e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2009
Commission file number 1-12672
AVALONBAY COMMUNITIES, INC.
(Exact name of registrant as specified in its charter)
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Maryland
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77-0404318 |
(State or other jurisdiction of
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(I.R.S. Employer |
incorporation or organization)
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Identification No.) |
2900 Eisenhower Avenue, Suite 300
Alexandria, Virginia 22314
(Address of principal executive offices, including zip code)
(703) 329-6300
(Registrants telephone number, including area code)
(Former name, 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 for 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 þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12
months (or for such shorter period that the registrant was required to submit and post such files).
Yes þ No o
Indicate by check mark whether the Exchange registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
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Large accelerated filer þ
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Accelerated filer o
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Non-accelerated filer o
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Smaller reporting company o |
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(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Act).
Yes o No
þ
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuers classes of common stock as of the
latest practicable date:
81,433,377 shares of common stock, par value $0.01 per share, were outstanding as of October 30,
2009
AVALONBAY COMMUNITIES, INC.
FORM 10-Q
INDEX
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Page |
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PART I FINANCIAL INFORMATION
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Item 1. Condensed Consolidated Financial Statements |
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Condensed Consolidated Balance Sheets as of September 30, 2009 (unaudited) and
December 31, 2008 |
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1 |
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Condensed Consolidated Statements of Operations and Other Comprehensive Income
(unaudited) for the three and nine months ended September 30, 2009 and 2008 |
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2 |
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Condensed Consolidated Statements of Cash Flows (unaudited) for the nine months ended
September 30, 2009 and 2008 |
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3-4 |
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Notes to Condensed Consolidated Financial Statements (unaudited) |
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5-19 |
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Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations |
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20-41 |
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Item 3. Quantitative and Qualitative Disclosures About Market Risk |
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42 |
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Item 4. Controls and Procedures |
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42 |
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PART II OTHER INFORMATION
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Item 1. Legal Proceedings |
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42-43 |
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Item 1a. Risk Factors |
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43 |
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds |
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43-44 |
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Item 3. Defaults Upon Senior Securities |
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44 |
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Item 4. Submission of Matters to a Vote of Security Holders |
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44 |
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Item 5. Other Information |
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44 |
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Item 6. Exhibits |
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44-45 |
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SIGNATURES |
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46 |
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AVALONBAY COMMUNITIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
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9-30-09 |
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12-31-08 |
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(unaudited) |
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ASSETS |
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Real estate: |
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Land |
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$ |
1,239,322 |
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$ |
1,133,854 |
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Buildings and improvements |
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6,034,863 |
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5,488,649 |
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Furniture, fixtures and equipment |
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186,611 |
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174,268 |
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7,460,796 |
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6,796,771 |
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Less accumulated depreciation |
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(1,482,256 |
) |
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(1,322,698 |
) |
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Net operating real estate |
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5,978,540 |
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5,474,073 |
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Construction in progress, including land |
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607,952 |
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867,040 |
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Land held for development |
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243,656 |
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239,456 |
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Operating real estate assets held for sale, net |
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26,106 |
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69,174 |
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Total real estate, net |
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6,856,254 |
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6,649,743 |
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Cash and cash equivalents |
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554,335 |
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65,678 |
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Cash in escrow |
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223,121 |
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193,599 |
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Resident security deposits |
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25,917 |
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29,935 |
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Investments in unconsolidated real estate entities |
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63,583 |
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55,025 |
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Deferred financing costs, net |
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36,782 |
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31,374 |
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Deferred development costs |
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80,908 |
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57,365 |
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Prepaid expenses and other assets |
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105,520 |
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91,634 |
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Total assets |
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$ |
7,946,420 |
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$ |
7,174,353 |
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LIABILITIES AND STOCKHOLDERS EQUITY |
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Unsecured notes, net |
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$ |
2,080,295 |
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$ |
2,002,965 |
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Variable rate unsecured credit facility |
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124,000 |
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Mortgage notes payable |
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2,352,556 |
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1,547,492 |
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Dividends payable |
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72,595 |
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208,209 |
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Payables for construction |
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49,621 |
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64,363 |
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Accrued expenses and other liabilities |
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239,563 |
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227,621 |
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Accrued interest payable |
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27,544 |
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32,651 |
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Resident security deposits |
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36,765 |
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40,462 |
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Liabilities related to real estate assets held for sale |
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372 |
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241 |
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Total liabilities |
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4,859,311 |
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4,248,004 |
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Redeemable noncontrolling interests |
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4,539 |
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10,234 |
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Stockholders equity: |
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Common stock, $0.01 par value; 140,000,000 shares authorized at both
September 30, 2009 and December 31, 2008; 81,429,356 and
77,119,963 shares
issued and outstanding at September 30, 2009 and December 31,
2008, respectively |
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814 |
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771 |
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Additional paid-in capital |
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3,191,613 |
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2,940,499 |
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Accumulated earnings less dividends |
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(108,243 |
) |
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(22,223 |
) |
Accumulated other comprehensive loss |
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(1,614 |
) |
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(2,932 |
) |
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Total stockholders equity |
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3,082,570 |
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2,916,115 |
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Total liabilities and stockholders equity |
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$ |
7,946,420 |
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$ |
7,174,353 |
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See accompanying notes to Condensed Consolidated Financial Statements.
1
AVALONBAY COMMUNITIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND OTHER COMPREHENSIVE INCOME
(Unaudited)
(Dollars in thousands, except per share data)
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For the three months ended |
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For the nine months ended |
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9-30-09 |
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9-30-08 |
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9-30-09 |
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9-30-08 |
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Revenue: |
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Rental and other income |
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$ |
220,173 |
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$ |
213,768 |
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$ |
652,418 |
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$ |
619,880 |
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Management, development and other fees |
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1,878 |
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1,622 |
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5,423 |
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4,805 |
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Total revenue |
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222,051 |
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215,390 |
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657,841 |
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624,685 |
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Expenses: |
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Operating expenses, excluding property taxes |
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68,555 |
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64,751 |
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200,861 |
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184,545 |
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Property taxes |
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21,710 |
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18,756 |
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63,643 |
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56,276 |
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Interest expense, net |
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41,208 |
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28,363 |
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107,836 |
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85,620 |
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Depreciation expense |
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54,960 |
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48,698 |
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159,935 |
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140,885 |
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General and administrative expense |
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5,750 |
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9,318 |
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18,388 |
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26,821 |
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Impairment loss land holdings |
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20,302 |
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Total expenses |
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192,183 |
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169,886 |
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|
570,965 |
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494,147 |
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Equity in income of unconsolidated entities |
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190 |
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495 |
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4,139 |
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4,329 |
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Gain on sale of land |
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241 |
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|
241 |
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Income from continuing operations |
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30,299 |
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45,999 |
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91,256 |
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134,867 |
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Discontinued operations: |
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Income from discontinued operations |
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1,132 |
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3,176 |
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3,998 |
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16,163 |
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Gain on sale of communities |
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26,670 |
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183,711 |
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26,670 |
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257,850 |
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Total discontinued operations |
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27,802 |
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186,887 |
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30,668 |
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274,013 |
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Net income |
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58,101 |
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|
232,886 |
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|
121,924 |
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|
408,880 |
|
Net loss
(income) attributable to redeemable noncontrolling
interests |
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|
53 |
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|
695 |
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|
1,329 |
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|
484 |
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Net income attributable to the Company |
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58,154 |
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|
233,581 |
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|
123,253 |
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|
409,364 |
|
Dividends attributable to preferred stock |
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(2,175 |
) |
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(6,525 |
) |
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Net income attributable to common stockholders |
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$ |
58,154 |
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$ |
231,406 |
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$ |
123,253 |
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$ |
402,839 |
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Other comprehensive income: |
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Unrealized gain on cash flow hedges |
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|
521 |
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|
|
506 |
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|
1,318 |
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|
1,044 |
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Comprehensive income |
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$ |
58,675 |
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$ |
231,912 |
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$ |
124,571 |
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$ |
403,883 |
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Earnings per common share basic: |
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Income from continuing operations attributable to common
stockholders (net of dividends attributable to
preferred stock) |
|
$ |
0.38 |
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|
$ |
0.58 |
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|
$ |
1.16 |
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|
$ |
1.67 |
|
Discontinued operations attributable to common
stockholders |
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|
0.34 |
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|
2.42 |
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|
0.39 |
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|
3.56 |
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|
Net income attributable to common stockholders |
|
$ |
0.72 |
|
|
$ |
3.00 |
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|
$ |
1.55 |
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|
$ |
5.23 |
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Earnings per common share diluted: |
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|
Income from continuing operations attributable to common
stockholders, net of preferred stock dividends |
|
$ |
0.38 |
|
|
$ |
0.58 |
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|
$ |
1.16 |
|
|
$ |
1.67 |
|
Discontinued operations attributable to common
stockholders |
|
|
0.34 |
|
|
|
2.40 |
|
|
|
0.38 |
|
|
|
3.53 |
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|
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|
Net income attributable to common stockholders |
|
$ |
0.72 |
|
|
$ |
2.98 |
|
|
$ |
1.54 |
|
|
$ |
5.20 |
|
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Dividends per common share: |
|
$ |
0.8925 |
|
|
$ |
0.8925 |
|
|
$ |
2.6775 |
|
|
$ |
2.6775 |
|
|
|
|
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|
|
|
|
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|
See accompanying notes to Condensed Consolidated Financial Statements.
2
AVALONBAY COMMUNITIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
For the nine months ended |
|
|
|
9-30-09 |
|
|
9-30-08 |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net income |
|
$ |
121,924 |
|
|
$ |
408,880 |
|
Adjustments to reconcile net income to cash provided
by operating activities: |
|
|
|
|
|
|
|
|
Depreciation expense |
|
|
159,935 |
|
|
|
140,885 |
|
Depreciation expense from discontinued operations |
|
|
1,758 |
|
|
|
7,612 |
|
Amortization of deferred financing costs and debt
premium/discount |
|
|
5,422 |
|
|
|
5,191 |
|
Amortization of stock-based compensation |
|
|
4,887 |
|
|
|
10,275 |
|
Equity in income of unconsolidated entities, net of eliminations |
|
|
(3,992 |
) |
|
|
(3,470 |
) |
Impairment loss land holdings |
|
|
20,302 |
|
|
|
|
|
Gain on retirement of unsecured notes |
|
|
(1,062 |
) |
|
|
|
|
Gain on sale of real estate assets |
|
|
(26,911 |
) |
|
|
(257,850 |
) |
(Increase) decrease in cash in operating escrows |
|
|
(2,699 |
) |
|
|
2,902 |
|
Increase in resident security deposits,
prepaid expenses and other assets |
|
|
(17,711 |
) |
|
|
(15,082 |
) |
Increase (decrease) in accrued expenses, other liabilities
and accrued interest payable |
|
|
11,125 |
|
|
|
(32,361 |
) |
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
272,978 |
|
|
|
266,982 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Development/redevelopment of real estate assets including
land acquisitions and deferred development costs |
|
|
(444,892 |
) |
|
|
(625,724 |
) |
Capital expenditures existing real estate assets |
|
|
(4,112 |
) |
|
|
(5,955 |
) |
Capital expenditures non-real estate assets |
|
|
(699 |
) |
|
|
(3,893 |
) |
Proceeds
from sale of real estate,
net of selling costs |
|
|
67,893 |
|
|
|
490,477 |
|
Decrease in payables for construction |
|
|
(14,742 |
) |
|
|
(29,519 |
) |
Decrease (increase) in cash in construction escrows |
|
|
66,492 |
|
|
|
(22,298 |
) |
Increase in investments in unconsolidated real estate entities |
|
|
382 |
|
|
|
5,347 |
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(329,678 |
) |
|
|
(191,565 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Issuance of common stock |
|
|
102,442 |
|
|
|
6,833 |
|
Repurchase of common stock |
|
|
|
|
|
|
(42,159 |
) |
Dividends paid |
|
|
(211,269 |
) |
|
|
(209,412 |
) |
Redemption
of units for cash by minority partners |
|
|
(202 |
) |
|
|
|
|
Net repayments under unsecured credit facility |
|
|
(124,000 |
) |
|
|
(489,500 |
) |
Issuance of mortgage notes payable and draws on construction loans |
|
|
741,140 |
|
|
|
662,797 |
|
Repayments of mortgage notes payable |
|
|
(29,516 |
) |
|
|
(61,130 |
) |
Issuance of unsecured notes |
|
|
500,000 |
|
|
|
330,000 |
|
Repayment of unsecured notes |
|
|
(420,936 |
) |
|
|
(206,000 |
) |
Payment of deferred financing costs |
|
|
(12,263 |
) |
|
|
(7,787 |
) |
Distributions to DownREIT partnership unitholders |
|
|
(39 |
) |
|
|
(171 |
) |
Distributions to joint venture and profit-sharing partners |
|
|
|
|
|
|
(140 |
) |
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities |
|
|
545,357 |
|
|
|
(16,669 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents |
|
|
488,657 |
|
|
|
58,748 |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, beginning of period |
|
|
65,678 |
|
|
|
20,271 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period |
|
$ |
554,335 |
|
|
$ |
79,019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the period for interest, net of amount capitalized |
|
$ |
101,059 |
|
|
$ |
89,784 |
|
|
|
|
|
|
|
|
See accompanying notes to Condensed Consolidated Financial Statements.
3
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
Supplemental disclosures of non-cash investing and financing activities (dollars in thousands):
During the nine months ended September 30, 2009:
|
|
|
As described in Note 4, Stockholders Equity, 2,624,641 shares of common stock valued
at $139,058 were issued as part of the special dividend declared in the fourth quarter of
2008, 169,851 shares of common stock valued at $8,360 were issued in connection with stock
grants, 9,201 shares valued at $505 were issued through the Companys dividend reinvestment
plan, 33,006 shares valued at $1,502 were withheld to satisfy employees tax withholding
and other liabilities and 1,031 shares valued at $147 were forfeited, for a net value of
$146,274. In addition, the Company granted 344,801 options for common stock at a value of
$2,252. |
|
|
|
|
The Company recorded a decrease to other liabilities and an increase to other
comprehensive income of $1,318 to record the impact of the Companys hedge accounting
activity (as described in Note 5, Derivative Instruments and Hedging Activities). |
|
|
|
|
Common dividends declared but not paid totaled $72,595. |
|
|
|
|
The Company recorded a decrease of $4,745 in redeemable noncontrolling interests with a
corresponding increase to accumulated earnings less dividends to adjust the redemption
value associated with the put options held by joint venture partners and DownREIT
partnership units. For further discussion of the nature and valuation of these items, see
Note 11, Fair Value. |
|
|
|
|
In May 2009, the Company obtained $93,440 in variable rate tax-exempt bond financing
related to a Development Right, the proceeds of which will be held in escrow until
requisitioned for construction funding. This loan provides an option for the Company to
request an additional construction loan of up to $83,560 subject to the lenders
discretion. |
During the nine months ended September 30, 2008:
|
|
|
The Company issued 130,325 shares of common stock valued at $11,646 in connection with
stock grants, 3,725 shares valued at $321 were issued through the Companys dividend
reinvestment plan, 24,407 shares valued at $1,357 related to the accelerated vesting of
equity compensation for members of the Board of Directors in fulfillment of a deferred
stock award, 1,101 shares valued at $109 were forfeited and 39,421 shares valued at $3,465
were withheld to satisfy employees tax withholding and other liabilities, for a net value
of $9,750. In addition, the Company granted 401,212 options for common stock at a value of
$3,976. |
|
|
|
|
The Company recorded a decrease to other liabilities and an increase to other
comprehensive income of $1,044 to record the impact of the Companys hedge accounting
activity. |
|
|
|
|
Common and preferred dividends declared but not paid totaled $70,979. |
|
|
|
|
The Company recorded a decrease of $5,706 in redeemable noncontrolling interests with a
corresponding increase to accumulated earnings less dividends to adjust the redemption
value associated with the put options held by joint venture partners and DownREIT
partnership units. |
4
AVALONBAY COMMUNITIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share data)
1. Organization and Basis of Presentation
Organization
AvalonBay Communities, Inc. (the Company, which term, unless the context otherwise requires,
refers to AvalonBay Communities, Inc. together with its consolidated subsidiaries), is a Maryland
corporation that has elected to be taxed as a real estate investment trust (REIT) under the
Internal Revenue Code of 1986 (the Code), as amended. The Company focuses on the development,
acquisition, ownership and operation of apartment communities in high barrier to entry markets of
the United States. These markets are located in the New England, Metro New York/New Jersey,
Mid-Atlantic, Midwest, Pacific Northwest, and Northern and Southern California regions of the
country.
At September 30, 2009, the Company owned or held a direct or indirect ownership interest in 163
operating apartment communities containing 46,693 apartment homes in ten states and the District of
Columbia, of which six communities containing 2,380 apartment homes were under reconstruction. In
addition, the Company owned or held a direct or indirect ownership interest in nine communities
under construction that are expected to contain an aggregate of 3,421 apartment homes when
completed. The Company also owned or held a direct or indirect ownership interest in rights to
develop an additional 27 communities that, if developed as expected, will contain an estimated
6,788 apartment homes.
The interim unaudited financial statements have been prepared in accordance with U.S. Generally Accepted
Accounting Principles (GAAP) for interim
financial information and in conjunction with the rules and regulations of the Securities and
Exchange Commission (SEC). Certain information and footnote disclosures normally included in
financial statements required by GAAP 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 included in the Companys 2008 Annual Report on Form 10-K. The results of
operations for the three and nine months ended September 30, 2009 are not necessarily indicative of
the operating results for the full year. Management believes the disclosures are adequate to
ensure the information presented is 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.
Earnings per Common Share
Basic earnings per share is computed by dividing net income attributable to common stockholders by
the weighted average number of shares outstanding during the period. All outstanding unvested
restricted share awards, which contain rights to non-forfeitable dividends, participate in
undistributed earnings with common shareholders and, accordingly, are considered participating
securities that are included in the two-class method of computing basic earnings per share (EPS).
All historical periods presented have been restated to reflect the impact of including
participating securities in the basic earnings per share calculation. Both the unvested restricted
shares and other potentially dilutive common shares, and the related impact to earnings, are
considered when calculating earnings per share on a diluted basis. The Companys earnings per
common share are determined as follows:
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended |
|
|
For the nine months ended |
|
|
|
9-30-09 |
|
|
9-30-08 |
|
|
9-30-09 |
|
|
9-30-08 |
|
Basic and diluted shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares basic |
|
|
80,132,409 |
|
|
|
76,833,942 |
|
|
|
79,521,277 |
|
|
|
76,754,096 |
|
Weighted average DownREIT units outstanding |
|
|
15,351 |
|
|
|
64,019 |
|
|
|
16,874 |
|
|
|
64,019 |
|
Effect of dilutive securities |
|
|
461,517 |
|
|
|
682,886 |
|
|
|
631,942 |
|
|
|
698,107 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares diluted |
|
|
80,609,277 |
|
|
|
77,580,847 |
|
|
|
80,170,093 |
|
|
|
77,516,222 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Calculation of Earnings per Share basic |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to common stockholders |
|
$ |
58,154 |
|
|
$ |
231,406 |
|
|
$ |
123,253 |
|
|
$ |
402,839 |
|
Net income allocated to unvested restricted shares |
|
|
(182 |
) |
|
|
(741 |
) |
|
|
(389 |
) |
|
|
(1,331 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to common stockholders, adjusted |
|
$ |
57,972 |
|
|
$ |
230,665 |
|
|
$ |
122,864 |
|
|
$ |
401,508 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares basic |
|
|
80,132,409 |
|
|
|
76,833,942 |
|
|
|
79,521,277 |
|
|
|
76,754,096 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per common share basic |
|
$ |
0.72 |
|
|
$ |
3.00 |
|
|
$ |
1.55 |
|
|
$ |
5.23 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Calculation of Earnings per Share diluted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to common stockholders |
|
$ |
58,154 |
|
|
$ |
231,406 |
|
|
$ |
123,253 |
|
|
$ |
402,839 |
|
Add: noncontrolling interests of DownREIT unitholders in
consolidated partnerships, including discontinued operations |
|
|
14 |
|
|
|
57 |
|
|
|
52 |
|
|
|
171 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted net income available to common stockholders |
|
$ |
58,168 |
|
|
$ |
231,463 |
|
|
$ |
123,305 |
|
|
$ |
403,010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares diluted |
|
|
80,609,277 |
|
|
|
77,580,847 |
|
|
|
80,170,093 |
|
|
|
77,516,222 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per common share diluted |
|
$ |
0.72 |
|
|
$ |
2.98 |
|
|
$ |
1.54 |
|
|
$ |
5.20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certain options to purchase shares of common stock in the amounts of 2,023,878 and 1,489,780 were
outstanding at September 30, 2009 and 2008, respectively, but were not included in the computation
of diluted earnings per share because such options are anti-dilutive.
The Company is required to estimate the forfeiture of stock options and recognize compensation cost
net of the estimated forfeitures. The estimated forfeitures included in compensation cost are
adjusted to reflect actual forfeitures at the end of the vesting period. The forfeiture rate at
September 30, 2009 was 1.7%. The application of estimated forfeitures did not materially impact
compensation expense for the three and nine months ended September 30, 2009 or 2008.
Abandoned Pursuit Costs & Asset Impairment
The Company capitalizes pre-development costs incurred in pursuit of new development opportunities for
which the Company currently believes future development is probable (Development Rights). Future
development of these Development Rights is dependent upon various factors, including zoning and
regulatory approval, rental market conditions, construction costs and the availability of capital. Pre-
development costs incurred in the pursuit of Development Rights for which future development is not yet
considered probable are expensed as incurred. In addition, if the status of a Development Right changes,
making future development by the Company no longer probable, any capitalized pre-development costs are
written off with a charge to expense. The Company expensed costs related to abandoned pursuits, which
includes the abandonment of Development Rights, acquisition pursuits and disposition pursuits, in the
amounts of $1,721 and $715 for the three months ended September 30, 2009 and 2008, respectively and
$5,096 and $3,044 for the nine months ended September 30, 2009 and 2008, respectively. These costs are
included in operating expenses, excluding property taxes on the accompanying Condensed Consolidated
Statements of Operations and Other Comprehensive Income. Abandoned pursuit costs can vary greatly,
and the costs incurred in any given period may be significantly
different in future years.
In addition, during the second quarter of 2009, the Company concluded that the continued economic
downturn and the related decline in employment levels did not support the development and construction of
certain new apartment communities that were previously in planning. This resulted in the recognition of an
impairment charge of $20,302 related to the impairment of two land parcels for which the Company no
longer intends to pursue development. The Company looked to third-party pricing estimates to determine the fair
values of the land parcels considered to be impaired. Given the heterogeneous nature of multifamily real estate,
the third party values incorporated significant other unobservable inputs and are therefore considered to be
Level 3 prices in the fair value hierarchy.
Legal and Other Contingencies
At September 30, 2009, the Company was involved in litigation alleging that communities constructed
by the Company violate the accessibility requirements of the Fair Housing Act (FHA) and the
Americans with Disabilities Act. The Equal Rights Center (ERC) filed a complaint against the
Company on September 23, 2005 in the U.S. District Court, District of Maryland with respect to 100
properties. On October 30, 2009, the Company entered into a proposed consent decree with the ERC
to settle this matter and on November 2, 2009, the court approved the
consent decree. See Note 12, Subsequent Events, for further discussion.
In a separate matter related to FHA accessibility matters, on August 13, 2008 the U.S. Attorneys
Office for the Southern District of New York filed a civil lawsuit against the Company and the
joint venture in which it has an interest that owns Avalon Chrystie Place. The lawsuit alleges
that Avalon Chrystie Place was not designed and constructed in accordance with the accessibility
requirements of the FHA. The Company designed and constructed the community to address compliance
with New York Citys Local Law 58, which for more than 20 years has been
New York Citys code regulating the accessible design and construction of apartments. As there are uncertainties
relating to the Avalon Chrystie Place lawsuit, (such as the legal
requirements to meet and demonstrate accessibility under the applicable statutes,
the cost to remediate, if necessary and whether the scope of this lawsuit
will be extended to other properties) the Company cannot predict or determine the outcome of this
lawsuit, nor is it reasonably possible at this time to estimate the amount of loss, if any, that
would be associated with an adverse decision or settlement.
In addition, the Company is subject to various other legal proceedings and claims that arise in the
ordinary course of business. These matters are frequently covered by insurance. If it has been
determined that a loss is probable to
6
occur and can be reasonably estimated, the estimated amount
of the loss is recorded in the financial statements. While the resolution of these other matters
cannot be predicted with certainty, management currently believes the final outcome of such matters
will not have a material adverse effect on the financial position or results of operations of the
Company. In instances where the Company has a gain contingency associated with legal proceedings,
the Company records a gain in the financial statements when it is deemed probable to occur, can be
reasonably estimated and is considered to be collectible.
Redeemable Noncontrolling Interests
Redeemable noncontrolling interests are comprised of potential future obligations of the Company, which
allow the investors holding the noncontrolling interest to require the Company to purchase their interest.
The Company classifies obligations under the redeemable noncontrolling interests at fair value, with a
corresponding offset for changes in the fair value recorded in accumulated earnings less dividends.
Reductions in fair value are recorded only to the extent that the Company has previously recorded increases
in fair value above the redeemable noncontrolling interests initial basis. The redeemable noncontrolling
interests are presented outside of permanent equity as settlement in the Companys common shares, where
permitted, may not be within the Companys control. The nature and valuation of the Companys
redeemable noncontrolling interests are discussed further in Note 11, Fair Value.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make certain
estimates and assumptions. These estimates and assumptions 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.
Reclassifications
Certain reclassifications have been made to amounts in prior years financial statements to conform
to current year presentations.
Recently Adopted Accounting Standards
In June 2009, the FASB issued FASB Accounting Standards Codification (ASC) 105, Generally
Accepted Accounting Principles, (the Codification) which established the FASB ASC as the sole source of authoritative
GAAP. The adoption of FASB ASC 105 did not impact the Companys financial position or
results of operations.
Recently Issued Accounting Standards
In
June 2009, the FASB issued Statement No. 167, Amendments to FASB Interpretation No. 46(R)
(SFAS No. 167), which is not
yet included in the Codification. SFAS No. 167 significantly amends the consolidation guidance applicable to
variable interest entities (VIEs). SFAS No. 167 modifies the consolidation model to one based on
control and economics, and replaces the current quantitative primary beneficiary analysis with a
qualitative analysis. The primary beneficiary of a VIE will be the entity that has (1) the power
to direct the activities of the VIE that most significantly impact the VIEs economic performance
and (2) the obligation to absorb losses or receive benefits that could potentially be significant
to the VIE. If multiple unrelated parties share such power, as defined, no party will be required
to consolidate the VIE. Further, SFAS No. 167 requires continual reconsideration of the primary
beneficiary of a VIE and adds an additional reconsideration event for determination of whether an
entity is a VIE. SFAS No. 167 also requires expanded disclosures related to VIEs which are largely
consistent with the disclosure framework currently applied by the
Company. SFAS No. 167 is effective January 1, 2010 for
the Company. The Company is currently evaluating the impact that adoption of SFAS No. 167 will
have on its financial statements.
In
August 2009, the FASB issued Accounting Standards Update
(ASU) 2009-05, Measuring
Liabilities at Fair Value. ASU 2009-05 provides additional guidance clarifying the measurement of
liabilities at fair value. When a quoted price in an active market for the identical liability is
not available, ASU 2009-05 requires that the fair value of a liability be measured using one or
more of the listed valuation techniques that should maximize the use of relevant observable inputs
and minimize the use of unobservable inputs. In addition, the amendments in ASU 2009-05 clarify
that when estimating the fair value of a liability, an entity is not required to include a separate
input or adjustment to other inputs relating to the existence of a restriction that prevents the
transfer of the liability, and clarify how the price of a traded debt security should be considered
in estimating the fair value of a liability. ASU 2009-05 is effective for the Company beginning in
the fourth quarter of 2009, and will not materially impact the Companys financial position or
results of operations.
7
2. Interest Capitalized
The Company capitalizes interest during the development and redevelopment of real estate assets.
Capitalized interest associated with communities under development or redevelopment totaled $11,878
and $18,803 for the three months ended September 30, 2009 and 2008, respectively and $37,923 and
$57,625 for the nine months ended September 30, 2009 and 2008, respectively.
3. Notes Payable, Unsecured Notes and Credit Facility
The Companys mortgage notes payable, unsecured notes and Credit Facility, as defined below, as of
September 30, 2009 and December 31, 2008, are summarized below.
|
|
|
|
|
|
|
|
|
|
|
9-30-09 |
|
|
12-31-08 |
|
Fixed rate unsecured notes (1) |
|
$ |
1,968,095 |
|
|
$ |
1,672,965 |
|
Variable rate unsecured notes |
|
|
112,200 |
|
|
|
330,000 |
|
Fixed rate mortgage notes payable conventional and tax-exempt |
|
|
1,634,029 |
|
|
|
901,181 |
|
Variable rate mortgage notes payable conventional and tax-exempt |
|
|
718,527 |
|
|
|
646,311 |
|
|
|
|
|
|
|
|
Total notes payable and unsecured notes |
|
|
4,432,851 |
|
|
|
3,550,457 |
|
Variable rate unsecured credit facility |
|
|
|
|
|
|
124,000 |
|
|
|
|
|
|
|
|
Total mortgage notes payable,
unsecured notes and Credit Facility |
|
$ |
4,432,851 |
|
|
$ |
3,674,457 |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Balances at September 30, 2009 and December 31, 2008 include $2,482 and $2,035 of
debt discount, respectively. |
The following debt activity occurred during the nine months ended September 30, 2009:
|
|
|
In January 2009, the Company made a cash tender offer for any and all of its 7.5%
unsecured notes due in August 2009 and December 2010. The Company purchased $37,438
principal amount of its $150,000, 7.5% unsecured notes due in August 2009 at par. In
addition, the Company purchased $64,423 principal amount of its $200,000, 7.5% unsecured
notes due December 2010 at 98% of par, for approximately $63,135, representing a yield to
maturity of 8.66%. The Company recorded a gain of approximately $1,062, net of the
write-off of related deferred financing costs during the first quarter of 2009 in
conjunction with the purchase of the unsecured notes due December 2010 as a reduction in
interest expense, net. All of the notes purchased in the tender offer were cancelled. |
|
|
|
|
In April 2009, the Company completed a 5.86% fixed rate, pooled secured financing
transaction for aggregate borrowing of $741,140. The financing consists of fourteen
separate mortgage loans each with a 10-year term. Each loan provides for payment of interest only during the first and second
years of the loan term, with payment of principal and interest (based on a 30 year
amortization schedule) thereafter and the remaining principal amount and any unpaid interest
due at maturity on the tenth anniversary. |
|
|
|
|
In April 2009, the Company repaid the $4,143 principal, 8.08% fixed rate loan secured by
a real estate asset formerly classified as a Development Right pursuant to its scheduled
maturity. |
|
|
|
|
In May 2009, the Company repaid $105,600 in unsecured debt, representing the first
tranche of its $330,000 unsecured variable rate term loan (the Term Loan), pursuant to
its schedule maturity. |
|
|
|
|
In May 2009, the Company repaid $19,470 in variable rate secured debt pursuant to its
scheduled maturity. |
|
|
|
|
In May 2009, the Company obtained $93,440 in variable rate tax-exempt bond financing
related to a Development Right, the proceeds of which will be held in escrow until
requisitioned for construction funding. This loan provides an option for the Company to
request an additional construction loan of up to $83,560 subject to the lenders
discretion. |
|
|
|
|
In August 2009, the Company repaid $102,562 in previously issued 7.5% unsecured notes,
along with any unpaid interest, pursuant to their scheduled maturity. |
|
|
|
|
In August 2009, the Company repaid $112,200 in unsecured debt, representing the second
tranche of its Term Loan, prior to its scheduled maturity in January 2010. |
|
|
|
|
In September 2009, the Company issued a total of $500,000 unsecured notes in a public
offering under its existing shelf registration statement. The offering consisted of two
separate $250,000 tranches with effective interest rates of 5.80% and 6.18%, maturing in
March 2017 and March 2020, respectively. |
8
In October 2009, the Company repurchased $310,100 principal amount of its unsecured notes. See
Note 12, Subsequent Events for further discussion.
In the aggregate, secured notes payable mature at various dates from December 2009 through July
2066 and are secured by certain apartment communities and improved land parcels (with a net
carrying value of $1,891,995 as of September 30, 2009). As of September 30, 2009, the Company has
guaranteed approximately $385,269 of mortgage notes payable held by wholly owned subsidiaries; all
such mortgage notes payable are consolidated for financial reporting purposes. The weighted average
interest rate of the Companys fixed rate mortgage notes payable (conventional and tax-exempt) was
5.9% and 5.7% at September 30, 2009 and December 31, 2008, respectively. The weighted average
interest rate of the Companys variable rate mortgage notes payable, Term Loan and its
unsecured credit facility, including the effect of certain financing related fees, was 2.1% at
September 30, 2009 and 2.9% at December 31, 2008.
Scheduled payments and maturities of mortgage notes payable and unsecured notes outstanding at
September 30, 2009 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stated |
|
|
|
|
|
|
|
|
|
|
|
Unsecured |
|
|
interest rate |
|
|
|
Secured notes |
|
|
Secured notes |
|
|
notes |
|
|
of unsecured |
|
Year |
|
payments (1) |
|
|
maturities |
|
|
maturities |
|
|
notes |
|
2009 |
|
$ |
1,821 |
|
|
$ |
33,980 |
|
|
$ |
|
|
|
|
|
|
2010 |
|
|
6,097 |
|
|
|
29,388 |
|
|
|
135,577 |
|
|
|
7.500 |
% |
2011 |
|
|
12,087 |
|
|
|
36,580 |
|
|
|
300,000 |
|
|
|
6.625 |
% |
|
|
|
|
|
|
|
|
|
|
|
50,000 |
|
|
|
6.625 |
% |
|
|
|
|
|
|
|
|
|
|
|
112,200 |
|
|
|
1.500 |
%(2) |
2012 |
|
|
14,560 |
|
|
|
120,601 |
|
|
|
250,000 |
|
|
|
6.125 |
% |
|
|
|
|
|
|
|
|
|
|
|
235,000 |
|
|
|
5.500 |
% |
2013 |
|
|
14,656 |
|
|
|
318,370 |
|
|
|
100,000 |
|
|
|
4.950 |
% |
2014 |
|
|
15,537 |
|
|
|
33,100 |
|
|
|
150,000 |
|
|
|
5.375 |
% |
2015 |
|
|
14,481 |
|
|
|
365,072 |
|
|
|
|
|
|
|
|
|
2016 |
|
|
15,342 |
|
|
|
|
|
|
|
250,000 |
|
|
|
5.750 |
% |
2017 |
|
|
16,260 |
|
|
|
18,300 |
|
|
|
250,000 |
|
|
|
5.700 |
% |
2018 |
|
|
17,234 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Thereafter |
|
|
119,114 |
|
|
|
1,149,976 |
|
|
|
250,000 |
|
|
|
6.100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
247,189 |
|
|
$ |
2,105,367 |
|
|
$ |
2,082,777 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Secured note payments are comprised of the principal pay downs for amortizing mortgage notes. |
|
(2) |
|
The stated interest rate for variable-rate unsecured notes is the rate as of September 30,
2009. |
The Company has a variable rate unsecured credit facility (the Credit Facility) in the amount of
$1,000,000 with a syndicate of commercial banks, to whom the Company pays, in the aggregate, an
annual facility fee of approximately $1,250. The Company did not have any amounts outstanding
under the Credit Facility and had $38,684 outstanding in letters of credit as of September 30,
2009. At December 31, 2008, there was $124,000 outstanding under the Credit Facility and $45,976
outstanding in letters of credit. The Credit Facility bears interest at varying levels based on
the London Interbank Offered Rate (LIBOR), rating levels achieved on the Companys unsecured
notes and on a maturity schedule selected by the Company. The current stated pricing is LIBOR plus
0.40% per annum (0.65% at September 30, 2009). The Company did not have any amounts outstanding
under the Credit Facilitys competitive bid option as of September 30, 2009. The Credit Facility
matures in November 2011, assuming exercise of a one-year renewal option by the Company.
The Company was in compliance at September 30, 2009 with applicable financial and other covenants
contained in the Credit Facility, the Term Loan and the Companys unsecured notes.
9
4. Stockholders Equity
The following summarizes the changes in stockholders equity for the nine months ended September
30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
earnings |
|
|
other |
|
|
Total |
|
|
|
Common |
|
|
paid-in |
|
|
less |
|
|
comprehensive |
|
|
stockholders |
|
|
|
stock |
|
|
capital |
|
|
dividends |
|
|
loss |
|
|
equity |
|
Balance at December 31, 2008 |
|
$ |
771 |
|
|
$ |
2,940,499 |
|
|
$ |
(22,223 |
) |
|
$ |
(2,932 |
) |
|
$ |
2,916,115 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to common stockholders |
|
|
|
|
|
|
|
|
|
|
123,253 |
|
|
|
|
|
|
|
123,253 |
|
Unrealized gain on cash flow hedges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,318 |
|
|
|
1,318 |
|
Redeemable noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
4,745 |
|
|
|
|
|
|
|
4,745 |
|
Dividends declared to common stockholders |
|
|
|
|
|
|
|
|
|
|
(215,218 |
) |
|
|
|
|
|
|
(215,218 |
) |
Issuance of common stock |
|
|
43 |
|
|
|
239,113 |
|
|
|
1,200 |
|
|
|
|
|
|
|
240,356 |
|
Amortization of deferred compensation |
|
|
|
|
|
|
12,001 |
|
|
|
|
|
|
|
|
|
|
|
12,001 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2009 |
|
$ |
814 |
|
|
$ |
3,191,613 |
|
|
$ |
(108,243 |
) |
|
$ |
(1,614 |
) |
|
$ |
3,082,570 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the nine months ended September 30, 2009, the Company:
|
(i) |
|
issued 1,467,001 shares of common stock through public offerings; |
|
|
(ii) |
|
issued 72,736 shares of common stock in connection with stock options exercised; |
|
|
(iii) |
|
issued 2,624,641 shares in connection with the dividend declared in December 2008; |
|
|
(iv) |
|
issued 9,201 shares through the Companys dividend reinvestment plan; |
|
|
(v) |
|
issued 169,851 common shares in connection with stock grants; |
|
|
(vi) |
|
withheld 33,006 shares to satisfy employees tax withholding and other liabilities; and |
|
|
(vii) |
|
had 1,031 shares of restricted stock forfeited. |
The Company granted 344,801 options for common stock to employees. Deferred compensation related
to the Companys stock option and restricted stock grants during the nine months ended September
30, 2009 is not reflected on the Companys Condensed Consolidated Balance Sheet as of September 30,
2009, and will not be reflected until earned as compensation cost.
In August 2009, the Company commenced a continuous equity offering program (the Offering
Program), under which the Company may sell up to an aggregate amount of $400 million of its common
stock until August 2012. The Company may sell common stock in amounts and at times to be
determined by the Company. Actual sales will depend on a variety of factors to be determined by the
Company, including market conditions, the trading price of the Companys common stock and
determinations by the Company of the appropriate sources of funding for the Company. In
conjunction with the Offering Program, the Company engaged sales agents who received compensation
of 1.5% of the gross sales price per share for the common stock sold in the quarter ended September
30, 2009. During the quarter ended September 30, 2009, the Company sold 1,467,001 shares under
this program at an average sales price of $69.44 per share resulting in net proceeds of $100,334.
5. Derivative Instruments and Hedging Activities
The Company enters into interest rate swap and interest rate cap agreements (collectively, the
Hedging Derivatives) to reduce the impact of interest rate fluctuations on its variable rate,
tax-exempt bonds and its variable rate conventional secured debt (collectively, the Hedged Debt).
The Company has not entered into any interest rate hedge agreements for its conventional unsecured
debt and does not enter into derivative transactions for trading or other speculative purposes.
The following table summarizes the consolidated Hedging Derivatives at September 30, 2009,
excluding derivatives executed to hedge debt on communities classified as held for sale:
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-designated |
|
|
|
|
Hedges |
|
Cash Flow Hedges |
|
|
Interest |
|
Interest |
|
Interest |
|
|
Rate Caps |
|
Rate Caps |
|
Rate Swaps |
Notional balance |
|
$ |
149,847 |
|
|
$ |
15,870 |
|
|
$ |
43,821 |
|
Weighted average interest rate (1) |
|
|
1.7 |
% |
|
|
1.8 |
% |
|
|
6.5 |
% |
Weighted average capped interest rate |
|
|
7.0 |
% |
|
|
6.0 |
% |
|
|
n/a |
|
Earliest maturity date |
|
Dec-09 |
|
Jun-12 |
|
Jun-10 |
Latest maturity date |
|
Mar-14 |
|
Jun-12 |
|
Jun-10 |
Estimated fair value, asset/(liability) |
|
$ |
445 |
|
|
$ |
37 |
|
|
$ |
(1,418 |
) |
|
|
|
(1) |
|
For interest rate caps, this represents the weighted average interest rate on the debt. |
Excluding derivatives executed to hedge debt on communities classified as held for sale, the
Company had three derivatives designated as cash flow hedges and six derivatives not designated as
hedges at September 30, 2009. Fair value changes for derivatives that are not in qualifying hedge
relationships are reported as a component of general and administrative expenses on the
accompanying Condensed Consolidated Statements of Operations and Other Comprehensive Income. Fair
value changes for derivatives not in qualifying hedge relationships for the three and nine month
periods ended September 30, 2009, were not material. For the derivative positions that the Company
has determined qualify as effective cash flow hedges, the Company has recorded the effective
portion of cumulative changes in the fair value of the Hedging Derivatives in other comprehensive
income. Amounts recorded in other comprehensive income will be reclassified into earnings in the
periods in which earnings are affected by the hedged cash flow. To adjust the Hedging Derivatives
to their fair value and recognize the impact of hedge accounting, the Company recorded an increase
in other comprehensive income of $1,318 during the nine months ended September 30, 2009 and an
increase of $1,044 during the nine months ended September 30, 2008. Amounts in other comprehensive
income will be reclassified into earnings in conjunction with the periodic adjustment of the
floating rates on the Hedged Debt, in interest expense, net. The amount reclassified into earnings
for the nine months ended September 30, 2009, as well as the estimated amount included in
accumulated other comprehensive loss as of September 30, 2009, expected to be reclassified into
earnings within the next twelve months to offset the variability of cash flows of the hedged items
during this period are not material.
The Company assesses, both at inception and on an on-going basis, the effectiveness of qualifying
cash flow hedges. Hedge ineffectiveness, reported as a component of general and administrative
expenses, did not have a material impact on earnings of the Company for any period presented, and
the Company does not anticipate that it will have a material effect in the future. The fair values
of the Hedging Derivatives are included in accrued expenses and other liabilities on the
accompanying Condensed Consolidated Balance Sheets. Refer to Note 11, Fair Value, for further
discussion of fair value measurements including the Companys incorporation of credit valuation
adjustments.
6. Investments in Real Estate Entities
As of September 30, 2009, the Company had investments in six unconsolidated real estate entities with
ownership interest percentages ranging from 15.2% to 50%. In the second quarter of 2009, in conjunction with the
second closing of the AvalonBay Value Added Fund II, LP (Fund II), the Companys equity ownership
interest decreased to 31% from 45%. There were no other changes in the Companys ownership interest
in, or presentation of, its investments in unconsolidated real estate entities during the nine
months ended September 30, 2009.
11
The following is a combined summary of the financial position of the entities accounted for using
the equity method, as of the dates presented:
|
|
|
|
|
|
|
|
|
|
|
9-30-09 |
|
|
12-31-08 |
|
|
|
(unaudited) |
|
|
(unaudited) |
|
Assets: |
|
|
|
|
|
|
|
|
Real estate, net |
|
$ |
1,018,841 |
|
|
$ |
995,680 |
|
Other assets |
|
|
31,344 |
|
|
|
38,027 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
1,050,185 |
|
|
$ |
1,033,707 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and partners capital: |
|
|
|
|
|
|
|
|
Mortgage notes payable and credit facility |
|
$ |
732,577 |
|
|
$ |
705,332 |
|
Other liabilities |
|
|
21,461 |
|
|
|
17,578 |
|
Partners capital |
|
|
296,147 |
|
|
|
310,797 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and partners capital |
|
$ |
1,050,185 |
|
|
$ |
1,033,707 |
|
|
|
|
|
|
|
|
The following is a combined summary of the operating results of the entities accounted for using
the equity method, for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended |
|
|
For the nine months ended |
|
|
|
(unaudited) |
|
|
(unaudited) |
|
|
|
9-30-09 |
|
|
9-30-08 |
|
|
9-30-09 |
|
|
9-30-08 |
|
Rental and other income |
|
$ |
25,230 |
|
|
$ |
26,070 |
|
|
$ |
75,871 |
|
|
$ |
79,533 |
|
Operating and other expenses |
|
|
(12,282 |
) |
|
|
(11,075 |
) |
|
|
(36,636 |
) |
|
|
(32,862 |
) |
Gain on sale of communities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,417 |
|
Interest expense, net |
|
|
(9,277 |
) |
|
|
(9,269 |
) |
|
|
(27,458 |
) |
|
|
(28,910 |
) |
Depreciation expense |
|
|
(8,392 |
) |
|
|
(7,615 |
) |
|
|
(24,420 |
) |
|
|
(23,494 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(4,721 |
) |
|
$ |
(1,889 |
) |
|
$ |
(12,643 |
) |
|
$ |
19,684 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In conjunction with the acquisition and development of the investments in unconsolidated entities,
the Company incurred costs in excess of its equity in the underlying net assets of the respective
investments. These costs represent $11,148 at September 30, 2009 and $4,817 at December 31, 2008
of the respective investment balances.
As part of the formation of the AvalonBay Value Added Fund, LP (the Fund) and Fund II, the
Company provided separate and distinct guarantees to one of the limited partners in each of the
ventures. These guarantees are specific to the respective fund and any impacts or obligation of
the Company to perform under one of the guarantees has no impact on the Companys obligations with
respect to the other guarantee. The guarantees provide that, if, upon final liquidation of the Fund
or Fund II, the total amount of all distributions to the guaranteed partner during the life of the
respective fund (whether from operating cash flow or property sales) does not equal the total
capital contributions made by that partner, then the Company will pay the guaranteed partner an
amount equal to the shortfall, but in no event more than 10% of the total capital contributions
made by the guaranteed partner (maximum of approximately $7,192 for the Fund and approximately $413
for Fund II as of September 30, 2009). As of September 30, 2009, the expected realizable value of
the real estate assets owned by the Fund and Fund II is considered adequate to cover such potential
payments under a liquidation scenario. The estimated fair value of and the Companys obligation
under these guarantees, both at inception and as of September 30, 2009, was not significant and
therefore the Company has not recorded any obligation for either of these guarantees as of
September 30, 2009.
7. Real Estate Disposition Activities
During the nine months ended September 30, 2009, the Company sold two communities, Avalon at River
Oaks, located in San Jose, California and Avalon at Faxon Park, located in Quincy, Massachusetts.
These two communities contain an aggregate of 397 apartment homes and were sold for an aggregate
sales price of $69,500. These dispositions resulted in a gain in accordance with GAAP of
approximately $26,670. As of September 30, 2009, the Company had one community that qualified as
discontinued operations and held for sale.
12
The operations for any real estate assets sold from January 1, 2008 through September 30, 2009 and
the real estate assets that qualified as discontinued operations and held for sale as of September 30, 2009 have
been presented as such in the accompanying Condensed Consolidated Financial Statements.
Accordingly, certain reclassifications have been made in prior periods to reflect discontinued
operations consistent with current period presentation.
The following is a summary of income from discontinued operations for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended |
|
|
For the nine months ended |
|
|
|
9-30-09 |
|
|
9-30-08 |
|
|
9-30-09 |
|
|
9-30-08 |
|
Rental income |
|
$ |
2,141 |
|
|
$ |
8,043 |
|
|
$ |
8,174 |
|
|
$ |
36,751 |
|
Operating and other expenses |
|
|
(655 |
) |
|
|
(2,973 |
) |
|
|
(2,418 |
) |
|
|
(11,662 |
) |
Interest expense, net |
|
|
|
|
|
|
(237 |
) |
|
|
|
|
|
|
(1,314 |
) |
Depreciation expense |
|
|
(354 |
) |
|
|
(1,657 |
) |
|
|
(1,758 |
) |
|
|
(7,612 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations |
|
$ |
1,132 |
|
|
$ |
3,176 |
|
|
$ |
3,998 |
|
|
$ |
16,163 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8. Segment Reporting
The Companys reportable operating segments include Established Communities, Other Stabilized
Communities, and Development/Redevelopment Communities. Annually as of January 1st, the
Company determines which of its communities fall into each of these categories and maintains that
classification, unless disposition plans regarding a community change, throughout the year for the
purpose of reporting segment operations.
|
|
|
Established Communities (also known as Same Store Communities) are communities
where a comparison of operating results from the prior year to the current year is
meaningful, as these communities were owned and had stabilized occupancy and operating
expenses as of the beginning of the prior year. For the year 2009, the Established
Communities are communities that are consolidated for financial reporting purposes,
had stabilized occupancy and operating expenses as of January 1, 2008, are not
conducting or planning to conduct substantial redevelopment activities and are not
held for sale or planned for disposition within the current year. A community is
considered to have stabilized occupancy at the earlier of (i) attainment of 95%
physical occupancy or (ii) the one-year anniversary of completion of development or
redevelopment. |
|
|
|
|
Other Stabilized Communities includes all other completed communities that have
stabilized occupancy, as defined above. Other Stabilized Communities does not include
communities that are conducting or planning to conduct substantial redevelopment
activities within the current year. |
|
|
|
|
Development/Redevelopment Communities consists of communities that are under
construction and have not received a final certificate of occupancy, communities where
the Company owns a majority interest and where substantial redevelopment is in
progress or is planned to begin during the current year and communities under lease-up
that had not reached stabilized occupancy, as defined above, as of January 1, 2009. |
In addition, the Company owns land for future development and has other corporate assets that are
not allocated to an operating segment.
The Companys segment disclosures present the measure(s) used by the chief operating decision maker
for purposes of assessing such segments performance. The Companys chief operating decision maker
is comprised of several members of its executive management team who use net operating income
(NOI) as the primary financial measure for Established Communities and Other Stabilized
Communities. NOI is defined by the Company as total revenue less direct property operating
expenses. Although the Company considers NOI a useful measure of a communitys or communities
operating performance, NOI should not be considered an alternative to net income or net cash flow
from operating activities, as determined in accordance with GAAP. NOI excludes a number of income
and expense categories as detailed in the reconciliation of NOI to net income.
13
A reconciliation of NOI to net income for the three and nine months ended September 30, 2009 and
2008 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended |
|
|
For the nine months ended |
|
|
|
9-30-09 |
|
|
9-30-08 |
|
|
9-30-09 |
|
|
9-30-08 |
|
Net income |
|
$ |
58,101 |
|
|
$ |
232,886 |
|
|
$ |
121,924 |
|
|
$ |
408,880 |
|
Indirect operating expenses, net of corporate income |
|
|
6,987 |
|
|
|
7,821 |
|
|
|
22,922 |
|
|
|
25,171 |
|
Investments and investment management expense |
|
|
976 |
|
|
|
1,229 |
|
|
|
2,799 |
|
|
|
3,643 |
|
Expensed development and other pursuit costs |
|
|
1,721 |
|
|
|
715 |
|
|
|
5,096 |
|
|
|
3,044 |
|
Interest expense, net |
|
|
41,208 |
|
|
|
28,363 |
|
|
|
107,836 |
|
|
|
85,620 |
|
General and administrative expense |
|
|
5,750 |
|
|
|
9,318 |
|
|
|
18,388 |
|
|
|
26,821 |
|
Equity in income of unconsolidated entities |
|
|
(190 |
) |
|
|
(495 |
) |
|
|
(4,139 |
) |
|
|
(4,329 |
) |
Depreciation expense |
|
|
54,960 |
|
|
|
48,698 |
|
|
|
159,935 |
|
|
|
140,885 |
|
Impairment loss land holdings |
|
|
|
|
|
|
|
|
|
|
20,302 |
|
|
|
|
|
Gain on sale of real estate assets |
|
|
(26,911 |
) |
|
|
(183,711 |
) |
|
|
(26,911 |
) |
|
|
(257,850 |
) |
Income from discontinued operations |
|
|
(1,132 |
) |
|
|
(3,176 |
) |
|
|
(3,998 |
) |
|
|
(16,163 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income |
|
$ |
141,470 |
|
|
$ |
141,648 |
|
|
$ |
424,154 |
|
|
$ |
415,722 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The primary performance measure for communities under development or redevelopment depends on the
stage of completion. While under development, management monitors actual construction costs
against budgeted costs as well as lease-up pace and rent levels compared to budget.
The following table provides details of the Companys segment information as of the dates
specified. The segments are classified based on the individual communitys status as of the
beginning of the given calendar year. Therefore, each year the composition of communities within
each business segment is adjusted. Accordingly, the amounts between years are not directly
comparable. Segment information for the three and nine months ended September 30, 2009 and 2008
have been adjusted for the communities that were sold from January 1, 2008 through September 30,
2009, or otherwise qualify as discontinued operations as of September 30, 2009, as described in
Note 7, Real Estate Disposition Activities.
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended |
|
|
For the nine months ended |
|
|
|
Total |
|
|
|
|
|
|
% NOI change |
|
|
Gross |
|
|
Total |
|
|
|
|
|
|
% NOI change |
|
|
Gross |
|
|
|
revenue |
|
|
NOI |
|
|
from prior year |
|
|
real estate (1) |
|
|
revenue |
|
|
NOI |
|
|
from prior year |
|
|
real estate (1) |
|
For the period ended September 30, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Established |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New England |
|
$ |
32,291 |
|
|
$ |
19,993 |
|
|
|
(8.0 |
)% |
|
$ |
917,491 |
|
|
$ |
97,548 |
|
|
$ |
60,986 |
|
|
|
(6.4 |
)% |
|
$ |
917,491 |
|
Metro NY/NJ |
|
|
41,238 |
|
|
|
27,147 |
|
|
|
(9.9 |
)% |
|
|
1,164,803 |
|
|
|
125,507 |
|
|
|
84,417 |
|
|
|
(5.9 |
)% |
|
|
1,164,803 |
|
Mid-Atlantic/Midwest |
|
|
32,957 |
|
|
|
19,713 |
|
|
|
(1.7 |
)% |
|
|
823,795 |
|
|
|
98,578 |
|
|
|
60,914 |
|
|
|
(2.1 |
)% |
|
|
823,795 |
|
Pacific Northwest |
|
|
6,983 |
|
|
|
4,768 |
|
|
|
(9.0 |
)% |
|
|
238,801 |
|
|
|
21,537 |
|
|
|
14,941 |
|
|
|
(5.2 |
)% |
|
|
238,801 |
|
Northern California |
|
|
24,203 |
|
|
|
16,988 |
|
|
|
(11.6 |
)% |
|
|
855,803 |
|
|
|
75,034 |
|
|
|
54,577 |
|
|
|
(5.1 |
)% |
|
|
855,803 |
|
Southern California |
|
|
15,551 |
|
|
|
10,296 |
|
|
|
(12.3 |
)% |
|
|
426,957 |
|
|
|
47,442 |
|
|
|
32,548 |
|
|
|
(8.8 |
)% |
|
|
426,957 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Established |
|
|
153,223 |
|
|
|
98,905 |
|
|
|
(8.5 |
)% |
|
|
4,427,650 |
|
|
|
465,646 |
|
|
|
308,383 |
|
|
|
(5.4 |
)% |
|
|
4,427,650 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Stabilized |
|
|
32,271 |
|
|
|
21,185 |
|
|
|
n/a |
|
|
1,421,181 |
|
|
|
95,028 |
|
|
|
61,296 |
|
|
|
n/a |
|
|
1,421,181 |
|
Development / Redevelopment |
|
|
34,679 |
|
|
|
21,380 |
|
|
|
n/a |
|
|
2,148,152 |
|
|
|
91,744 |
|
|
|
54,475 |
|
|
|
n/a |
|
|
2,148,152 |
|
Land Held for Future Development |
|
|
n/a |
|
|
|
n/a |
|
|
|
n/a |
|
|
243,656 |
|
|
|
n/a |
|
|
|
n/a |
|
|
|
n/a |
|
|
243,656 |
|
Non-allocated (2) |
|
|
1,878 |
|
|
|
n/a |
|
|
|
n/a |
|
|
71,765 |
|
|
|
5,423 |
|
|
|
n/a |
|
|
|
n/a |
|
|
71,765 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
222,051 |
|
|
$ |
141,470 |
|
|
|
(0.1 |
)% |
|
$ |
8,312,404 |
|
|
$ |
657,841 |
|
|
$ |
424,154 |
|
|
|
2.0 |
% |
|
$ |
8,312,404 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the period ended September 30, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Established |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New England |
|
$ |
31,159 |
|
|
$ |
20,095 |
|
|
|
2.3 |
% |
|
$ |
807,174 |
|
|
$ |
92,902 |
|
|
$ |
60,142 |
|
|
|
2.9 |
% |
|
$ |
807,174 |
|
Metro NY/NJ |
|
|
36,430 |
|
|
|
24,697 |
|
|
|
0.7 |
% |
|
|
930,454 |
|
|
|
108,331 |
|
|
|
74,228 |
|
|
|
1.7 |
% |
|
|
930,454 |
|
Mid-Atlantic/Midwest |
|
|
31,215 |
|
|
|
18,845 |
|
|
|
(1.9 |
)% |
|
|
762,837 |
|
|
|
93,084 |
|
|
|
58,719 |
|
|
|
2.9 |
% |
|
|
762,837 |
|
Pacific Northwest |
|
|
5,436 |
|
|
|
3,852 |
|
|
|
5.3 |
% |
|
|
175,115 |
|
|
|
16,119 |
|
|
|
11,580 |
|
|
|
8.4 |
% |
|
|
175,115 |
|
Northern California |
|
|
31,022 |
|
|
|
22,925 |
|
|
|
6.8 |
% |
|
|
999,294 |
|
|
|
92,022 |
|
|
|
68,473 |
|
|
|
9.0 |
% |
|
|
999,294 |
|
Southern California |
|
|
15,425 |
|
|
|
10,901 |
|
|
|
0.0 |
% |
|
|
376,111 |
|
|
|
46,166 |
|
|
|
33,070 |
|
|
|
0.9 |
% |
|
|
376,111 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Established |
|
|
150,687 |
|
|
|
101,315 |
|
|
|
1.9 |
% |
|
|
4,050,985 |
|
|
|
448,624 |
|
|
|
306,212 |
|
|
|
3.9 |
% |
|
|
4,050,985 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Stabilized |
|
|
27,689 |
|
|
|
18,813 |
|
|
|
n/a |
|
|
966,763 |
|
|
|
80,497 |
|
|
|
53,111 |
|
|
|
n/a |
|
|
966,763 |
|
Development / Redevelopment |
|
|
35,392 |
|
|
|
21,520 |
|
|
|
n/a |
|
|
2,308,113 |
|
|
|
90,759 |
|
|
|
56,399 |
|
|
|
n/a |
|
|
2,308,113 |
|
Land Held for Future Development |
|
|
n/a |
|
|
|
n/a |
|
|
|
n/a |
|
|
325,472 |
|
|
|
n/a |
|
|
|
n/a |
|
|
|
n/a |
|
|
325,472 |
|
Non-allocated (2) |
|
|
1,622 |
|
|
|
n/a |
|
|
|
n/a |
|
|
49,536 |
|
|
|
4,805 |
|
|
|
n/a |
|
|
|
n/a |
|
|
49,536 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
215,390 |
|
|
$ |
141,648 |
|
|
|
11.0 |
% |
|
$ |
7,700,869 |
|
|
$ |
624,685 |
|
|
$ |
415,722 |
|
|
|
12.7 |
% |
|
$ |
7,700,869 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Does not include gross real estate assets held for sale of $38,328 and $135,516 as of September
30, 2009 and 2008, respectively. |
|
(2) |
|
Revenue represents third-party management, accounting and developer fees and miscellaneous
income which are not allocated to a reportable segment. |
9. Stock-Based Compensation Plans
On May 21, 2009, the stockholders of the Company, upon the recommendation of the Board of
Directors, approved the AvalonBay Communities, Inc. 2009 Stock Option and Incentive Plan (the 2009
Plan). The 2009 Plan includes an authorization to issue up to 4,199,822 shares of the Companys
common stock, par value $0.01 per share, (2,930,000 newly authorized shares plus 1,269,822 shares
that were available for grant as of May 21, 2009 under the Companys 1994 Stock Option and
Incentive Plan (the 1994 Plan)), pursuant to awards under the 2009 Plan. The 2009 Plan provides
for various types of equity awards to employees, officers, non-employee directors and agents of the
Company and its subsidiaries. The types of awards that may be granted under the 2009 Plan include
restricted and deferred stock, stock options that qualify as incentive stock options (ISOs) under
Section 422 of the Internal Revenue Code, non-qualified options, and stock appreciation rights. The
2009 Plan will expire on May 21, 2019.
Effective as of the close of business on May 21, 2009, and as part of the proposal to approve the
2009 Plan described above, the Board of Directors terminated the 1994 Plan with respect to new
awards. The 1994 Plan provided for the same types of equity awards as the 2009 Plan, and would have
expired by its terms on May 8, 2011. Outstanding awards previously granted under the 1994 Plan will
not be affected by termination of the 1994 Plan, the terms of which shall continue to govern such
previously granted awards. In addition to the 4,199,822 shares available for awards under the 2009
Plan as described above, any awards that were outstanding under the 1994 Plan on May 21, 2009 that
are subsequently forfeited, canceled, surrendered or terminated (other than by exercise) will
become available for awards under the 2009 Plan.
15
Information with respect to stock options granted under the 1994 Plan is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
average |
|
|
|
1994 Plan |
|
|
exercise price |
|
|
|
shares |
|
|
per share |
|
Options Outstanding, December 31, 2008 |
|
|
2,623,135 |
|
|
$ |
83.49 |
|
Exercised |
|
|
(72,736 |
) |
|
|
33.87 |
|
Granted |
|
|
344,801 |
|
|
|
48.60 |
|
Forfeited |
|
|
(15,389 |
) |
|
|
101.57 |
|
|
|
|
|
|
|
|
Options Outstanding, September 30, 2009 |
|
|
2,879,811 |
|
|
$ |
80.47 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Exercisable: |
|
|
|
|
|
|
|
|
September 30, 2009 |
|
|
2,171,386 |
|
|
$ |
81.49 |
|
|
|
|
|
|
|
|
The weighted average fair value of the options granted during the nine months ended September 30,
2009 is estimated at $6.53 per share on the date of grant using the Black-Scholes option pricing
model with the following weighted average assumptions: dividend yield of 8.5% over the expected
life of the option, volatility of 36.57%, risk-free interest rate of 2.17% and an expected life of
approximately seven years.
At September 30, 2009, the Company had 246,309 outstanding unvested shares granted under restricted
stock awards. The Company issued 169,851 shares of restricted stock valued at $8,360 as part of
its stock-based compensation plan during the nine months ended September 30, 2009. Restricted stock
vesting during the nine months ended September 30, 2009 totaled 130,418 shares and had fair values
ranging from $48.60 to $147.75 per share. The total fair value of shares vested was $10,687 and
$10,554 for the nine months ended September 30, 2009 and 2008, respectively.
Total employee stock-based compensation cost recognized in income was $10,056 and $14,148 for the
nine months ended September 30, 2009 and 2008, respectively, and total capitalized stock-based
compensation cost was $5,193 and $5,203 for the nine months ended September 30, 2009 and 2008,
respectively. At September 30, 2009, there was a total of $2,726 and $8,070 in unrecognized
compensation cost for unvested stock options and unvested restricted stock, respectively, which
does not include estimated forfeitures. The unrecognized compensation cost for unvested stock
options and restricted stock is expected to vest over a weighted average period of 1.56 years and
2.38 years, respectively.
10. Related Party Arrangements
Unconsolidated Entities
The Company manages unconsolidated real estate entities for which it receives asset management,
property management, development and redevelopment fee revenue. From these entities, the Company
received fees of $1,878 and $1,622 in the three months ended September 30, 2009 and 2008,
respectively and $5,423 and $4,805 for the nine months ended September 30, 2009 and 2008,
respectively. These fees are included in management, development and other fees on the accompanying
Condensed Consolidated Statements of Operations and Other Comprehensive Income.
Director Compensation
The Company recorded non-employee director compensation expense relating to restricted stock grants
and deferred stock awards in the amount of $219 and $637 for the three and nine months ended
September 30, 2009 as a component of general and administrative expense. Deferred compensation
relating to these restricted stock grants and deferred stock awards was $583 and $137 on September
30, 2009 and December 31, 2008, respectively.
16
11. Fair Value
Fair Value Methodology
As a basis for applying a market-based approach in fair value measurements, GAAP establishes a fair
value hierarchy that distinguishes between market participant assumptions based on market data
obtained from sources independent of the reporting entity and the reporting entitys own
assumptions about market participant assumptions. The valuation of financial instruments can be
determined using widely accepted valuation techniques.
The Company applies widely accepted valuation models such as discounted cash flow analysis on the
expected cash flows of each instrument which considers the contractual terms of the instruments,
including the period to maturity, and uses observable market-based inputs, including interest rate
curves and market prices, as available and applicable. In addition, the Company incorporates
credit valuation adjustments to appropriately reflect both its own nonperformance risk and the
respective counterpartys nonperformance risk in the fair value measurements as discussed below.
When market-based inputs are not available in valuing the Companys financial instruments, such as
for valuing redeemable noncontrolling interests, the Company uses unobservable inputs considering
the assumptions that market participants would make in deriving the fair value. The use of
different market assumptions and/or estimation methodologies may have a material effect on the
Companys estimates of fair value.
Financial Instruments Carried at Fair Value
Derivative Financial Instruments
Currently, the Company uses interest rate swap and interest rate cap agreements to manage its
interest rate risk. These instruments are carried at fair value in the Companys financial
statements. See Note 5, Derivative Instruments and Hedging Activities, for derivative values at
September 30, 2009 and a description of where these amounts are recorded in the financial
statements. In adjusting the fair value of its derivative contracts for the effect of counterparty
nonperformance risk, the Company has considered the impact of its net position with a given
counterparty, as well as any applicable credit enhancements, such as collateral postings,
thresholds, mutual puts, and guarantees. Although the Company has determined that the majority of
the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the
credit valuation adjustments associated with its derivatives use Level 3 inputs, such as estimates
of current credit spreads, to evaluate the likelihood of default by itself and its counterparties.
As of September 30, 2009, the Company assessed the significance of the impact of the credit
valuation adjustments on the overall valuation of its derivative positions and has determined it is
not significant. As a result, the Company has determined that its derivative valuations are
classified in Level 2 of the fair value hierarchy.
Redeemable Noncontrolling Interests
Redeemable noncontrolling interests are reported at fair value, with reductions in fair value
recorded only to the extent that the Company has previously recorded increases in fair value above
the redeemable noncontrolling interests initial basis.
|
|
|
Puts The Company provided redemption options (the Puts) that allow two of the
Companys joint venture partners to require the Company to purchase their interests in the
investments at the future fair market value. One Put is payable in cash or, at the
Companys option, common shares of the Company, and the second is payable in cash. The
Company determines the fair value of the Puts based on unobservable inputs considering the
assumptions that market participants would make in pricing the obligations, including
applying discount factors to the estimated future cash flows of the asset underlying the
associated joint venture, which in the case of the Puts is the NOI from an apartment
community, as well as potential disposition proceeds utilizing market capitalization rates,
to derive the fair value of the position. Given the significance of the unobservable
inputs, the valuations are classified in Level 3 of the fair value hierarchy. At December
31, 2008, the Puts aggregate fair value was $9,057. At September 30, 2009, the aggregate
fair value of the Puts was $2,983. |
|
|
|
|
DownREIT units The Company issued units of limited partnership interest in DownREITs
which provide the DownREIT limited partners the ability to present all or some of their
units for redemption for a cash amount as determined by the applicable partnership
agreement. Under the DownREIT agreements, for each limited partnership unit, the limited partner
is entitled to receive cash in the amount equal to the fair value of
the Companys common stock on or about the date of redemption. In lieu of cash redemption, the Company may elect to exchange such units for an equal
number of shares in the Companys common stock. The limited partnership units in DownREITs
are valued using the market price of the Companys common stock, a Level 1 price under the
fair value hierarchy. At December 31, 2008, the fair value of the DownREIT units was
$1,177. At September 30, 2009, the fair value of the DownREIT units was $1,116.
|
17
Financial Instruments Not Carried at Fair Value
Cash and Cash Equivalents
Cash and cash equivalent balances are held with various financial institutions within principal
protected accounts. The Company monitors credit ratings of these financial institutions and the
concentration of cash and cash equivalent balances with any one financial institution and believes
the likelihood of realizing material losses related to cash and cash equivalent balances is remote.
Cash and cash equivalents are carried at their face amounts, which reasonably approximate their
fair values.
Other Financial Instruments
Rents receivable, accounts and construction payable and accrued expenses and other liabilities are
carried at their face amounts, which reasonably approximate their fair values.
The Company values its bond indebtedness, notes payable and outstanding amounts under the Credit
Facility using a discounted cash flow analysis on the expected cash flows of each instrument. This
analysis reflects the contractual terms of the instrument, including the period to maturity, and
uses observable market-based inputs, including interest rate curves. The process also considers
credit valuation adjustments to appropriately reflect the Companys nonperformance risk. The
Company has concluded that the value of its bond indebtedness and notes payable are Level 2 prices
as the majority of the inputs used to value its positions fall within Level 2 of the fair value
hierarchy. Bond indebtedness, notes payable and outstanding amounts under the Companys Credit
Facility (as applicable) with an aggregate outstanding par amount of approximately $4,435,000 and
$3,676,000 had an estimated aggregate fair value of $4,503,621 and $3,612,130 at September 30, 2009
and December 31, 2008, respectively.
12. Subsequent Events
The Company has evaluated subsequent events through the date this quarterly report in Form 10-Q was
filed, the date these financial statements were issued, identifying the items below for disclosure.
In October 2009, the Company settled a cash tender offer, purchasing the following unsecured notes:
|
|
|
$46,001 principal amount of the Companys $200,000 7.5% unsecured notes due December
2010 at a weighted average price of 107.50% of par; |
|
|
|
|
$150,000 principal amount of the Companys $300,000 6.625% unsecured notes due September
2011 at a weighted average price of 109.00% of par; |
|
|
|
|
$55,600 principal amount of the Companys $250,000 5.5% medium-term notes due in January
2012 at a weighted average price of 106.25% of par; and |
|
|
|
|
$48,399 principal amount of the Companys $250,000 6.125% medium-term notes due in
November 2012 at a weighted average price of 108.75% of par. |
In addition, in October 2009, the Company repurchased $10,100 principal amount of the Companys
6.625% unsecured notes due September 2011 at a weighted average price of 107.0% of par.
The Company will record a charge for the purchase premium as well as certain deferred issuance
costs related to the above repurchase activity of approximately $26,000, in the fourth quarter of 2009. All of
the notes purchased were cancelled upon settlement.
18
In
October 2009, the Company sold one community, Avalon at Parkside, located in Sunnyvale, California.
Avalon at Parkside contains 192 apartment homes and was sold for
$43,800. The Company estimates that it will record a
gain of approximately $17,000 related to this disposition.
In October 2009, the Company sold a parcel of land in Virginia for $13,250. This land parcel was
included in the assets impaired by the Company in the fourth quarter of 2008, as an asset which the
Company did not intend to proceed with development. The Company
estimates that it will record a gain of approximately
$4,500 related to this disposition.
In October 2009, the Company repaid the final $112,200 tranche of its Term Loan, in advance of its
scheduled maturity of January 2011.
In
October 2009, the Company executed $300,000 notional of interest rate swaps to convert $300,000
principal amount of the Companys fixed-rate unsecured notes with a weighted average maturity of
approximately two years to effective floating rate instruments at a weighted average rate of three
month LIBOR plus 5.42%. The Company designated the interest rate swaps as fair value hedges of the
unsecured notes.
Also in October 2009, the Company entered into a proposed consent decree with the ERC, which was
approved by the court in November 2009, settling the Companys previously reported accessibility
litigation with ERC without admitting liability. Under the consent decree, AvalonBay (i) will make a
payment to ERC to compensate it for the attorneys fees and other costs incurred by it related to the
litigation, and (ii) will inspect and, if necessary, remediate up to 8,250 apartment units and related public
and common areas at the Companys communities. The payment to be made to ERC is not material to the
Companys financial condition or results of operations. The Company expects the remediation resulting
from the inspections, which should occur over an approximate four year period, will enhance and/or extend
the useful life of the assets at the applicable communities and will therefore be capitalized. The Company
does not expect that the remediation costs will be material to the Company.
19
2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Managements Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is
intended to help provide an understanding of our business and results of operations. This MD&A
should be read in conjunction with our Condensed Consolidated Financial Statements and the
accompanying Notes to Condensed Consolidated Financial Statements included elsewhere in this
report. This report, including the following MD&A, contains forward-looking statements regarding
future events or trends as described more fully under Forward-Looking Statements included in this
report. Actual results or developments could differ materially from those projected in such
statements as a result of the factors described under Forward-Looking Statements below and the
risk factors described in Item 1a, Risk Factors, of our Form 10-K for the year ended December 31,
2008 (our Form 10-K).
Executive Overview
Business Description
We are primarily engaged in developing, acquiring, owning and operating apartment communities in
high barrier to entry markets of the United States. Barriers to entry in our markets generally
include a difficult and lengthy entitlement process with local jurisdictions and dense urban or
suburban areas where zoned and entitled land is in limited supply. We believe that apartment
communities are an attractive long-term investment opportunity compared to other real estate
investments because a broad potential resident base should help reduce demand volatility over a
real estate cycle. However, throughout the real estate cycle, apartment market fundamentals, and
therefore operating cash flows, are affected by overall economic conditions, such as the current
economic downturn. We seek to create long-term shareholder value by accessing capital on cost
effective terms; deploying that capital to develop, redevelop and acquire apartment communities in
high barrier to entry markets; operating apartment communities; and selling communities when they
no longer meet our long-term investment strategy or when pricing is attractive.
We regularly evaluate the allocation of our investments by the amount of invested capital and by
product type within our individual markets, which are located in New England, the New York/New
Jersey metro area, the Mid-Atlantic, the Midwest, the Pacific Northwest, and the Northern and
Southern California regions of the United States. Our strategy is to penetrate these markets with
a broad range of products and services and an intense focus on our customer. Our communities are
predominately upscale, which generally command among the highest rents in their markets. However,
we also pursue the ownership and operation of apartment communities that target a variety of
customer segments and price points, consistent with our goal of offering a broad range of products
and services.
Third Quarter 2009 Highlights
|
|
|
Net income attributable to common stockholders for the quarter ended September 30, 2009
was $58,154,000, as compared to $231,406,000 for the quarter ended September 30, 2008, a
decrease of 74.9%. The decrease is attributable to the reduced number of assets sold in
2009 and reduced amount of gains related to those sales as compared to 2008. |
|
|
|
|
The results for the quarter ended September 30, 2009 reflect the continued challenging
economic environment, as our Established Community portfolio (as defined later in this
report) experienced an 8.5% decrease in net operating income (NOI) over the comparable
period of 2008. This was comprised of a 4.8% decrease in rental revenue and an increase in
operating expenses of 3.2%. The acceleration of job losses in the early part of 2009 is now
contributing to declining rental rates that we expect will continue into the fourth quarter
of 2009. These trends are consistent with previous expectations included in our revised
financial outlooks issued in July 2009 and October 2009. |
Financial Outlook
The contraction in the U.S. economy and high unemployment levels during the first nine months
of 2009 have adversely impacted apartment fundamentals across all markets. A composite of several
economic forecasts suggest
20
that the U.S. unemployment rate will increase from the current levels of 9.8% to over 10% before it
is expected to level off and eventually decline in 2010. Changes in employment conditions have a
significant impact on overall demand for rental housing and are highly correlated to changes in our
revenue growth. As a result, we expect the current economic and employment conditions will continue
to put downward pressure on rental rates for the balance of 2009 and into 2010.
Longer-term, we expect apartment fundamentals to strengthen from a reduction in new supply,
favorable demographic trends, limited home sales activity and an economic recovery that we expect will
eventually produce employment growth. Changes in any of the above factors, including a more
prolonged decline in economic conditions than we currently expect, could materially change our
expectations for the remainder of 2009 and future periods.
While market fundamentals remain challenging, we continue to benefit from a strong balance sheet
that provides significant financial flexibility. During 2009, we accessed capital, through a
variety of sources at cost effective levels. Through the end of October 2009, we have raised over
$1,500,000,000 through secured financings, unsecured debt, equity raised in the public markets,
capital commitments for Fund II and asset dispositions. We have used these
proceeds to fund our development and redevelopment activities, to repay higher cost secured and
unsecured debt, and to repay floating rate debt, while retaining substantial cash balances for
other general corporate purposes. Our focus on raising capital includes consideration for managing
the maturity risk associated with our secured and unsecured debt obligations. Our year to date
2009 activity includes the issuance of $500,000,000 of unsecured notes in September 2009 in two
$250,000,000 tranches, one maturing in 2017 and the second maturing in 2020. A portion of the
proceeds was used to repurchase $310,100,000 principal amount of some or all of the amounts
outstanding on unsecured notes maturing over the next three years, effectively extending the
duration of debt maturities while reducing interest costs. We believe that our relatively modest
level of secured and unsecured debt will continue to provide financial flexibility to access
capital on attractive terms.
We remain focused on investing in development and redevelopment opportunities, including increased
expenditures on redevelopment to ensure our existing assets are competitively positioned in the
market. In addition we will invest in new communities through acquisitions, which we expect will
occur primarily through Fund II, our private
discretionary investment vehicle that was originally formed in August of 2008. Fund II will
acquire, operate and sometimes redevelop (but not develop) multifamily apartment communities
primarily in our current markets with the objective of creating value through redevelopment,
enhanced operations and/or improving market fundamentals. Fund II has a term that expires in
August 2018, plus two one-year extension options. Fund II will serve as the exclusive vehicle
through which we will acquire investment interests in apartment communities until August 2011 or,
if earlier, until 90% of the committed capital of Fund II is invested, subject to limited
exceptions. Fund II can employ leverage of up to 65%, allowing for an investment capacity of
approximately $1,100,000,000. As of October 31, 2009, Fund II has invested $33,139,000.
Our development activity has declined from prior periods as a result of reduced
development starts, completion
of development underway and our increased return requirements. We currently have nine communities
under construction with a total projected capitalized cost of approximately $1,218,900,000. As of
September 30, 2009, approximately $930,944,000 of this development has been invested, with
approximately $287,956,000 remaining to be invested. We have arranged $79,200,000 of this required
funding through financing from third-party, tax-exempt and taxable debt. We started no new
construction during the nine months ended September 30, 2009. We expect to start modest
development activity in the fourth quarter of 2009, however we do not expect it will have a
significant impact on our liquidity, corporate cash flows or earnings. In addition to our current
development activity, at September 30, 2009, there were six communities under redevelopment, with
an expected incremental capital investment of approximately $112,100,000, of which approximately
$54,489,000 remains to be invested. We expect to maintain our current level of redevelopment
activity through the end of 2009. We believe that we currently have sufficient committed capital
to complete the development and redevelopment activities underway and meet other liquidity uses.
See the discussion under Liquidity and Capital Resources.
Community Information Overview
Our real estate investments consist primarily of current operating apartment communities,
Development Communities and Development Rights both as defined below. Our current operating
communities are further
21
distinguished as Established Communities, Other Stabilized Communities, Lease-Up Communities and
Redevelopment Communities. The following is a description of each category:
Current Communities are categorized as Established, Other Stabilized,
Lease-Up, or Redevelopment according to the following attributes:
|
|
|
Established Communities (also known as Same Store Communities) are
consolidated communities where a comparison of operating results from
the prior year to the current year is meaningful, as these communities
were owned and had stabilized occupancy and operating expenses as of the
beginning of the prior year. For the period ended September 30, 2009,
the Established Communities are communities that are consolidated for
financial reporting purposes, had stabilized occupancy and operating
expenses as of January 1, 2008, are not conducting or planning to
conduct substantial redevelopment activities and are not held for sale
or planned for disposition within the current year. A community is
considered to have stabilized occupancy at the earlier of (i) attainment
of 95% physical occupancy or (ii) the one-year anniversary of completion
of development or redevelopment. |
|
|
|
|
Other Stabilized Communities are all other completed communities that
we own or have a direct or indirect ownership interest in, and that have
stabilized occupancy, as defined above. Other Stabilized Communities do
not include communities that are conducting or planning to conduct
substantial redevelopment activities within the current year. |
|
|
|
|
Lease-Up Communities are communities where construction has been
complete for less than one year and where physical occupancy has not
reached 95%. |
|
|
|
|
Redevelopment Communities are communities where we own a majority
interest and where substantial redevelopment is in progress or is
planned to begin during the current year. Redevelopment is considered
substantial when capital invested during the reconstruction effort is
expected to exceed either $5,000,000 or 10% of the communitys
pre-development basis. |
Development Communities are communities that are under construction and for
which a certificate of occupancy has not been received. These communities may be
partially complete and operating.
Development Rights are development opportunities in the early phase of the
development process for which we either have an option to acquire land or enter into
a leasehold interest, for which we are the buyer under a long-term conditional
contract to purchase land or where we own land to develop a new community. We
capitalize related pre-development costs incurred in pursuit of new developments for
which we currently believe future development is probable.
In addition, we currently own approximately 60,000 square feet of office space in Alexandria,
Virginia, for our corporate office, with all other regional and administrative offices leased under
operating leases.
22
As of September 30, 2009, communities that we owned or held a direct or indirect interest in were
classified as follows:
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
Number of |
|
|
communities |
|
apartment homes |
Current Communities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Established Communities: |
|
|
|
|
|
|
|
|
New England |
|
|
24 |
|
|
|
5,807 |
|
Metro NY/NJ |
|
|
19 |
|
|
|
6,307 |
|
Mid-Atlantic/Midwest |
|
|
17 |
|
|
|
6,683 |
|
Pacific Northwest |
|
|
8 |
|
|
|
1,943 |
|
Northern California |
|
|
15 |
|
|
|
4,432 |
|
Southern California |
|
|
12 |
|
|
|
3,679 |
|
|
|
|
|
|
|
|
|
|
Total Established |
|
|
95 |
|
|
|
28,851 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Stabilized Communities: |
|
|
|
|
|
|
|
|
New England |
|
|
10 |
|
|
|
3,000 |
|
Metro NY/NJ |
|
|
9 |
|
|
|
2,534 |
|
Mid-Atlantic/Midwest |
|
|
10 |
|
|
|
2,530 |
|
Pacific Northwest |
|
|
4 |
|
|
|
1,021 |
|
Northern California |
|
|
13 |
|
|
|
3,416 |
|
Southern California |
|
|
8 |
|
|
|
1,426 |
|
|
|
|
|
|
|
|
|
|
Total Other Stabilized |
|
|
54 |
|
|
|
13,927 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease-Up Communities |
|
|
8 |
|
|
|
1,535 |
|
|
|
|
|
|
|
|
|
|
Redevelopment Communities |
|
|
6 |
|
|
|
2,380 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Current Communities |
|
|
163 |
|
|
|
46,693 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Development Communities |
|
|
9 |
|
|
|
3,421 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Development Rights |
|
|
27 |
|
|
|
6,788 |
|
|
|
|
|
|
|
|
|
|
Results of Operations
Our year-over-year operating performance is primarily affected by geographic market conditions and
apartment fundamentals that cause changes in NOI of our Established Communities; NOI derived from
acquisitions and development completions; the loss of NOI related to disposed communities; and
capital market and financing activity. A comparison of our operating results for the three and
nine months ended September 30, 2009 and 2008 follows (dollars in thousands):
23
|
|
For the three months ended |
|
|
For the nine months ended |
|
|
|
9-30-09 |
|
|
9-30-08 |
|
|
$ Change |
|
|
% Change |
|
|
9-30-09 |
|
|
9-30-08 |
|
|
$ Change |
|
|
% Change |
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental and other income |
|
$ |
220,173 |
|
|
$ |
213,768 |
|
|
$ |
6,405 |
|
|
|
3.0 |
% |
|
$ |
652,418 |
|
|
$ |
619,880 |
|
|
$ |
32,538 |
|
|
|
5.2 |
% |
Management, development and other fees |
|
|
1,878 |
|
|
|
1,622 |
|
|
|
256 |
|
|
|
15.8 |
% |
|
|
5,423 |
|
|
|
4,805 |
|
|
|
618 |
|
|
|
12.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
|
222,051 |
|
|
|
215,390 |
|
|
|
6,661 |
|
|
|
3.1 |
% |
|
|
657,841 |
|
|
|
624,685 |
|
|
|
33,156 |
|
|
|
5.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct property operating expenses,
excluding property taxes |
|
|
57,026 |
|
|
|
53,118 |
|
|
|
3,908 |
|
|
|
7.4 |
% |
|
|
164,456 |
|
|
|
147,601 |
|
|
|
16,855 |
|
|
|
11.4 |
% |
Property taxes |
|
|
21,710 |
|
|
|
18,756 |
|
|
|
2,954 |
|
|
|
15.7 |
% |
|
|
63,643 |
|
|
|
56,276 |
|
|
|
7,367 |
|
|
|
13.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total community operating expenses |
|
|
78,736 |
|
|
|
71,874 |
|
|
|
6,862 |
|
|
|
9.5 |
% |
|
|
228,099 |
|
|
|
203,877 |
|
|
|
24,222 |
|
|
|
11.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate-level property management
and other indirect operating expenses |
|
|
8,832 |
|
|
|
9,689 |
|
|
|
(857 |
) |
|
|
(8.8 |
%) |
|
|
28,510 |
|
|
|
30,257 |
|
|
|
(1,747 |
) |
|
|
(5.8 |
%) |
Investments and investment management expense |
|
|
976 |
|
|
|
1,229 |
|
|
|
(253 |
) |
|
|
(20.6 |
%) |
|
|
2,799 |
|
|
|
3,643 |
|
|
|
(844 |
) |
|
|
(23.2 |
%) |
Expensed development and other pursuit costs |
|
|
1,721 |
|
|
|
715 |
|
|
|
1,006 |
|
|
|
140.7 |
% |
|
|
5,096 |
|
|
|
3,044 |
|
|
|
2,052 |
|
|
|
67.4 |
% |
Interest expense, net |
|
|
41,208 |
|
|
|
28,363 |
|
|
|
12,845 |
|
|
|
45.3 |
% |
|
|
107,836 |
|
|
|
85,620 |
|
|
|
22,216 |
|
|
|
25.9 |
% |
Depreciation expense |
|
|
54,960 |
|
|
|
48,698 |
|
|
|
6,262 |
|
|
|
12.9 |
% |
|
|
159,935 |
|
|
|
140,885 |
|
|
|
19,050 |
|
|
|
13.5 |
% |
General and administrative expense |
|
|
5,750 |
|
|
|
9,318 |
|
|
|
(3,568 |
) |
|
|
(38.3 |
%) |
|
|
18,388 |
|
|
|
26,821 |
|
|
|
(8,433 |
) |
|
|
(31.4 |
%) |
Impairment loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
N/A |
|
|
|
20,302 |
|
|
|
|
|
|
|
20,302 |
|
|
|
N/A |
|
Gain on sale of land |
|
|
(241 |
) |
|
|
|
|
|
|
(241 |
) |
|
|
N/A |
|
|
|
(241 |
) |
|
|
|
|
|
|
(241 |
) |
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expenses |
|
|
113,206 |
|
|
|
98,012 |
|
|
|
15,194 |
|
|
|
15.5 |
% |
|
|
342,625 |
|
|
|
290,270 |
|
|
|
52,355 |
|
|
|
18.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in income of unconsolidated entities |
|
|
190 |
|
|
|
495 |
|
|
|
(305 |
) |
|
|
(61.6 |
%) |
|
|
4,139 |
|
|
|
4,329 |
|
|
|
(190 |
) |
|
|
(4.4 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
30,299 |
|
|
|
45,999 |
|
|
|
(15,700 |
) |
|
|
(34.1 |
%) |
|
|
91,256 |
|
|
|
134,867 |
|
|
|
(43,611 |
) |
|
|
(32.3 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations |
|
|
1,132 |
|
|
|
3,176 |
|
|
|
(2,044 |
) |
|
|
(64.4 |
%) |
|
|
3,998 |
|
|
|
16,163 |
|
|
|
(12,165 |
) |
|
|
(75.3 |
%) |
Gain on sale of communities |
|
|
26,670 |
|
|
|
183,711 |
|
|
|
(157,041 |
) |
|
|
(85.5 |
%) |
|
|
26,670 |
|
|
|
257,850 |
|
|
|
(231,180 |
) |
|
|
(89.7 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total discontinued operations |
|
|
27,802 |
|
|
|
186,887 |
|
|
|
(159,085 |
) |
|
|
(85.1 |
%) |
|
|
30,668 |
|
|
|
274,013 |
|
|
|
(243,345 |
) |
|
|
(88.8 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
58,101 |
|
|
|
232,886 |
|
|
|
(174,785 |
) |
|
|
(75.1 |
%) |
|
|
121,924 |
|
|
|
408,880 |
|
|
|
(286,956 |
) |
|
|
(70.2 |
%) |
Net income attributable to redeemable
noncontrolling interests |
|
|
53 |
|
|
|
695 |
|
|
|
(642 |
) |
|
|
(92.4 |
%) |
|
|
1,329 |
|
|
|
484 |
|
|
|
845 |
|
|
|
174.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to the Company |
|
|
58,154 |
|
|
|
233,581 |
|
|
|
(175,427 |
) |
|
|
(75.1 |
%) |
|
|
123,253 |
|
|
|
409,364 |
|
|
|
(286,111 |
) |
|
|
(69.9 |
%) |
Dividends attributable to preferred stock |
|
|
|
|
|
|
(2,175 |
) |
|
|
2,175 |
|
|
|
(100.0 |
%) |
|
|
|
|
|
|
(6,525 |
) |
|
|
6,525 |
|
|
|
(100.0 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to common stockholders |
|
$ |
58,154 |
|
|
$ |
231,406 |
|
|
$ |
(173,252 |
) |
|
|
(74.9 |
%) |
|
$ |
123,253 |
|
|
$ |
402,839 |
|
|
$ |
(279,586 |
) |
|
|
(69.4 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to common stockholders decreased $173,252,000 or 74.9%, to $58,154,000 for
the three months ended September 30, 2009 and decreased $279,586,000 or 69.4%, to $123,253,000 for
the nine months ended September 30, 2009. These decreases are primarily attributable to the reduced
number of communities sold and amount of gains related to these sales in 2009 as compared with the
prior year periods. In addition, our year to date 2009 results are impacted by the charges
recognized in the second quarter of 2009 for the impairment of land
parcels and abandonment of pursuits for Development Rights which we no longer intend to develop, as
well as for severance charges related to the reduction in development activity and general economic
conditions.
NOI is considered by management to be an important and appropriate supplemental performance measure
to net income because it helps both investors and management to understand the core operations of a
community or communities prior to the allocation of any corporate-level or financing-related costs.
NOI reflects the operating performance of a community and allows for an easy comparison of the
operating performance of individual assets or groups of assets. In addition, because prospective
buyers of real estate have different financing and overhead structures, with varying marginal
impacts to overhead by acquiring real estate, NOI is considered by many in the real estate industry
to be a useful measure for determining the value of a real estate asset or group of assets. We
define NOI as total property revenue less direct property operating expenses, including property
taxes.
NOI does not represent cash generated from operating activities in accordance with U.S. generally
accepted accounting principles (GAAP). Therefore, NOI should not be considered an alternative to
net income as an indication of our performance. NOI should also not be considered an alternative
to net cash flow from operating activities, as determined by GAAP, as a measure of liquidity, nor
is NOI necessarily indicative of cash available to fund cash needs. Reconciliations of NOI for the
three and nine months ended September 30, 2009 and 2008 to net income for each period are as
follows (dollars in thousands):
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended |
|
|
For the nine months ended |
|
|
|
9-30-09 |
|
|
9-30-08 |
|
|
9-30-09 |
|
|
9-30-08 |
|
Net income |
|
$ |
58,101 |
|
|
$ |
232,886 |
|
|
$ |
121,924 |
|
|
$ |
408,880 |
|
Indirect operating expenses, net of corporate income |
|
|
6,987 |
|
|
|
7,821 |
|
|
|
22,922 |
|
|
|
25,171 |
|
Investments and investment management expense |
|
|
976 |
|
|
|
1,229 |
|
|
|
2,799 |
|
|
|
3,643 |
|
Expensed development and other pursuit costs |
|
|
1,721 |
|
|
|
715 |
|
|
|
5,096 |
|
|
|
3,044 |
|
Interest expense, net |
|
|
41,208 |
|
|
|
28,363 |
|
|
|
107,836 |
|
|
|
85,620 |
|
General and administrative expense |
|
|
5,750 |
|
|
|
9,318 |
|
|
|
18,388 |
|
|
|
26,821 |
|
Equity in income of unconsolidated entities |
|
|
(190 |
) |
|
|
(495 |
) |
|
|
(4,139 |
) |
|
|
(4,329 |
) |
Depreciation expense |
|
|
54,960 |
|
|
|
48,698 |
|
|
|
159,935 |
|
|
|
140,885 |
|
Impairment
loss land holdings |
|
|
|
|
|
|
|
|
|
|
20,302 |
|
|
|
|
|
Gain on sale of real estate assets |
|
|
(26,911 |
) |
|
|
(183,711 |
) |
|
|
(26,911 |
) |
|
|
(257,850 |
) |
Income from discontinued operations |
|
|
(1,132 |
) |
|
|
(3,176 |
) |
|
|
(3,998 |
) |
|
|
(16,163 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income |
|
$ |
141,470 |
|
|
$ |
141,648 |
|
|
$ |
424,154 |
|
|
$ |
415,722 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The NOI decrease for the three months ended September 30, 2009 and the NOI increase for the nine
months ended September 30, 2009, as compared to the prior year period, consist of changes in the
following categories (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
For the three months ended |
|
|
For the nine months ended |
|
|
|
9-30-09 |
|
|
9-30-09 |
|
Established Communities |
|
$ |
(9,226 |
) |
|
$ |
(17,612 |
) |
|
|
|
|
|
|
|
|
|
Other Stabilized Communities |
|
|
1,391 |
|
|
|
15,209 |
|
|
|
|
|
|
|
|
|
|
Development and
Redevelopment Communities |
|
|
7,657 |
|
|
|
10,835 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
(178 |
) |
|
$ |
8,432 |
|
|
|
|
|
|
|
|
The NOI decreases for Established Communities in the third quarter and year to date 2009 as
compared to the prior year periods were largely due to the continued poor economic conditions,
including the impact on rental revenue of increased job losses and increased operating expenses.
Rental and other income increased in the three and nine months ended September 30, 2009 as compared
to the prior year periods due to additional rental income generated from newly developed
communities, partially offset by decreased rental rates and occupancy in our Established
Communities.
Overall
Portfolio The weighted average number of occupied apartment homes increased to
42,323 apartment homes for the nine months ended September 30, 2009 as compared to 37,499
homes for the prior year period. This change is primarily the result of increased homes
available from newly developed communities, partially offset by communities sold during 2008
and 2009. The weighted average monthly revenue per occupied apartment home decreased to
$1,728 for the nine months ended September 30, 2009 as compared to $1,940 in the prior year
period.
Established
Communities Rental revenue decreased $7,668,000, or 4.8%, for the three months
ended September 30, 2009 over the prior year period. Rental revenue decreased $13,290,000,
or 2.8%, for the nine months ended September 30, 2009 over the prior year period. These
decreases are due to a decline in rental rates and economic occupancy. The average economic
occupancy decreased 0.7% to 95.6% for the nine months ended September 30, 2009. Economic
occupancy takes into account the fact that apartment homes of different sizes and locations
within a community have different economic impacts on a communitys gross revenue. Economic
occupancy is defined as gross potential revenue less vacancy loss, as a percentage of gross
potential revenue. Gross potential revenue is determined by valuing occupied homes at
leased rates and vacant homes at market rents. For the nine months ended September 30, 2009,
25
the weighted average revenue per occupied apartment home decreased 2.1% to $1,875 compared
to $1,915 in the prior year period.
Consistent with expected operating results for 2009, we experienced an overall decrease in
Established Communities rental revenue of 2.8% for the nine months ended September 30, 2009 as
compared to the prior year period. The decrease in rental revenue was comprised of rental revenue
declines in each of our markets as compared to the prior year period. Almost 70% of our
Established Community rental revenue is generated by the Metro New York/New Jersey,
Mid-Atlantic/Midwest, and New England regions, which are discussed in more detail below.
The Metro New York/New Jersey region, which accounted for approximately 27% of Established
Community rental revenue for the nine months ended September 30, 2009, experienced a
decrease in rental revenue of 3.5% as compared to the prior year period. Economic occupancy
decreased 0.3% to 95.8% and average rental rates decreased 3.2% to $2,306 for the nine
months ended September 30, 2009. We expect net job losses to continue through the end of
2009, driven by workforce reductions in the financial services sector, resulting in further
rental revenue declines.
The New England region accounted for approximately 21% of the Established Community rental
revenue for the nine months ended September 30, 2009 and experienced a decline in rental
revenue of 3.4% over the prior year period. Economic occupancy decreased 1.4% to 95.2% and
average rental rates decreased 2.0% to $1,960 for the nine months ended September 30, 2009,
as compared to the prior year period. The financial services sector is an important
economic driver in both the Boston metro area and Fairfield-New Haven, and the impact of
cumulative job losses in financial services and other sectors impacted by the recession will
result in further rental revenue declines in this region for the balance of 2009.
The Mid-Atlantic/Midwest region, which represented approximately 21% of Established
Community rental revenue during the nine months ended September 30, 2009, experienced a
decrease in rental revenue of 0.3% as compared to the prior year period. For the nine months
ended September 30, 2009, economic occupancy decreased by 0.1% to 96.4%, and average rental
rates decreased 0.2% to $1,699. This region benefits from the impact of government and
government services employment, which serves to stabilize the
economy relative to other regions. We expect rental revenue in the Mid-Atlantic/Midwest to
decline for the balance of 2009, though at a more moderate pace than our other markets.
In accordance with GAAP, cash concessions are amortized as an offset to rental revenue over the
approximate lease term, which is generally one year. As a supplemental measure, we also present
rental revenue with concessions stated on a cash basis to help investors evaluate the impact of
both current and historical concessions on GAAP based rental revenue and to more readily enable
comparisons to revenue as reported by other companies. Rental revenue with concessions stated on a
cash basis also allows investors to understand historical trends in cash concessions, as well as
current rental market conditions.
The following table reconciles total rental revenue in conformity with GAAP to total rental revenue
adjusted to state concessions on a cash basis for our Established Communities for the three and
nine months ended September 30, 2009 and 2008 (dollars in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended |
|
|
For the nine months ended |
|
|
|
9-30-09 |
|
|
9-30-08 |
|
|
9-30-09 |
|
|
9-30-08 |
|
Rental revenue (GAAP basis) |
|
$ |
153,030 |
|
|
$ |
160,698 |
|
|
$ |
465,235 |
|
|
$ |
478,525 |
|
Concessions amortized |
|
|
2,094 |
|
|
|
1,740 |
|
|
|
6,437 |
|
|
|
5,015 |
|
Concessions granted |
|
|
(1,701 |
) |
|
|
(2,435 |
) |
|
|
(5,761 |
) |
|
|
(5,893 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental revenue adjusted to state
concessions on a cash basis |
|
$ |
153,423 |
|
|
$ |
160,003 |
|
|
$ |
465,911 |
|
|
$ |
477,647 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year-over-year % change GAAP revenue |
|
|
|
|
|
|
(4.8 |
%) |
|
|
|
|
|
|
(2.8 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year-over-year % change cash
concession based revenue |
|
|
|
|
|
|
(4.1 |
%) |
|
|
|
|
|
|
(2.5 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26
In response to recent market conditions, we have relied less on concessions and more on market rent
adjustments to attract and retain residents, which minimizes the difference between cash and
accrual based revenue.
Direct property operating expenses, excluding property taxes increased $3,908,000, or 7.4% for the
three months ended September 30, 2009 and increased $16,855,000, or 11.4% for the nine months ended
September 30, 2009 as compared to the prior year periods, primarily due to the addition of recently
developed apartment homes as well as increased bad debt expenses.
For Established Communities, direct property operating expenses, excluding property taxes,
increased approximately $1,292,000, or 3.5% to approximately $38,287,000 for the three months ended
September 30, 2009, and increased approximately $4,185,000, or 4.0% for the nine months ended
September 30, 2009, due primarily to increased bad debt expense and community maintenance related
costs, offset partially by a decrease in utilities and insurance related expense. The increase in
bad debt expense is consistent with current poor economic conditions.
Property taxes increased $2,954,000, or 15.7% and $7,367,000, or 13.1% for the three and nine
months ended September 30, 2009, due primarily to the addition of newly developed and redeveloped
apartment homes. Property tax increases are also impacted by the size and timing of successful tax
appeals.
For Established Communities, property taxes increased by approximately $388,000, or 2.5% and
approximately $336,000, or 0.7% for the three and nine months ended September 30, 2009 due to
higher assessments throughout all regions, partially offset by a refund received in the current
period from the successful appeals of prior year assessments. The impact of the current economic
environment has not been reflected in current assessments, as there is typically a time lag between
a change in the economy affecting property valuations and updated real estate tax assessments.
Overall we expect property taxes in 2009 to increase over 2008 due primarily to higher tax rates,
without the benefit of lower assessed values. Property tax increases are limited by law
(Proposition 13) for communities in California. We evaluate property tax increases internally, as
well as engage third-party consultants, and appeal increases when appropriate.
Corporate-level property management and other indirect operating expenses decreased by $857,000 or
8.8% and $1,747,000 or 5.8% for the three and nine months ended September 30, 2009. These decreases
were due primarily to decreased compensation costs, offset partially by increased costs associated
with corporate initiatives focused on both strategic planning and improving efficiency and
enhancing controls at our operating communities.
Expensed development and other pursuit costs primarily reflects the costs incurred for abandoned
pursuit costs, which include costs incurred for development pursuits not yet considered probable
for development, as well as the abandonment of development pursuits, acquisition pursuits and
disposition pursuits. Expensed development and other pursuit costs increased during the three and
nine months ended September 30, 2009 compared to the prior year period due primarily to increases
in abandoned pursuit costs. These costs can be volatile, particularly in periods of economic
downturn or when there is limited access to capital, and the costs may vary significantly from
period to period.
Interest expense, net increased $12,845,000, or 45.3% and $22,216,000, or 25.9% for the three and
nine months ended September 30, 2009. This category includes both interest expense and interest
income. The increase for the three and nine months ended September 30, 2009 is due primarily to a
decrease in the allocation of our overall interest expenditures to capitalized interest in 2009 as
compared to the prior year period. The decrease in the amount of interest capitalized is
attributable to the decrease in variable rates and a decrease in our development pipeline, coupled
with the repayment of higher coupon fixed rate notes. In addition, interest expense increased in
2009 as compared to 2008 as a result of the additional secured financing activity that closed
throughout both years. These increases are offset somewhat by a decrease in interest costs on our
Credit Facility, as defined later in this report, principally due to the decline in amounts
outstanding and lower rates in 2009. Our year to date 2009 results also reflect the gain of
$1,062,000 associated with the purchase of our medium-term notes at a price of 98% of par in the
first quarter of 2009.
27
Depreciation expense increased $6,262,000, or 12.9% and $19,050,000, or 13.5% in the three and nine
months ended September 30, 2009 primarily due to the completion of development and redevelopment
activities.
General and administrative expense decreased $3,568,000, or 38.3% and $8,433,000, or 31.4% for the
three and nine months ended September 30, 2009 as compared to the prior year periods due to
decreases in compensation costs, taxes associated with gains from an investment in a taxable REIT
subsidiary in 2008 that were not present in 2009, as well as a reduction in the 2008 excise tax due
recognized in 2009, partially offset by the accrual of costs for our settlement
of the FHA litigation with the ERC. The decrease for the nine months ended September 30, 2009 also
includes the recognition of legal settlement proceeds in 2009, partially offset by the recognition
of the charge for severance and related costs associated with the reduction in our development
activities recognized in the second quarter of 2009.
Impairment loss increased for the nine months ended September 30, 2009 from the prior year periods
due to the recognition of an impairment charge on property owned associated with two former
Development Rights in the second quarter of 2009, with no comparable expense in the prior year
periods. Like abandoned pursuit costs, these
costs can be volatile, particularly in periods of economic downturn or when there is limited access
to capital, and the costs may vary significantly from period to period.
Gain on sale of land for the three and nine months ended September 30, 2009 increased from the
prior year period due to the sale of a land parcel located in New York.
Equity in income of unconsolidated entities for the three and nine months ended September 30, 2009
decreased from the prior year period due primarily to the recognition of our portion of the gains
from an investment in a joint venture formed to develop for sale homes in 2008 that were not
present in 2009, partially offset by the recognition of our promoted interest in the joint venture
that owns Avalon Chrystie Place. The year to date decrease is also impacted by the gain from the
sale of a community by the Fund in 2008.
Income from discontinued operations represents the net income generated by operating real estate
assets sold or qualifying as discontinued operations during the period from January 1, 2008 through
September 30, 2009. This income decreased for the three and nine months ended September 30, 2009
due to fewer communities sold or classified as discontinued operations as compared to the prior
year periods.
Gain on sale of communities decreased for the three and nine months ended September 30, 2009 as
compared to the same periods of 2008 primarily due to the reduced number of communities sold and
the amount of gains related to these sales in 2009 as compared to the prior year periods. The
amount of gain realized upon disposition of communities depends on many factors, including the
number of communities sold, the size and carrying value of those communities and the market
conditions in the local area.
Net income attributable to redeemable noncontrolling interests for the three and nine months ended
September 30, 2009 resulted in income of $53,000 and $1,329,000, respectively compared to income of
$695,000 and $484,000, respectively for the three and nine months ended September 30, 2008 due to
recognition of income for our joint venture partners portion of expenses incurred by Fund II, as
well as the conversion and redemption of limited partnership units in 2008 and 2009, thereby
reducing outside ownership interests and the allocation of net income to outside ownership
interests.
Funds from Operations Attributable to Common Stockholders (FFO)
FFO is considered by management to be an appropriate supplemental measure of our operating and
financial performance. In calculating FFO, we exclude gains or losses related to dispositions of
previously depreciated property and exclude real estate depreciation, which can vary among owners
of identical assets in similar condition based on historical cost accounting and useful life
estimates. FFO can help one compare the operating performance of a real estate company between
periods or as compared to different companies. We believe that in order to understand our
operating results, FFO should be examined with net income as presented in our Condensed
Consolidated Financial Statements included elsewhere this report.
28
Consistent with the definition adopted by the Board of Governors of the National Association of
Real Estate Investment Trustsâ (NAREIT), we calculate FFO as net income or loss
computed in accordance with GAAP, adjusted for:
|
|
|
gains or losses on sales of previously depreciated operating communities; |
|
|
|
|
extraordinary gains or losses (as defined by GAAP); |
|
|
|
|
depreciation of real estate assets; and |
|
|
|
|
adjustments for unconsolidated partnerships and joint ventures. |
FFO does not represent net income attributable to the Company in accordance with GAAP, and
therefore it should not be considered an alternative to net income, which remains the primary
measure of performance. In addition, FFO as calculated by other REITs may not be comparable to
our calculation of FFO.
The following is a reconciliation of net income attributable to the Company to FFO (dollars in
thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended |
|
|
For the nine months ended |
|
|
|
9-30-09 |
|
|
9-30-08 |
|
|
9-30-09 |
|
|
9-30-08 |
|
Net income attributable to the Company |
|
$ |
58,154 |
|
|
$ |
233,581 |
|
|
$ |
123,253 |
|
|
$ |
409,364 |
|
Dividends attributable to preferred stock |
|
|
|
|
|
|
(2,175 |
) |
|
|
|
|
|
|
(6,525 |
) |
Depreciation real estate assets, including discontinued
operations and joint venture adjustments |
|
|
56,239 |
|
|
|
51,263 |
|
|
|
163,891 |
|
|
|
151,307 |
|
Distributions to noncontrolling interests, including
discontinued operations |
|
|
14 |
|
|
|
57 |
|
|
|
52 |
|
|
|
171 |
|
Gain on sale of unconsolidated entities holding
previously
depreciated real estate assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,483 |
) |
Gain on sale of operating communities |
|
|
(26,670 |
) |
|
|
(183,711 |
) |
|
|
(26,670 |
) |
|
|
(257,850 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FFO attributable to common stockholders |
|
$ |
87,737 |
|
|
$ |
99,015 |
|
|
$ |
260,526 |
|
|
$ |
292,984 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding diluted |
|
|
80,609,277 |
|
|
|
77,580,847 |
|
|
|
80,170,093 |
|
|
|
77,516,222 |
|
EPS per common share diluted |
|
$ |
0.72 |
|
|
$ |
2.98 |
|
|
$ |
1.54 |
|
|
$ |
5.20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FFO per common share diluted |
|
$ |
1.09 |
|
|
$ |
1.28 |
|
|
$ |
3.25 |
|
|
$ |
3.78 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FFO also does not represent cash generated from operating activities in accordance with GAAP, and
therefore should not be considered an alternative to net cash flows from operating activities, as
determined by GAAP, as a measure of liquidity. Additionally, it is not necessarily indicative of
cash available to fund cash needs.
A presentation of GAAP based cash flow metrics is as follows (dollars in thousands) and a
discussion of Liquidity and Capital Resources can be found later in this report.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended |
|
|
For the nine months ended |
|
|
|
9-30-09 |
|
|
9-30-08 |
|
|
9-30-09 |
|
|
9-30-08 |
|
Net cash provided by operating activities |
|
$ |
83,250 |
|
|
$ |
127,857 |
|
|
$ |
272,978 |
|
|
$ |
266,982 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by investing
activities |
|
$ |
(53,621 |
) |
|
$ |
11,186 |
|
|
$ |
(329,678 |
) |
|
$ |
(191,565 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing
activities |
|
$ |
308,946 |
|
|
$ |
(67,358 |
) |
|
$ |
545,357 |
|
|
$ |
(16,669 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Liquidity and Capital Resources
Our current liquidity needs result primarily from development and redevelopment expenditures,
maturing debt and dividend requirements. Factors affecting our liquidity and capital resources are
our cash flows from operations, financing activities and investing activities (including
dispositions) as well as general economic and market conditions. Operating cash flow has
historically been determined by: (i) the number of apartment homes currently owned, (ii) rental
rates, (iii) occupancy levels and (iv) operating expenses with respect to apartment homes. The
timing and type of capital markets activity in which we engage, as well as our plans for
development,
29
redevelopment, acquisition and disposition activity, are affected by changes in the
capital markets environment, such as changes in interest rates or the availability of
cost-effective capital.
We regularly review our liquidity needs, the adequacy of cash flows from operations and other
expected liquidity sources to meet these needs. We believe our principal short-term liquidity
needs are to fund:
|
|
|
development and redevelopment activity in which we are currently engaged; |
|
|
|
|
the minimum dividend payments on our common stock required to maintain our REIT
qualification under the Internal Revenue Code of 1986; |
|
|
|
|
debt service and principal payments either at maturity or opportunistic payments; |
|
|
|
|
normal recurring operating expenses; |
|
|
|
|
DownREIT partnership unit distributions; and |
|
|
|
|
capital calls for the Fund and Fund II, as required. |
While the constrained capital and credit markets experienced in 2008 continue into 2009, the credit
and equity markets appear to be recovering and we expect to have adequate access to capital to meet
near term liquidity needs. In 2009, we expect to meet all of our liquidity needs from a variety of
internal and external sources, including borrowing capacity under our Credit Facility (as defined
below), secured financings and other public or private sources of liquidity as discussed below, as
well as our operating activities. To the extent that currently available internal and external
resources do not satisfy our needs, we may seek additional external financing. Additional external
financing could come from a variety of sources, such as public sales of debt or equity securities
or unsecured or secured loans from financial institutions or other private or governmental lenders,
among others. Private equity through joint ventures may also be used. Our ability to obtain
additional financing will depend on a variety of factors such as market conditions, the general
availability of credit, the overall availability of credit to the real estate industry, our credit
ratings and credit capacity, as well as the perception of lenders regarding our long or short-term
financial prospects. At September 30, 2009, we have unrestricted cash, cash equivalents and cash in
escrow of $777,456,000 available for both current liquidity needs as well as development
activities, of which $93,440,000 relates to a Development Right for which we have not begun
construction.
Unrestricted cash and cash equivalents totaled $554,335,000 at September 30, 2009, an increase of
$488,657,000 from $65,678,000 at December 31, 2008. The following discussion relates to changes in
cash due to operating, investing and financing activities, which are presented in our Condensed
Consolidated Statements of Cash Flows included elsewhere in this report.
Operating
Activities Net cash provided by operating activities increased
to $272,978,000 for
the nine months ended September 30, 2009 from $266,982,000 for the nine months ended September
30, 2008. The increase was driven primarily by the timing of general corporate payables and the
payment of interest amounts in 2009 as compared to 2008.
Investing
Activities Net cash used in investing activities of $329,678,000 for the nine months
ended September 30, 2009 related to investments in assets through the development and
redevelopment. As of September 30, 2009, we invested $449,703,000 in the development of the
following real estate and capital expenditures:
|
|
|
We had capital expenditures of $4,811,000 for real estate and non-real estate assets. |
|
|
|
|
We invested approximately $444,892,000 in the development of communities. |
These
amounts are partially offset by the proceeds from the disposition of
real estate of
$67,893,000.
Financing Activities Net cash provided by financing activities totaled $545,357,000 for the
nine months ended September 30, 2009. The net cash provided is due primarily to the pooled
secured financing executed in April 2009 for $741,140,000, the issuance of $500,000,000
aggregate principal amount of unsecured notes in September, and $102,442,000 received from the
issuance of common stock, primarily through the Offering Program. These amounts were partially
offset by the repayment of unsecured notes for $420,936,000, the
30
payment of cash dividends in
the amount of $211,269,000, the repayment of amounts outstanding on the Credit Facility, defined
below, of $124,000,000, and the repayment of secured notes of $29,516,000.
Variable Rate Unsecured Credit Facility
We currently have a $1,000,000,000 revolving variable rate unsecured credit facility (the Credit
Facility) with a syndicate of commercial banks that expires in November 2011 (assuming our
exercise of a one-year renewal option).
In the aggregate, we pay an annual facility fee of approximately $1,250,000. The Credit Facility
bears interest at varying levels based on the London Interbank Offered Rate (LIBOR), our credit
rating and on a maturity schedule selected by us. The current stated pricing is LIBOR plus 0.40%
per annum (0.64% on October 31, 2009). We had no outstanding balance under the Credit Facilitys
competitive bid option at October 31, 2009. At October 31, 2009, there were no amounts outstanding
on the Credit Facility, $37,884,000 was used to provide letters of credit, and $962,116,000 was
available for borrowing under the Credit Facility.
We are subject to financial and other covenants contained in the Credit Facility; our Term Loan;
and the indenture under which our unsecured notes were issued. The financial covenants include the
following:
|
|
|
limitations on the amount of total and secured debt in relation to our overall capital
structure; |
|
|
|
|
limitation on the amount of our unsecured debt relative to the undepreciated basis of
real estate assets that are not encumbered by property-specific financing; and |
|
|
|
|
minimum levels of debt service coverage. |
We were in compliance with these covenants at September 30, 2009.
In addition, our secured borrowings may include yield maintenance, defeasance, or prepayment
penalty provisions, which would result in us incurring an additional charge in the event of a full
or partial prepayment of outstanding principal before the scheduled maturity. These provisions in
our secured borrowings are generally consistent with other similar types of debt instruments issued
during the same time period our borrowings were secured.
Continuous Equity Offering Program
In August 2009, we commenced the Offering Program, under which we may sell up to an aggregate
amount of $400,000,000 of our common stock. This program is available until the $400,000,000 is
sold or August 2012, whichever occurs first. We may sell the shares in amounts and at times to be
determined by us. Actual sales will depend on a variety of factors to be determined by us,
including market conditions, the trading price of our common stock and determinations of the
appropriate sources of funding. In conjunction with the Offering Program, we engaged sales agents
who received compensation of 1.5% of the gross sales price for shares sold in the quarter ended
September 30, 2009. During the quarter ended September 30, 2009, we sold 1,467,001 shares under
this program at an average sales price of approximately $70 per share, resulting in net proceeds of
approximately $100,000,000.
Future Financing and Capital Needs Debt Maturities
One of our principal long-term liquidity needs is the repayment of long-term debt at the time that
such debt matures. For unsecured notes, we anticipate that no significant portion of the principal
of these notes will be repaid substantially prior to maturity. If we do not have funds on hand
sufficient to repay our indebtedness as it becomes due, it will be necessary for us to refinance
the debt. This refinancing may be accomplished by uncollateralized private or public debt
offerings, additional debt financing that is secured by mortgages on individual communities or
groups of communities, draws on our Credit Facility or by equity offerings. Although we believe we
will have the capacity to meet our currently anticipated liquidity needs, we cannot assure you that
additional debt financing or debt or equity offerings will be available or, if available, that they
will be on terms we consider satisfactory.
31
The following financing activity occurred during the three months ended September 30, 2009:
|
|
|
we repaid $102,562,000 of previously issued 7.5% unsecured notes, along with any unpaid
interest, pursuant to their scheduled maturity; |
|
|
|
|
we repaid $112,200,000 in unsecured debt, representing the second tranche of our Term
Loan prior to its scheduled maturity of January 2010; and |
|
|
|
|
we issued a total of $500,000,000 of unsecured notes under our existing shelf
registration statement. The offering consisted of two separate $250,000,000 tranches with
effective interest rates of 5.80% and 6.18%, maturing in March 2017 and March 2020,
respectively. |
The following additional financing activity has occurred for the nine months ended September 30,
2009:
|
|
|
we obtained secured financing for $741,140,000 pursuant to fourteen separate ten-year
mortgage loans, each secured by one of our current communities at an average interest rate
of 5.86%; |
|
|
|
|
we obtained $93,440,000 in variable rate tax-exempt bond financing related to a
Development Right, the proceeds of which will be held in escrow until requisitioned for
construction funding; and |
|
|
|
|
we repaid $23,613,000 in secured notes and repaid $207,461,000 par amount in
unsecured notes. |
Refer to Note 3, Notes Payable, Unsecured Notes and Credit Facility, in the Condensed Consolidated
Financial Statements for further discussion.
In October 2009, we settled a cash tender offer, purchasing the following unsecured notes:
|
|
|
$46,001,000 principal amount of our $200,000,000 7.5% unsecured notes due December 2010
at a weighted average price of 107.50% of par; |
|
|
|
|
$150,000,000 principal amount of our $300,000,000 6.625% unsecured notes due September
2011 at a weighted average price of 109.00% of par; |
|
|
|
|
$55,600,000 principal amount of our $250,000,000 5.5% unsecured notes due in January
2012 at a weighted average price of 106.25% of par; and |
|
|
|
|
$48,399,000 principal amount of our $250,000,000 6.125% unsecured notes due in
November 2012 at a weighted average price of 108.75% of par. |
In October 2009 we repurchased $10,100,000 principal amount of our 6.625% unsecured notes due
September 2011 at a weighted average price of 107.0% of par.
We will record a charge for the purchase premium as well as certain deferred issuance costs related
to the cash tender offer and additional unsecured notes repurchase activity above of approximately $26,000,000,
in the fourth quarter of 2009. All of the notes we purchased were cancelled upon settlement.
In October 2009 we repaid the final $112,200,000 of our Term Loan outstanding prior to its
scheduled maturity of January 2011.
In addition, in October 2009, we effectively converted $300,000,000 principal of our fixed rate
unsecured notes with a weighted average maturity of approximately two years, to floating rate debt
at a weighted average interest rate of three month LIBOR plus 5.42%, through the execution of
$300,000,000 notional of interest rate swaps.
32
The following table details debt maturities for the next five years, excluding our Credit Facility
and amounts outstanding related to real estate assets classified as held for sale, for debt
outstanding at September 30, 2009 (dollars in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All-In |
|
|
Principal |
|
|
|
|
|
|
|
|
interest |
|
|
maturity |
|
Balance outstanding |
|
|
|
Scheduled maturities |
|
|
|
Community |
|
rate (1) |
|
|
date |
|
12-31-08 |
|
|
9-30-09 |
|
|
2009 |
|
|
2010 |
|
|
2011 |
|
|
2012 |
|
|
2013 |
|
|
Thereafter |
|
Tax-exempt bonds |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed rate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CountryBrook |
|
|
6.47 |
% |
|
Mar-2012 |
|
$ |
14,680 |
|
|
$ |
14,145 |
|
|
$ |
184 |
|
|
$ |
766 |
|
|
$ |
816 |
|
|
$ |
12,379 |
|
|
$ |
|
|
|
$ |
|
|
Avalon at Symphony Glen |
|
|
5.17 |
% |
|
Jul-2024 |
|
|
9,780 |
|
|
|
9,780 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,780 |
|
Avalon at Lexington |
|
|
6.94 |
% |
|
Feb-2025 |
|
|
11,665 |
|
|
|
11,338 |
|
|
|
112 |
|
|
|
466 |
|
|
|
495 |
|
|
|
526 |
|
|
|
559 |
|
|
|
9,180 |
|
Avalon Campbell |
|
|
6.50 |
% |
|
Jun-2025 |
|
|
30,914 |
|
|
|
30,146 |
(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,146 |
|
Avalon Pacifica |
|
|
6.51 |
% |
|
Jun-2025 |
|
|
14,023 |
|
|
|
13,675 |
(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,675 |
|
Avalon Fields |
|
|
7.79 |
% |
|
May-2027 |
|
|
9,988 |
|
|
|
9,784 |
|
|
|
70 |
|
|
|
295 |
|
|
|
316 |
|
|
|
339 |
|
|
|
364 |
|
|
|
8,400 |
|
Avalon Oaks |
|
|
7.49 |
% |
|
Jul-2041 |
|
|
16,940 |
|
|
|
16,831 |
|
|
|
38 |
|
|
|
157 |
|
|
|
168 |
|
|
|
180 |
|
|
|
193 |
|
|
|
16,095 |
|
Avalon Oaks West |
|
|
7.54 |
% |
|
Apr-2043 |
|
|
16,795 |
|
|
|
16,696 |
|
|
|
34 |
|
|
|
142 |
|
|
|
152 |
|
|
|
162 |
|
|
|
173 |
|
|
|
16,033 |
|
Avalon at Chestnut Hill |
|
|
6.15 |
% |
|
Oct-2047 |
|
|
41,834 |
|
|
|
41,586 |
|
|
|
84 |
|
|
|
349 |
|
|
|
368 |
|
|
|
388 |
|
|
|
409 |
|
|
|
39,988 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
166,619 |
|
|
|
163,981 |
|
|
|
522 |
|
|
|
2,175 |
|
|
|
2,315 |
|
|
|
13,974 |
|
|
|
1,698 |
|
|
|
143,297 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable rate (3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Avalon Burbank |
|
|
2.02 |
% |
|
Oct-2010 |
|
|
30,142 |
|
|
|
29,772 |
|
|
|
384 |
|
|
|
29,388 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Waterford |
|
|
1.26 |
% |
|
Jul-2014 |
|
|
33,100 |
|
|
|
33,100 |
(4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,100 |
|
Avalon at Mountain View |
|
|
1.31 |
% |
|
Feb-2017 |
|
|
18,300 |
|
|
|
18,300 |
(4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,300 |
|
Avalon at Mission Viejo |
|
|
1.44 |
% |
|
Jun-2025 |
|
|
7,635 |
|
|
|
7,635 |
(4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,635 |
|
Avalon at Nob Hill |
|
|
1.48 |
% |
|
Jun-2025 |
|
|
20,800 |
|
|
|
20,800 |
(4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,800 |
|
Avalon Campbell |
|
|
2.21 |
% |
|
Jun-2025 |
|
|
7,886 |
|
|
|
8,654 |
(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,654 |
|
Avalon Pacifica |
|
|
2.23 |
% |
|
Jun-2025 |
|
|
3,577 |
|
|
|
3,925 |
(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,925 |
|
Avalon Bowery Place I |
|
|
1.38 |
% |
|
Nov-2037 |
|
|
93,800 |
|
|
|
93,800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
93,800 |
|
Avalon Bowery Place II |
|
|
1.56 |
% |
|
Nov-2039 |
|
|
48,500 |
|
|
|
48,500 |
(5) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48,500 |
|
Avalon Acton |
|
|
1.81 |
% |
|
Jul-2040 |
|
|
45,000 |
|
|
|
45,000 |
(5) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45,000 |
|
Avalon Morningside Park |
|
|
1.89 |
% |
|
Nov-2040 |
|
|
100,000 |
|
|
|
100,000 |
(5) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100,000 |
|
West Chelsea |
|
|
0.33 |
% |
|
May-2012 |
|
|
|
|
|
|
93,440 |
(5) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
93,440 |
|
|
|
|
|
|
|
|
|
Avalon Walnut Creek |
|
|
3.00 |
% |
|
Mar-2046 |
|
|
116,000 |
|
|
|
116,000 |
(5) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
116,000 |
|
Avalon Walnut Creek |
|
|
6.14 |
% |
|
Mar-2046 |
|
|
10,000 |
|
|
|
10,000 |
(5) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
534,740 |
|
|
|
628,926 |
|
|
|
384 |
|
|
|
29,388 |
|
|
|
|
|
|
|
93,440 |
|
|
|
|
|
|
|
505,714 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conventional loans (6) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed rate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$150 million unsecured notes |
|
|
7.63 |
% |
|
Aug-2009 |
|
|
140,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$200 million unsecured notes |
|
|
7.67 |
% |
|
Dec-2010 |
|
|
200,000 |
|
|
|
135,577 |
(7) |
|
|
|
|
|
|
135,577 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$300 million unsecured notes |
|
|
6.79 |
% |
|
Sep-2011 |
|
|
300,000 |
|
|
|
300,000 |
(8) |
|
|
|
|
|
|
|
|
|
|
300,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$50 million unsecured notes |
|
|
6.31 |
% |
|
Sep-2011 |
|
|
50,000 |
|
|
|
50,000 |
|
|
|
|
|
|
|
|
|
|
|
50,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$250 million unsecured notes |
|
|
5.74 |
% |
|
Jan-2012 |
|
|
235,000 |
|
|
|
235,000 |
(9) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
235,000 |
|
|
|
|
|
|
|
|
|
$250 million unsecured notes |
|
|
6.26 |
% |
|
Nov-2012 |
|
|
250,000 |
|
|
|
250,000 |
(10) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
250,000 |
|
|
|
|
|
|
|
|
|
$100 million unsecured notes |
|
|
5.11 |
% |
|
Mar-2013 |
|
|
100,000 |
|
|
|
100,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100,000 |
|
|
|
|
|
$150 million unsecured notes |
|
|
5.52 |
% |
|
Apr-2014 |
|
|
150,000 |
|
|
|
150,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
150,000 |
|
$250 million unsecured notes |
|
|
5.89 |
% |
|
Sep-2016 |
|
|
250,000 |
|
|
|
250,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
250,000 |
|
$250 million unsecured notes |
|
|
5.80 |
% |
|
Mar-2017 |
|
|
|
|
|
|
250,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
250,000 |
|
$250 million unsecured notes |
|
|
6.18 |
% |
|
Mar-2020 |
|
|
|
|
|
|
250,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
250,000 |
|
Avalon at Twinbrook |
|
|
7.25 |
% |
|
Oct-2011 |
|
|
7,801 |
|
|
|
7,635 |
|
|
|
76 |
|
|
|
239 |
|
|
|
7,320 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Avalon at Tysons West |
|
|
5.55 |
% |
|
Jul-2028 |
|
|
6,218 |
|
|
|
6,089 |
|
|
|
44 |
|
|
|
183 |
|
|
|
193 |
|
|
|
204 |
|
|
|
216 |
|
|
|
5,249 |
|
4600 Eisenhower Avenue |
|
|
|
|
|
Apr-2009 |
|
|
4,175 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Avalon Orchards |
|
|
7.77 |
% |
|
Jul-2033 |
|
|
19,322 |
|
|
|
19,091 |
|
|
|
80 |
|
|
|
333 |
|
|
|
357 |
|
|
|
382 |
|
|
|
409 |
|
|
|
17,530 |
|
Avalon at Arlington Square |
|
|
4.81 |
% |
|
Apr-2013 |
|
|
170,125 |
|
|
|
170,125 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
170,125 |
|
|
|
|
|
Avalon at Cameron Court |
|
|
5.07 |
% |
|
Apr-2013 |
|
|
94,572 |
|
|
|
94,572 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
94,572 |
|
|
|
|
|
Avalon Crescent |
|
|
5.59 |
% |
|
May-2015 |
|
|
110,600 |
|
|
|
110,600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
110,600 |
|
Avalon Silicon Valley |
|
|
5.73 |
% |
|
Jul-2015 |
|
|
150,000 |
|
|
|
150,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
150,000 |
|
Avalon Darien |
|
|
6.22 |
% |
|
Nov-2015 |
|
|
51,749 |
|
|
|
51,322 |
|
|
|
176 |
|
|
|
660 |
|
|
|
702 |
|
|
|
746 |
|
|
|
793 |
|
|
|
48,245 |
|
Avalon Greyrock Place |
|
|
6.10 |
% |
|
Nov-2015 |
|
|
62,400 |
|
|
|
61,874 |
|
|
|
216 |
|
|
|
811 |
|
|
|
861 |
|
|
|
914 |
|
|
|
971 |
|
|
|
58,101 |
|
Avalon Commons |
|
|
6.10 |
% |
|
Dec-2013 |
|
|
55,100 |
|
|
|
55,100 |
|
|
|
|
|
|
|
|
|
|
|
693 |
|
|
|
734 |
|
|
|
53,673 |
|
|
|
|
|
Avalon Walnut Creek |
|
|
4.00 |
% |
|
Jul-2066 |
|
|
2,500 |
|
|
|
2,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,500 |
|
Avalon Shrewsbury |
|
|
5.92 |
% |
|
May-2019 |
|
|
|
|
|
|
21,130 |
|
|
|
|
|
|
|
|
|
|
|
183 |
|
|
|
285 |
|
|
|
301 |
|
|
|
20,361 |
|
Avalon Gates |
|
|
5.93 |
% |
|
May-2019 |
|
|
|
|
|
|
41,321 |
|
|
|
|
|
|
|
|
|
|
|
357 |
|
|
|
557 |
|
|
|
589 |
|
|
|
39,818 |
|
Avalon at Stamford Harbor |
|
|
5.93 |
% |
|
May-2019 |
|
|
|
|
|
|
65,695 |
|
|
|
|
|
|
|
|
|
|
|
568 |
|
|
|
885 |
|
|
|
937 |
|
|
|
63,305 |
|
Avalon Freehold |
|
|
5.95 |
% |
|
May-2019 |
|
|
|
|
|
|
36,630 |
|
|
|
|
|
|
|
|
|
|
|
317 |
|
|
|
493 |
|
|
|
522 |
|
|
|
35,298 |
|
Avalon Run East II |
|
|
5.95 |
% |
|
May-2019 |
|
|
|
|
|
|
39,250 |
|
|
|
|
|
|
|
|
|
|
|
339 |
|
|
|
529 |
|
|
|
560 |
|
|
|
37,822 |
|
Avalon Gardens |
|
|
6.06 |
% |
|
May-2019 |
|
|
|
|
|
|
66,237 |
|
|
|
|
|
|
|
|
|
|
|
572 |
|
|
|
892 |
|
|
|
945 |
|
|
|
63,828 |
|
Avalon Edgewater |
|
|
6.10 |
% |
|
May-2019 |
|
|
|
|
|
|
78,565 |
|
|
|
|
|
|
|
|
|
|
|
679 |
|
|
|
1,058 |
|
|
|
1,120 |
|
|
|
75,708 |
|
Avalon Foxhall |
|
|
6.05 |
% |
|
May-2019 |
|
|
|
|
|
|
59,010 |
|
|
|
|
|
|
|
|
|
|
|
510 |
|
|
|
795 |
|
|
|
841 |
|
|
|
56,864 |
|
Avalon Gallery Place I |
|
|
6.05 |
% |
|
May-2019 |
|
|
|
|
|
|
45,850 |
|
|
|
|
|
|
|
|
|
|
|
396 |
|
|
|
618 |
|
|
|
654 |
|
|
|
44,182 |
|
Avalon Traville |
|
|
5.91 |
% |
|
May-2019 |
|
|
|
|
|
|
77,700 |
|
|
|
|
|
|
|
|
|
|
|
672 |
|
|
|
1,047 |
|
|
|
1,108 |
|
|
|
74,873 |
|
Avalon Bellevue |
|
|
5.92 |
% |
|
May-2019 |
|
|
|
|
|
|
26,698 |
|
|
|
|
|
|
|
|
|
|
|
231 |
|
|
|
360 |
|
|
|
381 |
|
|
|
25,726 |
|
Avalon on the Alameda |
|
|
5.91 |
% |
|
May-2019 |
|
|
|
|
|
|
53,980 |
|
|
|
|
|
|
|
|
|
|
|
467 |
|
|
|
727 |
|
|
|
770 |
|
|
|
52,016 |
|
Avalon Mission Bay North |
|
|
5.91 |
% |
|
May-2019 |
|
|
|
|
|
|
73,269 |
|
|
|
|
|
|
|
|
|
|
|
633 |
|
|
|
987 |
|
|
|
1,045 |
|
|
|
70,604 |
|
Avalon Woburn |
|
|
5.91 |
% |
|
May-2019 |
|
|
|
|
|
|
55,805 |
|
|
|
|
|
|
|
|
|
|
|
482 |
|
|
|
752 |
|
|
|
796 |
|
|
|
53,775 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,409,562 |
|
|
|
3,440,625 |
|
|
|
592 |
|
|
|
137,803 |
|
|
|
366,532 |
|
|
|
497,965 |
|
|
|
431,328 |
|
|
|
2,006,405 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable rate (3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Avalon at Flanders Hill |
|
|
|
|
|
May-2009 |
|
|
19,735 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Avalon at Newton Highlands |
|
|
2.25 |
% |
|
Dec-2009 |
|
|
34,945 |
|
|
|
33,980 |
(4) |
|
|
33,980 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Avalon at Crane Brook |
|
|
1.86 |
% |
|
Mar-2011 |
|
|
31,530 |
|
|
|
30,625 |
(4) |
|
|
196 |
|
|
|
1,169 |
|
|
|
29,260 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Avalon at Bedford Center |
|
|
1.78 |
% |
|
May-2012 |
|
|
16,361 |
|
|
|
15,996 |
(4) |
|
|
127 |
|
|
|
527 |
|
|
|
560 |
|
|
|
14,782 |
|
|
|
|
|
|
|
|
|
Avalon Walnut Creek |
|
|
6.70 |
% |
|
Mar-2046 |
|
|
9,000 |
|
|
|
9,000 |
(5) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,000 |
|
$105.6 million unsecured notes |
|
|
|
|
|
May-2009 |
|
|
105,600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$112.2 million unsecured notes |
|
|
|
|
|
Jan-2010 |
|
|
112,200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$112.2 million unsecured notes |
|
|
1.74 |
% |
|
Jan-2011 |
|
|
112,200 |
|
|
|
112,200 |
(11) |
|
|
|
|
|
|
|
|
|
|
112,200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
441,571 |
|
|
|
201,801 |
|
|
|
34,303 |
|
|
|
1,696 |
|
|
|
142,020 |
|
|
|
14,782 |
|
|
|
|
|
|
|
9,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total indebtedness excluding unsecured credit facility |
|
|
|
|
|
|
|
$ |
3,552,492 |
|
|
$ |
4,435,333 |
|
|
$ |
35,801 |
|
|
$ |
171,062 |
|
|
$ |
510,867 |
|
|
$ |
620,161 |
|
|
$ |
433,026 |
|
|
$ |
2,664,416 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33
|
|
|
(1) |
|
Includes credit enhancement fees, facility fees, trustees fees and other fees. |
|
(2) |
|
Financed by variable rate, tax-exempt debt, but the interest rate on a portion of this debt
is effectively fixed at September 30, 2009 and December 31, 2008 through a swap agreement.
The portion of the debt fixed through a swap agreement decreases (and therefore the variable
portion of the debt increases) monthly as payments are made to a principal reserve fund. |
|
(3) |
|
Variable rates are given as of September 30, 2009. |
|
(4) |
|
Financed by variable rate debt, but interest rate is capped through an interest rate
protection agreement. |
|
(5) |
|
Represents full amount of the debt as of September 30, 2009. Actual amounts drawn on the
debt as of September 30, 2009 are $48,457 for Bowery Place II, $44,610 for Avalon Acton,
$88,485 for Morningside Park, $53,394 for Walnut Creek, and $0 for West Chelsea. |
|
(6) |
|
Balances outstanding represent total amounts due at maturity, and are not net of $2,482 of
debt discount as of September 30, 2009 and $2,035 of debt discount as of December 31, 2008, as
reflected in unsecured notes on our Condensed Consolidated Balance Sheets included elsewhere
in this report. |
|
(7) |
|
In October 2009, we redeemed $46,001 principal amount of our $200,000 7.5% unsecured notes
due December 2010. |
|
(8) |
|
In October 2009, we redeemed $160,100 principal amount of our $300,000 6.625% unsecured notes
due September 2011. |
|
(9) |
|
In October 2009, we redeemed $55,600 principal amount of our $250,000 5.5% unsecured notes
due January 2012. |
|
(10) |
|
In October 2009, we redeemed $48,399 principal amount of our $250,000 6.125% unsecured notes
due November 2012. |
|
(11) |
|
In October 2009, we repaid $112,200 in unsecured debt, representing the third tranche of Term
Loan, prior to its scheduled maturity in January 2011. |
Future Financing and Capital Needs Portfolio and Other Activity
As of September 30, 2009, we had nine new communities under construction, for which a total
estimated cost of $287,956,000 remained to be invested. In addition, we had six wholly owned
communities under reconstruction, for which a total estimated cost of $54,489,000 remained to be
invested. Substantially all of the capital expenditures necessary to complete the communities
currently under construction and reconstruction, as well as development costs related to pursuing
Development Rights, will be funded from:
|
|
|
cash currently on hand, including cash in construction escrows, invested in highly
liquid overnight money market funds and repurchase agreements, and short-term investment
vehicles; |
|
|
|
|
the remaining capacity under our $1,000,000,000 Credit Facility; |
|
|
|
|
retained operating cash; |
|
|
|
|
the net proceeds from sales of existing communities; |
|
|
|
|
the issuance of debt or equity securities; and/or |
|
|
|
|
private equity funding, including joint venture activity. |
Before planned reconstruction activity, including reconstruction activity related to communities
acquired by the Fund or Fund II, or the construction of a Development Right begins, we intend to
arrange adequate financing to complete these undertakings, although we cannot assure you that we
will be able to obtain such financing. In the event that financing cannot be obtained, we may have
to abandon Development Rights, write off associated pre-development costs that were capitalized
and/or forego reconstruction activity. In such instances, we will not realize the increased
revenues and earnings that we expected from such Development Rights or reconstruction activity and
significant losses could be incurred.
From time to time we use joint ventures to hold or develop individual real estate assets. We
generally employ joint ventures primarily to mitigate asset concentration or market risk and
secondarily as a source of liquidity. We may also use joint ventures related to mixed-use land
development opportunities where our partners bring development and operational expertise to the
venture. Each joint venture or partnership agreement has been and will continue to be individually
negotiated, and our ability to operate and/or dispose of a community in our sole discretion may be
limited to varying degrees depending on the terms of the joint venture or partnership agreement.
We cannot assure you that we will achieve our objectives through joint ventures.
34
In evaluating our allocation of capital within our markets, we sell assets that do not meet our
long-term investment criteria or when capital and real estate markets allow us to realize a portion
of the value created over the past business cycle and redeploy the proceeds from those sales to
develop and redevelop communities. Because the proceeds from the sale of communities may not be
immediately redeployed into revenue generating assets, the immediate effect of a sale of a
community for a gain is to increase net income, but reduce future total revenues, total expenses
and NOI. However, we believe that the absence of future cash flows from communities sold will have
a minimal impact on our ability to fund future liquidity and capital resource needs.
Off-Balance Sheet Arrangements
In addition to our investment interests in consolidated and unconsolidated real estate entities, we
have certain off-balance sheet arrangements with the entities in which we invest. Additional
discussion of these entities can be found in Note 6, Investments in Real Estate Entities, of our
Condensed Consolidated Financial Statements located elsewhere in this report.
|
|
|
CVP I, LLC has outstanding tax-exempt, variable rate bonds maturing in November 2036 in
the amount of $117,000,000, which have permanent credit enhancement. We have agreed to
guarantee, under limited circumstances, the repayment to the credit enhancer of any
advances it may make in fulfillment of CVP I, LLCs repayment obligations under the bonds.
We have also guaranteed to the credit enhancer that CVP I, LLC will obtain a final
certificate of occupancy for the project (Chrystie Place in New York City), which is
expected in 2010. Our 80% partner in this venture has agreed that it will reimburse us its
pro rata share of any amounts paid relative to these guaranteed obligations. The estimated
fair value of and our obligation under these guarantees, both at inception and as of
September 30, 2009, were not significant. As a result we have not recorded any obligation
associated with these guarantees at September 30, 2009. |
|
|
|
|
The Fund has 22 loans secured by individual assets with amounts outstanding in the
aggregate of $436,484,000, with varying maturity dates (or dates after which the loans can
be prepaid), ranging from October 2011 to September 2016. These mortgage loans are secured
by the underlying real estate. The Fund also has $3,000,000 outstanding under a credit
facility as of September 30, 2009, that matures in December 2009. The mortgage loans and
the credit facility are payable by the Fund with operating cash flow or disposition
proceeds from the underlying real estate, and the credit facility is secured by capital
commitments. We have not guaranteed the debt of the Fund, nor do we have any obligation to
fund this debt should the Fund be unable to do so. |
|
|
|
|
In addition, as part of the formation of the Fund, we have provided to one of the limited
partners a guarantee. The guarantee provides that if, upon final liquidation of the Fund,
the total amount of all distributions to that partner during the life of the Fund (whether
from operating cash flow or property sales) does not equal a minimum of the total capital
contributions made by that partner, then we will pay the partner an amount equal to the
shortfall, but in no event more than 10% of the total capital contributions made by the
partner (maximum of approximately $7,192,000 as of September 30, 2009). As of September 30,
2009, the expected realizable value of the real estate assets owned by the Fund is
considered adequate to cover such potential payment to that partner under the expected Fund
liquidation scenario. The estimated fair value of, and our obligation under this guarantee,
both at inception and as of September 30, 2009 was not significant and therefore we have not
recorded any obligation for this guarantee as of September 30, 2009. |
|
|
|
|
Fund II has one loan secured by an asset in the amount of $21,515,000 with a maturity of
June 2019. This loan is payable by Fund II. As of September 30, 2009, Fund II also has
$1,000,000 outstanding under a credit facility that matures in December 2010. |
|
|
|
|
In addition, as part of the formation of Fund II, we have provided to one of the limited
partners a guarantee. The guarantee provides that if, upon final liquidation of Fund II,
the total amount of all distributions to that partner during the life of the Fund (whether
from operating cash flow or property sales) does not equal a minimum of the total capital
contributions made by that partner, then we will pay the partner an amount
equal to the shortfall, but in no event more than 10% of the total capital contributions |
35
|
|
|
made by the partner (maximum of approximately $412,500 as of September 30, 2009). As of
September 30, 2009, the expected realizable value of the real estate assets owned by Fund II
is considered adequate to cover such potential payment to that partner under the expected
Fund II liquidation scenario. The estimated fair value of, and our obligation under this
guarantee, both at inception and as of September 30, 2009 was not significant and therefore
we have not recorded any obligation for this guarantee as of September 30, 2009. |
|
|
|
|
MVP I, LLC, the entity that owns Avalon at Mission Bay North II, has a loan secured by
the underlying real estate assets of the community for $105,000,000. The loan is a fixed
rate, interest-only note bearing interest at 6.02%, maturing in December 2015. We have not
guaranteed the debt of MVP I, LLC, nor do we have any obligation to fund this debt should
MVP I, LLC be unable to do so. |
|
|
|
|
Avalon Del Rey Apartments, LLC has a loan secured by the underlying real estate assets
of the community for $46,159,000 maturing in April 2016. The variable rate loan had an
interest rate of 3.60% at September 30, 2009. We have not guaranteed the debt of Avalon Del
Rey Apartments, LLC, nor do we have any obligation to fund this debt should Avalon Del Rey
Apartments, LLC be unable to do so. |
|
|
|
|
Aria at Hathorne Hill, LLC is a joint venture in which we have a non-managing member
interest. The LLC is developing for-sale town homes in Danvers, Massachusetts. The LLC
has three separate variable rate loans with aggregate borrowings of $3,304,000 and a
weighted average interest rate of 2.95% at September 30, 2009. We have not guaranteed the
debt of Aria at Hathorne, nor do we have any obligation to fund this debt should Aria at
Hathorne be unable to do so. |
|
|
|
|
PHVP I, LLC, a consolidated joint venture in which we hold a 99.0% controlling interest,
constructed a public garage adjacent to our Walnut Creek development. As part of the
construction management services we provided to PHVP I, LLC for the construction of the
public garage, we provided a construction completion guarantee to the related lender in
order to fulfill their standard financing requirements related to the garage construction
financing, which occurred in the third quarter of 2009. Our obligations under this
guarantee therefore, have terminated and we have no further obligation under this
agreement. |
|
|
|
|
In 2007 we entered into a non-cancelable commitment (the Commitment) to acquire
parcels of land in Brooklyn, New York for an aggregate purchase price of approximately
$111,000,000. Under the terms of the Commitment, we are closing on the various parcels
over a period determined by the sellers ability to execute unrelated purchase transactions
and achieve deferral of gains for the land sold under this Commitment. However, under no
circumstances will the Commitment extend beyond 2011, at which time either we or the seller
can compel execution of the remaining transactions. At September 30, 2009, we have an
outstanding commitment to purchase the remaining land for approximately $51,500,000. |
There are no other lines of credit, side agreements, financial guarantees or any other derivative
financial instruments related to or between our unconsolidated real estate entities and us. In
evaluating our capital structure and overall leverage, management takes into consideration our
proportionate share of this unconsolidated debt.
Contractual Obligations
In the third quarter of 2009, we entered into a lease agreement for office space in Arlington, VA.
The office space will serve as our corporate headquarters, with relocation scheduled for the first
quarter of 2010. The lease has a ten year lease term with rent of approximately $1,800,000
annually. We are considering options for leasing or selling the building that serves as our current
headquarters in Alexandria, VA.
Development Communities
As of September 30, 2009, we had nine Development Communities under construction. We expect these
Development Communities, when completed, to add a total of 3,421 apartment homes to our portfolio
for a total
capitalized cost, including land acquisition costs, of approximately $1,218,900,000. You should
carefully review Item 1a., Risk Factors, of our Form 10-K for a discussion of the risks
associated with development activity.
36
The following table presents a summary of the Development Communities. We hold a direct or
indirect fee simple ownership interest in these communities.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
capitalized |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
apartment |
|
|
cost (1) |
|
|
Construction |
|
|
Initial |
|
|
Estimated |
|
|
Estimated |
|
|
|
|
|
|
|
homes |
|
|
($ millions) |
|
|
start |
|
|
occupancy (2) |
|
|
completion |
|
|
stabilization (3) |
|
|
1. |
|
|
Avalon White Plains |
|
|
407 |
|
|
$ |
153.0 |
|
|
|
Q2 2007 |
|
|
|
Q3 2008 |
|
|
|
Q4 2009 |
|
|
|
Q2 2010 |
|
|
|
|
|
White Plains, NY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2. |
|
|
Avalon Union City |
|
|
439 |
|
|
|
120.9 |
|
|
|
Q3 2007 |
|
|
|
Q1 2009 |
|
|
|
Q4 2009 |
|
|
|
Q2 2010 |
|
|
|
|
|
Union City, CA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3. |
|
|
Avalon at Mission Bay North III |
|
|
260 |
|
|
|
150.0 |
|
|
|
Q4 2007 |
|
|
|
Q2 2009 |
|
|
|
Q4 2009 |
|
|
|
Q2 2010 |
|
|
|
|
|
San Francisco, CA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4. |
|
|
Avalon Irvine |
|
|
279 |
|
|
|
77.4 |
|
|
|
Q4 2007 |
|
|
|
Q2 2009 |
|
|
|
Q1 2010 |
|
|
|
Q3 2010 |
|
|
|
|
|
Irvine, CA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5. |
|
|
Avalon Fort Greene |
|
|
631 |
|
|
|
306.8 |
|
|
|
Q4 2007 |
|
|
|
Q4 2009 |
|
|
|
Q1 2011 |
|
|
|
Q3 2011 |
|
|
|
|
|
New York, NY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6. |
|
|
Avalon Blue Hills |
|
|
276 |
|
|
|
46.6 |
|
|
|
Q2 2008 |
|
|
|
Q1 2009 |
|
|
|
Q4 2009 |
|
|
|
Q2 2010 |
|
|
|
|
|
Randolph, MA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7. |
|
|
Avalon Walnut Creek (4) |
|
|
422 |
|
|
|
151.7 |
|
|
|
Q3 2008 |
|
|
|
Q3 2010 |
|
|
|
Q1 2011 |
|
|
|
Q3 2011 |
|
|
|
|
|
Walnut Creek, CA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8. |
|
|
Avalon Norwalk |
|
|
311 |
|
|
|
86.4 |
|
|
|
Q3 2008 |
|
|
|
Q3 2010 |
|
|
|
Q2 2011 |
|
|
|
Q4 2011 |
|
|
|
|
|
Norwalk, CT |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9. |
|
|
Avalon Towers Bellevue |
|
|
396 |
|
|
|
126.1 |
|
|
|
Q4 2008 |
|
|
|
Q2 2010 |
|
|
|
Q2 2011 |
|
|
|
Q4 2011 |
|
|
|
|
|
Bellevue, WA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
3,421 |
|
|
$ |
1,218.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Total capitalized cost includes all capitalized costs projected to be or actually incurred to
develop the respective Development Community, determined in accordance with GAAP, including
land acquisition costs, construction costs, real estate taxes, capitalized interest and loan
fees, permits, professional fees, allocated development overhead and other regulatory fees.
Total capitalized cost for communities identified as having joint venture ownership, either
during construction or upon construction completion, represents the total projected joint
venture contribution amount. |
|
(2) |
|
Future initial occupancy dates are estimates. There can be no assurance that we will pursue
to completion any or all of these proposed developments. |
|
(3) |
|
Stabilized operations is defined as the earlier of (i) attainment of 95% or greater physical
occupancy or (ii) the one-year anniversary of completion of development. |
|
(4) |
|
This community is being financed in part by third party, tax-exempt debt. |
37
Redevelopment Communities
As of September 30, 2009, there were six communities under redevelopment. We expect the total
capitalized cost to redevelop these communities to be $112,100,000 excluding costs prior to
redevelopment. We have found that the cost to redevelop an existing apartment community is more
difficult to budget and estimate than the cost to develop a new community. Accordingly, we expect
that actual costs may vary from our budget by a wider range than for a new development community.
We cannot assure you that we will meet our schedule for reconstruction completion or restabilized
operations, or that we will meet our budgeted costs, either individually or in the aggregate. We
anticipate maintaining the level of our redevelopment activity related to communities in our
current operating portfolio for the remainder of 2009. You should carefully review Item 1a., Risk
Factors, of our Form 10-K for a discussion of the risks associated with redevelopment activity.
The following presents a summary of these Redevelopment Communities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
($ millions) |
|
|
|
|
|
|
Estimated |
|
|
Estimated |
|
|
|
|
|
|
|
apartment |
|
|
Pre-redevelopment |
|
|
Total capitalized |
|
|
Reconstruction |
|
|
reconstruction |
|
|
restabilized |
|
|
|
|
|
|
|
homes |
|
|
cost |
|
|
cost (1) |
|
|
start |
|
|
completion |
|
|
operations (2) |
|
|
1. |
|
|
Avalon Woodland Hills |
|
|
663 |
|
|
$ |
72.1 |
|
|
$ |
110.6 |
|
|
|
Q4 2007 |
|
|
|
Q3 2010 |
|
|
|
Q1 2011 |
|
|
|
|
|
Woodland Hills, CA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2. |
|
|
Avalon at Diamond Heights |
|
|
154 |
|
|
|
25.3 |
|
|
|
30.6 |
|
|
|
Q4 2007 |
|
|
|
Q4 2010 |
|
|
|
Q2 2011 |
|
|
|
|
|
San Francisco, CA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3. |
|
|
Avalon Burbank |
|
|
400 |
|
|
|
71.0 |
|
|
|
94.4 |
|
|
|
Q3 2008 |
|
|
|
Q3 2010 |
|
|
|
Q1 2011 |
|
|
|
|
|
Burbank, CA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4. |
|
|
Avalon Pleasanton |
|
|
456 |
|
|
|
63.0 |
|
|
|
80.9 |
|
|
|
Q2 2009 |
|
|
|
Q4 2011 |
|
|
|
Q2 2012 |
|
|
|
|
|
Pleasanton, CA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5. |
|
|
Avalon Watch |
|
|
512 |
|
|
|
30.2 |
|
|
|
50.6 |
|
|
|
Q2 2009 |
|
|
|
Q1 2012 |
|
|
|
Q3 2012 |
|
|
|
|
|
West Windsor, NJ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6. |
|
|
Avalon at Cedar Ridge |
|
|
195 |
|
|
|
27.7 |
|
|
|
34.3 |
|
|
|
Q3 2009 |
|
|
|
Q1 2011 |
|
|
|
Q3 2011 |
|
|
|
|
|
Daly City, CA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
2,380 |
|
|
$ |
289.3 |
|
|
$ |
401.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Total capitalized cost includes all capitalized costs projected to be or actually incurred to
redevelop the respective Redevelopment Community, including land acquisition costs,
construction costs, real estate taxes, capitalized interest and loan fees, permits,
professional fees, allocated development overhead and other regulatory fees, all as determined
in accordance with GAAP. |
|
(2) |
|
Restabilized operations is defined as the earlier of (i) attainment of 95% or greater
physical occupancy or (ii) the one-year anniversary of completion of redevelopment. |
Development Rights
At September 30, 2009 we held 27 Development Rights for the future development of new apartment
communities on land that is either owned by us, under contract, subject to a leasehold interest or
for which we hold either a purchase or lease option. We generally prefer to hold Development
Rights through options to acquire land, although for 13 of the Development Rights we currently own
the land on which a community would be built if we proceeded with development. The Development
Rights range from those beginning design and architectural planning to those that have completed
site plans and drawings and can begin construction almost immediately. We estimate that the
successful completion of all of these communities would ultimately add 6,788 apartment homes to our
portfolio. Substantially all of these apartment homes will offer features like those offered by
the communities we currently own. At September 30, 2009, there were cumulative capitalized costs
(including legal fees, design fees and related overhead costs, but excluding land costs) of
$80,908,000 relating to Development Rights that we consider probable for future development. In
addition, land costs related to the pursuit of Development Rights (consisting of original land and
additional carrying costs) of $243,656,000 are reflected as land held for development on the
Condensed Consolidated Balance Sheet as of September 30, 2009.
38
The properties comprising the Development Rights are in different stages of the due diligence and
regulatory approval process. The decisions as to which of the Development Rights to invest in, if
any, or to continue to pursue once an investment in a Development Right is made, are business
judgments that we make after we perform financial, demographic and other analyses. In the event
that we do not proceed with a Development Right, we generally would not recover capitalized costs
incurred in the pursuit of those communities, unless we were to recover amounts in connection with
the sale of land; however, we cannot guarantee a recovery. Pre-development costs incurred in the
pursuit of Development Rights for which future development is not yet considered probable are
expensed as incurred. In addition, if the status of a Development Right changes, making future
development no longer probable, any capitalized pre-development costs are charged to expense.
You should carefully review Section 1a., Risk Factors, of our Form 10-K for a discussion of the
risks associated with Development Rights.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
Estimated |
|
|
capitalized |
|
|
|
|
|
|
|
number |
|
|
cost |
|
|
|
|
|
Location |
|
of homes |
|
|
($ millions) (1) |
|
|
1. |
|
|
Northborough, MA Phase II |
|
|
219 |
|
|
$ |
36 |
|
|
2. |
|
|
West Long Branch, NJ |
|
|
180 |
|
|
|
30 |
|
|
3. |
|
|
Rockville Centre, NY Phase I |
|
|
210 |
|
|
|
78 |
|
|
4. |
|
|
Greenburgh, NY Phase II |
|
|
288 |
|
|
|
77 |
|
|
5. |
|
|
Plymouth, MA Phase II |
|
|
92 |
|
|
|
20 |
|
|
6. |
|
|
Wood-Ridge, NJ Phase I |
|
|
216 |
|
|
|
49 |
|
|
7. |
|
|
Seattle, WA |
|
|
204 |
|
|
|
58 |
|
|
8. |
|
|
Lynnwood, WA Phase II |
|
|
82 |
|
|
|
18 |
|
|
9. |
|
|
Wilton, CT |
|
|
100 |
|
|
|
30 |
|
|
10. |
|
|
New York, NY |
|
|
691 |
|
|
|
307 |
|
|
11. |
|
|
San Francisco, CA |
|
|
173 |
|
|
|
65 |
|
|
12. |
|
|
Rockville Centre, NY Phase II |
|
|
139 |
|
|
|
51 |
|
|
13. |
|
|
Boston, MA |
|
|
180 |
|
|
|
97 |
|
|
14. |
|
|
Dublin, CA Phase II |
|
|
505 |
|
|
|
147 |
|
|
15. |
|
|
Shelton, CT |
|
|
251 |
|
|
|
66 |
|
|
16. |
|
|
Roselle Park, NJ |
|
|
249 |
|
|
|
54 |
|
|
17. |
|
|
Brooklyn, NY |
|
|
861 |
|
|
|
443 |
|
|
18. |
|
|
Stratford, CT |
|
|
130 |
|
|
|
22 |
|
|
19. |
|
|
Rockville, MD |
|
|
240 |
|
|
|
62 |
|
|
20. |
|
|
Greenburgh, NY Phase III |
|
|
156 |
|
|
|
43 |
|
|
21. |
|
|
Wood-Ridge, NJ Phase II |
|
|
190 |
|
|
|
43 |
|
|
22. |
|
|
Tysons Corner, VA |
|
|
338 |
|
|
|
87 |
|
|
23. |
|
|
Yaphank, NY |
|
|
343 |
|
|
|
57 |
|
|
24. |
|
|
Cohasset, MA |
|
|
200 |
|
|
|
38 |
|
|
25. |
|
|
North Bergen, NJ |
|
|
164 |
|
|
|
47 |
|
|
26. |
|
|
Seattle, WA II |
|
|
272 |
|
|
|
81 |
|
|
27. |
|
|
Andover, MA |
|
|
115 |
|
|
|
26 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
6,788 |
|
|
$ |
2,132 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Total capitalized cost includes all capitalized costs incurred to date (if any) and projected
to be incurred to develop the respective community, determined in accordance with GAAP,
including land acquisition costs, construction costs, real estate taxes, capitalized interest
and loan fees, permits, professional fees, allocated development overhead and other regulatory
fees. |
Other Land and Real Estate Assets
We currently own land parcels with a carrying basis of approximately $106,307,000 that we are no
longer holding for development. We believe that the current carrying basis of these assets is such
that there is no charge for impairment, or further charge in the case of assets previously
impaired, required. However we may be subject to the recognition of further charges for impairment
in the event that there are indicators of such impairment, and we determine that the carrying basis
of the assets is greater than the current fair value, less costs to dispose.
Insurance and Risk of Uninsured Losses
We carry commercial general liability insurance and property insurance with respect to all of our
communities. These policies, and other insurance policies we carry, have policy specifications,
insured limits and deductibles that
39
we consider commercially reasonable. There are, however, certain types of losses (such as losses
arising from acts of war) that are not insured, in full or in part, because they are either
uninsurable or the cost of insurance makes it, in managements view, economically impractical. You
should carefully review the discussion under Item 1a., Risk Factors, of our Form 10-K for a
discussion of risks associated with an uninsured property or liability loss.
In May 2009, we renewed our property insurance policy for a one year term and experienced an
increase in premiums of approximately 7% as a result of increased property values and an increased
coverage level for certain insurable events. There were no other material changes in coverage.
In August 2009, we renewed our general liability policy and workers compensation coverage for a
one year term, and experienced a decrease in the premium on these policies of approximately 25%,
with no material changes in the coverage.
Inflation and Deflation
Substantially all of our apartment leases are for a term of one year or less. In an inflationary
environment, this may allow us to realize increased rents upon renewal of existing leases or the
beginning of new leases. Short-term leases generally minimize our risk from the adverse effects of
inflation, although these leases generally permit residents to leave at the end of the lease term
and therefore expose us to the effect of a decline in market rents. In a deflationary rent
environment, we may be exposed to declining rents more quickly under these shorter-term leases.
Forward-Looking Statements
This Form 10-Q contains forward-looking statements as that term is defined under the Private
Securities Litigation Reform Act of 1995. You can identify forward-looking statements by our use
of the words believe, expect, anticipate, intend, estimate, assume, project, plan,
may, shall, will and other similar expressions in this Form 10-Q, that predict or indicate
future events and trends and that do not report historical matters. These statements include,
among other things, statements regarding our intent, belief or expectations with respect to:
|
|
|
our potential development, redevelopment, acquisition or disposition of communities; |
|
|
|
|
the timing and cost of completion of apartment communities under construction,
reconstruction, development or redevelopment; |
|
|
|
|
the timing of lease-up, occupancy and stabilization of apartment communities; |
|
|
|
|
the pursuit of land on which we are considering future development; |
|
|
|
|
the anticipated operating performance of our communities; |
|
|
|
|
cost, yield, revenue, NOI and earnings estimates; |
|
|
|
|
our declaration or payment of distributions; |
|
|
|
|
our joint venture and discretionary fund activities; |
|
|
|
|
our policies regarding investments, indebtedness, acquisitions, dispositions,
financings and other matters; |
|
|
|
|
our qualification as a REIT under the Internal Revenue Code; |
|
|
|
|
the real estate markets in Northern and Southern California and markets in
selected states in the Mid-Atlantic, Midwest, New England, Metro NY/NJ and Pacific
Northwest regions of the United States and in general; |
|
|
|
|
the availability of debt and equity financing; |
|
|
|
|
interest rates; |
|
|
|
|
general economic conditions including the recent economic downturn; and |
|
|
|
|
trends affecting our financial condition or results of operations. |
We cannot assure the future results or outcome of the matters described in these statements;
rather, these statements merely reflect our current expectations of the approximate outcomes of the
matters discussed. You should not rely on forward-looking statements because they involve known and
unknown risks, uncertainties and other factors, some of which are beyond our control. These risks,
uncertainties and other factors may cause our actual results,
40
performance or achievements to differ materially from the anticipated future results, performance
or achievements expressed or implied by these forward-looking statements. You should carefully
review the discussion under Item 1a., Risk Factors, on our Form 10-K for a discussion of risks
associated with forward-looking statements.
In addition, these forward-looking statements represent our estimates and assumptions only as of
the date of this report. We do not undertake a duty to update these forward-looking statements,
and therefore they may not represent our estimates and assumptions after the date of this report.
Some of the factors that could cause our actual results, performance or achievements to differ
materially from those expressed or implied by these forward-looking statements include, but are not
limited to, the following:
|
|
|
we may fail to secure development opportunities due to an inability to reach
agreements with third parties to obtain land at attractive prices or to obtain
desired zoning and other local approvals; |
|
|
|
|
we may abandon or defer development opportunities for a number of reasons,
including changes in local market conditions which make development less desirable,
increases in costs of development, increases in the cost of capital or lack of
capital availability, resulting in losses; |
|
|
|
|
construction costs of a community may exceed our original estimates; |
|
|
|
|
we may not complete construction and lease-up of communities under development
or redevelopment on schedule, resulting in increased interest costs and
construction costs and a decrease in our expected rental revenues; |
|
|
|
|
occupancy rates and market rents may be adversely affected by competition and
local economic and market conditions which are beyond our control; |
|
|
|
|
financing may not be available on favorable terms or at all, and our cash flows
from operations and access to cost effective capital may be insufficient for the
development of our pipeline which could limit our pursuit of opportunities; |
|
|
|
|
our cash flows may be insufficient to meet required payments of principal and
interest, and we may be unable to refinance existing indebtedness or the terms of
such refinancing may not be as favorable as the terms of existing indebtedness; |
|
|
|
|
we may be unsuccessful in our management of the Fund, Fund II or the REIT
vehicles that are used with each respective investment fund; and |
|
|
|
|
we may be unsuccessful in managing changes in our portfolio composition. |
Critical Accounting Policies
The preparation of financial statements in conformity with GAAP requires management to use judgment
in the application of accounting policies, including making estimates and assumptions. If our
judgment or interpretation of the facts and circumstances relating to various transactions had been
different, or different assumptions were made, it is possible that different accounting policies
would have been applied, resulting in different financial results or a different presentation of
our financial statements. Our critical accounting policies consist primarily of the following: (i)
principles of consolidation, (ii) cost capitalization, (iii) asset impairment evaluation and (iv)
REIT status. Our critical accounting policies and estimates have not changed materially from the
discussion of our significant accounting policies found in Managements Discussion and Analysis and
Results of Operations in our Form 10-K.
41
Item 3. |
|
Quantitative and Qualitative Disclosures About Market Risk |
|
|
|
There have been no material changes to our exposures to market
risk since December 31, 2008. |
Item 4. |
|
Controls and Procedures |
|
(a) |
|
Evaluation of disclosure controls and procedures. |
|
|
|
|
The Company carried out an evaluation under the supervision and with the
participation of the Companys management, including the Companys Chief
Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operation of the Companys disclosure controls and procedures
as of September 30, 2009. Based upon that evaluation, the Chief Executive
Officer and Chief Financial Officer concluded that the Companys
disclosure controls and procedures are effective to ensure that
information required to be disclosed by the Company in the reports it
files or submits under the Exchange Act is recorded, processed, summarized
and reported, within the time periods specified in the Securities and
Exchange Commissions rules and forms. |
|
|
|
|
We continue to review and document our disclosure controls and procedures,
including our internal controls and procedures for financial reporting,
and may from time to time make changes aimed at enhancing their
effectiveness and to ensure that our systems evolve with our business. |
|
|
(b) |
|
Changes in internal controls over financial reporting. |
|
|
|
|
None. |
Part II. OTHER INFORMATION
Item 1. |
|
Legal Proceedings |
|
|
|
As previously reported, we are involved in litigation alleging that communities constructed by us violate
the accessibility requirements of the Fair Housing Act (FHA) and the Americans with Disabilities Act.
The Equal Rights Center (ERC) filed a complaint against us on September 23, 2005 in the U.S. District
Court, District of Maryland with respect to 100 properties. On October 30, 2009, we entered into a
proposed consent decree with the ERC to settle this litigation without admitting liability and on November
2, 2009, the court approved the consent decree. Under the consent decree, AvalonBay (i) will make a
payment to ERC to compensate it for the attorneys fees and other costs incurred by it related to the
litigation, and (ii) will inspect and, if necessary, remediate up to 8,250 apartment units and related public
and common areas at AvalonBays communities. The payment to be made to ERC is not material to our
financial condition or results of operations. We expect that the remediation resulting from the inspections,
which should occur over approximately a four year period, will enhance and/or extend the useful life of the
applicable communities and will therefore be capitalized to real estate values. Although we will not be able
to determine the exact remediation or associated costs until inspections are completed, we do not believe
that the remediation costs will be material to the Company.
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On August 13, 2008 the U.S. Attorneys Office for the Southern District of New York
filed a civil lawsuit against the Company and the joint venture (CVP I, LLC) in
which it has an interest that owns Avalon Chrystie Place. The lawsuit alleges that
Avalon |
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Chrystie Place was not designed and constructed in accordance with the
accessibility requirements of the FHA. The Company designed and constructed Avalon
Chrystie Place with a view to compliance with New York Citys Local Law 58, which
for more than 20 years has been New York Citys code regulating the accessible
design and construction of apartments. Due to the preliminary nature of the
Department of Justice matter, including whether the scope of their suit will be
extended to other properties, we cannot predict or determine the outcome of that
matter, nor is it reasonably possible to estimate the amount of loss, if any, that
would be associated with an adverse decision or settlement. |
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On August 1, 2008, we filed a lawsuit in the Superior Court of the State of
Washington in the County of King (Avalon DownREIT V, L.P., v Grand-Glacier, LLC et
al) relating to our assertion that the homeowners association in which our former
Avalon Wynhaven community is a part, systematically overcharged us for various
shared costs. We recently sold this property and agreed to indemnify the buyer for
annual association fees to the extent they exceed an amount that we each agreed was
reasonable. The defendants have filed a cross-claim against Avalon DownREIT V,
L.P. seeking foreclosure of the property and satisfaction of all amounts alleged to
be due. We intend to vigorously pursue our claim and defend against the counter
claim. We cannot predict the likely terms of a final judgment or settlement. |
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In addition to the matters described above, we are involved in various other claims
and/or
administrative proceedings that arise in the ordinary course of our business. While
no assurances can be given, we do not believe that any of these other outstanding
litigation matters, individually or in the aggregate, will have a material adverse
effect on our operations. |
Item 1a. |
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Risk Factors |
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In addition to the other information set forth in this report, you should carefully
consider the risk factors which could materially affect our business, financial
condition or future results discussed in the Form 10-K in Part I, Item 1a. Risk
Factors. The risks described in our Form 10-K are not the only risks that could
affect the Company. Additional risks and uncertainties not currently known to us
or that we currently deem to be immaterial also may materially adversely affect our
business, financial condition and/or operating results in the future. There have
been no material changes to our risk factors since December 31, 2008. |
Item 2. |
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Unregistered Sales of Equity Securities and Use of Proceeds |
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None. |
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Issuer Purchases of Equity Securities |
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(d) |
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Maximum Dollar |
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(c) |
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Amount that May |
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(a) |
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Total Number of |
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Yet be Purchased |
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Total Number |
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(b) |
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Shares Purchased |
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Under the Plans or |
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of Shares |
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Average Price |
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as Part of Publicly |
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Programs |
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Purchased |
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Paid per |
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Announced Plans |
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(in thousands) |
Period |
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(1) |
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Share |
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or Programs |
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(2) |
July 1 July 31, 2009 |
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$ |
200,000 |
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August 1 August 31, 2009 |
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525 |
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$ |
65.14 |
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$ |
200,000 |
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September 1 September
30, 2009 |
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1,869 |
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$ |
75.74 |
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$ |
200,000 |
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(1) |
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Reflects shares surrendered to the Company in connection
with vesting of restricted stock or exercise of stock options as payment of
taxes or as payment of exercise price. |
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(2) |
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As disclosed in our Form 10-Q for the quarter ended March
31, 2008, represents amounts outstanding under the Companys $500,000,000
Stock Repurchase Program. There is no scheduled expiration date to this
program. |
Item 3. |
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Defaults Upon Senior Securities |
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None. |
Item 4. |
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Submission of Matters to a Vote of Security Holders |
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None. |
Item 5. |
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Other Information |
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None. |
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Exhibit No. |
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Description |
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3(i).1
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Articles of Amendment and Restatement of Articles of
Incorporation of AvalonBay Communities (the
Company), dated as of June 4, 1998. (Incorporated
by reference to Exhibit 3(i).1 to Form 10-K of the
Company filed on March 1, 2007.) |
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3(i).2
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Articles of Amendment, dated as of October 2, 1998.
(Incorporated by reference to Exhibit 3(i).2 to Form
10-K of the Company filed on March 1, 2007.) |
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3(ii).1
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Amended and Restated Bylaws of the Company, as
adopted by the Board of Directors on May 21, 2009.
(Incorporated by reference to Exhibit 3.2 to Form 8-K
of the Company filed on May 28, 2009.) |
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4.1
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Indenture for Senior Debt Securities, 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
Registration Statement on form S-3 of the Company
(File No. 333-139839), filed January 8, 2007.) |
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4.2
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First Supplemental Indenture, dated as of January 20,
1998, between the Company and the State Street Bank
and Trust Company as Trustee. (Incorporated by
reference to Exhibit 4.2 to Registration Statement on
Form S-3 of the Company (File No. 333-139839), filed
January 8, 2007.) |
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4.3
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Second Supplemental Indenture, dated as of July 7,
1998, between the Company and State Street Bank and
Trust Company as Trustee. (Incorporated by reference
to Exhibit 4.3 to Registration Statement on Form S-3 of the Company (File No. 333-139839),
filed January 8, 2007.) |
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Exhibit No. |
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Description |
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4.4
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Amended and Restated Third Supplemental Indenture, dated as
of July 10, 2000 between the Company and State Street Bank
and Trust Company as Trustee. (Incorporated by reference to
Exhibit 4.4 to Registration Statement on Form S-3 of the
Company (File No. 333-139839), filed January 8, 2007.) |
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4.5
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Fourth Supplemental Indenture, dated as of September 18,
2006 between the Company and U.S. Bank National Association
as Trustee. (Incorporated by reference to Exhibit 4.5 to
Registration Statement on Form S-3 of the Company (File No.
333-139839), filed January 8, 2007.) |
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4.6
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Dividend Reinvestment and Stock Purchase Plan of the
Company. (Incorporated by reference to Exhibit 8.1 to
Registration Statement on Form S-3 of the Company (File No.
333-87063), filed September 14, 1999.) |
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4.7
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Amendment to the Companys Dividend Reinvestment and Stock
Purchase Plan filed on December 17, 1999. (Incorporated by
reference to the Prospectus Supplement filed pursuant to
Rule 424(b)(2) of the Securities Act of 1933 on December 17,
1999.) |
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4.8
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Amendment to the Companys Dividend Reinvestment and Stock
Purchase Plan filed on March 26, 2004. (Incorporated by
reference to the Prospectus Supplement filed pursuant to
Rule 424(b)(3) of the Securities Act of 1933 on March 26,
2004.) |
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4.9
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Amendment to the Companys Dividend Reinvestment and Stock
Purchase Plan filed on May 15, 2006. (Incorporated by
references to the Prospectus Supplement filed pursuant to
Rule 424(b)(3) of the Securities Act of 1933 on May 15,
2006.) |
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12.1
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Statements re: Computation of Ratios. (Filed herewith.) |
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31.1
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Certification pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 (Chief Executive Officer). (Filed herewith.) |
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31.2
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Certification pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 (Chief Financial Officer). (Filed herewith.) |
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Certification pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 (Chief Executive Officer and Chief Financial
Officer). (Furnished herewith.) |
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XBRL (Extensible Business Reporting Language). The
following materials from AvalonBay Communities, Inc.s
Quarterly Report on form 10-Q for the period ended September
30, 2009, formatted in XBRL: (i) Condensed Consolidated
Balance Sheets, (ii) Condensed Consolidated Statements of
Operations, (iii) Condensed Consolidated Statements of Cash
Flows, and (iv) Notes to Condensed Consolidated Financial
Statements.* |
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* |
As provided in Rule 406T of Regulation S-T, this
information is furnished and not filed for purposes of Sections 11 and 12 of
the Securities Act of 1933 and Section 18 of the Securities Exchange Act of
1934. |
45
SIGNATURES
Pursuant to the requirements 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.
AVALONBAY COMMUNITIES, INC.
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Date: November 06, 2009 |
/s/ Bryce Blair
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Bryce Blair |
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Chief Executive Officer
(Principal Executive Officer) |
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Date: November 06, 2009 |
/s/ Thomas J. Sargeant
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Thomas J. Sargeant |
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Chief Financial Officer
(Principal Financial Officer) |
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46