10-Q: Quarterly report pursuant to Section 13 or 15(d)
Published on August 14, 2000
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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 June 30, 2000
Commission file number 1-12672
AVALONBAY COMMUNITIES, INC.
(Exact name of registrant as specified in its charter)
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2900 Eisenhower Avenue, Suite 300
Alexandria, Virginia 22314
(Address of principal executive offices, including zip code)
(703) 329-6300
(Registrant's telephone number, including area code)
(Former name, if changed since last report)
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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 [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date:
66,629,698 shares outstanding as of August 1, 2000
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AVALONBAY COMMUNITIES, INC.
FORM 10-Q
INDEX
1
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AVALONBAY COMMUNITIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
See accompanying notes to condensed consolidated financial statements.
2
AVALONBAY COMMUNITIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Dollars in thousands, except per share data)
See accompanying notes to condensed consolidated financial statements.
3
AVALONBAY COMMUNITIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
See accompanying notes to condensed consolidated financial statements.
4
Supplemental disclosures of non-cash investing and financing activities (dollars
in thousands):
During the six months ended June 30, 2000:
- 119,588 units of limited partnership, valued at $4,772, were presented for
redemption to the DownREIT partnership that issued such units and were
acquired by the Company for an equal number of shares of the Company's
common stock.
- The Company issued $30 in limited partnership units for acquisitions that
were pursuant to the terms of a forward purchase contract agreed to in 1997
with an unaffiliated party.
- Common and preferred dividends declared but not paid totaled $47,160.
During the six months ended June 30, 1999:
- 17,598 units of limited partnership, valued at $693, were presented for
redemption to the DownREIT partnership that issued such units and were
acquired by the Company for an equal number of shares of the Company's
common stock.
- Common and preferred dividends declared but not paid totaled $43,011.
5
AVALONBAY COMMUNITIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
1. Organization and Significant Accounting Policies
Organization and Recent Developments
AvalonBay Communities, Inc. (the "Company," which term is often used to refer to
AvalonBay Communities, Inc. together with its 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, as amended. The Company
focuses on the ownership and operation of upscale apartment communities in high
barrier-to-entry markets of the United States. These markets include Northern
and Southern California and selected markets in the Mid-Atlantic, Northeast,
Midwest and Pacific Northwest regions of the country.
At June 30, 2000, the Company owned or held a direct or indirect ownership
interest in 125 operating apartment communities containing 36,412 apartment
homes in twelve states and the District of Columbia, of which six communities
containing 2,496 apartment homes were under reconstruction. The Company also
owned nine communities with 2,542 apartment homes under construction and rights
to develop an additional 33 communities that, if developed, are expected to
contain an estimated 8,859 apartment homes.
During the second quarter of 2000, the Company completed development of Avalon
Willow (located in the New York, New York area) containing 227 apartment homes
for a total investment of approximately $46,800.
The development of Avalon Manor (located in the Northern New Jersey area)
commenced during the second quarter of 2000. This community is expected to
contain a total of 296 apartment homes upon completion with a projected total
investment of approximately $33,100.
During the second quarter of 2000, the Company acquired two communities pursuant
to the terms of a forward purchase contract agreed to in 1997 with an
unaffiliated party. Avalon RockMeadow, containing 206 apartment homes, was
acquired during May 2000 for approximately $24,100. Avalon ParcSquare,
containing 124 apartment homes, was acquired during June 2000 for approximately
$19,000. Both communities are located in the Seattle, Washington area.
During the second quarter of 2000, the Company acquired one land parcel, for an
aggregate purchase price of $12,500, on which construction has not yet begun.
The parcel is located in the Fairfield-New Haven, Connecticut area, and we
expect to develop an apartment community containing 323 apartment homes on this
parcel.
As further discussed in Footnote 6, "Communities Held for Sale", the Company has
adopted a strategy of disposing of certain assets in markets that did not meet
its long-term strategic direction and redeploying the proceeds from such sales
to help fund the Company's development and redevelopment activities. In
connection with this strategy, the Company sold two communities containing 486
apartment homes for net proceeds of approximately $26,127 during the three
months ended June 30, 2000. The net proceeds from these dispositions will be
redeployed to develop and redevelop communities currently under construction or
reconstruction. Pending such redeployment, the proceeds from the sale of these
communities were either used to reduce amounts outstanding under the Company's
variable rate unsecured credit facility or deposited in escrow accounts to
facilitate like-kind exchange transactions.
The interim unaudited financial statements have been prepared in accordance with
generally accepted accounting principles ("GAAP") for interim financial
information and in conjunction with the rules and regulations of the
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Securities and Exchange Commission. 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 Company's Annual Report on Form 10-K for the year ended December
31, 1999. The results of operations for the three and six months ended June 30,
2000 are not necessarily indicative of the operating results for the full year.
Management believes the disclosures are adequate to make the information
presented 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.
Presentation of Historical Financial Statements for the Three and Six Months
Ended June 30, 1999
The financial presentation of the historical financial statements for the three
and six months ended June 30, 1999, has been changed from the presentation that
appeared in the Company's Form 10-Q for the three and six months ended June 30,
1999. For a discussion of the change in the presentation and the reasons
therefor, see Footnote 2 to the consolidated financial statements presented in
the Company's Form 10-K for the fiscal year ended December 31, 1999.
Principles of Consolidation
The accompanying condensed consolidated financial statements include the
accounts of the Company and its wholly-owned partnerships and certain joint
venture partnerships in addition to subsidiary partnerships structured as
DownREITs. All significant intercompany balances and transactions have been
eliminated in consolidation.
In each of the partnerships structured as DownREITs, either the Company or one
of the Company's wholly-owned subsidiaries is the general partner, and there are
one or more limited partners whose interest in the partnership is represented by
units of limited partnership interest. For each DownREIT partnership, limited
partners are entitled to receive distributions before any distribution is made
to the general partner. Although the partnership agreements for each of the
DownREITs are different, generally the distributions per unit paid to the
holders of units of limited partnership interests approximate the Company's
current common stock dividend per share. Each DownREIT partnership has been
structured so that it is unlikely the limited partners will be entitled to a
distribution greater than the initial distribution provided for in the
partnership agreement. The holders of units of limited partnership interest have
the right to present each unit of limited partnership interest for redemption
for cash equal to the fair market value of a share of the Company's common stock
on the date of redemption. In lieu of cash redemption of a unit by a partner,
the Company may elect to acquire any unit presented for redemption for one share
of common stock.
Real Estate
Significant expenditures that improve or extend the life of an asset are
capitalized. The operating real estate assets are stated at cost and consist of
land, buildings and improvements, furniture, fixtures and equipment, and other
costs incurred during their development, redevelopment and acquisition.
Expenditures for maintenance and repairs are charged to operations as incurred.
The capitalization of costs during the development of assets (including interest
and related loan fees, property taxes and other direct and indirect costs)
begins when active development commences and ends when the asset is delivered
and a final certificate of occupancy is issued. Cost capitalization during
redevelopment of apartment homes (including interest and related loan fees,
property taxes and other direct and indirect costs) begins when an apartment
home is taken out-of-service for redevelopment and ends when the apartment home
redevelopment is completed and the apartment home is placed in-service. The
accompanying condensed consolidated financial statements include a charge to
expense for unrecoverable deferred development costs related to pre-development
communities that are unlikely to be developed.
Depreciation is calculated on buildings and improvements using the straight-line
method over their estimated useful lives, which range from seven to thirty
years. Furniture, fixtures and equipment are generally depreciated using the
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straight-line method over their estimated useful lives, which range from three
years (computer related equipment) to seven years.
Lease terms for apartment homes are generally one year or less. Rental income
and operating costs incurred during the initial lease-up or post-redevelopment
lease-up period are fully recognized as they accrue.
Development Costs of Software
The Company has an investment in a corporation formed to continue the Company's
development of new web-based applications that will be used to better manage the
Company's core real estate operations. The Company holds the majority economic
interest in this entity and two other REITs also hold economic interests. The
software development process is currently being managed by Company employees who
oversee a project team of employees and third-party consultants. Development
costs associated with the software project include computer hardware costs,
direct labor costs and third-party consultant costs related to programming and
documenting the system. The project began in January 1999 and is expected to be
fully implemented in early 2001, although no assurance can be provided in this
regard. The Company will continue to be actively involved in the development of
these systems and the total cost of development will be shared by those REITs
owning capital stock of this entity.
Costs associated with the project have been accounted for in accordance with the
American Institute of Certified Public Accountants' Statement of Position 98-1
("SOP 98-1") "Accounting for Costs of Computer Software Developed or Obtained
for Internal Use." Under SOP 98-1, costs of acquiring hardware and costs of
coding, documenting and testing the software are capitalized during the
application development stage. Following implementation, capitalized development
costs are amortized over the system's estimated useful life.
The total expected cost to develop the system, excluding legal costs related to
formation of the company and non-development costs, is approximately $8 million.
Earnings per Common Share
In accordance with the provisions of SFAS No. 128, "Earnings per Share", basic
earnings per share for the three and six months ended June 30, 2000 and 1999 is
computed by dividing earnings available to common shares (net income less
preferred stock dividends) by the weighted average number of shares and units of
limited partnership in the Company's DownREIT partnerships that were outstanding
during the period. Additionally, other potentially dilutive common shares are
considered when calculating earnings per share on a diluted basis.
The Company's basic and diluted weighted average shares outstanding for the
three and six months ended June 30, 2000 and 1999 are as follows:
8
Certain options to purchase shares of common stock in the amounts of 60,000 and
1,456,074 were outstanding during the three and six months ended June 30, 2000,
respectively, and 2,368,055 and 2,418,055 were outstanding during the three and
six months ended June 30, 1999, respectively, but were not included in the
computation of diluted earnings per share because the options' exercise prices
were greater than the average market price of the common shares.
Non-recurring Charges
In February 1999, the Company announced certain management changes including (i)
the departure of three senior officers who became entitled to severance benefits
in accordance with the terms of their employment agreements with the Company
dated as of March 9, 1998 and (ii) elimination of duplicate accounting functions
and related employee departures. The Company recorded a non-recurring charge of
$16,076 in the first quarter of 1999 related to the expected costs associated
with this management realignment and certain related organizational adjustments.
The non-recurring charge consisted of $15,476 in severance benefits, $250
related to costs to eliminate duplicate accounting functions and $350 in legal
fees. As of June 30, 2000 all cash payments related to the non-recurring charge
had been incurred.
The non-recurring charge also included $66 and $514 of Year 2000 remediation
costs that had been incurred for the three and six months ended June 30, 1999,
respectively.
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.
Recently Issued Accounting Standards
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This
pronouncement establishes accounting and reporting standards requiring that
every derivative instrument be recorded on the balance sheet as either an asset
or liability measured at its fair value. SFAS No. 133 requires that changes in
the derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. In June 1999, the Financial Accounting
Standards Board issued SFAS No. 137, "Accounting for Derivative Instruments and
Hedging Activities - Deferral of the Effective date of SFAS No. 133." SFAS No.
137 delays the effective date of SFAS No. 133 for one year, to fiscal years
beginning after June 15, 2000. In June 2000, the Financial Accounting Standards
Board issued SFAS No. 138, "Accounting for Certain Instruments and Certain
Hedging Activities." SFAS No. 138 addresses a limited number of issues causing
implementation difficulties for entities that apply SFAS No. 133. The Company
currently plans to adopt these pronouncements effective January 1, 2001, and
will determine both the method and impact of adoption, which is not expected to
be material to the financial statements.
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial Statements". SAB
101 provides guidance on applying generally accepted accounting principles to
revenue recognition issues in financial statements. The Company adopted SAB 101
effective with the March 31, 2000 reporting period, as required, and the
adoption did not have a material effect on the Company's condensed consolidated
financial statements.
2. Interest Capitalized
Capitalized interest associated with communities under development or
redevelopment totaled $4,163 and $5,866 for the three months ended June 30, 2000
and 1999, respectively, and $7,657 and $13,149 for the six months ended June 30,
2000 and 1999, respectively.
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3. Notes Payable, Unsecured Notes and Credit Facility
The Company's notes payable, unsecured notes and credit facility are summarized
as follows:
Mortgage notes payable are collateralized by certain apartment communities and
mature at various dates from May 2001 through December 2036. The weighted
average interest rate of the Company's variable rate notes and credit facility
was 7.3% at June 30, 2000. The weighted average interest rate of the Company's
fixed rate notes (conventional and tax-exempt) was 6.8% at June 30, 2000.
The maturity schedule for the Company's unsecured notes is as follows:
The Company's unsecured notes contain a number of financial and other covenants
with which the Company must comply, including, but not limited to, limits on the
aggregate amount of total and secured indebtedness the Company may have on a
consolidated basis and limits on the Company's required debt service payments.
10
The Company has a $600,000 variable rate unsecured credit facility with Morgan
Guaranty Trust Company of New York, Union Bank of Switzerland and Fleet National
Bank, serving as co-agents for a syndicate of commercial banks. The credit
facility bears interest at a spread over the London Interbank Offered Rate
("LIBOR") based on rating levels achieved on the Company's unsecured notes and
on a maturity selected by the Company. The current stated pricing is LIBOR plus
0.6% per annum (7.2% at June 30, 2000). In addition, the credit facility
includes a competitive bid option (which allows banks that are part of the
lender consortium to bid to make loans to the Company at a rate that is lower
than the stated rate provided by the credit facility) for up to $400,000. The
Company is subject to certain customary covenants under the credit facility,
including, but not limited to, maintaining certain maximum leverage ratios, a
minimum fixed charges coverage ratio, minimum unencumbered assets and equity
levels and restrictions on paying dividends in amounts that exceed 95% of the
Company's Funds from Operations, as defined therein. The credit facility matures
in July 2001 and has two, one-year extension options.
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4. Stockholders' Equity
The following summarizes the changes in stockholders' equity for the six months
ended June 30, 2000:
During the six months ended June 30, 2000, the Company issued 213,281 shares of
common stock upon the exercise of stock options, 269,586 shares of common stock
through the Company's Dividend Reinvestment Plan, 119,588 shares of common stock
to acquire operating partnership units from third parties, 10,291 shares of
common stock in connection with the Company's Employee Stock Purchase Plan and
127,576 shares of common stock in connection with restricted stock grants to
employees. A total of 42,632 shares of common stock issued in connection with
restricted stock grants were forfeited during the six months ended June 30,
2000.
5. Investments in Unconsolidated Joint Ventures
At June 30, 2000, the Company's investments in unconsolidated joint ventures
consisted of:
- a 50% general partnership interest in a partnership that owns the
Falkland Chase community;
- a 49% general partnership interest in a partnership that owns the
Avalon Run community;
- a 50% limited liability company membership interest in an LLC that
owns the Avalon Grove community; and
- an approximate 50% economic interest (represented by ownership of
non-voting shares of common stock) in a corporation formed to
continue the development of an on-site property management system
and a leasing automation system. Previously, the software
development effort was conducted through a joint venture structured
as a limited liability company. The joint venture was restructured
into a corporation in June 2000. Currently two other REITs hold
ownership positions in this corporation.
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The following is a combined summary of the financial position of these joint
ventures as of the dates presented.
The following is a combined summary of the operating results of these joint
ventures for the periods presented:
6. Communities Held for Sale
During 1998, the Company adopted a strategy of disposing certain assets in
markets that did not meet its long-term strategic direction. In connection with
this strategy, the Company solicits competing bids from unrelated parties for
individual assets, and considers the sales price and tax ramifications of each
proposal. In connection with this strategy, the Company sold an aggregate of 23
communities and a participating mortgage note during 1998 and 1999.
The communities sold during the first six months of 2000 and the respective
sales price and net proceeds are summarized below:
Management intends to market additional communities for sale during the
remainder of 2000. However, there can be no assurance that such assets will be
sold, or that we will sell the assets on financially advantageous terms. The
assets targeted for sale include land, buildings and improvements and furniture,
fixtures and equipment, and are recorded at the lower of cost or fair value less
estimated selling costs. The Company has not recognized a write-down in its real
estate to arrive at net realizable value, although there can be no assurance
that the Company can sell these assets for amounts that equal or exceed its
estimates of net realizable value. At June 30, 2000, total real estate,
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net of accumulated depreciation, subject to sale totaled $75,371. Certain
individual assets are secured by mortgage indebtedness which may be assumed by
the purchaser or repaid by the Company from the net sales proceeds.
The Company's Condensed Consolidated Statements of Operations include net income
of the communities held for sale at June 30, 2000 of $1,315 and $635 for the
three months ended June 30, 2000 and 1999, respectively, and $2,556 and $1,142
for the six months ended June 30, 2000 and 1999, respectively.
7. Segment Reporting
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," established standards for reporting financial and descriptive
information about operating segments in annual financial statements. Operating
segments are defined as components of an enterprise about which separate
financial information is available that is evaluated regularly by the chief
operating decision maker, or decision making group, in deciding how to allocate
resources and in assessing performance. The Company's chief operating decision
making group consists primarily of the Company's senior officers.
The Company's reportable operating segments include Stable Communities,
Developed Communities and Redeveloped Communities:
- Stable Communities are communities that 1) have attained stabilized
occupancy levels (at least 95% occupancy) and operating costs since
the beginning of the prior calendar year (these communities are also
known as Established Communities); or 2) were acquired after the
beginning of the previous calendar year but were stabilized in terms
of occupancy levels and operating costs at the time of acquisition,
and remained stabilized throughout the end of the current calendar
year. Stable Communities do not include communities where planned
redevelopment or development activities have not yet commenced. The
primary financial measure for this business segment is Net Operating
Income ("NOI"), which represents total revenue less operating
expenses and property taxes. With respect to Established
Communities, an additional financial measure of performance is NOI
for the current year as compared against the prior year and against
current year budgeted NOI. With respect to other Stable Communities,
performance is primarily based on reviewing growth in NOI for the
current period as compared against prior periods within the calendar
year and against current year budgeted NOI.
- Developed Communities are communities which completed development
during the prior calendar year of presentation. The primary
financial measure for this business segment is Operating Yield
(defined as NOI divided by total capitalized costs). Lease-up
activities immediately following the completion of development
adversely impact operating yields, as stabilized occupancy and
operating costs are not yet reached. Performance of Developed
Communities is based on comparing Operating Yields against projected
yields as determined by Management prior to undertaking the
development activity.
- Redeveloped Communities are communities that completed redevelopment
during the prior calendar year of presentation. The primary
financial measure for this business segment is Operating Yield.
Lease-up activities immediately following the completion of
redevelopment adversely impact operating yields, as stabilized
occupancy and operating costs are not yet reached. Performance for
Redeveloped Communities is based on comparing Operating Yields
against projected yields as estimated by Management prior to
undertaking the redevelopment activity.
Other communities owned by the Company, which are not included in the above
segments, are communities that were under development or redevelopment at any
point in time during the applicable calendar year as well as
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communities held for sale. The primary performance measure for these assets
depends on the stage of development or redevelopment of the community. While
under development or redevelopment, Management monitors actual construction
costs against budgeted costs as well as economic occupancy. The primary
performance measure for communities held for sale is NOI.
Net Operating Income for each community is generally equal to that community's
contribution to Funds from Operations ("FFO"), except that interest expense
related to indebtedness secured by an individual community and depreciation and
amortization on non-real estate assets are not included in the community's NOI
although such expenses decrease the Company's consolidated net income and FFO.
The segments are classified based on the individual community's 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.
In addition to reporting segments based on the above property types, Management
currently reviews its operating segments by geographic regions, including
Northern and Southern California, Pacific Northwest, Northeast, Mid-Atlantic and
Midwest regions. Because the various locations within each individual region
have similar economic and other characteristics, Management finds it useful to
review the performance of the Company's communities in those locations on a
regional, aggregated basis.
The accounting policies applicable to the operating segments described above are
the same as those described in the summary of significant accounting policies.
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Operating expenses as reflected on the Condensed Consolidated Statements of
Operations include $6,806 and $5,989 for the three months ended June 30, 2000
and 1999, respectively, and $13,178 and $11,491 for the six months ended June
30, 2000 and 1999, respectively, of property management overhead costs that are
not allocated to individual communities. These costs are not reflected in NOI as
shown in the above tables. The amount reflected for "Communities held for sale"
on the Condensed Consolidated Balance Sheets is net of $4,500 of accumulated
depreciation as of June 30, 2000.
8. Subsequent Events
During July 2000, the Company sold Glen Creek, a 138 apartment home community
located in the San Jose, California area, and Governor's Square, a 302 apartment
home community located in the Sacramento, California area. The net proceeds of
approximately $18,780 from the sale of Glen Creek were deposited into an escrow
account to facilitate a like-kind exchange transaction to be used for
development and redevelopment funding. The net proceeds of approximately $15,347
from the sale of Governor's Square were used to repay amounts outstanding under
the Company's credit facility.
During July 2000, the Company issued $150,000 of medium-term notes. The notes
bear interest at 8.25% and will mature on July 15, 2008. The Company used the
net proceeds of approximately $149,000 to repay amounts outstanding under the
Company's credit facility.
During July 2000, the Company acquired two parcels of land, for an aggregate
purchase price of $18,516, on which construction has not yet begun. The parcels
are located in the Washington, D.C. area and the Seattle, Washington area, and
the Company expects to develop two apartment communities with an aggregate of
309 apartment homes.
During July 2000, the Company acquired Avalon WildReed pursuant to the terms of
a forward purchase contract agreed to in 1997 with an unaffiliated party. This
community containing 232 apartment homes is located in the Seattle, Washington
area, and was acquired for approximately $22,740.
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ITEM 2. MANAGMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Forward-Looking Statements
This Form 10-Q, including the footnotes to the Company's condensed consolidated
financial statements, 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," and other similar expressions in
this Form 10-Q, that predict or indicate future events and trends or that do not
relate to historical matters. In addition, information concerning the following
are forward-looking statements:
- the timing and cost of completion of apartment communities under
construction, reconstruction, development or redevelopment;
- the timing of lease-up and occupancy of apartment communities;
- the pursuit of land on which we are considering future development;
- cost, yield and earnings estimates; and
- the development, implementation and use of management information
systems.
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, performance
or achievements to differ materially from the anticipated future results,
performance or achievements expressed or implied by these forward-looking
statements. 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 be unsuccessful in managing our current growth in the number
of apartment communities and the related growth of our business
operations;
- our previous or possible future expansion into new geographic market
areas may not produce financial results that are consistent with our
historical performance;
- we may fail to secure development opportunities due to an inability
to reach agreements with third parties or to obtain desired zoning
and other local approvals;
- we may abandon development opportunities for a number of reasons,
including changes in local market conditions which make development
less desirable, increases in costs of development and increases in
the cost of capital;
- 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 expense, construction costs and rental revenues that are
lower than originally expected;
- occupancy rates and market rents may be adversely affected by local
economic and market conditions which are beyond our control;
- financing may not be available on favorable terms or at all, and our
cash flow from operations and access to cost effective capital may
be insufficient for the development of our pipeline and could limit
our pursuit of opportunities;
- our cash flow 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; and
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- the development, implementation and use of new management
information systems may cost more than anticipated or may be delayed
for a number of reasons, including unforeseen technological or
integration issues.
You should read our unaudited condensed consolidated financial statements and
notes included in this report and the audited financial statements for the year
ended December 31, 1999 and the notes included in our annual report on Form 10-K
in conjunction with the following discussion. These forward-looking statements
represent our estimates and assumptions only as of the date of this report. We
do not undertake to update these forward-looking statements, and you should not
rely upon them after the date of this report.
Business Description and Community Information
AvalonBay is a Maryland corporation that has elected to be treated as a real
estate investment trust, or REIT, for federal income tax purposes. We focus on
the ownership and operation of upscale apartment communities (which we consider
to be apartment communities that generally command among the highest rents in
their submarkets) in high barrier-to-entry markets of the United States. This is
because we believe that the limited new supply of upscale apartment homes in
these markets helps achieve more predictable growth in cash flows. These
barriers-to-entry generally include a difficult and lengthy entitlement process
with local jurisdictions and dense in-fill locations where zoned and entitled
land is in limited supply. These markets are located in Northern and Southern
California and selected states in the Mid-Atlantic, Northeast, Midwest and
Pacific Northwest regions of the country.
We are a fully-integrated real estate organization with in-house expertise in
the following areas:
- development and redevelopment;
- construction and reconstruction;
- leasing and management;
- acquisition and disposition;
- financing;
- marketing; and
- information technologies.
With our expertise and in-house capabilities, we believe we are well-positioned
to continue to pursue opportunities to develop and acquire upscale apartment
homes in our target markets. Our ability to pursue attractive opportunities,
however, may be constrained by capital market conditions that limit the
availability of cost effective capital to finance these activities. We have
limited our acquisition activity as compared to prior years due to these capital
constraints, and we expect to direct most of our invested capital to new
developments and redevelopments, rather than acquisitions, for the foreseeable
future. See "Liquidity and Capital Resources" and "Future Financing and Capital
Needs."
We believe apartment communities present an attractive investment opportunity
compared to other real estate investments because a broad potential resident
base results in relatively stable demand during all phases of a real estate
cycle. We intend, subject to the availability of cost-effective capital, to
pursue appropriate new investments, including both new developments and
acquisitions of communities, in markets where constraints to new supply exist
and where new household formations have out-paced multifamily permit activity in
recent years.
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Our real estate investments as of August 1, 2000 consist primarily of stabilized
operating apartment communities as well as communities in various stages of the
development and redevelopment cycle and land or land options held for
development. We classify these investments into the following categories:
(*) Represents an estimate
Current Communities are apartment communities that have been completed
and have reached occupancy of at least 95%, have been complete for one
year, are in the initial lease-up process or are under redevelopment.
Current Communities consist of the following:
Stabilized Communities. Represents all Current Communities that
have completed initial lease-up by attaining physical occupancy
levels of at least 95% or have been completed for one year,
whichever occurs earlier. Stabilized Communities are categorized
as either Established Communities or Other Stabilized Communities.
- Established Communities. Represents all Stabilized Communities
owned as of January 1, 1999, with stabilized operating costs
as of January 1, 1999 such that a comparison of 1999 operating
results to 2000 operating results is meaningful. Each of the
Established Communities falls into one of the following six
geographic areas: Northern California, Southern California,
Mid-Atlantic, Northeast, Midwest and Pacific Northwest
regions.
- Other Stabilized Communities. Represents Stabilized
Communities as defined above, but which became stabilized or
were acquired after January 1, 1999.
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Lease-Up Communities. Represents all communities where
construction has been complete for less than one year and where
occupancy has not reached at least 95%. As of August 1, 2000,
there were no lease-up communities.
Redevelopment Communities. Represents all communities where
substantial redevelopment has begun. Redevelopment is considered
substantial when capital expected to be invested during the
reconstruction effort exceeds the lesser of $5 million or 10% of
the community's acquisition cost.
Development Communities are communities that are under construction and
for which a final 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 have an option to acquire land or
where we own land to develop a new community. We capitalize all related
pre-development costs incurred in pursuit of these new developments.
Of the Current Communities as of August 1, 2000, we owned:
- a fee simple, or absolute, ownership interest in 107 operating
communities, one of which is on land subject to a 149 year land
lease;
- a general partnership interest in four partnerships that each own
a fee simple interest in an operating community;
- a general partnership interest in four partnerships structured as
"DownREITs," as described more fully below, that own an aggregate
of 12 communities; and
- a 100% interest in a senior participating mortgage note secured by
one community, which allows us to share in part of the rental
income or resale proceeds of the community.
We also hold a fee simple ownership interest in eight of the Development
Communities and a membership interest in a limited liability company that holds
a fee simple interest in one Development Community.
In each of the four partnerships structured as DownREITs, either AvalonBay or
one of our wholly-owned subsidiaries is the general partner, and there are one
or more limited partners whose interest in the partnership is represented by
units of limited partnership interest. For each DownREIT partnership, limited
partners are entitled to receive distributions before any distribution is made
to the general partner. Although the partnership agreements for each of the
DownREITs are different, generally the distributions per unit paid to the
holders of units of limited partnership interests approximate the current
AvalonBay common stock dividend rate per share. Each DownREIT partnership has
been structured so that it is unlikely the limited partners will be entitled to
a distribution greater than the initial distribution provided for in the
partnership agreement. The holders of units of limited partnership interest have
the right to present each unit of limited partnership interest for redemption
for cash equal to the fair market value of a share of AvalonBay common stock on
the date of redemption. In lieu of cash redemption of a unit, we may elect to
acquire any unit presented for redemption for one share of our common stock. As
of June 30, 2000, there were 855,090 units outstanding. The DownREIT
partnerships are consolidated for financial reporting purposes.
At June 30, 2000, we had positioned our portfolio of Stabilized Communities,
excluding communities owned by unconsolidated joint ventures, to an average
physical occupancy level of 97.4%. Our strategy is to maximize total rental
revenue through management of rental rates and occupancy levels. Our strategy of
maximizing total rental revenue could lead to lower rental rates or occupancy
levels. Given the current high occupancy level of our portfolio, we believe that
any rental revenue and net income gains from our
20
Stabilized Communities would be achieved primarily through higher rental rates
and the lower average operating costs per apartment home that result from
economies of scale due to national and regional growth of our portfolio.
We elected to be taxed as a REIT for federal income tax purposes for the year
ended December 31, 1994 and we have not revoked that election. We were
incorporated under the laws of the State of California in 1978, and we were
reincorporated in the State of Maryland in July 1995. Our principal executive
offices are located at 2900 Eisenhower Avenue, Suite 300, Alexandria, Virginia,
22314, and our telephone number at that location is (703) 329-6300. We also
maintain regional offices and administrative or specialty offices in or near the
following cities:
- San Jose, California;
- Wilton, Connecticut;
- Boston, Massachusetts;
- Chicago, Illinois;
- Los Angeles, California;
- Minneapolis, Minnesota;
- Newport Beach, California;
- New York, New York;
- Iselin, New Jersey; and
- Seattle, Washington.
Recent Developments
Sales of Existing Communities. During 1998, we completed a strategic planning
effort that resulted in our decision to increase our geographical concentration
in selected high barrier-to-entry markets where we believe we can:
- apply sufficient market and management presence to enhance revenue
growth;
- reduce operating expenses; and
- leverage management talent.
To effect this increased concentration, we adopted an aggressive capital
redeployment strategy and are selling assets in certain markets where our
current presence is limited. We intend to redeploy the proceeds from sales to
develop and redevelop communities currently under construction or
reconstruction. Pending such redeployment, we will generally use the proceeds
from the sale of these communities to reduce amounts outstanding under our
variable rate unsecured credit facility. On occasion, we will set aside the
proceeds from the sale of communities into a cash escrow account to facilitate a
like-kind exchange transaction. Accordingly, we sold two communities containing
486 apartment homes in connection with our capital redeployment strategy during
the three months ended June 30, 2000. Net proceeds from these sales totaled
$26,127,000. In July 2000, we sold two additional communities, where the net
proceeds from the sale were approximately $34,127,000. We intend to dispose of
additional assets as described more fully under "Future Financing and Capital
Needs."
Development, Redevelopment and Acquisition Activities. During the second quarter
of 2000, we completed development of Avalon Willow (located in the New York, New
York area) containing 227 apartment homes for a total investment of
approximately $46,800,000. The development of Avalon Manor (located in the
Northern New Jersey area) commenced during the second quarter of 2000. This
community is expected to contain a total of 296 apartment homes upon completion
with a projected total investment of approximately $33,100,000.
21
During the second quarter of 2000, we acquired one land parcel, for an aggregate
purchase price of $12,500,000 on which construction has not yet begun. The
parcel is located in the Fairfield-New Haven, Connecticut area, and we expect to
develop an apartment community containing 323 apartment homes on this parcel.
During July 2000, we acquired two parcels of land, for an aggregate purchase
price of $18,516,000, on which construction has not yet begun. The parcels are
located in the Washington, D.C. area and Seattle, Washington area, and we expect
to develop two apartment communities with an aggregate of 309 apartment homes.
We also acquired two communities during the second quarter of 2000 in connection
with the terms of a forward purchase contract agreed to in 1997 with an
unaffiliated party. Avalon RockMeadow, containing 206 apartment homes, was
acquired during May 2000 for approximately $24,100,000. Avalon ParcSquare,
containing 124 apartment homes, was acquired during June 2000 for approximately
$19,000,000. Both communities are located in the Seattle, Washington area.
During July 2000, Avalon WildReed, containing 234 apartment homes, was acquired
in connection with the terms of this forward purchase contract for approximately
$22,700,000. This community is also located in the Seattle, Washington area.
The development and redevelopment of communities involve risks that the
investment will fail to perform in accordance with expectations. See "Risks of
Development and Redevelopment" for our discussion of these and other risks
inherent in developing or redeveloping communities.
Results of Operations and Funds from Operations
The financial presentation of our historical financial statements for the three
and six months ended June 30, 1999, has been changed from the presentation that
appeared in AvalonBay's Form 10-Q for the three and six months ended June 30,
1999. For a discussion of the change in the presentation and the reasons
therefor, see Footnote 2 to the consolidated financial statements presented in
AvalonBay's Form 10-K for the fiscal year ended December 31, 1999.
22
A comparison of our operating results for the three and six months ended June
30, 2000 and June 30, 1999 follows.
Net income available to common stockholders (after adjusting for non-recurring
charges and gain on sale of communities) increased by $5,406,000 for the three
months ended June 30, 2000 and $13,244,000 for the six months ended June 30,
2000 compared to the comparable periods of the preceding year. The increase in
net income, as adjusted, for the three and six months ended June 30, 2000 is
primarily attributable to additional operating income from newly developed or
redeveloped communities as well as growth in operating income from Established
Communities.
As discussed in "Recent Developments - Sales of Existing Communities" and
"Future Financing and Capital Needs," we have funded a significant portion of
our development and redevelopment activities since 1998 through the sale of
assets in certain markets where we have a limited presence. The short term
effect of redeploying capital from existing communities to development or
redevelopment communities is that net operating income will decrease as we
complete development and redevelopment activities. Interest expense will also
decrease as the proceeds from the sale of communities are initially used to
repay amounts outstanding on our credit facility. The historical long term
effect of this strategy has been that net operating income attributable to newly
developed and redeveloped communities is higher than net
23
operating income of assets identified for sale. For the period January 1, 1999
through June 30, 2000, we have generated approximately $336 million in net
proceeds from the sale of assets, which represents nearly 10% of our total real
estate assets as of January 1, 1999. The total $29,471,000 increase in net
operating income for the six months ended June 30, 2000 as compared to the
comparable period of the preceding year is attributable to:
- an increase of $28,961,000 related to communities where development
activities, redevelopment activities or acquisition were completed
subsequent to January 1, 1999;
- an increase of $9,262,000 related to Established Communities;
- a decrease of $11,909,000 related to communities sold subsequent to
January 1, 1999; and
- an increase of $3,157,000 related to all other communities.
Depreciation expense will be impacted by the timing of asset sales and the
completion of development or redevelopment activities. Gain on sale of
communities will be impacted by the number of assets sold in a given period, and
the carrying value of those assets.
Rental income increases are primarily the result of our disposition and capital
redeployment strategy discussed above and improved operating results related to
Established Communities.
Overall Portfolio - The increase in rental income (13.7% for the three and
six months ended June 30, 2000) is primarily due to an increase in the
weighted average monthly rental income per occupied apartment home offset
by a decrease in the weighted average number of occupied apartment homes.
The weighted average number of occupied apartment homes decreased from
34,145 apartment homes for the six months ended June 30, 1999 to 33,512
apartment homes for the six months ended June 30, 2000. For the six months
ended June 30, 2000, the weighted average monthly revenue per occupied
apartment home increased $179 (15.3%) to $1,351 compared to $1,172 for the
comparable period of the preceding year.
Established Communities - Rental revenue increased $5,533,000 (7.7%) for
the three months ended June 30, 2000 compared to the comparable period of
the preceding year. Rental revenue increased $10,210,000 (7.2%) for the six
months ended June 30, 2000 compared to the comparable period of the
preceding year. The increase is due to market conditions that allowed for
higher average rents and higher economic occupancy levels. For the six
months ended June 30, 2000, weighted average monthly revenue per occupied
apartment home increased $68 (5.6%) to $1,329 compared to $1,261 for the
comparable period of the preceding year. The average economic occupancy
increased from 96.1% for the six months ended June 30, 1999 to 97.7% for
the six months ended June 30, 2000.
Management fees decreases (19.7% for the three months ended and 23.4% for the
six months ended June 30, 2000) are primarily due to a decline in the number of
third-party communities that we manage.
Operating expenses, excluding property taxes increases (4.7% for the three
months ended and 3.4% for the six months ended June 30, 2000) are primarily a
result of our disposition and capital redeployment strategy discussed above, and
an increase in expense related to Established Communities. Maintenance,
insurance and other costs associated with Development and Redevelopment
Communities are expensed as communities move from the initial construction and
lease-up phase to the stabilized operating phase.
Established Communities - Operating expenses, excluding property taxes
increased $947,000 (6.6%) to $15,321,000 for the three months ended June
30, 2000 compared to $14,374,000 for the comparable period of the preceding
year. These expenses increased $1,370,000 (4.8%) to $29,691,000 for the six
months ended June 30, 2000 compared to $28,321,000 for the comparable
24
period of the preceding year. These increases are the result of higher
redecorating, maintenance, payroll, insurance and administrative costs
offset by lower utility and marketing costs.
Property taxes increases (6.6% for the three months ended and 5.7% for the six
months ended June 30, 2000) are primarily the result of our disposition and
capital redeployment strategy discussed above and a decrease in operating
expense related to Established Communities. Property taxes on Development and
Redevelopment Communities are expensed as communities move from the initial
construction and lease-up phase to the stabilized operating phase.
Established Communities - Property taxes decreased $112,000 (1.8%) to
$6,183,000 for the three months ended June 30, 2000 compared to $6,295,000
for the comparable period of the preceding year. Property taxes decreased
$422,000 (3.3%) to $12,196,000 for the six months ended June 30, 2000
compared to $12,618,000 for the comparable period of the preceding year.
These decreases are primarily a result of revised base year tax assessments
for previously renovated communities which resulted in supplemental taxes
that were lower than those originally projected.
Interest expense increases (8.9% for the three months ended and 15.0% for the
six months ended June 30, 2000) are primarily attributable to a decrease in
capitalized interest and secondarily to the issuance of unsecured debt
securities during 1999. This reflects our strategy to mitigate the risk of
floating rate debt in a rising interest rate environment by repaying floating
rate debt under our credit facility (with relatively lower current interest
rates) with fixed rate unsecured debt that has a higher current interest rate
and a longer term to maturity.
General and administrative increases (35.5% for the three months ended and 30.0%
for the six months ended June 30, 2000) are primarily attributable to
professional fees and payments required under a consulting and non-competition
arrangement entered into in connection with the retirement of Gilbert M. Meyer,
the former Executive Chairman of AvalonBay, in May 2000. Compensation expense
for a senior officer, whose salary was capitalized in 1999 while he served the
company in a different capacity, also contributed to the overall increase in
expense. Cost savings attained from a management reorganization in the first
quarter of 1999 partially offset the increase in expense.
Equity in income of unconsolidated joint ventures represents our share of net
income from joint ventures.
Interest income decreases (46.0% for the three months ended and 42.4% for the
six months ended June 30, 2000) are primarily attributable to the sale of the
Fairlane Woods participating mortgage note that was sold in the fourth quarter
of 1999.
We consider Funds from Operations, or FFO, to be an appropriate measure of our
operating performance because it helps investors understand our ability to incur
and service debt and to make capital expenditures. We believe that to understand
our operating results, FFO should be examined with net income as presented in
the Condensed Consolidated Statements of Operations included elsewhere in this
report. FFO is determined based on a definition adopted by the Board of
Governors of the National Association of Real Estate Investment Trusts(R)
(NAREIT) in October 1999, and is defined as:
- net income or loss computed in accordance with generally accepted
accounting principles (GAAP), except that excluded from net income
or loss are gains or losses on sales of property and extraordinary
(as defined by GAAP) gains or losses on debt restructuring;
- plus depreciation of real estate assets; and
- after adjustments for unconsolidated partnerships and joint
ventures.
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FFO does not represent cash generated from operating activities in accordance
with GAAP. Therefore it should not be considered an alternative to net income as
an indication of our performance. FFO should also 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. Further, FFO as calculated by other REITs may not
be comparable to our calculation of FFO.
For the three months ended June 30, 2000, FFO increased to $60,970,000 from
$50,595,000 for the comparable period of the preceding year. This increase is
primarily due to the completion of new development and redevelopment communities
as well as growth in earnings from Established Communities.
FFO previously reported for the three months ended June 30, 1999 excluded the
effect on net income of a non-recurring restructuring charge of $66,000 in
conformance with the NAREIT definition of FFO calculations then in effect, or
the original definition. NAREIT issued a White Paper dated October 1999 that
clarified the definition of FFO and the treatment of certain nonrecurring
charges. The clarified definition includes the effect on net income of
non-recurring charges in the calculation of FFO. Although we believe the
comparison of FFO using the original definition represents a better guide to
investors of comparable operations and growth between years, both FFO
calculations are presented below for the three months ended June 30, 2000 and
1999 (dollars in thousands):
(1) Represents Funds from Operations calculated in accordance with
NAREIT's October 1999 White Paper on FFO. Our calculation of FFO in
accordance with NAREIT's clarified definition of FFO includes the
effect on earnings of non- recurring charges for certain management
and other organizational changes and Year 2000 remediation costs.
(2) Consists of $16,076 related to management and other organizational
changes announced during 1998 and $514 for Year 2000 remediation
costs.
(3) Funds from Operations calculated based on NAREIT's definition of
FFO prior to the issuance of the October 1999 White Paper on FFO.
Previously, the effect on earnings of non-recurring charges for
certain management and other organizational changes and Year 2000
remediation costs were excluded from the calculation of FFO.
Capitalization of Fixed Assets and Community Improvements
Our policy with respect to capital expenditures is generally to capitalize only
non-recurring expenditures. We capitalize improvements and upgrades only if the
item:
- exceeds $15,000;
- extends the useful life of the asset; and
- is not related to making an apartment home ready for the next
resident.
26
Under this policy, virtually all capitalized costs are non-recurring, as
recurring make-ready costs are expensed as incurred. Recurring make-ready costs
include the following:
- carpet and appliance replacements;
- floor coverings;
- interior painting; and
- other redecorating costs.
We capitalize purchases of personal property, such as computers and furniture,
only if the item is a new addition and the item exceeds $2,500. We generally
expense purchases of personal property made for replacement purposes. The
application of these policies for the six months ended June 30, 2000 resulted in
non-revenue generating capitalized expenditures for Stabilized Communities of
approximately $83 per apartment home. For the six months ended June 30, 2000, we
charged to maintenance expense, including carpet and appliance replacements,
related to Stabilized Communities approximately $576 per apartment home. We
anticipate that capitalized costs per apartment home will gradually increase as
the average age of our communities increases.
Liquidity and Capital Resources
Liquidity. Our primary source of liquidity is cash flows from operations.
Operating cash flows have historically been determined by:
- the number of apartment homes;
- rental rates;
- occupancy levels; and
- our expenses with respect to these apartment homes.
The timing, source and amount of cash flows provided by financing activities and
used in investing activities are sensitive to the capital markets environment,
particularly to changes in interest rates that we must pay because changes in
interest rates affect our decisions as to whether to issue debt securities,
borrow money and invest in real estate. Thus, changes in the capital markets
environment affect our plans for the undertaking of construction and development
as well as acquisition activity.
Cash and cash equivalents decreased from $14,610,000 at June 30, 1999 to
$1,672,000 at June 30, 2000 due to the following:
- Net cash provided by operating activities increased by $17,630,000
from $113,875,000 for the six months ended June 30, 1999 to
$131,505,000 for the six months ended June 30, 2000. The increase
was primarily from additional operating cash flow from Established
Communities as well as the development and redevelopment of new
communities, offset by the loss of cash flow from communities sold
subsequent to January 1, 1999.
- Net cash used in investing activities increased by $4,749,000 from
$155,552,000 for the six months ended June 30, 1999 to $160,301,000
for the six months ended June 30, 2000. This increase was partially
due to decreased proceeds from the sale of communities. This
increase was also the result of an increase in cash in escrow,
predominantly due to the sale of a community during the second
quarter of 2000, whose net proceeds were deposited in an escrow
account to facilitate a like-kind exchange transaction. We intend to
redeploy the net proceeds to develop and redevelop communities
currently under construction or reconstruction. This is offset by a
reduction in expenditures for development and redevelopment
activity.
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- Net cash provided by financing activities decreased by $24,550,000
from $47,397,000 for the six months ended June 30, 1999 to
$22,847,000 used in financing activities for the six months ended
June 30, 2000. The decrease was primarily due to our development and
redevelopment activities increasingly being funded through the sale
of existing communities as opposed to incurring debt or selling
equity.
We regularly review our short and long-term liquidity needs and the adequacy of
Funds from Operations, as defined below, and other expected liquidity sources to
meet these needs. We believe our principal short-term liquidity needs are to
fund:
- normal recurring operating expenses;
- debt service payments;
- the distributions required with respect to our series of preferred
stock;
- the minimum dividend payments required to maintain our REIT
qualification under the Internal Revenue Code of 1986; and
- development and redevelopment activity in which we are currently
engaged.
We anticipate that we can fully satisfy these needs from a combination of cash
flows provided by operating activities and borrowing capacity under our credit
facility. We anticipate that we can satisfy any short-term liquidity needs not
satisfied by current operating cash flows from our credit facility.
We believe our principal long-term liquidity needs are the repayment or
refinancing of medium and long-term debt, as well as the procurement of
long-term debt to refinance construction and other development related
short-term debt. We anticipate that no significant portion of the principal of
any indebtedness will be repaid prior to maturity. If we do not have funds on
hand sufficient to repay our indebtedness, it will be necessary for us to
refinance this debt. This refinancing may be accomplished through additional
debt financing, which may be collateralized by mortgages on individual
communities or groups of communities, by uncollateralized private or public debt
offerings or by additional equity offerings. We also anticipate having
significant retained cash flow in each year so that when a debt obligation
matures, some or all of each maturity can be satisfied from this retained cash.
Although we believe we will have the capacity to meet our long-term 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.
Capital Resources. We intend to match the long-term nature of our real estate
assets with long-term cost effective capital to the extent permitted by
prevailing market conditions. We follow a focused strategy to help facilitate
uninterrupted access to capital. This strategy includes:
- hiring, training and retaining associates with a strong resident
service focus, which should lead to higher rents, lower turnover and
reduced operating costs;
- managing, acquiring and developing upscale communities in dense
locations where the availability of zoned and entitled land is
limited to provide consistent, sustained earnings growth;
- operating in markets with growing demand, as measured by household
formation and job growth, and high barriers-to-entry. We believe
these characteristics generally combine to provide a favorable
demand-supply balance, which we believe will create a favorable
environment for future rental rate growth while protecting existing
and new communities from new supply. We expect this strategy to
result in a high level of quality to the revenue stream;
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- maintaining a conservative capital structure, largely comprised of
equity, and with modest, cost-effective leverage. We generally avoid
secured debt except in order to obtain low cost, tax-exempt debt. We
believe that such a structure should promote an environment whereby
current credit ratings levels can be maintained;
- following accounting practices that provide a high level of quality
to reported earnings; and
- providing timely, accurate and detailed disclosures to the
investment community.
We believe these strategies provide a disciplined approach to capital access to
help position AvalonBay to fund portfolio growth.
Capital markets conditions have decreased our access to cost effective capital.
See "Future Financing and Capital Needs" for a discussion of our response to the
current capital markets environment.
The following is a discussion of specific capital transactions, arrangements and
agreements.
Variable Rate Unsecured Credit Facility
Our variable rate unsecured credit facility is furnished by a consortium of
banks and provides up to $600,000,000 in short-term credit. We pay these banks
an annual facility fee of $900,000 in equal quarterly installments. The credit
facility bears interest at varying rates tied to the London Interbank Offered
Rate (LIBOR) based on ratings levels achieved on our unsecured notes and on a
maturity selected by us. The current stated pricing is LIBOR plus 0.6% per
annum. The credit facility matures in July 2001, however we have two one-year
extension options. Therefore, subject to certain conditions, we may extend the
maturity to July 2003. A competitive bid option is available for borrowings of
up to $400,000,000. This option allows banks that are part of the lender
consortium to bid to provide us loans at a rate that is lower than the stated
pricing provided by the credit facility. The competitive bid option may result
in lower pricing if market conditions allow. Pricing under the competitive bid
option resulted in average pricing of LIBOR plus .43% for amounts most recently
borrowed under the competitive bid option. At August 1, 2000, $138,011,000 was
outstanding, $82,774,000 was used to provide letters of credit and $379,215,000
was available for borrowing under the credit facility. We intend to use
borrowings under the credit facility for:
- capital expenditures;
- construction, development and redevelopment costs;
- acquisitions of developed or undeveloped communities;
- credit enhancement for tax-exempt bonds; and
- working capital purposes.
Interest Rate Protection Agreements
We are not a party to any long-term interest rate agreements, other than
interest rate protection and swap agreements on approximately $190 million of
our variable rate tax-exempt indebtedness. We intend, however, to evaluate the
need for long-term interest rate protection agreements as interest rate market
conditions dictate, and we have engaged a consultant to assist us in managing
our interest rate risks and exposure.
Financing Commitments/Transactions Completed
During July 2000, we issued $150,000,000 of medium-term notes. The notes bear
interest at 8.25%, and will mature on July 15, 2008. We used the net proceeds of
approximately $149,000,000 to repay amounts outstanding under our unsecured
credit facility.
29
Future Financing and Capital Needs
As of June 30, 2000, we had 16 new communities under construction either by us
or by unaffiliated third parties with whom we have entered into forward purchase
commitments. As of June 30, 2000, a total estimated cost of $186,618,000
remained to be invested in these communities. In addition, we had six other
communities under reconstruction, for which an estimated $48,776,000 remained to
be invested as of June 30, 2000.
Substantially all of the capital expenditures necessary to complete the
communities currently under construction and reconstruction will be funded from:
- the remaining capacity under our credit facility;
- the net proceeds from sales of existing communities;
- retained operating cash; and/or
- the issuance of debt or equity securities.
We expect to continue to fund deferred development costs related to future
developments from retained operating cash and borrowings under our credit
facility. We believe these sources of capital will be adequate to take the
proposed communities to the point in the development cycle where construction
can begin.
We have observed and been impacted by a reduction in the availability of cost
effective capital since the third quarter of 1998. While the capital market
environment has improved during 2000, we cannot assure you that cost effective
capital will be available to meet future expenditures required to begin planned
reconstruction activity or the construction of the Development Rights. Before
planned reconstruction activity 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 pursuit costs and/or forego reconstruction
activity. In such instances, we will not realize the increased revenues and
earnings that we expected from such pursuits, and the related write-off of costs
will increase current period expenses and reduce Funds from Operations.
To meet the balance of our liquidity needs, we will need to arrange additional
capacity under our existing unsecured facility, sell additional existing
communities and/or issue additional debt or equity securities. While we believe
we have the financial position to expand our short term credit capacity and
support our capital markets activity, we cannot assure you that we will be
successful in completing these arrangements, offerings or sales. The failure to
complete these transactions on a cost-effective basis could have a material
adverse impact on our operating results and financial condition, including the
abandonment of deferred development costs and a resultant charge to earnings.
During 1998, we determined that we would pursue a disposition strategy for
certain assets in markets that did not meet our long-term strategic direction.
Under this program, we solicit competing bids from unrelated parties for these
individual assets, and consider the sales price and tax ramifications of each
proposal. In connection with this disposition program, we have disposed of five
communities since January 1, 2000. The net proceeds from the sale of these
assets were approximately $89,579,000. We intend to actively seek buyers for the
remaining communities held for sale. However, we cannot assure you that these
assets can be sold on terms that we consider satisfactory.
The remaining assets that we have identified for disposition include land,
buildings and improvements and furniture, fixtures and equipment. Total real
estate, net of accumulated depreciation, of all communities identified for sale
at June 30, 2000 totaled $75,371,000. Certain individual assets are secured by
mortgage indebtedness which may be assumed by the purchaser or repaid from our
net sales proceeds. Our
30
Condensed Consolidated Statements of Operations include net income from the
communities held for sale of $1,315,000 for the three months ended June 30, 2000
and $2,556,000 for the six months ended June 30, 2000. Our Condensed
Consolidated Statements of Operations include net income from the communities
held for sale of $635,000 for the three months ended June 30, 1999 and
$1,142,000 for the six months ended June 30, 1999.
Because the proceeds from the sale of communities are used initially to reduce
borrowings under our credit facility, the immediate effect of a sale of a
community is to reduce Funds from Operations. This is because the yield on a
community that is sold exceeds the interest rate on the borrowings that are
repaid from such net proceeds. Therefore, changes in the number and timing of
dispositions, and the redeployment of the resulting net proceeds, may have a
material and adverse effect on our Funds from Operations.
Debt Maturities
The following table details debt maturities for the next five years, excluding
the credit facility:
(1) Includes credit enhancement fees, facility fees, and trustee fees.
(2) The remaining loan balance was repaid in connection with the disposition of
Avalon Pines in June 2000.
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Inflation
Substantially all of the leases at the Current Communities are for a term of one
year or less. This may enable 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 without
penalty. We believe that short-term leases combined with relatively consistent
demand allow rents, and therefore cash flow, from our portfolio of apartments to
provide an attractive inflation hedge.
Management Information Systems
We believe that an innovative management information systems infrastructure will
be an important element in managing our future growth. This is because timely
and accurate collection of financial and resident profile data will enable us to
maximize revenue through careful leasing decisions and financial management. We
currently employ a proprietary company-wide intranet using a digital network
with high-speed digital lines. This network connects all of our communities and
offices to central servers in Alexandria, Virginia, providing access to our
associates and to AvalonBay's corporate information throughout the country from
all locations.
We are currently engaged in the development of an innovative on-site property
management system and a leasing automation system to enable management to
capture, review and analyze data to a greater extent than is possible using
existing commercial software. This development is being conducted through a
corporation (the "Software Company") in which we hold a majority economic
interest and in which two other REITs, United Dominion Realty Trust, Inc.
("United Dominion") and Post Properties, Inc. ("Post"), hold direct or indirect
economic interests. The systems and system software being developed by this
entity are collectively referred to in this discussion as the "system." The
system development process is currently managed by our employees, who have
significant related project management experience, and the employees of the
other REITs who have invested in the Software Company. The actual programming
and documentation of the system is being conducted by our employees, the
employees of United Dominion, and third-party consultants under the supervision
of these experienced project managers. We currently expect that the total cost
to develop the system will be approximately $8.0 million, including hardware
costs and expenses, the costs of employees and related overhead, and the costs
of engaging third-party consultants. These development costs are currently being
funded by the Software Company by issuing equity and debt to the REITs that have
acquired an interest in the Software Company. We intend to use the leasing
automation system to make the lease application process easier for residents and
more efficient for us to manage. We currently project that the property
management system will undergo an on-site test (i.e., a "beta test") at the end
of 2000 and that the system will be functional and implemented during early
2001.
We believe that when implemented the system will result in revenue enhancements
and cost savings due to increased data reliability and efficiencies in
management time and overhead, and that these savings will be partially offset by
the costs associated with amortizing the system development costs and
maintaining the software. We also believe that it is possible that other real
estate companies may desire to use the system we are developing and therefore
the Software Company may have an opportunity to recover, in the future, a
portion of invested capital by licensing the system to others. Future
investments in the Software Company by its current stockholders may also be
limited if the Software Company issues equity to other investors. However, at
the present time these sources of revenues and funds are speculative, and we
cannot assure that the system will provide sufficient benefits to offset
AvalonBay's investment in the Software Company to date. AvalonBay and the two
other REITs that have invested in the Software Company have agreed to license
the software from such entity upon completion for a fee that varies with the
number of apartment homes of such REIT.
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We have never before engaged in the development of systems or system software on
this scale and have never licensed a system concept or system software to
others. There are a variety of risks associated with the development of the
system, both for internal use and for potential sale or licensing to
third-parties.
Among the principal risks associated with this undertaking are the following:
- the Software Company may not be able to maintain the schedule or
budget that we have projected for the development and implementation
of the system;
- the Software Company may be unable to implement the system with the
functionality and efficiencies we desire on commercially reasonable
terms;
- the system may not be attractive to other enterprises and the
Software Company may not be able to effectively manage the licensing
of the system to other enterprises; and
- the system may not provide AvalonBay with meaningful cost savings,
and AvalonBay's investment in the Software Company may not provide a
meaningful source of revenue for AvalonBay.
The occurrence of any of the events described above could prevent us from
achieving increased efficiencies, realizing revenue growth produced by ancillary
revenues or recovering our initial investment.
Natural Disasters
Many of our West Coast communities are located in the general vicinity of active
earthquake faults. In July 1998, we obtained a seismic risk analysis from an
engineering firm which estimated the probable maximum damage for each of the 60
West Coast communities that we owned at that time and for each of the five West
Coast communities under development at that time. The seismic risk analysis was
obtained for each individual community and for all of those communities
combined. To establish a probable maximum damage, the engineers first define a
severe earthquake event for the applicable geographic area, which is an
earthquake that has only a 10% likelihood of occurring over a 50-year period.
The probable maximum damage is determined as the structural and architectural
damage and business interruption loss that is estimated to have only a 10%
probability of being exceeded in the event of such an earthquake. Because a
significant number of our communities are located in the San Francisco Bay Area,
the engineers' analysis defined an earthquake on the Hayward Fault with a
Richter Scale magnitude of 7.1 as a severe earthquake with a 10% probability of
occurring within a 50-year period. The engineers then established an aggregate
probable maximum damage at that time of $113 million for the 60 West Coast
communities that we owned at that time and the five West Coast communities then
under development. The $113 million probable maximum damage for those
communities was a probable maximum level that the engineers expected to be
exceeded only 10% of the time in the event of such a severe earthquake. The
actual aggregate probable maximum damage could be higher or lower as a result of
variations in soil classifications and structural vulnerabilities. For each
community, the engineers' analysis calculated an individual probable maximum
damage as a percentage of the community's replacement cost and projected
revenues. We cannot assure you that:
- an earthquake would not cause damage or losses greater than the
probable maximum damage assessments indicate;
- future probable maximum damage levels will not be higher than the
current probable maximum damage levels described above for our
communities located on the West Coast; or
- acquisitions or developments after July 1998 will not have probable
maximum damage assessments indicating the possibility of greater
damage or losses than currently indicated.
In August 1999, we renewed our earthquake insurance, both for physical damage
and lost revenue, with respect to all communities we owned at that time and all
of the communities under development. For any single occurrence, we have in
place $75,000,000 of coverage with a five percent deductible. The five percent
deductible is subject to a minimum of $100,000 and a maximum of $25,000,000 per
occurrence. In addition,
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our general liability and property insurance program provides coverage for
public liability and fire damage. In the event an uninsured disaster or a loss
in excess of insured limits were to occur, we could lose our capital invested in
the affected community, as well as anticipated future revenue from that
community. We would also continue to be obligated to repay any mortgage
indebtedness or other obligations related to the community. Any such loss could
materially and adversely affect our business and our financial condition and
results of operations.
Development Communities
As of June 30, 2000, we had nine Development Communities under construction. We
expect these Development Communities, when completed, to add a total of 2,542
apartment homes to our portfolio for a total capitalized cost, including land
acquisition costs, of approximately $397.8 million. Statements regarding the
future development or performance of the Development Communities are
forward-looking statements. We cannot assure you that:
- we will complete the Development Communities;
- our budgeted costs or estimates of occupancy rates will be realized;
- our schedule of leasing start dates or construction completion dates
will be achieved; or
- future developments will realize returns comparable to our past
developments.
You should carefully review the discussion under "Risks of Development and
Redevelopment" below.
We hold a fee simple ownership interest in eight of the Development Communities
and a membership interest in a limited liability company that holds a fee simple
interest in one Development Community.
34
The following table presents a summary of the Development Communities:
(1) Total budgeted cost includes all capitalized costs projected to be incurred
to develop the respective Development 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 determined in accordance with GAAP.
(2) Future initial occupancy dates are estimates.
(3) Stabilized operations is defined as the first full quarter of 95% or
greater occupancy after completion of construction.
(4) This community will be developed under a joint venture structure with
third party financing. AvalonBay's portion of the budgeted cost is expected
to be $13.3 million.
Redevelopment Communities
As of June 30, 2000, we had six communities under redevelopment. We expect the
total budgeted cost to complete these Redevelopment Communities, including the
cost of acquisition and redevelopment, to be approximately $263.1 million, of
which approximately $68.1 million is the additional capital invested or expected
to be invested above the original purchase cost. Statements regarding the future
redevelopment or performance of the Redevelopment Communities are
forward-looking statements. We have found that the cost to redevelop an existing
apartment community is more difficult to budget than the cost to develop a new
community. Accordingly, we expect that actual costs may vary over a wider range
than for a new development community. We cannot assure you that we will meet our
schedules for redevelopment completion, or that we will meet our budgeted costs,
either individually or in the aggregate. See the discussion under "Risks of
Development and Redevelopment" below.
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The following presents a summary of Redevelopment Communities:
(1) Total budgeted cost includes all capitalized costs projected to be incurred
to redevelop the respective Redevelopment Community, including costs to
acquire the community, reconstruction costs, real estate taxes, capitalized
interest and loan fees, permits, professional fees, allocated redevelopment
overhead and other regulatory fees determined in accordance with GAAP.
(2) Reconstruction completion dates are estimates.
(3) Restabilized operations is defined as the first full quarter of 95% or
greater occupancy after completion of reconstruction.
(4) Formerly named Avalon Ridge.
Development Rights
As of June 30, 2000, we are considering the development of 33 new apartment
communities. These Development Rights range from land owned or under contract
for which design and architectural planning has just begun to land under
contract or owned by us with completed site plans and drawings where
construction can begin almost immediately. We estimate that the successful
completion of all of these communities would ultimately add 8,859 upscale
apartment homes to our portfolio. At June 30, 2000, the cumulative capitalized
costs incurred in pursuit of the 33 Development Rights, including the cost of
land acquired in connection with eight of the Development Rights, was
approximately $100.4 million, of which $66.6 million was land or deposits for
land. Substantially all of these apartment homes will offer features like those
offered by the communities we currently own.
We generally hold Development Rights through options to acquire land, although
one Development Right located in New Canaan, Connecticut is controlled through a
joint venture partnership that owns the land. 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 pursue,
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 analysis. Although the development of any particular Development Right
cannot be assured, we believe that the Development Rights, in the aggregate,
present attractive potential opportunities for future development and growth of
FFO.
Statements regarding the future development of the Development Rights are
forward-looking statements. We cannot assure you that:
- we will succeed in obtaining zoning and other necessary governmental
approvals or the financing required to develop these communities, or
that we will decide to develop any particular community; or
- if we undertake construction of any particular community, that we
will complete construction at the total budgeted cost assumed in the
financial projections below.
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The following presents a summary of the 33 Development Rights we are pursuing as
of June 30, 2000:
(1) AvalonBay owns land, but construction has not yet begun.
(2) The land currently is owned by a limited partnership in which AvalonBay is a
majority partner. It is currently anticipated that the land seller will
retain a minority limited partner interest.
Risks of Development and Redevelopment
We intend to continue to pursue the development and redevelopment of apartment
home communities. Our development and redevelopment activities may be exposed to
the following industry risks:
- we may abandon opportunities we have already begun to explore based
on further review of, or changes in, financial, demographic,
environmental or other factors;
- we may encounter liquidity and capital constraints, including the
unavailability of financing on favorable terms for the development
or redevelopment of a community;
- we may be unable to obtain, or we may experience delays in
obtaining, all necessary zoning, land-use, building, occupancy, and
other required governmental permits and authorizations;
- we may incur construction or reconstruction costs for a community
that exceed our original estimates due to increased materials, labor
or other expenses, which could make completion or redevelopment of
the community uneconomical;
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- occupancy rates and rents at a newly completed or redevelopment
community may fluctuate depending on a number of factors, including
market and general economic conditions, and may not be sufficient to
make the community profitable; and
- we may be unable to complete construction and lease-up on schedule,
resulting in increased debt service expense and construction costs.
The occurrence of any of the events described above could adversely affect our
ability to achieve our projected yields on communities under development or
redevelopment and could affect our payment of distributions to our stockholders.
Construction costs are projected by us based on market conditions prevailing in
the community's market at the time our budgets are prepared and reflect changes
to those market conditions that we anticipated at that time. Although we attempt
to anticipate changes in market conditions, we cannot predict with certainty
what those changes will be. Construction costs have been increasing and, for
some of our Development Communities, the total construction costs have been or
are expected to be higher than the original budget. Total budgeted cost includes
all capitalized costs projected to be incurred to develop the respective
Development or Redevelopment Community, including:
- land and/or property acquisition costs;
- construction costs;
- real estate taxes;
- capitalized interest;
- loan fees;
- permits;
- professional fees;
- allocated development overhead; and
- other regulatory fees determined in accordance with generally
accepted accounting principles.
Nonetheless, because of increases in prevailing market rents we believe that, in
the aggregate, we will still achieve our targeted projected yield (i.e., return
on invested capital) for those communities experiencing costs in excess of the
original budget. We believe that we could experience similar increases in
construction costs and market rents with respect to other development
communities resulting in total construction costs that exceed original budgets.
Likewise, costs to redevelop communities that have been acquired have, in some
cases, exceeded our original estimates and similar increases in costs may be
experienced in the future. We cannot assure that market rents in effect at the
time new development communities or redevelopment communities complete lease-up
will be sufficient to fully offset the effects of any increased construction or
reconstruction costs.
Capitalized Interest
In accordance with generally accepted accounting principles, we capitalize
interest expense during construction or reconstruction until a building obtains
a certificate of occupancy. Thereafter, the interest allocated to that completed
building within the community is expensed. Capitalized interest totaled
$4,163,000 for the three months ended June 30, 2000 and $7,657,000 for the six
months ended June 30, 2000. Capitalized interest totaled $5,866,000 for the
three months ended June 30, 1999 and $13,149,000 for the six months ended June
30, 1999.
38
PART I. FINANCIAL INFORMATION (CONTINUED)
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not Applicable
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
We are involved in certain ordinary routine litigation incidental
to the conduct of our business. In addition, as reported in the
Company's Form 10-K for the year ended December 31, 1999, we are
currently involved in litigation with York Hunter Construction,
Inc., and National Union Fire Insurance Company. While the outcome
of such litigation cannot be predicted with certainty, we do not
expect any current litigation, including the litigation with York
Hunter and National Union, to have a material effect on our
business or financial condition.
Item 2. Changes in Securities
During the three months ended June 30, 2000, the Company issued
112,540 shares of common stock in exchange for units of limited
partnership held by limited partners of DownREIT partnership
subsidiaries of the Company. Specifically, the Company issued
48,677 shares of common stock in exchange for units in Avalon
DownREIT V, L.P., and 63,863 shares of common stock in exchange
for units in Bay Countrybrook, L.P. These shares were issued in
reliance on exemptions from registration under Section 4(2) of the
Securities Act of 1933. The Company is relying on the exemptions
based upon factual representations received from the limited
partners who received these shares.
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
The Company held its 2000 Annual Meeting of Stockholders on May
10, 2000. The stockholders voted to elect Gilbert M. Meyer,
Richard L. Michaux, Bruce A. Choate, Michael A. Futterman, John J.
Healy, Jr., Brenda J. Mixson, Lance R. Primis and Allan D.
Schuster to serve as directors of the Company until the 2001
Annual Meeting of Stockholders and until their respective
successors are duly elected and qualified.
41,999,830 votes were cast for, and 12,438,905 votes
were withheld from the election of Mr. Meyer.
42,526,388 votes were cast for, and 11,912,347 votes
were withheld from the election of Mr. Michaux.
54,310,967 votes were cast for, and 127,767 votes were
withheld from the election of Mr. Choate.
52,659,485 votes were cast for, and 1,779,249 votes were
withheld from the election of Mr. Futterman.
39
54,310,881 votes were cast for, and 127,853 votes were
withheld from the election of Mr. Healy.
54,310,063 votes were cast for, and 128,671 votes were
withheld from the election of Ms. Mixson.
54,310,713 votes were cast for, and 128,021 votes were
withheld from the election of Mr. Primis.
54,311,341 votes were cast for, and 127,393 votes were
withheld from the election of Mr. Schuster.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) EXHIBITS
Exhibit No. Description
3(i).1 -- 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-Q of the Company filed August 14, 1998.)
3(i).2 -- Articles of Amendment, dated as of October 2, 1998. (Incorporated
by reference to Exhibit 3.1(ii) to Form 8-K of the Company filed
on October 6, 1998.)
3(i).3 -- Articles Supplementary, dated as of October 13, 1998, relating to
the 8.70% Series H Cumulative Redeemable Preferred Stock.
(Incorporated by reference to Exhibit 1 to Form 8-A of the Company
filed October 14, 1998.)
3(ii).1 -- Bylaws of the Company, as amended and restated, dated as of July
24, 1998. (Incorporated by reference to Exhibit 3(ii).1 to Form
10-Q of the Company filed August 14, 1998.)
3(ii).2 -- Amendment to Bylaws of the Company, dated February 10, 1999.
(Incorporated by reference to Exhibit 3(ii).2 to Form 10-K of the
Company filed March 31, 1999.)
3(ii).3 -- Amendment to Bylaws of the Company, dated May 5, 1999.
(Incorporated by reference to Exhibit 3(ii).3 to Form 10-Q of the
Company filed on August 16, 1999.)
4.1 -- Indenture of Avalon Properties, Inc. (hereinafter referred to as
"Avalon Properties") dated as of September 18, 1995. (Incorporated
by reference to Form 8-K of Avalon Properties dated September 18,
1995.)
4.2 -- First Supplemental Indenture of Avalon Properties dated as of
September 18, 1995. (Incorporated by reference to Avalon
Properties' Current Report on Form 8-K dated September 18, 1995.)
4.3 -- Second Supplemental Indenture of Avalon Properties dated as of
December 16, 1997. (Incorporated by reference to Avalon
Properties' Current Report on Form 8-K filed January 26, 1998.)
40
4.4 -- Third Supplemental Indenture of Avalon Properties dated as of
January 22, 1998. (Incorporated by reference to Avalon Properties'
Current Report on Form 8-K filed on January 26, 1998.)
4.5 -- Indenture, 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 Form 8-K of the Company filed on
January 21, 1998.)
4.6 -- First Supplemental Indenture, dated as of January 20, 1998,
between the Company and the Trustee. (Incorporated by reference to
Exhibit 4.2 to Form 8-K of the Company filed on January 21, 1998.)
4.7 -- Second Supplemental Indenture, dated as of July 7, 1998, between
the Company and the Trustee. (Incorporated by reference to Exhibit
4.2 to Form 8-K of the Company filed on July 9, 1998.)
4.8 -- Amended and Restated Third Supplemental Indenture, dated as of
July 10, 2000 between the Company and the Trustee, including forms
of Floating Rate Note and Fixed Rate Note (Incorporated by
reference to Exhibit 4.4 to Form 8-K filed on July 11, 2000.)
4.9 -- Dividend Reinvestment and Stock Purchase Plan of the Company
filed on September 14, 1999. (Incorporated by reference to Form
3-S of the Company, File No. 333-87063.)
4.10 -- Amendment to the Company's 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.)
4.11 -- Shareholder Rights Agreement, dated as of March 9, 1998 (the
"Rights Agreement"), between the Company and First Union National
Bank (as successor to American Stock Transfer and Trust Company)
as Rights Agent (including the form of Rights Certificate as
Exhibit B). (Incorporated by reference to Exhibit 4.1 to Form 8-A
of the Company filed March 11, 1998.)
4.12 -- Amendment No. 1 to the Rights Agreement, dated as of February 28,
2000, between the Company and the Rights Agent. (Incorporated by
reference to Exhibit 4.2 of Form 8-A/A of the Company filed
February 28, 2000.)
12.1 -- Statements re: Computation of Ratios.
27.1 -- Financial Data Schedule.
(b) REPORTS ON FORM 8-K
None
41
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Date: August 14, 2000 /s/ RICHARD L. MICHAUX
----------------------------------------------
Richard L. Michaux
President and Chief Executive Officer
Date: August 14, 2000 /S/ THOMAS J. SARGEANT
----------------------------------------------
Thomas J. Sargeant
Executive Vice President, Chief Financial Officer
42