1
Exhibit 99.3
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
AVALON BAY COMMUNITIES, INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, 1998
(UNAUDITED)
The following unaudited Pro Forma Condensed Consolidated Balance Sheet
of Avalon Bay Communities, Inc. ("Avalon Bay") as of March 31, 1998 gives effect
to the subsequent acquisition of six communities (Avalon Ridge, Sunpointe,
Verandas, Oxford Hills, Gates of Edinburgh and Prudential Center) and to the
Merger as if they had occurred on March 31, 1998, all under the purchase method
of accounting in accordance with Accounting Principles Board Opinion No. 16.
The unaudited Pro Forma Condensed Consolidated Balance Sheet is
presented for informational purposes only and is not necessarily indicative of
what the actual condensed consolidated financial position of Avalon Bay would
have been as of March 31, 1998, nor does it purport to represent the future
condensed consolidated financial position of Avalon Bay. This information should
be read in conjunction with the unaudited consolidated financial statements and
other financial information contained in Bay's Quarterly Report on Form 10-Q and
Avalon's Quarterly Report on Form 10-Q, in each case for the three months ended
March 31, 1998, including the notes thereto.
2
AVALON BAY COMMUNITIES, INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, 1998
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Pro Forma Adjustments
Avalon Bay ------------------------- Avalon Bay
Historical Historical Acquisition Pro Forma
Consolidated Consolidated Communities Merger Consolidated
------------ ------------ ----------- -------- ------------
ASSETS
Real estate, net $1,543,520 $1,417,708 $233,344 $479,134 $3,673,706
Cash and cash equivalents 3,497 2,892 -- -- 6,389
Cash in escrow 3,083 1,845 -- -- 4,928
Resident security deposits 8,448 5,799 -- -- 14,247
Investments in joint ventures 18,052 -- -- -- 18,052
Deferred financing costs, net 9,891 8,821 -- (9,891) 8,821
Deferred development costs 8,218 989 -- -- 9,207
Other assets 16,404 9,410 -- -- 25,814
---------- ---------- -------- -------- ----------
TOTAL ASSETS $1,611,113 $1,447,464 $233,344 $469,243 $3,761,164
========== ========== ======== ======== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable and Unsecured Facilities $ 558,336 $ 605,191 $233,344 $ 25,000 $1,421,871
Payables for construction 13,624 5,619 -- -- 19,243
Accrued expenses and other liabilities 23,535 26,758 -- -- 50,293
Resident security deposits 10,235 6,857 -- -- 17,092
---------- ---------- -------- -------- ----------
TOTAL LIABILITIES 605,730 644,425 233,344 25,000 1,508,499
---------- ---------- -------- -------- ----------
Minority interest in Operating Partnerships 16,167 9,124 -- -- 25,291
Stockholders' equity:
Preferred Stock 88 83 -- (27) 144
Common Stock 431 262 -- (73) 620
Additional paid-in capital 1,021,302 826,792 -- 417,705 2,265,799
Deferred compensation (5,967) -- -- -- (5,967)
Distributions in excess of accumulated earnings (26,638) (33,222) -- 26,638 (33,222)
---------- ---------- -------- -------- ----------
STOCKHOLDERS' EQUITY 989,216 793,915 -- 444,243 2,227,374
---------- ---------- -------- -------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,611,113 $1,447,464 $233,344 $469,243 $3,761,164
========== ========== ======== ======== ==========
See accompanying notes.
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AVALON BAY
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
BALANCE SHEET
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
1. BASIS OF PRESENTATION
The pro forma adjustments for the Acquisition Communities reflect the
five communities acquired by Avalon, Bay or Avalon Bay subsequent to March 31,
1998 (Avalon Ridge, Sunpointe, Verandas, Oxford Hills and Gates of Edinburgh)
and one community that is a probable acquisition (Prudential Center) as if they
had been acquired on March 31, 1998. The merger pro forma adjustments reflect
the Merger as if it had occurred on March 31, 1998.
2. MERGER ADJUSTMENTS
i. Real estate, net: The adjustment reflects the increase in book
value of Avalon's real estate assets based upon the Bay purchase of (1)
the common stock of Avalon (Bay common stock is valued at $36.825 per
share) based upon the exchange of each outstanding share of common
stock of Avalon for .7683 of a share of Bay common stock, and (2) the
conversion of Avalon Preferred Stock for substantially equivalent
preferred stock of Bay as follows:
Issuance of 33,144,635 shares of Bay common stock
(assumed value of $36.825 per share) based on the
exchange ratio of .7683 shares of Bay common stock
for each share of Avalon common stock ............ $1,220,551
Issuance of Bay preferred stock in exchange for
Avalon Preferred Stock (liquidation price of
$25.00 for 8,755,000 shares of preferred stock)... 218,875
Estimated costs associated with the merger......... 25,000
----------
Purchase Price..................................... 1,464,426
Less: Historical book basis of Avalon's net assets
acquired (excludes deferred financing costs, net
and deferred compensation)........................ (985,292)
----------
Real estate, net pro forma adjustment.............. $ 479,134
----------
ii. Deferred financing costs, net: The adjustment reflects the
elimination of Avalon deferred financing costs which have no future
value to Avalon Bay.
iii. Notes payable and Unsecured Facilities: The adjustment reflects
additional borrowings for the payment of the estimated fees and other
expenses relating to the Merger including, but not limited to,
investment banking fees, legal and accounting fees, printing, filing
and other related costs.
iv. Stockholders' equity: The adjustments to stockholders' equity
reflect the issuance of 33,144,635 shares of Bay common stock, par
value $.01 per share, the exchange of Avalon Preferred Stock for
substantially equivalent preferred stock of Bay, and the conversion of
Bay Series A Preferred Stock and Bay Series B Preferred Stock for Bay
common stock as follows:
DISTRIBUTIONS
PAID-IN PAID-IN IN EXCESS OF
PREFERRED COMMON CAPITAL CAPITAL DEFERRED ACCUMULATED
STOCK STOCK (PREFERRED) (COMMON) COMPENSATION EARNINGS
--------- ------ ----------- ---------- ------------ -------------
Issuance of Bay Common Stock ................. $ -- $ 331 $ -- $1,220,220 $ -- $ --
Avalon historical stockholders' equity ....... (88) (431) (218,787) (802,515) 5,967 26,638
Issuance of Bay Preferred Stock in exchange
for Avalon Preferred Stock ................. 88 -- 218,787 -- -- --
Bay assumption of Avalon deferred
compensation ............................... -- -- -- -- (5,967) --
Bay conversion of Series A Preferred Stock
and Series B Preferred Stock ............... (27) 27 (67,818) 67,818 -- --
---- ----- --------- ---------- ------- -------
STOCKHOLDERS' EQUITY PRO FORMA ADJUSTMENTS ... $(27) $ (73) $ (67,818) $ 485,523 $ -- $26,638
==== ===== ========= ========== ======= =======
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AVALON BAY COMMUNITIES, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND THE
YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
The following unaudited Pro Forma Condensed Consolidated Statements of
Income of Avalon Bay for the three months ended March 31, 1998 and the year
probable acquisitions, and the Merger as if the transactions had occurred on
January 1, 1997. The acquisitions and Merger are accounted for under the
purchase method of accounting in accordance with Accounting Principles Board
Opinion No. 16.
The unaudited Pro Forma Condensed Consolidated Statements of Income are
presented for informational purposes only and are not necessarily indicative of
what the actual consolidated operating results of Avalon Bay would have been for
the three months ended March 31, 1998 or the year ended December 31, 1997, nor
do they purport to represent the future condensed consolidated financial results
of Avalon Bay. This information should be read in conjunction with the audited
consolidated financial statements and other financial information contained in
Bay's Annual Report on Form 10-K, as amended by Amendment No. 1 on Form 10-K/A,
and Avalon's Annual Report on Form 10-K, as amended and restated by Amendment
No. 1 on Form 10-K/A, in each case for the year ended December 31, 1997, and
Bay's Quarterly Report on Form 10-Q, and Avalon's Quarterly Report on Form 10-Q,
in each case for the three months ended March 31, 1998, including the notes
thereto.
5
AVALON BAY COMMUNITIES, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Pro Forma Adjustments
Avalon Bay ------------------------ Avalon Bay
Pro Forma Pro Forma Acquisition Pro Forma
Consolidated Consolidated Communities Merger Consolidated
------------ ------------ ----------- ------- ------------
Revenue
Rental income $ 56,018 $ 44,684 $ 6,472 -- $ 107,174
Management fees 375 -- -- -- 375
Other income 138 1,753 97 -- 1,988
----------- ----------- ------- ------- -----------
Total revenue 56,531 46,437 6,569 -- 109,537
----------- ----------- ------- ------- -----------
Expenses
Operating expenses 20,928 14,558 3,110 -- 38,596
Interest expense 6,578 6,880 4,084 438 17,980
Depreciation and amortization 9,301 10,128 1,649 5,318 26,396
General and administrative 1,400 2,016 -- -- 3,416
----------- ----------- ------- ------- -----------
Total expenses 38,207 33,582 8,843 5,756 86,388
----------- ----------- ------- ------- -----------
Equity in income of joint ventures 651 -- -- -- 651
Interest income 296 -- -- -- 296
----------- ----------- ------- ------- -----------
Income before minority interest 19,271 12,855 (2,274) (5,756) 24,096
Minority interest (411) (154) -- -- (565)
----------- ----------- ------- ------- -----------
Net income 18,860 12,701 (2,274) (5,756) 23,531
Dividends attributable to preferred stock (4,914) (4,029) -- 1,174 (7,769)
----------- ----------- ------- ------- -----------
Net income available to common stockholders $ 13,946 $ 8,672 $(2,274) $(4,582) $ 15,762
=========== =========== ======= ======= ===========
Net income per share of common stock-basic $ 0.33 $ 0.33 $ 0.26
=========== =========== ===========
Net income per share of common stock-diluted $ 0.33 $ 0.33 $ 0.25
=========== =========== ===========
Weighted average number of shares of common
stock-basic 42,618,030 26,172,571 61,629,825
=========== =========== ===========
Weighted average number of shares of common
stock-diluted 42,905,479 26,451,240 62,195,943
=========== =========== ===========
See accompanying notes.
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AVALON BAY COMMUNITIES, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Pro Forma Adjustments
Avalon Bay ------------------------- Avalon Bay
Pro Forma Pro Forma Acquisition Pro Forma
Consolidated Consolidated Communities Merger Consolidated
------------ ------------ ----------- -------- ------------
Revenue
Rental income $ 197,081 $ 172,081 $23,716 -- $ 392,878
Management fees 2,065 -- -- -- 2,065
Other income 928 4,961 502 -- 6,391
----------- ----------- ------- -------- -----------
Total revenue 200,074 177,042 24,218 -- 401,334
----------- ----------- ------- -------- -----------
Expenses
Operating expenses 75,589 53,522 11,629 -- 140,740
Interest expense 27,263 25,486 15,867 1,700 70,316
Depreciation and amortization 33,859 41,881 6,596 18,180 100,516
General and administrative 5,093 6,308 -- -- 11,401
----------- ----------- ------- -------- -----------
Total expenses 141,804 127,197 34,092 19,880 322,973
----------- ----------- ------- -------- -----------
Equity in income of joint ventures 5,689 -- -- -- 5,689
Interest income 1,346 375 -- -- 1,721
Other income 253 -- -- -- 253
----------- ----------- ------- -------- -----------
Income before gain on sale of community,
extraordinary item and minority interest 65,558 50,220 (9,874) (19,880) 86,024
Gain on sale of community 677 -- -- -- 677
----------- ----------- ------- -------- -----------
Income before extraordinary item and minority
interest 66,235 50,220 (9,874) (19,880) 86,701
Extraordinary item (1,183) -- -- -- (1,183)
----------- ----------- ------- -------- -----------
Income before minority interest 65,052 50,220 (9,874) (19,880) 85,518
Minority interest (936) (674) -- -- (1,610)
----------- ----------- ------- -------- -----------
Net income 64,116 49,546 (9,874) (19,880) 83,908
Dividends attributable to preferred stock (19,656) (16,063) -- 4,640 (31,079)
----------- ----------- ------- -------- -----------
Net income available to common stockholders $ 44,460 $ 33,483 $(9,874) $(15,240) $ 52,829
=========== =========== ======= ======== ===========
Income per share before extraordinary item-
basic $ 1.24 $ 1.49 $ 1.01
=========== =========== ===========
Income per share before extraordinary item-
diluted $ 1.23 $ 1.49 $ 1.01
=========== =========== ===========
Net income per share of common stock-basic $ 1.21 $ 1.49 $ 0.99
=========== =========== ===========
Net income per share of common stock-diluted $ 1.20 $ 1.49 $ 0.98
=========== =========== ===========
Weighted average number of shares of common
stock-basic 36,762,781 22,472,394 53,431,061
=========== =========== ===========
Weighted average number of shares of common stock-
diluted 37,006,148 22,472,394 53,674,428
=========== =========== ===========
See accompanying notes.
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AVALON BAY
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS)
1. BASIS OF PRESENTATION
The Bay Pro Forma Income Statement assumes that all acquisitions
completed during 1997 and through March 31, 1998 had occurred as of January 1,
1997.
The Avalon Pro Forma Income Statement assumes that all acquisitions
completed during 1997 and through March 31, 1998 had occurred as of January 1,
1997.
The pro forma adjustments for the Acquisition Communities represent the
five communities acquired by Avalon, Bay or Avalon Bay subsequent to March 31,
1998 and one community that is a probable acquisition as if they had been
acquired on January 1, 1997. The merger pro forma adjustments reflect the Merger
as if it had occurred as of January 1, 1997.
2. MERGER ADJUSTMENTS
i. Interest expense: The adjustment is attributable to the
interest incurred on funds obtained from the Unsecured Facilities used
to pay estimated merger costs.
ii. Depreciation and amortization: The adjustment results from (1)
the net increase in real estate owned as a result of recording the
Avalon real estate assets at fair value versus historical cost and (2)
conforming the depreciation methodology of Avalon to the policies of
Avalon Bay. Depreciation is computed on the straight-line method based
on an estimated life of 30 years and an allocation of the stepped-up
basis to land and building of 20% and 80%, respectively.
THREE MONTHS ENDED YEAR ENDED
MARCH 31, 1998 DECEMBER 31, 1997
------------------ -----------------
Depreciation on Step-up $3,194 $12,777
Avalon deferred financing (242) (968)
Adjustment to Avalon Historical Pro Forma depreciation to reflect the
depreciation methods of Avalon Bay 2,366 6,371
------ -------
DEPRECIATION PRO FORMA ADJUSTMENT $5,318 $18,180
====== =======
iii. Weighted Average number of Common shares outstanding: The Pro
Forma weighted average number of common shares outstanding are computed
as follows:
THREE MONTHS ENDED YEAR ENDED
MARCH 31, 1998 DECEMBER 31, 1997
------------------ -----------------
Bay Pro Forma Weighted Average shares Outstanding .................................... 26,172,571 22,472,394
Issuance of Bay stock at an exchange ratio of .7683 of a share of Bay common
stock for each weighted average share of Avalon common stock ....................... 32,743,432 28,244,845
Conversion of Bay Series A Preferred Stock and Bay Series B Preferred Stock for
Bay common stock at an exchange ratio of 1 share of preferred stock for 1
share of common stock .............................................................. 2,713,822 2,713,822
---------- ----------
Pro Forma Weighted Average Shares Common Stock - Basic - Avalon Bay .................. 61,629,825 53,431,061
Shares issuable from assumed conversion of Avalon and Bay common stock options ....... 566,118 243,367
---------- ----------
PRO FORMA WEIGHTED AVERAGE SHARES COMMON STOCK - DILUTED - AVALON BAY ................ 62,195,943 53,674,428
========== ==========