EX-99.3 2 a2052816zex-99_3.txt EXHIBIT 99.3 EXHIBIT 99.3 ARCHSTONE-SMITH TRUST INDEX TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS Pro Forma Condensed Combined Balance Sheet as of March 31, 2001 (Unaudited).......... F-3 Pro Forma Condensed Combined Statement of Earnings From Operations for the three months ended March 31, 2001 (Unaudited)..................................... F-4 Pro Forma Condensed Combined Statement of Earnings From Operations for the year ended December 31, 2000 (Unaudited) ......................................... F-5 Notes to Pro Forma Condensed Combined Financial Statements (Unaudited)............... F-6

ARCHSTONE-SMITH TRUST PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS (UNAUDITED) The accompanying unaudited pro forma condensed combined financial statements set forth Archstone and Smith Residential as a combined entity, giving effect to the proposed merger as if it had occurred on the dates indicated below and after giving effect to certain pro forma adjustments. The accompanying unaudited pro forma condensed combined statements of earnings from operations for the three months ended March 31, 2001 and the year ended December 31, 2000 are presented as if the merger had been consummated on January 1, 2000. The accompanying unaudited pro forma condensed combined balance sheet is presented as if the merger had occurred on March 31, 2001. In the opinion of management, all material adjustments necessary to reflect the effects of the transaction and related assumptions have been made. The merger will be accounted for using the purchase method of accounting in accordance with Accounting Principles Board Opinion No. 16. The pro forma condensed combined financial statements should be read in conjunction with the historical financial statements of Archstone and Smith Residential, as set forth in their respective quarterly reports on Form 10-Q for the three months ended March 31, 2001 and 2000 annual reports on Form 10-K all of which are incorporated by reference into this document. See "Where You Can Find More Information" beginning on page 150. The pro forma unaudited condensed combined financial statements are presented for informational purposes only and are not necessarily indicative of what the actual combined financial position or results of operations of Archstone and Smith Residential would have been for the periods presented, nor do they purport to represent the forecasted results of future periods. ARCHSTONE-SMITH TRUST PRO FORMA COMBINED CONDENSED BALANCE SHEET MARCH 31, 2001 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)

See accompanying notes to pro forma combined condensed balance sheet. ARCHSTONE-SMITH TRUST PRO FORMA CONDENSED COMBINED STATEMENT OF EARNINGS FROM OPERATIONS THREE MONTHS ENDED MARCH 31, 2001 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)

See accompanying notes to pro forma condensed combined statements of earnings from operations. ARCHSTONE-SMITH TRUST PRO FORMA CONDENSED COMBINED STATEMENT OF EARNINGS FROM OPERATIONS YEAR ENDED DECEMBER 31, 2000 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)

See accompanying notes to pro forma condensed combined statements of earnings from operations. ARCHSTONE-SMITH TRUST NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND PERCENTAGES) (a) Reflects condensed historical balance sheet as of March 31, 2001. Certain reclassifications have been made to Smith Residential's balance sheet to conform to Archstone's presentation. (b) Represents adjustments to record the merger between Archstone and Smith Residential based upon the assumed purchase price of $3.6 billion and application of the purchase method of accounting. The merger acquisition cost was computed as follows: Assumption of Smith Residential's total liabilities............................................ $ 1,361,466 Mark-to-market adjustment on Smith Residential's debt (see note (g))........................... 30,713 Payment to Smith Residential stock option holders to redeem 1,851 Smith Residential stock options at the offer price of $49.48 each, less the weighted average exercise price of $34.56 per option assuming 50% of all option holders choose to accept the cash offer.................................................................................. 27,617 Merger-related transaction costs (see calculation below)....................................... 24,228 ----------- Estimated fair value of liabilities incurred or assumed........................................ 1,444,024 ----------- Estimated fair value of minority interest assumed (see note (h))............................... 692,881 ----------- Issuance of Archstone-Smith common shares (see note (i))....................................... 1,093,417 Issuance of Archstone-Smith cumulative convertible redeemable preferred shares (see note (i))................................................................................... 292,056 Issuance of Archstone-Smith cumulative redeemable preferred shares (see note (i)).............. 46,529 Valuation of Smith Residential stock options assuming 50% of all option holders choose not to accept the cash offer (see note (i)).......................................... 31,042 ----------- Estimated fair value of equity issued.......................................................... 1,463,044 ----------- Total merger acquisition cost........................................................ $ 3,599,949 ===========

The following is a calculation of estimated merger-related costs, including costs related to the concurrent reorganization of Archstone into an UPREIT structure: Investment advisory fees....................................................................... $ 16,250 Mortgage assumption fees....................................................................... 7,931 Employee termination costs..................................................................... 10,000 Legal, accounting and other fees............................................................... 2,285 Transfer taxes................................................................................. 4,434 ----------- 40,900 Less assumed amount funded with cash on hand................................................... (16,672) ----------- Estimated amount to be funded by incremental borrowings (see note (e))......................... $ 24,228 ===========

(c) Represents the difference between the estimated fair value and historical carrying value of Smith Residential's real estate based upon the merger acquisition costs: Merger acquisition cost (see note (b))......................................................... $ 3,599,949 Adjusted for: Historical cost of Smith Residential's total assets....................................... (2,170,786) Fair value adjustment related to property service businesses (see note (d))............... (1,858) Elimination of deferred loan and lease costs (see note (f))............................... 16,329 Assumed amount of cash on hand used to fund merger-related costs (see note (e))......................................................................... 16,672 ----------- Adjustment to record step-up in basis of real estate based on assumed purchase price ..... $ 1,460,306 ===========

The stepped-up basis indicated is less than the estimated fair value of Smith Residential's real estate assets. Management's fair value estimates were based on the application of estimated current market capitalization rates to each community's expected net operating income. (d) Represents the difference between the estimated fair value of Smith Residential's property service businesses and the historical carrying value of those businesses based on the application of a current market multiple to each businesses' expected net earnings. (e) Represents estimated borrowings on credit facilities to finance $24,228 of the $40,900 in merger-related costs, and the assumed $27,617 payment related to an offer to redeem 50% of the outstanding Smith Residential stock options for cash (see note (b)). The remaining $16,672 is assumed to be paid with cash on hand, leaving $2,000 of cash on hand. See note (k) for registration cost assumptions. (f) Represents the elimination of Smith Residential's unamortized deferred loan and lease costs. (g) Represents the adjustments necessary to reflect Smith Residential's mortgages payable at their estimated market values, using effective interest rates currently available for debt obligations with similar terms and features. (h) Represents adjustment to reflect Smith Residential's minority interests at estimated fair value assuming a market value of $24.39 for each unit redeemable for an Archstone common share. The $24.39 share price is based on the average closing price of Archstone's common shares for the five day period ranging from two days prior to and two days after the merger agreement was announced. Issuance of 26,098 Archstone Class A-1 common units (redeemable for Archstone-Smith common shares) in exchange for 13,214 Smith Partnership Class A common units (redeemable for Smith Residential common shares) based on the 1.975:1 exchange ratio..................................................................................... $ 636,522 Issuance of 1,800 Archstone Series M cumulative redeemable preferred units (convertible into Archstone's Class A-1 common units at a 1.2824:1 conversion rate) in exchange for 1,800 Smith Residential Series H cumulative redeemable preferred units (convertible into Smith Residential common shares at a 0.65:1 conversion rate)............ 56,359 --------- Total Smith Residential minority interest at estimated fair value............................ 692,881 Less: Smith Residential's minority interest at historical cost............................... (235,419) --------- Adjustment to reflect Smith Residential's minority interest at estimated fair value.......... $ 457,462 =========

ARCHSTONE-SMITH TRUST NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS--(CONTINUED) (i) Represents adjustments to record the exchange of Archstone-Smith shares for Smith Residential shares at fair value, assuming a market value of $24.39 for each Archstone-Smith common share. Issuance of 44,831 Archstone-Smith common shares in exchange for 22,699 shares of Smith Residential common stock based on the 1.975:1 exchange rate........................ $1,093,417 ---------- Issuance of 2,640 Archstone-Smith Series H cumulative convertible redeemable preferred shares (1.975:1 conversion rate) in exchange for 2,640 shares of Smith Residential Series A cumulative convertible redeemable preferred stock (1:1 conversion rate)......................................................................... 127,169 Issuance of 685 Archstone-Smith Series J cumulative convertible redeemable preferred shares (1.975:1 conversion rate) in exchange for 685 shares of Smith Residential Series E cumulative convertible redeemable preferred stock (1:1 conversion rate)......... 32,997 Issuance of 667 Archstone-Smith Series K cumulative convertible redeemable preferred shares (1.975:1 conversion rate) in exchange for 667 shares of Smith Residential Series F cumulative convertible redeemable preferred stock (1:1 conversion rate)......... 32,130 Issuance of 641 Archstone-Smith Series L cumulative convertible redeemable preferred shares (1.975:1 conversion rate) in exchange for 641 shares of Smith Residential Series G cumulative convertible redeemable preferred stock (1:1 conversion rate)......... 30,877 Issuance of 2,200 Archstone-Smith Series M cumulative convertible redeemable preferred shares (1.2824:1 conversion rate) in exchange for 2,200 shares of Smith Residential Series H cumulative convertible redeemable preferred stock (0.65:1 conversion rate)......................................................................... 68,883 ---------- Total cumulative convertible redeemable preferred shares at estimated fair value....... 292,056 ---------- Issuance of 0.5 of one Archstone-Smith Series I cumulative redeemable preferred share in exchange for 0.5 of one share of Smith Residential Series C cumulative redeemable preferred stock (par value $100,000) at estimated fair value.................. 46,529 ---------- Valuation of Smith Residential stock options assuming 50% of all option holders choose not to accept the cash offer. All Smith Residential options become fully vested as a result of the merger. 3,702 options x 50% x $16.77 (estimated value per option was determined using the Black-Scholes valuation model)...................................... 31,042 ---------- Total estimated fair value of common and preferred shares issued to Smith Residential stockholders............................................................................. 1,463,044 Less: Smith Residential's stockholders' equity at historical cost........................... (573,901) ---------- Adjustment to reflect Smith Residential's stockholders' equity at estimated fair value...... $ 889,143 ==========

(j) Represents the adjustments necessary to record additional paid-in capital at estimated fair value: Issuance of 44,831 Archstone-Smith common shares in exchange for 22,699 shares of Smith Residential common stock (see note (i))............................................ $1,093,417 Less: par value of shares at $0.01 (44,831 x $0.01)......................................... (448) ---------- Subtotal............................................................................... 1,092,696 Valuation of Smith Residential stock options assuming 50% of all option holders choose not to accept the cash offer (see note (i)).............................................. 31,042 Less: Smith Residential's historical additional paid-in capital............................. (250,445) ---------- Adjustment to reflect Smith Residential's additional paid-in capital at estimated fair value.................................................................................... $ 873,566 ==========

(k) Represents the estimated merger registration costs of $1,500 and the related incremental borrowings needed to fund those costs. ARCHSTONE-SMITH TRUST NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS--(CONTINUED) (l) Represents adjustment to minority interest relating to convertible operating partnership units to reflect the merger as follows: Archstone historical common shareholders' equity and minority interest relating to convertible operating partnership units................................................ $2,002,864 Smith Residential historical common stockholders' equity and minority interest relating to convertible operating partnership units............................................. 557,820 Pro forma adjustments to common shareholders' equity and minority interest relating to convertible operating partnership units................................................ 1,345,105 ---------- Total................................................................................ 3,905,789 Minority interest ownership percentage relating to redeemable Archstone Class A-1 common units after the merger (see calculation below).................................. 14.03% ---------- Minority interest ownership relating to redeemable Archstone Class A-1 common units after the merger....................................................................... 547,982 Less: pro forma minority interest relating to redeemable Archstone Class A-1 common units prior to merger adjustment ($20,150 + $692,881).................................. (713,031) ---------- Adjustment to minority interest ownership of redeemable Archstone common units to reflect the merger..................................................................... $ (165,049) ==========

Calculation of pro forma minority interest ownership percentage:

(m) Represents the adjustment necessary to allocate the estimated market value in excess of the liquidation preference on Smith Residential's preferred stock to additional paid-in capital as follows:

ARCHSTONE-SMITH TRUST NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS--(CONTINUED) Listed below is a combined summary of Archstone-Smith's preferred shares as of March 31, 2001. The preferred shareholders are entitled to receive, when and as authorized by Archstone-Smith, cumulative preferential cash distributions. Archstone-Smith may redeem the preferred shares at certain dates in whole or in part at a cash redemption price equal to the redemption preference plus all accrued unpaid dividends to the date fixed for redemption.

----------- (1) The Series A preferred shares are convertible at any time, at the option of the holder, into a number of Archstone-Smith common shares obtained by dividing the aggregate liquidation preference by the conversion price of $18.561, which is equivalent to a conversion rate of 1.3469 common shares for each Archstone-Smith Series A preferred share. (2) The Series B preferred shares were called for redemption on May 7, 2001 at a price of $25.00 per share, plus $0.23125 in accrued and unpaid dividends, resulting in an aggregate cash payment of $105.6 million. (3) Cash distributions equal the greater of $2.02, $3.1025 and $2.03125 per year per share for Series H, J and M, respectively, or the dividend on the common shares into which these preferred shares are convertible. (4) Cash distributions equal to the greater of 8.25% of the $37.50 liquidation preference per year, equivalent to $3.09375 per year per share, through October 1, 2001, and 8.50% of the liquidation preference, equivalent to $3.1875 per year per share after October 1, 2001 or the dividend on the common shares into which a Series K preferred share is convertible. (5) Cash distributions equal to the greater of 8.25% of the $39.00 liquidation preference per year, equivalent to $3.2175 per year per share, through November 5, 2001, and 8.50% of the liquidation preference, equivalent to $3.315 per year per share after November 5, 2001 or the dividend on the common shares into which a Series L preferred share is convertible. (n) Represents the adjustment necessary to record all Archstone-Smith common shares at par value of $0.01 per share (formerly $1.00 per share), as follows: Archstone's 120,863 common shares at $1.00 par value per share............. $120,863 Archstone-Smith's 120,863 common shares at $0.01 par value per share....... 1,209 -------- Adjustment....................................................... $119,654 ========

Note that Smith Residential's common stock is already reflected at $0.01 par. ARCHSTONE-SMITH TRUST NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS--(CONTINUED) (o) Reflects condensed historical statement of earnings from continuing operations. Certain reclassifications have been made to Smith Residential's statement of earnings from operations to conform to Archstone's presentation. (p) Represents estimated net increase in depreciation of real estate as a result of the step-up in basis to record Smith Residential's real estate at estimated fair value:

(q) Represents the following pro forma interest expense adjustments:

ARCHSTONE-SMITH TRUST NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS--(CONTINUED) At March 31, 2001, Archstone had no balance outstanding under its $580 million unsecured credit facility and $13.4 million outstanding under its $100 million short-term unsecured borrowing facility. Since the unsecured credit facility rate of 4.71% used in the above calculation fluctuates based on a spread over LIBOR, interest expense changes accordingly. If the interest rate on unsecured credit facilities increases or decreases by 12.5 basis points, the following adjustment would be made to interest expense:

(r) Management has estimated that there will be a reduction of over 50% of Smith Residential's general and administrative expenses as a result of the merger on a pro forma basis for the quarter ended March 31, 2001 and the year ended December 31, 2000. The general and administrative expense savings have not been included in the pro forma condensed combined statements of earnings from operations as there can be no assurance that such costs savings will be realized. (s) Represents estimated goodwill and goodwill amortization from Smith Residential's property service businesses: Property service businesses mark-up (see note (d))......................................... $1,858 ====== Estimated annual goodwill amortization based on an amortization period of 20 years......... $ 93 ====== Estimated quarterly goodwill amortization based on an amortization period of 20 years...... $ 23 ======

(t) Represents adjustments for the recomputation of net earnings from continuing operations allocable to the redeemable operating partnership units. The recomputed percentage allocable to common shares and operating partnership units was calculated as follows:

ARCHSTONE-SMITH TRUST NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS--(CONTINUED) The recomputed minority interest income allocation was calculated as follows:

(u) A reconciliation of the numerator and denominator used to compute basic earnings per common share to the numerator and denominator used to compute diluted earnings per common share is as follows for the periods indicated:

ARCHSTONE-SMITH TRUST NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS--(CONTINUED)

------------- (1) Excludes the impact of potentially dilutive equity securities during the periods in which they are anti-dilutive. (2) Excludes the impact of Smith Partnership's convertible operating partnership units which may be redeemed at the unitholders' sole discretion. Such redemption, at Archstone-Smith's election, may be made for cash or for common shares on a one-for-one basis, which does not have a dilutive effect.

SMITH CHARLES E RESIDENTIAL REALTY INC 8-K/A