weather could increase the need for maintenance and
repairs on the communities. Similarly, unusually high rainfall or other
inclement weather along the West Coast could result in increased costs due to
delays in the construction, reconstruction, development or redevelopment of
apartment communities.
POTENTIAL ENVIRONMENTAL LIABILITIES
Under various federal, state and local environmental laws, ordinances and
regulations, a current or previous owner or operator of real estate may be
required (often regardless of knowledge or responsibility) to investigate and
remediate the effects of hazardous or toxic substances or petroleum product
releases at its properties, and may be held liable to a governmental entity or
to third parties for property damage and for investigation and remediation costs
incurred by them in connection with the contamination, which costs may be
substantial. The presence of such substances (or the failure to properly
remediate the contamination) may have a material adverse effect on the owner's
ability to borrow against, sell or rent the affected property. In addition,
certain environmental laws create liens on contaminated sites in favor of the
government for damages and costs it incurs in connection with the contamination.
Certain federal, state and local laws and regulations govern the removal,
encapsulation or disturbance of asbestos-containing materials ("ACMs") when such
materials are in poor condition or in the event of reconstruction, remodeling,
renovation or demolition of a building. Those laws may impose liability for
release of ACMs and may provide for third parties to seek recovery from owners
or operators of real properties for personal injury associated with ACMs. In
connection with its ownership and operation of the communities, the Company may
potentially be liable for such costs.
We are not aware that any ACMs were used in connection with the
construction of the communities developed by the Company. However, ACMs were
used in connection with the construction of several of the communities acquired
by the Company (including communities acquired by Avalon before the Merger). We
do not anticipate that the Company will incur any material liabilities in
connection with the presence of ACMs at its communities. The Company currently
has in place or intends to implement an operations and maintenance program for
each of the communities at which ACMs have been detected.
All of the Company's currently stabilized operating communities, and all of
the communities currently under development or redevelopment, have been
subjected to a Phase I or similar environmental assessment (which generally does
not involve invasive techniques such as soil or ground water sampling). These
assessments have not revealed any environmental conditions that we believe will
have a material adverse effect on the Company's business, assets, financial
condition or results of operations, and the Company is not aware of any other
environmental conditions which the Company believes would have such a material
adverse effect. However, the Company is aware that groundwater beneath one
community under development, Toscana, has been affected by the migration of
contamination from an upgradient landowner in the vicinity of the community. The
upgradient landowner is undertaking remedial response actions and it is expected
that the upgradient landowner will take all necessary response actions. The
upgradient landowner has also provided an indemnity that runs to current and
future owners of the Toscana property and upon which the Company may be able to
rely should the Company incur environmental liability
8
<PAGE> 10
arising from the groundwater contamination at issue. We are also aware that
certain communities have lead paint and we are undertaking or intend to
undertake appropriate remediation or management activity. Furthermore, prior to
their respective initial public offerings, Bay and Avalon had each been
occasionally involved in developing, managing, leasing and operating various
properties for third parties and may be considered an operator of such
properties and, therefore, potentially liable for removal or remediation costs
or other potential costs which could relate to hazardous or toxic substances.
The Company is not aware of any material environmental liabilities with respect
to properties it has managed or developed for such third parties.
No assurance can be given that the environmental assessments identified all
potential environmental liabilities, that no prior owner created any material
environmental condition not known to the Company or the consultants preparing
the assessments, that no environmental liabilities may have developed since such
environmental assessments were prepared, that the condition of land or
operations in the vicinity of the Company's communities (such as the presence of
underground storage tanks) will not affect the environmental condition of such
communities, or that future uses or conditions (including, without limitation,
changes in applicable environmental laws and regulations) will not result in
imposition of environmental liability.
FEDERAL INCOME TAX RISKS -- FAILURE TO QUALIFY AS A REIT
The Company intends to operate in a manner that will allow it to continue
to qualify as a real estate investment trust (a "REIT"). Although we believe
that the Company has been organized and operated in such a manner, no assurance
can be given that the Company qualifies as a REIT or that the Company will
remain qualified as a REIT in the future. Qualification as a REIT involves the
application of highly technical and complex Code provisions for which there are
only limited judicial or administrative interpretations and involves the
determination of various factual matters and circumstances not entirely within
our control. If either Bay or Avalon failed to qualify as a REIT prior to the
Merger, this failure could also disqualify the Company as a REIT and/or subject
it to significant tax liabilities.
If the Company fails to qualify as a REIT, the Company will be subject to
federal income tax at regular corporate rates. In this event, the Company could
be subject to potentially significant tax liabilities, and the amount of cash
available for distribution to stockholders would be reduced and possibly
eliminated. Unless entitled to relief under certain statutory provisions, the
Company would also be disqualified from treatment as a REIT for the four taxable
years following the year during which qualification was lost.
THE COMPANY
The Company is a REIT that is focused exclusively on the ownership of
institutional-quality apartment communities in high barrier-to-entry markets of
the United States. These markets include Northern and Southern California and
selected states in the Mid-Atlantic, Northeast, Midwest and Pacific Northwest
regions of the country. The Company is a fully-integrated real estate
organization with in-house acquisition, development, redevelopment,
construction, reconstruction, financing, marketing, leasing and management
expertise. With its experience and in-house capabilities, the Company believes
it is well-positioned to continue to take advantage of opportunities to develop
and acquire upscale apartment homes in its target markets.
The Company elected to be taxed as a REIT for federal income tax purposes
for the year ending December 31, 1994 and has not revoked that election. The
Company was incorporated under the laws of the State of California in 1978 and
was reincorporated in the State of Maryland in July 1995. Its principal
executive offices are located at 2900 Eisenhower Avenue, Suite 300, Alexandria,
Virginia 22314 and its telephone number at that location is (703) 329-6300. The
Company also maintains super-regional offices in San Jose, California and
Wilton, Connecticut and acquisition, development, redevelopment, construction,
reconstruction or administrative offices in Boston, Massachusetts; Chicago,
Illinois; Minneapolis, Minnesota; Newport Beach, California; New York, New York;
Princeton, New Jersey; Richmond, Virginia; and Seattle, Washington.
USE OF PROCEEDS
The Company will not receive any of the proceeds of the sale, if any, of
the Shares offered hereby.
9
<PAGE> 11
DESCRIPTION OF COMMON STOCK
The description of the Company's Common Stock set forth below does not
purport to be complete and is qualified in its entirety by reference to the
Company's Charter and bylaws, as amended and in effect on the date hereof.
GENERAL
Under the Charter, the Company has authority to issue 300 million shares of
Common Stock. Under Maryland law, stockholders generally are not responsible for
the Company's debts or obligations. As of August 31, 1998, the Company had
outstanding 63,649,121 shares of Common Stock. The Common Stock is listed on the
NYSE and the PCX under the symbol "AVB."
TERMS
Subject to the preferential rights of any other shares or series of stock
and to the provisions of the Company's Charter regarding Excess Stock, holders
of shares of Common Stock will be entitled to receive dividends on shares of
Common Stock if, as and when authorized and declared by the Board of Directors
of the Company out of assets legally available therefor and to share ratably in
the assets of the Company legally available for distribution to its stockholders
in the event of its liquidation, dissolution or winding-up after payment of, or
adequate provision for, all known debts and liabilities of the Company.
Subject to the provisions of the Company's Charter regarding Excess Stock,
each outstanding share of Common Stock entitles the holder to one vote on all
matters submitted to a vote of stockholders, including the election of directors
and, except as otherwise required by law or except as provided with respect to
any other class or series of stock, the holders of Common Stock will possess the
exclusive voting power. There is no cumulative voting in the election of
directors, which means that, subject to any rights to elect directors that are
granted to the holders of any class or series of Preferred Stock, a plurality of
the votes cast at a meeting of stockholders duly called and at which a quorum is
present shall be sufficient to elect a director.
Holders of Common Stock have no conversion, sinking fund or redemption
rights, or preemptive rights to subscribe for any securities of the Company.
The Company intends to furnish its stockholders with annual reports
containing audited consolidated financial statements and an opinion thereon
expressed by an independent public accounting firm and quarterly reports for the
first three quarters of each fiscal year containing unaudited financial
information.
Subject to the provisions of the Company's Charter regarding Excess Stock,
all shares of Common Stock will have equal dividend, distribution, liquidation
and other rights, and will have no preference, appraisal or exchange rights.
Pursuant to the MGCL, a corporation generally cannot dissolve, amend its
Charter, merge, sell all or substantially all of its assets, engage in a share
exchange or engage in similar transactions outside the ordinary course of
business unless approved by the affirmative vote of stockholders holding at
least two-thirds of the shares entitled to vote on the matter unless a lesser
percentage is set forth in the Company's Charter, which percentage shall not in
any event be less than a majority of all of the shares entitled to vote on such
matter. The Company's Charter provides that whenever any vote of the holders of
voting stock is required to amend or repeal any provision of the Charter, then
in addition to any other vote of the holders of voting stock that is required by
the Charter, the affirmative vote of the holders of a majority of the
outstanding shares of stock of the Company entitled to vote on such amendment or
repeal, voting together as a single class, and the affirmative vote of the
holders of a majority of the outstanding shares of each class entitled to vote
thereon as a class, shall be required to amend or repeal any provision of the
Charter; provided, however, that the affirmative vote of the holders of not less
than two-thirds of the outstanding shares entitled to vote on such amendment or
repeal, voting together as a single class, and the affirmative vote of the
holders of not less than two-thirds of the outstanding shares of each class
entitled to vote thereon as a class, shall be required to amend or repeal any of
the provisions relating to the resignation or removal of directors, vacancies on
the Board of Directors, independent directors, rights and powers of the Company,
the Board of Directors and Officers (including amendments to the Charter), and
the limitation of liability of directors and officers.
10
<PAGE> 12
RESTRICTIONS ON OWNERSHIP
For the Company to qualify as a REIT under the Code, not more than 50% in
value of its outstanding stock may be owned, directly or indirectly, by five or
fewer individuals (as defined in the Code to include certain entities) during
the last half of a taxable year. To assist the Company in meeting this
requirement, the Company may take certain actions to limit the beneficial
ownership, directly or indirectly, by a single person of the Company's
outstanding equity securities. See "Restrictions on Transfers of Stock."
SHAREHOLDER RIGHTS AGREEMENT
The Company has adopted a Shareholder Rights Agreement (the "Rights
Agreement"), the purpose of which is, among other things, to enable stockholders
to receive fair and equal treatment in the event of any proposed acquisition of
the Company. The Rights Agreement may have the effect of delaying, deferring or
preventing a change in control of the Company and, therefore, could adversely
affect the stockholders' ability to realize a premium over the then-prevailing
market price for the Common Stock in connection with such a transaction. The
following summary description of the Rights Agreement does not purport to be
complete and is qualified in its entirety by reference to the Company's Rights
Agreement, which was previously filed with the Commission on March 11, 1998 as
an exhibit to the Company's Registration Statement on Form 8-A.
In connection with the adoption of the Rights Agreement, the Board of
Directors declared a dividend distribution of one Preferred Stock Purchase Right
(a "Right") for each outstanding share of the Company's Common Stock to
stockholders of record as of the close of business on March 10, 1998 (the
"Record Date"). Each Right entitles the registered holder thereof to purchase
from the Company a unit ("Unit") consisting of one one-thousandth of a share of
Series E Junior Participating Cumulative Preferred Stock, par value $0.01 per
share, of the Company, at a cash exercise price of $160.00 per Unit, subject to
adjustment.
The Rights are currently not exercisable and are attached to and trade with
all shares of Common Stock outstanding as of, and issued subsequent to, the
Record Date. The Rights will separate from the Common Stock and will become
exercisable upon the earlier of (i) the close of business on the tenth calendar
day following the first public announcement that a person or group of affiliated
or associated persons has acquired beneficial ownership of 10% or more of the
outstanding shares of Common Stock (an "Acquiring Person"), or (ii) the close of
business on the tenth business day following the commencement of a tender offer
or exchange offer that would result upon its consummation in a person or group
becoming the beneficial owner of 10% or more of the outstanding shares of Common
Stock.
In the case of certain stockholders of the Company who beneficially owned
10% or more of the outstanding shares of Common Stock as of March 9, 1998 (such
stockholders are referred to in the Rights Agreement as "grandfathered
persons"), the Rights generally will be distributed only if any such stockholder
acquires or proposes to acquire additional shares of Company Common Stock. In
addition, a "grandfathered person" generally will become an Acquiring Person
only if such person acquires additional shares of Common Stock.
TRANSFER AGENT
The transfer agent and registrar for the Common Stock, and the rights agent
for the Rights, is First Union National Bank of Charlotte, North Carolina.
RESTRICTIONS ON TRANSFERS OF STOCK
For the Company to qualify as a REIT under the Code, among other things,
not more than 50% in value of its outstanding stock may be owned, directly or
indirectly, by five or fewer individuals (defined in the Code to include certain
entities) during the last half of a taxable year, and such stock must be
beneficially owned by 100 or more persons during at least 335 days of a taxable
year of twelve (12) months or during a proportionate part of a shorter taxable
year (in each case, other than the first such year). To ensure that the Company
remains a qualified REIT, the Charter, subject to certain exceptions, provides
that no holder may own, or be deemed to own by virtue of the attribution
provisions of the Code, more than 9.8% (the "Ownership Limit") of any class or
series of the Company's stock, and certain pension plans and mutual funds
registered under the Investment Company Act of 1940 are permitted to own
beneficially up to 15% (the "Look-Through Ownership Limit") of a class or series
of the Company's stock. Any transfer of shares of the Company's stock or of any
security convertible into shares of the Company's stock that would create a
direct or indirect ownership of shares in excess of the Ownership Limit or the
Look-Through
11
<PAGE> 13
Ownership Limit, as applicable, or that would result in the disqualification of
the Company as a REIT, including any transfer that would (i) result in the
shares of stock being owned by fewer than 100 persons, (ii) result in the
Company being "closely held" within the meaning of Section 856(h) of the Code or
(iii) result in the Company constructively owning 10% or more of the ownership
interests in a tenant of the Company within the meaning of Section 856(a)(5) of
the Code, shall be null and void, and the intended transferee will acquire no
rights to such shares of stock exceeding the applicable limit. In addition, if
any purported transfer of stock or any other event would otherwise result in any
person violating the Ownership Limit or the Look-Through Ownership Limit, as
applicable, then any such purported transfer will be void and of no force or
effect with respect to the purported transferee (the "Prohibited Transferee") as
to that number of shares in excess of the applicable limit and the Prohibited
Transferee shall acquire no right or interest (or, in the case of any event
other than a purported transfer, the person or entity holding record title to
any such shares in excess of applicable limit (the "Prohibited Owner") shall
cease to own any right or interest) in such excess shares.
Any such excess shares described above shall be automatically converted
into an equal number of shares of Excess Stock and transferred automatically, by
operation of law, to a trust, the beneficiary of which shall be a qualified
charitable organization selected by the Company. If the shares that are
converted into Excess Stock are not shares of common stock, then the Excess
Stock into which they are converted shall be deemed to be a separate series of
Excess Stock with a designation and title corresponding to the designation and
title of the shares that have been converted. As soon as practicable after the
transfer of shares to the trust, the trustee of the trust (who shall be
designated by the Company and be unaffiliated with the Company and any
Prohibited Transferee or Prohibited Owner) will be required to sell such shares
of Excess Stock to a person or entity who could own such shares without
violating the Ownership Limit or Look-Through Ownership Limit, as applicable,
and distribute to the Prohibited Transferee an amount equal to the lesser of the
price paid by the Prohibited Transferee for such shares of Excess Stock or the
sales proceeds received by the trust for such shares of Excess Stock. Upon such
transfer of shares of Excess Stock, such shares shall be automatically converted
into an equal number of shares of the same class and series which was converted
into such Excess Stock, and such shares of Excess Stock shall be automatically
retired and canceled and shall thereupon be restored to the status of authorized
but unissued shares of Excess Stock.
In the case of any Excess Stock resulting from any event other than a
transfer, or from a transfer for no consideration (such as a gift), the trustee
will be required to sell such Excess Stock to a qualified person or entity and
distribute to the Prohibited Owner an amount equal to the lesser of the fair
market value of such Excess Stock as of the date of such event or the sales
proceeds received by the trust for such Excess Stock. In either case, any
proceeds in excess of the amount distributable to the Prohibited Transferee or
Prohibited Owner, as applicable, will be distributed to the beneficiary of the
trust. Prior to a sale of any such Excess Stock by the trust, the trustee will
be entitled to receive in trust for the beneficiary all dividends and other
distributions paid by the Company with respect to such Excess Stock.
In addition, subject to certain limited exceptions, shares of Excess
Stock held in the trust shall be deemed to have been offered for sale to the
Company, or its designee, at a price per share equal to the lesser of (i) the
price per share in the transaction that resulted in such transfer to the trust
(or, in the case of a devise or gift, the market price at the time of such
devise or gift) and (ii) the market price on the date the Company, or its
designee, accepts such offer. The Company shall have the right to accept such
offer for a period of 90 days. Upon such a sale to the Company, the interest of
the beneficiary of the trust in the Excess Stock sold shall terminate and the
trustee shall distribute the net proceeds of the sale to the Prohibited Owner.
The foregoing restrictions on transferability and ownership will not apply
if the Company's Board determines that it is no longer in the best interest of
the Company to continue to qualify as a REIT. The Board may, in its sole
discretion, waive the Ownership Limit and the Look-Through Ownership Limit if
evidence satisfactory to the Board is presented that the transfer of stock will
not jeopardize the qualification of the Company as a REIT and the Board
otherwise decides that such action is in the best interest of the Company.
In addition, the Charter provides that each stockholder of the Company
shall be required upon demand to disclose to the Company in writing any
information with respect to the direct, indirect and constructive ownership of
stock as the Board deems necessary to comply with the provisions of the Code
applicable to REITs, to comply with the requirements of any taxing authority or
governmental agency or to determine any such compliance.
The Ownership Limit and the Look-Through Ownership Limit may have the
effect of delaying, deferring or preventing a change in control of the Company.
12
<PAGE> 14
REGISTRATION RIGHTS
The registration of the Shares pursuant to the Registration Statement of
which this Prospectus is a part will discharge certain of the Company's
obligations under the terms of (i) a Registration Rights Agreement dated as of
December 22, 1997, (ii) a Registration Rights Agreement dated as of April 30,
1998, and (iii) a Registration Rights Agreement dated as of May 29, 1998
(collectively, the "Registration Rights Agreements").
Pursuant to the Registration Rights Agreements, the Company has agreed to
pay all expenses of registering the Shares (other than brokerage and
underwriting commissions, taxes of any kind and any legal, accounting and other
expenses incurred by a holder thereunder). The Company also has agreed under the
Registration Rights Agreements to indemnify each Selling Stockholder and its
officers, directors and other affiliated persons and any person who controls any
Selling Stockholder against losses, claims, damages and expenses arising under
the securities laws in connection with the Registration Statement or this
Prospectus, subject to certain limitations. In addition, each Selling
Stockholder under the Registration Rights Agreements severally agreed to
indemnify the Company and its respective directors, officers and any person who
controls the Company against all losses, claims, damages and expenses arising
under the securities laws insofar as such loss, claim, damage or expense relates
to information furnished to the Company by such Selling Stockholder for use in
the Registration Statement or Prospectus or an amendment or supplement thereto
or the failure by such Selling Stockholder (through no fault of the Company) to
deliver or cause to be delivered this Prospectus or any amendment or supplement
thereto to any purchaser of Shares covered by the Registration Statement from
such Selling Stockholder.
FEDERAL INCOME TAX CONSIDERATIONS
The Company believes it has operated, and the Company intends to continue
to operate, in such a manner as to qualify as a REIT under the Code, but no
assurance can be given that it will at all times so qualify.
The provisions of the Code pertaining to REITs are highly technical and
complex. The following is a brief and general summary of certain provisions that
currently govern the federal income tax treatment of the Company and its
stockholders. For the particular provisions that govern the federal income tax
treatment of the Company and its stockholders, reference is made to Sections 856
through 860 of the Code and the treasury regulations thereunder. The following
summary is qualified in its entirety by such reference.
Under the Code, if certain requirements are met in a taxable year, a REIT
generally will not be subject to federal income tax with respect to income that
it distributes to its stockholders. If the Company fails to qualify during any
taxable year as a REIT, unless certain relief provisions are available, it will
be subject to tax (including any applicable alternative minimum tax) on its
taxable income at regular corporate rates, which could have a material adverse
effect upon its stockholders.
In any year in which the Company qualifies to be taxed as a REIT,
distributions made to its stockholders out of current or accumulated earnings
and profits will be taxed to stockholders as ordinary income except that
distributions of net capital gains designated by the Company as capital gain
dividends will be taxed as long-term capital gain income to the stockholders. To
the extent that distributions exceed current or accumulated earnings and
profits, they will constitute a return of capital, rather than a dividend or
capital gain income, and will reduce the basis for the stockholder's capital
stock with respect to the distribution paid or, to the extent that they exceed
such basis, will be taxed in the same manner as gain from the sale of such
capital stock.
Investors are urged to consult their own tax advisors with respect to the
appropriateness of an investment in the Common Stock offered hereby and with
respect to the tax consequences arising under federal law and the laws of any
state, municipality or other taxing jurisdiction, including tax consequences
resulting from such investor's own tax characteristics. In particular, foreign
investors should consult their own tax advisors concerning the tax consequences
of an investment in the Company, including the possibility of United States
income tax withholding on Company distributions.
13
<PAGE> 15
SELLING STOCKHOLDERS
As used herein, "Selling Stockholders" are those persons listed below who
currently hold Units and those persons listed below who may, at the Company's
option, receive Shares upon the exercise of their rights to require the
redemption of their Units.
The following table provides the names of and the number of shares of
Common Stock and Units owned by each Selling Stockholder as of July 15, 1998.
The Shares offered by this Prospectus may be offered from time to time by the
Selling Stockholders. Since the Company is not required to issue Shares upon the
redemption of Units and the Selling Stockholders may sell all, some or none of
the Shares, the Company can only estimate, by assuming that the Selling
Stockholders sell all of the Shares, the number and percentage of shares of
Common Stock that each Selling Stockholder will own upon completion of the
offering to which this Prospectus relates.
The amounts set forth below are based upon information provided to the
Company by the Selling Stockholders, or on the Company's records, as of the date
set forth in the table below and are accurate to the Company's knowledge. It is
possible, however, that those Selling Stockholders may acquire or dispose of
beneficial ownership of additional shares of the Company's Common Stock from
time to time after the date of this Prospectus.
<TABLE>
<CAPTION>
Units Owned as of Number of Shares
Shares of July 15,1998 that of Common Stock Owned
Common Stock may be Redeemed After Offering(1)
Owned as of for Shares of ----------------------------
Name July 15, 1998(2) Common Stock(3) Number Percent(4)
---- ---------------- ----------------- ------ ----------
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Craig C. Avery 0 20,050.33 0 *
- -----------------------------------------------------------------------------------------------------------------------------
Stanford Baratz 0 23,160.40(5) 0 *
- -----------------------------------------------------------------------------------------------------------------------------
Amy Baratz Irrevocable Trust dated 0 3,816.91(6) 0 *
May 17, 1990, Sidney Kaplan or
Steve Schachtman, Trustees
- -----------------------------------------------------------------------------------------------------------------------------
Children's Trust dated November 20, 0 15,266.89(7) 0 *
1990, Victor Greenstein, Trustee
- -----------------------------------------------------------------------------------------------------------------------------
CFP Residential, L.P. 0 55,630.30(8) 0 *
- -----------------------------------------------------------------------------------------------------------------------------
Chasewood Bloomington Limited 0 45,514.09(9) 0 *
- -----------------------------------------------------------------------------------------------------------------------------
Crow Residential Realty Investors, 0 76.83(10) 0 *
L.P.
- -----------------------------------------------------------------------------------------------------------------------------
Christopher T. Carley 0 14,636.88 0 *
- -----------------------------------------------------------------------------------------------------------------------------
James G. Carswell 0 2,356.38 0 *
- -----------------------------------------------------------------------------------------------------------------------------
Brian K. Cranor 0 15,657.96 0 *
- -----------------------------------------------------------------------------------------------------------------------------
Dennis Doyle 0 4,076.60 0 *
- -----------------------------------------------------------------------------------------------------------------------------
Margaret Doyle 0 19,083.80 0 *
- -----------------------------------------------------------------------------------------------------------------------------
Welsh Residential Acquisition and 0 763.69 0 *
Development, Inc.
- -----------------------------------------------------------------------------------------------------------------------------
David J. Elwell 0 3,800.79 0 *
- -----------------------------------------------------------------------------------------------------------------------------
David J. Hubbard(11) 0 38,634.74 0 *
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
14
<PAGE> 16
<TABLE>
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Perry M. Parrott, Jr. 0 4,264.83 0 *
- -----------------------------------------------------------------------------------------------------------------------------
Nancy Lux 0 4,061.23(12) 0 *
- -----------------------------------------------------------------------------------------------------------------------------
Robert Lux 0 25,191.02(13) 0 *
- -----------------------------------------------------------------------------------------------------------------------------
Randy J. Pace 53,152 10,273.71 0 *
- -----------------------------------------------------------------------------------------------------------------------------
John R. Patterson 0 135.22 0 *
- -----------------------------------------------------------------------------------------------------------------------------
James C. Potts 0 133.68 0 *
- -----------------------------------------------------------------------------------------------------------------------------
J. Daryl Reyna 0 1,050.27 0 *
- -----------------------------------------------------------------------------------------------------------------------------
David R. Seiler 0 911.20 0 *
- -----------------------------------------------------------------------------------------------------------------------------
TCF Interests Partnership, Ltd. 0 857.43(14) 0 *
- -----------------------------------------------------------------------------------------------------------------------------
TCF Residential Partnership, Ltd. 0 21,079.08(15) 0 *
- -----------------------------------------------------------------------------------------------------------------------------
J. Ronald Terwilliger 363,556(16)(17) 76,763.17 363,556 *
- -----------------------------------------------------------------------------------------------------------------------------
J. Ronald Terwilliger Grantor Trust 0 76.83(18) 0 *
- -----------------------------------------------------------------------------------------------------------------------------
James E. Thomas 0 11,938.62 0 *
- -----------------------------------------------------------------------------------------------------------------------------
Leonard W. Wood 0 15,132.44(19) 0 *
- -----------------------------------------------------------------------------------------------------------------------------
Leonard W. Wood Family Limited 0 24,369.70 0 *
Partnership Grantor Trust
- -----------------------------------------------------------------------------------------------------------------------------
Leonard W. Wood Family Limited 0 42,642.18 0 *
Partnership
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
- ----------------
Notes:
* Less than 1%
1. Assumes that all Shares issuable upon redemption of Units are sold by the
Selling Stockholders.
2. As of August 31, 1998, none of the Selling Stockholders held options to
purchase Common Stock that were exercisable within 60 days. Does not include
Shares issuable upon redemption of Units shown in the adjacent column.
3. All Units listed in this column can be redeemed on a one-for-one basis for
shares of the Company's Common Stock under certain conditions. Upon such
redemption, all such Shares may be offered for sale hereby.
4. Percentage of ownership is based on 63,649,121 shares of Common Stock
outstanding on August 31, 1998.
5. Includes (a) 3,816.91 Units owned by a trust for Mr. Baratz's spouse and
(b) 15,266.89 Units owned by a trust for the benefit of Mr. Baratz's minor
children. Mr. Baratz may be deemed to be the beneficial owner of the Shares
issuable upon redemption of such Units under Rule 13d-3 under the Exchange Act
("Rule 13d-3").
6. Represents Units owned by a trust for the benefit of Stanford Baratz's spouse
as to which Messrs. Kaplan and Schachtman are trustees. Mr. Baratz may be deemed
the beneficial owner of the Shares issuable upon redemption
15
<PAGE> 17
of such Units under Rule 13d-3.
7. Represents Units owned by a trust for the benefit of Stanford Baratz's
minor children as to which Mr. Greenstein is trustee. Mr. Baratz may be deemed
the beneficial owner of the Shares issuable upon redemption of such Units under
Rule 13d-3.
8. Units are beneficially owned by the partners of the limited partnership.
Crow Family, Inc. is the general partner of this Unit holder and may be deemed
to be the beneficial owner of such Units under Rule 13d-3. The Chief Executive
Officer of Crow Family, Inc. is Harlan R. Crow, who may be deemed the beneficial
owner of the Shares issuable upon redemption of such Units under Rule 13d-3.
9. Units are beneficially owned by the partners of the limited partnership.
TCF Interests Limited Partnership, Ltd., the general partner of this Unit
holder, and Mill Spring Holdings, Inc., the general partner of TCF Interests
Limited Partnership, Ltd., may be deemed to be the beneficial owner of the
Shares issuable upon redemption of such Units under Rule 13d-3. The Chief
Executive Officer of Mill Spring Holdings, Inc. is Harlan R. Crow, who may be
deemed the beneficial owner of the Shares issuable upon redemption of such Units
under Rule 13d-3.
10. Units are beneficially owned by the partners of the limited partnership.
Crow Family, Inc. is the general partner of this Unit holder and may be deemed
to be the beneficial owner of the Shares issuable upon redemption of such Units
under Rule 13d-3. The Chief Executive Officer of Crow Family, Inc. is Harlan R.
Crow, who may be deemed the beneficial owner of the Shares issuable upon
redemption of such Units under Rule 13d-3.
11. Mr. Hubbard is Vice President-Development of the Company.
12. Does not include Shares issuable upon redemption of 25,191.02 Units owned by
Mrs. Lux's spouse, which may be deemed to be beneficially owned by Mrs. Lux
under Rule 13d-3.
13. Does not include Shares issuable upon redemption of 4,061.23 Units owned by
Mr. Lux's spouse, which may be deemed to be beneficially owned by Mr. Lux under
Rule 13d-3.
14. Units are beneficially owned by the partners of the limited partnership.
Mill Spring Holdings, Inc. is the general partner of this Unit holder and may be
deemed to be the beneficial owner of the Shares issuable upon redemption of such
Units under Rule 13d-3. Does not include Units owned by Chase Bloomington
Limited or the Shares issuable upon redemption of such Units, of which this
Unitholder is the general partner and may be deemed the beneficial owner under
Rule 13d-3. The Chief Executive Officer of Mill Spring Holdings, Inc. is Harlan
R. Crow, who may be deemed the beneficial owner of the Shares issuable upon
redemption of such Units under Rule 13d-3.
15. Units are beneficially owned by the partners of the limited partnership.
Mill Spring Holdings, Inc. is the general partner of this Unitholder and may be
deemed to be the beneficial owner of such Units under Rule 13d-3. The Chief
Executive Officer of Mill Spring Holdings, Inc. is Harlan R. Crow, who may be
deemed the beneficial owner of the Shares issuable upon redemption of such Units
under Rule 13d-3.
16. Includes (a) 79,035 shares of Common Stock issuable upon redemption of
limited partnership units of other limited partnerships that are not registered
for resale pursuant to this prospectus and (b) 140,358 shares of Common Stock
held by the Terwilliger Family Foundation Charitable Trust, all of which may be
deemed to be beneficially owned by Mr. Terwilliger under Rule 13d-3.
17. Does not include 76.83 Units owned by the J. Ronald Terwilliger Grantor
Trust, of which Mr. Terwilliger is the sole trustee and in that capacity has the
power to revoke the trust. Mr. Terwilliger may be deemed to be the beneficial
owner of the Shares issuable upon redemption of such Units under Rule 13d-3.
18. Does not include (a) 284,521 shares of Common Stock, (b) 79,035 shares of
Common Stock issuable upon redemption of limited partnership units of other
limited partnerships or (c) 76,763.18 Units, all of which may be
16
<PAGE> 18
deemed to be beneficially owned by J. Ronald Terwilliger under Rule 13d-3.
19. Does not include (a) 42,642.19 Units owned by the Leonard W. Wood Family
Limited Partnership or (b) 24,369.71 Units owned by the Leonard W. Wood Family
Limited Partnership Grantor Trust. Mr. Wood may be deemed to be the beneficial
owner of the Shares issuable upon redemption of such Units under Rule 13d-3.
PLAN OF DISTRIBUTION
This Prospectus relates to the offer and sale from time to time of the
Shares by the Selling Stockholders. The Company has registered the Shares for
sale pursuant to its obligations under the Registration Rights Agreements, but
registration of such Shares does not necessarily mean that all of the Shares
will be issued by the Company or that any of the Shares will be offered or sold
by the Selling Stockholders.
The Shares offered hereby may be sold from time to time on the NYSE or the
PCX on terms to be determined at the time of such sales. The Selling
Stockholders may also make private sales directly or through a broker or
brokers. Alternatively, the Selling Stockholders may from time to time offer
Shares to or through underwriters, dealers or agents, who may receive
consideration in the form of discounts and commissions; such compensation, which
may be in excess of ordinary brokerage commissions, may be paid by the Selling
Stockholders and/or the purchasers of the Shares offered hereby for whom such
underwriters, dealers or agents may act. The Selling Stockholders and any
dealers or agents that participate in the distribution of the Shares offered
hereby may be deemed to be "underwriters" as defined in the Securities Act, and
any profit on the sale of such Shares offered hereby by them and any discounts,
commissions or concessions received by any such dealers or agents might be
deemed to be underwriting discounts and commissions under the Securities Act.
The aggregate proceeds to the Selling Stockholders from sales of the Shares
offered by the Selling Stockholders hereby will be the purchase price of such
Shares less brokers' commissions.
To the extent required, the specific Shares to be sold, the names of the
Selling Stockholders, the respective purchase prices and public offering prices,
the names of any such agent, dealer or underwriter, and any applicable
commissions or discounts with respect to a particular offer will be set forth in
an accompanying Prospectus Supplement
The Shares offered hereby may be sold from time to time in one or more
transactions at a fixed offering price, which may be changed, or at varying
prices determined at the time of sale or at negotiated prices.
In order to comply with the securities laws of certain states, if
applicable, the Shares offered hereby will be sold in such jurisdictions only
through registered or licensed brokers or dealers. In addition, in certain
states Shares may not be sold unless they have been registered or qualified for
sale in the applicable state or an exemption from the registration or
qualification requirement is available and is complied with.
Under applicable rules and regulations under the Exchange Act, any person
engaged in the distribution of the Common Stock offered hereby may not
simultaneously engage in market making activities with respect to the Common
Stock for a period of two business days prior to the commencement of such
distribution. In addition, and without limiting the foregoing, the Selling
Stockholders will be subject to applicable provisions of the Exchange Act and
the rules and regulations thereunder, including, without limitation, Rules
10b-2, 10b-6 and 10b-7, which may limit the timing of purchases and sales by the
Selling Stockholders.
The Company will pay substantially all of the expenses incurred by the
Selling Stockholders and the Company incident to the offering and sale of the
Shares to the public, but excluding any underwriting discounts, fees,
commissions or transfer taxes.
The Company has agreed to indemnify the Selling Stockholders against
certain liabilities, including liabilities under the Securities Act. Insofar as
indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers and controlling persons of the Company, the
Company has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
17
<PAGE> 19
LEGAL MATTERS
Certain legal matters, including the legality of the Shares and certain tax
matters, will be passed upon for the Company by Goodwin, Procter & Hoar LLP,
Boston, Massachusetts.
EXPERTS
The consolidated financial statements incorporated in this Prospectus by
reference to the Annual Report on Form 10-K of the Company (formerly Bay
Apartment Communities, Inc.) for the year ended December 31, 1997 and the Annual
Report on Form 10-K of Avalon Properties, Inc. for the year ended December 31,
1997, the audited historical summary of revenues and direct operating expenses
included on pages F-1 through F-6 of the Company's Form 8-K dated March 27, 1998
and the audited historical summary of operating revenue and expenses included on
pages 5 through 8 of the Company's Form 8-K dated August 5, 1998, have been so
incorporated in reliance on the reports of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
18
<PAGE> 20
================================================================================
No dealer, salesperson or other individual has been authorized to give
any information or make any representations not contained in this Prospectus. If
given or made, such information or representations must not be relied upon as
having been authorized by the Company or any other person. This Prospectus does
not constitute an offer to sell, or a solicitation of an offer to buy, any of
the Shares offered hereby to any person or by anyone in any jurisdiction in
which it is unlawful to make such offer or solicitation. Neither the delivery of
this Prospectus nor any sale made hereunder shall, under any circumstances,
create any implication that the information contained herein is correct as of
any date subsequent to the date hereof.
TABLE OF CONTENTS
PAGE
----
Available Information.......................... 2
Incorporation of Certain
Documents by Reference....................... 3
Forward-Looking Statements..................... 4
Risk Factors................................... 4
The Company.................................... 9
Use of Proceeds................................ 10
Description of Common Stock.................... 10
Restrictions on Transfers of Capital Stock..... 11
Registration Rights............................ 13
Federal Income Tax Considerations.............. 13
Selling Stockholders........................... 14
Plan of Distribution........................... 17
Legal Matters.................................. 17
Experts........................................ 17
===============================================================================
===============================================================================
482,313 Shares
AVALON BAY
COMMUNITIES, INC.
Common Stock
-------------------
PROSPECTUS
-------------------
September __, 1998
================================================================================
<PAGE> 21
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The expenses in connection with the issuance and distribution of the
securities being registered are set forth in the following table (all amounts
except the registration fee and NASD fee are estimated):
<TABLE>
<S> <C>
Registration fee $ 4,704
Legal fees and expenses 15,000
Blue Sky expenses 1,000
Miscellaneous 5,000
-------
TOTAL $25,704
=======
</TABLE>
All expenses in connection with the issuance and distribution of the
securities being offered will be borne by the Company.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Subject to certain limited exceptions, the Company's Charter and Bylaws,
each as amended, limit the liability of the Company's Directors and officers to
the Company and its stockholders for money damages for any breach of any duty
owed by such Director or officer of the Company to the fullest extent permitted
by Maryland law. The Maryland General Corporation Law ("MGCL") generally permits
the liability of Directors and officers to a corporation or its stockholders for
money damages to be limited, unless it is proved that (i)(a) the Director or
officer actually received an improper personal benefit in money, property or
services, (b) the Director or officer acted in bad faith, or (c) the Director's
or officer's act or omission was the result of active and deliberate dishonesty,
and (ii) the Director's or officer's act or omission was material to the matter
giving rise to the proceeding. However, if the proceeding was one by or in the
right of the Company, indemnification may not be made in respect of any
proceeding in which the Director or officer shall have been adjudged to be
liable to the Company. These provisions do not limit the ability of the Company
or its stockholders to obtain other relief, such as an injunction or rescission.
Pursuant to the authority granted in the Company's Charter and Bylaws, the
Company has also entered into indemnification agreements with certain of its
executive officers and members of the Board of Directors who are not officers of
the Company, pursuant to which the Company has agreed to indemnify them against
certain liabilities incurred in connection with their service as executive
officers and/or Directors. These provisions and contracts could reduce the legal
remedies available to the Company and its stockholders against these
individuals.
ITEM 16. EXHIBITS.
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
5.1 Opinion of Goodwin, Procter & Hoar LLP regarding the legality of the securities being registered.
8.1 Opinion of Goodwin, Procter & Hoar LLP as to certain tax matters.
23.1 Consent of PricewaterhouseCoopers LLP, Independent Accountants.
23.2 Consent of Goodwin, Procter & Hoar LLP (included in Exhibit 5.1 hereto).
24.1 Powers of Attorney (included in Part II of this registration statement).
</TABLE>
ITEM 17. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3)
of the Securities Act;
II-1
<PAGE> 22
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration
statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate,
represent a fundamental change in the information set
forth in the registration statement; notwithstanding
the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of
securities offered would not exceed that which was
registered) and any deviation from the low or high end
of the estimated offering range may be reflected in the
form of prospectus filed with the Commission pursuant
to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than a 20% change in
the maximum aggregate offering price set forth in
"Calculation of Registration Fee" table in the
effective registration statement; and
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in
the registration statement or any material change to
such information in the registration statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii)
herein do not apply if the information required to be included in
a post-effective amendment by those paragraphs is contained in
periodic reports filed by the undersigned registrant pursuant to
Section 13 or Section 15(d) of the Exchange Act that are
incorporated by reference in the registration statement;
(2) That, for the purpose of determining any liability
under the Securities Act, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof; and
(3) To remove from registration by means of a
post-effective amendment any of the securities being registered which
remain unsold at the termination of the offering.
(b) The registrant hereby undertakes that, for purposes of determining any
liability under the Securities Act, each filing of the registrant's annual
report pursuant to Section 13(a) or 15(d) of the Exchange Act (and, where
applicable, each filing of an employee benefit plan's annual report
pursuant to Section 15(d) of the Exchange Act) that is incorporated by
reference in the registration statement shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
II-2
<PAGE> 23
SIGNATURES
Pursuant to the requirements of the Securities Act, Avalon Bay Communities,
Inc. certifies that it has reasonable grounds to believe that it meets all of
the requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Alexandria, Virginia, on this 31st day of August,
1998.
AVALON BAY COMMUNITIES, INC.
By: /s/ Richard L. Michaux
-------------------------
Richard L. Michaux
Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that we, the undersigned officers and
directors of Avalon Bay Communities, Inc. hereby severally constitute Richard L.
Michaux and Gilbert M. Meyer, and each of them singly, our true and lawful
attorneys with full power to them, and each of them singly, to sign for us and
in our names in the capacities indicated below, the Registration Statement filed
herewith and any and all amendments to said Registration Statement, and
generally to do all such things in our names and in our capacities as officers
and directors to enable Avalon Bay Communities, Inc. to comply with the
provisions of the Securities Act and all requirements of the Securities and
Exchange Commission, hereby ratifying and confirming our signatures as they may
be signed by our said attorneys, or any of them, to said Registration Statement
and any and all amendments thereto.
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
Signature Capacity Date
--------- -------- ----
<S> <C> <C>
/s/ Gilbert M. Meyer Executive Chairman of the Board August 31, 1998
- --------------------------------------------
GILBERT M. MEYER
/s/ Richard L. Michaux Director and Chief Executive August 31, 1998
- -------------------------------------------- Officer (Principal Executive
RICHARD L. MICHAUX Officer)
/s/ Charles H. Berman Director, President and August 31, 1998
- -------------------------------------------- Chief Operating Officer
CHARLES H. BERMAN
/s/ Bruce A. Choate Director August 31, 1998
- --------------------------------------------
BRUCE A. CHOATE
/s/ Michael A. Futterman Director August 31, 1998
- --------------------------------------------
MICHAEL A. FUTTERMAN
</TABLE>
II-3
<PAGE> 24
<TABLE>
<S> <C> <C>
/s/ John J. Healy, Jr. Director August 31, 1998
- --------------------------------------------
JOHN J. HEALY, JR.
/s/ Christopher B. Leinberger Director August 31, 1998
- --------------------------------------------
CHRISTOPHER B. LEINBERGER
/s/ Richard W. Miller Director August 31, 1998
- --------------------------------------------
RICHARD W. MILLER
/s/ Brenda J. Mixson Director August 31, 1998
- --------------------------------------------
BRENDA J. MIXSON
/s/ Thomas H. Nielsen Director August 31, 1998
- --------------------------------------------
THOMAS H. NIELSEN
/s/ Lance R. Primis Director August 31, 1998
- --------------------------------------------
LANCE R. PRIMIS
/s/ Allan D. Schuster Director August 31, 1998
- --------------------------------------------
ALLAN D. SCHUSTER
/s/ Thomas J. Sargeant
- ----------------------------------------------- Senior Vice President, Chief August 31, 1998
THOMAS J. SARGEANT Financial Officer and Treasurer
(Principal Financial and Accounting
Officer)
</TABLE>
II-4
<PAGE> 25
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
5.1 Opinion of Goodwin, Procter & Hoar LLP as to the legality of the Securities being registered.
8.1 Opinion of Goodwin, Procter & Hoar LLP as to certain tax matters.
23.1 Consent of PricewaterhouseCoopers LLP, Independent Accountants.
23.2 Consent of Goodwin, Procter & Hoar LLP (included in Exhibit 5.1 hereto).
24.1 Powers of Attorney (included in Part II of this registration statement).
</TABLE>
<PAGE> 1
EXHIBIT 5.1
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, MA 02109-2881
(617) 570-1000
September 3, 1998
Avalon Bay Communities, Inc.
2900 Eisenhower Avenue, Suite 300
Alexandria, VA 22314
Re: Legality of Securities to be Registered
under Registration Statement on Form S-3
Ladies and Gentlemen:
This opinion is delivered in our capacity as counsel to Avalon Bay
Communities, Inc., a Maryland corporation (the "Company"), in connection with
the Company's registration statement on Form S-3 (the "Registration Statement")
filed with the Securities and Exchange Commission under the Securities Act of
1933, as amended, which relates to the possible sale from time to time of up to
482,313 shares (the "Shares") of common stock, par value $.01 per share (the
"Common Stock"), of the Company, by the holders of units of limited partnership
interest (the "Units") in Avalon DownREIT V, L.P., a Delaware limited
partnership (the "Partnership") who may receive the Shares (together with rights
(the "Rights") to purchase shares of Series E Junior Participating Cumulative
Preferred Stock, par value $.01 per share, which are attached to all shares of
Common Stock) upon redemption of the Units by the Company (collectively, the
"Securities"). The Registration Statement provides that the Securities may be
offered from time to time by the selling stockholders, at prices and on terms to
be determined at the time of sale and to be set forth in one or more prospectus
supplements (each a "Prospectus Supplement") to the prospectus contained in the
Registration Statement to the extent required by law.
We have examined the charter of the Company, as amended and on file with
the Maryland State Department of Assessments and Taxation, the bylaws of the
Company, as amended, such records of corporate proceedings of the Company as we
have deemed appropriate for the purposes of this opinion, the Registration
Statement and the exhibits thereto.
Based upon the foregoing, we are of the opinion that when the Registration
Statement relating to the Securities has become effective under the Securities
Act and the Securities have been duly issued and exchanged for Units tendered to
the Partnership for redemption in accordance with the provisions of the
Partnership Agreement, such Redemption Shares will be legally issued, fully paid
and non-assessable.
We hereby consent to being named as counsel to the Company in the
Registration Statement, to the references therein to our firm under the caption
"Legal Matters" and to the inclusion of this opinion as an exhibit to the
Registration Statement.
Very truly yours,
/s/ Goodwin, Procter & Hoar LLP
--------------------------------
GOODWIN, PROCTER & HOAR LLP
<PAGE> 1
EXHIBIT 8.1
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, MA 02109-2881
(617) 570-1000
September 3, 1998
Avalon Bay Communities, Inc.
2900 Eisenhower Avenue, Suite 300
Alexandria, Virginia 22314
Re: Avalon Bay Communities, Inc.
Ladies and Gentlemen:
This opinion is delivered to you in our capacity as special counsel to
Avalon Bay Communities, Inc. (the "Company") in connection with the
registration, pursuant to the Company's Registration Statement on Form S-3 of
482,313 shares (the "Shares") of common stock, par value $.01 per share (the
"Common Stock") of the Company, by the holders of units of limited partnership
interest (the "Units") in Avalon DownREIT V, L.P., a Delaware limited
partnership who may receive the Shares (together with rights (the "Rights") to
purchase shares of Series E Junior Participating Cumulative Preferred Stock, par
value $.01 per share, which are attached to all shares of Common Stock) upon
redemption of the Units by the Company. This opinion relates to the Company's
qualification for federal income tax purposes as a real estate investment trust
(a "REIT") under the Internal Revenue Code of 1986, as amended (the "Code"), for
taxable years commencing with the Company's taxable year ended December 31,
1994. Capitalized terms not otherwise defined herein shall have the meanings
ascribed to such terms in the Registration Statement.
We have relied upon the representations of officers of the Company
regarding the manner in which the Company has been and will continue to be owned
and operated and the continued accuracy of such representations through the date
of this letter. We assume that the Company has been and will be operated in
accordance with applicable laws and the terms and conditions of applicable
documents, and that the descriptions of the Company and its investments, and the
proposed investments, activities, operations, and governance of the Company set
forth in the Registration Statement continue to be true. In addition, we have
relied on certain additional facts and assumptions described below.
In rendering the following opinion, we have examined the Company's Articles
of Incorporation, as amended, the By-Laws, as amended, its federal income tax
returns for the taxable years ended December 31, 1994, December 31, 1995, and
December 31, 1996, each on Form 1120-REIT, and such other records, certificates
and documents as we have deemed necessary or appropriate for purposes of
rendering the opinion set forth herein.
In rendering the opinion set forth herein, we have assumed (i) the
genuineness of all signatures on documents we have examined, (ii) the
authenticity of all documents submitted to
<PAGE> 2
September 3, 1998
Page 2
us as originals, (iii) the conformity to the original documents of all documents
submitted to us as copies, (iv) the conformity of final documents to all
documents submitted to us as drafts, (v) the authority and capacity of the
individual or individuals who executed any such documents on behalf of any
person, (vi) the accuracy and completeness of all records made available to us,
and (vii) the factual accuracy of all representations, warranties, and other
statements made by all parties. We have also assumed, without investigation,
that all documents, certificates, representations, warranties, and covenants on
which we have relied in rendering the opinion set forth below and that were
given or dated earlier than the date of this letter continue to remain accurate,
insofar as relevant to the opinion set forth herein, from such earlier date
through and including the date of this letter.
The opinion set forth below is based upon the Code, the Income Tax
Regulations and Procedure and Administration Regulations promulgated thereunder
and existing administrative and judicial interpretations thereof, all as they
exist at the date of this letter. All of the foregoing statutes, regulations,
and interpretations are subject to change, in some circumstances with
retroactive effect; any changes to the foregoing authorities might result in
modification of our opinion contained herein.
Based upon and subject to the foregoing, and provided that the Company
continues to meet the applicable asset composition, source of income,
shareholder diversification, distribution and other requirements of the Code
necessary for a corporation to qualify as a REIT, we are of the opinion that
commencing with the taxable year ending December 31, 1994, the form of
organization of the Company and its operations are such as to enable the Company
to qualify as a "real estate investment trust" under the applicable provisions
of the Code.
We express no opinions other than those expressly set forth herein.
Furthermore, the Company's qualification as a REIT will depend on the Company
meeting, in its actual operations, the applicable asset composition, source of
income, shareholder diversification, distribution and other requirements of the
Code necessary for a corporation to qualify as a REIT. We will not review these
operations, and no assurance can be given that the actual operations of the
Company and its affiliates will meet these requirements or the representations
made to us with respect thereto. Our opinion is not binding on the Internal
Revenue Service (the "IRS"), and the IRS may disagree with the opinion contained
herein. Except as specifically discussed above, the opinion expressed herein is
based upon the law as it currently exists. Consequently, future changes in the
law may cause the federal income tax treatment of the transactions described
<PAGE> 3
September 3, 1998
Page 3
herein to be materially and adversely different from that described above. Our
opinion may be relied on solely by you in connection with the registration of
the Shares.
Very truly yours,
/s/ Goodwin, Procter & Hoar LLP
---------------------------------
Goodwin, Procter & Hoar LLP
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-3 of Avalon Bay
Communities, Inc. (formerly Bay Apartment Communities, Inc.) (the "Company") of
(1) our report dated January 30, 1998, except for Note 14, as to which the date
is March 24, 1998, appearing on page 52 of the Company's 1997 Annual Report on
Form 10-K, as amended on Form 10-K/A, for the year ended December 31, 1997, (2)
our report dated January 13, 1998, except for Note 14 as to which the date is
March 25, 1998, appearing on page F-1 of the Annual Report on Form 10-K of
Avalon Properties, Inc., as amended and restated by Amendment No. 1 thereto on
Form 10-K/A, for the year ended December 31, 1997, (3) our report dated December
16, 1997, on the audited historical summary of revenues and direct operating
expenses appearing on page F-1 of the Company's Current Report on Form 8-K dated
March 27, 1998, (4) our report dated February 12, 1998, on the audited
historical summary of revenues and direct operating expenses appearing on page
F-4 of the Company's Current Report on Form 8-K filed March 27, 1998, and (5)
our report dated August 5, 1998, on the audited historical summary of operating
revenue and expenses appearing on page 5 of the Company's Current Report on Form
8-K dated August 5, 1998. We also consent to the reference to us under the
caption "Experts" in such Prospectus.
/s/ PricewaterhouseCoopers LLP
Washington, D.C.
August 28, 1998
