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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
-------------------------------
Date of Report (Date of earliest event reported): FEBRUARY 11, 1998
BAY APARTMENT COMMUNITIES, INC.
(Exact name of Registrant as specified in charter)
MARYLAND 1-12672 77-0404318
- ---------------------------- ------------------------ -------------------
(State or other jurisdiction (Commission file number) (IRS employer
of incorporation) identification no.)
4340 STEVENS CREEK BOULEVARD, SUITE 275, SAN JOSE, CA 95129
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(Address of principal executive offices) (Zip Code)
(408) 983-1500
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(Registrant's telephone number, including area code)
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ITEM 5. OTHER EVENTS.
This Current Report on Form 8-K of Bay Apartment Communities, Inc. (the
"Company") contains forward-looking statements within the meaning of Section 27A
of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. The forward-looking statements contained
herein are statements that involve risks and uncertainties, including, but not
limited to, the demand for apartment homes, the effects of economic conditions,
the impact of competition and competitive pricing, changes in construction
costs, the results of financing efforts, potential acquisitions under agreement,
the effects of the Company's accounting policies and other risks detailed in the
Company's filings with the Securities and Exchange Commission (the
"Commission").
PROPERTY ACQUISITIONS
From February 11, 1998 through March 2, 1998, the Company acquired two
properties for an aggregate purchase price of approximately $40.1 million.
Following these acquisitions, the Company's portfolio consists of 59 communities
containing 16,669 apartment homes, including homes delivered at Toscana, a
partially developed community, and five land sites on which it is building five
communities which will contain an aggregate of approximately 1,288 apartment
homes, including the remaining apartment homes under construction at Toscana. In
addition, the Company owns one land site in the San Francisco Bay Area for
future development. The recently acquired properties are described below. Except
as noted below, substantially all of the purchase price for each acquired
property was funded by drawing on the Company's $350 million unsecured
acquisition and construction line of credit from Union Bank of Switzerland and
other participating banks (the "Unsecured Credit Facility"). The Unsecured
Credit Facility bears interest at the London Interbank Offered Rate (based on a
maturity selected by the Company) plus 0.90% per annum and matures in May 2000.
Neither the Company, any subsidiary of the Company nor any director or officer
of the Company was affiliated with or had a material relationship with the
seller of any property described below.
LAGUNA BRISAS. On February 11, 1998, the Company acquired a 176
apartment home community located in Laguna Niguel, California. This community
was purchased from 3150 Corporation for approximately $17.2 million. As part of
the purchase price, the Company assumed approximately $10.4 million in variable
rate tax-exempt bond indebtedness with a current weighted average interest rate
of approximately 5.17%. The Company has planned a reconstruction program at this
community, which will include the replacement of roofs and damaged exterior
wood, waterproofing of entryways and decks, drainage improvements, expansion
and upgrading of recreation and leasing facilities and an upgrade of the
community's landscaping. The Company intends to upgrade the interiors in
approximately half of the apartment homes, including painting and installing new
countertops, light fixtures, carpet and vinyl flooring. The Company also intends
to complete the renovation of approximately 56 apartment homes previously
initiated by the prior owners.
CABRILLO SQUARE. On March 2, 1998, the Company purchased a 293
apartment home community located in San Diego, California from Ninth & A
Partnership, the Anne L. Evans Trust, and Anne L. Evans for approximately
$22.9 million. The Company plans to undertake
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a repositioning program at this community, which will include the replacement of
the roof and air conditioning and heating units, and repairs to decks, exterior
windows, the parking garage and the building elevator. In addition, the Company
plans to upgrade the community's interior hallways, recreational and leasing
facilities, outside lighting and building exterior.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) Financial Statements under Rule 3-14 of Regulation S-X
(b) Pro Forma Financial Statements
(c) Exhibits
23.1 Consent of Coopers & Lybrand L.L.P., Independent Accountants.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Company has duly caused this report to be filed on its behalf by
the undersigned thereunto duly authorized.
BAY APARTMENT COMMUNITIES, INC.
Dated: March 27, 1998 By: /s/ Jeffrey B. Van Horn
------------------------------------------
Name: Jeffrey B. Van Horn
Title: Vice President, Chief Financial Officer
and Secretary
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REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors
Bay Apartment Communities, Inc.:
We have audited the accompanying Historical Summary of Revenues and Direct
Operating Expenses (the Historical Summary) of Laguna Brisas Apartments, Laguna
Niguel, California, (the Property) for the period March 7, 1997 to November 30,
1997. The Historical Summary is the responsibility of the Property's owner. Our
responsibility is to express an opinion on the Historical Summary based on our
audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the Historical Summary is free of material
misstatement. An audit includes examining on a test basis, evidence supporting
the amounts and disclosures in the Historical Summary. An audit also includes
assessing the basis of accounting used and significant estimates made by
management, as well as evaluating the overall presentation of the Historical
Summary. We believe that our audit provides a reasonable basis for our opinion.
The accompanying Historical Summary was prepared for the purpose of complying
with rules and regulations of the Securities and Exchange Commission, as
described in Note A, and is not intended to be a complete presentation of the
Property's revenues and expenses and may not be comparable to results from
proposed future operations of the Property.
In our opinion, the Historical Summary referred to above presents fairly, in
all material respects, the revenues and direct operating expenses, described in
Note A, of Laguna Brisas Apartments, Laguna Niguel, California, for the period
March 7, 1997 to November 30, 1997, in conformity with generally accepted
accounting principles.
/s/ COOPERS & LYBRAND L.L.P.
San Francisco, California
December 16, 1997
129759/3 F-1
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LAGUNA BRISAS APARTMENTS
HISTORICAL SUMMARY OF REVENUES AND
DIRECT OPERATING EXPENSES
for the period March 7, 1997 to November 30, 1997
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<TABLE>
<S> <C>
Revenues:
Rental income $1,106,769
Other 53,403
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1,160,172
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Direct operating expenses:
On-site management and administration 156,525
Real property tax 78,089
Utilities 100,744
Repairs and maintenance 97,829
Other 62,082
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495,269
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Revenue in excess of direct
operating expenses $ 664,903
==========
</TABLE>
The accompanying note is an integral
part of this Historical Summary.
F-2
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LAGUNA BRISAS APARTMENTS
NOTE TO HISTORICAL SUMMARY OF REVENUES
AND DIRECT OPERATING EXPENSES
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A. PROPERTY AND BASIS OF ACCOUNTING:
The accompanying Historical Summary of Revenues and Direct Operating
Expenses has been prepared in accordance with Rule 3-14 of Regulation S-X
of the Securities and Exchange Commission and relates to the operations of
Laguna Brisas Apartments, located in Laguna Niguel, California with 176
apartment homes.
In accordance with Rule 3-14, direct operating expenses are presented
exclusive of depreciation, interest, management fees, and income taxes.
Rental income attributable to residential leases is recorded when due from
tenants.
The period of operations included in the Historical Summary of Revenues
and Direct Operating Expenses has been limited to the period March 7, 1997
to November 30, 1997 due to the unavailability of financial records prior
to March 7, 1997, the date upon which the current owner purchased the
property.
F-3
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REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors
Bay Apartment Communities, Inc.:
We have audited the accompanying Historical Summary of Revenues and Direct
Operating Expenses (the Historical Summary) of Cabrillo Square, San Diego,
California, (the Property) for the year ended December 31, 1997. The Historical
Summary is the responsibility of the Property's owner. Our responsibility is to
express an opinion on the Historical Summary based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the Historical Summary is free of material
misstatement. An audit includes examining on a test basis, evidence supporting
the amounts and disclosures in the Historical Summary. An audit also includes
assessing the basis of accounting used and significant estimates made by
management, as well as evaluating the overall presentation of the Historical
Summary. We believe that our audit provides a reasonable basis for our opinion.
The accompanying Historical Summary was prepared for the purpose of complying
with rules and regulations of the Securities and Exchange Commission, as
described in Note A, and is not intended to be a complete presentation of the
Property's revenues and expenses and may not be comparable to results from
proposed future operations of the Property.
In our opinion, the Historical Summary referred to above presents fairly, in
all material respects, the revenues and direct operating expenses, described in
Note A, of Cabrillo Square, San Diego, California, for the year ended December
31, 1997, in conformity with generally accepted accounting principles.
/s/ COOPERS & LYBRAND L.L.P.
San Francisco, California
February 12, 1998
029849/2 F-4
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CABRILLO SQUARE
HISTORICAL SUMMARY OF REVENUES AND
DIRECT OPERATING EXPENSES
for the year ended December 31, 1997
-----------
<TABLE>
<S> <C>
Revenues:
Rental income $2,575,095
Other 79,474
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2,654,569
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Direct operating expenses:
On-site management and administration 723,729
Real property tax 100,948
Utilities 151,332
Repairs and maintenance 392,081
Other 41,183
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1,409,273
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Revenue in excess of direct
operating expenses $1,245,296
==========
</TABLE>
The accompanying note is an integral
part of this Historical Summary.
F-5
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CABRILLO SQUARE
NOTE TO HISTORICAL SUMMARY OF REVENUES
AND DIRECT OPERATING EXPENSES
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A. PROPERTY AND BASIS OF ACCOUNTING:
The accompanying Historical Summary of Revenues and Direct Operating
Expenses has been prepared in accordance with Rule 3-14 of Regulation S-X
of the Securities and Exchange Commission and relates to the operations of
Cabrillo Square, an apartment community, located in San Diego, California
with 293 apartment homes.
In accordance with Rule 3-14, direct operating expenses are presented
exclusive of depreciation, interest, management fees, and income taxes.
Rental income attributable to residential leases is recorded when due
from tenants.
F-6
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BAY APARTMENT COMMUNITIES, INC.
PRO FORMA CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1996
(In thousands, except share and per share data)
(Unaudited)
<TABLE>
<CAPTION>
Acquisition
Historical Communities Pro Forma
---------- ----------- ---------
<S> <C> <C> <C>
Assets:
Real estate assets:
Land $152,277 $3,424 A $155,701
Buildings and improvements 511,583 34,763 A 546,346
Furniture, fixtures & equipment 35,542 1,931 A 37,473
-------- ------- --------
699,402 40,118 739,520
Less: accumulated depreciation (52,554) 0 (52,554)
-------- ------- --------
Operating real estate assets 646,848 40,118 686,966
Construction in progress 50,945 0 50,945
-------- ------- --------
Net real estate assets 697,793 40,118 737,911
Cash & cash equivalents 920 0 920
Restricted cash 960 0 960
Other assets, net 12,236 0 12,236
-------- ------- --------
Total Assets $711,909 $40,118 $752,027
======== ======= ========
Liabilities and Shareholders' Equity:
Liabilities:
Notes payable $273,688 40,118 B $313,806
Accounts payable and accrued
expenses 5,450 0 5,450
Dividends payable 8,939 0 8,939
Other liabilities 4,553 0 4,553
-------- ------- --------
Total Liabilties 292,630 40,118 332,748
Minority interest 7,002 0 7,002
Shareholders' Equity:
Preferred stock 27 0 27
Common stock 190 0 190
Paid in capital 435,723 0 435,723
Dividends in excess of accumulated
earnings (23,663) 0 (23,663)
-------- ------- --------
Total Shareholders Equity 412,277 0 412,277
-------- ------- --------
Total Liabilities and
Shareholders Equity $711,909 $40,118 $752,027
======== ======= ========
</TABLE>
F-7
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BAY APARTMENT COMMUNITIES, INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1996
(In thousands, except share and per share data)
(Unaudited)
<TABLE>
<CAPTION>
Acquisition
Historical Communities Pro Forma
---------- ----------- ---------
<S> <C> <C> <C>
Revenue:
Rental $80,377 $3,682 C $84,059
Other 2,216 133 C 2,349
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Total revenue 82,593 3,815 86,408
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Expenses:
Property operating 18,924 1,622 D 20,546
Property taxes 6,353 179 D 6,532
General and administrative 3,895 103 D 3,998
Interest and financing 14,276 1,917 E 16,193
Depreciation and amortization 18,689 1,264 F 19,953
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Total expenses 62,137 5,085 67,222
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Income before minority interest
and extraordinary item 20,456 (1,270) 19,186
Minority interest (319) - (319)
---------- ------ ----------
Income before extraordinary item 20,137 (1,270) 18,867
Extraordinary item (511) - (511)
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Net income 19,626 (1,270) 18,356
Preferred dividend requirement (4,264) 0 (4,264)
---------- ------ ----------
Earnings available to common
shares $15,362 ($1,270) $14,092
========== ====== ==========
Weighted average shares
outstanding 15,126,242 15,126,242
========== ==========
Per share $1.02 $0.93
========== ==========
</TABLE>
F-8
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1. BASIS OF PRESENTATION:
The pro forma financial statements of Bay Apartment Communities, Inc. (the
"Company"), which are unaudited, have been prepared based on the historical
financial statements of the Company. The pro forma consolidated balance sheet
has been prepared as if the acquisition of two apartment communities during the
period February 11, 1998 through March 2, 1998 (the "Acquisition Communities"),
had occurred on December 31, 1996. The pro forma consolidated statement of
operations for the twelve months ended December 31, 1996, has been prepared as
if the acquisition of Cabrillo Square Apartments had occurred on January 1,
1996, and contains pro forma adjustments to reflect the partial year of
operations (March 7, 1997 through November 30, 1997) which were available to be
audited for Laguna Brisas Apartments. Financial records for the Laguna Brisas
Apartments were unavailable for the period prior to March 7, 1997. In
management's opinion, all adjustments necessary to reflect the effects of these
transactions have been made. The pro forma financial statements should be read
in conjunction with the historical financial statements of the Company.
2. PRO FORMA ADJUSTMENTS:
A - Additional real estate assets are attributable to the Acquisition
Communities which consist of the following acquisitions (000's):
<TABLE>
<S> <C>
Laguna Brisas, Laguna Niguel, CA $ 17,218
Cabrillo Square, San Diego, CA 22,900
---------
$ 40,118
</TABLE>
B - Increase in notes payable is attributable to assumption of a note
collateralized by the Laguna Brisas property in the amount of $10,400 and an
additional $29,718 cash drawn from the Credit Facility, used to complete the
purchase of the Acquisition Communities.
C - Additional rental and other revenue is attributable to a full year of
operations for Cabrillo Square Apartments and a partial year (March 7
through November 30, 1997) of operations for Laguna Brisas Apartments.
D - Additional property operating expense, property tax expense, and general
and administrative expense are attributable to a full year of operations for
Cabrillo Square Apartments and a partial year (March 7 through November 30,
1997) of operations for Laguna Brisas Apartments.
F - 9
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E - Additional interest and financing expense is attributable to the interest
incurred on incremental funds borrowed on the Credit Facility and the
assumed note payable collateralized by Laguna Brisas Apartments. Additional
interest related to Laguna Brisas reflects a partial year of ownership.
F - Depreciation expense attributable to the Acquisition Communities has been
computed using the straight-line method over 30 years for buildings and 7
years for furniture, fixtures and equipment. Additional depreciation expense
attributable to Laguna Brisas Apartments reflects a partial year of
ownership of the property.
F - 10
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EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements of
Bay Apartment Communities, Inc. on Form S-8 (File No. 333-47405), Form S-8
(File No. 333-16837), Form S-3 (File No. 333-16647), Form S-3 (File No.
333-15407), Form S-3 (File No. 333-39037), and Form S-3 (File No. 333-41511) of
our report dated December 16, 1997, on our audit of the Historical Summary of
Revenues and Direct Operating Expenses of Laguna Brisas Apartments for the
period March 7, 1997 to November 30, 1997, and of our report dated February 12,
1998, on our audit of the Historical Summary of Revenues and Direct Operating
Expenses of Cabrillo Square Apartments for the year ended December 31, 1997
which reports are included in this Current Report on Form 8-K.
/s/ COOPERS & LYBRAND L.L.P.
San Francisco, California
March 27, 1998
