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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
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DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): MARCH 10, 2000
AVALONBAY COMMUNITIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
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MARYLAND 1-12672 77-0404318
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(STATE OR OTHER JURISDICTION (COMMISSION FILE NUMBER) (IRS EMPLOYER
OF INCORPORATION) IDENTIFICATION NO.)
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2900 EISENHOWER AVENUE, SUITE 300, ALEXANDRIA, VA 22314
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(703) 329-6300
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(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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ITEM 5. OTHER EVENTS.
On or about March 10, 2000, AvalonBay Communities, Inc. mailed a
letter to stockholders. A copy of that letter is attached hereto as Exhibit
99.1 and is incorporated herein by reference.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION
AND EXHIBITS.
(c) Exhibits
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3(i).1 Articles of Amendment and Restatement of Articles of
Incorporation of AvalonBay Communities, Inc. (the
"Company"), containing a description of the preferences,
conversion and other rights, voting powers, restrictions,
limitations as to dividends, qualifications and terms and
conditions of redemption of the Series E Junior
Participating Cumulative Preferred Stock (incorporated by
reference to Exhibit 3(i).1 to Form 10-Q of the Company
filed on August 14, 1998).
3(i).2 Articles of Amendment, dated as of October 2, 1998
(incorporated by reference to Exhibit 3.1(ii) to Form 8-K of
the Company filed on October 6, 1998).
3(i).3 Articles Supplementary, dated as of October 13, 1998,
relating to the 8.70% Series H Cumulative Redeemable
Preferred Stock (incorporated by reference to Exhibit 1 to
Form 8-A of the Company filed on October 14, 1998).
4.1 Shareholder Rights Agreement, dated March 8, 1998 (the
"Rights Agreement"), between AvalonBay Communities, Inc.
(formerly known as Bay Apartment Communities, Inc.) and
First Union National Bank (as successor to American Stock
Transfer and Trust Company, as Rights Agent), including the
form of Rights Certificate as EXHIBIT B (incorporated by
reference to Exhibit 4.1 to Form 8-A of the Company filed on
March 11, 1998).
4.2 Amendment No. 1 to the Rights Agreement, dated as of
February 28, 2000, between AvalonBay Communities, Inc. and
First Union National Bank, as Rights Agent (incorporated by
reference to Exhibit 4.2 to Form 8-A/A of the Company filed
on February 28, 2000).
99.1 Letter, dated March 10, 2000, from the Company to its
stockholders.
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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.
AVALONBAY COMMUNITIES, INC.
Dated: March 10, 2000 By: /s/ THOMAS J. SARGEANT
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Name: Thomas J. Sargeant
Title: Executive Vice President, Chief
Financial Officer and Treasurer
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EXHIBIT 99.1
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March 10, 2000
Dear Stockholder:
AvalonBay enjoyed another excellent year of apartment operations, and we believe
we are well positioned for continued growth in 2000. We'll cover this and more
in our upcoming annual report to stockholders. Until then, I want to share with
you several items that I know will be of interest to you.
First, the Board of Directors recognized our strong 1999 operating performance
and continued strong prospects for 2000 by approving a dividend of $.56 for the
first quarter of 2000, an increase of approximately 10% compared to the dividend
for the first quarter of 1999. This dividend will be paid on April 17, 2000 to
stockholders of record as of the close of business on April 3, 2000. Although
the Company has historically raised its common dividend each year, this increase
was declared earlier than in prior years and reflects a greater rate of increase
than in prior years. We expect that, as a result of this increase, our dividend
distributions now approximate 100% of taxable income. We believe it is
noteworthy to stockholders that this important milestone in the operating
history of the Company has now been reached, as we anticipate that future
increases in our taxable income will generally be distributed to stockholders in
order to distribute 100% of taxable income, thus continuing to avoid corporate
level taxes. By aiming to distribute 100% of taxable income, our goal is to
retain as much cash flow as possible to finance our development pipeline while
avoiding corporate level income taxes. Please note that taxable income includes
gain on asset sales, which is more difficult to predict than other recurring
sources of taxable income. We can provide no assurance that operating results
will continue to support such increases in the future or that the Board of
Directors will continue to declare dividend increases at this level. We do note
that our 1999 dividends represented a payout ratio of only 64% of 1999 funds
from operations ("FFO"), providing support for the current dividend increase.
Second, I would like to point out that a change in our accounting and financial
presentation related to the merger between Avalon Properties, Inc. and the
Company is reflected in the Company's Annual Report on Form 10-K, which we filed
on March 10, 2000. This change was made following discussions with the
Securities and Exchange Commission, and while there was no impact on reported
FFO per share (a commonly used measure of performance and evaluation in our
industry) for 1998 and 1999, net income per share presented for those years
increased as a result of this change.
In June 1998, Avalon Properties, Inc. merged into Bay Apartment Communities (and
Bay was renamed AvalonBay Communities, Inc. in connection with the merger). As a
result of the merger, Avalon Properties, Inc. ceased to exist, and the Company
was the legal survivor and successor to all of the assets and liabilities of
Avalon Properties, Inc. The previous financial presentation of the merger
reflected the historical accounting information for Bay, with the real estate
assets of Avalon Properties which the Company succeeded to in the merger
reflected as of the merger date as the amount of debt assumed plus the value of
capital stock issued. The financial presentation in the 1999 Form 10-K now
reflects the historical financial statements of Avalon Properties, with Bay's
assets recorded in the historical financial statements of Avalon Properties as
an amount equal to Bay's debt outstanding at that time plus the value of the
capital stock retained by the Bay stockholders, which approximate the fair value
of the assets as of the date of the merger.
Among the changes that result from the new presentation of the Company's
financial statements is that 1998 fully diluted net income per share, which was
previously reported as $1.37, increased to $1.84. Fully diluted net income per
share for 1999 as previously announced was $1.50; as a result of the new
presentation, 1999 fully diluted net income per share as reported in the 1999
Form 10-K increased to $2.00. The increases in 1998 and 1999 net income per
share under the new presentation as compared to the old presentation result from
higher reported gains on the sale of certain assets that were owned by Avalon
Properties prior to the merger and lower reported depreciation expense, which
have no
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impact on FFO per share in either year. Moreover, the dividend increase
indicated above is not related to the change in the presentation of the
accounting but rather reflects the Company's continued strength of operations
and the Company's desire to distribute 100% of the taxable income that would
otherwise be subject to tax at the corporate level.
Finally, the Company recently amended its Shareholder Rights Agreement to
increase from 10% to 15% the limitation on ownership of the Company's common
stock as applied to certain types of institutional investors. As a result of the
amendment, pension plans meeting certain criteria under the Internal Revenue
Code and investment companies registered under the Investment Company Act of
1940 may acquire or seek to acquire beneficial ownership of up to 15% of the
outstanding shares of the Company's common stock without violating the ownership
limit set forth in the Company's articles of incorporation or becoming
"Acquiring Persons" or otherwise causing a "Distribution Date" to occur (as such
terms are defined in the Shareholder Rights Agreement). A summary of the
Shareholder Rights Agreement, as amended, is provided in the Company's
Form 8-A/A that was filed with the SEC on February 28, 2000. In addition to that
summary, copies of the Shareholder Rights Agreement and the amendment have been
filed with the SEC as well.
As you will see upon review of our recently filed Form 10-K, 1999 was another
successful year for the Company. I thank you for your continued investment in
and support of AvalonBay.
Very truly yours,
/s/ Richard L. Michaux
Richard L. Michaux
Chief Executive Officer and President
INFORMATION REGARDING "FORWARD-LOOKING STATEMENTS" AND THE MEANING AND USE OF
THE TERM "FUNDS FROM OPERATIONS": Any statements in this letter which are not
statements of historical fact are 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. Any such forward-looking statements contained in this
letter are statements that are subject to risks and uncertainties. Factors which
could cause actual results or events to differ materially from those in the
forward-looking statements include, but are not limited to, possible changes in
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 matters detailed in the Company's
filings with the Securities and Exchange Commission, including in the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1999 under the
heading "Management's Discussion and Analysis of Financial Condition and Results
of Operations--Forward-Looking Statements" and elsewhere in that report.
Management generally considers funds from operations ("FFO") to be an
appropriate measure of the operating performance of the Company because it
provides investors an understanding of the ability of the Company to incur and
service debt and to make capital expenditures. The Company believes that in
order to facilitate a clear understanding of the operating results of the
Company, FFO should be examined in conjunction with net income as presented in
the Company's consolidated financial statements. FFO is determined in accordance
with a definition adopted by the Board of Governors of the National Association
of Real Estate Investment Trusts, and is defined as net income (loss) computed
in accordance with generally accepted accounting principles ("GAAP"), excluding
gains (or losses) from debt restructuring and sales of property, plus
depreciation of real estate assets and after adjustments for unconsolidated
partnerships and joint ventures. FFO does not represent cash generated from
operating activities in accordance with GAAP and therefore should not be
considered an alternative to net income as an indication of the Company's
performance or to net cash flows from operating activities as determined by GAAP
as a measure of liquidity, and FFO is not necessarily indicative of cash
available to fund cash needs. Further, FFO as calculated by other REITs may not
be comparable to the Company's calculation of FFO.
