<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
----------------------------------
Date of Report (Date of earliest event reported): October 2, 1998
AVALONBAY 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.)
2900 EISENHOWER AVENUE, SUITE 300, ALEXANDRIA, VIRGINIA 22314
-------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(703) 329-6300
----------------------------------------------------
(Registrant's telephone number, including area code)
<PAGE> 2
ITEM 5. OTHER EVENTS.
SPECIAL MEETING OF STOCKHOLDERS
On October 2, 1998, the Company held a Special Meeting of Stockholders
(the "Special Meeting") at which the holders of record of the Company's common
stock, par value $.01 per share (the "Common Stock"), as of the close of
business on August 26, 1998 (the "Record Date") were asked to vote on certain
amendments to the Company's charter (the "Charter"). Specifically, the
stockholders were asked to vote on (i) amendments to the Charter that would
reduce the number of authorized shares of Common Stock which the Company may
issue from 300,000,000 to 140,000,000, (ii) an amendment to the Charter which
would enable the stockholders of the Company to remove a director from office
with or without cause upon the affirmative vote of a majority of the shares then
entitled to vote at a meeting of the stockholders called for such purpose, and
(iii) an amendment to the Charter changing the name of the Company from "Avalon
Bay Communities, Inc." to "AvalonBay Communities, Inc."
Each of proposals (i) and (iii) was approved at the Special Meeting by
the affirmative vote of the holders of the requisite number of shares of Common
Stock outstanding as of the Record Date. Immediately following the Special
Meeting on October 2, 1998, the Company caused Articles of Amendment to the
Charter to be filed with, and accepted for record by, the State Department of
Assessments and Taxation of the State of Maryland. Accordingly, the Company is
now authorized to issue 140,000,000 shares of Common Stock and its name has been
changed to "AvalonBay Communities, Inc." A copy of such Articles of Amendment to
the Charter is being filed herewith as Exhibit 3.1(ii).
PROPERTY ACQUISITION
HANOVER HALL. On July 20 1998, the Company agreed to acquire Hanover Hall and
Summer Terrace (a combined community known as Hanover Hall) consisting of 388
apartment homes in two adjacent 13-story buildings located in Stamford,
Connecticut from Hanover Hall Limited Partnership and Summer Terrace Limited
Partnership. The anticipated purchase price for this community is approximately
$37 million. The purchase will be funded by drawing on the Company's $600
million unsecured revolving credit facility from Morgan Guarantee Trust Company
of New York, Union Bank of Switzerland and Fleet National Bank, as co-agents,
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 0.60% per annum and matures in June
2001. In addition, the Unsecured Credit Facility includes a competitive bid
option for up to $400 million and two, one-year extension options. This
acquisition is expected to close in November 1998. However, because the
purchase of this community is still pending, there can be no assurance that the
Company will consummate the acquisition or, if acquired, that it will be
purchased on terms currently contemplated. Neither the Company, any subsidiary
of the Company nor any director or officer of the Company is affiliated with or
has a material relationship with the sellers of this community.
In assessing the communities, the Company's management considered the existing
leases, which are the primary source of revenue, the occupancy rates, the
competitive nature of the markets and comparative rental rates. Furthermore,
current and anticipated maintenance and repair costs, real estate taxes and
capital improvement requirements were evaluated. Management is not aware of any
material factors that would cause the reported financial information in the
accompanying Historical Summaries of Operating Revenues and Expenses to be
misleading.
<PAGE> 3
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 Information. Unaudited pro forma financial information
as of and for the six months ended June 30, 1998 and for the year ended
December 31, 1997 are included as Exhibit 99.1 hereto.
(c) Exhibits
3.1(i) Articles of Amendment and Restatement of Articles of
Incorporation of the Company, dated as of June 4, 1998.
(Incorporated by reference to Exhibit 3.1(i) to the Company's
Form 10-Q for the quarter ended June 30, 1998).
3.1(ii) Articles of Amendment, dated as of October 2, 1998.
12.1 Statements of Ratios of Earnings to Combined Fixed Charges and
Preferred Stock Dividends and Ratios of Earnings to Fixed Charges
23.1 Consent of PricewaterhouseCoopers LLP
99.1 Unaudited pro forma financial information as of and for the six
months ended June 30, 1998 and for the year ended December 31,
1997.
<PAGE> 4
SIGNATURE
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.
AVALONBAY COMMUNITIES, INC.
Dated: October 6, 1998 By: /s/ Thomas J. Sargeant
--------------------------------
Name: Thomas J. Sargeant
Title: Chief Financial Officer
<PAGE> 5
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors
Avalon Bay Communities, Inc.:
We have audited the accompanying historical summary of operating revenue and
expenses, as defined in Note 2(a), of Hanover Hall and Summer Terrace for the
year ended December 31, 1997. This historical summary is the responsibility of
Hanover Hall and Summer Terrace's management. 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
accounting principles 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 the rules and regulations of the Securities and Exchange Commission (for
inclusion in the Registration Statements on Forms S-3 and S-8 of Avalon Bay
Communities, Inc.) and is not intended to be a complete presentation of Hanover
Hall and Summer Terrace's revenue and expenses.
In our opinion, the historical summary referred to above presents fairly, in all
material respects, the operating revenue and expenses described in Note 2(a) of
Hanover Hall and Summer Terrace for the year ended December 31, 1997, in
conformity with generally accepted accounting principles.
PricewaterhouseCoopers LLP
Washington, D.C.
September 11, 1998
<PAGE> 6
HANOVER HALL AND SUMMER TERRACE
Historical Summaries of Operating Revenue and Expenses
For the six months ended June 30, 1998
(unaudited) and the year ended
December 31, 1997
(dollars in thousands)
Six months ended Year ended
June 30, 1998 December 31, 1997
(unaudited) (audited)
Total revenue $ 2,390 $ 4,576
Operating expenses:
Property operating 750 1,712
Real estate taxes 204 416
--------- ---------
Total operating expenses 954 2,128
--------- ---------
Operating revenue in excess
of operating expenses $ 1,436 $ 2,448
========= =========
See accompanying notes to historical summaries of operating
revenue and expenses.
2
<PAGE> 7
HANOVER HALL AND SUMMER TERRACE
Notes to the Historical Summaries of Operating Revenue and Expenses
Six months ended June 30, 1998 (unaudited)
and year ended December 31, 1997
(dollars in thousands)
(1) DESCRIPTION OF THE PROPERTY
Hanover Hall and Summer Terrace (the Buildings) consists of two 13-story
high-rise buildings located in Stamford, Connecticut, containing 388
studio, one, two, and three-bedroom apartment homes available for lease.
The Buildings were constructed in 1962.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of Presentation
The accompanying historical summaries of operating revenue and
expenses are not representative of the actual operations for the
periods presented as certain revenues and expenses, which may not
be comparable to those expected to be incurred by Avalon Bay
Communities, Inc. in the future operations of the Buildings, have
been excluded. Interest income has been excluded from revenue, and
interest, depreciation and amortization, and other costs not
directly related to the future operations of the Buildings have
been excluded from expenses.
(b) Revenue Recognition
Rental income attributable to residential leases is recorded when
due from tenants.
(c) Interim Unaudited Financial Information
The accompanying unaudited financial information for the six
months ended June 30, 1998 has been prepared consistent with the
rules and regulations of the Securities and Exchange Commission
governing the preparation of the amounts for the year ended
December 31, 1997. Certain information and footnote disclosures
normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed
or omitted pursuant to such rules and regulations, although
management believes that the disclosures are adequate to make the
information presented not misleading. In the opinion of
management, all adjustments, consisting only of normal recurring
accruals, necessary to present fairly the historical summaries of
operating revenue and expenses for the six months ended June 30,
1998, have been included. The results of operations for the
six-month period ended June 30, 1998 are not necessarily
indicative of the results for the full year.
3
<PAGE> 8
HANOVER HALL AND SUMMER TERRACE
Notes to the Historical Summaries of Operating Revenue and Expenses
(dollars in thousands)
(3) PRO FORMA TAXABLE OPERATING RESULTS AND CASH AVAILABLE FROM OPERATIONS
(UNAUDITED)
The following unaudited table is a pro forma estimate of the
taxable operating income and cash available from operations of
Hanover Hall and Summer Terrace for the twelve months ended June
30, 1998, as adjusted for certain items which can be factually
supported. For purposes of presenting pro forma taxable operating
income, revenue is recognized when it is either collectible under
the lease terms or collected. Tax depreciation for the buildings
is computed on the modified accelerated cost recovery system
method over a 27.5-year life. This statement does not purport to
forecast actual operating results for any period in the future.
Pro forma net operating income (exclusive of
depreciation and amortization expense) $2,660
Less - estimated tax depreciation and
amortization expense 1,089
--------
Pro forma taxable operating income $1,571
========
Pro forma cash available from operations $2,660
========
4
<PAGE> 1
Exhibit 3.1(ii)
ARTICLES OF AMENDMENT
AMENDING THE CHARTER OF
AVALON BAY COMMUNITIES, INC.
Avalon Bay Communities, Inc., a Maryland corporation (the
"Corporation"), certifies as follows:
FIRST: That the Corporation's Charter is hereby amended by:
(A) deleting Article I, Section 1.3 in its entirety and
inserting the following in lieu thereof:
1.3 The total number of shares of Stock which
the Corporation has authority to issue is two hundred ten
million (210,000,000) shares, consisting of (i) fifty million
(50,000,000) shares of Preferred Stock; (ii) one hundred forty
million (140,000,000) shares of Common Stock; and (iii) twenty
million (20,000,000) shares of excess stock, par value $.01
per share ("Excess Stock"). The aggregate par value of all the
shares of all classes of Stock is $2,100,000.
(B) deleting Article II in its entirety and inserting the
following in lieu thereof:
ARTICLE II
NAME
The name of the Corporation is:
"AvalonBay Communities, Inc."
<PAGE> 2
(C) deleting the first two sentences of Article VII,
Section 7.1 in their entirety and inserting the following in lieu thereof:
7.1 AUTHORIZED STOCK. The total number of shares
of Stock which the Corporation has authority to issue is two
hundred ten million (210,000,000) shares, consisting of (i)
fifty million (50,000,000) shares of Preferred Stock, par
value $.01 per share; (ii) one hundred forty million
(140,000,000) shares of Common Stock, par value $.01 per
share; and (iii) twenty million (20,000,000) shares of Excess
Stock, par value $.01 per share. The aggregate par value of
all the shares of all classes of Stock is $2,100,000.
SECOND: The foregoing amendments to the Corporation's Charter were
advised by the Board of Directors of the Corporation and were approved by the
stockholders of the Corporation at a Special Meeting of Stockholders held on
October 2, 1998.
[Remainder of Page Left Blank Intentionally]
2
<PAGE> 3
IN WITNESS WHEREOF, the Corporation has caused these Articles of
Amendment to the Charter of the Corporation to be executed in its name and on
its behalf on this 2nd day of October 1998, by the President of the Corporation
who acknowledges that these Articles of Amendment are the act of the Corporation
and that to the best of his knowledge, information and belief and under
penalties for perjury, all matters and facts contained in these Articles of
Amendment are true in all material respects.
AVALON BAY COMMUNITIES, INC.
(seal) By: /s/ Charles H. Berman
----------------------------------
Charles H. Berman
President
ATTEST
By: /s/ Jeffrey B. Van Horn
------------------------------
Jeffrey B. Van Horn
Secretary
3
<PAGE> 1
EXHIBIT 12.1
AVALONBAY COMMUNITIES, INC.
RATIOS OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
<TABLE>
<CAPTION>
Six months Year Year Year Year
Ended Ended Ended Ended March 17- January 1- Ended
June 30, December 31, December 31, December 31, December 31 March 16, December 31,
1998 1997 1996 1995 1994 1994 1993
---------- ------------ ----------- ------------ ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Operating Income $ 31,221 $ 38,941 $ 19,626 $ 11,460 $ 7,486 $ (716) $ (447)
(Less) Nonrecurring item:
Gain on sale $ - $ - $ - $ (2,412) $ - $ - $ -
(Plus) Extraordinary item:
Unamortized loan fee write-off $ - $ - $ 511 $ - $ - $ - $ -
(Plus) Fixed charges:
Interest expense $ 17,363 $ 14,113 $ 14,276 $ 11,472 $ 4,782 $ 2,358 $ 10,932
Interest capitalized 6,525 6,985 2,567 3,641 2,096 - -
Debt cost amortization 336 505 667 1,278 241 80 218
Preferred dividend 8,523 7,480 4,264 917 - - -
-------- -------- -------- -------- -------- -------- --------
Total fixed charges (1) $ 32,747 $ 29,083 $ 21,774 $ 17,308 $ 7,119 $ 2,438 $ 11,150
(Less):
Interest capitalized $ 6,525 $ 6,985 $ 2,567 $ 3,641 $ 2,096 $ - $ -
Preferred dividend 8,523 7,480 4,264 917 - - -
Adjusted earnings (2) $ 48,920 $ 53,559 $ 35,080 $ 21,798 $ 12,509 $ 1,722 $ 10,703
--------- --------- -------- -------- -------- -------- --------
Ratio (2 divided by 1) 1.49 1.84 1.61 1.26 1.76 0.71 0.96
========= ========= ======== ======== ======== ======== ========
</TABLE>
<PAGE> 2
AVALONBAY COMMUNITIES, INC.
RATIOS OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Six months Year Year Year Year
Ended Ended Ended Ended March 17- January 1- Ended
June 30, December 31, December 31, December 31, December 31 March 16, December 31,
1998 1997 1996 1995 1994 1994 1993
---------- ------------ ------------ ------------ ----------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Operating Income $ 31,221 $ 38,941 $ 19,626 $ 11,460 $ 7,486 $ (716) $ (447)
(Less) Nonrecurring item:
Gain on sale $ - $ - $ - $ (2,412) $ - $ - $ -
(Plus) Extraordinary item:
Unamortized loan fee write-off $ - $ - $ 511 $ - $ - $ - $ -
(Plus) Fixed charges:
Interest expense $ 17,363 $ 14,113 $ 14,276 $ 11,472 $ 4,782 $ 2,358 $ 10,932
Interest capitalized 6,525 6,985 2,567 3,641 2,096 - -
Debt cost amortization 336 505 667 1,278 241 80 218
-------- -------- -------- -------- -------- -------- --------
Total fixed charges (1) $ 24,224 $ 21,603 $ 17,510 $ 16,391 $ 7,119 $ 2,438 $ 11,150
(Less):
Interest capitalized $ 6,525 $ 6,985 $ 2,567 $ 3,641 $ 2,096 $ - $ -
Adjusted earnings (2) $ 48,920 $ 53,559 $ 35,080 $ 21,798 $ 12,509 $ 1,722 $ 10,703
-------- -------- -------- -------- -------- -------- --------
Ratio (2 divided by 1) 2.02 2.48 2.00 1.33 1.76 0.71 0.96
======== ======== ======== ======== ======== ======== ========
</TABLE>
<PAGE> 1
Exhibit 23-1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements of AvalonBay Communities, Inc. on Form S-8 (File No. 333-16837),
Form S-8 (File No. 333-56089), Form S-3 (File No. 333-16647), Form S-3 (File No.
333-15407), Form S-3 (File No. 333-41511) and Form S-3 (333-60875) of our report
dated September 11, 1998 appearing on page 5 of this Form 8-K.
/s/ PricewaterhouseCoopers LLP
October 5, 1998
Washington, D. C.
<PAGE> 1
Exhibit 99.1
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
AVALONBAY COMMUNITIES, INC.
PRO FORMA CONDENSED BALANCE SHEET
JUNE 30, 1998
(UNAUDITED)
The following unaudited Pro Forma Condensed Balance Sheet of AvalonBay
Communities, Inc. (the "Company") as of June 30, 1998 gives effect to (i) the
acquisition and sale of apartment communities and land that have been
consummated since June 30, 1998 and the acquisition of other apartment
communities that the Company expects to consummate in the near future; (ii) the
investment by the Company in a participating mortgage note; (iii) the July 1998
sale of Fixed Rate Unsecured Senior Notes; and (iv) repayment of amounts
outstanding under the Company's Variable Rate Unsecured Credit Facility (the "
Unsecured Credit Facility").
The unaudited Pro Forma Condensed Balance Sheet is presented for informational
purposes only and is not necessarily indicative of what the actual condensed
financial position of the Company would have been as of June 30, 1998, nor does
it purport to represent the future condensed financial position of the Company.
This information should be read in conjunction with the unaudited condensed
financial statements and other financial information contained in the Company's
Quarterly Report on Form 10-Q for the six months ended June 30, 1998, including
the notes thereto.
<PAGE> 2
AVALONBAY COMMUNITIES, INC.
PRO FORMA CONDENSED BALANCE SHEET
JUNE 30, 1998
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
At June 30, 1998 (Unaudited)
---------------------------------------------------------------------------------
Pro Forma Adjustments
-----------------------------------------------------
Acquired Disposed Probable Priors Debt Pro Forma
Historical Communities Communities Acquisitions Offering Consolidated
---------- ----------- ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Real estate, net $3,655,967 $145,074 $(56,515) $37,450 $ - $3,781,976
Cash, cash equivalents and cash in escrow 21,752 - - - - 21,752
Other assets 87,466 23,874 (283) - 2,184 113,241
---------- -------- -------- ------- ------ ----------
TOTAL ASSETS $3,765,185 $168,948 $(56,798) $37,450 $2,184 $3,916,969
========== ======== ======== ======= ====== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes and unsecured credit facility $1,331,059 $167,184 $(56,490) $37,450 $2,184 $1,481,387
Payables for construction 32,848 - - - - 32,848
Accrued expenses and other liabilities 115,973 1,764 (459) - - 117,278
---------- -------- -------- ------- ------ ----------
TOTAL LIABILITIES 1,479,880 168,948 (56,949) 37,450 2,184 1,631,513
Minority interest of unitholders in
consolidated operating partnerships 32,323 - - - - 32,323
Stockholders' equity:
Preferred stock 143 - - - - 143
Common stock 636 - - - - 636
Additional paid-in capital 2,317,749 - - - - 2,317,749
Deferred compensation (6,221) - - - - (6,221)
Dividends in excess of accumulated
earnings (59,325) - 151 - - (59,174)
---------- -------- -------- ------- ------ ----------
TOTAL STOCKHOLDERS' EQUITY 2,252,982 - 151 - - 2,253,133
---------- -------- -------- ------- ------ ----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $3,765,185 $168,948 $(56,798) $37,450 $2,184 $3,916,969
========== ======== ======== ======= ====== ==========
</TABLE>
See accompanying notes.
<PAGE> 3
AVALONBAY COMMUNITIES, INC.
NOTES TO PRO FORMA CONDENSED
BALANCE SHEET
(DOLLARS IN THOUSANDS)
1. BASIS OF PRESENTATION
The pro forma adjustments for the Acquired Communities, Disposed
Communities and Probable Acquisitions reflect the communities and land
acquired (Prudential Center Apartments, Avalon Corners land, Avalon Fox
Mill land and Avalon Court North land) or disposed (Aspen Meadows,
Village Park of Troy and Arbor Park) by the Company subsequent to June
30, 1998, acquisitions that the Company expects to consummate in the
near future (Hanover Hall) and the investment by the Company in a
participating mortgage note secured by Fairlane Woods. The adjustments
for Prior Debt Offering reflects the sale of $250 million in Fixed Rate
Unsecured Senior Notes during July 1998, and the subsequent repayment
of amounts outstanding under the Company's Unsecured Credit Facility.
2. ACQUIRED COMMUNITIES ADJUSTMENTS
(i) total acquisition costs of $145,074 ($130,050 related to the
Prudential Center Apartments, $6,220 related to Avalon Corners
land, $2,804 related to Avalon Fox Mill land, $6,000 related
to Avalon Court North land);
(ii) the assumption of net liabilities totaling $1,890, and draws
on the Company's Unsecured Credit Facility totaling $167,184;
and
(iii) the investment of $24,000 in a participating mortgage note
secured by Fairlane Woods.
3. DISPOSED COMMUNITIES ADJUSTMENTS
(i) total net real estate disposed of $56,515 ($12,300 related to
Aspen Meadows, $31,815 related to Village Park of Troy and
$12,400 related to Arbor Park);
(ii) the transfer of net liabilities of $176 in connection with the
sale of the communities;
(iii) the repayment of $56,490 on the Company's Unsecured Credit
Facility from the estimated sales proceeds; and
(iv) the recognition of a net gain totaling $151 from the sale of
the communities.
4. PROBABLE ACQUISITIONS ADJUSTMENTS
(i) total acquisition costs of $37,450 related to Hanover Hall;
and
(ii) draws on the Company's Unsecured Credit Facility totaling
$37,450.
5. PRIOR DEBT OFFERING ADJUSTMENTS
Reflects the sale of $250,000 of Fixed Rate Unsecured Senior Notes in
July 1998 at a net price of $247,816, after deduction of transaction
costs. The Company used all of the proceeds to pay down amounts
outstanding under its Unsecured Credit Facility.
<PAGE> 4
AVALONBAY COMMUNITIES, INC.
PRO FORMA CONDENSED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND THE
YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
The following unaudited Pro Forma Condensed Statements of Operations of
AvalonBay Communities, Inc. (the "Company") for the six months ended June 30,
1998 and for the year ended December 31, 1997 gives effect to (i) the June 1998
merger of Avalon Properties, Inc. with and into the Company (the "Merger"); (ii)
the acquisition and sale of apartment communities and land that have been
consummated since December 31, 1996 and the acquisition of other apartment
communities that the Company expects to consummate in the near future; (iii) the
investment by the Company in a participating mortgage note; (iv) the sale of
Common Stock, Preferred Stock and Fixed Rate Unsecured Senior Notes since
December 31, 1996; and (v) repayment of amounts outstanding under the Company's
Variable Rate Unsecured Credit Facility (the "Unsecured Credit Facility").
The unaudited Pro Forma Condensed Statements of Operations are presented for
informational purposes only and are not necessarily indicative of what the
actual condensed operations of the Company would have been assuming the
aforementioned transactions had been consummated as of the beginning of the
respective periods, nor does it purport to represent the results of operations
for future periods. This information should be read in conjunction with the
unaudited condensed financial statements and other financial information
contained in the Company's Quarterly Report on Form 10-Q for the six months
ended June 30, 1998, including the notes thereto.
<PAGE> 5
AVALONBAY COMMUNITIES, INC.
CONDENSED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(Unaudited)
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
For the six months ended June 30, 1998
---------------------------------------------------------------------------------
Pro Forma Adjustments
-----------------------------------------------------
Acquired Disposed Probable Prior Pro Forma
Historical Communities Communities Acquisitions Offerings Consolidated
---------- ----------- ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Total revenue $116,230 $106,187 $(1,429) $2,390 $ - $223,378
Expenses:
Operating expenses 30,705 31,572 (628) 750 - 62,399
Property taxes 9,394 9,089 (106) 204 - 18,581
Interest expense 17,363 19,853 (874) 1,217 (571) 36,988
Depreciation and amortization 24,503 27,204 (264) 533 - 51,976
General and administrative 2,946 2,558 - - - 5,504
Provision for unrecoverable deferred
development costs 400 433 - - - 833
-------- -------- ------- ------ ------ --------
Total expenses 85,311 90,709 (1,872) 2,704 (571) 176,281
-------- -------- ------- ------ ------ --------
Equity in income of unconsolidated joint
ventures 238 1,112 - - - 1,350
Interest income 468 1,571 - - - 2,039
Minority interest (404) (583) - - - (987)
-------- -------- ------- ------ ------ --------
Net income 31,221 17,578 443 (314) 571 49,499
Dividends attributable to preferred stock (8,523) (8,190) - - 1,174 (15,539)
-------- -------- ------- ------ ------ --------
Net income available to common stockholders $ 22,698 $ 9,388 $ 443 $ (314) $1,745 $ 33,960
======== ======== ======= ====== ====== ========
Per common share:
Net income - basic $ .68 $ .53
======== ========
Net income - diluted $ .66 $ .52
======== ========
</TABLE>
See accompanying notes.
<PAGE> 6
AVALONBAY COMMUNITIES, INC.
CONDENSED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(Unaudited)
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
For the year ended December 31, 1997
---------------------------------------------------------------------------------
Pro Forma Adjustments
-----------------------------------------------------
Acquired Disposed Probable Prior Pro Forma
Historical Communities Communities Acquisitions Offerings Consolidated
---------- ----------- ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Total revenue $125,827 $268,321 $(706) $ 4,576 $ - $398,018
Expenses:
Operating expenses 29,016 73,945 (139) 1,712 - 104,534
Property taxes 9,467 23,644 (64) 416 - 33,463
Interest expense 14,113 74,589 (307) 2,547 (29,408) 61,534
Depreciation and amortization 27,009 71,921 (112) 1,066 - 99,884
General and administrative 6,308 5,093 - - - 11,401
Provision for unrecoverable deferred
development costs 710 650 - - - 1,360
-------- -------- ----- ------- -------- --------
Total expenses 86,623 249,842 (622) 5,741 (29,408) 312,176
-------- -------- ----- ------- -------- --------
Equity in income of unconsolidated joint
ventures - 5,689 - - - 5,689
Interest income 207 3,554 - - - 3,761
Minority interest (470) (1,140) - - - (1,610)
-------- -------- ----- ------- -------- --------
Net income 38,941 26,582 (84) (1,165) 29,408 93,682
Dividends attributable to preferred stock (7,480) (19,772) - - (3,827) (31,079)
-------- -------- ----- ------- -------- --------
Net income available to common stockholders $ 31,461 $ 6,810 $ (84) $(1,165) $ 25,581 $ 62,603
======== ======== ===== ======= ======== ========
Per common share:
Net income - basic $ 1.40 $ .98
======== ========
Net income - diluted $ 1.40 $ .97
======== ========
</TABLE>
See accompanying notes.
<PAGE> 7
AVALONBAY COMMUNITIES, INC.
NOTES TO PRO FORMA CONDENSED
STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
1. BASIS OF PRESENTATION
The pro forma adjustments for the Acquired Communities, Disposed
Communities and Probable Acquisitions assumes that the Merger, all
communities and land acquired or disposed by the Company subsequent to
December 31, 1996, acquisitions that the Company expects to consummate
in the near future and the investment by the Company in a participating
mortgage note had occurred as of January 1, 1997. The adjustments for
Prior Offerings assumes the sale of all Common Stock, Preferred Stock
and Fixed Rate Unsecured Senior Notes (and the related repayment of
amounts outstanding under the Company's Unsecured Credit Facility)
subsequent to December 31, 1996 had occurred as of January 1, 1997.
2. ACQUIRED COMMUNITIES ADJUSTMENTS
(i) the historical operating revenues and expenses of the
communities acquired;
(ii) the additional interest expense on debt at weighted average
interest rates ranging from 6.5% to 6.8%, incurred for the
acquisitions and interest expense on assumed debt;
(iii) the depreciation expense based on the new accounting basis of
the rental properties based on a 30 year useful life; and
(iv) the historical general and administrative expenses, provision
for unrecoverable deferred development costs, equity in income
of unconsolidated joint ventures, interest income and minority
interest of Avalon Properties, Inc.
3. DISPOSED COMMUNITIES ADJUSTMENTS
(i) the elimination of historical operating revenues and expenses
of the communities sold;
(ii) the reduction of interest expense from the repayment of debt
using the net proceeds; and
(iii) the elimination of historical depreciation expense of the
communities sold.
4. PROBABLE ACQUISITIONS ADJUSTMENTS
(i) the historical operating revenues and expenses of the
communities anticipated to be acquired;
(ii) the additional interest expense on debt at weighted average
interest rates ranging from 6.5% to 6.8%, incurred for the
acquisitions; and
(iii) the depreciation expense based on the new accounting basis of
the rental properties based on a 30 year useful life.
5. PRIOR OFFERINGS ADJUSTMENTS
Adjustments reflect the reduction in interest expense and additional
preferred dividends associated with the paydown of amounts outstanding
under the Company's Unsecured Credit Facility with the proceeds from
the sale of Common Stock and Preferred Stock, and the change in
interest expense associated with the sale of Fixed Rate Unsecured
Senior Notes subsequent to December 31, 1996.
<PAGE> 8
6. EARNINGS PER SHARE
Based upon the following table of pro forma shares of common stock
outstanding and common stock equivalents on a weighted average basis
during the six months ended June 30, 1998 and for the year ended
December 31, 1997.
<TABLE>
<CAPTION>
For the For the
six months year ended
ended June 30 December 31
1998 1997
<S> <C> <C>
Weighted average Common Shares outstanding - basic 64,089,106 63,958,400
Weighted average Common Shares outstanding - diluted 64,791,092 64,515,021
</TABLE>
