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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
COMMISSION FILE NUMBER 1-12672
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BAY APARTMENT COMMUNITIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MARYLAND 77-0404318
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
4340 STEVENS CREEK BLVD., #275, SAN JOSE, CALIFORNIA 95129
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)
(408) 983-1500
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
N/A
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE LAST
REPORT)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve (12) months (or such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past ninety (90) days: Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
CLASS SHARES OUTSTANDING DATE
----- ------------------ ----
Common, $.01 par value 28,973,909 May 8, 1998
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BAY APARTMENT COMMUNITIES, INC.
FORM 10-Q
INDEX
PAGE
------
PART I -- FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements (Unaudited):
Consolidated Balance Sheets as of March 31, 1998 and
December 31, 1997........................................... 2
Consolidated Statements of Operations for the Quarters ended
March 31, 1998 and 1997..................................... 3
Consolidated Statements of Cash Flows for the Quarters ended
March 31, 1998 and 1997..................................... 4
Notes to Consolidated Financial Statements.................. 5-13
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 14-23
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings........................................... 24
Item 2. Changes in Securities....................................... 24
Item 3. Defaults Upon Senior Securities............................. 24
Item 4. Submission of Matters to a Vote of Security Holders......... 24
Item 5. Other Information........................................... 24
Item 6. Exhibits and Reports on Form 8-K............................ 24-26
Signatures........................................................... 27
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PART I -- FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
BAY APARTMENT COMMUNITIES, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
ASSETS
MARCH 31, DECEMBER 31,
1998 1997
----------- ------------
(UNAUDITED)
Real estate assets:
Land...................................................... $ 323,802 $ 299,885
Buildings and improvements................................ 940,608 839,638
Furniture, fixtures and equipment......................... 70,185 63,631
---------- ----------
1,334,595 1,203,154
Less accumulated depreciation............................. (88,762) (79,031)
---------- ----------
Operating real estate assets.............................. 1,245,833 1,124,123
Construction in progress.................................. 171,875 170,361
---------- ----------
Net real estate assets................................. 1,417,708 1,294,484
Cash and cash equivalents................................... 2,892 3,188
Restricted cash............................................. 1,845 1,597
Other assets, net........................................... 25,019 18,381
---------- ----------
Total assets...................................... $1,447,464 $1,317,650
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Notes payable............................................... $ 605,191 $ 487,484
Accounts payable and accrued expenses....................... 13,247 7,727
Dividends payable........................................... 12,695 12,591
Other liabilities........................................... 13,292 8,020
---------- ----------
Total liabilities................................. 644,425 515,822
---------- ----------
Contingencies (Note 4)...................................... -- --
---------- ----------
Minority interest........................................... 9,124 9,133
---------- ----------
Shareholders' equity:
Preferred stock, $.01 par value; 25,000,000 shares
authorized; 2,308,800 shares of Series A outstanding at
both March 31, 1998 and December 31, 1997; 405,022
shares of Series B outstanding at both March 31, 1998
and December 31, 1997; 2,300,000 shares of Series C
outstanding at both March 31, 1998 and December 31,
1997; 3,267,700 shares of Series D outstanding at both
March 31, 1998 and December 31, 1997................... 83 83
Common stock, $.01 par value; 40,000,000 shares
authorized; 26,197,865 shares outstanding at March 31,
1998; 26,077,518 shares outstanding at December 31,
1997................................................... 262 261
Paid-in capital........................................... 826,792 823,520
Dividends in excess of accumulated earnings............... (33,222) (31,169)
---------- ----------
Total shareholders' equity........................ 793,915 792,695
---------- ----------
Total liabilities and shareholders' equity........ $1,447,464 $1,317,650
========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
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BAY APARTMENT COMMUNITIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
QUARTER ENDED QUARTER ENDED
MARCH 31, MARCH 31,
1998 1997
------------- -------------
Revenue:
Rental.................................................... $43,666 $25,393
Other..................................................... 1,719 864
------- -------
Total revenue..................................... 45,385 26,257
------- -------
Expenses:
Property operating........................................ 10,344 5,971
Property taxes............................................ 3,626 1,914
General and administrative................................ 2,016 1,367
Abandoned project costs................................... 150 80
Interest and financing.................................... 6,249 3,317
Depreciation and amortization............................. 9,867 5,699
------- -------
Total expenses.................................... 32,252 18,348
------- -------
Income before minority interest............................. 13,133 7,909
Minority interest........................................... (154) (138)
------- -------
Net income.................................................. 12,979 7,771
Preferred stock dividend requirement:
Series A and B............................................ (1,174) (1,146)
Series C and D............................................ (2,855) --
------- -------
Earnings available to common shares......................... $ 8,950 $ 6,625
======= =======
Basic and diluted earnings per common share:
Income before minority interest............................. $ 0.35 $ 0.34
Minority interest......................................... (0.01) (0.01)
------- -------
Earnings available to common shares....................... $ 0.34 $ 0.33
======= =======
Dividends declared per common share......................... $ 0.42 $ 0.41
======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
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BAY APARTMENT COMMUNITIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
QUARTER ENDED QUARTER ENDED
MARCH 31, 1998 MARCH 31, 1997
-------------- --------------
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
Net income................................................ $ 12,979 $ 7,771
NONCASH EXPENSES INCLUDED IN NET INCOME:
Depreciation and amortization............................. 9,867 5,699
Minority interest......................................... 154 138
CASH PROVIDED BY (USED FOR) OPERATING ASSETS AND
LIABILITIES:
Restricted cash........................................... (248) (140)
Other assets.............................................. (6,774) (3,778)
Accounts payable and accrued expenses..................... 5,520 (1,756)
Other liabilities......................................... 5,272 (104)
--------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES................... 26,770 7,830
--------- --------
CASH FLOWS PROVIDED BY (USED FOR) INVESTING ACTIVITIES:
Capital improvements...................................... (979) (640)
Acquisition of properties................................. (78,512) (20,562)
Construction in progress.................................. (43,064) (17,677)
--------- --------
NET CASH (USED FOR) INVESTING ACTIVITIES.................... (122,555) (38,879)
--------- --------
CASH FLOWS PROVIDED BY (USED FOR) FINANCING ACTIVITIES:
Proceeds from stock offerings, net of issuance costs...... -- 49,271
Exercise of stock options................................. 208 80
Proceeds from employee stock purchase plan................ 241 --
Proceeds from dividend reinvestment plan.................. 2,824 --
Notes payable principal payments.......................... (493) (157)
Proceeds from senior unsecured note offerings............. 150,000 --
Borrowings on lines of credit............................. 106,700 36,500
Repayments on lines of credit............................. (148,900) (45,300)
Partner and minority interest distributions............... (163) (197)
Dividends paid............................................ (14,928) (8,940)
--------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES................... 95,489 31,257
--------- --------
Increase (decrease) in cash and cash equivalents............ (296) 208
Cash and cash equivalents, beginning of period.............. 3,188 920
--------- --------
Cash and cash equivalents, end of period.................... $ 2,892 $ 1,128
========= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest (net of amount capitalized)................... $ 4,278 $ 4,080
========= ========
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
Noncash transfers of construction in progress............. $ 41,550 $ 7,818
========= ========
Assumption of notes payable by the Company................ $ 10,400 $ --
========= ========
Conversion of partnership units to common stock........... $ -- $ 844
========= ========
Dividends declared or accrued but not paid................ $ 12,695 $ 9,540
========= ========
The accompanying notes are an integral part of these consolidated financial
statements.
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BAY APARTMENT COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES:
Organization
Bay Apartment Communities, Inc., in conjunction with its wholly-owned
partnerships and subsidiaries (the "Company"), was formed in 1978 to develop,
lease and manage upscale apartment communities. Before March 17, 1994, the
Company was a part of the Greenbriar Group which consisted of the Greenbriar
Development Company and certain affiliated entities. The Greenbriar Group
included one land parcel held for future development, 12 apartment communities
transferred to the Company in the reorganization transactions and the
partnerships that held 11 of these apartment communities. On March 17, 1994, the
Greenbriar Development Company became Bay Apartment Communities, Inc. as a
result of certain reorganization transactions in connection with the sale of
10,889,742 shares of common stock in an initial public offering. Also included
in this reorganization was the combination of building and management affiliates
into the Company. The Company is a self-administered and self-managed real
estate investment trust ("REIT") which acquires, builds, owns and manages
apartment communities primarily in Northern and Southern California. At March
31, 1998, the Company owned 59 apartment communities, of which 37 are in
Northern California, 19 are in Southern California, two are in the Seattle,
Washington area and one community is in the Portland, Oregon area, comprising
16,669 apartment homes, including the apartment homes delivered at Toscana -- a
partially completed community. In addition to Toscana, the Company had four
communities under construction and one land site held for future development in
Northern California.
The interim unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and in conjunction with the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
financial statements required by generally accepted accounting principles have
been condensed or omitted pursuant to such rules and regulations. These
unaudited financial statements should be read in conjunction with the financial
statements and notes thereto included in the Company's Annual Report on Form
10-K for the year ended December 31, 1997. The results of operations for the
quarter ended March 31, 1998 are not necessarily indicative of the operating
results for the full year. Management believes that the disclosures are adequate
to make the information presented not misleading. In the opinion of management,
all adjustments and eliminations, consisting only of normal, recurring
adjustments necessary for a fair presentation of the financial statements for
the interim periods have been included.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
the Company, and its wholly-owned partnerships and subsidiaries. The
accompanying consolidated financial statements also include the accounts of Bay
Countrybrook L.P., a Delaware limited partnership (the "Countrybrook
Partnership"). The general partner of the Countrybrook Partnership is a
wholly-owned subsidiary of the Company, Bay GP, Inc., a Maryland corporation.
The accompanying consolidated financial statements also include the accounts of
Bay Rincon, LP, a California limited partnership (the "Rincon Partnership"), and
Bay Pacific Northwest, L.P., a Delaware limited partnership (the "Northwest
Partnership"). The Company is the sole general partner of the Rincon Partnership
and Northwest Partnership. All significant intercompany balances and
transactions have been eliminated in consolidation.
Bay Countrybrook L.P.
In connection with the formation of the Countrybrook Partnership in July
1996, 298,577 units of limited partnership interests ("Countrybrook Units") were
issued to the existing partners of the contributor of the CountryBrook
community. Under the terms of the Countrybrook Partnership's Limited Partnership
Agree-
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BAY APARTMENT COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
ment, holders of Countrybrook Units have the right to require the Countrybrook
Partnership to redeem their Countrybrook Units for cash, subject to certain
conditions. The Company may, however, elect to deliver an equivalent number of
shares of the Company's common stock to the holders of Countrybrook Units in
satisfaction of the Countrybrook Partnership's obligation to redeem the
Countrybrook Units for cash. An aggregate of 166,142 Countrybrook Units had been
converted into the Company's common stock as of both March 31, 1998 and December
31, 1997. An aggregate of 762 Countrybrook Units had been redeemed for cash as
of both March 31, 1998 and December 31,1997.
Bay Pacific Northwest, L.P.
In connection with the formation of the Northwest Partnership in September
1997, 163,338 units of limited partnership interest ("Northwest Units") were
issued to the existing partners of the contributor of the Gallery Place
community. Under the terms of the Northwest Partnership's Limited Partnership
Agreement, holders of Northwest Units have the right to require the Northwest
Partnership to redeem their Northwest 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 Northwest Units in satisfaction of the
Northwest Partnership's obligation to redeem the Northwest Units for cash. No
Northwest Units had been converted into the Company's common stock or redeemed
for cash as of both March 31, 1998 and December 31, 1997.
Operating Real Estate Assets
Subsequent to occupancy, significant expenditures, generally exceeding $5,
which improve or extend the life of the asset are capitalized. The operating
real estate assets are stated at cost and consist of land, buildings and
improvements, furniture, fixtures and equipment, and other costs incurred during
development or redevelopment and construction or reconstruction.
Apartment homes available for occupancy are generally leased on a one year
or less basis. Rental income and operating costs incurred during the initial
lease-up or post-reconstruction lease-up period are fully recognized as they
accrue.
Capitalization of Costs During Development and Redevelopment
Cost capitalization during development of constructed assets (including
interest and related loan fees, property taxes and other direct and indirect
costs) begins when active development commences and ends when the asset is
delivered and a certificate of occupancy is issued. Cost capitalization during
redevelopment and reconstruction of assets (including interest and related loan
fees, property taxes and other direct and indirect costs) begins when an
apartment home is taken out-of-service for reconstruction and ends when the
apartment home reconstruction is completed and the apartment home is
placed-in-service.
Depreciation
Depreciation is calculated on operating real estate assets using the
straight-line method over their estimated useful lives, which range from ten to
thirty years. Furniture, fixtures and equipment are generally depreciated using
the straight-line method over their estimated useful lives, which range from
five to seven years.
Income Taxes
The Company has elected to be taxed as a REIT under the Internal Revenue
Code of 1986, as amended, (the "Code"). A corporate REIT is a legal entity which
holds real estate interests and through certain levels
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BAY APARTMENT COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
of payments of dividends to shareholders and other criteria, is permitted to
reduce or avoid the payment of federal and state income taxes at the corporate
level. As a result, the Company will not be subject to federal and state income
taxation at the corporate level if certain requirements are met. Accordingly, no
provision for federal and state income taxes has been made.
Deferred Financing Costs
Included in "Other assets, net" are costs associated with obtaining debt
financing and credit enhancements. Such costs are being amortized over the term
of the associated debt or credit enhancement.
Cash and Cash Equivalents
Cash and cash equivalents include all cash and liquid investments with an
original maturity of three months or less from the date acquired. Interest
income amounted to $184 and $104 for the quarters ended March 31, 1998 and 1997,
respectively.
Restricted Cash
Restricted cash at March 31, 1998 and December 31, 1997 consists of
replacement reserves related to the debt on the Barrington Hills, Crossbrook,
Rivershore, Canyon Creek, Sea Ridge and CountryBrook communities.
Earnings per Common Share
The Company has adopted Statement of Financial Accounting Standards
("SFAS") No. 128, "Earnings per Share". In accordance with the provisions of
SFAS No. 128, basic earnings per share for the quarters ended March 31, 1998 and
1997 is computed by dividing earnings available to common shares (net income
less preferred stock dividend requirement) by the weighted average number of
shares outstanding during the period.
Additionally, other potentially dilutive common shares are considered when
calculating earnings per share on a diluted basis. The Company's basic and
diluted weighted average shares outstanding for the quarters ended March 31,
1998 and 1997 are as follows:
FOR THE QUARTER ENDED
MARCH 31,
------------------------
1998 1997
---------- ----------
Common shares -- basic...................................... 26,172,571 19,997,068
Shares issuable from assumed conversion of Series A and B
Preferred Stock........................................... 2,713,822 2,713,822
Shares issuable from assumed conversion of common stock
options................................................... 278,669 279,088
---------- ----------
Common shares -- diluted.................................... 29,165,062 22,989,978
========== ==========
In calculating the earnings per common share for the quarters ended March
31, 1998 and 1997, the overall effect of all securities convertible into common
shares during both periods was anti-dilutive. Therefore, diluted earnings per
share is the same as basic earnings per share.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenue and expenses during the reporting
periods. Actual results could differ from those estimates.
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BAY APARTMENT COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Concentration of Geographic Risk
The majority of the Company's apartment communities are located in Northern
California and most of these Northern California communities are located in the
San Francisco Bay Area. This geographic concentration could expose the Company
to a significant loss should one event affect the entire area such as an
earthquake or other environmental event.
Financial Instruments
The Company enters into interest rate swap agreements (the "Swap
Agreements") with parties whose credit ratings issued by Standard and Poor's
Ratings Group are AAA in order to limit the Company's exposure should interest
rates rise above specified levels. The Swap Agreements are held for purposes
other than trading. The amortization of the cost of the Swap Agreements is
included in amortization expense. The remaining unamortized cost of the Swap
Agreements is included in "Other assets, net" on the balance sheet and is
amortized over the remaining life of the agreements.
Accounting for Stock-based Compensation
The Company applies Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees, and related interpretations in accounting for its
stock-based compensation plans.
Newly Issued Accounting Standards
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130
"Reporting Comprehensive Income" and No. 131 "Disclosure of Segment
Information." SFAS No. 130 establishes the disclosure requirements for reporting
comprehensive income in an entity's annual and interim financial statements and
becomes effective for the Company for the fiscal year ending December 31, 1998.
Comprehensive income includes unrealized gains and losses on securities
currently reported by the Company as a component of stockholders' equity which
the Company would be required to include in a financial statement and display
the accumulated balance of other comprehensive income separately in the equity
section of the consolidated balance sheet. The Company does not believe this
pronouncement will have a material effect on the Company's results of
operations.
SFAS No. 131 establishes standards for determining an entity's operating
segments and the type and level of financial information to be disclosed. SFAS
No. 131 becomes effective for the Company for the fiscal year ending December
31, 1998. The Company does not believe that this pronouncement will result in
any additional disclosures.
On March 19, 1998, the Emerging Issues Task Force of the Financial
Accounting Standards Board issued Ruling 97-11 entitled "Accounting for Internal
Costs Relating to Real Estate Property Acquisitions," which requires that
internal costs of identifying and acquiring operating property be expensed as
incurred. Costs associated with the acquisition of non-operating property may
still be capitalized. The ruling is effective for acquisitions completed
subsequent to March 19, 1998. The Company estimates that this ruling will not
have a material effect on the Company's consolidated financial statements.
2. INTEREST CAPITALIZED
Interest costs associated with projects under development and construction
or redevelopment and reconstruction aggregating $2,964 and $1,025 for the
quarters ended March 31, 1998 and 1997, respectively, have been capitalized.
8
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BAY APARTMENT COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
3. NOTES PAYABLE
MARCH 31, DECEMBER 31,
1998 1997
--------- ------------
TAX-EXEMPT VARIABLE RATE UNDER INTEREST RATE SWAPS:
Foxchase (Phase I and II) and Fairway Glen are encumbered by
first deeds of trust which collateralize three housing
bond issues maturing November 1, 2007. The Company has
entered into a Swap Agreement under which the interest
rate is fixed until March 2004 at an effective rate of
5.88%. Such bonds require monthly payments of interest
only. The bonds contain covenants which require 20% of the
apartment homes to be leased or held available for lease
to low or moderate income families........................ $ 35,980 $ 35,980
Waterford and Villa Mariposa are encumbered by first deeds
of trust which collateralize two housing bond issues. The
Company has entered into a Swap Agreement under which the
interest rate is fixed until March 2004 at an effective
rate of 5.88%. Such bonds require monthly payments of
interest only and mature on August 1, 2014 and March 1,
2017, respectively. The bonds contain covenants which
require 20% of the apartment homes to be leased or held
available for lease to low or moderate income families.... 51,400 51,400
Barrington Hills is encumbered by a first deed of trust
which collateralizes housing bond issues maturing June 15,
2025, fully amortizing over the term. The Company has
entered into a Swap Agreement under which the interest
rate is fixed until June 2010 at an effective rate of
6.48%, including the amortization of deferred financing
costs. The bonds contain covenants which require 20% of
the apartment homes to be leased or held available for
lease to low or moderate income families.................. 13,144 13,185
Crossbrook is encumbered by a first deed of trust which
collateralizes housing bond issues maturing June 15, 2025,
fully amortizing over the term. The Company has entered
into a Swap Agreement under which the interest rate is
fixed until June 2010 at an effective rate of 6.48%,
including the amortization of deferred financing costs.
The bonds contain covenants which require 20% of the
apartment homes to be leased or held available for lease
to low or moderate income families........................ 8,459 8,484
Rivershore is encumbered by a first deed of trust which
collateralizes housing bond issues maturing November 15,
2022, fully amortizing over the term. The Company has
entered into a Swap Agreement under which the interest
rate is fixed until June 2010 at an effective rate of
6.48%, including the amortization of deferred financing
costs. The bonds contain convenants which require 20% of
the apartment homes to be leased or held available for
lease to low or moderate income families.................. 10,274 10,309
Canyon Creek is encumbered by a first deed of trust which
collateralizes housing bond issues maturing June 15, 2025,
fully amortizing over the term. The Company has entered
into a Swap Agreement under which the interest rate is
fixed until June 2010 at an effective rate of 6.48%,
including the amortization of deferred financing costs.
The bonds contain convenants which require 20% of the
apartment homes to be leased or held available for lease
to low income families.................................... 38,416 38,534
9
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BAY APARTMENT COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
MARCH 31, DECEMBER 31,
1998 1997
--------- ------------
Sea Ridge is encumbered by a first deed of trust which
collateralizes housing bond issues maturing June 15, 2025,
fully amortizing over the term. The Company has entered
into a Swap Agreement under which the interest rate is
fixed until June 2010 at an effective rate of 6.48%,
including the amortization of deferred financing costs.
The bonds contain convenants which require 20% of the
apartment homes to be leased or held available for lease
to low income families.................................... 17,426 17,479
City Heights is encumbered by a first deed of trust which
collateralizes housing bond issues maturing June 1, 2025,
partially amortizing over the term. The Company has
entered into a Swap Agreement under which the interest
rate is fixed until July 2007 at an effective interest
rate of 5.80%, including the amortization of deferred
financing costs. The bonds contain convenants which
require 20% of the apartment homes to be leased or held
available for lease to low income families................ 20,661 20,714
Larkspur Canyon is encumbered by a first deed of trust which
collateralizes housing bond issues maturing June 1, 2025,
partially amortizing over the term. The Company has
entered into a Swap Agreement under which the interest
rate is fixed until September 2002 at an effective
interest rate of 5.50%, including the amortization of
deferred financing costs. The bonds contain covenants
which require 20% of the apartment homes to be leased or
held available for lease to low or moderate income
families.................................................. 7,590 7,610
-------- --------
Subtotal.................................................... 203,350 203,695
-------- --------
TAX-EXEMPT FIXED RATE:
CountryBrook is encumbered by a first deed of trust which
collateralizes housing bond issues maturing March 1, 2012,
partially amortizing over the term. The interest rate on
the bonds is fixed until April 2002 at an effective
interest rate of 7.87%, including the amortization of
deferred financing costs. The bonds contain covenants
which require 20% of the apartment homes to be leased or
held available for lease to low or moderate income
families.................................................. 19,782 19,850
-------- --------
Subtotal.................................................... 19,782 19,850
-------- --------
TAX-EXEMPT VARIABLE RATE:
Laguna Brisas is encumbered by a first deed of trust which
collateralizes housing bond issues maturing March 1, 2009.
Interest only payments are required monthly at a variable
rate set weekly by the remarketing agent (5.37% at March
31, 1998, including the amortization of deferred financing
costs). The bonds contain convenants which require 20% of
the apartment homes to be leased or held available for
lease to low or moderate income families.................. 10,400 --
-------- --------
Subtotal.................................................... 10,400 --
-------- --------
FIXED RATE:
Governor's Square is encumbered by a first deed of trust
maturing August 1, 2004, partially amortizing over the
term. The interest rate on the loan is fixed at 7.65%..... 14,152 14,184
The Arbors (formerly Cardiff Gardens) is encumbered by a
first deed of trust maturing May 1, 2004. Interest only
payments are required monthly at a fixed interest rate of
7.25%..................................................... 12,870 12,870
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BAY APARTMENT COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
MARCH 31, DECEMBER 31,
1998 1997
--------- ------------
Gallery Place is encumbered by a first deed of trust
maturing May 15, 2001, partially amortizing over the term.
The interest rate on the loan is fixed at 7.31%........... 11,637 11,685
-------- --------
Subtotal.................................................... 38,659 38,739
-------- --------
UNSECURED FIXED RATE:
Senior unsecured notes maturing January 15, 2003. Interest
only payments are required semi-annually at a fixed
interest rate of 6.25% (6.43% including the amortization
of deferred financing costs).............................. 50,000 --
Senior unsecured notes maturing January 15, 2005. Interest
only payments are required semi-annually at a fixed
interest rate of 6.50% (6.63% including the amortization
of deferred financing costs).............................. 50,000 --
Senior unsecured notes maturing January 15, 2008. Interest
only payments are required semi-annually at a fixed
interest rate of 6.625% (6.71% including the amortization
of deferred financing costs).............................. 50,000 --
Note payable assumed in connection with the Cedar Ridge
acquisition maturing July 15, 1999. Interest only payments
are required monthly at a fixed interest rate of 6.50%.... 1,000 1,000
-------- --------
Subtotal.................................................... 151,000 1,000
-------- --------
CREDIT LINE:
Unsecured line of credit (the "Unsecured Line of Credit")
with an aggregate borrowing amount of up to $350,000
maturing May 2000. This line bears interest at various
LIBOR rates plus 0.90%, with a competitive bid option..... 182,000 224,200
-------- --------
Subtotal.................................................... 182,000 224,200
-------- --------
Total Notes Payable............................... $605,191 $487,484
======== ========
Principal payments on outstanding notes payable as of March 31, 1998 are
due as follows:
1998.............................................. $ 1,531
1999.............................................. 3,175
2000.............................................. 184,338
2001.............................................. 13,308
2002.............................................. 2,435
Thereafter........................................ 400,404
--------
Total................................... $605,191
========
4. CONTINGENCIES
The Company is subject to various legal proceedings and claims that arise
in the ordinary course of business. These matters are generally covered by
insurance. While the resolution of these matters cannot be predicted with
certainty, management believes that the final outcome of such matters will not
have a material adverse effect on the financial position or results of
operations of the Company.
On September 8, 1997, the Company agreed to purchase through the Northwest
Partnership, a 264 apartment home community that was under construction in
Redmond, Washington from Avondale Bear Creek Limited Partnership. The proposed
acquisition of Verandas at Bear Creek will not be consummated
11
13
BAY APARTMENT COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
until 90 days after construction has been completed and the community is 90
percent occupied by residents. Construction at this community has recently been
completed and the community is 90 percent occupied by residents. The proposed
acquisition is expected to close during the second quarter of 1998 and the
purchase price is anticipated to be approximately $34.3 million. In connection
with this proposed acquisition, the Company has agreed to pay off mortgage
indebtedness secured by the community in the amount of approximately $28 million
and the Northwest Partnership will issue Northwest Units valued at approximately
$3.9 million. The total number of Northwest Units issued in connection with this
proposed acquisition will be determined based on a price per unit equal to the
average closing sale price of the Company's common stock on the New York Stock
Exchange for a specified number of days preceding the closing date of the
acquisition. These Northwest Units will have the same 4.5% initial annual
priority return applicable to the Northwest Units issued in connection with the
Company's acquisition of the Gallery Place community. In addition, subject to
certain terms and conditions, the holders of such Northwest Units may require
the Northwest Partnership to redeem all or a portion of their Northwest Units in
exchange for cash. The Company may, however, at its election, redeem such
Northwest Units in exchange for shares of the Company's common stock. All of
such shares will be covered by a registration rights agreement. Because the
consummation of the acquisition of Verandas at Bear Creek is subject to the
satisfaction of certain conditions that are not within the control of the
Company, there can be no assurance that the Company will consummate the
acquisition or, if the community is acquired, that it will be purchased on the
terms currently contemplated.
On March 9, 1998, the Company announced that it had signed a definitive
merger agreement with Avalon Properties, Inc. ("Avalon"). The surviving company
is to be named Avalon Bay Communities, Inc. Under the terms of the agreement,
Avalon will be merged with and into the Company, with the Company as the
surviving entity, through an exchange of shares in which the Avalon common
shareholders will receive 0.7683 of a share of the Company's common stock for
each share of Avalon common stock they own. Avalon preferred shareholders will
receive comparable preferred shares of the Company as a result of the merger.
The merger, which has been unanimously approved by the Board of Directors of
both companies and is expected to close in June 1998, is intended to qualify as
a tax-free transaction and will be accounted for as a purchase of Avalon by the
Company. The merger is subject to the approval of the shareholders of both
companies and other customary closing conditions. In connection with the
execution of the merger agreement, the Company and Avalon each issued to the
other an option to buy 19.9% of its outstanding common stock under certain
circumstances. In addition, the Company and Avalon each adopted a shareholder
rights agreement. Avalon Bay Communities, Inc. will be governed by a
twelve-member Board of Directors, six of whom will be from the Company's Board
of Directors and six of whom will be from Avalon's Board of Directors. Nine of
the twelve Board members will be independent. Because the consummation of the
merger between the Company and Avalon is subject to the satisfaction of certain
conditions that are not within the control of the Company, there can be no
assurance that the merger will be consummated.
5. SUBSEQUENT EVENTS
In April 1998, the Company acquired a 5.05 acre site in San Jose,
California for approximately $4,700. The Company plans to develop, subject to
certain governmental approvals, an apartment home community with up to 288
apartment homes and approximately 8,500 square feet of retail space.
Also in April 1998, the Company sold in a public offering 1,244,147 shares
of common stock at a gross price of $37.375 per share. The net proceeds to the
Company, after all anticipated issuance costs, were approximately $44,000. The
net proceeds were used to reduce borrowings under the Unsecured Line of Credit.
On April 27, 1998, the owner of the Company's Series A Preferred Stock and
Series B Preferred Stock (the "Preferred Holder") converted 1,358,736 shares of
Series A Preferred Stock into an equal number of
12
14
BAY APARTMENT COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
shares of the Company's common stock . This conversion occurred on the date
which was two business days after the record date for the Company's 1998 Annual
Meeting of Stockholders pursuant to a Shareholder Agreement, dated as of March
9, 1998 (the "Shareholder Agreement"), between the Company and the Preferred
Holder and in accordance with the procedure for conversion set forth in the
Company's charter. Under certain circumstances, the Preferred Holder is required
by the Shareholder Agreement to convert additional shares of the Company's
Series A Preferred Stock and/or Series B Preferred Stock. In consideration of
the Preferred Holder entering into the Shareholder Agreement, the Company paid
$485 to the Preferred Holder. In October 2005, all outstanding shares of the
Company's Series A Preferred Stock and Series B Preferred Stock will be
automatically converted into shares of common stock.
In May 1998, the Company purchased the Avalon Ridge apartment community for
approximately $21,300 including the purchase of approximately $18,800 in
tax-exempt bond financing on this community. The Company will hold these bonds
until it decides to either retire the bonds or refinance them with new tax-
exempt debt. This community contains 356 apartment homes and is located in
Renton, Washington.
13
15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This discussion 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 in this discussion 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.
RESULTS OF OPERATIONS
The following discussion sets forth historical results of operations for
the Company for the quarters ended March 31, 1998 and 1997. The following table
outlines the communities acquired or leased-up during 1997 and through March 31,
1998:
1997 ACQUISITION
COMMUNITIES
----------------
COMMUNITY DATE ACQUIRED
- --------- -------------
SummerWalk (a) January 3, 1997
TimberWood (b) March 13, 1997
SunScape (b) April 1, 1997
The Arbors (b) April 18, 1997
Villa Serena (c) April 25, 1997
Amador Oaks (a) April 30, 1997
Mission Woods (b) May 16, 1997
Cedar Ridge (b) July 15, 1997
The Park (b) September 4, 1997
Lakeside (b) September 5, 1997
Gallery Place (b) September 23, 1997
Landing West (b) October 1, 1997
Creekside (b) October 31, 1997
Governor's Square (b) December 11, 1997
Waterhouse Place (b) December 18, 1997
Viewpointe (b) December 18, 1997
Mission Bay Club (b) December 30, 1997
Westwood Club (b) December 30, 1997
Pacifica Club (b) December 30, 1997
1998 ACQUISITION
COMMUNITIES
----------------
COMMUNITY DATE ACQUIRED
- --------- -------------
Warner Oaks (b) January 14, 1998
Amberway (b) January 28, 1998
Arbor Park (b) January 28, 1998
Laguna Brisas (b) February 11, 1998
Cabrillo Square (b) March 2, 1998
CURRENT DEVELOPMENT
COMMUNITIES
-------------------
COMMUNITY DATE STABILIZED (d)
- --------- -------------------
Toscana (e)
CentreMark (f)
Paseo Alameda (g)
Bay Towers (h)
Rosewalk II (i)
Mountain View Land Site (j)
The 1997 and 1998 Acquisition Communities and Toscana are collectively
termed the "Acquisition Communities."
- ---------------
(a) Reconstruction was completed in 1997.
(b) Reconstruction is ongoing or planned as of March 31, 1998.
(c) Reconstruction was completed during the quarter ended March 31, 1998.
(d) Stabilized occupancy is defined as the first calendar month following
completion of construction in which the community has a physical occupancy
of at least 95%. As a result of delays due to weather conditions, the
estimated occupancy and stabilization dates for the Current Development
Communities have been adjusted by approximately six to eight weeks.
(e) Occupancy commenced in July 1997 and operations are expected to be
stabilized in the fourth quarter of 1998.
14
16
(f) Occupancy is expected to commence in the third quarter of 1998 and
operations are expected to be stabilized in the first quarter of 1999.
(g) Occupancy is expected to commence in the fourth quarter of 1998 and
operations are expected to be stabilized in the second quarter of 1999.
(h) Occupancy is expected to commence in 1999 and operations are expected to be
stabilized in 2000.
(i) Occupancy is expected to commence in the fourth quarter of 1998 and
operations are expected to be stabilized in the second quarter of 1999.
(j) This community is still undergoing planning and development.
Acquisitions entail risks that investments will fail to perform in
accordance with expectations and that judgments with respect to the cost of
improvements to bring an acquired community up to standards established for the
market position intended for that community will prove inaccurate, as well as
general investment risks associated with any new real estate investment.
Although the Company undertakes 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 the Company's total acquisition costs.
Construction costs are increasing and the cost to reposition communities
that have been acquired has, in some cases, exceeded management's original
estimates. Management believes that it may experience similar increases in the
future. There can be no assurances that the Company will be able to charge rents
upon completing the repositioning of the communities that will be sufficient to
offset the effects of increases in construction costs.
The Company's results of operations are summarized as follows for the
quarters ended March 31, 1998 and 1997 (Dollars in thousands):
FOR THE QUARTER
ENDED MARCH 31,
------------------
1998 1997 $-CHANGE %-CHANGE
------- ------- -------- --------
Revenue:
Rental........................................... $43,666 $25,393 $18,273 72.0%
Other............................................ 1,719 864 855 99.0%
------- ------- ------- ----
Total revenue............................ 45,385 26,257 19,128 72.8%
------- ------- ------- ----
Expenses:
Property operating............................... 10,344 5,971 4,373 73.2%
Property taxes................................... 3,626 1,914 1,712 89.4%
General and administrative....................... 2,016 1,367 649 47.5%
Abandoned project costs.......................... 150 80 70 87.5%
Interest and financing........................... 6,249 3,317 2,932 88.4%
Depreciation and amortization.................... 9,867 5,699 4,168 73.1%
------- ------- ------- ----
Total expenses........................... 32,252 18,348 13,904 75.8%
------- ------- ------- ----
Income before minority interest.................... 13,133 7,909 5,224 66.1%
Minority interest.................................. (154) (138) (16) 11.6%
------- ------- ------- ----
Net income......................................... $12,979 $ 7,771 $ 5,208 67.0%
======= ======= ======= ====
Revenue from rental property increased primarily as a result of the
addition of the Acquisition Communities. The 1997 and 1998 Acquisition
Communities contributed $12,746 and $1,612, respectively, to the increase.
Toscana, one of the Current Development Communities (defined below), contributed
$1,533 to the increase. The remainder of the portfolio increased rental revenue
by $2,382, of which $1,565 was attributable to the Same Store Communities
(defined below).
Other income increased primarily due to the additional miscellaneous income
from the Acquisition Communities.
15
17
Property operating expenses increased primarily as a result of the addition
of the Acquisition Communities. Of the $4,373 increase, $3,814 was attributable
to the 1997 Acquisition Communities, $382 was attributable to the 1998
Acquisition Communities and $251 was attributable to the apartment homes
delivered at Toscana. The Same Store Communities contributed $96 to the increase
while the remainder of the portfolio decreased by $170. In addition, the
Acquisition Communities contributed $1,483 to the increase in property taxes and
the remainder of the portfolio increased property taxes by $229, of which $112
was attributable to the Same Store Communities.
General and administrative costs increased primarily due to the growth in
employee-related costs and other costs needed to manage the Acquisition
Communities. The 1998 and 1997 amounts are net of $2,255 and $1,252,
respectively, of allocated indirect project costs capitalized to construction
and reconstruction projects, representing approximately 51% and 46% of total
general and administrative expense, including abandoned project costs, for the
quarters ended March 31, 1998 and 1997, respectively.
Interest and financing expense increased primarily as a result of increased
borrowing for new acquisitions offset in part by higher capitalization of
interest from increased development, redevelopment, construction and
reconstruction activity.
Depreciation and amortization expense increased primarily due to the
addition of the Acquisition Communities.
THE COMPANY'S RESULTS OF PROPERTY OPERATIONS (EARNINGS BEFORE INTEREST,
INCOME TAXES, DEPRECIATION AND AMORTIZATION -- "EBITDA") FOR THE "SAME STORE
COMMUNITIES" (1) IS SUMMARIZED BELOW FOR THE QUARTERS ENDED MARCH 31, 1998 AND
1997:
FOR THE QUARTER
ENDED MARCH 31,
------------------
1998 1997 $-CHANGE %-CHANGE
(DOLLARS IN THOUSANDS) ------- ------- -------- --------
Revenue............................................ $20,237 $18,522 $1,715(2) 9.3%
Expenses........................................... 5,508 5,300 208(3) 3.9%
------- ------- ------ ----
EBITDA............................................. $14,729 $13,222 $1,507 11.4%
======= ======= ====== ====
- ---------------
(1) The Same Store Communities consist of 24 apartment communities comprising a
total of 6,354 apartment homes. These apartment communities include all
those which were owned for all of 1997 and during the quarter ended March
31, 1998 and to which the Company made no major renovations after January 1,
1997.
(2) Same Store Communities' revenue increased due to rental increases of $1,422,
vacancy decreases of $82, late fee increases of $47, concession decreases of
$47, month to month fee increases of $40, interest income increases of $30
and a net increase in other income of $47.
(3) Same Store Communities' expenses increased as a result of a $112 increase in
property taxes (primarily due to a one-time escape assessment charge of
$51), a $57 increase in management and administrative costs and a $40
increase in building maintenance costs, offset by a $1 decrease in net other
expenses.
CURRENT DEVELOPMENT COMMUNITIES
The Company has acquired six land sites on which it is building, or plans
to commence building in the future, the following Current Development
Communities, which will contain an aggregate of approximately 1,908 apartment
homes.
- TOSCANA, SUNNYVALE, CALIFORNIA. The Company purchased this partially
built and abandoned 17.8 acre site in May 1996 on which it is building a 710
apartment home community. The original total budgeted construction cost of this
community was $95.7 million. The site, located approximately at the intersection
of Highway 101 and Lawrence Expressway, is close to the center of Silicon
Valley. This commmunity will contain a large leasing pavilion, business center,
fitness center, two swimming pools, including one 75 foot lap pool, a small
commercial area, secure underground parking and a perimeter gate system.
Stabilized operations
16
18
are expected in the fourth quarter of 1998 and the first apartment homes were
completed and occupied in July 1997. As of March 31, 1998, construction had been
completed on 420 apartment homes.
- CENTREMARK, SAN JOSE, CALIFORNIA. The Company purchased 2.5 acres of this
7.9 acre site in May 1996. The remainder of this site was purchased in December
1996 after obtaining substantially all of the necessary public approvals for
development of the community. The site is located at the intersection of Stevens
Creek Boulevard and Interstate 280, in the northwest corner of San Jose, almost
immediately adjacent to the City of Cupertino. The planned 311 apartment home
community will include a large leasing facility, business center, fitness
center, 65 foot lap pool, secure underground parking and perimeter gate system.
The Company has estimated a total budgeted construction cost for this community
of $44.1 million. Stabilized operations are expected in the first quarter of
1999 and the first apartment homes are expected to be occupied in the third
quarter of 1998.
- PASEO ALAMEDA, SAN JOSE, CALIFORNIA. The Company purchased 7.44 acres of
this 8.87 acre site in February 1997 after it obtained substantially all of the
necessary public approvals for development of the community. The remainder of
this site was purchased in April 1997. The site is located on a major street,
approximately one mile from downtown San Jose. The Company has approvals to
build a 305 apartment home community which will include a large leasing
pavilion, business center, fitness center, 75 foot lap pool, a small commercial
area and secure underground parking. The Company has estimated a total budgeted
construction cost for this community of $44.4 million. Stabilized operations are
expected in the second quarter of 1999 and the first apartment homes are
expected to be occupied in the fourth quarter of 1998.
- BAY TOWERS, SAN FRANCISCO, CALIFORNIA. The Company acquired, through a
limited partnership in which it is the sole general partner, a portion of a city
block in the Rincon Hill area of San Francisco for approximately $7.8 million in
June 1997. The Company is constructing twin, 16-story towers above a four story
parking garage on this land site. All public approvals have been received to
allow 226 apartment homes, approximately 2,900 square feet of retail space and
between 224 and 271 controlled access parking spaces. The land site is on Beale
Street, between Harrison and Folsom Streets, almost two blocks north of the Bay
Bridge, approximately three blocks south of Market Street and three blocks west
of the Embarcadero and San Francisco Bay. The Company began site work in late
1997 and actual construction of the community in early 1998, with initial
occupancy expected in 1999. The community will contain one, two and three
bedroom apartment homes, with resident amenities including a health club,
meeting and conference rooms, business center, leasing pavilion and parking deck
gardens.
- ROSEWALK II, SAN JOSE, CALIFORNIA. In October 1997, the Company acquired
a 5.82 acre land site adjacent to the Company's recently constructed 300
apartment home community, Rosewalk, in San Jose, California. The Company has
public approvals and is under construction on 156 apartment homes as a second
phase of Rosewalk on this land site. The Company has estimated a total budgeted
construction cost for this community of $20.3 million. Stabilized operations are
expected in the second quarter of 1999 and the first apartment homes are
expected to be occupied in the fourth quarter of 1998.
- MOUNTAIN VIEW, CALIFORNIA LAND SITE. In September 1997, the Company
acquired a 1.917 acre land site in Mountain View, California which includes a
50% undivided interest in an existing underground parking garage adjacent to
this land site, subject to agreements which specifically allocate parking rights
between an adjacent office building and this development, including 266 spaces
reserved exclusively for residents of the community planned for this site. The
Company intends to build two residential towers on this land site, which will
contain an as yet undetermined number of apartment homes, expected to be at
least 200, and approximately 10,000 square feet of ground level space for a
recreation, leasing and community center. The acquisition of this site,
purchased in two separate parcels for approximately $8.93 million, includes
various public approvals and previously paid fees totaling approximately
$800,000.
The Company intends to continue to pursue the development and construction
of apartment home communities in accordance with the Company's development and
underwriting policies. Risks associated with the Company's development and
construction activities may include: the abandonment of development and
acquisition opportunities explored by the Company; construction costs of a
community may exceed original estimates due to increased materials, labor or
other expenses, which could make completion of the community
17
19
uneconomical; occupancy rates and rents at a newly completed community are
dependent on a number of factors, including market and general economic
conditions, and may not be sufficient to make the community profitable;
financing may not be available on favorable terms for the development of a
community; and construction and lease-up may not be completed on schedule,
resulting in increased debt service expense and construction 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 adversely affect the Company's ability to
achieve its projected yields on communities under development or reconstruction
and could prevent the Company from paying distributions to its stockholders.
For new development communities, the Company's goal, on average, is to
achieve projected EBITDA as a percentage of total budgeted construction cost of
approximately 10%. Projected EBITDA as a percentage of total budgeted
construction cost represents EBITDA projected to be received in the first
calendar year after a community reaches stabilized occupancy (i.e., the first
month when the community has a weighted average physical occupancy of at least
95%), based on current market rents, less projected stabilized property
operating and maintenance expenses, before interest, income taxes, depreciation
and amortization. Total budgeted construction cost is based on current
construction costs, including interest capitalized during the construction
period. Market rents and construction costs reflect those prevailing in the
community's market at the time the Company's development budgets are prepared
taking into consideration certain changes to those market conditions anticipated
by the Company at the time. Although the Company attempts to anticipate changes
in market conditions, the Company cannot predict with certainty what those
changes will be. For example, upon the acquisition of the Toscana land site in
May 1996, the Company estimated that the total budgeted construction cost for
this Current Development Community would be $95.7 million. Since that time,
construction costs have been increasing and management believes that, the total
construction cost for this development will be higher than the original budget.
Nonetheless, because of increases in prevailing market rents management believes
that it will still be able to achieve projected EBITDA as a percentage of total
budgeted construction cost of at least 10%. Management believes that it will
experience similar increases in construction costs and market rents with respect
to the CentreMark and Paseo Alameda Current Development Communities. However,
there can be no assurances that market rents in effect at the time the Current
Development Communities are leased-up will be sufficient to fully offset the
effects of any increased construction costs.
LIQUIDITY AND CAPITAL RESOURCES
The Company has considered its short-term liquidity needs and anticipates
that these needs will be fully funded from cash flows provided by operating
activities. The Company believes that its principal short-term liquidity needs
are to fund normal recurring expenses, debt service requirements, the
distributions required with respect to its Series C and D Cumulative Redeemable
Preferred Stock and the distributions required to maintain the Company's REIT
qualification under the Code.
The Company expects to fund certain committed acquisition, development,
redevelopment, construction and reconstruction projects with a combination of
working capital and proceeds available under the Unsecured Line of Credit. The
Company intends to use available working capital first and proceeds available
under its Unsecured Line of Credit second.
As of March 31, 1998, the proceeds from the Unsecured Line of Credit were
used primarily for the acquisition, development and construction of the Current
Development Communities and redevelopment and reconstruction of the 1997 and
1998 Acquisition Communities.
In January 1998, the Company issued $150,000,000 of senior unsecured notes.
$50,000,000 of the notes bear interest at 6.25 percent and will mature on
January 15, 2003, $50,000,000 of the notes bear interest at 6.5 percent and will
mature on January 15, 2005 and $50,000,000 of the notes bear interest at 6.625
percent and will mature on January 15, 2008. The net proceeds to the Company
were approximately $148,700.00.
In February 1998, the Company assumed $10,400,000 of tax-exempt variable
rate debt in connection with the acquisition of the Laguna Brisas community. The
bonds, which mature on March 1, 2009, require
18
20
monthly interest only payments at a variable rate set weekly by the remarketing
agent. The interest rate on the bonds at March 31, 1998 was 5.37 percent,
including the amortization of deferred financing costs.
The Company's outstanding debt as of March 31, 1998 is summarized as
follows:
INTEREST RATE
(DOLLARS IN THOUSANDS) BALANCE AVAILABLE MATURES RATE PROTECTION
- ---------------------- -------- --------- ---------------- ----------- ----------------------
NOTES SECURED BY PROPERTIES:
Tax-exempt variable $87,720 $ -- November 2022 - 6.48%(a) Interest rate is fixed
rate under interest June 2050 until June 2010.
rate swap
Tax-exempt variable 87,380 -- November 2007 - 5.88%(b) Interest rate is fixed
rate under interest March 2017 until March 2004.
rate swap
Tax-exempt fixed rate 19,782 -- March 2012 7.87%(a) Interest rate is fixed
until April 2002.
Tax-exempt variable 20,660 -- June 2025 5.80%(a) Interest rate is fixed
rate under interest until July 2007.
rate swap
Tax-exempt variable 7,590 -- June 2025 5.50%(a) Interest rate is fixed
rate under interest until September 2002.
rate swap
Tax-exempt variable 10,400 -- March 2009 5.37%(c)
rate
Fixed rate 12,870 -- May 2004 7.25%
Fixed rate 11,637 -- May 2001 7.31%
Fixed rate 14,152 -- August 2004 7.65%
-------- --------
Subtotal 272,191 --
UNSECURED NOTES:
Senior fixed rate 50,000 -- January 2003 6.43%(a)
notes
Senior fixed rate 50,000 -- January 2005 6.63%(a)
notes
Senior fixed rate 50,000 -- January 2008 6.71%(a)
notes
Fixed rate 1,000 -- July 1999 6.50%
-------- --------
Subtotal 151,000 --
Line of credit(d) 182,000 168,000 May 2000 LIBOR+0.90%
-------- --------
Total $605,191 $168,000
======== ========
- ---------------
(a) This rate represents an all-in financing cost, including amortization of
deferred financing costs.
(b) The 5.88% rate excludes the amortization of financing costs paid by the
sponsor prior to the IPO; if such costs were included, the all-inclusive
effective rate would be 6.30%.
(c) The 5.37% rate represents an all-in financing cost, including amortization
of deferred financing costs. The debt floats in a seven-day put bond mode
with a current interest rate of 3.70%.
(d) The line of credit balance was used for acquisition, development,
redevelopment, construction and reconstruction purposes.
The Company anticipates that its cash flow and cash available from the
Unsecured Line of Credit will be adequate to meet its liquidity requirements for
the foreseeable future. The Company anticipates that dividends will be paid from
Funds Available for Distribution (defined below).
Net cash provided by operations for the quarter ended March 31, 1998
increased to $26,770,000 from $7,830,000 for the quarter ended March 31, 1997,
primarily due to higher net income before noncash charges for depreciation and
amortization from the addition of the Acquisition Communities and before
increases in accrued interest payable due to the issuance of the Company's
senior unsecured notes.
Net cash used for investing activities was $122,555,000 and $38,879,000 for
the quarters ended March 31, 1998 and 1997, respectively. This increase reflects
the expenditures for the purchases of the 1998 Acquisition
19
21
Communities, the amounts used for the acquisition, development and construction
of the Current Development Communities and the costs incurred on the communities
undergoing redevelopment and reconstruction.
Net cash provided by financing activities was $95,489,000 and $31,257,000
for the quarters ended March 31, 1998 and 1997, respectively. This increase is
primarily due to the increase in borrowings for the purchase of the 1998
Acquisition Communities, the amounts used for the acquisition, development and
construction of the Current Development Communities and the costs incurred on
the redevelopment and reconstruction projects, offset in part by the increased
dividends paid. The increase in borrowings included the issuance of $150,000,000
in senior unsecured notes in January 1998.
INFLATION
Substantially all of the leases at the Company's apartment communities are
for a term of one year or less, which may enable the Company to counter the
adverse effects of inflation by increasing rents upon renewal of existing leases
or commencement of new leases. However, these short-term leases permit a
resident to leave at the end of the lease term at minimal or no cost to the
resident.
YEAR 2000 COMPLIANCE
The Year 2000 compliance issue concerns the inability of computerized
information systems to accurately calculate, store or use a date after 1999.
This could result in a system failure or miscalculations causing disruptions of
operations. The Year 2000 issue affects virtually all companies and all
organizations.
The Company has conducted an assessment of its core internal and external
computer information systems and is taking the further necessary steps to
understand the nature and extent of the work required to make its systems, in
those situations in which the Company is required to do so, Year 2000 compliant.
These steps may require the Company to modify, upgrade or replace some of its
internal financial and operational systems. The total cost of bringing all
internal systems, equipment and operations into Year 2000 compliance has not
been fully quantified. The Company continues to evaluate the estimated costs
associated with these compliance efforts. While these efforts involve additional
costs, the Company believes, based on available information, that these costs
will not have a material adverse effect on its business, financial condition or
results of operations. While the Company believes it will be Year 2000 compliant
by December 31, 1999, if these efforts are not completed on time or if the cost
of updating or replacing the Company's information systems exceeds the Company's
current estimates, the Year 2000 issue could have a material impact on the
Company's ability to meet its financial and reporting requirements. Further, no
estimates can be made as to any potential adverse impact resulting from the
failure of third-party service providers and vendors to prepare for the Year
2000. The Company is attempting to identify those risks as well as to receive
compliance certificates from all third parties that have a material impact on
the Company's operations, but the cost and timing of third party Year 2000
compliance is not within the Company's control and no assurance can be given
with respect to the cost or timing of such efforts or the potential effects of
any failure to comply.
NATURAL DISASTERS
Many of the communities are located in the general vicinity of active
earthquake faults. In June 1997, the Company obtained a seismic risk analysis
from an engineering firm which estimated the probable maximum loss ("PML") for
each of the 41 communities owned at that time and Toscana, a Current Development
Community, individually and for all of such communities and Toscana combined. To
establish a PML, 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 PML 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
the communities are concentrated in the San Francisco Bay Area, the engineers'
analysis defined an earthquake on the San Andreas Fault with a Richter Scale
magnitude of 8.0 as a severe earthquake with a 10% probability of occurring
within a 50-year period. The engineers then established an aggregate PML at that
time of $63.8 million for the 41 communities owned at that time and Toscana. The
$63.8 million PML for those communities was a PML level that is expected to be
exceeded only 10% of the
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time in the event of such a severe earthquake. The actual aggregate PML 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 PML as a percentage of the community's replacement cost and projected
revenue. Two of the communities had individual PMLs of 30%, while seven
communities had individual PMLs of 25%, and the remaining 32 communities owned
at such time and Toscana each had individual PMLs of 20% or less. The Company
has obtained an individual PML assessment for each of the eighteen communities
acquired since June 1997. One community had an individual PML of 50%, one had an
individual PML of 30%, three had individual PMLs of 24%, one had an individual
PML of 21% and the remaining twelve communities had individual PMLs of 20% or
less. While the Company has not yet obtained an engineers' analysis establishing
an aggregate PML for all of the communities combined, the Company currently
intends to do so on an annual basis in order to assist it in evaluating
appropriate levels of insurance coverage. No assurance can be given that an
earthquake would not cause damage or loss greater than the PML assessments
indicate, that future PML levels will not be higher than the current PML levels
for the communities, or that future acquisitions or developments will not have
PML assessments indicating the possibility of greater damage or loss than
currently indicated.
In July 1997, the Company renewed its earthquake insurance, both for
physical damage and lost revenue, with respect to the 41 communities then owned
and Toscana. In addition, the eighteen communities acquired subsequent to June
1997 are included under the Company's earthquake insurance policy. For any
single occurrence, the Company self-insures the first $25 million of loss, and
has in place $35 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 such 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.
FUNDS FROM OPERATIONS AND FUNDS AVAILABLE FOR DISTRIBUTION
Many industry analysts consider Funds from Operations ("FFO") an
appropriate measure of performance of an equity REIT. FFO, as defined by the
National Association of Real Estate Investment Trusts ("NAREIT"), means net
income (or loss) (computed in accordance with generally accepted accounting
principles), excluding gains (or losses) from debt restructuring and sales of
property, plus depreciation and amortization, and after adjustments for
unconsolidated partnerships and joint ventures. This definition was revised by
NAREIT effective for periods after 1995 to exclude the add back of non-real
estate depreciation and the amortization of recurring deferred financing costs.
The Company computes FFO in accordance with the revised NAREIT definition, which
may differ from the methodology for computing FFO utilized by other equity
REITs, and, accordingly, may not be comparable to such other REITs. The Company
believes that in order to facilitate a clear understanding of the historical
operating results, FFO should be examined in conjunction with net income (loss)
as presented in the financial statements. FFO should not be considered as a
substitute for net income (loss) as a measure of results of operations or for
cash flow from operations as a measure of liquidity.
For the quarter ended March 31, 1998, FFO increased to $19,736,000 from
$13,321,000 for the quarter ended March 31, 1997. This increase is primarily due
to higher net income and real estate depreciation add back due to the addition
of the Acquisition Communities.
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FFO and Funds Available for Distribution (defined below) for the quarters
ended March 31, 1998, December 31, 1997, September 30, 1997, June 30, 1997 and
March 31, 1997 are summarized as follows:
CALCULATION OF FFO AND FUNDS AVAILABLE FOR DISTRIBUTION
QUARTER ENDED
---------------------------------------------------------------------------
MARCH 31, DECEMBER 31, SEPTEMBER 30, JUNE 30, MARCH 31,
1998 1997 1997 1997 1997
---------------- ------------ ------------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER APARTMENT HOME DATA)
Net income........................ $ 12,979 $ 12,039 $ 10,653 $ 8,479 $ 7,771
Series C and D preferred dividend
requirement..................... (2,856) (1,469) (1,222) (149) --
Depreciation -- real estate assets... 9,523 7,669 6,659 6,173 5,462
Non-recurring adjustments to net
income:
Amortization of non-recurring
costs, primarily legal, from the
issuance of tax-exempt
bonds(1)..................... 90 90 88 88 88
----------- ----------- ----------- ----------- -----------
FFO(2)............................ 19,736 18,329 16,178 14,591 13,321
Recurring adjustments to net income:
Amortization of reincorporation
costs........................ 7 7 7 7 7
Amortization of credit enhancement
costs(3)..................... 38 38 38 38 38
Depreciation -- non real estate
assets....................... 209 153 135 120 105
Capital expenditures(4)......... (668) (566) (280) (471) (281)
Loan principal payments......... (493) (463) (368) (213) (157)
----------- ----------- ----------- ----------- -----------
Funds Available for Distribution
("FAD")......................... $ 18,829 $ 17,498 $ 15,710 $ 14,072 $ 13,033
=========== =========== =========== =========== ===========
Weighted average shares
outstanding(5).................. 29,165,062 28,296,053 25,803,370 24,833,801 22,989,978
=========== =========== =========== =========== ===========
- ---------------
(1) Represents the amortization of pre-1986 bond issuance costs carried forward
to the Company, under the pooling of interest method of accounting, and
costs associated with the reissuance of tax-exempt bonds incurred prior to
the Initial Offering in order to preserve the tax-exempt status of the bonds
at the Initial Offering.
(2) FFO before recurring adjustments to net income represents the definition of
FFO adopted by the NAREIT Board of Governors for periods after 1995.
(3) Represents origination fees and costs incurred at the initial setup of the
credit enhancements used for the issuance of tax-exempt bonds. Such costs
are amortized over the life of the respective credit enhancements.
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(4) Capital improvements represent amounts expended primarily at communities
acquired or developed prior to 1996. A breakdown of the expenditures for the
quarter ended March 31, 1998 is as follows:
TOTAL PER APARTMENT HOME
QUARTER ENDED QUARTER ENDED
MARCH 31, 1998 MARCH 31, 1998
-------------- ------------------
Non-revenue generating:
Landscaping....................................... $216 $13
Leasing pavilion rehabilitation................... 187 11
Exterior lighting................................. 32 2
Gate installation................................. 17 1
Other capital expenditures........................ 216 13
---- ---
Subtotal -- capital expenditures.......... 668 40
---- ---
Revenue generating:
Water submeters................................... 251 15
Appliances........................................ 39 3
Fixtures.......................................... 21 1
---- ---
Subtotal.................................. 311 19
---- ---
Total capital improvements.......................... $979 $59
==== ===
The Company, as a matter of policy, expenses any apartment-related
expenditure of less than $5. These normally include any expenditure related
to the interior of an apartment. The Company typically capitalizes
expenditures such as those for new security gate systems, leasing pavilion
reconstruction and redecorating, roofing repair and replacement, exterior
siding repair and repainting and parking area resurfacing. Capitalized
expenditures as described here exclude major reconstruction costs incurred
in conjunction with the redevelopment and reconstruction of apartment
communities. Such costs are added to the cost basis of those communities.
Capitalized expenditures also exclude costs such as those expended for
construction of new garages or installation of water conservation devices
which almost immediately and permanently either earn additional revenue or
reduce expenses. The per apartment home calculation for the quarter is
based on the ending number of apartment homes in the portfolio at March 31,
1998.
(5) The weighted average shares outstanding shown differs from the weighted
average shares outstanding for the purpose of calculating earnings per share
because the conversion of preferred stock is antidilutive for calculating
earnings per share, but dilutive for the purposes of calculating FFO per
share.
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PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
EXHIBIT NO. DESCRIPTION
----------- -----------
1.1 Underwriting Agreement, dated as of April 23, 1998, between
Bay Apartment Communities, Inc. (the "Company") and Merrill
Lynch, Pierce, Fenner & Smith Incorporated.
2.1 Agreement and Plan of Merger, dated as of March 9, 1998,
between the Company and Avalon Properties, Inc. ("Avalon").
(Incorporated by reference to Exhibit 99.1 to Form 8-K of
Bay Apartment Communities, Inc. filed March 11, 1998.)
3(i).1 Articles of Incorporation of the Company. (Incorporated by
reference to Exhibit 3(i) to Form 8-B of Bay Apartment
Communities, Inc. dated June 8, 1995.)
3(i).2 Articles Supplementary relating to the Series A Preferred
Stock of the Company. (Incorporated by reference to Exhibit
3(i).1 to Form 8-K of Bay Apartment Communities, Inc, dated
September 25, 1995.)
3(i).3 Articles Supplementary relating to the Series B Preferred
Stock of the Company. (Incorporated by reference to Exhibit
3(i).1 to Form 8-K of Bay Apartment Communities, Inc. filed
May 20, 1996.)
3(i).4 Articles Supplementary relating to the 8.50% Series C
Cumulative Redeemable Preferred Stock of the Company.
(Incorporated by reference to Exhibit 3(i) to Form 8-K of
Bay Apartment Communities, Inc. filed July 25, 1997.)
3(i).5 Articles Supplementary relating to the 8.00% Series D
Cumulative Redeemable Preferred Stock of the Company.
(Incorporated by reference to Exhibit 1 to Form 8-A of Bay
Apartment Communities, Inc. filed December 17, 1997.)
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EXHIBIT NO. DESCRIPTION
----------- -----------
3(i).6 Articles Supplementary relating to the Series E Junior
Participating Cumulative Preferred Stock of the Company.
(Incorporated by reference to Exhibit 3.1 to Form 8-A of Bay
Apartment Communities, Inc. filed March 11, 1998.)
3(ii).1 Bylaws of the Company. (Incorporated by reference to Exhibit
3(ii) to Form 8-B of Bay Apartment Communities, Inc. dated
June 8, 1995.)
3(ii).2 Text of Amendment to Bylaws of the Company. (Incorporated by
reference to Exhibit 4.2 to Form 8-K of Bay Apartment
Communities, Inc. filed March 11, 1998.)
3(ii).3 Text of Amendment to Bylaws of the Company. (Incorporated by
reference to Exhibit 3(ii).3 to Registration Statement on
Form S-4 of Bay Apartment Communities, Inc. filed May 5,
1998.)
4.1 Indenture, dated as of January 16, 1998, between the Company
and State Street Bank and Trust Company, as Trustee.
(Incorporated by reference to Exhibit 4.1 to Form 8-K of Bay
Apartment Communities, Inc. filed January 21, 1998.)
4.2 First Supplemental Indenture, dated as of January 20, 1998,
between Bay and State Street Bank and Trust Company, as
Trustee. (Incorporated by reference to Exhibit 4.2 to Form
8-K of Bay Apartment Communities, Inc. filed January 21,
1998.)
4.3 Bay Apartment Communities, Inc.'s 6.250% Senior Note due
2003. (Incorporated by reference to Exhibit 4.3 to Form 8-K
of Bay Apartment Communities, Inc. filed January 21, 1998.)
4.4 Bay Apartment Communities, Inc.'s 6.500% Senior Note due
2005. (Incorporated by reference to Exhibit 4.4 to Form 8-K
of Bay Apartment Communities, Inc. filed January 21, 1998.)
4.5 Bay Apartment Communities, Inc.'s 6.625% Senior Note due
2008. (Incorporated by reference to Exhibit 4.5 to Form 8-K
of Bay Apartment Communities, Inc. filed January 21, 1998.)
4.6 Shareholder Rights Agreement, dated March 9, 1998, between
the Company and 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 Bay Apartment Communities, Inc. filed March 11,
1998.)
10.1 Employment Agreement, dated as of March 9, 1998, between the
Company and Gilbert M. Meyer.
10.2 Employment Agreement, dated as of March 9, 1998, between the
Company and Jeffrey B. Van Horn.
10.3 Employment Agreement, dated as of March 9, 1998, between the
Company and Max L. Gardner.
10.4 Employment Agreement, dated as of March 9, 1998, between the
Company and Morton L. Newman.
10.5 Employment Agreement, dated as of March 9, 1998, between the
Company and Debra L. Shotwell.
10.6 Proxy Agreement, dated as of March 9, 1998, between the
Company and Central States, Southeast and Southwest Areas
Pension Fund, acting by and through its agent, LaSalle
Advisors Limited Partnership.
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EXHIBIT NO. DESCRIPTION
----------- -----------
10.7 Shareholder Agreement, dated as of March 9, 1998, between
the Company and Central States, Southeast and Southwest
Areas Pension Fund, acting by and through its agent, LaSalle
Advisors Limited Partnership.
10.8 Stock Option Agreement, dated as of March 9, 1998, between
the Company, as issuer, and Avalon. (Incorporated by
reference to Exhibit 99.3 to Form 8-K of Bay Apartment
Communities, Inc. filed March 11, 1998.)
10.9 Stock Option Agreement, dated as of March 9, 1998, between
Avalon, as issuer, and the Company. (Incorporated by
reference to Exhibit 99.4 to Form 8-K of Bay Apartment
Communities, Inc. filed March 11, 1998.)
12.1 Statement re: Computation of Ratios.
27.1 Financial Data Schedule.
(b) REPORTS ON FORM 8-K
Form 8-K of the Company, filed January 8, 1998, relating to the acquisition
of the Waterhouse Place, Viewpointe Apartments, Mission Bay Club, Westwood Club
and Pacifica Club apartment home communities.
Form 8-K of the Company, filed January 21, 1998, relating to (i) the
offering by the Company of $50,000,000 aggregate principal amount of its 6.250%
Senior Notes due 2003, $50,000,000 aggregate principal amount of its 6.500%
Senior Notes due 2005, and $50,000,000 aggregate principal amount of its 6.625%
Senior Notes due 2008, and (ii) the acquisition of the Warner Oaks apartment
home community.
Form 8-K of the Company, filed March 11, 1998, relating to (i) the
Agreement and Plan of Merger, dated as of March 9, 1998, between the Company and
Avalon, pursuant to which Avalon will merge with and into the Company, with the
Company as the surviving corporation, (ii) the Stock Option Agreement, dated as
of March 9, 1998, between the Company, as issuer, and Avalon, (iii) the Stock
Option Agreement, dated as of March 9, 1998, between Avalon, as issuer, and the
Company, and (iv) the adoption by the Company of a Shareholder Rights Agreement.
Form 8-K of the Company, filed March 27, 1998, relating to the acquisition
of the Laguna Brisas and Cabrillo Square apartment home communities. This Form
8-K contained Financial Statements under Rule 3-14 of Regulation S-X and pro
forma financial statements.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
BAY APARTMENT COMMUNITIES, INC.
Date: May 12, 1998 /s/ GILBERT M. MEYER
----------------------------------------------
Gilbert M. Meyer
President and Chairman of the Board
Date: May 12, 1998 /s/ JEFFREY B. VAN HORN
----------------------------------------------
Jeffrey B. Van Horn
Chief Financial Officer
(Authorized Officer of the Registrant
and Principal Financial Officer)
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