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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): SEPTEMBER 23, 1997
BAY APARTMENT COMMUNITIES, INC.
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(Exact name of Registrant as specified in charter)
MARYLAND 1-12672 77-0404318
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(State or other jurisdiction (Commission file number) (IRS employer
of incorporation) identification no.)
4340 STEVENS CREEK BOULEVARD, SUITE 275, SAN JOSE, CA 95129
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(Address of principal executive offices) (Zip Code)
(408) 983-1500
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(Registrant's telephone number, including area code)
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ITEM 5. OTHER EVENTS.
This Current Report on Form 8-K of Bay Apartment Communities, Inc. (the
"Company") contains forward-looking statements within the meaning of Section 27A
of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. The forward-looking statements contained
herein are statements that involve risks and uncertainties, including, but not
limited to, the demand for apartment homes, the effects of economic conditions,
the impact of competition and competitive pricing, changes in construction
costs, the results of financing efforts, proposed acquisitions under agreement,
the effects of the Company's accounting policies and other risks detailed in the
Company's filings with the Securities and Exchange Commission (the
"Commission").
PROPERTY ACQUISITIONS
From September 23, 1997 through October 1, 1997, the Company acquired
three properties (consisting of two apartment home communities and one land
site) for an aggregate purchase price of approximately $35.4 million. Following
these acquisitions, the Company's portfolio consists of 47 communities
containing 12,456 apartment homes (which includes apartment homes delivered at
Toscana, a partially developed community) and six land sites on which it is
building, or plans to commence building in the future, six communities, which
will contain an aggregate of approximately 1,770 additional apartment homes
(which includes the remaining apartment homes currently under construction at
Toscana). The recently acquired properties are described below. Except as noted
below, substantially all of the purchase price for each acquired property was
funded by drawing on the Company's $200 million unsecured acquisition and
construction line of credit from Union Bank of Switzerland and other
participating banks (the "Unsecured Credit Facility"). The Unsecured Credit
Facility bears interest at the London Interbank Offered Rate (based on a
maturity selected by the Company) plus 0.90% per annum and matures in May 2000.
Except as noted below, neither the Company, any subsidiary of the Company nor
any director or officer of the Company was affiliated with or had a material
relationship with the seller of any property described below.
GALLERY PLACE. On September 23, 1997, the Company acquired through Bay
Pacific Northwest, L.P. ("Bay-Northwest"), a recently formed Delaware limited
partnership of which the Company is the sole general partner, a 222 apartment
home community located in Redmond, Washington. This community was purchased from
TCR #510 Kelley Limited Partnership, a Texas limited partnership ("TCR #510
Kelley"), for approximately $21.7 million. In connection with this acquisition,
the Company agreed to pay off mortgage indebtedness secured by the community in
the amount of approximately $3.3 million and Bay-Northwest assumed mortgage
indebtedness secured by the community in the amount of approximately $11.7
million. Bay-Northwest also issued to the partners of TCR #510 Kelley 163,338
limited partnership units of Bay-Northwest valued at approximately $6.2 million
(based on an assumed value per unit of $37.66). The limited partnership units
entitle the holders thereof to receive an initial annual priority return from
Bay-Northwest distributions equal to 4.5% of the assumed initial value of their
units. In addition, subject to certain terms and conditions, the holders of such
units may require Bay-Northwest to redeem all or a portion of their units in
exchange for cash. The Company may, however, at its election, redeem such units
in exchange for shares of the Company's common stock, par value $.01 per share
(the
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"Common Stock"). All of such shares will be covered by a registration rights
agreement. The Company has planned a refurbishing program at this community,
which will include painting and upgrades of the community exterior, home
interior improvements and refurbishing of the leasing, recreation and common
areas.
Max L. Gardner, the Company's Executive Vice President, Chief Operating
Officer and Director, was a limited partner in TCR #510 Kelley as of the
consummation of this acquisition, and as such he indirectly contributed property
to Bay-Northwest with an assumed value of $161,781 in exchange for 4,295.84
limited partnership units of Bay-Northwest.
LANDING WEST. On October 1, 1997, the Company purchased a 190 apartment
home community located in Seattle, Washington from John Hancock Mutual Life
Insurance Company, a Massachusetts corporation, for approximately $9.0 million.
The Company plans to undertake a major repositioning program at this community,
which will include the repair of siding and building trim, new roofs for
approximately half of the community, upgrades to the landscaping and site
drainage, and the addition of washers and dryers to each unit and other interior
upgrades. In addition, the Company intends to refurbish the community's leasing
center.
ROSEWALK PHASE II LAND SITE. On October 1, 1997, the Company acquired a
5.82 acre land site located in south San Jose, California that is immediately
adjacent to the Company's 300 apartment home community known as Rosewalk at
Waterford Park ("Rosewalk"). This land site was purchased from Brandenburg,
Staedler and Moore for approximately $4.7 million. The Company expects to begin
construction of a second phase, 156 apartment home expansion of Rosewalk on this
land site ("Rosewalk Phase II"), with initial occupancy anticipated early in the
third quarter of 1998. Rosewalk Phase II will be a gated luxury community
consisting of 12 apartment homes with three bedrooms and three bathrooms, 84
apartment homes with two bedrooms and two bathrooms, and 60 apartment homes with
one bedroom and one bathroom. The apartment homes will include large patios and
windows, as well as space for home offices. In addition, the Company intends to
build a second swimming pool and additional enclosed carports to complement the
existing 75 foot lap pool, enclosed carports, business center and fully equipped
exercise facility at Rosewalk.
PROPOSED ACQUISITION
VERANDAS AT BEAR CREEK. On September 8, 1997, the Company agreed to
purchase through Bay-Northwest, a 264 apartment home community currently under
construction in Redmond, Washington from Avondale Bear Creek Limited
Partnership. The proposed acquisition of Verandas at Bear Creek will not be
consummated until 90 days after construction has been completed and the
community is 90 percent occupied by residents. This 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
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amount of approximately $28 million and Bay-Northwest will issue limited
partnership units valued at approximately $3.9 million. The total number of
limited partnership 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
limited partnership units will have the same 4.5% initial annual priority return
applicable to the Bay-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 units may require Bay-Northwest to
redeem all or a portion of their units in exchange for cash. The Company may,
however, at its election, redeem such 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.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) Financial Statements under Rule 3-14 of Regulation S-X
(b) Pro Forma Financial Statements
(c) Exhibits
10.1 Agreement of Limited Partnership of Bay Pacific Northwest,
L.P., dated as of September 12, 1997, between the Company and
certain other defined Persons. The exhibits and schedules to
this agreement are listed in, but not filed with, this
exhibit. Such exhibits and schedules have been omitted for
purposes of this filing, but will be furnished to the
Commission supplementally upon request.
10.2 Registration Rights Agreement, dated as of September 23, 1997,
between the Company and certain defined Holders of units of
limited partnership interests in Bay-Northwest.
23.1 Consent of Coopers & Lybrand L.L.P., Independent Accountants.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Company has duly caused this report to be filed on its behalf by
the undersigned thereunto duly authorized.
BAY APARTMENT COMMUNITIES, INC.
Dated: October 27, 1997 By: /s/ Jeffrey B. Van Horn
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Jeffrey B. Van Horn
Vice President, Chief Financial Officer
and Secretary
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REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors
Bay Apartment Communities, Inc.:
We have audited the accompanying Historical Summary of Revenues and Direct
Operating Expenses (the Historical Summary) of Gallery Place Apartments,
Redmond, Washington, (the Property) for the year ended December 31, 1996. The
Historical Summary is the responsibility of the Property's owner. Our
responsibility is to express an opinion on the Historical Summary based on our
audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the Historical Summary is free of material misstatement.
An audit includes examining on a test basis, evidence supporting the amounts and
disclosures in the Historical Summary. An audit also includes assessing the
basis of accounting used and significant estimates made by management, as well
as evaluating the overall presentation of the Historical Summary. We believe
that our audit provides a reasonable basis for our opinion.
The accompanying Historical Summary was prepared for the purpose of complying
with rules and regulations of the Securities and Exchange Commission, as
described in Note A, and is not intended to be a complete presentation of the
Property's revenues and expenses and may not be comparable to results from
proposed future operations of the Property.
In our opinion, the Historical Summary referred to above presents fairly, in all
material respects, the revenues and direct operating expenses, described in Note
A, of Gallery Place Apartments, Redmond, Washington, for the year ended
December 31, 1996, in conformity with generally accepted accounting principles.
San Francisco, California
August 29, 1997
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GALLERY PLACE APARTMENTS
HISTORICAL SUMMARY OF REVENUES AND
DIRECT OPERATING EXPENSES
for the year ended December 31, 1996
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Revenues:
Rental income $2,143,274
Other 96,719
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2,239,993
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Direct operating expenses:
On-site management and administration 248,381
Real property tax 180,536
Utilities 125,046
Repairs and maintenance 74,441
Other 18,340
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646,744
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Revenue in excess of direct
operating expenses $1,593,249
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The accompanying note is an integral
part of this Historical Summary.
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GALLERY PLACE APARTMENTS
NOTE TO HISTORICAL SUMMARY OF REVENUES
AND DIRECT OPERATING EXPENSES
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A. PROPERTY AND BASIS OF ACCOUNTING:
The accompanying Historical Summary of Revenues and Direct Operating
Expenses has been prepared in accordance with Rule 3-14 of Regulation
S-X of the Securities and Exchange Commission and relates to the
operations of Gallery Place Apartments, located in Redmond, Washington
with 222 apartment homes.
In accordance with Rule 3-14, direct operating expenses are presented
exclusive of depreciation, interest, management fees, and income taxes.
Rental income attributable to residential leases is recorded when due
from tenants.
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REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors
Bay Apartment Communities, Inc.:
We have audited the accompanying Historical Summary of Revenues and Direct
Operating Expenses (the Historical Summary) of Landing West Apartments, Seattle,
Washington (the Property) for the year ended December 31, 1996. The Historical
Summary is the responsibility of the Property's owner. Our responsibility is to
express an opinion on the Historical Summary based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the Historical Summary is free of material misstatement.
An audit includes examining on a test basis, evidence supporting the amounts and
disclosures in the Historical Summary. An audit also includes assessing the
basis of accounting used and significant estimates made by management, as well
as evaluating the overall presentation of the Historical Summary. We believe
that our audit provides a reasonable basis for our opinion.
The accompanying Historical Summary was prepared for the purpose of complying
with rules and regulations of the Securities and Exchange Commission, as
described in Note A, and is not intended to be a complete presentation of the
Property's revenues and expenses and may not be comparable to results from
proposed future operations of the Property.
In our opinion, the Historical Summary referred to above presents fairly, in all
material respects, the revenues and direct operating expenses, described in Note
A, of Landing West Apartments, Seattle, Washington, for the year ended
December 31, 1996, in conformity with generally accepted accounting principles.
San Francisco, California
September 18, 1997
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LANDING WEST APARTMENTS
HISTORICAL SUMMARY OF REVENUES AND
DIRECT OPERATING EXPENSES
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Year Ended
December 31,
1996
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Revenues:
Rental income $1,220,980
Other 58,217
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1,279,197
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Direct operating expenses:
On-site management 226,467
Real property tax 105,772
Utilities 124,429
Repairs and maintenance 64,037
Other 7,240
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527,945
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Revenue in excess of direct
operating expenses $ 751,252
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The accompanying note is an integral
part of this Historical Summary.
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LANDING WEST APARTMENTS
NOTE TO HISTORICAL SUMMARY OF REVENUES
AND DIRECT OPERATING EXPENSES
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A. PROPERTY AND BASIS OF ACCOUNTING:
The accompanying Historical Summary of Revenues and Direct Operating
Expenses has been prepared in accordance with Rule 3-14 of Regulation
S-X of the Securities and Exchange Commission and relates to the
operations of Landing West Apartments, located in Seattle, Washington
with 190 apartment homes.
In accordance with Rule 3-14, direct operating expenses are presented
exclusive of depreciation, interest, management fees, and income taxes.
Rental income attributable to residential leases is recorded when due
from tenants.
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BAY APARTMENT COMMUNITIES, INC.
PRO FORMA CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1996
(In thousands, except share and per share data)
(Unaudited)
1997
Historical Acquisitions Pro Forma
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Assets:
Real estate assets:
Land $152,277 $ 6,833 A $159,110
Buildings and improvements 511,583 22,414 A 533,997
Furniture, fixtures & equipment 35,542 1,482 A 37,024
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699,402 30,729 730,131
Less: accumulated depreciation (52,554) 0 (52,554)
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Operating real estate assets 646,848 30,729 677,577
Construction in progress 50,945 0 50,945
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Net real estate assets 697,793 30,729 728,522
Cash & cash equivalents 920 0 920
Restricted cash 960 0 960
Other assets, net 12,236 168 B 12,404
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Total Assets $711,909 $30,897 $742,806
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Liabilities and Shareholders' Equity:
Liabilities:
Notes payable $273,688 $24,543 C $298,231
Accounts payable and accrued expenses 5,450 20 D 5,470
Dividends payable 8,939 0 8,939
Other liabilities 4,553 183 E 4,736
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Total Liabilties 292,630 24,746 317,376
Minority interest 7,002 6,151 F 13,153
Shareholders' Equity:
Preferred stock 27 0 27
Common stock 190 0 190
Paid in capital 435,723 0 435,723
Dividends in excess of accumulated earnings (23,663) 0 (23,663)
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Total Shareholders Equity 412,277 0 412,277
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Total Liabilities and Shareholders' Equity $711,909 $30,897 $742,806
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BAY APARTMENT COMMUNITIES, INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1996
(In thousands, except share and per share data)
(Unaudited)
1997
Historical Acquisitions Pro Forma
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Revenue:
Rental $ 80,377 $3,364 G $ 83,741
Other 2,216 155 G 2,371
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Total revenue 82,593 3,519 86,112
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Expenses:
Property operating 18,924 863 H 19,787
Property taxes 6,353 286 H 6,639
General and administrative 3,895 26 H 3,921
Interest and financing 14,276 1,654 I 15,930
Depreciation and amortization 18,689 959 J 19,648
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Total expenses 62,137 3,788 65,925
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Income before minority interest and
extraordinary item 20,456 (269) 20,187
Minority interest (319) (277)F (596)
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Income before extraordinary item 20,137 (546) 19,591
Extraordinary item (511) - (511)
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Net income 19,626 (546) 19,080
Preferred dividend requirement (4,264) - (4,264)
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Earnings available to common shares $ 15,362 $ 546) 14,816
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Weighted average shares outstanding 15,126,242 15,126,242
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Per share $ 1.02 $ 0.97
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1. Basis of Presentation:
The pro forma financial statements of Bay Apartment Communities, Inc. (the
"Company"), which are unaudited, have been prepared based on the historical
financial statements of the Company. The pro forma consolidated balance sheet
has been prepared as if the acquisition of Gallery Place Apartments on September
23, 1997, and Landing West Apartments on October 1, 1997 (the "1997 Acquisition
Communities"), had occurred on December 31, 1996. The pro forma consolidated
balance sheet does not reflect the acquisition of the land site parcel for $4.7
million described herein. The pro forma consolidated statement of operations for
the twelve months ended December 31, 1996, has been prepared as if the above
mentioned events had occurred on January 1, 1996. In management's opinion, all
adjustments necessary to reflect the effects of these transactions have been
made. The pro forma financial statements should be read in conjunction with the
historical financial statements of the Company.
2. PRO FORMA ADJUSTMENTS:
A - Additional real estate assets are attributable to the 1997 Acquisition
Communities which consist of the $21.7 million acquisition of the
Gallery Place Apartments, and the $9.0 million acquisition of the
Landing West Apartments.
B - Increase in other assets is attributable to miscellaneous assets
acquired with the 1997 Acquisition Communities.
C - Increase in notes payable is attributable to cash drawn from the Credit
Facility of $12.8 million at 6.28% and an assumed loan in the amount of
$11.7 million at 7.31% to acquire the 1997 Acquisition Communities.
D - Increase in accounts payable and accrued expenses is due to accrued
interest expense in relation to the assumed loan.
E - Increase in other liabilities is attributable to resident deposits and
accrued property taxes from the 1997 Acquisition Communities.
F - Increase in minority interest is due to the value of partnership units
issued in connection with the acquisition of Gallery Place Apartments
and the related priority return of 4.5%.
G - Additional rental and other revenue is attributable to the 1997
Acquisition Communities.
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H - Additional property operating expense, property tax expense, and general
and administrative expense are attributable to the 1997 Acquisition
Communities.
I - Additional interest and financing expense is attributable to the
interest incurred on funds obtained from the Credit Facility and the
loan assumed to acquire the 1997 Acquisition Communities.
J - Depreciation expense attributable to the 1997 Acquisition Communities
has been computed using the straight-line method over 30 years for
buildings and 7 years for furniture, fixtures and equipment.
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