Bay Apartment Communities announces four major financing accomplishments: Early release of restricted tax-exempt financing; new tax-exempt financing; new replacement credit line and new construction loan.

SAN JOSE, Calif.--(BUSINESS WIRE)--Dec. 19, 1995--Bay Apartment Communities (NYSE Symbol: BYA) today announced four significant financing developments which will reduce the company's borrowing costs, fix the interest rate on a higher percentage of its total debt long-term and provide financing for new construction, acquisition and redevelopment activities.

The company said the Federal National Mortgage Association (FNMA) has agreed to an early release of the remaining $56.4 million in proceeds from the June, 1995 sale of $89.4 million in new and restructured long-term, fixed-rate, tax-exempt bonds. The funds were released on Dec. 18, 1995. The proceeds from this release were used to pay off short-term, variable rate construction and acquisition loans related to two apartment communities. These include Canyon Creek, a 348 apartment home community in Campbell, California, and Sea Ridge (formerly Kimberly Woods), a 220 apartment home community in Pacifica, California. The release of these funds, which was tied to Bay achieving specific occupancy levels at the two communities, was originally anticipated in July 1996.

Bay has fixed the all-in interest rate on the new debt at approximately 6.48 percent for the first 15 years of the financing, including amortization of all loan costs and financing fees. This financing is being used to retire short-term, variable rate debt carrying a weighted average interest rate of approximately 8.35 percent. The new bonds, which are rated AAA and A1+ by Standard & Poor's, have maturities ranging between 28 and 30 years and have a fully amortizing payment schedule over that period.

"The early release of this fixed rate and lower cost debt is a direct result of the construction, leasing and management skills of the company," noted Gilbert M. Meyer, chairman and chief executive officer. "Canyon Creek was essentially fully occupied within approximately four months from the start of leasing activities in mid-April. We have leased or pre-leased approximately 120 of the 220 apartments at Sea Ridge during the first two months of leasing activities which began in mid-October. The positive leverage provided by this lower rate debt, combined with growing income from our portfolio, will significantly enhance returns to our shareholders," he continued.

Bay also sold to an institutional investor $20.8 million of additional tax-exempt debt, the right to which Bay acquired with the purchase of City Heights Apartments in San Francisco on Oct. 15, 1995. The $20.8 million in bonds have been placed for between 6 and 9 months, at Bay's discretion, and will carry an all-in interest rate of approximately 6.8 percent during that period.

Following this brief period, Bay intends to substantially restructure and reissue the bonds but on a much longer term basis. The interim reissuance period enables Bay to satisfy an Internal Revenue Service requirement for a cooling off period between completion of an apartment community purchase and a substantial bond restructuring. Bay was not required to lower rents at City Heights beyond reductions made at the community prior to Bay's purchase.

Bay also announced the execution of a new $47 million revolving line of credit with Union Bank. This new financing, which carries an interest rate of 1.60 percent over LIBOR and involved no front-end fees, will be used to pay off an existing $20 million credit line Bay has with Wells Fargo Bank and to reduce outstanding balances on an $80 million credit line with General Electric Capital Corporation (GECC). Both of the earlier financings carried an interest rate of 2.25 percent over LIBOR and had non-use fees considerably higher than those charged by Union Bank.

"With this transaction," Meyer noted, "we have significantly reduced our short-term borrowing costs. Not only have we lowered the interest rate, but Union Bank also waived or significantly reduced many of the transaction fees. This credit facility provides us the resources to continue capitalizing on what we believe is an opportunistic acquisition environment."

In a fourth development, Bay announced that it had closed a $25.5 million construction loan from Union Bank to finance construction of Rosewalk at Waterford Park, a 300-apartment home community in San Jose. The loan, which will mature in October, 1997, carries an interest rate of 2.15 percent over LIBOR and has no origination fees.

The company expects that development and construction of Rosewalk will cost $30.4 million, or approximately $104 per rentable square foot. It is expected to be available for occupancy in late July, 1996, and to reach stabilized occupancy in early 1997. Bay expects the community will generate a cash return on costs of approximately ten percent in the first calendar year following stabilized occupancy.

The new community will have 96 one-bedroom/one-bath apartment homes; 192 two-bedroom/two-bath apartments and 12 three-bedroom/three-bath apartment homes. It is situated on approximately 10.8 acres of land.

"Rosewalk at Waterford Park continues the Bay tradition of offering an upscale apartment living experience in a desirable location," Meyer said. "The community will offer resident amenities such as a fully gated community, enclosed carports with automatic door openers, a business center, a 75-foot lap pool and fully-equipped exercise facility."

"The new community," he continued, "is located near a major expressway and freeway and less than 10 minutes south of downtown San Jose. In addition, it is adjacent to a new major neighborhood shopping center currently under construction and within walking distance of a Santa Clara County Light Rail Station."

Bay Apartment Communities is a fully integrated, multi-family real estate investment trust focused on the acquisition, development, construction, reconstruction and management of high quality apartment communities in Northern California. The company owns 25 apartment communities containing approximately 6,450 apartment homes in the San Francisco Bay Area and Northern California.

CONTACT: Bay Apartment Communities

Gilbert M. Meyer, 408/983-1500