10-K: Annual report pursuant to Section 13 and 15(d)
Published on March 2, 2009
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2008
Commission file number 1-12672
AVALONBAY COMMUNITIES, INC.
(Exact name of registrant as specified in its charter)
Maryland | 77-0404318 | |
(State or other jurisdiction of | (I.R.S. Employer Identification No.) | |
incorporation or organization) |
2900 Eisenhower Avenue, Suite 300
Alexandria, Virginia 22314
(Address of principal executive office)
Alexandria, Virginia 22314
(Address of principal executive office)
(703) 329-6300
(Registrants telephone number, including area code)
(Registrants telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, par value $.01 per share | New York Stock Exchange | |
(Title of each class) | (Name of each exchange on which registered) |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of
the Securities Act.
Yes þ No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or
Section 15(d) of the Act.
Yes o No þ
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 90 days.
Yes þ Noo
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is
not contained herein, and will not be contained, to the best of registrants knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
a non-accelerated filer, or a smaller reporting company.
See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer þ | Accelerated filer o | Non-accelerated filer o (Do not check if a smaller reporting company) |
Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes o No þ
The aggregate market value of the Registrants Common Stock, par value $.01 per share, held by
nonaffiliates of the registrant, as of June 30, 2008 was $6,818,282,578.
The number of shares of the registrants Common Stock, par value $.01 per share, outstanding as of
January 31, 2009 was 79,745,531.
Documents Incorporated by Reference
Portions of AvalonBay Communities, Inc.s Proxy Statement for the 2009 annual meeting of
stockholders, a definitive copy of which will be filed with the SEC within 120 days after the year
end of the year covered by this Form 10-K, are incorporated by reference herein as portions of Part
III of this Form 10-K.
TABLE OF CONTENTS
PAGE | ||||||
PART I | ||||||
ITEM 1.
|
BUSINESS | 1 | ||||
ITEM 1a.
|
RISK FACTORS | 8 | ||||
ITEM 1b.
|
UNRESOLVED STAFF COMMENTS | 17 | ||||
ITEM 2.
|
COMMUNITIES | 17 | ||||
ITEM 3.
|
LEGAL PROCEEDINGS | 33 | ||||
ITEM 4.
|
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS | 34 | ||||
PART II | ||||||
ITEM 5.
|
MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES | 35 | ||||
ITEM 6.
|
SELECTED FINANCIAL DATA | 37 | ||||
ITEM 7.
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 40 | ||||
ITEM 7a.
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
61 | ||||
ITEM 8.
|
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA | 63 | ||||
ITEM 9.
|
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE | 63 | ||||
ITEM 9a.
|
CONTROLS AND PROCEDURES | 63 | ||||
ITEM 9b.
|
OTHER INFORMATION | 63 | ||||
PART III | ||||||
ITEM 10.
|
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE | 64 | ||||
ITEM 11.
|
EXECUTIVE COMPENSATION | 64 | ||||
ITEM 12.
|
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS | 64 | ||||
ITEM 13.
|
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE | 65 | ||||
ITEM 14.
|
PRINCIPAL ACCOUNTING FEES AND SERVICES | 65 | ||||
PART IV | ||||||
ITEM 15.
|
EXHIBITS, FINANCIAL STATEMENT SCHEDULE | 66 | ||||
SIGNATURES
|
72 |
PART I
This Form 10-K contains forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Our actual results
could differ materially from those set forth in each forward-looking statement. Certain factors
that might cause such a difference are discussed in this report, including in the section entitled
Forward-Looking Statements included in this Form 10-K. You should also review Item 1a., Risk
Factors, for a discussion of various risks that could adversely affect us.
ITEM 1. BUSINESS
General
AvalonBay Communities, Inc. (the Company, which term, unless the context otherwise requires,
refers to AvalonBay Communities, Inc. together with its subsidiaries) is a Maryland corporation
that has elected to be treated as a real estate investment trust, or REIT, for federal income tax
purposes. We engage in the development, redevelopment, acquisition, ownership and operation of
multifamily communities in high barrier-to-entry markets of the United States. These
barriers-to-entry generally include a difficult and lengthy entitlement process with local
jurisdictions and dense urban or suburban areas where zoned and entitled land is in limited supply.
Our markets are located in New England, the New York/New Jersey metro area, the Mid-Atlantic, the
Midwest, the Pacific Northwest, and the Northern and Southern California regions of the United
States. We focus on these markets because we believe that over the long term, a limited new supply
of apartment homes and lower housing affordability in these markets will result in larger increases
in cash flows relative to other markets.
At January 31, 2009, we owned or held a direct or indirect ownership interest in:
| 164 operating apartment communities containing 45,728 apartment homes in ten states and the District of Columbia, of which (i) seven wholly owned communities containing 2,143 apartment homes were under redevelopment, as discussed below and (ii) 19 communities containing 3,829 apartment homes, of which two communities containing 467 apartment homes were under redevelopment, were held by the Fund (as defined below), which we manage and in which we own a 15.2% equity interest; | ||
| 14 communities under construction that are expected to contain an aggregate of 4,564 apartment homes when completed; and | ||
| rights to develop an additional 27 communities that, if developed in the manner expected, will contain an estimated 7,304 apartment homes. | ||
We generally obtain ownership in an apartment community by developing a new community on vacant land or by acquiring an existing community. In selecting sites for development or acquisition, we favor locations that are near expanding employment centers and convenient to transportation, recreation areas, entertainment, shopping and dining. |
Our real estate investments consist of the following reportable segments: Established Communities,
Other Stabilized Communities and Development/Redevelopment Communities. Established Communities
are generally operating communities that are consolidated for financial reporting purposes and that
were owned and had stabilized occupancy and operating expenses as of the beginning of the prior
year such that year-over-year comparisons are meaningful. Other Stabilized Communities are
generally all other operating communities that have stabilized occupancy and operating expenses
during the current year, but that had not achieved stabilization as of the beginning of the prior
year such that year-over-year comparisons are not meaningful. Development/Redevelopment Communities consist of communities that are under construction,
communities where substantial redevelopment is in progress or is planned to begin during the
current year and communities under lease-up. A more detailed description of these segments and
other related information can be found in Note 9, Segment Reporting, of the Consolidated
Financial Statements set forth in Item 8 of this report.
Our principal financial goal is to increase long-term stockholder value through the development,
acquisition, operation and ultimate disposition of apartments in our high barrier-to-entry markets.
To help fulfill this goal, we regularly (i) monitor our investment allocation by geographic market
and product type, (ii) develop, redevelop and acquire apartment communities in high
barrier-to-entry markets with growing or high potential for demand and high for-sale housing costs,
(iii) selectively sell apartment communities that no longer meet our long-term strategy or when
opportunities are presented to realize a portion of the value created through our investment and
redeploy the
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proceeds from those sales, and (iv) endeavor to maintain a capital structure that is aligned with
our business risks such that we maintain continuous access to cost-effective capital. Our
long-term strategy is to more deeply penetrate the high barrier-to-entry markets in our chosen
regions with a broad range of products and services and intense focus on our customer. A
substantial majority of our current communities are upscale, which generally command among the
highest rents in their markets. However, we also pursue the ownership and operation of apartment
communities that target a variety of customer segments and price points, consistent with our goal
of offering a broad range of products and services.
During the three years ended December 31, 2008, excluding acquisitions for the Fund (as defined
below), we acquired two apartment communities and purchased our partners interest in a joint
venture that owns an apartment community. All three communities financial results are
consolidated for financial reporting purposes. During the same three-year period, excluding
dispositions in which we retained an ownership interest, we disposed
of 18 apartment communities,
including a community held by a joint venture in which we held a 25% equity interest, disposed of
one investment in a real estate joint venture and completed the development of 27 apartment
communities and the redevelopment of seven apartment communities, including communities we
redeveloped for the Fund (as defined below).
During this period, we also realized gains from the sale of a community owned by AvalonBay Value
Added Fund, L.P. (the Fund), an institutional discretionary investment fund, which we manage and
in which we own a 15.2% interest. The Fund acquired communities with the objective of either
redeveloping or repositioning them, or taking advantage of market cycle timing and improved
operating performance. Since its inception in March 2005, the Fund has acquired 20 communities and
sold one community in 2008. The investment period for the Fund ended in March 2008.
In September 2008, we formed AvalonBay Value Added Fund II, L.P. (Fund II), an additional
private, discretionary investment vehicle which we manage and in which we currently own a 45%
interest. At final closing, the aggregate investor commitments to Fund II and our commitment and
percentage interest in Fund II may change.
Fund II will seek to create value through redevelopment, enhanced operations and/or improving market fundamentals of communities that it will acquire, principally in our markets. A more detailed description of the Fund and Fund II and the related investment activity can be found in the discussion under Item I., Business General Financing Strategy and Note 6, Investments in Real Estate Entities of the Consolidated Financial Statements in Item 8 of this report.
Fund II will seek to create value through redevelopment, enhanced operations and/or improving market fundamentals of communities that it will acquire, principally in our markets. A more detailed description of the Fund and Fund II and the related investment activity can be found in the discussion under Item I., Business General Financing Strategy and Note 6, Investments in Real Estate Entities of the Consolidated Financial Statements in Item 8 of this report.
During 2008, we sold 11 assets including one Fund asset, resulting in a gain in accordance with
U.S. generally accepted accounting principles (GAAP) of $288,384,000.
As a result of the recent economic downturn and corresponding adverse impacts on employment and
credit availability, we decreased our construction volume during 2008 (as measured by total
projected capitalized cost at completion) and reduced our planned development activity for 2009.
We do not anticipate starting any new development during the first half of 2009. Development starts
in the second half of 2009, if any, will be evaluated based on our assessment of economic, real
estate and capital market conditions at that time. We do anticipate an increase in our
redevelopment activity for both wholly owned assets and assets held by the Fund.
For 2009, we anticipate asset sales in the range of $100,000,000 to $200,000,000, dependent on
strategic and value realization opportunities. The level of our disposition activity also depends
on real estate and capital market conditions. A further discussion of our development,
redevelopment, disposition, acquisition, property management and related strategies follows.
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Development Strategy. We select land for development and follow established procedures that we
believe minimize both the cost and the risks of development. As one of the largest developers of
multifamily rental apartment communities in high barrier-to-entry markets of the United States, we
identify development opportunities through local market presence and access to local market
information achieved through our regional offices. In addition to our principal executive office
in Alexandria, Virginia, we also maintain regional offices, administrative offices or specialty
offices in or near the following cities:
| Boston, Massachusetts; | ||
| Chicago, Illinois; | ||
| Long Island, New York; | ||
| Los Angeles, California; | ||
| New York, New York; | ||
| Newport Beach, California; | ||
| San Francisco, California; | ||
| San Jose, California; | ||
| Seattle, Washington; | ||
| Shelton, Connecticut; | ||
| Virginia Beach, Virginia; and | ||
| Woodbridge, New Jersey. |
After selecting a target site, we usually negotiate for the right to acquire the site either
through an option or a long-term conditional contract. Options and long-term conditional contracts
allow us to acquire the target site shortly before the start of construction, which reduces
development-related risks and preserves capital. However, as a result of competitive market
conditions for land suitable for development, we have acquired and held land prior to construction
for extended periods while entitlements are obtained, or acquired land zoned for uses other than
residential with the potential for rezoning. We currently own land that is held for development
with an aggregate carrying basis under GAAP of $239,456,000 on which we have not yet commenced
construction.
Except for certain mid-rise and high-rise apartment communities where we may elect to use
third-party general contractors or construction managers, when we start construction we act as our
own general contractor and construction manager. We generally perform these functions directly
(although we may use a wholly owned subsidiary) both for ourselves and for the joint ventures and
partnerships of which we are a member or a partner. We believe this enables us to achieve higher
construction quality, greater control over construction schedules and significant cost savings.
Our development, property management and construction teams monitor construction progress to ensure
quality workmanship and a smooth and timely transition into the leasing and operating phase.
When there is increased competition for desirable development opportunities, we will in some cases
be engaged in more complicated developments. For example, at times we have
acquired and may in the future acquire existing commercial buildings with the intent to pursue
rezoning, tenant terminations or expirations and demolition of the existing structures. During the
period that we hold these buildings for future development, the net revenue from these operations,
which we consider to be incidental, is accounted for as a reduction in our investment in the
development pursuit and not as net income. We have also participated, and may in the future
participate, in master planned or other large multi-use developments where we commit to build
infrastructure (such as roads) to be used by other participants or commit to act as construction
manager or general contractor in building structures or spaces for third parties (such as municipal
garages or parks). Costs we incur in connection with these activities may be accounted for as
additional invested capital in the community or we may earn fee income for providing these
services. Particularly with large scale, urban in-fill developments, we may engage in significant
environmental remediation efforts to prepare a site for construction.
Throughout this report, the term development is used to refer to the entire property development
cycle, including pursuit of zoning approvals, procurement of architectural and engineering designs
and the construction process. References to construction refer to the actual construction of the
property, which is only one element of the development cycle.
Redevelopment Strategy. When we undertake the redevelopment of a community, our goal is to
renovate and/or rebuild an existing community so that our total investment is generally below
replacement cost and the community is well positioned in the market to achieve attractive returns
on our capital. We have established a dedicated group of
3
associates and procedures to control both the cost and risks of redevelopment. Our
redevelopment teams, which include key redevelopment, construction and property management
personnel, monitor redevelopment progress. We believe we achieve significant cost savings by
acting as our own general contractor. More importantly, this helps to ensure quality design and
workmanship and a smooth and timely transition into the lease-up and restabilization phases.
Throughout this report, the term redevelopment is used to refer to the entire redevelopment
cycle, including planning and procurement of architectural and engineering designs, budgeting and
actual renovation work. The actual renovation work is referred to as reconstruction, which is
only one element of the redevelopment cycle.
Disposition Strategy. We sell assets that no longer meet our long-term strategy or when market
conditions are favorable, and we redeploy the proceeds from those sales to develop, redevelop and
acquire communities and to rebalance our portfolio across geographic regions. This also allows us
to realize a portion of the value created through our investments, and provides additional
liquidity. We are then able to redeploy the net proceeds from our dispositions in lieu of raising
that amount of capital externally by issuing debt or equity securities. When we decide to sell a
community, we solicit competing bids from unrelated parties for these individual assets and
consider the sales price of each proposal.
Acquisition Strategy. Our core competencies in development and redevelopment discussed above allow
us to be selective in the acquisitions we target. Acquisitions allow us to achieve rapid
penetration into markets in which we desire an increased presence. Acquisitions (and dispositions)
also help us achieve our desired product mix or rebalance our portfolio. In 2005 we formed the
Fund which, until its investment period closed in March 2008, served as the exclusive vehicle
through which we acquired additional investments in apartment communities, subject to limited
exceptions. In September 2008, we formed Fund II, which will serve as the exclusive vehicle
through which we will acquire additional investments in apartment communities until the earlier of
September 2011 or until 90% of its committed capital is invested, subject to limited exceptions.
As of December 31, 2008, Fund II had made no investments.
Property Management Strategy. We seek to increase operating income through innovative, proactive
property management that will result in higher revenue from communities while constraining
operating expenses.
Our principal strategies to maximize revenue include:
Our principal strategies to maximize revenue include:
| strong focus on resident satisfaction; | ||
| staggering lease terms such that lease expirations are better matched to traffic patterns; | ||
| balancing high occupancy with premium pricing, and increasing rents as market conditions permit; and | ||
| managing community occupancy for optimal rental revenue levels. |
Constraining growth in operating expenses is another way in which we seek to increase earnings
growth. Growth in our portfolio and the resulting increase in revenue allows for fixed operating
costs to be spread over a larger volume of revenue, thereby increasing operating margins. We
constrain growth in operating expenses in a variety of ways, which include the following, among
others:
| we use purchase order controls, acquiring goods and services from pre-approved vendors; | ||
| we purchase supplies in bulk where possible; | ||
| we bid third-party contracts on a volume basis; | ||
| we strive to retain residents through high levels of service in order to eliminate the cost of preparing an apartment home for a new resident and to reduce marketing and vacant apartment utility costs; | ||
| we perform turnover work in-house or hire third parties, generally depending upon the least costly alternative; | ||
| we undertake preventive maintenance regularly to maximize resident satisfaction and property and equipment life; and | ||
| we aggressively pursue real estate tax appeals. |
On-site property management teams receive bonuses based largely upon the net operating income
produced at their respective communities. We use and continuously seek ways to improve technology
applications to help manage our communities, believing that the accurate collection of financial
and resident data will enable us to maximize
4
revenue and control costs through careful leasing
decisions, maintenance decisions and financial management.
We generally manage the operation and leasing activity of our communities directly (although we may
use a wholly owned subsidiary) both for ourselves and the joint ventures and partnerships of which
we are a member or a partner.
From time to time we also pursue or arrange ancillary services for our residents to provide
additional revenue sources or increase resident satisfaction. In general, as a REIT we cannot
directly provide services to our tenants that are not customarily provided by a landlord, nor can
we share in the income of a third party that provides such services. However, we can provide such
non-customary services to residents or share in the revenue from such services if we do so through
a taxable REIT subsidiary, which is a subsidiary that is treated as a C corporation and is
therefore subject to federal income taxes.
Financing Strategy. We
have consistently maintained, and intend to continue to maintain, a capital
structure that provides us with flexibility in meeting the financial obligations and opportunities
presented by our real estate development and ownership business.
We estimate that a portion of our short-term liquidity needs will be met from retained operating
cash, borrowings under our variable rate unsecured credit facility and sales of current operating
communities. If required to meet the balance of our current or anticipated liquidity needs, we
will borrow funds under our existing unsecured credit facility, sell existing communities or land
and/or issue additional debt or equity securities. A determination to engage in an equity or debt
offering depends on a variety of factors such as general market and economic conditions, including
interest rates, our short and long term liquidity needs, the adequacy of our expected liquidity
sources, the relative costs of debt and equity capital and growth opportunities. A summary of debt
and equity activity for the last three years is reflected on our Consolidated Statement of Cash
Flows of the Consolidated Financial Statements set forth in Item 8 of this report.
We have entered into, and may continue in the future to enter into, joint ventures (including
limited liability companies) or partnerships through which we would own an indirect economic
interest of less than 100% of the community or communities owned directly by such joint ventures or
partnerships. Our decision whether to hold an apartment community in fee simple or to have an
indirect interest in the community through a joint venture or partnership is based on a variety of
factors and considerations, including: (i) the economic and tax terms required by a seller of land
or of a community; (ii) our desire to diversify our portfolio of communities by market, submarket
and product type; (iii) our desire at times to preserve our capital resources to maintain liquidity
or balance sheet strength; and (iv) our projection, in some circumstances, that we will achieve
higher returns on our invested capital or reduce our risk if a joint venture or partnership vehicle
is used. Investments in joint ventures or partnerships are not limited to a specified percentage
of our assets. Each joint venture or partnership agreement is individually negotiated, and our
ability to operate and/or dispose of a community in our sole discretion may be limited to varying
degrees depending on the terms of the joint venture or partnership agreement.
From its inception in 2005 until the investment period closed in March 2008, the Fund was the
exclusive vehicle through which we invested in the acquisition of apartment communities, subject to
certain exceptions. In September 2008, we formed Fund II. Fund II will now serve as the
exclusive vehicle through which we will invest in the acquisition of apartment communities, subject
to certain exceptions, until the earlier of September 2011 or until 90% of its committed capital is
invested. These exceptions include significant individual asset and portfolio acquisitions,
properties acquired in tax-deferred transactions and acquisitions that are inadvisable or
inappropriate for Fund II. Fund II does not restrict our development activities, and will
terminate after a term of ten years, subject to two one-year extensions. Fund II has four
institutional investors, including us, with a combined equity capital commitment of $333,000,000.
A significant portion of the investments made in Fund II by its investors are being made through
5
AvalonBay
Value Added REIT II, LP, a Delaware limited partnership that intends
to qualify as a REIT under the Internal Revenue Code (the Fund II REIT). A wholly owned subsidiary of the Company is the general partner
of Fund II and has committed $150,000,000 to Fund II and the Fund II REIT (none of which has been
invested as of January 31, 2009) representing a 45% combined general partner and limited partner
equity interest. At final closing, the aggregate investor commitments to Fund II and our
commitment and percentage interest in Fund II may change.
As of January 31, 2009, Fund II has made no investments.
As of January 31, 2009, Fund II has made no investments.
In addition, we may, from time to time, offer shares of our equity securities, debt securities or
options to purchase stock in exchange for property.
Other Strategies and Activities. While we emphasize equity real estate investments in rental
apartment communities, we have the ability to invest in other types of real estate, mortgages
(including participating or convertible mortgages), securities of other REITs or real estate
operating companies, or securities of technology companies that relate to our real estate
operations or of companies that provide services to us or our residents, in each case consistent
with our qualification as a REIT. On occasion, we own and lease retail space at our communities
when either (i) the highest and best use of the space is for retail (e.g., street level in an urban
area) or (ii) we believe the retail space will enhance the attractiveness of the community to
residents. As of December 31, 2008, we had a total of 425,251 square feet of rentable retail space
that produced gross rental revenue in 2008 of $10,166,000 (1.2% of total revenue). If we secure a
development right and believe that its best use, in whole or in part, is to develop the real estate
with the intent to sell rather than hold the asset, we may, through a taxable REIT subsidiary,
develop real estate for sale. At present, through a taxable REIT subsidiary that is a 50% partner
in Aria at Hathorne, LLC, we have an economic interest in the development of 64 for-sale town homes
at a total projected capital cost of $23,621,000. This for-sale development is on a site that is
adjacent to our Avalon Danvers community and that is zoned for for-sale development. Any
investment in securities of other entities, and any development of real estate for sale, is subject
to the percentage of ownership limitations, gross income tests, and other limitations that must be
observed for REIT qualification.
We have not engaged in trading, underwriting or agency distribution or sale of securities of other
issuers and do not intend to do so. At all times we intend to make investments in a manner so as
to qualify as a REIT unless, because of circumstances or changes to the Internal Revenue Code (or
the Treasury Regulations), our Board of Directors determines that it is no longer in our best
interest to qualify as a REIT.
Tax Matters
We filed an election with our 1994 federal income tax return to be taxed as a REIT under the
Internal Revenue Code of 1986, as amended, and intend to maintain our qualification as a REIT in
the future. As a qualified REIT, with limited exceptions, we will not be taxed under federal and
certain state income tax laws at the corporate level on our taxable net income to the extent
taxable net income is distributed to our stockholders. We expect to make sufficient distributions
to avoid income tax at the corporate level. While we believe that we are organized and qualified
as a REIT and we intend to operate in a manner that will allow us to continue to qualify as a REIT,
there can be no assurance that we will be successful in this regard. Qualification as a REIT
involves the application of highly technical and complex provisions of the Internal Revenue Code
for which there are limited judicial and administrative interpretations and involves the
determination of a variety of factual matters and circumstances not entirely within our control.
Competition
We face competition from other real estate investors, including insurance companies, pension and
investment funds, partnerships and investment companies and other REITs, to acquire and develop
apartment communities and acquire land for future development. As an owner and operator of
apartment communities, we also face competition for prospective residents from other operators
whose communities may be perceived to offer a better location or better amenities or whose rent may
be perceived as a better value proposition given the quality, location and amenities that the
resident seeks. We also compete against condominiums and single-family homes that are for sale or
rent. Although we often compete against large sophisticated developers and operators for
development opportunities and
6
for prospective residents, real estate developers and operators of
any size can provide effective competition for both real estate assets and potential residents.
Environmental and Related Matters
As a current or prior owner, operator and developer of real estate, we are subject to various
federal, state and local environmental laws, regulations and ordinances and also could be liable to
third parties resulting from environmental contamination or noncompliance at our communities. For
some development communities, we undertake extensive environmental remediation to prepare the site
for construction, which could be a significant portion of our total construction cost.
Environmental remediation efforts could expose us to possible liabilities for accidents or improper
handling of contaminated materials during construction. These and other risks related to
environmental matters are described in more detail in Item 1a., Risk Factors.
Other Information
We file annual, quarterly and current reports, proxy statements and other information with the SEC.
You may read and copy any document we file at the SECs Public Reference Room at 100 F Street,
N.E., Washington, D.C. 20002. You may call the SEC at 1-800-SEC-0330 for further information on
the operation of the Public Reference Room. Our SEC filings are also available to the public from
the SECs website at www.sec.gov. In addition, you may read our SEC fillings at the offices of the
New York Stock Exchange (NYSE), which is located at 20 Board Street, New York, New York 10005.
Our SEC filings are available at the NYSE because our common stock is listed on the NYSE.
We
maintain a website at www.avalonbay.com. Our annual reports on Form 10-K, quarterly reports on
Form 10-Q, current reports on Form 8-K, and amendments to those reports, filed or furnished
pursuant to the Securities Exchange Act of 1934 are available free of charge in the Investor
Relations section of our website as soon as reasonably practicable after the reports are filed
with or furnished to the SEC. In addition, the charters of our Boards Nominating and Corporate
Governance Committee, Audit Committee and Compensation Committee, as well as our Corporate
Governance Guidelines and Code of Conduct, are available free of charge in that section of our
website or by writing to AvalonBay Communities, Inc., 2900 Eisenhower Avenue, Suite 300,
Alexandria, Virginia 22314, Attention: Chief Financial Officer. To the extent required by the
rules of the SEC and the NYSE, we will disclose amendments and waivers relating to these documents
in the same place on our website.
We were incorporated under the laws of the State of California in 1978. In 1995, we reincorporated
in the State of Maryland and have been focused on the ownership and operation of apartment
communities since that time. As of January 31, 2009, we had 1,830 employees.
7
ITEM 1a. RISK FACTORS
Our operations involve various risks that could have adverse consequences, including those
described below. This Item 1a includes forward-looking statements. You should refer to our
discussion of the qualifications and limitations on forward-looking statements in this Form 10-K.
Development, redevelopment and construction risks could affect our profitability.
We intend to continue to develop and redevelop apartment home communities. These activities can
include long planning and entitlement timelines and can involve complex and costly activities,
including significant environmental remediation or construction work in high-density urban areas.
These activities may be exposed to the following risks:
| we may be unable to obtain, or experience delays in obtaining, necessary zoning, occupancy, or other required governmental or third party permits and authorizations, which could result in increased costs or the delay or abandonment of opportunities; | ||
| we may abandon opportunities that we have already begun to explore for a number of reasons, including changes in local market conditions or increases in construction or financing costs, and, as a result, we may fail to recover expenses already incurred in exploring those opportunities; | ||
| we may incur costs that exceed our original estimates due to increased material, labor or other costs; | ||
| occupancy rates and rents at a community may fail to meet our expectations for a number of reasons, including changes in market and economic conditions beyond our control and the development by competitors of competing communities; | ||
| we may be unable to complete construction and lease up of a community on schedule, resulting in increased construction and financing costs and a decrease in expected rental revenues; | ||
| we may be unable to obtain financing with favorable terms, or at all, for the proposed development of a community, which may cause us to delay or abandon an opportunity; | ||
| we may incur liabilities to third parties during the development process, for example, in connection with managing existing improvements on the site prior to tenant terminations and demolition (such as commercial space) or in connection with providing services to third parties, such as the construction of shared infrastructure or other improvements; and | ||
| we may incur liability if our communities are not constructed and operated in compliance with the accessibility provisions of the Americans with Disabilities Acts, the Fair Housing Act or other federal, state or local requirements. Noncompliance could result in imposition of fines, an award of damages to private litigants, and a requirement that we undertake structural modifications to remedy the noncompliance. We are currently engaged in lawsuits alleging noncompliance with these statutes. See Item 3., Legal Proceedings. |
We project construction costs based on market conditions at the time we prepare our budgets, and
our projections include changes that we anticipate but cannot predict with certainty.
Construction costs may increase, particularly for labor and certain materials and, for some of our
Development Communities and Development Rights (as defined below), the total construction costs
may be higher than the original budget. Total capitalized cost includes all capitalized costs
projected to be incurred to develop or redevelop a community, determined in accordance with GAAP,
including:
| land and/or property acquisition costs; | ||
| fees paid to secure air rights and/or tax abatements; | ||
| construction or reconstruction costs; | ||
| costs of environmental remediation; | ||
| real estate taxes; | ||
| capitalized interest; | ||
| loan fees; | ||
| permits; | ||
| professional fees; | ||
| allocated development or redevelopment overhead; and |
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| other regulatory fees. |
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 you
that market rents in effect at the time new development or redevelopment communities complete
lease-up will be sufficient to fully offset the effects of any increased construction or
reconstruction costs.
Unfavorable changes in market and economic conditions could hurt occupancy, rental rates,
operating expenses, and the overall market value of our assets, including joint ventures and Fund
investments.
Local conditions in our markets significantly affect occupancy, rental rates and the operating
performance of our communities. The risks that may adversely affect conditions in those markets
include the following:
| plant closings, industry slowdowns and other factors that adversely affect the local economy; | ||
| an oversupply of, or a reduced demand for, apartment homes; | ||
| a decline in household formation or employment or lack of employment growth; | ||
| the inability or unwillingness of residents to pay rent increases; | ||
| rent control or rent stabilization laws, or other laws regulating housing, that could prevent us from raising rents to offset increases in operating costs; and | ||
| economic conditions that could cause an increase in our operating expenses, such as increases in property taxes, utilities, compensation of on-site associates and routine maintenance. |
Changes in applicable laws, or noncompliance with applicable laws, could adversely affect our
operations or expose us to liability.
We must develop, construct and operate our communities in compliance with numerous federal, state
and local laws and regulations, some of which may conflict with one
another or be subject to limited judicial or regulatory
interpretations. These laws and regulations may include zoning laws, building codes, landlord tenant laws and
other laws generally applicable to business operations. Noncompliance with laws could expose us
to liability.
Compliance with changes in (i) laws imposing remediation requirements and the potential liability
for environmental conditions existing on properties or the restrictions on discharges or other
conditions, (ii) rent control or rent stabilization laws or (iii) other governmental rules and
regulations or enforcement policies affecting the development, use and operation of our
communities, including changes to building codes and fire and life-safety codes, may result in
lower revenue growth or significant unanticipated expenditures.
Short-term leases expose us to the effects of declining market rents.
Substantially all of our apartment leases are for a term of one year or less. Because these leases
generally permit the residents to leave at the end of the lease term without penalty, our rental
revenues are impacted by declines in market rents more quickly than if our leases were for longer
terms.
Competition could limit our ability to lease apartment homes or increase or maintain rents.
Our apartment communities compete with other housing alternatives to attract residents, including
other rental apartments, condominiums and single-family homes that are available for rent, as well
as new and existing condominiums and single-family homes for sale. Competitive residential
housing in a particular area could adversely affect our ability to lease apartment homes and to
increase or maintain rental rates.
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Attractive investment opportunities may not be available, which could adversely affect our
profitability.
We expect that other real estate investors, including insurance companies, pension funds, other
REITs and other well-capitalized investors, will compete with us to acquire existing properties
and to develop new properties. This competition could increase prices for properties of the type
we would likely pursue and adversely affect our profitability.
Capital and credit market conditions may continue to adversely affect our access to various
sources of capital and/or the cost of capital, which could impact our business activities,
dividends, earnings, and common stock price, among other things.
The capital and credit markets have been experiencing extreme volatility and disruption, and this
has affected the amounts, sources and cost of capital available to us. For example, during 2008
we used secured property financing more than in the past, as the interest rate we incur for that
source of financing has remained relatively steady, and we may continue to rely more heavily on
secured financings. We are unable to predict whether, or to what extent or for how long, the
current capital market conditions will persist. We primarily use external financing to fund
construction and to refinance indebtedness as it matures. If sufficient sources of external
financing are not available to us on cost effective terms, we could be forced to further limit our
development and redevelopment activity and/or take other actions to fund our business activities
and repayment of debt, such as selling assets, reducing our cash dividend or paying out less than
100% of our taxable income. To the extent that we are able and/or choose to access capital at a
higher cost than we have experienced in recent years (reflected in higher interest rates for debt
financing or a lower stock price for equity financing) our earnings per share and cash flows could
be adversely affected. In addition, the price of our common stock may fluctuate significantly
and/or decline in a high-interest rate or volatile economic environment. We believe that the
lenders under our unsecured credit line will fulfill their lending obligations thereunder, but if
economic conditions deteriorate further there can be no assurance that the ability of those
lenders to fulfill their obligations would not be adversely impacted.
Insufficient cash flow could affect our debt financing and create refinancing risk.
We are subject to the risks associated with debt financing, including the risk that our cash flow
will be insufficient to meet required payments of principal and interest. In this regard, we note
that we are required to annually distribute dividends generally equal to at least 90% of our REIT
taxable income, computed without regard to the dividends paid deduction and our net capital gain,
in order for us to continue to qualify as a REIT, and this requirement limits the amount of our
cash flow available to meet required principal and interest payments. The principal outstanding
balance on a portion of our debt will not be fully amortized prior to its maturity. Although we
may be able to repay our debt by using our cash flows, we cannot assure you that we will have
sufficient cash flows available to make all required principal payments. Therefore, we may need to
refinance at least a portion of our outstanding debt as it matures. There is a risk that we may
not be able to refinance existing debt or that a refinancing will not be done on as favorable
terms, either of which could have a material adverse effect on our financial condition and results
of operations.
Rising interest rates could increase interest costs and could affect the market price of our
common stock.
We currently have, and may in the future incur, variable interest rate debt. In addition, we
regularly seek access to both fixed and variable rate debt financing to repay maturing debt and to
finance our development and redevelopment activity. Accordingly, if interest rates increase, our
interest costs will also rise, unless we have made arrangements that hedge the risk of rising
interest rates. In addition, an increase in market interest rates may lead purchasers of our
common stock to demand a greater annual dividend yield, which could adversely affect the market
price of our common stock.
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Bond financing and zoning compliance requirements could limit our income, restrict the use of
communities and cause favorable financing to become unavailable.
We have financed some of our apartment communities with obligations issued by local government
agencies because the interest paid to the holders of this debt is generally exempt from federal
income taxes and, therefore, the interest rate is generally more favorable to us. These
obligations are commonly referred to as tax-exempt bonds and generally must be secured by
communities. As a condition to obtaining tax-exempt financing, or on occasion as a condition to
obtaining favorable zoning in some jurisdictions, we will commit to make some of the apartments in
a community available to households whose income does not exceed certain thresholds (e.g., 50% or
80% of area median income), or who meet other qualifying tests. As of December 31, 2008,
approximately 6.9% of our apartment homes at current operating communities were under income
limitations such as these. These commitments, which may run without expiration or may expire
after a period of time (such as 15 or 20 years) may limit our ability to raise rents aggressively
and, in consequence, can also limit increases in the value of the communities subject to these
restrictions.
In addition, some of our tax-exempt bond financing documents require us to obtain a guarantee from
a financial institution of payment of the principal of, and interest on, the bonds. The guarantee
may take the form of a letter of credit, surety bond, guarantee agreement or other additional
collateral. If the financial institution defaults in its guarantee obligations, or if we are
unable to renew the applicable guarantee or otherwise post satisfactory collateral, a default will
occur under the applicable tax-exempt bonds and the community could be foreclosed upon.
Risks related to indebtedness.
We have a $1,000,000,000 revolving variable rate unsecured credit facility with JPMorgan Chase
Bank, N.A., and Wachovia Bank, N.A., serving together as syndication agent and as banks, Bank of
America, N.A., serving as administrative agent, swing lender, issuing bank and a bank, Morgan
Stanley Bank, Wells Fargo Bank, N.A., and Deutsche Bank Trust Company Americas, serving
collectively as documentation agent and as banks, and a syndicate of other financial institutions,
serving as banks. Our organizational documents do not limit the amount or percentage of
indebtedness that may be incurred. Accordingly, subject to compliance with outstanding debt
covenants, we could incur more debt, resulting in an increased risk of default on our obligations
and an increase in debt service requirements that could adversely affect our financial condition
and results of operations.
The mortgages on those of our properties subject to secured debt, our unsecured credit facility,
our unsecured term loan and the indentures under which a substantial portion of our debt was
issued contain customary restrictions, requirements and other limitations, as well as certain
financial and operating covenants including maintenance of certain financial ratios. Maintaining
compliance with these restrictions could limit our flexibility. A default in these requirements,
if uncured, could result in a requirement that we repay indebtedness, which could severely affect
our liquidity and increase our financing costs.
Failure to generate
sufficient revenue or other liquidity needs could limit cash flow available
for distributions to stockholders.
A decrease in rental revenue or other liquidity needs, including the repayment of indebtedness or
funding of our development activities, could have an adverse effect on our ability to pay
distributions to our stockholders. Significant expenditures associated with each community such as
debt service payments, if any, real estate taxes, insurance and maintenance costs are generally
not reduced when circumstances cause a reduction in income from a community.
The form, timing and/or amount of dividend distributions in future periods may vary and be
impacted by economic and other considerations.
The form, timing and/or amount of dividend distributions will be declared at the discretion of the
Board of Directors and will depend on actual cash from operations, our financial condition, capital
requirements, the annual distribution requirements under the REIT provisions of the Internal
Revenue Code and other factors as the Board of Directors may consider relevant. The Board of
Directors may modify our dividend policy from time to time.
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We may in the future choose to pay dividends in our own stock, in which case stockholders may be
required to pay tax in excess of the cash you receive.
We may in the future distribute taxable dividends that are payable in part in our stock, as we did
in the fourth quarter of 2008.
Taxable stockholders receiving such dividends will be required to include the
full amount of the dividend as income to the extent of our current and accumulated
earnings and profits for federal income tax purposes. As a result, a U.S. stockholder may be
required to pay tax with respect to such dividends in excess of the cash received. If a U.S.
stockholder sells the stock it receives as a dividend in order to pay this tax, the sales proceeds
may be less than the amount included in income with respect to the dividend, depending on the
market price of our stock at the time of the sale. Furthermore, with respect to non-U.S.
stockholders, we may be required to withhold U.S. tax with respect to such dividends, including in
respect of all or a portion of such dividend that is payable in stock. In addition, if a
significant number of our stockholders sell shares of our stock in order to pay taxes owed on
dividends, that may put downward pressure on the trading price of our stock.
Debt financing may not be available and equity issuances could be dilutive to our stockholders.
Our ability to execute our business strategy depends on our access to an appropriate blend of debt
and equity financing. Debt financing may not be available in sufficient amounts or on favorable
terms. If we issue additional equity securities, the interests of existing stockholders could be
diluted.
Difficulty of selling apartment communities could limit flexibility.
Federal tax laws may limit our ability to earn a gain on the sale of a community (unless we own it
through a subsidiary which will incur a taxable gain upon sale) if we are found to have held,
acquired or developed the community primarily with the intent to resell the community, and this
limitation may affect our ability to sell communities without adversely affecting returns to our
stockholders. In addition, real estate in our markets can at times be difficult to sell quickly
at prices we find acceptable. These potential difficulties in selling real estate in our markets
may limit our ability to change or reduce the apartment communities in our portfolio promptly in
response to changes in economic or other conditions.
Acquisitions may not yield anticipated results.
Subject to the requirements related to Fund II, we may in the future acquire apartment communities
on a select basis. Our acquisition activities and their success may be exposed to the following
risks:
| an acquired property may fail to perform as we expected in analyzing our investment; and | ||
| our estimate of the costs of repositioning or redeveloping an acquired property may prove inaccurate. |
Failure to succeed in new markets or in activities other than the development, ownership and
operation of residential rental communities may have adverse consequences.
We may from time to time commence development activity or make acquisitions outside of our
existing market areas if appropriate opportunities arise. As noted above, we also own and lease
ancillary retail space when a retail component represents the best use of the space, as is often
the case with large urban in-fill developments. Also, as noted in Item 1., Business, above,
through a taxable REIT subsidiary that is a joint venture partner, we have a 50% economic interest
in a 64 town home for-sale development with a total estimated capital cost at completion of
$23,621,000, on a site adjacent to one of our communities. We may engage or have an interest in
for-sale activity in the future. Our historical experience in our existing markets in developing,
owning and operating rental communities does not ensure that we will be able to operate
successfully in new markets, should we choose to enter them, or that we will be successful in
other activities. We may be exposed to a variety of risks if we choose to enter new markets,
including an inability to evaluate accurately local apartment market conditions; an inability to
obtain land for development or to identify appropriate acquisition opportunities; an inability to
hire and retain key
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personnel; and lack of familiarity with local governmental and permitting procedures. We may be
unsuccessful in owning and leasing retail space at our communities or in developing real estate
with the intent to sell.
Risks involved in real estate activity through joint ventures.
Instead of acquiring or developing apartment communities directly, at times we invest as a partner
or a co-venturer. Partnership or joint venture investments involve risks, including the
possibility that our partner might become insolvent or otherwise refuse to make capital
contributions when due; that we may be responsible to our partner for indemnifiable losses; that
our partner might at any time have business goals which are inconsistent with ours; and that our
partner may be in a position to take action or withhold consent contrary to our instructions or
requests. Frequently, we and our partner may each have the right to trigger a buy-sell
arrangement, which could cause us to sell our interest, or acquire our partners interest, at a
time when we otherwise would not have initiated such a transaction.
Risks associated with an investment in and management of a discretionary investment fund.
We formed
the Fund which, through a wholly owned subsidiary, we manage as the general partner and
in which we have invested approximately $48,000,000 at December 31, 2008, representing an equity
interest of approximately 15%. This presents risks, including the following:
| investors in the Fund may fail to make their capital contributions when due and, as a result, the Fund may be unable to execute its investment objectives; | ||
| our subsidiary that is the general partner of the Fund is generally liable, under partnership law, for the debts and obligations of the Fund, subject to certain exculpation and indemnification rights pursuant to the terms of the partnership agreement of the Fund; | ||
| investors in the Fund holding a majority of the partnership interests may remove us as the general partner without cause, subject to our right to receive an additional nine months of management fees after such removal and our right to acquire one of the properties then held by the Fund; | ||
| while we have broad discretion to manage the Fund and make investment decisions on behalf of the Fund, the investors or an advisory committee comprised of representatives of the investors must approve certain matters, and as a result we may be unable to cause the Fund to make certain investments or implement certain decisions that we consider beneficial; and | ||
| we may be liable and/or our status as a REIT may be jeopardized if either the Fund, or the REIT through which a number of investors have invested in the Fund and which we manage, fails to comply with various tax or other regulatory matters. |
We have
also formed Fund II which, through a wholly owned subsidiary, we manage as the general
partner and to which we have committed $150,000,000, representing a current equity interest of
approximately 45%. This presents risks, including the following:
| investors in Fund II may fail to make their capital contributions when due and, as a result, Fund II may be unable to execute its investment objectives; | ||
| our subsidiary that is the general partner of Fund II is generally liable, under partnership law, for the debts and obligations of Fund II, subject to certain exculpation and indemnification rights pursuant to the terms of the partnership agreement of Fund II; | ||
| investors in Fund II holding a majority of the partnership interests may remove us as the general partner without cause, subject to our right to receive an additional nine months of management fees after such removal and our right to acquire one of the properties then held by Fund II; | ||
| while we have broad discretion to manage Fund II and make investment decisions on behalf of Fund II, the investors or an advisory committee comprised of representatives of the investors must approve certain matters, and as a result we may be unable to cause Fund II to make certain investments or implement certain decisions that we consider beneficial; | ||
| we can develop communities but have been generally prohibited from making acquisitions of apartment communities outside of Fund II, which is our exclusive investment vehicle until September 2011 or when 90% of Fund IIs capital is invested, subject to certain exceptions; and |
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| we may be liable and/or our status as a REIT may be jeopardized if either Fund II , or the Fund II REIT through which a number of investors have invested in Fund II and which we manage, fails to comply with various tax or other regulatory matters. |
Risk of earthquake damage.
As further described in Item 2., Communities Insurance and Risk of Uninsured Losses, many of
our West Coast communities are located in the general vicinity of active earthquake faults. We
cannot assure you that an earthquake would not cause damage or losses greater than insured levels.
In the event of a loss in excess of insured limits, 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.
Insurance coverage for earthquakes can be costly due to limited industry capacity. As a result,
we may experience shortages in desired coverage levels if market conditions are such that
insurance is not available or the cost of insurance makes it, in managements view, economically
impractical.
A significant uninsured property or liability loss could have a material adverse effect on our
financial condition and results of operations.
In addition to the earthquake insurance discussed above, we carry commercial general liability
insurance, property insurance and terrorism insurance with respect to our communities on terms we
consider commercially reasonable. There are, however, certain types of losses (such as losses
arising from acts of war) that are not insured, in full or in part, because they are either
uninsurable or the cost of insurance makes it, in managements view, economically impractical. If
an uninsured property loss or a property loss in excess of insured limits were to occur, we could
lose our capital invested in a community, as well as the anticipated future revenues from such
community. We would also continue to be obligated to repay any mortgage indebtedness or other
obligations related to the community. If an uninsured liability to a third party were to occur, we
would incur the cost of defense and settlement with, or court ordered damages to, that third
party. A significant uninsured property or liability loss could materially and adversely affect
our business and our financial condition and results of operations.
We may incur costs and increased expenses to repair property damage resulting from inclement
weather.
Particularly
in New England and the Midwest we are exposed to risks associated with inclement winter
weather, including increased costs for the removal of snow and ice as well as from delays in
construction. In addition, inclement weather could increase the need for maintenance and repair of
our communities.
We may incur costs due to environmental contamination or non-compliance.
Under various federal, state and local environmental and public health laws, regulations and
ordinances, we may be required, regardless of knowledge or responsibility, to investigate and
remediate the effects of hazardous or toxic substances or petroleum product releases at our
properties (including in some cases natural substances such as methane and radon gas) and may be
held liable under these laws or common law to a governmental entity or to third parties for
property, personal injury or natural resources damages and for investigation and remediation costs
incurred as a result of the contamination. These damages and costs may be substantial and may
exceed any insurance coverage we have for such events. The presence of such substances, or the
failure to properly remediate the contamination, may adversely affect our ability to borrow
against, sell or rent the affected property.
In addition, some environmental laws create or allow a government agency to impose a lien on the
contaminated site in favor of the government for damages and costs it incurs as a result of the
contamination.
The development, construction and operation of our communities are subject to regulations and
permitting under various federal, state and local laws, regulations and ordinances, which regulate
matters including wetlands protection, storm water runoff and wastewater discharge. Noncompliance
with such laws and regulations may
14
subject us to fines and penalties. We do not currently anticipate that we will incur any material
liabilities as a result of noncompliance with these laws.
Certain federal, state and local laws, regulations and ordinances govern the removal,
encapsulation or disturbance of asbestos containing materials (ACMs) when such materials are in
poor condition or in the event of renovation or demolition of a building. These laws and the
common law may impose liability for release of ACMs and may allow third parties to seek recovery
from owners or operators of real properties for personal injury associated with exposure to ACMs.
We are not aware that any ACMs were used in the construction of the communities we developed.
ACMs were, however, used in the construction of a number of the communities that we acquired. We
implement an operations and maintenance program at each of the communities at which ACMs are
detected. We do not currently anticipate that we will incur any material liabilities as a result
of the presence of ACMs at our communities.
We are aware that some of our communities have lead paint and have implemented an operations and
maintenance program at each of those communities. We do not currently anticipate that we will
incur any material liabilities as a result of the presence of lead paint at our communities.
All of our stabilized operating communities, and all of the communities that we are currently
developing or redeveloping, have been subjected to at least a Phase I or similar environmental
assessment, which generally does not involve invasive techniques such as soil or ground water
sampling. These assessments, together with subsurface assessments conducted on some properties,
have not revealed, and we are not otherwise aware of, any environmental conditions that we believe
would have a material adverse effect on our business, assets, financial condition or results of
operations. In connection with our ownership, operation and development of communities, from time
to time we undertake substantial remedial action in response to the presence of subsurface or
other contaminants, including contaminants in soil, groundwater and soil vapor beneath or
affecting our buildings. In some cases, an indemnity exists upon which we may be able to rely if
environmental liability arises from the contamination or remediation costs exceed estimates.
There can be no assurance, however, that all necessary remediation actions have been or will be
undertaken at our properties or that we will be indemnified, in full or at all, in the event that
environmental liability arises.
Mold growth may occur when excessive moisture accumulates in buildings or on building materials,
particularly if the moisture problem remains undiscovered or is not addressed over a period of
time. Although the occurrence of mold at multifamily and other structures, and the need to
remediate such mold, is not a new phenomenon, there has been increased awareness in recent years
that certain molds may in some instances lead to adverse health effects, including allergic or
other reactions. To help limit mold growth, we educate residents about the importance of adequate
ventilation and request or require that they notify us when they see mold or excessive moisture.
We have established procedures for promptly addressing and remediating mold or excessive moisture
from apartment homes when we become aware of its presence regardless of whether we or the resident
believe a health risk is presented. However, we cannot provide assurance that mold or excessive
moisture will be detected and remediated in a timely manner. If a significant mold problem arises
at one of our communities, we could be required to undertake a costly remediation program to
contain or remove the mold from the affected community and could be exposed to other liabilities
that may exceed any applicable insurance coverage.
Additionally, we have occasionally been involved in developing, managing, leasing and operating
various properties for third parties. Consequently, we may be considered to have been an operator
of such properties and, therefore, potentially liable for removal or remediation costs or other
potential costs which relate to the release or presence of hazardous or toxic substances. We are
not aware of any material environmental liabilities with respect to properties managed or
developed by us or our predecessors for such third parties.
We cannot assure you that:
| the environmental assessments described above have identified all potential environmental liabilities; | ||
| no prior owner created any material environmental condition not known to us or the consultants who prepared the assessments; |
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| no environmental liabilities have developed since the environmental assessments were prepared; | ||
| the condition of land or operations in the vicinity of our communities, such as the presence of underground storage tanks, will not affect the environmental condition of our communities; | ||
| future uses or conditions, including, without limitation, changes in applicable environmental laws and regulations, will not result in the imposition of environmental liability; and | ||
| no environmental liabilities will arise at communities that we have sold for which we may have liability. |
Failure to qualify as a REIT would cause us to be taxed as a corporation, which would
significantly reduce funds available for distribution to stockholders.
If we fail to qualify as a REIT for federal income tax purposes, we will be subject to federal
income tax on our taxable income at regular corporate rates (subject to any applicable alternative
minimum tax). In addition, unless we are entitled to relief under applicable statutory provisions,
we would be ineligible to make an election for treatment as a REIT for the four taxable years
following the year in which we lose our qualification. The additional tax liability resulting from
the failure to qualify as a REIT would significantly reduce or eliminate the amount of funds
available for distribution to our stockholders. Furthermore, we would no longer be required to
make distributions to our stockholders. Thus, our failure to qualify as a REIT could also impair
our ability to expand our business and raise capital, and would adversely affect the value of our
common stock.
We believe that we are organized and qualified as a REIT, and we intend to operate in a manner
that will allow us to continue to qualify as a REIT. However, we cannot assure you that we are
qualified as a REIT, or that we will remain qualified in the future. This is because qualification
as a REIT involves the application of highly technical and complex provisions of the Internal
Revenue Code for which there are only limited judicial and administrative interpretations and
involves the determination of a variety of factual matters and circumstances not entirely within
our control. In addition, future legislation, new regulations, administrative interpretations or
court decisions may significantly change the tax laws or the application of the tax laws with
respect to qualification as a REIT for federal income tax purposes or the federal income tax
consequences of this qualification.
Even if we qualify as a REIT, we will be subject to certain federal, state and local taxes on our
income and property and on taxable income that we do not distribute to our shareholders. In
addition, we may engage in activities through taxable subsidiaries and will be subject to federal
income tax at regular corporate rates on the income of those subsidiaries.
The ability of our stockholders to control our policies and effect a change of control of our
company is limited by certain provisions of our charter and bylaws and by Maryland law.
There are provisions in our charter and bylaws that may discourage a third party from making a
proposal to acquire us, even if some of our stockholders might consider the proposal to be in
their best interests. These provisions include the following:
Our charter authorizes our Board of Directors to issue up to 50,000,000 shares of preferred stock
without stockholder approval and to establish the preferences and rights, including voting rights,
of any series of preferred stock issued. The Board of Directors may issue preferred stock without
stockholder approval, which could allow the Board to issue one or more classes or series of
preferred stock that could discourage or delay a tender offer or a change in control.
To maintain our qualification as a REIT for federal income tax purposes, not more than 50% in
value of our outstanding stock may be owned, directly or indirectly, by or for five or fewer
individuals at any time during the last half of any taxable year. To maintain this qualification,
and to otherwise address concerns about concentrations of ownership of our stock, our charter
generally prohibits ownership (directly, indirectly by virtue of the attribution provisions of the
Internal Revenue Code, or beneficially as defined in Section 13 of the Securities Exchange Act) by
any single stockholder of more than 9.8% of the issued and outstanding shares of any class or
series of our stock. In general, under our charter, pension plans and mutual funds may directly
and beneficially own up to 15% of the outstanding shares of any class or series of stock. Under
our charter, our Board of Directors may in its sole
16
discretion waive or modify the ownership limit
for one or more persons. These ownership limits may prevent or
delay a change in control and, as a result, could adversely affect our stockholders ability to
realize a premium for their shares of common stock.
Our bylaws provide that the affirmative vote of holders of a majority of all of the shares
entitled to be cast in the election of directors is required to elect a director. In a contested
election, if no nominee receives the vote of holders of a majority of all of the shares entitled
to be cast, the incumbent directors would remain in office. This requirement may prevent or delay
a change in control and, as a result, could adversely affect our stockholders ability to realize
a premium for their shares of common stock.
As a Maryland corporation, we are subject to the provisions of the Maryland General Corporation
Law. Maryland law imposes restrictions on some business combinations and requires compliance with
statutory procedures before some mergers and acquisitions may occur, which may delay or prevent
offers to acquire us or increase the difficulty of completing any offers, even if they are in our
stockholders best interests. In addition, other provisions of the Maryland General Corporation
Law permit the Board of Directors to make elections and to take actions without stockholder
approval (such as classifying our Board such that the entire Board is not up for reelection
annually) that, if made or taken, could have the effect of discouraging or delaying a change in
control.
ITEM 1b. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. COMMUNITIES
Our real estate investments consist primarily of current operating apartment communities,
communities in various stages of development (Development Communities) and Development Rights (as
defined below). Our current operating communities are further distinguished as Established
Communities, Other Stabilized Communities, Lease-Up Communities and Redevelopment Communities. The
following is a description of each category:
Current Communities are categorized as Established, Other Stabilized,
Lease-Up, or Redevelopment according to the following attributes:
| Established Communities (also known as Same Store Communities) are consolidated communities where a comparison of operating results from the prior year to the current year is meaningful, as these communities were owned and had stabilized occupancy and operating expenses as of the beginning of the prior year. For the year ended December 31, 2008, the Established Communities are communities that are consolidated for financial reporting purposes, had stabilized occupancy and operating expenses as of January 1, 2007, are not conducting or planning to conduct substantial redevelopment activities and are not held for sale or planned for disposition within the current year. A community is considered to have stabilized occupancy at the earlier of (i) attainment of 95% physical occupancy or (ii) the one-year anniversary of completion of development or redevelopment. | ||
| Other Stabilized Communities includes all other completed communities that we own or have a direct or indirect ownership interest in, and that have stabilized occupancy, as defined above. Other Stabilized Communities do not include communities that are conducting or planning to conduct substantial redevelopment activities within the current year. | ||
| Lease-Up Communities are communities where construction has been complete for less than one year and where physical occupancy has not reached 95%. |
17
| Redevelopment Communities are communities where substantial redevelopment is in progress or is planned to begin during the current year. For communities that we wholly own, redevelopment is considered substantial when capital invested during the reconstruction effort is expected to exceed the lesser of $5,000,000 or 10% of the communitys acquisition cost. The definition of substantial redevelopment may differ for communities owned through a joint venture arrangement. |
Development Communities are communities that are under construction and
for which a certificate of occupancy has not been received. These communities
may be partially complete and operating.
Development Rights are development opportunities in the early phase of the
development process for which we either have an option to acquire land or enter into
a leasehold interest, for which we are the buyer under a long-term conditional
contract to purchase land or where we own land to develop a new community. We
capitalize related pre-development costs incurred in pursuit of new developments for
which we currently believe future development is probable.
In addition, we own approximately 60,000 square feet of office space in Alexandria,
Virginia, for our corporate office, with all other regional and administrative offices
leased under operating leases.
As of December 31, 2008, communities that we owned or held a direct or indirect interest in were
classified as follows:
Number of | Number of | |||||||
communities | apartment homes | |||||||
Current Communities |
||||||||
Established Communities: |
||||||||
New England |
23 | 5,351 | ||||||
Metro NY/NJ |
17 | 5,309 | ||||||
Mid-Atlantic/Midwest |
18 | 6,122 | ||||||
Pacific Northwest |
6 | 1,320 | ||||||
Northern California |
20 | 5,657 | ||||||
Southern California |
11 | 3,430 | ||||||
Total Established |
95 | 27,189 | ||||||
Other Stabilized Communities: |
||||||||
New England |
10 | 3,130 | ||||||
Metro NY/NJ |
14 | 4,044 | ||||||
Mid-Atlantic/Midwest |
9 | 2,443 | ||||||
Pacific Northwest |
4 | 1,058 | ||||||
Northern California |
10 | 2,820 | ||||||
Southern California |
9 | 1,675 | ||||||
Total Other Stabilized |
56 | 15,170 | ||||||
Lease-Up
Communities |
4 | 759 | ||||||
Redevelopment Communities |
9 | 2,610 | ||||||
Total Current Communities |
164 | 45,728 | ||||||
Development Communities |
14 | 4,564 | ||||||
Development Rights |
27 | 7,304 | ||||||
Our holdings under each of the above categories are discussed on the following pages.
Current Communities
Our Current Communities are primarily garden-style apartment communities consisting of two and
three-story buildings in landscaped settings. The Current Communities, as of January 31, 2009,
include 125 garden-style (of
18
which 21 are mixed communities and include town homes), 22 high-rise
and 17 mid-rise apartment communities. The Current Communities offer many attractive amenities
including some or all of the following:
| vaulted ceilings; | ||
| lofts; | ||
| fireplaces; | ||
| patios/decks; and | ||
| modern appliances. |
Other features at various communities may include:
| swimming pools; | ||
| fitness centers; | ||
| tennis courts; and | ||
| business centers. |
We also have an extensive and ongoing maintenance program to keep all communities and apartment
homes substantially free of deferred maintenance and, where vacant, available for immediate
occupancy. We believe that the aesthetic appeal of our communities and a service oriented
property management team, focused on the specific needs of residents, enhances market appeal to
discriminating residents. We believe this will ultimately achieve higher rental rates and
occupancy levels while minimizing resident turnover and operating expenses.
19
Our Current Communities are located in the following geographic markets:
Number of | Number of | Percentage of total | ||||||||||||||||||||||
communities at | apartment homes at | apartment homes at | ||||||||||||||||||||||
1-31-08 | 1-31-09 | 1-31-08 | 1-31-09 | 1-31-08 | 1-31-09 | |||||||||||||||||||
New England |
36 | 36 | 9,600 | 9,077 | 20.2 | % | 19.9 | % | ||||||||||||||||
Boston, MA |
22 | 24 | 5,788 | 6,460 | 12.7 | % | 14.2 | % | ||||||||||||||||
Fairfield County, CT |
14 | 12 | 3,812 | 2,617 | 7.5 | % | 5.7 | % | ||||||||||||||||
Metro NY/NJ |
28 | 31 | 7,947 | 9,353 | 17.5 | % | 20.4 | % | ||||||||||||||||
Long Island, NY |
7 | 7 | 1,732 | 1,732 | 3.8 | % | 3.8 | % | ||||||||||||||||
Northern New Jersey |
5 | 5 | 1,618 | 1,618 | 3.6 | % | 3.5 | % | ||||||||||||||||
Central New Jersey |
6 | 7 | 2,042 | 2,258 | 4.5 | % | 4.9 | % | ||||||||||||||||
New York, NY |
10 | 12 | 2,555 | 3,745 | 5.6 | % | 8.2 | % | ||||||||||||||||
Mid-Atlantic/Midwest |
32 | 30 | 9,770 | 9,213 | 21.5 | % | 20.2 | % | ||||||||||||||||
Baltimore, MD |
9 | 8 | 1,987 | 1,830 | 4.4 | % | 4.0 | % | ||||||||||||||||
Washington, DC |
16 | 16 | 5,831 | 5,831 | 12.8 | % | 12.8 | % | ||||||||||||||||
Chicago, IL |
7 | 6 | 1,952 | 1,552 | 4.3 | % | 3.4 | % | ||||||||||||||||
Pacific Northwest |
12 | 11 | 3,111 | 2,746 | 6.8 | % | 6.0 | % | ||||||||||||||||
Seattle, WA |
12 | 11 | 3,111 | 2,746 | 6.8 | % | 6.0 | % | ||||||||||||||||
Northern California |
34 | 32 | 9,546 | 8,879 | 20.9 | % | 19.4 | % | ||||||||||||||||
Oakland-East Bay, CA |
7 | 8 | 2,089 | 2,394 | 4.6 | % | 5.2 | % | ||||||||||||||||
San Francisco, CA |
11 | 11 | 2,489 | 2,489 | 5.5 | % | 5.4 | % | ||||||||||||||||
San Jose, CA |
16 | 13 | 4,968 | 3,996 | 10.8 | % | 8.8 | % | ||||||||||||||||
Southern California |
21 | 24 | 5,958 | 6,460 | 13.1 | % | 14.1 | % | ||||||||||||||||
Los Angeles, CA |
11 | 12 | 3,214 | 3,345 | 7.1 | % | 7.3 | % | ||||||||||||||||
Orange County, CA |
7 | 8 | 1,686 | 1,896 | 3.7 | % | 4.1 | % | ||||||||||||||||
San Diego, CA |
3 | 4 | 1,058 | 1,219 | 2.3 | % | 2.7 | % | ||||||||||||||||
163 | 164 | 45,932 | 45,728 | 100.0 | % | 100.0 | % | |||||||||||||||||
We manage and operate substantially all of our Current Communities. During the year ended December
31, 2008, we completed construction of 4,036 apartment homes in 13 communities and sold 3,059
apartment homes in ten communities. In addition, the Fund sold 400 apartment homes in one
community. The average age of our Current Communities, on a weighted average basis according to
number of apartment homes, is 14.0 years. When adjusted to reflect redevelopment activity, as if
redevelopment were a new construction completion date, the average age of our Current Communities
is 8.7 years.
Of the Current Communities, as of January 31, 2009, we own:
| a full fee simple, or absolute, ownership interest in 125 operating communities, eight of which are on land subject to land leases expiring in October 2026, November 2028, July 2029, December 2034, January 2062, April 2095, April 2095, and March 2142; | ||
| a general partnership interest in three partnerships that each own a fee simple interest in an operating community; | ||
| a general partnership interest and an indirect limited partnership interest in the Fund, which owns a fee simple interest in 19 operating communities; | ||
| a general partnership interest in two partnerships structured as DownREITs, as described more fully below, that own an aggregate of 10 communities; | ||
| a membership interest in 6 limited liability companies that each hold a fee simple interest in an operating community, two of which are on land subject to land leases expiring in September 2044 and November 2089; and | ||
| a residual profits interest (with no ownership interest) in a limited liability company to which an operating community was transferred upon completion of construction in the second quarter of 2006. |
We also hold, directly or through wholly owned subsidiaries, the full fee simple ownership interest
in the 14
20
Development Communities, all of which are currently consolidated for financial reporting
purposes and three of which are subject to land leases expiring in
September 2105, December 2105 and April 2106.
In our
two 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 an initial distribution 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 have approximated our current common stock dividend amount. The
holders of units of limited partnership interest have the right to present all or some of their
units for redemption for a cash amount as determined by the applicable partnership agreement and
based on the fair value of our common stock. In lieu of a cash redemption by the partnership, we
may elect to acquire any unit presented for redemption for one share of our common stock or for
such cash amount. As of January 31, 2009, there were 19,430 DownREIT partnership units
outstanding. The DownREIT partnerships are consolidated for financial reporting purposes.
21
Profile of Current, Development and Unconsolidated Communities (1)
(Dollars in thousands, except per apartment home data)
(Dollars in thousands, except per apartment home data)
Average | |||||||||||||||||||||||||
Approx. | Year of | Average | Physical | Average economic | rental rate | Financial | |||||||||||||||||||
Number of | rentable area | completion / | size | occupancy at | occupancy | $ per | $ per | reporting cost | |||||||||||||||||
City and state | homes | (Sq. Ft.) | Acres | acquisition | (Sq. Ft.) | 12/31/08 | 2008 | 2007 | Apt (4) | Sq. Ft. | (5) | ||||||||||||||
CURRENT COMMUNITIES |
|||||||||||||||||||||||||
NEW ENGLAND |
|||||||||||||||||||||||||
Boston, MA |
|||||||||||||||||||||||||
Avalon at Lexington |
Lexington, MA | 198 | 237,855 | 16.1 | 1994 | 1,201 | 97.5% | 97.6% | 96.5% | 1,826 | 1.48 | 16,461 | |||||||||||||
Avalon Oaks |
Wilmington, MA | 204 | 237,167 | 22.5 | 1999 | 1,163 | 96.6% | 95.6% | 95.4% | 1,481 | 1.22 | 21,275 | |||||||||||||
Avalon Summit |
Quincy, MA | 245 | 224,974 | 8.0 | 1986/1996 | 918 | 95.5% | 97.1% | 96.0% | 1,346 | 1.42 | 17,694 | |||||||||||||
Avalon Essex |
Peabody, MA | 154 | 201,063 | 11.1 | 2000 | 1,306 | 95.5% | 96.3% | 96.5% | 1,574 | 1.16 | 21,956 | |||||||||||||
Avalon at Faxon Park |
Quincy, MA | 171 | 183,954 | 8.3 | 1998 | 1,076 | 94.2% | 95.7% | 95.9% | 1,667 | 1.48 | 15,884 | |||||||||||||
Avalon at Prudential Center |
Boston, MA | 780 | 759,130 | 1.0 | 1968/1998 | 973 | 96.2% | 97.5% | 97.0% | 2,932 | 2.94 | 157,295 | |||||||||||||
Avalon Oaks West |
Wilmington, MA | 120 | 133,376 | 27.0 | 2002 | 1,111 | 93.3% | 93.9% | 95.0% | 1,400 | 1.18 | 16,874 | |||||||||||||
Avalon Orchards |
Marlborough, MA | 156 | 179,227 | 23.0 | 2002 | 1,149 | 96.2% | 97.0% | 96.0% | 1,572 | 1.33 | 21,351 | |||||||||||||
Avalon at Flanders Hill |
Westborough, MA | 280 | 301,675 | 62.0 | 2003 | 1,077 | 94.6% | 95.8% | 96.0% | 1,511 | 1.34 | 37,564 | |||||||||||||
Avalon at Newton Highlands (8) |
Newton, MA | 294 | 339,537 | 7.0 | 2003 | 1,155 | 94.2% | 96.2% | 95.5% | 2,300 | 1.92 | 56,815 | |||||||||||||
Avalon at The Pinehills I |
Plymouth, MA | 101 | 151,629 | 6.0 | 2004 | 1,501 | 95.0% | 95.9% | 95.8% | 1,856 | 1.19 | 19,984 | |||||||||||||
Avalon at Crane Brook |
Peabody, MA | 387 | 433,778 | 20.0 | 2004 | 1,121 | 96.4% | 96.4% | 95.7% | 1,360 | 1.17 | 54,824 | |||||||||||||
Essex Place |
Peabody, MA | 286 | 250,473 | 18.0 | 2004 | 876 | 91.6% | 88.8% | (2) | 96.3% | (2) | 1,155 | 1.17 | (2) | 34,565 | ||||||||||
Avalon at Bedford Center |
Bedford, MA | 139 | 159,704 | 38.0 | 2005 | 1,149 | 93.5% | 95.3% | 95.6% | 1,739 | 1.44 | 24,804 | |||||||||||||
Avalon Chestnut Hill |
Chestnut Hill, MA | 204 | 271,899 | 4.7 | 2007 | 1,333 | 92.6% | 93.1% | 78.8% | 2,337 | 1.63 | 60,353 | |||||||||||||
Avalon Shrewsbury |
Shrewsbury, MA | 251 | 274,780 | 25.5 | 2007 | 1,095 | 92.8% | 95.0% | 84.3% | 1,377 | 1.20 | 35,761 | |||||||||||||
Avalon Danvers |
Danvers, MA | 433 | 512,991 | 75.0 | 2006 | 1,185 | 97.0% | 86.4% | 24.1% | (3) | 1,407 | 1.03 | 85,550 | ||||||||||||
Avalon Woburn |
Woburn, MA | 446 | 486,091 | 56.0 | 2007 | 1,090 | 98.4% | 96.7% | 61.4% | (3) | 1,581 | 1.40 | 82,986 | ||||||||||||
Avalon at Lexington Hills |
Lexington, MA | 387 | 511,454 | 23.0 | 2007 | 1,322 | 94.8% | 71.1% | (3) | 15.5% | (3) | 1,811 | 2.91 | (3) | 86,351 | ||||||||||
Avalon Acton |
Acton, MA | 380 | 373,690 | 50.3 | 2007 | 983 | 95.3% | 59.2% | (3) | 7.5% | (3) | 1,258 | 3.00 | (3) | 63,686 | ||||||||||
Avalon Sharon |
Sharon, MA | 156 | 178,628 | 27.2 | 2007 | 1,145 | 98.7% | 62.3% | (3) | N/A | 1,508 | 1.96 | (3) | 30,011 | |||||||||||
Avalon at Center Place (11) |
Providence, RI | 225 | 233,910 | 1.2 | 1991/1997 | 1,040 | 90.7% | 94.5% | 92.8% | 2,174 | 1.98 | 29,254 | |||||||||||||
Fairfield-New Haven, CT |
|||||||||||||||||||||||||
Avalon Gates |
Trumbull, CT | 340 | 389,047 | 37.0 | 1997 | 1,144 | 96.5% | 96.5% | 94.9% | 1,645 | 1.39 | 37,584 | |||||||||||||
Avalon Glen |
Stamford, CT | 238 | 265,940 | 4.1 | 1991 | 1,117 | 95.8% | 97.1% | 97.2% | 2,014 | 1.75 | 32,551 | |||||||||||||
Avalon Springs |
Wilton, CT | 102 | 160,159 | 12.0 | 1996 | 1,570 | 90.2% | 94.2% | 96.5% | 3,072 | 1.84 | 17,276 | |||||||||||||
Avalon Valley |
Danbury, CT | 268 | 303,193 | 17.1 | 1999 | 1,131 | 90.7% | 95.7% | 96.8% | 1,668 | 1.41 | 26,397 | |||||||||||||
Avalon Orange |
Orange, CT | 168 | 161,795 | 9.6 | 2005 | 963 | 95.2% | 95.3% | 95.1% | 1,554 | 1.54 | 22,097 | |||||||||||||
Avalon on Stamford Harbor |
Stamford, CT | 323 | 337,572 | 12.1 | 2003 | 1,045 | 96.6% | 96.5% | 97.5% | 2,544 | 2.35 | 62,931 | |||||||||||||
Avalon New
Canaan (9) |
New Canaan, CT | 104 | 145,118 | 9.1 | 2002 | 1,395 | 94.2% | 96.1% | 94.3% | 2,910 | 2.00 | 24,379 | |||||||||||||
Avalon at Greyrock Place |
Stamford, CT | 306 | 334,381 | 3.0 | 2002 | 1,093 | 93.8% | 96.3% | 97.5% | 2,301 | 2.03 | 70,844 | |||||||||||||
Avalon Danbury |
Danbury, CT | 234 | 238,952 | 36.0 | 2005 | 1,021 | 92.7% | 96.0% | 95.5% | 1,651 | 1.55 | 35,534 | |||||||||||||
Avalon Darien |
Darien, CT | 189 | 242,533 | 32.0 | 2004 | 1,283 | 91.0% | 94.7% | 96.2% | 2,640 | 1.95 | 41,598 | |||||||||||||
Avalon Milford I |
Milford, CT | 246 | 230,246 | 22.0 | 2004 | 936 | 97.2% | 96.2% | 96.1% | 1,466 | 1.51 | 31,502 | |||||||||||||
Avalon Huntington |
Shelton, CT | 99 | 145,573 | 7.1 | 2008 | 1,470 | 34.3% | 17.0% | (3) | N/A | 2,421 | 0.28 | (3) | 23,956 | |||||||||||
METRO NY/NJ |
|||||||||||||||||||||||||
Long Island, NY |
|||||||||||||||||||||||||
Avalon Commons |
Smithtown, NY | 312 | 385,290 | 20.6 | 1997 | 1,235 | 92.9% | 95.0% | 95.4% | 2,145 | 1.65 | 34,068 | |||||||||||||
Avalon Towers |
Long Beach, NY | 109 | 135,036 | 1.3 | 1990/1995 | 1,239 | 95.4% | 97.4% | 96.8% | 3,596 | 2.83 | 21,482 | |||||||||||||
Avalon Court |
Melville, NY | 494 | 601,342 | 35.4 | 1997/2000 | 1,217 | 93.5% | 94.2% | 95.3% | 2,474 | 1.91 | 60,189 | |||||||||||||
Avalon at
Glen Cove South (11) |
Glen Cove, NY | 256 | 262,285 | 4.0 | 2004 | 1,025 | 93.0% | 95.8% | 94.5% | 2,362 | 2.21 | 67,965 | |||||||||||||
Avalon Pines I |
Coram, NY | 298 | 364,124 | 32.0 | 2005 | 1,222 | 93.6% | 95.8% | 95.7% | 1,985 | 1.56 | 46,876 | |||||||||||||
Avalon at Glen Cove North (11) |
Glen Cove, NY | 111 | 100,851 | 1.3 | 2007 | 909 | 93.7% | 96.8% | 50.2% | (3) | 2,080 | 2.22 | 39,913 | ||||||||||||
Avalon Pines II |
Coram, NY | 152 | 183,857 | 42.0 | 2006 | 1,210 | 92.1% | 95.2% | 96.3% | 1,974 | 1.55 | 24,755 |
22
Profile of Current, Development and Unconsolidated Communities (1)
(Dollars in thousands, except per apartment home data)
(Dollars in thousands, except per apartment home data)
Average | ||||||||||||||||||||||||
Approx. | Year of | Average | Physical | Average economic | rental rate | Financial | ||||||||||||||||||
Number of | rentable area | completion / | size | occupancy at | occupancy | $ per | $ per | reporting cost | ||||||||||||||||
City and state | homes | (Sq. Ft.) | Acres | acquisition | (Sq. Ft.) | 12/31/08 | 2008 | 2007 | Apt (4) | Sq. Ft. | (5) | |||||||||||||
Northern New Jersey |
||||||||||||||||||||||||
Avalon Cove |
Jersey City, NJ | 504 | 640,467 | 11.0 | 1997 | 1,271 | 97.6% | 96.1% | 97.5% | 3,014 | 2.28 | 93,461 | ||||||||||||
Avalon at Edgewater |
Edgewater, NJ | 408 | 438,670 | 7.6 | 2002 | 1,075 | 96.8% | 96.3% | 95.2% | 2,399 | 2.15 | 75,355 | ||||||||||||
Avalon at Florham Park |
Florham Park, NJ | 270 | 330,410 | 41.9 | 2001 | 1,224 | 97.0% | 95.8% | 96.1% | 2,696 | 2.11 | 42,114 | ||||||||||||
Avalon Lyndhurst |
Lyndhurst, NJ | 328 | 352,462 | 5.8 | 2006 | 1,075 | 94.5% | 94.9% | 57.0% | (3) | 2,205 | 1.95 | 80,978 | |||||||||||
Central New Jersey |
||||||||||||||||||||||||
Avalon Run East (8) |
Lawrenceville, NJ | 206 | 274,933 | 27.1 | 1996 | 1,335 | 97.1% | 95.1% | 96.2% | 1,638 | 1.17 | 16,462 | ||||||||||||
Avalon Watch |
West Windsor, NJ | 512 | 496,141 | 64.4 | 1988 | 969 | 95.1% | 96.0% | 95.6% | 1,438 | 1.42 | 30,196 | ||||||||||||
Avalon at Freehold |
Freehold, NJ | 296 | 317,416 | 40.3 | 2002 | 1,072 | 97.0% | 96.2% | 97.5% | 1,780 | 1.60 | 34,810 | ||||||||||||
Avalon Run East II |
Lawrenceville, NJ | 312 | 341,292 | 70.5 | 2003 | 1,094 | 95.5% | 96.0% | 96.2% | 1,820 | 1.60 | 52,201 | ||||||||||||
Avalon Run (7) |
Lawrenceville, NJ | 426 | 443,168 | 9.0 | 1994 | 1,040 | 97.2% | 96.0% | 96.2% | 1,477 | 1.36 | 60,263 | ||||||||||||
Avalon at Tinton Falls |
Tinton Falls, NJ | 216 | 240,747 | 35.0 | 2007 | 1,115 | 95.8% | 56.3% | (3) | N/A | 1,412 | 2.83 | (3) | 40,518 | ||||||||||
New York, NY |
||||||||||||||||||||||||
Avalon Gardens |
Nanuet, NY | 504 | 617,992 | 62.5 | 1998 | 1,226 | 96.6% | 97.0% | 96.9% | 2,148 | 1.70 | 55,580 | ||||||||||||
Avalon Green |
Elmsford, NY | 105 | 115,038 | 16.9 | 1995 | 1,096 | 97.1% | 97.4% | 97.3% | 2,415 | 2.15 | 13,951 | ||||||||||||
Avalon Willow |
Mamaroneck, NY | 227 | 240,459 | 4.0 | 2000 | 1,059 | 94.7% | 98.0% | 96.5% | 2,299 | 2.13 | 47,570 | ||||||||||||
The Avalon |
Bronxville, NY | 110 | 148,335 | 1.5 | 1999 | 1,349 | 96.4% | 97.7% | 97.4% | 3,700 | 2.68 | 31,544 | ||||||||||||
Avalon on the Sound (11) |
New Rochelle, NY | 412 | 415,369 | 2.4 | 2001 | 1,008 | 97.3% | 96.2% | 95.2% | 2,269 | 2.17 | 117,260 | ||||||||||||
Avalon Riverview I (11) |
Long Island City, NY | 372 | 352,988 | 1.0 | 2002 | 949 | 95.2% | 96.8% | 97.6% | 3,229 | 3.30 | 94,698 | ||||||||||||
Avalon Bowery Place I |
New York, NY | 206 | 162,000 | 1.1 | 2006 | 786 | 94.7% | 96.2% | 89.8% | 3,982 | 4.87 | 92,216 | ||||||||||||
Avalon Riverview North (11) |
Long Island City, NY | 602 | 519,092 | 1.8 | 2007 | 862 | 96.3% | 92.2% | (3) | 30.6% | (3) | 3,575 | 3.82 | (3) | 173,788 | |||||||||
Avalon on the Sound East (11) |
New Rochelle, NY | 588 | 622,999 | 1.7 | 2007 | 1,060 | 96.1% | 79.6% | (3) | 27.8% | (3) | 3,463 | 2.60 | (3) | 179,477 | |||||||||
Avalon Bowery Place II |
New York, NY | 90 | 73,624 | 1.1 | 2007 | 818 | 84.4% | 97.1% | 42.4% | (3) | 3,754 | 4.46 | 55,623 | |||||||||||
MID-ATLANTIC/MIDWEST |
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Baltimore, MD |
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Avalon at Fairway Hills |
Columbia, MD | 192 | 193,784 | 15.0 | 1987/1996 | 1,009 | 97.4% | 94.6% | 95.8% | 1,275 | 1.19 | 10,436 | ||||||||||||
Avalon at Fairway Hills II (7) |
Columbia, MD | 192 | 192,560 | 29.0 | 1987/1996 | 1,003 | 95.8% | 93.9% | 95.9% | 1,297 | 1.21 | 12,656 | ||||||||||||
Avalon Symphony Woods (SGlen) |
Columbia, MD | 176 | 179,880 | 10.0 | 1986 | 1,022 | 86.4% | 88.8% | (2) | 93.2% | 1,354 | 1.18 | (2) | 11,706 | ||||||||||
Avalon at Fairway Hills III (7) |
Columbia, MD | 336 | 337,683 | 15.0 | 1987/1996 | 1,005 | 94.3% | 94.8% | 95.5% | 1,416 | 1.34 | 29,596 | ||||||||||||
Avalon Symphony Woods (SGate) |
Columbia, MD | 215 | 214,670 | 12.7 | 1986/2006 | 998 | 86.1% | 90.3% | (2) | 93.5% | 1,233 | 1.12 | (2) | 38,782 | ||||||||||
Washington, DC |
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Avalon at Foxhall |
Washington, DC | 308 | 297,876 | 2.7 | 1982 | 967 | 93.5% | 96.3% | 96.2% | 2,291 | 2.28 | 44,994 | ||||||||||||
Avalon at Gallery Place I |
Washington, DC | 203 | 184,157 | 0.5 | 2003 | 907 | 97.0% | 96.7% | 95.4% | 2,511 | 2.68 | 49,045 | ||||||||||||
Avalon at Decoverly |
Rockville, MD | 368 | 368,732 | 24.0 | 1991/1995 | 1,002 | 96.5% | 96.2% | 96.2% | 1,462 | 1.40 | 32,842 | ||||||||||||
Avalon Fields I |
Gaithersburg, MD | 192 | 197,280 | 5.0 | 1996 | 1,028 | 97.9% | 96.7% | 97.3% | 1,391 | 1.31 | 14,468 | ||||||||||||
Avalon Fields II |
Gaithersburg, MD | 96 | 100,268 | 5.0 | 1998 | 1,044 | 97.9% | 97.0% | 95.9% | 1,580 | 1.47 | 8,333 | ||||||||||||
Avalon Knoll |
Germantown, MD | 300 | 290,544 | 26.7 | 1985 | 968 | 96.3% | 96.5% | 96.0% | 1,215 | 1.21 | 9,000 | ||||||||||||
Avalon at Rock Spring (9) (11) |
North Bethesda, MD | 386 | 387,884 | 10.2 | 2003 | 1,005 | 98.4% | 96.8% | 95.0% | 1,774 | 1.71 | 82,340 | ||||||||||||
Avalon at Grosvenor Station |
North Bethesda, MD | 497 | 472,001 | 10.0 | 2004 | 950 | 95.6% | 97.0% | 95.8% | 1,825 | 1.86 | 82,181 | ||||||||||||
Avalon at Traville (8) |
North Potomac, MD | 520 | 575,529 | 47.9 | 2004 | 1,107 | 96.5% | 97.0% | 96.2% | 1,761 | 1.54 | 70,014 | ||||||||||||
Avalon at Decoverly II |
Rockville, MD | 196 | 182,560 | 10.8 | 2007 | 931 | 93.4% | 95.2% | 85.3% | (3) | 1,540 | 1.57 | 30,594 | |||||||||||
Avalon Fair Lakes |
Fairfax, VA | 420 | 354,945 | 24.3 | 1989/1996 | 845 | 92.4% | 93.3% | (2) | 90.0% | (2) | 1,380 | 1.52 | (2) | 37,872 | |||||||||
Avalon at Ballston Washington Towers |
Arlington, VA | 344 | 294,954 | 4.1 | 1990 | 857 | 96.8% | 96.2% | 96.2% | 1,811 | 2.03 | 39,215 | ||||||||||||
Avalon at Cameron Court |
Alexandria, VA | 460 | 478,068 | 16.0 | 1998 | 1,039 | 94.6% | 96.2% | 95.6% | 1,874 | 1.73 | 44,124 | ||||||||||||
Avalon at Providence Park |
Fairfax, VA | 141 | 148,282 | 9.3 | 1988/1997 | 1,052 | 96.5% | 96.7% | 97.0% | 1,558 | 1.43 | 11,874 | ||||||||||||
Avalon Crescent |
McLean, VA | 558 | 613,426 | 19.1 | 1996 | 1,099 | 93.9% | 96.5% | 95.6% | 1,944 | 1.71 | 57,915 | ||||||||||||
Avalon at Arlington Square |
Arlington, VA | 842 | 628,433 | 20.1 | 2001 | 746 | 94.8% | 96.8% | 96.6% | 1,879 | 2.44 | 113,201 |
23
Profile of Current, Development and Unconsolidated Communities (1)
(Dollars in thousands, except per apartment home data)
(Dollars in thousands, except per apartment home data)
Average economic | Average | |||||||||||||||||||||||||||||||||||||||||||||
Approx. | Year of | Average | Physical | occupancy | rental rate | Financial | ||||||||||||||||||||||||||||||||||||||||
Number of | rentable area | completion / | size | occupancy at | $ per | $ per | reporting cost | |||||||||||||||||||||||||||||||||||||||
City and state | homes | (Sq. Ft.) | Acres | acquisition | (Sq. Ft.) | 12/31/08 | 2008 | 2007 | Apt (4) | Sq. Ft. | (5) | |||||||||||||||||||||||||||||||||||
Chicago, IL |
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Avalon at Danada Farms (8) |
Wheaton, IL | 295 | 351,206 | 19.2 | 1997 | 1,191 | 95.6 | % | 96.2 | % | 95.5 | % | 1,432 | 1.16 | 40,030 | |||||||||||||||||||||||||||||||
Avalon at Stratford Green (8) |
Bloomingdale, IL | 192 | 237,124 | 12.7 | 1997 | 1,235 | 94.8 | % | 96.7 | % | 96.1 | % | 1,460 | 1.14 | 22,238 | |||||||||||||||||||||||||||||||
Avalon Arlington Heights |
Arlington Heights, IL | 409 | 352,236 | 2.8 | 1987/2000 | 861 | 96.6 | % | 96.2 | % | 94.3 | % (2) | 1,543 | 1.72 | 56,947 | |||||||||||||||||||||||||||||||
PACIFIC NORTHWEST |
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Seattle, WA |
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Avalon Redmond Place |
Redmond, WA | 222 | 219,075 | 8.4 | 1991/1997 | 987 | 91.4 | % | 86.4 | % (2) | 90.1 | % (2) | 1,374 | 1.20 | (2) | 31,882 | ||||||||||||||||||||||||||||||
Avalon at Bear Creek |
Redmond, WA | 264 | 296,530 | 22.2 | 1998 | 1,123 | 93.9 | % | 96.6 | % | 95.5 | % | 1,437 | 1.24 | 35,858 | |||||||||||||||||||||||||||||||
Avalon
Bellevue (8) |
Bellevue, WA | 202 | 170,965 | 1.7 | 2001 | 846 | 95.0 | % | 94.8 | % | 96.6 | % | 1,609 | 1.80 | 30,966 | |||||||||||||||||||||||||||||||
Avalon RockMeadow |
Bothell, WA | 206 | 246,683 | 11.2 | 2000 | 1,197 | 95.6 | % | 95.2 | % | 96.6 | % | 1,332 | 1.06 | 24,993 | |||||||||||||||||||||||||||||||
Avalon WildReed (8) |
Everett, WA | 234 | 266,580 | 23.0 | 2000 | 1,139 | 95.3 | % | 95.8 | % | 96.7 | % | 1,153 | 0.97 | 23,096 | |||||||||||||||||||||||||||||||
Avalon HighGrove (8) |
Everett, WA | 391 | 428,962 | 19.0 | 2000 | 1,097 | 93.4 | % | 94.8 | % | 96.6 | % | 1,131 | 0.98 | 39,879 | |||||||||||||||||||||||||||||||
Avalon ParcSquare (8) |
Redmond, WA | 124 | 131,706 | 2.0 | 2000 | 1,062 | 95.2 | % | 96.9 | % | 96.5 | % | 1,628 | 1.49 | 19,516 | |||||||||||||||||||||||||||||||
Avalon Brandemoor (8) |
Lynwood, WA | 424 | 465,257 | 27.0 | 2001 | 1,097 | 94.6 | % | 95.1 | % | 96.1 | % | 1,214 | 1.05 | 45,671 | |||||||||||||||||||||||||||||||
Avalon Belltown |
Seattle, WA | 100 | 95,201 | 0.7 | 2001 | 952 | 97.0 | % | 95.3 | % | 97.2 | % | 1,813 | 1.82 | 18,499 | |||||||||||||||||||||||||||||||
Avalon Meydenbauer |
Bellevue, WA | 368 | 333,502 | 3.6 | 2008 | 906 | 93.5 | % | 48.1 | % (3) | N/A | 1,783 | 1.89 | (3) | 89,119 | |||||||||||||||||||||||||||||||
NORTHERN CALIFORNIA |
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Oakland-East Bay, CA |
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Avalon Fremont |
Fremont, CA | 308 | 386,277 | 14.3 | 1994 | 1,254 | 97.1 | % | 96.3 | % | 97.4 | % | 1,769 | 1.36 | 56,939 | |||||||||||||||||||||||||||||||
Avalon Dublin |
Dublin, CA | 204 | 179,004 | 13.0 | 1989/1997 | 877 | 95.6 | % | 96.7 | % | 97.3 | % | 1,578 | 1.74 | 28,366 | |||||||||||||||||||||||||||||||
Avalon Pleasanton |
Pleasanton, CA | 456 | 366,062 | 14.7 | 1988/1994 | 803 | 97.8 | % | 96.8 | % | 95.8 | % | 1,443 | 1.74 | 63,005 | |||||||||||||||||||||||||||||||
Avalon at Union Square |
Union City, CA | 208 | 150,320 | 8.5 | 1973/1996 | 723 | 94.2 | % | 96.7 | % | 97.6 | % | 1,293 | 1.73 | 22,738 | |||||||||||||||||||||||||||||||
Waterford |
Hayward, CA | 544 | 452,043 | 11.1 | 1985/1986 | 831 | 93.8 | % | 93.9 | % | 96.5 | % | 1,279 | 1.45 | 62,190 | |||||||||||||||||||||||||||||||
Avalon at Willow Creek |
Fremont, CA | 235 | 191,935 | 13.5 | 1985/1994 | 817 | 98.3 | % | 97.0 | % | 98.1 | % | 1,558 | 1.85 | 36,493 | |||||||||||||||||||||||||||||||
Avalon at Dublin Station I |
Dublin, CA | 305 | 300,760 | 4.7 | 2006 | 986 | 95.4 | % | 67.6 | % (3) | 2.0 | % (3) | 1,723 | 2.02 | (3) | 84,269 | ||||||||||||||||||||||||||||||
San Francisco, CA |
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Avalon at Cedar Ridge |
Daly City, CA | 195 | 141,411 | 7.0 | 1972/1997 | 725 | 95.4 | % | 97.0 | % | 98.1 | % | 1,593 | 2.13 | 27,534 | |||||||||||||||||||||||||||||||
Avalon at Nob Hill |
San Francisco, CA | 185 | 108,712 | 1.4 | 1990/1995 | 588 | 97.3 | % | 96.8 | % | 96.9 | % | 1,957 | 3.22 | 28,191 | |||||||||||||||||||||||||||||||
Crowne Ridge |
San Rafael, CA | 254 | 222,685 | 21.9 | 1973/1996 | 877 | 95.3 | % | 96.8 | % | 97.8 | % | 1,509 | 1.67 | 33,100 | |||||||||||||||||||||||||||||||
Avalon Foster City |
Foster City, CA | 288 | 222,364 | 11.0 | 1973/1994 | 772 | 97.2 | % | 97.1 | % | 97.1 | % | 1,633 | 2.05 | 44,168 | |||||||||||||||||||||||||||||||
Avalon Towers by the Bay |
San Francisco, CA | 227 | 285,881 | 1.0 | 1999 | 1,259 | 97.4 | % | 97.5 | % | 97.6 | % | 3,140 | 2.43 | 67,049 | |||||||||||||||||||||||||||||||
Avalon Pacifica |
Pacifica, CA | 220 | 186,800 | 21.9 | 1971/1995 | 849 | 97.3 | % | 97.0 | % | 96.9 | % | 1,682 | 1.92 | 32,360 | |||||||||||||||||||||||||||||||
Avalon Sunset Towers |
San Francisco, CA | 243 | 171,854 | 16.0 | 1961/1996 | 707 | 97.1 | % | 96.3 | % | 96.9 | % | 1,943 | 2.64 | 28,879 | |||||||||||||||||||||||||||||||
Avalon at Diamond Heights |
San Francisco, CA | 154 | 123,566 | 3.0 | 1972/1994 | 802 | 94.2 | % | 95.9 | % (2) | 97.7 | % | 1,852 | 2.21 | (2) | 27,679 | ||||||||||||||||||||||||||||||
Avalon at Mission Bay North |
San Francisco, CA | 250 | 240,368 | 1.4 | 2003 | 961 | 96.8 | % | 96.0 | % | 94.5 | % | 3,320 | 3.32 | 92,936 |
24
Profile of Current, Development and Unconsolidated Communities (1)
(Dollars in thousands, except per apartment home data)
(Dollars in thousands, except per apartment home data)
Average economic | Average | |||||||||||||||||||||||||||||||||||||||||||||
Approx. | Year of | Average | Physical | occupancy | rental rate | Financial | ||||||||||||||||||||||||||||||||||||||||
Number of | rentable area | completion / | size | occupancy at | $ per | $ per | reporting cost | |||||||||||||||||||||||||||||||||||||||
City and state | homes | (Sq. Ft.) | Acres | acquisition | (Sq. Ft.) | 12/31/08 | 2008 | 2007 | Apt (4) | Sq. Ft. | (5) | |||||||||||||||||||||||||||||||||||
San Jose, CA |
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Avalon Campbell |
Campbell, CA | 348 | 329,816 | 10.8 | 1995 | 948 | 96.0 | % | 96.9 | % | 97.7 | % | 1,761 | 1.80 | 60,533 | |||||||||||||||||||||||||||||||
CountryBrook |
San Jose, CA | 360 | 322,992 | 14.0 | 1985/1996 | 897 | 95.0 | % | 95.9 | % | 97.0 | % | 1,584 | 1.69 | 52,751 | |||||||||||||||||||||||||||||||
Avalon at River Oaks |
San Jose, CA | 226 | 211,750 | 4.0 | 1990/1996 | 937 | 95.1 | % | 97.3 | % | 98.3 | % | 1,713 | 1.78 | 45,008 | |||||||||||||||||||||||||||||||
Avalon at Parkside |
Sunnyvale, CA | 192 | 204,510 | 8.0 | 1991/1996 | 1,065 | 98.4 | % | 97.3 | % | 97.5 | % | 1,987 | 1.82 | 38,327 | |||||||||||||||||||||||||||||||
Avalon on the Alameda |
San Jose, CA | 305 | 320,464 | 8.9 | 1999 | 1,051 | 94.8 | % | 97.3 | % | 97.7 | % | 2,108 | 1.95 | 56,905 | |||||||||||||||||||||||||||||||
Avalon Rosewalk |
San Jose, CA | 456 | 459,162 | 16.6 | 1997/1999 | 1,007 | 97.4 | % | 96.4 | % | 97.2 | % | 1,748 | 1.67 | 79,863 | |||||||||||||||||||||||||||||||
Avalon Silicon Valley |
Sunnyvale, CA | 710 | 659,729 | 13.6 | 1997 | 929 | 95.8 | % | 96.1 | % | 96.2 | % | 2,049 | 2.12 | 123,316 | |||||||||||||||||||||||||||||||
Avalon
Mountain View (9) |
Mountain View, CA | 248 | 211,552 | 10.5 | 1986 | 853 | 84.7 | % | 88.0 | % (2) | 96.6 | % | 1,923 | 1.98 | (2) | 56,180 | ||||||||||||||||||||||||||||||
Avalon at Creekside |
Mountain View, CA | 294 | 215,680 | 13.0 | 1962/1997 | 734 | 94.6 | % | 97.6 | % | 98.0 | % | 1,536 | 2.05 | 43,471 | |||||||||||||||||||||||||||||||
Avalon at Cahill Park |
San Jose, CA | 218 | 221,933 | 3.8 | 2002 | 1,018 | 97.7 | % | 97.6 | % | 97.7 | % | 2,121 | 2.03 | 52,707 | |||||||||||||||||||||||||||||||
Avalon Towers on the Peninsula |
Mountain View, CA | 211 | 218,392 | 1.9 | 2002 | 1,035 | 97.2 | % | 97.3 | % | 97.0 | % | 2,810 | 2.64 | 65,753 | |||||||||||||||||||||||||||||||
Countrybrook II |
San Jose, CA | 80 | 64,554 | 3.6 | 2007 | 807 | 91.3 | % | 96.8 | % | 95.9 | % (3) | 1,552 | 1.86 | 17,891 | |||||||||||||||||||||||||||||||
SOUTHERN CALIFORNIA |
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Orange County, CA |
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Avalon Newport |
Costa Mesa, CA | 145 | 122,415 | 6.6 | 1956/1996 | 844 | 98.6 | % | 96.3 | % | 97.7 | % | 1,707 | 1.95 | 10,417 | |||||||||||||||||||||||||||||||
Avalon Mission Viejo |
Mission Viejo, CA | 166 | 124,770 | 7.8 | 1984/1996 | 752 | 92.8 | % | 95.4 | % | 96.1 | % | 1,351 | 1.71 | 14,095 | |||||||||||||||||||||||||||||||
Avalon at South Coast |
Costa Mesa, CA | 258 | 210,922 | 8.0 | 1973/1996 | 818 | 93.8 | % | 94.4 | % | 96.4 | % | 1,467 | 1.70 | 26,030 | |||||||||||||||||||||||||||||||
Avalon Santa Margarita |
Rancho Santa Margarita, CA | 301 | 229,593 | 20.0 | 1990/1997 | 763 | 95.0 | % | 96.7 | % | 95.0 | % | 1,386 | 1.76 | 24,528 | |||||||||||||||||||||||||||||||
Avalon at Pacific Bay |
Huntington Beach, CA | 304 | 268,720 | 9.7 | 1971/1997 | 884 | 97.4 | % | 96.1 | % | 96.1 | % | 1,544 | 1.68 | 32,915 | |||||||||||||||||||||||||||||||
Avalon Warner Place |
Canoga Park, CA | 210 | 186,402 | 3.3 | 2007 | 888 | 91.9 | % | 57.2 | % (3) | N/A | 1,420 | 2.74 | (3) | 52,599 | |||||||||||||||||||||||||||||||
San Diego, CA |
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Avalon at Mission Bay |
San Diego, CA | 564 | 402,320 | 12.9 | 1969/1997 | 713 | 96.8 | % | 95.0 | % | 94.8 | % | 1,438 | 1.92 | 66,809 | |||||||||||||||||||||||||||||||
Avalon at Mission Ridge |
San Diego, CA | 200 | 208,125 | 4.0 | 1960/1997 | 1,041 | 94.5 | % | 94.9 | % | 96.2 | % | 1,656 | 1.51 | 22,633 | |||||||||||||||||||||||||||||||
Avalon at Cortez Hill |
San Diego, CA | 294 | 227,373 | 1.4 | 1973/1998 | 773 | 96.3 | % | 96.4 | % | 94.9 | % | 1,513 | 1.89 | 34,746 | |||||||||||||||||||||||||||||||
Avalon Fashion Valley |
San Diego, CA | 161 | 186,766 | 10.0 | 2008 | 1,160 | 30.4 | % | 15.3 | % (3) | N/A | 2,380 | 0.25 | (3) | 63,641 |
25
Profile of Current, Development and Unconsolidated Communities (1)
(Dollars in thousands, except per apartment home data)
(Dollars in thousands, except per apartment home data)
Average economic | Average | |||||||||||||||||||||||||||||||||||||||||||||
Approx. | Year of | Average | Physical | occupancy | rental rate | Financial | ||||||||||||||||||||||||||||||||||||||||
Number of | rentable area | completion / | size | occupancy at | $ per | $ per | reporting cost | |||||||||||||||||||||||||||||||||||||||
City and state | homes | (Sq. Ft.) | Acres | acquisition | (Sq. Ft.) | 12/31/08 | 2008 | 2007 | Apt (4) | Sq. Ft. | (5) | |||||||||||||||||||||||||||||||||||
Los Angeles, CA |
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Avalon at Media Center |
Burbank, CA | 748 | 532,264 | 14.1 | 1961/1997 | 712 | 94.3 | % | 95.6 | % | 95.9 | % | 1,514 | 2.03 | 76,877 | |||||||||||||||||||||||||||||||
Avalon Woodland Hills |
Woodland Hills, CA | 663 | 597,871 | 18.2 | 1989/1997 | 902 | 85.5 | % | 76.9 | % (2) | 94.8 | % | 1,593 | 1.36 | (2) | 91,010 | ||||||||||||||||||||||||||||||
Avalon at Warner Center |
Woodland Hills, CA | 227 | 195,224 | 7.0 | 1979/1998 | 860 | 95.2 | % | 94.7 | % | 96.9 | % | 1,693 | 1.87 | 27,313 | |||||||||||||||||||||||||||||||
Avalon Glendale (11) |
Burbank, CA | 223 | 241,714 | 5.1 | 2003 | 1,084 | 89.7 | % | 94.2 | % | 95.0 | % | 2,357 | 2.05 | 41,480 | |||||||||||||||||||||||||||||||
The Promenade |
Burbank, CA | 400 | 360,587 | 6.9 | 1988/2002 | 901 | 92.0 | % | 96.7 | % (2) | 97.8 | % | 1,936 | 2.08 | (2) | 77,672 | ||||||||||||||||||||||||||||||
Avalon Camarillo |
Camarillo, CA | 249 | 233,267 | 10.0 | 2006 | 937 | 91.6 | % | 94.5 | % | 94.9 | % | 1,623 | 1.64 | 48,210 | |||||||||||||||||||||||||||||||
Avalon Wilshire |
Los Angeles, CA | 123 | 125,193 | 1.6 | 2007 | 1,018 | 93.5 | % | 94.7 | % | 55.8 | % (3) | 2,684 | 2.50 | 46,732 | |||||||||||||||||||||||||||||||
Avalon Encino |
Los Angeles, CA | 131 | 131,220 | 2.0 | N/A | 1,002 | 38.9 | % | 15.7 | % (3) | N/A | 2,475 | 0.69 | (3) | 61,017 | |||||||||||||||||||||||||||||||
DEVELOPMENT COMMUNITIES |
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Avalon Anaheim |
Anaheim, CA | 251 | 302,480 | 3.5 | N/A | 1,205 | N/A | N/A | N/A | N/A | N/A | 92,029 | ||||||||||||||||||||||||||||||||||
Avalon Union City |
Union City, CA | 438 | 428,730 | 6.0 | N/A | 979 | N/A | N/A | N/A | N/A | N/A | 97,057 | ||||||||||||||||||||||||||||||||||
Avalon Jamboree Village |
Irvine, CA | 279 | 243,157 | 4.5 | N/A | 872 | N/A | N/A | N/A | N/A | N/A | 55,581 | ||||||||||||||||||||||||||||||||||
Avalon at Mission Bay North III |
San Francisco, CA | 260 | 261,361 | 1.5 | N/A | 1,005 | N/A | N/A | N/A | N/A | N/A | 109,420 | ||||||||||||||||||||||||||||||||||
Avalon
Walnut Creek (9)(11) |
Walnut Creek, CA | 422 | 448,384 | 5.3 | N/A | 1,063 | N/A | N/A | N/A | N/A | N/A | 36,591 | ||||||||||||||||||||||||||||||||||
Avalon Norwalk |
Norwalk, CT | 311 | 312,018 | 4.5 | N/A | 1,003 | N/A | N/A | N/A | N/A | N/A | 20,238 | ||||||||||||||||||||||||||||||||||
Avalon at Hingham Shipyard |
Hingham, MA | 235 | 298,981 | 12.9 | N/A | 1,272 | N/A | N/A | N/A | N/A | N/A | 50,782 | ||||||||||||||||||||||||||||||||||
Avalon Northborough I |
Northborough, MA | 163 | 183,000 | 14.0 | N/A | 1,123 | N/A | N/A | N/A | N/A | N/A | 9,225 | ||||||||||||||||||||||||||||||||||
Avalon Blue Hills |
Randolph, MA | 276 | 307,085 | 23.1 | N/A | 1,113 | N/A | N/A | N/A | N/A | N/A | 29,519 | ||||||||||||||||||||||||||||||||||
Avalon White Plains |
White Plains, NY | 407 | 379,555 | 0.1 | N/A | 933 | N/A | N/A | N/A | N/A | N/A | 131,371 | ||||||||||||||||||||||||||||||||||
Avalon Morningside Park (11) |
New York, NY | 295 | 243,157 | 0.8 | N/A | 824 | N/A | N/A | N/A | N/A | N/A | 105,801 | ||||||||||||||||||||||||||||||||||
Avalon Charles Pond |
Coram, NY | 200 | 176,000 | 39.0 | N/A | 880 | N/A | N/A | N/A | N/A | N/A | 38,674 | ||||||||||||||||||||||||||||||||||
Avalon Fort Greene |
Brooklyn, NY | 631 | 498,632 | 1.0 | N/A | 790 | N/A | N/A | N/A | N/A | N/A | 143,887 | ||||||||||||||||||||||||||||||||||
Avalon
Towers Bellevue (11) |
Bellevue, WA | 396 | 330,194 | 1.5 | N/A | 834 | N/A | N/A | N/A | N/A | N/A | 13,425 | ||||||||||||||||||||||||||||||||||
UNCONSOLIDATED COMMUNITIES |
||||||||||||||||||||||||||||||||||||||||||||||
Avalon at Mission Bay North II (9) |
San Francisco, CA | 313 | 291,556 | 1.5 | 2006 | 931 | 93.6 | % | 95.0 | % | 83.3 | % | 3,226 | 3.29 | N/A | |||||||||||||||||||||||||||||||
Avalon Del Rey (9) |
Los Angeles, CA | 309 | 284,387 | 5.0 | 2006 | 920 | 91.6 | % | 92.7 | % | 96.5 | % | 2,100 | 2.11 | N/A | |||||||||||||||||||||||||||||||
Avalon Chrystie Place I (9)(11) |
New York, NY | 361 | 266,940 | 1.5 | 2005 | 739 | 95.8 | % | 96.9 | % | 96.1 | % | 4,208 | 5.51 | N/A | |||||||||||||||||||||||||||||||
Avalon Juanita Village (10) |
Kirkland, WA | 211 | 209,335 | 2.9 | 2005 | 992 | 96.2 | % | 95.3 | % | 95.2 | % | 1,602 | 1.54 | N/A | |||||||||||||||||||||||||||||||
Avalon at Redondo Beach (6) |
Redondo Beach, CA | 105 | 86,075 | 1.2 | 1971/2004 | 820 | 97.1 | % | 94.3 | % | 94.0 | % | 2,015 | 2.32 | N/A | |||||||||||||||||||||||||||||||
Avalon Sunset (6) |
Los Angeles, CA | 82 | 71,037 | 0.8 | 1987/2005 | 866 | 91.5 | % | 96.5 | % | 88.3 | % (2) | 1,997 | 2.23 | N/A | |||||||||||||||||||||||||||||||
Civic Center (6) |
Norwalk, CA | 192 | 174,378 | 8.7 | 1987/2005 | 908 | 89.1 | % | 93.6 | % | 85.5 | % (2) | 1,676 | 1.73 | N/A | |||||||||||||||||||||||||||||||
Avalon Paseo Place (6) |
Fremont, CA | 134 | 106,249 | 7.0 | 1987/2005 | 793 | 97.0 | % | 94.8 | % (2) | 87.3 | % (2) | 1,433 | 1.71 | (2) | N/A | ||||||||||||||||||||||||||||||
Avalon Yerba Buena (6) |
San Francisco, CA | 160 | 159,604 | 0.9 | 2000/2006 | 998 | 97.5 | % | 97.1 | % | 97.1 | % | 3,059 | 2.98 | N/A | |||||||||||||||||||||||||||||||
The Springs (6) |
Corona, CA | 320 | 241,440 | 13.3 | 1987/2006 | 755 | 81.9 | % | 87.7 | % | 94.2 | % | 1,093 | 1.27 | N/A | |||||||||||||||||||||||||||||||
Skyway Terrace (6) |
San Jose,CA | 348 | 287,918 | 18.4 | 1994/2007 | 827 | 97.1 | % | 97.7 | % | 96.2 | % (3) | 1,470 | 1.74 | N/A | |||||||||||||||||||||||||||||||
South Hills Apartments (6) |
West Covina, CA | 85 | 107,150 | 5.3 | 1966/2007 | 1,261 | 89.4 | % | 88.0 | % (2) | 97.5 | % (3) | 1,715 | 1.20 | (2) | N/A | ||||||||||||||||||||||||||||||
Avalon Lakeside (6) |
Wheaton, IL | 204 | 162,821 | 12.4 | 2004 | 798 | 95.6 | % | 96.2 | % | 95.1 | % | 979 | 1.18 | N/A | |||||||||||||||||||||||||||||||
Avalon at Poplar Creek (6) |
Schaumburg, IL | 196 | 178,490 | 12.8 | 1986/2005 | 911 | 94.9 | % | 91.3 | % | 88.6 | % (2) | 1,190 | 1.19 | N/A | |||||||||||||||||||||||||||||||
The Covington (6) |
Schaumburg, IL | 256 | 201,924 | 13.2 | 1988/2006 | 789 | 98.0 | % | 96.2 | % (2) | 93.1 | % | 1,069 | 1.30 | (2) | N/A | ||||||||||||||||||||||||||||||
Middlesex Crossing (6) |
Billerica, MA | 252 | 188,915 | 13.0 | 2007 | 750 | 94.8 | % | 96.0 | % | 93.6 | % (3) | 1,248 | 1.60 | N/A | |||||||||||||||||||||||||||||||
Colonial Towers/South Shore Manor (6) |
Weymouth, MA | 211 | 154,957 | 7.7 | 1971/2007 | 734 | 94.8 | % | 95.8 | % (2) | 87.9 | % (3) | 1,043 | 1.36 | (2) | N/A |
26
Profile of Current, Development and Unconsolidated Communities (1)
(Dollars in thousands, except per apartment home data)
(Dollars in thousands, except per apartment home data)
Average economic | Average | |||||||||||||||||||||||||||||||||||||||||||||
Approx. | Year of | Average | Physical | occupancy | rental rate | Financial | ||||||||||||||||||||||||||||||||||||||||
Number of | rentable area | completion / | size | occupancy at | $ per | $ per | reporting cost | |||||||||||||||||||||||||||||||||||||||
City and state | homes | (Sq. Ft.) | Acres | acquisition | (Sq. Ft.) | 12/31/08 | 2008 | 2007 | Apt (4) | Sq. Ft. | (5) | |||||||||||||||||||||||||||||||||||
Avalon Columbia (6) |
Columbia, MD | 170 | 180,452 | 11.3 | 1989/2004 | 1,061 | 96.5 | % | 96.3 | % | 96.0 | % (2) | 1,485 | 1.35 | N/A | |||||||||||||||||||||||||||||||
Cedar Place (6) |
Columbia, MD | 156 | 152,923 | 11.4 | 1972/2006 | 980 | 94.9 | % | 86.8 | % (2) | 95.3 | % | 1,158 | 1.03 | (2) | N/A | ||||||||||||||||||||||||||||||
Avalon Centerpoint (6) |
Baltimore, MD | 392 | 312,356 | 6.9 | 2005/2007 | 797 | 94.6 | % | 90.5 | % | 92.9 | % (3) | 909 | 1.03 | N/A | |||||||||||||||||||||||||||||||
Avalon at Aberdeen Station (6) |
Aberdeen, NJ | 290 | 414,585 | 16.8 | 2002/2006 | 1,430 | 99.0 | % | 96.5 | % | 96.1 | % | 1,790 | 1.21 | N/A | |||||||||||||||||||||||||||||||
Avalon at Rutherford Station (6) |
East Rutherford, NJ | 108 | 131,937 | 1.5 | 2005/2007 | 1,222 | 95.4 | % | 95.2 | % | 89.2 | % (3) | 2,237 | 1.74 | N/A | |||||||||||||||||||||||||||||||
Avalon Crystal Hill (6) |
Pomona, NY | 168 | 215,203 | 12.1 | 2001/2007 | 1,281 | 98.2 | % | 95.2 | % | 94.9 | % (3) | 2,020 | 1.50 | N/A |
(1) | We own a fee simple interest in the communities listed, excepted as noted below. | |
(2) | Represents community which was under redevelopment during the year, resulting in lower average economic occupancy and average rental rate per square foot for the year. | |
(3) | Represents a community that completed development or was purchased during the year, which could result in lower average economic occupancy and average rental rate per square foot for the year. | |
(4) | Represents the average rental revenue per occupied apartment home. | |
(5) | Costs are presented in accordance with generally accepted accounting principles. For current Development Communities, cost represents total costs incurred through December 31, 2008. Financial reporting costs are excluded for unconsolidated communities, see Note 6, Investments in Real Estate Entities. | |
(6) | We own a 15.2% combined general partnership and indirect limited partner equity interest in this community. | |
(7) | We own a general partnership interest in a partnership that owns a fee simple interest in this community. | |
(8) | We own a general partnership interest in a partnership structured as a DownREIT that owns this community. | |
(9) | We own a membership interest in a limited liability company that holds a fee simple interest in this community. | |
(10) | This community was transferred to a joint venture entity upon completion of development. We do not hold an equity interest in the entity, but retain a promoted residual interest in the profits of the entity. We receive a property management fee for this community. | |
(11) | Community is located on land subject to a land lease. |
27
Development Communities
As of December 31, 2008, we had 14 Development Communities under construction. We expect these
Development Communities, when completed, to add a total of 4,564 apartment homes to our portfolio
for a total capitalized cost, including land acquisition costs, of approximately $1,583,800,000.
You should carefully review Item 1a., Risk Factors, for a discussion of the risks associated with
development activity and our discussion under Item 7.,
Managements Discussion and Analysis of
Financial Condition and Results of Operations, for further discussion of our 2009 outlook for
development activity.
The following table presents a summary of the Development Communities. We hold a direct or
indirect fee simple ownership interest in these communities except where noted.
Total | ||||||||||||||||||||||||||
Number of | capitalized | |||||||||||||||||||||||||
apartment | cost (1) | Construction | Initial | Estimated | Estimated | |||||||||||||||||||||
homes | ($ millions) | start | occupancy (2) | completion | stabilization (3) | |||||||||||||||||||||
1. | Avalon Morningside Park (4) |
295 | $ | 122.8 | Q1 2007 | Q3 2008 | Q2 2009 | Q3 2009 | ||||||||||||||||||
New York, NY |
||||||||||||||||||||||||||
2. | Avalon White Plains |
407 | 154.0 | Q2 2007 | Q3 2008 | Q4 2009 | Q1 2010 | |||||||||||||||||||
White Plains, NY |
||||||||||||||||||||||||||
3. | Avalon Anaheim Stadium |
251 | 102.3 | Q2 2007 | Q4 2008 | Q3 2009 | Q1 2010 | |||||||||||||||||||
Anaheim, CA |
||||||||||||||||||||||||||
4. | Avalon Union City |
438 | 122.2 | Q3 2007 | Q2 2009 | Q4 2009 | Q2 2010 | |||||||||||||||||||
Union City, CA |
||||||||||||||||||||||||||
5. | Avalon at the Hingham Shipyard |
235 | 53.5 | Q3 2007 | Q3 2008 | Q2 2009 | Q3 2009 | |||||||||||||||||||
Hingham, MA |
||||||||||||||||||||||||||
6. | Avalon at Mission Bay North III |
260 | 153.8 | Q4 2007 | Q2 2009 | Q4 2009 | Q2 2010 | |||||||||||||||||||
San Francisco, CA |
||||||||||||||||||||||||||
7. | Avalon Jamboree Village |
279 | 77.4 | Q4 2007 | Q2 2009 | Q1 2010 | Q3 2010 | |||||||||||||||||||
Irvine, CA |
||||||||||||||||||||||||||
8. | Avalon Fort Greene |
631 | 306.8 | Q4 2007 | Q4 2009 | Q1 2011 | Q3 2011 | |||||||||||||||||||
New York, NY |
||||||||||||||||||||||||||
9. | Avalon Charles Pond |
200 | 47.8 | Q1 2008 | Q1 2009 | Q3 2009 | Q1 2010 | |||||||||||||||||||
Corham, NY |
||||||||||||||||||||||||||
10. | Avalon Blue Hills |
276 | 46.6 | Q2 2008 | Q2 2009 | Q4 2009 | Q2 2010 | |||||||||||||||||||
Randolph, MA |
||||||||||||||||||||||||||
11. | Avalon Walnut Creek (4) |
422 | 156.7 | Q3 2008 | Q3 2010 | Q1 2011 | Q3 2011 | |||||||||||||||||||
Walnut Creek, CA |
||||||||||||||||||||||||||
12. | Avalon Norwalk |
311 | 86.4 | Q3 2008 | Q3 2010 | Q2 2011 | Q4 2011 | |||||||||||||||||||
Norwalk, CT |
||||||||||||||||||||||||||
13. | Avalon Northborough I |
163 | 27.4 | Q4 2008 | Q3 2009 | Q1 2010 | Q3 2010 | |||||||||||||||||||
Northborough, MA |
||||||||||||||||||||||||||
14. | Avalon Towers Bellevue |
396 | 126.1 | Q4 2008 | Q2 2010 | Q2 2011 | Q4 2011 | |||||||||||||||||||
Bellevue, WA |
||||||||||||||||||||||||||
Total |
4,564 | $ | 1,583.8 |
(1) | Total capitalized cost includes all capitalized costs projected to be or actually incurred to develop the respective Development Community, determined in accordance with GAAP, including land acquisition costs, construction costs, real estate taxes, capitalized interest and loan fees, permits, professional fees, allocated development overhead and other regulatory fees. Total capitalized cost for communities identified as having joint venture ownership, either during construction or upon construction completion, represents the total projected joint venture contribution amount. | |
(2) | Future initial occupancy dates are estimates. There can be no assurance that we will pursue to completion any or all of these proposed developments. | |
(3) | Stabilized operations is defined as the earlier of (i) attainment of 95% or greater physical occupancy or (ii) the one-year anniversary of completion of development. | |
(4) | This community is being financed in part by third party, tax-exempt debt. |
28
Redevelopment Communities
As of December 31, 2008, we had seven consolidated communities under redevelopment. We expect the
total capitalized cost to redevelop these communities to be $95,400,000, excluding costs prior to
redevelopment. In addition, the Fund has two communities under redevelopment. We have found that
the cost to redevelop an existing apartment community is more difficult to budget and estimate than
the cost to develop a new community. Accordingly, we expect that actual costs may vary from our
budget by a wider range than for a new development community. We cannot assure you that we will
meet our schedule for reconstruction completion or restabilized operations, or that we will meet
our budgeted costs, either individually or in the aggregate. We anticipate increasing our
redevelopment activity related to Fund-owned communities, as well as communities in our current
operating portfolio. You should carefully review Item 1a., Risk Factors, for a discussion of the
risks associated with redevelopment activity.
The following presents a summary of these Redevelopment Communities:
Total cost | ||||||||||||||||||||||||||
Number of | ($ millions) | Estimated | Estimated | |||||||||||||||||||||||
apartment | Pre-redevelopment | Total capitalized | Reconstruction | reconstruction | restabilized | |||||||||||||||||||||
homes | cost | cost (1) | start | completion | operations (2) | |||||||||||||||||||||
1. | Essex Place |
286 | $ | 23.7 | $ | 34.5 | Q3 2007 | Q2 2009 | Q4 2009 | |||||||||||||||||
Peabody, MA |
||||||||||||||||||||||||||
2. | Avalon Woodland Hills |
663 | 72.1 | 109.3 | Q4 2007 | Q3 2010 | Q1 2011 | |||||||||||||||||||
Woodland Hills, CA |
||||||||||||||||||||||||||
3. | Avalon at Diamond Heights |
154 | 25.3 | 30.2 | Q4 2007 | Q4 2010 | Q2 2011 | |||||||||||||||||||
San Francisco, CA |
||||||||||||||||||||||||||
4. | Avalon Symphony Woods I |
176 | 9.4 | 14.0 | Q2 2008 | Q3 2009 | Q1 2010 | |||||||||||||||||||
Columbia, MD |
||||||||||||||||||||||||||
5. | Avalon Symphony Woods II |
216 | 36.4 | 42.4 | Q2 2008 | Q3 2009 | Q1 2010 | |||||||||||||||||||
Columbia, MD |
||||||||||||||||||||||||||
6. | Avalon Mountain View |
248 | 51.6 | 60.1 | Q2 2008 | Q3 2009 | Q1 2010 | |||||||||||||||||||
MountainView, CA |
||||||||||||||||||||||||||
7. | The Promenade |
400 | 71.0 | 94.4 | Q3 2008 | Q2 2010 | Q4 2010 | |||||||||||||||||||
Burbank, CA |
||||||||||||||||||||||||||
8. | The
Covington (3) |
256 | 32.6 | 34.9 | Q4 2008 | Q3 2009 | Q4 2009 | |||||||||||||||||||
Lombard, IL |
||||||||||||||||||||||||||
9. | Colonial
Towers (3) |
211 | 21.8 | 25.8 | Q4 2008 | Q3 2009 | Q4 2009 | |||||||||||||||||||
Weymouth, MA |
||||||||||||||||||||||||||
Total |
2,610 | $ | 343.9 | $ | 445.6 |
(1) | Total capitalized cost includes all capitalized costs projected to be or actually incurred to develop the respective Redevelopment Community, including land acquisition costs, construction costs, real estate taxes, capitalized interest and loan fees, permits, professional fees, allocated development overhead and other regulatory fees, all as determined in accordance with GAAP. | |
(2) | Restabilized operations is defined as the earlier of (i) attainment of 95% or greater physical occupancy or (ii) the one-year anniversary of completion of redevelopment. | |
(3) | This community is owned by the Fund. |
29
Development Rights
As of December 31, 2008, we are evaluating the future development of 27 new apartment communities
on land that is either owned by us, under contract, subject to a leasehold interest or for which we
hold either a purchase or lease option. We generally prefer to hold Development Rights through
options to acquire land, although for 14 of the Development Rights we currently own the land on
which a community would be built if we proceeded with development. The Development Rights range
from those beginning design and architectural planning to those that have completed site plans and
drawings and can begin construction almost immediately. We estimate that the successful completion
of all of these communities would ultimately add 7,304 apartment homes to our portfolio.
Substantially all of these apartment homes will offer features like those offered by the
communities we currently own. At December 31, 2008, there were cumulative capitalized costs
(including legal fees, design fees and related overhead costs, but excluding land costs) of
$57,365,000 relating to Development Rights that we consider probable for future development. In
addition, land costs related to the pursuit of Development Rights (consisting of original land and
additional carrying costs) of $239,456,000 are reflected as land held for development as of
December 31, 2008 on the Consolidated Balance Sheet of the Consolidated Financial Statements set
forth in Item 8 of this report.
The properties comprising the Development Rights are in different stages of the due diligence and
regulatory approval process. The decisions as to which of the Development Rights to invest in, if
any, or to continue to pursue once an investment in a Development Right is made, are business
judgments that we make after we perform financial, demographic and other analyses. In the event
that we do not proceed with a Development Right, we generally would not recover capitalized costs
incurred in the pursuit of those communities, unless we were to recover amounts in connection with
the sale of land; however, we cannot guarantee a recovery. Pre-development costs incurred in the
pursuit of Development Rights for which future development is not yet considered probable are
expensed as incurred. In addition, if the status of a Development Right changes, making future
development no longer probable, any capitalized pre-development costs are charged to expense.
During 2008, we incurred a charge of approximately $12,500,000 of pre-development cost for
development rights that we determined would not likely be developed.
Refer to Item I., Business for a discussion of our expected 2009 development starts. In
addition, you should carefully review Section 1a., Risk Factors, for a discussion of the risks
associated with Development Rights.
30
The table below presents a summary of these Development Rights:
Total | ||||||||||
Estimated | capitalized | |||||||||
number | cost | |||||||||
Location | of homes | ($ millions) (1) | ||||||||
1. | Wilton, CT |
100 | $ | 30 | ||||||
2. | Seattle, WA |
204 | 63 | |||||||
3. | Rockville Centre, NY |
349 | 129 | |||||||
4. | Greenburgh, NY Phase II |
444 | 118 | |||||||
5. | Wood-Ridge, NJ |
406 | 104 | |||||||
6. | Cohasset, MA |
200 | 38 | |||||||
7. | Northborough, MA Phase II |
187 | 35 | |||||||
8. | North Bergen, NJ |
164 | 47 | |||||||
9. | Andover, MA |
115 | 26 | |||||||
10. | Garden City, NY |
160 | 58 | |||||||
11. | New York, NY |
681 | 307 | |||||||
12. | Plymouth, MA Phase II |
92 | 20 | |||||||
13. | Lynnwood, WA Phase II |
82 | 18 | |||||||
14. | West Long Branch, NJ |
180 | 34 | |||||||
15. | Rockville, MD |
240 | 62 | |||||||
16. | Shelton, CT |
251 | 66 | |||||||
17. | Seattle, WA II |
234 | 76 | |||||||
18. | San Francisco, CA |
173 | 51 | |||||||
19. | Boston, MA |
180 | 106 | |||||||
20. | Roselle Park, NJ |
249 | 54 | |||||||
21. | Dublin, CA Phase II |
405 | 126 | |||||||
22. | Tysons Corner, VA |
393 | 99 | |||||||
23. | Canoga Park, CA |
298 | 85 | |||||||
24. | Stratford, CT |
130 | 22 | |||||||
25. | Yaphank, NY |
343 | 57 | |||||||
26. | Brooklyn, NY |
832 | 443 | |||||||
27. | Maynard, MA |
212 | 39 | |||||||
Total |
7,304 | $ | 2,313 | |||||||
(1) | Total capitalized cost includes all capitalized costs incurred to date (if any) and projected to be incurred to develop the respective community, determined in accordance with GAAP, including land acquisition costs, construction costs, real estate taxes, capitalized interest and loan fees, permits, professional fees, allocated development overhead and other regulatory fees. |
31
Land Acquisitions
We select land for development and follow established procedures that we believe minimize both the
cost and the risks of development. During 2008, we acquired six land parcels for an aggregate
purchase price of approximately $97,174,000, one of which we no
longer plan to develop. The land parcels purchased, which are currently being developed or
are held for future development, are as follows:
Estimated | Total | |||||||||||||||||
number | capitalized | |||||||||||||||||
Gross | of apartment | cost (1) | Date | |||||||||||||||
acres | homes | ($ millions) | acquired | |||||||||||||||
1. | Avalon Ballard |
1.4 | 234 | $ | 320 | January 2008 | ||||||||||||
Seattle, WA |
||||||||||||||||||
2. | Avalon North Bergen |
2.2 | 164 | 85 | May 2008 | |||||||||||||
North Bergen, NJ |
||||||||||||||||||
3. | Avalon Norwalk |
4.4 | 311 | 41 | July 2008 | |||||||||||||
Norwalk, CT |
||||||||||||||||||
4. | Avalon Willoughby West (2) |
4.2 | 832 | 158 | November / December 2008 | |||||||||||||
New York, NY |
||||||||||||||||||
5. | Avalon at the Pinehills, Phase II |
4.5 | 92 | 103 | December 2008 | |||||||||||||
Plymouth, MA |
||||||||||||||||||
Total |
16.7 | 1,633 | $ | 707 |
(1) | Total capitalized cost includes all capitalized costs incurred to date (if any) and projected to be incurred to develop the respective community, determined in accordance with GAAP, including land acquisition costs, construction costs, real estate taxes, capitalized interest and loan fees, permits, professional fees, allocated development overhead and other regulatory fees. | |
(2) | This represents a portion of the aggregate land purchase that we will transact under a non-cancelable commitment related to this expected development, as discussed in Note 8, Commitments and Contingencies, of the Consolidated Financial Statements set forth in Item 8 of this report. |
Recent Disposition Activity
We (i) sell assets that do not meet our long-term investment strategy or when capital and real
estate markets allow us to realize a portion of the value created over the past business cycle and
(ii) redeploy the proceeds from those sales to develop, redevelop and acquire communities. 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
non-taxable, like-kind exchange transaction. From January 1, 2008 to January 31, 2009, we sold our
interest in ten wholly owned communities, containing an aggregate of 3,059 apartment homes. The
aggregate gross sales price from the dispositions of these assets was $564,950,000.
Insurance and Risk of Uninsured Losses
We carry commercial general liability insurance and property insurance with respect to all of our
communities. These policies, and other insurance policies we carry, have policy specifications,
insured limits and deductibles that we consider commercially reasonable. There are, however,
certain types of losses (such as losses arising from acts of war) that are not insured, in full or
in part, because they are either uninsurable or the cost of insurance makes it, in managements
view, economically impractical. You should carefully review the discussion under Item 1a., Risk
Factors, of this Form 10-K for a discussion of risks associated with an uninsured property or
liability loss.
Many of our West Coast communities are located in the general vicinity of active earthquake faults.
Many of our communities are near, and thus susceptible to, the major fault lines in California,
including the San Andreas Fault and the Hayward Fault. We cannot assure you that an earthquake
would not cause damage or losses greater than insured levels. We have in place with respect to
communities located in California, for any single occurrence and in
the aggregate, $75,000,000 of coverage with a deductible per building equal to five percent of the
insured value of that building. Earthquake coverage outside of California is subject to a
$100,000,000 limit, except with respect to the state of Washington, for which the limit is
$65,000,000. Our earthquake insurance outside of California provides
32
for a $100,000 deductible per occurrence except that the next $400,000 of loss per occurrence
outside California will be treated as an additional deductible until the total deductible incurred
exceeds $3,000,000.
On December 1, 2007, we elected to cancel and rewrite our property insurance policy for a 17 month
term in order to take advantage of declining insurance premium rates. As a result, our property
insurance premium decreased by approximately 15% with no material changes in coverage.
We expect to renew this policy when it expires on May 1, 2009.
In August 2008, we renewed our general liability policy and workers compensation coverage for a
one year term, and experienced a decrease in the premium on these policies of approximately 13%,
with no material changes in the coverage. These policies are in effect until August 1, 2009.
Just as with office buildings, transportation systems and government buildings, there have been
reports that apartment communities could become targets of terrorism. In December 2007, Congress
passed the Terrorism Risk Insurance Program Reauthorization Act (TRIPRA) which is designed to
make terrorism insurance available through a federal back-stop program until 2014. In connection
with this legislation, we have purchased insurance for property damage due to terrorism up to
$200,000,000. Additionally, we have purchased insurance for certain terrorist acts, not covered
under TRIPRA, such as domestic-based terrorism. This insurance, often referred to as
non-certified terrorism insurance, is subject to deductibles, limits and exclusions. Our general
liability policy provides TRIPRA coverage (subject to deductibles and insured limits) for liability
to third parties that result from terrorist acts at our communities.
An additional consideration for insurance coverage and potential uninsured losses is mold growth.
Mold growth may occur when excessive moisture accumulates in buildings or on building materials,
particularly if the moisture problem remains undiscovered or is not addressed over a period of
time. If a significant mold problem arises at one of our communities, we could be required to
undertake a costly remediation program to contain or remove the mold from the affected community
and could be exposed to other liabilities. For further discussion of the risks and the Companys
related prevention and remediation activities, please refer to the discussion under Item 1a., Risk
Factors We may incur costs due to environmental contamination or non-compliance, elsewhere in
this report. We cannot provide assurance that we will have coverage under our existing policies
for property damage or liability to third parties arising as a result of exposure to mold or a
claim of exposure to mold at one of our communities.
We also carry crime policies (also commonly referred to as a fidelity policy or employee dishonesty
policy) that protect the company, up to $5,000,000 per occurrence, from employee theft of money,
securities or property.
ITEM 3. LEGAL PROCEEDINGS
On July 25, 2008, we filed a complaint in the U.S. District Court, Eastern District of Virginia
(Alexandria), against Tetra Tech, Inc. and Tetra Tech MM, Inc. (collectively, Tetra Tech) and
Arthur Willden, a Tetra Tech employee during the relevant period and the brother of our former
employee, James R. Willden. Our complaint alleges that portions of payments made by AvalonBay to
Tetra Tech were improperly passed on by Tetra Tech to San Jose Water Conservation Corp. We
previously obtained judgments against James Willden, San Jose Water Conservation Corp, and Michael
Schroll, the President of San Jose Water Conservation Corp. Tetra Tech has filed a counterclaim
and cross complaint against AvalonBay and others seeking damages in excess of $9 million. We
believe that Tetra Techs counterclaim is without merit with respect to AvalonBay and intend to
vigorously defend such claim. Our insurer, as subrogee, will have a claim to a portion of
recoveries we collect, if any, from James Willden, San Jose Water Conservation Corp., Michael
Schroll and/or Tetra Tech. There can be no assurance that any meaningful amount will be collected
in recovery or that we will be successful in our litigation with Tetra Tech.
We are currently involved in litigation alleging that communities constructed by us violate the
accessibility requirements of the Fair Housing Act (FHA) and the Americans with Disabilities Act.
The Equal Rights Center filed a complaint against us on September 23, 2005 in the U.S. District
Court, District of Maryland with respect to 100 properties. The lawsuit seeks monetary damages as
well as injunctive relief, such as modifications to assets. The Company has filed a motion to
dismiss all or parts of the suit, which has not been ruled on yet by
the court. On August 13, 2008,
the U.S. Attorneys Office for the Southern District of New York filed a civil lawsuit against the
33
Company and the joint venture (CVP I, LLC) in which it has an interest that owns Avalon Chrystie
Place. The lawsuit alleges that Avalon Chrystie Place was not designed and constructed in
accordance with the accessibility requirements of the FHA. The Company designed and constructed
Avalon Chrystie Place with a view to compliance with New York Citys Local Law 58, which for more
than 20 years has been New York Citys code regulating the accessible design and construction of
apartments, and which we believe satisfies the requirements of the FHA. Due to the preliminary
nature of the Equal Rights Center and Department of Justice matters, we cannot predict or determine
the outcome of these matters, nor is it reasonably possible to estimate the amount of loss, if any,
that would be associated with an adverse decision or settlement.
On August 1, 2008, we filed a lawsuit in the Superior Court of the State of Washington in the
County of King (Avalon DownREIT V, L.P. v. Grand-Glacier, LLC et al) relating to our assertion that
the homeowners association in which our former Avalon Wynhaven community is a part systematically
overcharged us for various shared costs. We recently sold this property and agreed to indemnify
the buyer for annual association fees to the extent they exceed an amount that we each agreed was
reasonable. The defendants have filed a cross-claim against Avalon DownREIT V, L.P. seeking
foreclosure of the property and satisfaction of all amounts alleged to be due. We intend to
vigorously pursue our claim and defend against the counter claim. We cannot predict the likely
terms of a final judgment or settlement.
In addition to the matters described above, we are involved in various other claims and/or
administrative proceedings that arise in the ordinary course of our business. While no assurances
can be given, we do not believe that any of these other outstanding litigation matters,
individually or in the aggregate, will have a material adverse effect on our operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of our security holders during the fourth quarter of 2008.
34
PART II
ITEM 5. | MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
Our common stock is traded on the NYSE under the ticker symbol AVB. The following table sets forth
the quarterly high and low sales prices per share of our common stock for the years 2008 and 2007,
as reported by the NYSE. On January 31, 2009 there were 669 holders of record of an aggregate of
79,745,531 shares of our outstanding common stock. The number of holders does not include
individuals or entities who beneficially own shares but whose shares are held of record by a broker
or clearing agency, but does include each such broker or clearing agency as one record holder.
2008 | 2007 | |||||||||||||||||||||||
Sales Price | Dividends | Sales Price | Dividends | |||||||||||||||||||||
High | Low | declared | High | Low | declared | |||||||||||||||||||
Quarter ended March 31 |
$ | 105.98 | $ | 79.78 | $ | 0.8925 | $ | 149.94 | $ | 125.30 | $ | 0.85 | ||||||||||||
Quarter ended June 30 |
$ | 107.37 | $ | 87.65 | $ | 0.8925 | $ | 134.62 | $ | 115.38 | $ | 0.85 | ||||||||||||
Quarter ended September 30 |
$ | 109.45 | $ | 82.97 | $ | 0.8925 | $ | 128.46 | $ | 105.91 | $ | 0.85 | ||||||||||||
Quarter ended December 31 |
$ | 96.68 | $ | 41.43 | $ | 2.70 | $ | 125.48 | $ | 88.97 | $ | 0.85 |
At
present, we expect to continue our policy of paying regular quarterly
cash dividends. However,
the form, timing and/or amount of dividend distributions will be declared at the discretion of the
Board of Directors and will depend on actual cash from operations, our financial condition, capital
requirements, the annual distribution requirements under the REIT provisions of the Internal
Revenue Code and other factors as the Board of Directors may consider relevant. The Board of
Directors may modify our dividend policy from time to time.
Dividends
declared for the quarter ended December 31, 2008 included a special
dividend, declared in December 2008, of $1.8075 per share (the Special Dividend) in conjunction
with the fourth quarter 2008 regular dividend of $0.8925 per share. These dividends were paid in cash and common shares. See
discussion in Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations. The Special Dividend was
declared to distribute a portion of the excess income attributable to gains on asset sales from the
Companys disposition activities during 2008, as discussed in Note 7, Real Estate Disposition
Activities, elsewhere in this report. The Special Dividend is intended to qualify for the
dividends paid deduction for tax purposes and minimize corporate level income taxes for 2008 and
reduce federal excise taxes.
In
February 2009, we announced that our Board of Directors declared a
dividend on our common stock for the first quarter of 2009 of $0.8925
per share. The dividend will be payable on April 15, 2009 to all
common stockholders as of April 1, 2009.
35
Issuer Purchases of Equity Securities
(c) | (d) | |||||||||||||||
Total Number of | Maximum Dollar Amount | |||||||||||||||
(b) | Shares Purchased | that May Yet be Purchased | ||||||||||||||
(a) | Average Price | as Part of Publicly | Under the Plans or | |||||||||||||
Total Number of | Paid per | Announced Plans | Programs | |||||||||||||
Shares Purchased | Share | or Programs | (in thousands) | |||||||||||||
Period | (1) | (1) | (2) | (2) | ||||||||||||
Month Ended |
4,000,206 | $ | 25.00 | | $ | 200,000 | ||||||||||
October 31, 2008 |
||||||||||||||||
Month Ended |
| $ | | | $ | 200,000 | ||||||||||
November 30, 2008 |
||||||||||||||||
Month Ended |
| $ | | | $ | 200,000 | ||||||||||
December 31, 2008 |
(1) | Includes shares surrendered to the Company in connection with employee stock option exercises or vesting of restricted stock as payment of exercise price or as payment of taxes. Amounts for the month ended October 31, 2008 include the redemption of all 4,000,000 outstanding shares of the Companys Series H Cumulative Redeemable Preferred Stock (Preferred Stock) that occurred on October 15, 2008. The redemption of the Preferred stock was not part of the Companys publicly announced stock repurchase program. | |
(2) | As disclosed in our Form 10-Q for the quarter ended March 31, 2008, on February 6, 2008, we disclosed that our Board of Directors voted to further increase the authorized limit of our stock repurchase program to $500,000,000. All amounts presented in the table above include this further increase. In determining whether to repurchase shares, we consider a variety of factors, including our liquidity needs, the then current market price of our shares and the effect of the share repurchases on our per share earnings and FFO. There is no scheduled expiration date to this program. |
Information regarding securities authorized for issuance under equity compensation plans is
included in the section entitled Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters in this Form 10-K.
36
ITEM 6. SELECTED FINANCIAL DATA
The following table provides historical consolidated financial, operating and other data for
AvalonBay Communities, Inc. You should read the table with our Consolidated Financial Statements
and the Notes included in this report (dollars in thousands, except per share information).
For the year ended | ||||||||||||||||||||
12-31-08 | 12-31-07 | 12-31-06 | 12-31-05 | 12-31-04 | ||||||||||||||||
Revenue: |
||||||||||||||||||||
Rental and other income |
$ | 847,640 | $ | 760,521 | $ | 671,382 | $ | 613,434 | $ | 561,752 | ||||||||||
Management, development and other fees |
6,568 | 6,142 | 6,259 | 4,304 | 604 | |||||||||||||||
Total revenue |
854,208 | 766,663 | 677,641 | 617,738 | 562,356 | |||||||||||||||
Expenses: |
||||||||||||||||||||
Operating expenses, excluding property taxes |
258,162 | 231,688 | 206,059 | 187,824 | 178,229 | |||||||||||||||
Property taxes |
77,267 | 70,562 | 62,651 | 60,535 | 54,435 | |||||||||||||||
Interest expense, net |
114,878 | 94,540 | 106,271 | 122,787 | 127,123 | |||||||||||||||
Depreciation expense |
194,150 | 168,324 | 149,352 | 146,225 | 139,436 | |||||||||||||||
General and administrative expense |
42,781 | 28,494 | 24,767 | 25,761 | 18,074 | |||||||||||||||
Impairment loss |
57,899 | | | | | |||||||||||||||
Total expenses |
745,137 | 593,608 | 549,100 | 543,132 | 517,297 | |||||||||||||||
Equity in income of unconsolidated entities |
4,566 | 59,169 | 7,455 | 7,198 | 1,100 | |||||||||||||||
Venture partner interest in profit-sharing |
| | | | (1,178 | ) | ||||||||||||||
Minority
interest income (expense) in consolidated partnerships |
741 | (1,585 | ) | (573 | ) | (1,481 | ) | (150 | ) | |||||||||||
Gain on sale of land |
| 545 | 13,519 | 4,479 | 1,138 | |||||||||||||||
Income from continuing operations before
cumulative effect of change in accounting principle |
114,378 | 231,184 | 148,942 | 84,802 | 45,969 | |||||||||||||||
Discontinued operations: |
||||||||||||||||||||
Income from discontinued operations |
12,208 | 20,489 | 20,193 | 30,379 | 35,976 | |||||||||||||||
Gain on sale of communities |
284,901 | 106,487 | 97,411 | 195,287 | 121,287 | |||||||||||||||
Total discontinued operations |
297,109 | 126,976 | 117,604 | 225,666 | 157,263 | |||||||||||||||
Income before cumulative effect of
change in accounting principle |
411,487 | 358,160 | 266,546 | 310,468 | 203,232 | |||||||||||||||
Cumulative effect of change in accounting principle |
| | | | 4,547 | |||||||||||||||
Net income |
411,487 | 358,160 | 266,546 | 310,468 | 207,779 | |||||||||||||||
Dividends attributable to preferred stock |
(10,454 | ) | (8,700 | ) | (8,700 | ) | (8,700 | ) | (8,700 | ) | ||||||||||
Net income available to common stockholders |
$ | 401,033 | $ | 349,460 | $ | 257,846 | $ | 301,768 | $ | 199,079 | ||||||||||
Per Common Share and Share Information: |
||||||||||||||||||||
Earnings per common share basic (3): |
||||||||||||||||||||
Income from continuing operations
(net of dividends attributable to preferred stock) |
$ | 1.35 | $ | 2.83 | $ | 1.89 | $ | 1.05 | $ | 0.58 | ||||||||||
Discontinued operations |
3.87 | 1.61 | 1.59 | 3.09 | 2.20 | |||||||||||||||
Net income available to common stockholders |
$ | 5.22 | $ | 4.44 | $ | 3.48 | $ | 4.14 | $ | 2.78 | ||||||||||
Weighted average common shares outstanding basic |
76,783,515 | 78,680,043 | 74,125,795 | 72,952,492 | 71,564,202 | |||||||||||||||
Earnings per common share diluted (3): |
||||||||||||||||||||
Income from continuing operations
(net of dividends attributable to preferred stock) |
$ | 1.34 | $ | 2.79 | $ | 1.86 | $ | 1.03 | $ | 0.58 | ||||||||||
Discontinued operations |
3.83 | 1.59 | 1.56 | 3.02 | 2.17 | |||||||||||||||
Net income available to common stockholders |
$ | 5.17 | $ | 4.38 | $ | 3.42 | $ | 4.05 | $ | 2.75 | ||||||||||
Weighted average common shares outstanding diluted (1)
|
77,578,852 | 79,856,927 | 75,586,898 | 74,759,318 | 73,354,956 | |||||||||||||||
Cash dividends declared (2)
|
$ | 3.57 | $ | 3.40 | $ | 3.12 | $ | 2 .84 | $ | 2.80 |
(1) | Weighted average common shares outstanding diluted for 2008 includes the impact of approximately 2.6 million common shares issued under the special dividend declared on December 17, 2008. | |
(2) | Does not include the special dividend of 1.8075, which was declared on December 17, 2008, and paid for by the Company using common stock par value $0.01. | |
(3) | Earnings per common share basic and Earnings per common share diluted include $0.06 per share related to the cumulative effect of a change in accounting principle. |
37
For the year ended | ||||||||||||||||||||
12-31-08 | 12-31-07 | 12-31-06 | 12-31-05 | 12-31-04 | ||||||||||||||||
Other Information: |
||||||||||||||||||||
Net income |
$ | 411,487 | $ | 358,160 | $ | 266,546 | $ | 310,468 | $ | 207,779 | ||||||||||
Depreciation continuing operations |
194,150 | 168,324 | 149,352 | 146,225 | 139,436 | |||||||||||||||
Depreciation discontinued operations |
5,302 | 13,401 | 14,777 | 17,072 | 24,464 | |||||||||||||||
Interest expense, net continuing operations |
114,878 | 94,540 | 106,271 | 122,787 | 127,123 | |||||||||||||||
Interest expense, net discontinued operations |
1,490 | 3,692 | 4,775 | 4,311 | 4,505 | |||||||||||||||
EBITDA (1) |
$ | 727,307 | $ | 638,117 | $ | 541,721 | $ | 600,863 | $ | 503,307 | ||||||||||
Funds from Operations (2) |
$ | 315,947 | $ | 368,057 | $ | 320,199 | $ | 271,096 | $ | 235,514 | ||||||||||
Number of Current Communities (3) |
164 | 163 | 150 | 143 | 138 | |||||||||||||||
Number of apartment homes |
45,728 | 45,932 | 43,141 | 41,412 | 40,142 | |||||||||||||||
Balance Sheet Information: |
||||||||||||||||||||
Real estate, before accumulated depreciation |
$ | 8,002,487 | $ | 7,556,740 | $ | 6,615,593 | $ | 5,940,146 | $ | 5,734,122 | ||||||||||
Total assets |
$ | 7,173,374 | $ | 6,736,484 | $ | 5,848,507 | $ | 5,198,598 | $ | 5,116,019 | ||||||||||
Notes payable and unsecured credit facilities |
$ | 3,674,457 | $ | 3,208,202 | $ | 2,866,433 | $ | 2,334,017 | $ | 2,451,354 | ||||||||||
Cash Flow Information: |
||||||||||||||||||||
Net cash flows provided by operating activities |
$ | 386,855 | $ | 454,874 | $ | 351,660 | $ | 306,248 | $ | 275,617 | ||||||||||
Net cash flows used in investing activities |
$ | (266,309 | ) | $ | (809,247 | ) | $ | (511,371 | ) | $ | (19,761 | ) | $ | (251,683 | ) | |||||
Net cash
flows (used in) provided by financing activities |
$ | (75,111 | ) | $ | 366,360 | $ | 162,280 | $ | (282,293 | ) | $ | (29,471 | ) |
Notes to Selected Financial Data | ||
(1) | EBITDA is defined as net income before interest income and expense, income taxes, depreciation and amortization from both continuing and discontinued operations. Under this definition, EBITDA includes gains on sale of assets and gain on sale of partnership interests. Management generally considers EBITDA to be an appropriate supplemental measure to net income of our operating performance because it helps investors to understand our ability to incur and service debt and to make capital expenditures. EBITDA should not be considered as an alternative to net income (as determined in accordance with generally accepted accounting principles, or GAAP), as an indicator of our operating performance, or to cash flows from operating activities (as determined in accordance with GAAP) as a measure of liquidity. Our calculation of EBITDA may not be comparable to EBITDA as calculated by other companies. | |
(2) | We generally consider Funds from Operations, or FFO, as defined below, to be an appropriate supplemental measure of our operating and financial performance because, by excluding gains or losses related to dispositions of previously depreciated property and excluding real estate depreciation, which can vary among owners of identical assets in similar condition based on historical cost accounting and useful life estimates, FFO can help one compare the operating performance of a real estate company between periods or as compared to different companies. We believe that in order to understand our operating results, FFO should be examined with net income as presented in the Consolidated Statements of Operations and Other Comprehensive Income included elsewhere in this report. | |
(3) | Current Communities consist of all communities other than those which are still under construction and have not received a certificate of occupancy. |
Consistent with the definition adopted by the Board of Governors of the National Association of
Real Estate Investment Trustsâ (NAREIT), we calculate FFO as net income or loss
computed in accordance with GAAP, adjusted for:
| gains or losses on sales of previously depreciated operating communities; | ||
| extraordinary gains or losses (as defined by GAAP); | ||
| cumulative effect of change in accounting principle; | ||
| depreciation of real estate assets; and | ||
| adjustments for unconsolidated partnerships and joint ventures. |
38
FFO does not represent net income in accordance with GAAP, and therefore it should not be
considered an alternative to net income, which remains the primary measure, as an indication of
our performance. In addition, FFO as calculated by other REITs may not be comparable to our
calculation of FFO.
FFO also does not represent cash generated from operating activities in accordance with GAAP, and
therefore should not be considered an alternative to net cash flows from operating activities, as
determined by GAAP, as a measure of liquidity. Additionally, it is not necessarily indicative of
cash available to fund cash needs. A presentation of GAAP based cash flow metrics is provided in
Cash Flow Information in the table on the previous page.
The following is a reconciliation of net income to FFO (dollars in thousands, except per share
data):
For the year ended | ||||||||||||||||||||
12-31-08 | 12-31-07 | 12-31-06 | 12-31-05 | 12-31-04 | ||||||||||||||||
Net income |
$ | 411,487 | $ | 358,160 | $ | 266,546 | $ | 310,468 | $ | 207,779 | ||||||||||
Dividends attributable to preferred stock |
(10,454 | ) | (8,700 | ) | (8,700 | ) | (8,700 | ) | (8,700 | ) | ||||||||||
Depreciation real estate assets,
including discontinued operations and
joint venture adjustments |
203,082 | 184,731 | 165,982 | 163,252 | 159,221 | |||||||||||||||
Minority interest expense,
including discontinued operations |
216 | 280 | 391 | 1,363 | 3,048 | |||||||||||||||
Gain on sale of unconsolidated entities
holding previously depreciated real estate assets |
(3,483 | ) | (59,927 | ) | (6,609 | ) | | | ||||||||||||
Cumulative effect of change in accounting principle |
| | | | (4,547 | ) | ||||||||||||||
Gain on sale of previously depreciated real estate assets |
(284,901 | ) | (106,487 | ) | (97,411 | ) | (195,287 | ) | (121,287 | ) | ||||||||||
Funds from Operations
attributable to common stockholders |
$ | 315,947 | $ | 368,057 | $ | 320,199 | $ | 271,096 | $ | 235,514 | ||||||||||
Weighted average common shares outstanding diluted |
77,578,852 | 79,856,927 | 75,586,898 | 74,759,318 | 73,354,956 | |||||||||||||||
FFO per common share diluted |
$ | 4.07 | $ | 4.61 | $ | 4.24 | $ | 3.63 | $ | 3.21 |
39
ITEM 7. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Managements Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is
intended to help provide an understanding of our business and results of operations. This MD&A
should be read in conjunction with our Consolidated Financial Statements and the accompanying Notes
to Consolidated Financial Statements included elsewhere in this report. This report, including the
following MD&A, contains forward-looking statements regarding future events or trends as described
more fully under Forward-Looking Statements included in this report. Actual results or
developments could differ materially from those projected in such statements as a result of the
risk factors described in Item 1a, Risk Factors, of this report.
Executive Overview
Business Description
We are primarily engaged in developing, acquiring, owning and operating apartment communities in
high barrier-to-entry markets of the United States. We believe that apartment communities are an
attractive long-term investment opportunity compared to other real estate investments because a
broad potential resident base should help reduce demand volatility over a real estate cycle.
However, throughout the real estate cycle, apartment market fundamentals, and therefore operating
cash flows, are affected by overall economic conditions. We seek to create long-term shareholder
value by accessing capital on cost effective terms; deploying that capital to develop, redevelop
and acquire apartment communities in high barrier-to-entry markets; operating apartment
communities; and selling communities when they no longer meet our long-term investment strategy or
when pricing is attractive. Barriers-to-entry in our markets generally include a difficult and
lengthy entitlement process with local jurisdictions and dense urban or suburban areas where zoned
and entitled land is in limited supply.
We regularly evaluate the allocation of our investments by the amount of invested capital and by
product type within our individual markets, which are located in New England, the New York/New
Jersey metro area, the Mid-Atlantic, the Midwest, the Pacific Northwest, and the Northern and
Southern California regions of the United States. Our strategy is to penetrate these markets with
a broad range of products and services and an intense focus on our customer. Our communities are
predominately upscale, which generally command among the highest rents in their markets. However,
we also pursue the ownership and operation of apartment communities that target a variety of
customer segments and price points, consistent with our goal of offering a broad range of products
and services.
Financial Highlights and Outlook
For the year ended December 31, 2008, net income available to common stockholders was $401,033,000
compared to $349,460,000 for 2007, an increase of 14.8%.
The annual year-over-year increase
is primarily attributable to an increase in gains from the sale of communities and joint venture
real estate investments in 2008 as compared to 2007 and growth in income from existing and newly
developed communities in 2008, partially offset by non-cash charges for land impairments, abandoned
pursuit costs and other charges related to our reduction in our planned development activity and
other items listed in the table below.
40
Net Income and EPS/FFO Decrease (Increase) | ||||||||
Full Year 2008 | ||||||||
Amount | Per Share (1) | |||||||
Land impairments |
$ | 57,899,000 | $ | 0.75 | ||||
Severance and related costs |
3,400,000 | 0.04 | ||||||
Federal excise tax |
3,200,000 | 0.04 | ||||||
Fund II organizational costs |
1,209,000 | 0.02 | ||||||
Gain on medium term notes repurchase |
(1,839,000 | ) | (0.02 | ) | ||||
Preferred stock deferred offering expenses |
3,566,000 | 0.05 | ||||||
Increase in abandoned pursuit costs |
5,537,000 | 0.07 | ||||||
$ | 72,972,000 | $ | 0.94 | |||||
(1) | Per share amounts are computed using the weighted average common shares-diluted at December 31, 2008. |
Apartment fundamentals, while in line with expectations, were challenged in the second half of 2008
as the recent economic downturn accelerated. We were able to achieve full year-over-year rental
revenue growth of 3.1% for our Established Community portfolio, comprised entirely of an increase
in rental rates of 3.1%, with no change in occupancy. This revenue growth, combined with
constrained expense growth, contributed to our Established Community portfolio achieving
year-over-year growth in net operating income (NOI) of
3.6% in 2008. However, due to the decline in market fundamentals during the fourth quarter of
2008, rental revenue from Established Communities increased 1.7% and NOI increased 2.4% over the
prior year period.
We expect a decrease in Earnings per share diluted (EPS) in 2009 from the prior year of
approximately 50%, driven primarily by the decrease in expected dispositions for 2009.
Contributing to these results will be an expected decline in the revenue and net operating income
from our Established Communities in 2009. The recession, coupled with the short term nature of
apartment leases, has adversely impacted current operating fundamentals. While certain apartment
markets continue to exhibit positive trends, the negative impact on renter demand from net job
losses is expected to result in year-over-year declines in NOI. We believe that the adverse impact
of the recession will be somewhat offset by (i) the expected continued weakness in the for-sale
housing market during 2009 and (ii) growth in those age groups that have historically demonstrated
a higher propensity to rent. In addition, the level of new rental completions in the Companys
markets is anticipated to decline during 2009 from 2008 levels. Our current financial outlook for
2009 provides for a decline in rental revenue of between 1.5% and 3.5% in our Established Community
portfolio and a projected NOI decline of 4.25% to 6.25%.
While current capital market conditions continue to adversely affect access to liquidity, we were
able to demonstrate the benefits of the financial flexibility that comes with a largely
unencumbered capital structure. During the year ended December 31, 2008, we raised in excess of
$1,900,000,000 of capital through the issuance of secured and unsecured debt, sales of assets, and
joint venture partner capital commitments. During 2008 we sourced approximately $1,200,000,000 in
debt at attractive prices from a variety of sources, including the Government Sponsored
Enterprises, tax-exempt debt, money center banks and even a local bank for long term secured debt.
In addition, we achieved a record level of dispositions during 2008, selling eleven communities
(including one held by the Fund) for an aggregate gross sales price of $646,200,000. We anticipate
our level of disposition activity to be in the range of gross sales of $100,000,000 to $200,000,000
in 2009. However, our actual disposition activity may differ significantly and will depend on
various factors including market and economic conditions in 2009.
We used the proceeds from both the debt financing activity and community dispositions to fund our
development and redevelopment activities, reduce amounts drawn under our unsecured line of credit,
repay secured and unsecured debt, prepay certain secured debt with higher interest costs and
repurchase common stock. Capital needs result primarily from development expenditures, maturing
debt and dividend requirements. Our committed capital is sufficient to complete the development
underway and meet other liquidity uses. See the discussion under Liquidity and Capital Resources.
While we believe that our development activity will continue to create long-term value, we reduced
our expected level of development in response to the general deterioration in real estate and
capital market conditions, the general
41
recessionary
environment.
As previously disclosed, we do not anticipate starting any new development
during the first half of 2009. Development starts in the second half of 2009, if any, will be
evaluated based on our assessment of economic and capital market conditions at that time. We do
expect to increase redevelopment activity in 2009 for both wholly owned and Fund (as defined
below) related assets. As a result of the reduction in our development activities, we incurred
certain non-cash and other charges as discussed in the table above. During 2008 we completed 13
communities for an aggregate total capitalized cost of $1,044,300,000, while only starting six
communities, which are expected to be completed for an estimated total capitalized cost of
$491,000,000. During 2009, the Company expects to disburse approximately $650,000,000 related to
the 14 communities under development at December 31, 2008 and expected acquisitions of land for
future development. We expect approximately $100,000,000 of the projected 2009 disbursements will
be funded from cash in escrow related to previously sourced tax-exempt debt.
Our 2009 financial plan anticipates a continuation of poor credit markets and constrained
liquidity. However, we believe that our current level of indebtedness, our current ability to
service interest and other fixed charges and our current limited use of financial encumbrances
(such as secured financing) will provide adequate access to the capital necessary to fund our
current development and redevelopment activities. We expect to meet our liquidity needs from the
issuance of corporate securities (which could include unsecured debt and/or common and preferred
equity) and secured debt, as well as from disposition proceeds, joint ventures or from retained
cash. We believe that the current market provides for an opportunity to perform certain deferred
maintenance and repositioning activities at attractive costs due to the continued decline in costs
for construction materials and labor. During 2009, we expect to start 16 redevelopments of
wholly owned communities, as well as five redevelopments of communities on behalf of the Fund, as
defined below.
AvalonBay Value Added Fund, L.P. (the Fund) is a discretionary investment fund with nine
institutional investors, including us. One of our wholly owned subsidiaries is the general partner
of the Fund and has invested approximately $48,000,000 in the Fund, representing a 15.2% combined
general partner and limited partner equity interest. The Fund was our principal vehicle for
acquiring apartment communities through the close of its investment period in March 2008.
On September 2, 2008, we announced the formation of AvalonBay Value Added Fund II, L.P. (Fund
II), a private, discretionary investment vehicle with commitments from four institutional
investors including us totaling $333,000,000. We have committed $150,000,000 to Fund II,
representing a 45% equity interest. At final closing, the aggregate investor commitments to Fund
II and our commitment and percentage interest in Fund II may change. Fund II can employ leverage
of up to 65%, allowing for a total investment capacity of approximately $950,000,000 and has a term
of ten years plus two one-year extension options. Fund II will acquire and operate multifamily
apartment communities primarily in our current markets with the objective of creating value through
redevelopment, enhanced operations and/or improving market fundamentals. Fund II will serve as the
exclusive vehicle through which we will acquire investments in apartment communities for a period
of three years from the closing date or until 90% of its committed capital is invested, subject to
limited exceptions. Fund II will not include or involve our development activities. We will
receive, in addition to any returns on its invested equity, asset management fees, property
management fees and redevelopment fees. We will also receive a promoted interest if certain return
thresholds are met. As of December 31, 2008, there has been no capital contributed to Fund II and
Fund II has made no investments. In the fourth quarter of 2008, Fund II entered into a $75,000,000
unsecured credit facility, with an option to increase the facility up to $200,000,000, subject to
certain lender requirements. The credit facility bears interest at LIBOR plus 2.50% per annum, and
matures in December 2011, assuming the exercise of a one-year extension option. At December 31,
2008, there was $760,000 outstanding under the Fund II credit facility.
Communities Overview
Our real estate investments consist primarily of current operating apartment communities,
communities in various stages of development (Development Communities) and Development Rights
(i.e., land or options to purchase land held for development), as further described in Item 2 of
this report. Our current operating communities are further distinguished as Established
Communities, Other Stabilized Communities, Lease-Up Communities and Redevelopment Communities.
Established Communities are generally operating communities that are consolidated for financial
reporting purposes and were owned and had stabilized occupancy and operating expenses as of the
42
beginning of the prior year, which allows the performance of these communities and the markets in
which they are located to be compared and monitored between years. Other Stabilized Communities
are generally all other consolidated operating communities that have stabilized occupancy and
operating expenses during the current year, but had not achieved stabilization as of the beginning
of the prior year. Lease-Up Communities consist of communities where construction is complete but
stabilization has not been achieved. Redevelopment Communities consist of communities where
substantial redevelopment is in progress or is planned to begin during the current year. A more
detailed description of our reportable segments and other related operating information can be
found in Note 9, Segment Reporting, of our Consolidated Financial Statements.
Although each of these categories is important to our business, we generally evaluate overall
operating, industry and market trends based on the operating results of Established Communities,
for which a detailed discussion can be found in Results of Operations as part of our discussion
of overall operating results. We evaluate our current and future cash needs and future operating
potential based on acquisition, disposition, development, redevelopment and financing activities
within Other Stabilized, Redevelopment and Development Communities. Discussions related to these
segments of our business can be found in Liquidity and Capital Resources.
NOI of our current operating communities, is one of the financial measures that we use to evaluate
community performance. NOI is affected by the demand and supply dynamics within our markets, our
rental rates and occupancy levels and our ability to control operating costs. Our overall
financial performance is also impacted by the general availability and cost of capital and the
performance of newly developed and acquired apartment communities.
As of December 31, 2008, we owned or held a direct or indirect ownership interest in 178 apartment
communities containing 50,292 apartment homes in ten states and the District of Columbia, of which
14 communities were under construction and nine communities were under reconstruction. Of these
communities, 23 were owned by entities that were not consolidated for financial reporting purposes,
including 19 owned by the Fund. In addition, we owned a direct or indirect ownership interest in
Development Rights to develop an additional 27 communities that, if developed in the manner
expected, will contain an estimated 7,304 apartment homes.
43
Results of Operations
Our year-over-year operating performance is primarily affected by both overall and individual
geographic market conditions and apartment fundamentals and reflected in changes in NOI of our
Established Communities; NOI derived from acquisitions and development completions; the loss of NOI
related to disposed communities; and capital market and financing activity. A comparison of our
operating results for 2008, 2007 and 2006 follows (dollars in thousands):
2008 | 2007 | $ Change | % Change | 2007 | 2006 | $ Change | % Change | |||||||||||||||||||||||||
Revenue: |
||||||||||||||||||||||||||||||||
Rental and other income |
$ | 847,640 | $ | 760,521 | $ | 87,119 | 11.5 | % | $ | 760,521 | $ | 671,382 | $ | 89,139 | 13.3 | % | ||||||||||||||||
Management, development and other fees |
6,568 | 6,142 | 426 | 6.9 | % | 6,142 | 6,259 | (117 | ) | (1.9 | %) | |||||||||||||||||||||
Total revenue |
854,208 | 766,663 | 87,545 | 11.4 | % | 766,663 | 677,641 | 89,022 | 13.1 | % | ||||||||||||||||||||||
Expenses: |
||||||||||||||||||||||||||||||||
Direct property operating expenses,
excluding property taxes |
200,990 | 181,324 | 19,666 | 10.8 | % | 181,324 | 164,852 | 16,472 | 10.0 | % | ||||||||||||||||||||||
Property taxes |
77,267 | 70,562 | 6,705 | 9.5 | % | 70,562 | 62,651 | 7,911 | 12.6 | % | ||||||||||||||||||||||
Total community operating
expenses |
278,257 | 251,886 | 26,371 | 10.5 | % | 251,886 | 227,503 | 24,383 | 10.7 | % | ||||||||||||||||||||||
Corporate-level property management
and other indirect operating expenses |
39,874 | 38,627 | 1,247 | 3.2 | % | 38,627 | 34,177 | 4,450 | 13.0 | % | ||||||||||||||||||||||
Investments and investment management |
17,298 | 11,737 | 5,561 | 47.4 | % | 11,737 | 7,030 | 4,707 | 67.0 | % | ||||||||||||||||||||||
Interest expense, net |
114,878 | 94,540 | 20,338 | 21.5 | % | 94,540 | 106,271 | (11,731 | ) | (11.0 | %) | |||||||||||||||||||||
Depreciation expense |
194,150 | 168,324 | 25,826 | 15.3 | % | 168,324 | 149,352 | 18,972 | 12.7 | % | ||||||||||||||||||||||
General and administrative expense |
42,781 | 28,494 | 14,287 | 50.1 | % | 28,494 | 24,767 | 3,727 | 15.0 | % | ||||||||||||||||||||||
Impairment loss |
57,899 | | 57,899 | N/A | | | | | ||||||||||||||||||||||||
Total other expenses |
466,880 | 341,722 | 125,158 | 36.6 | % | 341,722 | 321,597 | 20,125 | 6.3 | % | ||||||||||||||||||||||
Equity in income of unconsolidated entities |
4,566 | 59,169 | (54,603 | ) | (92.3 | %) | 59,169 | 7,455 | 51,714 | 693.7 | % | |||||||||||||||||||||
Minority
interest income (expense) in consolidated partnerships |
741 | (1,585 | ) | 2,326 | 146.8 | % | (1,585 | ) | (573 | ) | (1,012 | ) | (176.6 | %) | ||||||||||||||||||
Gain on sale of land |
| 545 | (545 | ) | N/A | 545 | 13,519 | (12,974 | ) | (96.0 | %) | |||||||||||||||||||||
Income from continuing operations |
114,378 | 231,184 | (116,806 | ) | (50.5 | %) | 231,184 | 148,942 | 82,242 | 55.2 | % | |||||||||||||||||||||
Discontinued operations: |
||||||||||||||||||||||||||||||||
Income from discontinued operations |
12,208 | 20,489 | (8,281 | ) | (40.4 | %) | 20,489 | 20,193 | 296 | 1.5 | % | |||||||||||||||||||||
Gain on sale of communities |
284,901 | 106,487 | 178,414 | 167.5 | % | 106,487 | 97,411 | 9,076 | 9.3 | % | ||||||||||||||||||||||
Total discontinued operations |
297,109 | 126,976 | 170,133 | 134.0 | % | 126,976 | 117,604 | 9,372 | 8.0 | % | ||||||||||||||||||||||
Net income |
411,487 | 358,160 | 53,327 | 14.9 | % | 358,160 | 266,546 | 91,614 | 34.4 | % | ||||||||||||||||||||||
Dividends attributable to preferred stock |
(10,454 | ) | (8,700 | ) | (1,754 | ) | 20.2 | % | (8,700 | ) | (8,700 | ) | | | ||||||||||||||||||
Net income available to common stockholders |
$ | 401,033 | $ | 349,460 | $ | 51,573 | 14.8 | % | $ | 349,460 | $ | 257,846 | $ | 91,614 | 35.5 | % | ||||||||||||||||
Net income available to common stockholders increased $51,573,000 or 14.8%, to $401,033,000 in 2008
due primarily to gains from the sale of communities and year-over-year increases in community
operating performance, partially offset by charges associated with land impairments and abandoned
pursuits as well as increased costs for interest and depreciation. Net income available to common
stockholders increased $91,614,000 or 35.5% in 2007 over the prior year period due primarily to
sales of consolidated operating communities and investments in unconsolidated entities and related
gains combined with growth in NOI from Established Communities and contributions to net operating
income from newly developed communities.
NOI is considered by management to be an important and appropriate supplemental performance measure
to net income because it helps both investors and management to understand the core operations of a
community or communities prior to the allocation of any corporate-level or financing-related costs.
NOI reflects the operating performance of a community and allows for an easy comparison of the
operating performance of individual assets or groups of assets. In addition, because prospective
buyers of real estate have different financing and overhead structures, with varying marginal
impacts to overhead by acquiring real estate, NOI is considered by many in the real estate industry
to be a useful measure for determining the value of a real estate asset or group of assets. We
define NOI as total property revenue less direct property operating expenses, including property
taxes.
NOI does not represent cash generated from operating activities in accordance with U.S. generally
accepted accounting principles (GAAP). Therefore, NOI should not be considered an alternative to
net income as an indication of our performance. NOI should also not be considered an alternative
to net cash flow from operating activities, as determined by GAAP, as a measure of liquidity, nor
is NOI necessarily indicative of cash available to fund cash needs. Reconciliations of NOI for the
years ended December 31, 2008, 2007 and 2006 to net income for each year, are as follows (dollars
in thousands):
44
For the year ended | ||||||||||||
12-31-08 | 12-31-07 | 12-31-06 | ||||||||||
Net income |
$ | 411,487 | $ | 358,160 | $ | 266,546 | ||||||
Indirect operating expenses, net of corporate income |
33,045 | 31,285 | 28,811 | |||||||||
Investments and investment management |
17,298 | 11,737 | 7,030 | |||||||||
Interest expense, net |
114,878 | 94,540 | 106,271 | |||||||||
General and administrative expense |
42,781 | 28,494 | 24,767 | |||||||||
Equity in income of unconsolidated entities |
(4,566 | ) | (59,169 | ) | (7,455 | ) | ||||||
Minority interest in consolidated partnerships |
(741 | ) | 1,585 | 573 | ||||||||
Depreciation expense |
194,150 | 168,324 | 149,352 | |||||||||
Impairment loss |
57,899 | | | |||||||||
Gain on sale of real estate assets |
(284,901 | ) | (107,032 | ) | (110,930 | ) | ||||||
Income from discontinued operations |
(12,208 | ) | (20,489 | ) | (20,193 | ) | ||||||
Net operating income |
$ | 569,122 | $ | 507,435 | $ | 444,772 | ||||||
The NOI increases for both 2008 and 2007, as compared to the prior year period, consist of changes
in the following categories (dollars in thousands):
2008 | 2007 | |||||||
Increase | Increase | |||||||
Established Communities |
$ | 14,257 | $ | 27,665 | ||||
Other Stabilized Communities |
14,982 | 10,186 | ||||||
Development and Redevelopment Communities |
32,448 | 24,812 | ||||||
Total |
$ | 61,687 | $ | 62,663 | ||||
The NOI increases in Established Communities in 2008 were largely due to continued favorable but
moderating apartment market fundamentals. During 2008, we continued to focus on rental rate
growth, while maintaining occupancy of at least 95% in all regions.
We anticipate that rental rates and occupancy levels will decline in 2009 such that overall rental
revenue will decline between 1.5% and 3.5% as compared to the 3.1% growth achieved in 2008. The
expected revenue decline is due to the general decline in overall economic conditions and related
employment levels. Expense growth also impacts growth in NOI and we continue to monitor and manage
operating expenses to constrain expense growth. We expect operating expenses to increase between
3.0% and 4.0% in 2009 from prior year levels, attributable primarily to increases in property
taxes, utilities, insurance and office operations. As a result, we expect NOI for our Established
Communities to decline between 4.25% and 6.25%. These projections are based on our outlook for
economic conditions in 2009, both nationally and in the markets where we operate. There can be no
assurance that our outlook for economic conditions and/or their impact on our operating results
will be accurate, and actual results could differ materially. Please see Risk Factors, Forward
Looking Statements and other discussions in this report on Form 10-K for a discussion of factors
which could affect our results of operations.
Net
operating income (NOI) is considered by management to
be an important and appropriate supplemental performance measure to
net income because it helps both investors and management to
understand the core operations of a community or communities prior to
the allocation of any corporate-level or financing-related costs. NOI
reflects the operating performance of a community and allows for an
easy comparison of the operating performance of individual assets or
groups of assets. In addition, because prospective buyers of real
estate have different financing and overhead structures, with varying
marginal impacts to overhead by acquiring real estate, NOI is considered by
many in the real estate industry to be a useful measure for
determining the value of a real estate asset or group of assets. We
define NOI as total property revenue less direct property operating
expenses, including property taxes.
Rental and other income increased in 2008 as compared to the prior year due to increased rental
rates and occupancy for our Established Communities, coupled with additional rental income
generated from newly developed communities.
Overall Portfolio The weighted average number of occupied apartment homes decreased to
37,886 apartment homes for 2008 as compared to 38,436 homes for 2007 and 37,716 homes for
2006. This change is primarily the result of communities sold during 2008 containing 3,459
apartment homes, as well as declining occupancy levels due to the economic slow down,
partially offset by increased homes available from newly developed communities,. The
weighted average monthly revenue per occupied apartment home increased to $1,921 for 2008 as
compared to $1,767 in 2007 and $1,610 in 2006.
45
Established Communities Rental revenue increased $18,221,000, or 3.1%, for 2008 and
increased $34,257,000, or 5.5%, for 2007. These increases are due entirely to increased
average rental rates. For 2008, the weighted average monthly revenue per occupied apartment
home increased 3.1% to $1,928 compared to $1,870 in 2007, primarily due to increased market
rents. There was no change in year-over-year average economic occupancy for 2008. Economic
occupancy takes into account the fact that apartment homes of different sizes and locations
within a community have different economic impacts on a communitys gross revenue. Economic
occupancy is defined as gross potential revenue less vacancy loss, as a percentage of gross
potential revenue. Gross potential revenue is determined by valuing occupied homes at
leased rates and vacant homes at market rents.
We experienced increases in Established Communities rental revenue in all six of our regions
for 2008 as compared to the prior year period. The largest percentage increases in rental
revenue were in the Northern California and Pacific Northwest regions, with increases of 5.9%
and 5.2%, respectively, between years. Almost 70% of our Established Community revenue is
generated by the Metro New York/New Jersey, Northern California and the New England regions,
and are discussed in more detail below.
The Metro New York/New Jersey region, which accounted for approximately 23.8% of Established
Community rental revenue for 2008, experienced an increase in rental revenue of 2.3% for
2008 as compared to 2007. Average rental rates increased 2.4% to $2,353, and economic
occupancy decreased 0.1% to 96.2% for 2008 as compared to 2007. During 2008 the trend of
weakening rental market conditions in both New York City and surrounding suburban markets
resulting from the recession is reflected in the declining occupancy levels in the second
half of 2008. The challenges facing the financial services industry are expected to
continue throughout 2009 resulting in a further decline in employment levels. We will
remain focused on the current market conditions, as we seek to manage the resulting impact
on our community operating results for 2009.
Northern California, which represented approximately 21.1% of Established Community rental
revenue during 2008, experienced an increase in rental revenue of 5.9% as compared to 2007.
Average rental rates increased by 6.2% to $1,943 and economic occupancy declined by 0.3%
from 97.0% to 96.7% for 2008 as compared to 2007. We expect Northern California to see a
modest decline in revenue in 2009.
The New England region accounted for approximately 21.0% of the Established Community rental
revenue for 2008 and experienced rental revenue growth of 2.3% over the prior year. Average
rental rates increased 2.2% to $2,053 and economic occupancy increased 0.1% to 96.3% for
2008, as compared to 2007. Given the significance of the financial services industry in the
Boston metro area, as well as the impact of New York trends on Fairfield-New Haven, we continue to monitor the recent decline in job growth as compared to
2007 due to the current volatility in the financial services industry.
In accordance with GAAP, cash concessions are amortized as an offset to rental revenue over the
approximate lease term, which is generally one year. As a supplemental measure, we also present
rental revenue with concessions stated on a cash basis to help investors evaluate the impact of
both current and historical concessions on GAAP based rental revenue and to more readily enable
comparisons to revenue as reported by other companies. Rental revenue with concessions stated on a
cash basis also allows investors to understand historical trends in cash concessions, as well as
current rental market conditions.
The following table reconciles total rental revenue in conformity with GAAP to total rental revenue
adjusted to state concessions on a cash basis for our Established Communities for the years 2008
and 2007 (dollars in thousands). Information for the year ended
December 31, 2006 is not presented, as Established Community
classification is not comparable prior to January 1, 2007. See Note 9,
Segment Reporting, of our Consolidated Financial
Statements.
46
For the year ended | ||||||||
12-31-08 | 12-31-07 | |||||||
Rental revenue (GAAP basis) |
$ | 605,657 | $ | 587,436 | ||||
Concessions amortized |
5,973 | 5,316 | ||||||
Concessions granted |
(7,271 | ) | (5,469 | ) | ||||
Rental revenue adjusted to state
concessions on a cash basis |
$ | 604,359 | $ | 587,283 | ||||
Year-over-year % change GAAP revenue |
3.1 | % | n/a | |||||
Year-over-year % change cash concession based revenue |
2.9 | % | n/a |
Management, development and other fees increased $426,000, or 6.9% in 2008 and decreased $117,000,
or 1.9% in 2007. The increase in 2008 was due primarily to increased redevelopment fees and
property management fees as additional communities were acquired by the Fund. The decrease in 2007
was due primarily to lower development and redevelopment management fees coupled with the
disposition of our interest in a joint venture, partially offset by increased management fees from
Fund communities.
Direct property operating expenses, excluding property taxes increased $19,666,000, or 10.8% in
2008 and increased $16,472,000, or 10.0% for 2007 as compared to the prior year periods, primarily
due to the addition of recently developed apartment homes.
For Established Communities, direct property operating expenses, excluding property taxes,
increased $521,000, or 0.4% to $133,459,000 for 2008 and $1,661,000, or 1.1% to $148,628,000 for
2007, due primarily to increased utilities, administrative and community maintenance related costs, offset
partially by a decrease in insurance and payroll related expenses. The increases in administrative
expense are primarily due to increases in bad debt, due to a general decline in the economic
climate.
Property taxes increased $6,705,000, or 9.5% and $7,911,000, or 12.6% in 2008 and 2007,
respectively, due to the addition of newly developed and redeveloped apartment homes and overall
higher assessments. Property tax increases are also impacted by the size and timing of successful
tax appeals.
For
Established Communities, property taxes increased by $3,107,000, or
5.6% and $2,618,000, or 4.5%
for 2008 and 2007, respectively due to both higher assessments throughout all regions and
reductions in property taxes realized in 2007 that did not occur in 2008. The impact of the
current economic environment has not been reflected in current assessments, as there is typically a
time lag between a change in the economy affecting property valuations and updated real estate tax
assessments. We expect property taxes in 2009 to increase over 2008 due primarily to higher tax
rates, without the benefit of lower assessed values. Property tax increases are limited by law
(Proposition 13) for communities in California. We evaluate property tax increases internally, as
well as engage third-party consultants, and appeal increases when appropriate.
Corporate-level property management and other indirect operating expenses increased by $1,247,000,
or 3.2% in 2008 and $4,450,000, or 13.0% in 2007 over the prior year periods. These increases are
due primarily to increased compensation and employee separation costs, as well as costs relating to
corporate initiatives focused on increasing efficiency and enhancing controls at our operating
communities. The 2008 expense includes transition and ongoing costs related to our Customer Care
Center in Virginia Beach, Virginia that we opened in the third quarter of 2007 to centralize
certain community-related accounting, administrative and customer service functions.
Investments and investment management reflects the costs incurred for investment acquisitions,
investment management and abandoned pursuit costs, which include costs incurred for development
pursuits not yet considered probable for development, as well as the abandonment of development
pursuits, acquisition pursuits and disposition pursuits. Investments and investment management
costs increased in 2008 and 2007 compared to the prior year periods due primarily to increases in
abandoned pursuit costs.
Abandoned pursuit costs were $12,511,000 in 2008, $6,974,000 in 2007
and $2,115,000 in 2006. The increase in abandoned pursuit costs in
2008 is due to the reduction in our planned development activity. These costs can be volatile,
47
particularly in periods of economic downturn or when there is limited access to capital, and the
costs incurred in any given period may vary significantly in future periods.
Interest expense, net increased $20,338,000, or 21.5% and decreased $11,731,000, or 11.0% in 2008
and 2007, respectively. This category includes both interest expense and interest income. The
increase in 2008 is due primarily to a decrease in interest income in 2008 as compared to the prior
year period, coupled with increased interest expense in 2008 compared to 2007. The higher level of
interest income in 2007 is due to higher invested cash balances from our January 2007 equity
offering. The increased interest expense in 2008 is due primarily to increased amounts of debt
outstanding in 2008 compared to the prior year period. In addition, interest expense in 2008 was
reduced by including the gain of $1,950,000 recognized by repurchasing $15,000,000 of our
$250,000,000, 5.5% unsecured notes at a discount of 87% of par for $13,050,000. Interest expense
also includes charges of approximately $410,000 related to unamortized deferred financing costs and purchase
premiums for debt that was repaid prior to its scheduled maturity.
Depreciation expense increased in 2008 and 2007 primarily due to the completion of development and
redevelopment activities.
General and administrative expense (G&A) increased $14,287,000, or 50.1% in 2008 and increased
$3,727,000, or 15.0% in 2007 as compared to the prior year periods. The 2008 increase is due
primarily to compensation, including severance and related costs
associated with the decrease in our
planned development activity, federal excise tax expense resulting from gains on our increased
disposition activity during 2008 and organization costs for the formation of Fund II. The 2007
increase is primarily due to increased compensation costs.
Impairment loss for 2008 is due primarily to the write down of eight land parcels which we have
decided to not develop. We did not recognize an impairment loss in either 2007 or 2006.
Equity in income of unconsolidated entities for 2008 decreased from the prior year period due
primarily to the gain on the sale of two partnership interests in 2007 and the related loss of
partnership income, partially offset by our portion of the gain from the sale of a community by a
joint venture partner, income from joint ventures where the underlying communities have achieved
stabilized operations and gains from our investment in a joint venture formed to develop for-sale
homes. The increase in 2007 over the prior year period is due
primarily to approximately $60,000,000 in gains
from the dispositions of two investments in 2007.
Minority interest in consolidated partnerships for 2008 resulted in income of $741,000, compared to
expense of $1,585,000 in 2007 due to recognition of income for our joint venture partners portion
of the net loss incurred by Fund II, as well as the conversion and redemption of limited
partnership units in 2007 and 2008, thereby reducing outside ownership interests and the allocation
of net income to outside ownership interests. The increase in 2007 over the prior year period is
due primarily to the recognition in 2007 of the sale of a 70% joint venture partner interest in one
of our unconsolidated communities, partially offset by the redemption of limited partnership units,
as discussed above.
Gain on sale of land for 2008 decreased from the prior year period due to the absence of land sales
in 2008. Gain on sale of land from 2007 decreased from 2006 due to the volume and size of parcels
sold each year.
Income from discontinued operations represents the net income generated by communities sold or
qualifying as discontinued operations during the period from January 1, 2007 through December 31,
2008. This income decreased for 2008 and 2007 due to an increased number of communities sold in
each year as compared to the prior year period. See Note 7, Real Estate Disposition Activities,
of our Consolidated Financial Statements.
Gain on sale of communities increased in 2008 and 2007 as compared to the prior year periods as a
result of a higher volume of sales in each respective year. The amount of gain realized upon
disposition of a community depends on many factors, including the number of communities sold, the
size and carrying value of those communities and the market conditions in the local area.
48
Funds from Operations Attributable to Common Stockholders (FFO)
FFO is considered by management to be an appropriate supplemental measure of our operating and
financial performance. In calculating FFO, we exclude gains or losses related to dispositions of
previously depreciated property and exclude real estate depreciation, which can vary among owners
of identical assets in similar condition based on historical cost accounting and useful life
estimates. FFO can help one compare the operating performance of a real estate company between
periods or as compared to different companies. We believe that in order to understand our
operating results, FFO should be examined with net income as presented in our Consolidated
Financial Statements included elsewhere this report. For a more detailed discussion and
presentation of FFO, see Selected Financial Data, included in Item 6 of this report.
Liquidity and Capital Resources
Factors affecting our liquidity and capital resources are our cash flows from operations, financing
activities and investing activities (including dispositions), as well as general economic and
market conditions. Operating cash flow has historically been determined by: (i) the number of
apartment homes currently owned, (ii) rental rates, (iii) occupancy levels and (iv) operating
expenses with respect to apartment homes. The timing and type of capital markets activity in which
we engage, as well as our plans for development, redevelopment, acquisition and disposition
activity, are affected by changes in the capital markets environment, such as changes in interest
rates or the availability of cost-effective capital.
We regularly review our liquidity needs, the adequacy of cash flows from operations, and other
expected liquidity sources to meet these needs. We believe our principal short-term liquidity
needs are to fund:
| development and redevelopment activity in which we are currently engaged; | ||
| the minimum dividend payments on our common stock required to maintain our REIT qualification under the Internal Revenue Code of 1986; | ||
| debt service and maturity payments; | ||
| normal recurring operating expenses; | ||
| DownREIT partnership unit distributions; and | ||
| capital calls for the Fund and Fund II, as required. |
The capital and credit markets contracted significantly during 2008, resulting in a constrained
liquidity environment. Although general market liquidity was constrained, we were able to satisfy
our liquidity needs from a combination of cash flows provided by secured and unsecured financings,
proceeds from asset sales and cash from operations. In 2009, we continue to expect to meet all of
our liquidity needs from a variety of internal and external sources, including borrowing capacity
under our Credit Facility (as defined below), secured financings and other public or private
sources of liquidity as discussed below, as well as our operating activities. To the extent that
currently available internal and external resources do not satisfy our needs, we may seek
additional external financing. Additional external financing could come from a variety of sources,
such as public sales of debt or equity securities or unsecured or secured loans from financial
institutions or other private or governmental lenders, among others. Private equity through joint
ventures may also be used. Our ability to obtain additional financing will depend on a variety of
factors such as market conditions, the general availability of credit, the overall availability of
credit to the real estate industry, our credit ratings and credit capacity, as well as the
perception of lenders regarding our long or short-term financial
prospects. At December 31, 2008, we have unrestricted cash and cash in escrow of $259,305,000
available for development activities. For the year ended December 31, 2008 we raised in excess of
$1,900,000,000 of capital through the issuance of secured debt and unsecured debt, equity
commitments from private equity sources and sales of assets. We used these proceeds to fund our
development and redevelopment activities, reduce amounts drawn under our unsecured line of credit,
repay secured and unsecured debt, prepay certain unsecured debt with interest costs above
prevailing rates and repurchase our common and preferred stock.
Unrestricted cash and cash equivalents totaled $65,706,000 at December 31, 2008, an increase of
$45,435,000 from $20,271,000 at December 31, 2007. The following discussion relates to changes in
cash due to operating, investing
49
and financing activities, which are presented in our Consolidated Statements of Cash Flows included
elsewhere in this report.
Operating
Activities Net cash provided by operating activities decreased
to $386,855,000 in
2008 from $454,874,000 in 2007. The decrease was driven primarily by the payment of interest
amounts and the timing of general corporate payables, partially offset by the additional NOI from our
Established Communities, as well as NOI from recently developed communities.
Investing Activities Net cash used in investing activities of
$266,309,000 in 2008 related
to investments in assets through the development and redevelopment of apartment communities,
partially offset by the gross proceeds from the disposition of communities in the amount of
$529,777,000 and an increase in construction escrows of $126,611,000. During 2008, we invested
$902,327,000 in the purchase and development of the following real estate and capital
expenditures:
| We acquired six parcels of land in connection with Development Rights, for a purchase price of approximately $97,174,000. | ||
| We had capital expenditures of $20,824,000 for real estate and non-real estate assets. | ||
| We invested approximately $881,503,000 in the development of communities, including the commencement of the development of six communities which are expected to contain an aggregate of 1,768 apartment homes for an expected aggregate total capitalized cost of $491,000,000. |
Financing
Activities Net cash used by financing activities totaled
$75,111,000 in 2008. The
net cash used is due primarily to the payment of cash dividends in the amount of $278,795,000,
the redemption of preferred stock for $100,000,000 and the repurchase of 482,100 shares of our
common stock at an average price of $87.42 per share, offset somewhat by the net issuance of
secured and unsecured debt of $350,054,000, including amounts repaid under our Credit Facility
(as defined below).
In February 2008, our Board of Directors authorized an increase of $200,000,000 in our common stock
repurchase program, increasing the total amount the Company can acquire to $500,000,000, of which
approximately $300,000,000 has been used to repurchase our common stock as of December 31, 2008.
The decision to use the additional share repurchase authorization will depend on current capital
market conditions and liquidity, our share price relative to the net asset value per share and
other uses of capital, including development.
In October 2008, we exercised our option to redeem all 4,000,000 outstanding shares of our 8.70%
Series H Cumulative Redeemable Preferred Stock for $100,701,000. The repayment amount includes the
redemption value of the outstanding shares of $25 per share and accrued but unpaid dividends
through the redemption date. We recorded a non-cash charge for deferred offering expenses of
approximately $3,566,000 in the fourth quarter of 2008 related to this redemption.
Variable Rate Unsecured Credit Facility
We currently have a $1,000,000,000 revolving variable rate unsecured credit facility (the Credit
Facility) with a syndicate of commercial banks that expires in November 2011 (assuming our
exercise of a one-year renewal option). In the aggregate, we pay an annual facility fee of
approximately $1,250,000. The Credit Facility bears interest at varying levels based on the London
Interbank Offered Rate (LIBOR), our credit rating and on a maturity schedule selected by us. The
current stated pricing is LIBOR plus 0.40% per annum (0.85% on January 31, 2009). The spread over
LIBOR can vary from LIBOR plus 0.325% to LIBOR plus 1.00% based on our credit rating. In addition,
a competitive bid option is available for borrowings of up to $422,500,000. 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. We had no outstanding balance under this competitive bid
option at January 31, 2009. At January 31, 2009, $335,000,000 was outstanding on the Credit
Facility, $45,415,000 was used to provide letters of credit, and $619,585,000 was available for
borrowing under the Credit Facility.
We are
subject to certain customary financial and other covenants under the
Credit Facility, our $330,000,000 variable rate, unsecured term loan
and the indenture under which our unsecured notes were issued. The
financial covenants include the following:
| limitation on the amount of total and secured debt in relation to our overall capital structure, | ||
| limitation on the amount of our unsecured debt relative to the undepreciated basis of real estate assets that are not encumbered by property-specific financing, and | ||
| minimum levels of debt service coverage. |
We are in
compliance with these covenants at December 31, 2008.
50
Future Financing and Capital Needs Debt Maturities
One of our principal long-term liquidity needs is the repayment of long-term debt at the time that
such debt matures. For unsecured notes, we anticipate that no significant portion of the principal
of these notes will be repaid substantially prior to maturity. If we do not have funds on hand
sufficient to repay our indebtedness as it becomes due, it will be necessary for us to refinance
the debt. This refinancing may be accomplished by uncollateralized private or public debt
offerings, additional debt financing that is secured by mortgages on individual communities or
groups of communities, draws on our Credit Facility or by equity offerings. Although we believe we
will have the capacity to meet our currently anticipated liquidity needs, we cannot assure you that
additional debt financing or debt or equity offerings will be available or, if available, that they
will be on terms we consider satisfactory.
The following financing activity occurred during 2008:
| we repaid $50,000,000, 6.625% principal amount of previously issued unsecured notes, along with any unpaid interest, pursuant to their scheduled maturity; | ||
| we redeemed $10,000,000 principal amount of our $150,000,000, 7.5% unsecured notes that mature in August 2009 for $10,287,500 with the premium above par recorded as a charge to earnings; | ||
| we repaid $146,000,000 of unsecured notes with an annual interest rate of 8.25% pursuant to their scheduled maturity; | ||
| we redeemed $15,000,000 principal amount of our $250,000,000, 5.5% unsecured notes that mature in January 2012 at a discount price of 87% of par; | ||
| we repaid the loans secured by Avalon Knoll, which is located in Germantown, Maryland and had a fixed rate of 6.95%, Avalon Landing, which is located in Annapolis, Maryland and had a fixed rate of 6.85%, and Avalon at Fairway Hills, which is located in Columbia, Maryland and had a variable rate. These loans, which had contractual maturities of 2026 and an aggregate amount outstanding of $28,707,000, were repaid early at par; | ||
| we repaid the $4,368,000, 6.99% fixed rate loan secured by a development right in Wheaton, Maryland pursuant to its scheduled maturity; | ||
| we borrowed $170,125,000 under an interest-only mortgage note secured by Avalon at Arlington Square, located in Arlington, Virginia at an effective rate of 4.69% for five years; | ||
| we borrowed $94,572,000 under an interest-only mortgage note secured by Avalon at Cameron Court, located in Alexandria, Virginia at an effective rate of 4.95% for five years; | ||
| we borrowed $110,600,000 under an interest-only mortgage note secured by Avalon Crescent, located in McLean, Virginia at an effective rate of 5.48% for seven years; | ||
| we borrowed $150,000,000 under an interest-only mortgage note secured by Avalon Silicon Valley, located in Sunnyvale, California at an effective rate of 5.66% for seven years; | ||
| we entered into a $330,000,000, variable rate unsecured term loan comprised of three tranches bearing interest at LIBOR plus a spread of 1.25%, of which approximately one third matures in each of the next three years beginning in 2009; | ||
| we closed both a variable rate bond financing relating to Avalon Walnut Creek in the aggregate amount of $135,000,000, of which $126,000,000 is tax-exempt, as well as an associated 4.0% fixed-rate construction loan of $2,500,000; | ||
| we closed a $62,400,000, 6.02% fixed rate loan secured by Avalon at Greyrock Place, located in Stamford, Connecticut; | ||
| we closed a $51,749,000, 6.12% fixed rate loan secured by Avalon Darien, located in Darien, Connecticut; | ||
| we closed a $55,100,000, 5.875% fixed rate loan secured by Avalon Commons, located in Smithtown, New York; | ||
| we repaid $390,500,000 outstanding under our Credit Facility; | ||
| we repurchased 482,100 shares of our common stock at an average price of $87.42 per share, for a total approximate purchase price of $42,144,000; | ||
| we redeemed 44,592 limited partnership units in certain DownREITs for $1,756,000; and |
51
| we exercised our option to redeem all 4,000,000 outstanding shares of our 8.70% Series H Cumulative Redeemable Preferred Stock for $100,701,000, inclusive of accrued but unpaid dividends through the redemption date. |
In January 2009, we made a cash tender offer for any and all of our 7.5% unsecured notes due August
2009 and December 2010. We purchased $37,438,000 of our $150,000,000, 7.5% unsecured notes due
August 2009 at par. In addition, we purchased $64,423,000 of our $200,000,000, 7.5% unsecured
notes due December 2010 at a discount price of 98% of par, for approximately $63,135,000,
representing a yield to maturity of 8.66%. A gain of approximately $1,062,000 will be recorded in
the first quarter of 2009 in conjunction with the purchase of the unsecured notes due December
2010. All of the notes purchased in the tender offer were cancelled. We previously acquired and
cancelled an aggregate of $10,000,000 of the 7.5% unsecured notes due in August 2009.
The
following table details debt maturities for the next five years, excluding our Credit Facility and
amounts outstanding related to communities classified as held for sale, for debt outstanding at
December 31, 2008 (dollars in thousands).
52
All-In | Principal | |||||||||||||||||||||||||||||||||||||||
interest | maturity | Balance outstanding | Scheduled maturities | |||||||||||||||||||||||||||||||||||||
Community | rate (1) | date | 12-31-07 | 12-31-08 | 2009 | 2010 | 2011 | 2012 | 2013 | Thereafter | ||||||||||||||||||||||||||||||
Tax-exempt bonds |
||||||||||||||||||||||||||||||||||||||||
Fixed rate |
||||||||||||||||||||||||||||||||||||||||
CountryBrook |
6.30 | % | Mar-2012 | $ | 15,356 | $ | 14,680 | $ | 719 | $ | 766 | $ | 816 | $ | 12,379 | $ | | $ | | |||||||||||||||||||||
Avalon at
Symphony Glen |
4.90 | % | Jul-2024 | 9,780 | 9,780 | | | | | | 9,780 | |||||||||||||||||||||||||||||
Avalon at
Lexington |
6.55 | % | Feb-2025 | 12,078 | 11,665 | 439 | 466 | 495 | 526 | 559 | 9,180 | |||||||||||||||||||||||||||||
Avalon Campbell |
6.48 | % | Jun-2025 | 31,877 | 30,914 | (2) | | | | | | 30,914 | ||||||||||||||||||||||||||||
Avalon Pacifica |
6.48 | % | Jun-2025 | 14,460 | 14,023 | (2) | | | | | | 14,023 | ||||||||||||||||||||||||||||
Avalon Knoll |
6.95 | % | Jun-2026 | 11,654 | | | | | | | | |||||||||||||||||||||||||||||
Avalon Fields |
7.55 | % | May-2027 | 10,224 | 9,988 | 275 | 295 | 316 | 339 | 364 | 8,399 | |||||||||||||||||||||||||||||
Avalon Oaks |
7.45 | % | Jul-2041 | 17,077 | 16,940 | 147 | 157 | 168 | 180 | 193 | 16,095 | |||||||||||||||||||||||||||||
Avalon Oaks
West |
7.48 | % | Apr-2043 | 16,919 | 16,795 | 133 | 142 | 152 | 162 | 173 | 16,033 | |||||||||||||||||||||||||||||
Avalon at
Chestnut Hill |
5.82 | % | Oct-2047 | 42,149 | 41,834 | 331 | 349 | 368 | 388 | 409 | 39,989 | |||||||||||||||||||||||||||||
181,574 | 166,619 | 2,044 | 2,175 | 2,315 | 13,974 | 1,698 | 144,413 | |||||||||||||||||||||||||||||||||
Variable rate (3)
|
||||||||||||||||||||||||||||||||||||||||
The Promenade |
2.55 | % | Oct-2010 | 30,844 | 30,142 | 754 | 29,388 | | | | | |||||||||||||||||||||||||||||
Waterford |
1.52 | % | Jul-2014 | 33,100 | 33,100 | (4) | | | | | | 33,100 | ||||||||||||||||||||||||||||
Avalon at
Mountain View |
1.42 | % | Feb-2017 | 18,300 | 18,300 | (4) | | | | | | 18,300 | ||||||||||||||||||||||||||||
Avalon at
Mission Viejo |
1.59 | % | Jun-2025 | 7,635 | 7,635 | (4) | | | | | | 7,635 | ||||||||||||||||||||||||||||
Avalon at Nob
Hill |
5.20 | % | Jun-2025 | 20,800 | 20,800 | (4) | | | | | | 20,800 | ||||||||||||||||||||||||||||
Avalon Campbell |
0.87 | % | Jun-2025 | 6,923 | 7,886 | (2) | | | | | | 7,886 | ||||||||||||||||||||||||||||
Avalon Pacifica |
0.87 | % | Jun-2025 | 3,140 | 3,577 | (2) | | | | | | 3,577 | ||||||||||||||||||||||||||||
Avalon at
Fairway Hills
I |
0.00 | % | Jun-2026 | 11,500 | | | | | | | | |||||||||||||||||||||||||||||
Avalon Bowery
Place I |
2.12 | % | Nov-2037 | 93,800 | 93,800 | (5) | | | | | | 93,800 | ||||||||||||||||||||||||||||
Avalon Bowery
Place II |
2.07 | % | Nov-2039 | 48,500 | 48,500 | (5) | | | | | | 48,500 | ||||||||||||||||||||||||||||
Avalon Acton |
1.77 | % | Jul-2040 | 45,000 | 45,000 | (5) | | | | | | 45,000 | ||||||||||||||||||||||||||||
Avalon
Morningside
Park |
1.65 | % | Nov-2040 | 100,000 | 100,000 | (5) | | | | | | 100,000 | ||||||||||||||||||||||||||||
Avalon Walnut
Creek |
3.38 | % | Mar-2046 | | 116,000 | (5) | | | | | | 116,000 | ||||||||||||||||||||||||||||
Avalon Walnut
Creek |
3.14 | % | Mar-2046 | | 10,000 | (5) | | | | | | 10,000 | ||||||||||||||||||||||||||||
419,542 | 534,740 | 754 | 29,388 | | | | 504,598 | |||||||||||||||||||||||||||||||||
Conventional loans (6) |
||||||||||||||||||||||||||||||||||||||||
Fixed rate |
||||||||||||||||||||||||||||||||||||||||
$50 million
unsecured
notes |
6.63 | % | Jan-2008 | 50,000 | | | | | | | | |||||||||||||||||||||||||||||
$150 million
unsecured
notes |
8.38 | % | Jul-2008 | 146,000 | | | | | | | | |||||||||||||||||||||||||||||
$150 million
unsecured
notes |
7.63 | % | Aug-2009 | 150,000 | 140,000 | (7) | 140,000 | | | | | | ||||||||||||||||||||||||||||
$200 million
unsecured
notes |
7.66 | % | Dec-2010 | 200,000 | 200,000 | (8) | | 200,000 | | | | | ||||||||||||||||||||||||||||
$300 million
unsecured
notes |
6.79 | % | Sep-2011 | 300,000 | 300,000 | | | 300,000 | | | | |||||||||||||||||||||||||||||
$50 million
unsecured
notes |
6.31 | % | Sep-2011 | 50,000 | 50,000 | | | 50,000 | | | | |||||||||||||||||||||||||||||
$250 million
unsecured
notes |
5.73 | % | Jan-2012 | 250,000 | 235,000 | (9) | | | | 235,000 | | | ||||||||||||||||||||||||||||
$250 million
unsecured
notes |
6.26 | % | Nov-2012 | 250,000 | 250,000 | | | | 250,000 | | | |||||||||||||||||||||||||||||
$100 million
unsecured
notes |
5.11 | % | Mar-2013 | 100,000 | 100,000 | | | | | 100,000 | | |||||||||||||||||||||||||||||
$150 million
unsecured
notes |
5.52 | % | Apr-2014 | 150,000 | 150,000 | | | | | | 150,000 | |||||||||||||||||||||||||||||
$250 million
unsecured
notes |
5.89 | % | Sep-2016 | 250,000 | 250,000 | | | | | | 250,000 | |||||||||||||||||||||||||||||
Wheaton
Development
Right |
6.99 | % | Oct-2008 | 4,432 | | | | | | | | |||||||||||||||||||||||||||||
4600
Eisenhower
Avenue |
8.08 | % | Apr-2009 | 4,293 | 4,175 | 4,175 | | | | | | |||||||||||||||||||||||||||||
Avalon at
Twinbrook |
7.25 | % | Oct-2011 | 8,007 | 7,801 | 223 | 239 | 7,339 | | | | |||||||||||||||||||||||||||||
Avalon at
Tysons West |
5.55 | % | Jul-2028 | 6,381 | 6,218 | 173 | 183 | 193 | 204 | 216 | 5,249 | |||||||||||||||||||||||||||||
Avalon Orchards |
7.65 | % | Jul-2033 | 19,612 | 19,322 | 311 | 333 | 357 | 382 | 409 | 17,530 | |||||||||||||||||||||||||||||
Avalon at
Arlington
Square |
4.69 | % | Apr-2013 | | 170,125 | | | | | 170,125 | | |||||||||||||||||||||||||||||
Avalon at
Cameron Court |
4.95 | % | Apr-2013 | | 94,572 | | | | | 94,572 | | |||||||||||||||||||||||||||||
Avalon Crescent |
5.48 | % | May-2015 | | 110,600 | | | | | | 110,600 | |||||||||||||||||||||||||||||
Avalon Silicon
Valley |
5.66 | % | Jul-2015 | | 150,000 | | | | | | 150,000 | |||||||||||||||||||||||||||||
Avalon Darien |
6.12 | % | Nov-2015 | | 51,749 | | | | | | 51,749 | |||||||||||||||||||||||||||||
Avalon
Greyrock Place |
6.02 | % | Nov-2015 | | 62,400 | | | | | | 62,400 | |||||||||||||||||||||||||||||
Avalon Commons |
5.88 | % | Dec-2013 | | 55,100 | | | | | 55,100 | | |||||||||||||||||||||||||||||
Avalon Walnut
Creek |
4.00 | % | Jul-2066 | | 2,500 | | | | | | 2,500 | |||||||||||||||||||||||||||||
1,938,725 | 2,409,562 | 144,882 | 200,755 | 357,889 | 485,586 | 420,422 | 800,028 | |||||||||||||||||||||||||||||||||
Variable rate (3)
|
||||||||||||||||||||||||||||||||||||||||
Avalon at
Flanders Hill |
4.06 | % | May-2009 | 20,510 | 19,735 | (4) | 19,735 | | | | | | ||||||||||||||||||||||||||||
Avalon at
Newton
Highlands |
4.18 | % | Dec-2009 | 36,335 | 34,945 | (4) | 34,945 | | | | | | ||||||||||||||||||||||||||||
Avalon at
Crane Brook |
5.09 | % | Mar-2011 | 32,560 | 31,530 | (4) | 1,106 | 1,169 | 29,255 | | | | ||||||||||||||||||||||||||||
Avalon at
Bedford Center |
4.10 | % | May-2012 | 16,816 | 16,361 | (4) | 497 | 527 | 560 | 14,777 | | | ||||||||||||||||||||||||||||
Avalon Walnut
Creek |
3.59 | % | Mar-2046 | | 9,000 | (5) | | | | | | 9,000 | ||||||||||||||||||||||||||||
$105.6 million
unsecured
notes |
2.96 | % | May-2009 | | 105,600 | 105,600 | | | | | | |||||||||||||||||||||||||||||
$112.2 million
unsecured
notes |
2.96 | % | Jan-2010 | | 112,200 | | 112,200 | | | | | |||||||||||||||||||||||||||||
$112.2 million
unsecured
notes |
2.96 | % | Jan-2011 | | 112,200 | | | 112,200 | | | | |||||||||||||||||||||||||||||
106,221 | 441,571 | 161,883 | 113,896 | 142,015 | 14,777 | | 9,000 | |||||||||||||||||||||||||||||||||
Total indebtedness excluding unsecured credit facility | $ | 2,646,062 | $3,552,492 | $ | 309,563 | $ | 346,214 | $ | 502,219 | $ | 514,337 | $ | 422,120 | $ | 1,458,039 | |||||||||||||||||||||||||
(1) | Includes credit enhancement fees, facility fees, trustees fees and other fees. | |
(2) | Financed by variable rate, tax-exempt debt, but the interest rate on a portion of this debt is effectively fixed at December 31, 2008 and December 31, 2007 through a swap agreement. The portion of the debt fixed through a swap agreement decreases (and therefore the variable portion of the debt increases) monthly as payments are made to a principal reserve fund. | |
(3) | Variable rates are given as of December 31, 2008. | |
(4) | Financed by variable rate debt, but interest rate is capped through an interest rate protection agreement. | |
(5) | Represents full amount of the debt as of December 31, 2008. Actual amounts drawn on the debt as of December 31, 2008 are $93,279 for Bowery Place I, $44,678 for Bowery Place II, $44,148 for Avalon Acton, $78,505 for Morningside Park, and $0 for Walnut Creek. | |
(6) | Balances outstanding represent total amounts due at maturity, and are not net of $2,035 of debt discount as of December 31, 2008 and $2,501 of debt discount as of December 31, 2007, as reflected in unsecured notes on our Consolidated Balance Sheets included elsewhere in this report. |
53
(7) | In April 2008, we redeemed $10,000 aggregate principal amount of our $150,000, 7.5% unsecured notes due in August 2009. In January 2009, we redeemed $37,438 principal amount of our $150,000, 7.5% unsecured notes due August 2009. | |
(8) | In January 2009, we redeemed $64,423 principal amount of our $200,000, 7.5% unsecured notes due December 2010. | |
(9) | In November 2008, we redeemed $15,000 aggregate principal amount of our $250,000, 5.5% unsecured notes due January 2012. |
Future Financing and Capital Needs Dividend Requirements
As a REIT, we are subject to certain dividend distribution requirements in relation to taxable
income to avoid paying federal income and federal excise taxes at the corporate level. During
2008, we sold 11 communities including one community sold by the Fund. Absent a special
distribution in excess of our normal, recurring quarterly dividend, we would have had taxable
income in excess of distributions resulting in federal income tax at the corporate level. To
qualify for the dividends paid deduction for tax purposes and
minimize this potential tax, in December 2008 we
declared a combined special and regular dividend (the Combined Dividend) of $2.70 per share,
comprised of a special dividend of $1.8075 (the Special Dividend) per share and our
regular dividend of $0.8925 per share. The Company recorded a charge of $3,200,000 related
to the expected federal excise taxes related to the gains on sale recognized during 2008.
Future Financing and Capital Needs Portfolio and Other Activity
As of December 31, 2008, we had 14 new communities under construction, for which a total estimated
cost of $666,623,000 remained to be invested. In addition, we had nine communities which we own,
or in which we have a direct or indirect interest, under reconstruction, for which a total
estimated cost of $53,214,000 remained to be invested. Substantially all of the capital
expenditures necessary to complete the communities currently under construction and reconstruction,
as well as development costs related to pursuing Development Rights, will be funded from:
| cash currently on hand invested in highly liquid overnight money market funds and repurchase agreements, and short-term investment vehicles; | ||
| the remaining capacity under our $1,000,000,000 Credit Facility; | ||
| retained operating cash; | ||
| the net proceeds from sales of existing communities; | ||
| the issuance of debt or equity securities; and/or | ||
| private equity funding, including joint venture activity. |
Before planned reconstruction activity, including reconstruction activity related to communities
acquired by the Fund or Fund II as discussed below, or the construction of a Development Right
begins, we intend to arrange adequate financing to complete these undertakings, although we cannot
assure you that we will be able to obtain such financing. In the event that financing cannot be
obtained, we may have to abandon Development Rights, write-off associated pre-development costs
that were capitalized and/or forego reconstruction activity. In such instances, we will not
realize the increased revenues and earnings that we expected from such Development Rights or
reconstruction activity and significant losses could be incurred.
On September 2, 2008, we announced the formation of Fund II, a private, discretionary investment
vehicle with commitments from us and four institutional investors. Fund II has equity commitments
totaling $333,000,000. We have committed $150,000,000 to the Fund, representing a 45% equity
interest. Fund II will acquire and operate multifamily apartment communities primarily in our
current markets with the objective of creating value through redevelopment, enhanced operations
and/or improving market fundamentals. Fund II will serve as the exclusive
vehicle through which we will acquire investments in apartment communities until 2011, or earlier
when 90% of its committed capital is invested, subject to limited exceptions. Fund II will not
include or involve our development activities. We will receive, in addition to any returns on our
invested equity, asset management fees, property
54
management fees and redevelopment fees. We will
also receive a promoted interest if certain return thresholds are met. As of January 31, 2009,
there have been no capital contributions to Fund II, and Fund II has not made any investments. In
the fourth quarter of 2008, Fund II entered into a $75,000,000 unsecured credit facility, with an
option to increase the facility up to $200,000,000, subject to certain lender requirements. The
credit facility bears interest at LIBOR plus 2.50% per annum, and matures in December 2011,
assuming the exercise of a one-year extension option. At December 31, 2008, there was $760,000
outstanding under the Fund II credit facility.
From time to time we use joint ventures to hold or develop individual real estate assets. We
generally employ joint ventures primarily to mitigate asset concentration or market risk and
secondarily as a source of liquidity. We may also use joint ventures related to mixed-use land
development opportunities where our partners bring development and operational expertise to the
venture. Each joint venture or partnership agreement has been and will continue to be individually
negotiated, and our ability to operate and/or dispose of a community in our sole discretion may be
limited to varying degrees depending on the terms of the joint venture or partnership agreement.
We cannot assure you that we will achieve our objectives through joint ventures.
In evaluating our allocation of capital within our markets, we sell assets that do not meet our
long-term investment criteria or when capital and real estate markets allow us to realize a portion
of the value created over the past business cycle and redeploy the proceeds from those sales to
develop and redevelop communities. Because the proceeds from the sale of communities may not be
immediately redeployed into revenue generating assets, the immediate effect of a sale of a
community for a gain is to increase net income, but reduce future total revenues, total expenses
and NOI. However, we believe that the absence of future cash flows from communities sold will have
a minimal impact on our ability to fund future liquidity and capital resource needs.
Off-Balance Sheet Arrangements
In addition to the investment interests in consolidated and unconsolidated real estate entities, we
have certain off-balance sheet arrangements with the entities in which we invest. Additional
discussion of these entities can be found in Note 6, Investments in Real Estate Entities, of our
Consolidated Financial Statements located elsewhere in this report.
| CVP I, LLC has outstanding tax-exempt, variable rate bonds maturing in November 2036 in the amount of $117,000,000, which have permanent credit enhancement. We have agreed to guarantee, under limited circumstances, the repayment to the credit enhancer of any advances it may make in fulfillment of CVP I, LLCs repayment obligations under the bonds. We have also guaranteed to the credit enhancer that CVP I, LLC will obtain a final certificate of occupancy for the project (Chrystie Place in New York City) overall once tenant improvements related to a retail tenant are complete, which is expected in 2009. Our 80% partner in this venture has agreed that it will reimburse us its pro rata share of any amounts paid relative to these guaranteed obligations. The estimated fair value of, and our obligation under these guarantees, both at inception and as of December 31, 2008 were not significant. As a result we have not recorded any obligation associated with these guarantees at December 31, 2008. | ||
| The Fund has 22 loans secured by individual assets with amounts outstanding in the aggregate of $436,698,000. These mortgage loans have varying maturity dates (or dates after which the loans can be prepaid), ranging from October 2011 to September 2016. These mortgage loans are secured by the underlying real estate. The Fund has two credit facilities that mature in December 2008. The Fund had $3,000,000 outstanding as of December 31, 2008 under its credit facilities. The mortgage loans and the credit facility are payable by the Fund with operating cash flow or disposition proceeds from the underlying real estate, and the credit facility is secured by capital commitments. We have not guaranteed the debt of the Fund, nor do we have any obligation to fund this debt should the Fund be unable to do so. |
In addition, as part of the formation of the Fund, we have provided to one of the limited partners a guarantee. The guarantee provides that if, upon final liquidation of the Fund, the total amount of all distributions to that partner during the life of the Fund (whether from operating cash flow or property sales) does not equal a minimum of the total capital contributions made by that partner, then we will pay the |
55
partner an amount equal to the shortfall, but in no event more than 10% of the total capital contributions made by the partner (maximum of approximately $7,192,000 as of December 31, 2008). As of December 31, 2008, the expected realizable value of the real estate assets owned by the Fund is considered adequate to cover such potential payment to that partner under the expected Fund liquidation scenario. The estimated fair value of, and our obligation under this guarantee, both at inception and as of December 31, 2008 was not significant and therefore we have not recorded any obligation for this guarantee as of December 31, 2008. |
| MVP I, LLC, the entity that owns Avalon at Mission Bay North II, has a loan secured by the underlying real estate assets of the community for $105,000,000. The loan is a fixed-rate, interest-only note bearing interest at 6.02%, maturing in December 2015. We have not guaranteed the debt of MVP I, LLC, nor do we have any obligation to fund this debt should MVP I, LLC be unable to do so. | ||
| Avalon Del Rey Apartments, LLC has a loan secured by the underlying real estate assets of the community for $40,763,000. The variable-rate loan had an interest rate of 3.40% at December 31, 2008. We have not guaranteed the debt of Avalon Del Rey Apartments, LLC, nor do we have any obligation to fund this debt should Avalon Del Rey Apartments, LLC be unable to do so. | ||
| Aria at Hathorne Hill, LLC is a joint venture in which we have a non-managing member interest. The LLC is developing 64 for-sale town homes in Danvers, Massachusetts. The LLC has two separate variable rate loans with aggregate borrowings of $4,476,000 and an interest rate of 2.875% at December 31, 2008. In addition, Aria at Hathorne has a short-term variable rate note for approximately $263,000 at an interest rate of 3.7% due in 2009. We have not guaranteed the debt of Aria at Hathorne, nor do we have any obligation to fund this debt should Aria at Hathorne be unable to do so. | ||
| PHVP I, LLC, a consolidated joint venture in which we hold a 99.0% controlling interest, is constructing a public garage adjacent to our Walnut Creek development. As part of the construction management services we provide to PHVP I, LLC for the construction of the public garage, we have provided a construction completion guarantee to the related lender in order to fulfill their standard financing requirements related to the garage construction financing. Our obligations under this guarantee terminate upon (i) the issuance of a certificate of substantial completion and (ii) completion of a list of lender requirements. The certificate of substantial completion was issued on July 11, 2008 and the completion of the lenders requirements list is nearing completion. We expect termination of the guarantee in the first half of 2009. | ||
| In 2007 we entered into a non-cancelable commitment (the Commitment) to acquire parcels of land in Brooklyn, New York for an aggregate purchase price of approximately $111,000,000. Under the terms of the Commitment, we will close on the various parcels over a period determined by the sellers ability to execute unrelated purchase transactions and achieve deferral of gains for the land sold under this Commitment. However, under no circumstances will the Commitment extend beyond 2011, at which time either we or the seller can compel execution of the remaining transactions. At December 31, 2008, we have an outstanding commitment to purchase the remaining land for approximately $62,519,000. |
There are no other lines of credit, side agreements, financial guarantees or any other
derivative financial instruments related to or between our unconsolidated real estate entities and
us. In evaluating our capital structure and overall leverage, management takes into consideration
our proportionate share of this unconsolidated debt.
Contractual Obligations
We currently have contractual obligations consisting primarily of long-term debt obligations and
lease obligations for certain land parcels and regional and administrative office space. During
the third quarter of 2008, we entered into an operating land lease agreement relating to our Avalon
Walnut Creek community currently under development. Aside from this lease, there have not been any
other material changes outside the ordinary course of business to our contractual obligations
during 2008. Scheduled contractual obligations required for the next five years and thereafter are
as follows as of December 31, 2008 (dollars in thousands):
56
Payments due by period | ||||||||||||||||||||
Less than 1 | More than 5 | |||||||||||||||||||
Total | Year | 1-3 Years | 3-5 Years | Years | ||||||||||||||||
Debt Obligations (1) |
$ | 3,676,492 | $ | 433,563 | $ | 848,433 | $ | 936,457 | $ | 1,458,039 | ||||||||||
Operating Lease Obligations (2) |
2,316,449 | 16,262 | 32,777 | 32,914 | 2,234,496 | |||||||||||||||
Total |
$ | 5,992,941 | $ | 449,825 | $ | 881,210 | $ | 969,371 | $ | 3,692,535 | ||||||||||
(1) | Includes $124,000 outstanding under our variable rate Credit Facility as of December 31, 2008. The table of contractual obligations assumes repayment of this amount in 2009 See Liquidity and Capital Resources. Amounts exclude interest payable as of December 31, 2008. | |
(2) | Includes land leases expiring between November 2028 and March 2142. Amounts do not include any adjustment for purchase options available under the land leases. |
Inflation and Deflation
Substantially all of our apartment leases are for a term of one year or less. In an inflationary
environment, this may allow us to realize increased rents upon renewal of existing leases or the
beginning of new leases. Short-term leases generally minimize our risk from the adverse effects of
inflation, although these leases generally permit residents to leave at the end of the lease term
and therefore expose us to the effect of a decline in market rents. In a deflationary rent
environment, we may be exposed to declining rents more quickly under these shorter-term leases.
Forward-Looking Statements
This Form 10-K contains forward-looking statements as that term is defined under the Private
Securities Litigation Reform Act of 1995. You can identify forward-looking statements by our use
of the words believe, expect, anticipate, intend, estimate, assume, project, plan,
may, shall, will and other similar expressions in this Form 10-K, that predict or indicate
future events and trends and that do not report historical matters. These statements include,
among other things, statements regarding our intent, belief or expectations with respect to:
| our potential development, redevelopment, acquisition or disposition of communities; | ||
| the timing and cost of completion of apartment communities under construction, reconstruction, development or redevelopment; | ||
| the timing of lease-up, occupancy and stabilization of apartment communities; | ||
| the pursuit of land on which we are considering future development; | ||
| the anticipated operating performance of our communities; | ||
| cost, yield, revenue, NOI and earnings estimates; | ||
| our declaration or payment of distributions; | ||
| our joint venture and discretionary fund activities; | ||
| our policies regarding investments, indebtedness, acquisitions, dispositions, financings and other matters; | ||
| our qualification as a REIT under the Internal Revenue Code; | ||
| the real estate markets in Northern and Southern California and markets in selected states in the Mid-Atlantic, Midwest, New England, Metro NY/NJ and Pacific Northwest regions of the United States and in general; | ||
| the availability of debt and equity financing; | ||
| interest rates; | ||
| general economic conditions including the recent economic downturn; and | ||
| trends affecting our financial condition or results of operations. |
We cannot assure the future results or outcome of the matters described in these statements;
rather, these statements merely reflect our current expectations of the approximate outcomes of the
matters discussed. You should not rely on
57
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. You should carefully review the discussion under Item 1a., Risk Factors, in this
document for a discussion of risks associated with forward-looking statements.
In addition, these forward-looking statements represent our estimates and assumptions only as of
the date of this report. We do not undertake a duty to update these forward-looking statements,
and therefore they may not represent our estimates and assumptions after the date of this report.
Some of the factors that could cause our actual results, performance or achievements to differ
materially from those expressed or implied by these forward-looking statements include, but are not
limited to, the following:
| we may fail to secure development opportunities due to an inability to reach agreements with third parties to obtain land at attractive prices or to obtain desired zoning and other local approvals; | ||
| we may abandon or defer development opportunities for a number of reasons, including changes in local market conditions which make development less desirable, increases in costs of development, increases in the cost of capital or lack of capital availability, resulting in losses; | ||
| construction costs of a community may exceed our original estimates; | ||
| we may not complete construction and lease-up of communities under development or redevelopment on schedule, resulting in increased interest costs and construction costs and a decrease in our expected rental revenues; | ||
| occupancy rates and market rents may be adversely affected by competition and local economic and market conditions which are beyond our control; | ||
| financing may not be available on favorable terms or at all, and our cash flows from operations and access to cost effective capital may be insufficient for the development of our pipeline which could limit our pursuit of opportunities; | ||
| our cash flows may be insufficient to meet required payments of principal and interest, and we may be unable to refinance existing indebtedness or the terms of such refinancing may not be as favorable as the terms of existing indebtedness; | ||
| we may be unsuccessful in our management of the Fund, Fund II or the REIT vehicles that are used with each respective Fund; and | ||
| we may be unsuccessful in managing changes in our portfolio composition. |
Critical Accounting Policies
The preparation of financial statements in conformity with GAAP requires management to use judgment
in the application of accounting policies, including making estimates and assumptions. If our
judgment or interpretation of the facts and circumstances relating to various transactions had been
different, or different assumptions were made, it is possible that different accounting policies
would have been applied, resulting in different financial results or a different presentation of
our financial statements. Below is a discussion of the accounting policies that we consider
critical to an understanding of our financial condition and operating results that may require
complex or significant judgment in their application or require estimates about matters which are
inherently uncertain. A discussion of our significant accounting policies, including further
discussion of the accounting policies described below, can be found in Note 1, Organization and
Significant Accounting Policies of our Consolidated Financial Statements.
Principles of Consolidation
We may enter into various joint venture agreements with unrelated third parties to hold or develop
real estate assets. We must determine for each of these ventures whether to consolidate the entity
or account for our investment under the equity or cost basis of accounting.
We determine whether to consolidate certain entities based on our rights and obligations under the
joint venture agreements, applying the guidance of FIN 46(R), Consolidation of Variable Interest
Entities (as revised) and
58
Emerging Issues Task Force Issue No. 04-5, Determining Whether a
General Partner, or the General Partners as a Group, Controls a Limited Partnership or Similar
Entity When the Limited Partners Have Certain Rights. For investment interests that we do not
consolidate, we look to the guidance in AICPA Statement of Position 78-9, Accounting for
Investments in Real Estate Ventures, Accounting Principles Board Opinion No. 18, The Equity
Method of Accounting for Investments in Common Stock, and Emerging Issues Task Force Topic D-46,
Accounting for Limited Partnership Investments, to determine the accounting framework to apply.
The application of these rules in evaluating the accounting treatment for each joint venture is
complex and requires substantial management judgment. Therefore, we believe the decision to choose
an appropriate accounting framework is a critical accounting estimate.
If we were to consolidate the joint ventures that we accounted for using the equity method at
December 31, 2008, our assets would have increased by $953,524,000 and our liabilities would have
increased by $723,395,000. We would be required to consolidate those joint ventures currently not
consolidated for financial reporting purposes if the facts and circumstances changed, including but
not limited to the following reasons, none of which are currently expected to occur:
| For entities not considered to be variable interest entities under FIN 46(R), the nature of the entity changed such that it would be considered a variable interest entity and if we were considered the primary beneficiary. | ||
| For entities in which we do not hold a controlling voting and/or variable interest, the contractual arrangement changed resulting in our investment interest being either a controlling voting and/or variable interest. |
We evaluate our accounting for investments on a quarterly basis or when a significant change in the
design of an entity occurs.
Cost Capitalization
We capitalize costs during the development of assets beginning when we determine that development
of a future asset is probable until the asset, or a portion of the asset, is delivered and is ready
for its intended use. For redevelopment efforts, we capitalize costs either (i) in advance of
taking homes out of service when significant renovation of the common area has begun until the
redevelopment is completed, or (ii) when an apartment home is taken out of service for
redevelopment until the redevelopment is completed and the apartment home is available for a new
resident. Rental income and operating expenses incurred during the initial lease-up or
post-redevelopment lease-up period are fully recognized as they accrue.
During the development and redevelopment efforts we capitalize all direct and those indirect costs
which have been incurred as a result of the development and redevelopment activities. These costs
include interest and related loan fees, property taxes as well as other direct and indirect costs.
Interest is capitalized for any project specific financing, as well as for general corporate
financing to the extent of our aggregate investment in the projects. Indirect project costs,
which include personnel and office and administrative costs that are clearly associated with our
development and redevelopment efforts are also capitalized. The estimation of the direct and
indirect costs to capitalize as part of our development and redevelopment activities requires
judgment, and as such, we believe cost capitalization to be a critical accounting estimate.
There may be a change in our operating expenses in the event that there are changes in accounting
guidance governing capitalization or changes to development or redevelopment activity. If changes
in the accounting guidance limit our ability to capitalize costs or if we reduce our development
and redevelopment activities without a corresponding decrease in indirect project costs, there may
be an increase in our operating expenses. For example, if in 2008 our development activities
decreased by 10%, and there were no corresponding decrease in our indirect project costs, our
operating expenses would have increased by $3,034,000.
We capitalize pre-development costs incurred in pursuit of Development Rights for which we
currently believe future development is probable. These costs include legal fees, design fees and
related overhead costs. Future development of these pursuits is dependent upon various factors,
including zoning and regulatory approval, rental
market conditions, construction costs and availability of capital. Pre-development costs incurred
in the pursuit of
59
Development Rights for which future development is not yet considered probable
are expensed as incurred. In addition, if the status of a Development Right changes, making future
development no longer probable, any capitalized pre-development costs are written off with a charge
to expense.
Due to the subjectivity in determining whether a pursuit will result in the acquisition or
development of an apartment community, and therefore should be capitalized, the accounting for
pursuit costs is a critical accounting estimate. If it were determined that 10% of our capitalized
pursuits were no longer probable of occurring, net income for the year ended December 31, 2008
would have decreased by $5,737,000.
Asset Impairment Evaluation
We apply the provisions of SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets (SFAS 144) for our consolidated operating apartment communities, Development Communities
and Development Rights to determine the need for performing impairment analyses, as well as to
measure the loss if an impairment has occurred on a regular basis, considering qualitative economic
factors. We also apply the provisions of SFAS 144 for assessing the need to perform an impairment
analysis and measuring impairment losses on the underlying long-lived assets held by our
unconsolidated joint venture investments. In addition, we apply the provisions of APB No. 18, The
Equity Method of Accounting for Investments in Common Stock (APB 18), to determine if there has
been an other than temporary decline in the value of our investments in our unconsolidated joint
ventures. Because each asset is unique, requiring significant management judgment, we believe that
the asset impairment evaluation under SFAS 144, and the assessment of other than temporary declines
in fair value under APB 18, are critical accounting estimates.
For both analyses, management judgment is required both to determine if a significant event has
occurred, such that an impairment analysis is necessary, as well as for the assessment and
measurement of any potential impairment. Under APB 18, in the event that there has been a loss in
value for an investment, a loss is only recognized if it is other
than temporary which requires
management judgment.
To perform the SFAS 144 impairment analysis, we must estimate the undiscounted future cash flows
associated with the asset, which in the case of an apartment
community would be the cash flows from operations and any
potential disposition proceeds for a given asset. Forecasting cash flows requires assumptions
about such variables as the estimated holding period, rental rates, occupancy and operating
expenses during the holding period, as well as disposition proceeds. In addition, when an
impairment has occurred, we must estimate the discount factor, or
market capitalization rate, to
apply to the undiscounted cash flows to derive the fair value of the position. The market
capitalization rate is influenced by many factors, including national and local economic
conditions, as well as the location and quality of the asset.
Our analysis of investments in unconsolidated joint ventures under APB 18 considers our ability to
recover the carrying amount of our investment by evaluating the current fair value of the net
assets underlying the investment using our estimate of the forecasted
cash flows that the asset will generate, including any incremental cash
flows from investment management or other fees related to the
investment, disposition proceeds and an estimated market
capitalization rate. Our estimate of the fees considers various factors, including any contractually guaranteed amounts and
expected periods over which the fees will be earned. In the event that the current fair value of
our investment, considering the above factors, is less than our current carrying basis, an
impairment exists. We must then determine if the impairment is other than temporary. Whether an
impairment is other than temporary is a subjective determination, primarily considering the ability
of the joint venture entity to generate cash flows from operations, the expected proceeds from the disposition of our
position, and whether our expected investment horizon is adequate to recover any unrealized loss in
the fair value of our investment.
Changes in the future cash flows associated with an asset have a direct, linear relationship to the
fair value of the position. For example, holding all other variables
constant, if there is a 10% decline in the estimated cash flows from operations for a
community, there would be a corresponding decrease in the fair value of that asset of 10%. Changes
in the market capitalization rate have an inverse relationship with the fair value of an asset,
with a decrease in the market capitalization rate resulting in an increase in the fair value of the
asset. For example, an asset that is valued at $80,000,000 when using a five percent market
capitalization rate will increase in value to $100,000,000 if the market capitalization rate
decreases by one
60
percent to four percent, and to $133,000,000 if the market capitalization rate decreases by two
percent, to a three percent market capitalization rate.
For the year ended December 31, 2008, we recognized an impairment loss of $57,899,000 associated
with certain land parcels which we no longer intend to develop. At December 31, 2008 we determined
that none of our consolidated operating communities, Development Communities, or investments in
unconsolidated joint ventures were impaired under the provisions of SFAS 144, or APB 18, as
appropriate. These conclusions were based on the factors that existed as of December 31, 2008.
Given the recent deterioration in real estate and capital market conditions, we cannot predict the
occurrence of future events that may cause an impairment assessment to be performed, or the
likelihood of any future impairment charges, if any. You should also review Item 1a., Risk
Factors of this Form 10-K.
REIT Status
We are a Maryland corporation that has elected to be treated, for federal income tax purposes, as a
REIT. We elected to be taxed as a REIT under the Internal Revenue Code of 1986 (the Code), as
amended, for the year ended December 31, 1994 and have not revoked such election. A corporate REIT
is a legal entity which holds real estate interests and must meet a number of organizational and
operational requirements, including a requirement that it currently distribute at least 90% of its
adjusted taxable income to stockholders. As a REIT, we generally will not be subject to corporate
level federal income tax on taxable income if we distribute 100% of taxable income to our
stockholders over time periods allowed under the Code. If we fail to qualify as a REIT in any
taxable year, we will be subject to federal and state income taxes at regular corporate rates
(subject to any applicable alternative minimum tax) and may not be able to elect to qualify as a
REIT for four subsequent taxable years. For example, if we failed to qualify as a REIT in 2008,
our net income would have decreased by approximately $210,500,000.
Our qualification as a REIT requires management to exercise significant judgment and consideration
with respect to operational matters and accounting treatment. Therefore, we believe our REIT
status is a critical accounting estimate.
ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to certain financial market risks, the most predominant being interest rate risk.
We monitor interest rate risk as an integral part of our overall risk management, which
recognizes the unpredictability of financial markets and seeks to reduce the potentially adverse
effect on our results of operations. The effect of interest rate
fluctuations on our results of operations historically has
been small relative to other factors affecting operating results, such as rental rates and
occupancy. The specific market risks and the potential impact on our operating results are
described below.
Our operating results are affected by changes in interest rates as a result of borrowings under our
variable rate Credit Facility and outstanding bonds with variable interest rates, primarily
associated with short-term interest rates such as LIBOR. We had
$1,088,848,000 and $1,084,653,000 in variable rate debt outstanding (excluding variable rate debt effectively fixed through swap
agreements) as of December 31, 2008 and 2007, respectively. If interest rates on the variable rate
debt had been 100 basis points higher throughout 2008 and 2007, our annual interest costs would
have increased by approximately $11,490,000 and $6,417,000, respectively, based on balances
outstanding during the applicable years.
We currently use interest rate protection agreements (consisting of interest rate swap and interest
rate cap agreements) to reduce the impact of interest rate fluctuations on certain variable rate
indebtedness, not for trading or speculative purposes. Under swap agreements:
61
| we agree to pay to a counterparty the interest that would have been incurred on a fixed principal amount at a fixed interest rate (generally, the interest rate on a particular treasury bond on the date the agreement is entered into, plus a fixed increment); and | ||
| the counterparty agrees to pay to us the interest that would have been incurred on the same principal amount at an assumed floating interest rate tied to a particular market index. |
As of December 31, 2008, the effect of interest rate swap agreements is to fix the interest rate on
approximately $44,937,000 of our variable rate, tax-exempt debt. The interest rate protection
provided by certain swap agreements on the consolidated variable rate, tax-exempt debt was not
electively entered into by us but, rather, was a requirement of either the bond issuer or the
credit enhancement provider related to certain tax-exempt bond financings. Had these swap
agreements not been in place during 2008 and 2007, our annual interest costs would have been
approximately $1,451,000 and $931,000 lower, respectively, based on balances outstanding and
reported interest rates during the applicable years. Additionally, if the variable interest rates
on this debt had been 100 basis points higher throughout 2008 and 2007 and these swap agreements
had not been in place, our annual interest costs would have been approximately $887,000 and
$248,000 lower, respectively.
Because the counterparties providing the swap agreements are major financial institutions which
have an A+ or better credit rating by the Standard & Poors Ratings Group and the interest rates
fixed by the swap agreements are significantly higher than current market rates for such
agreements, we do not believe there is exposure at this time to a default by a counterparty
provider.
In addition, changes in interest rates affect the fair value of our fixed rate debt, computed using
a discounted cash flow model considering our current market yields, which impacts the fair value of
our aggregate indebtedness. Debt securities and notes payable
(excluding amounts outstanding under our variable rate credit
facility) with an aggregate carrying value of $3,552,492,000 at December
31, 2008 had an estimated aggregate fair value of $3,569,817,000 at December 31, 2008. Fixed rate
debt (excluding our variable rate debt effectively fixed through swap agreements) represented
$2,531,244,000 of the carrying value and $2,548,569,000 of the fair value at December 31, 2008. If
interest rates had been 100 basis points higher as of December 31, 2008, the fair value of this
fixed rate debt would have decreased by $88,723,000.
We do not have any exposure to foreign currency or equity price risk, and our exposure to commodity
price risk is insignificant.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this Item 8 is included as a separate section of this Annual Report on Form 10-K.
ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
None.
ITEM 9a. CONTROLS AND PROCEDURES
(a) | Evaluation of Disclosure Controls and Procedures. As required by Rule 13a-15 under the Securities Exchange Act of 1934, as of the end of the period covered by this report, the Company carried out an evaluation under the supervision and with the participation of the Companys management, including the Companys Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Companys disclosure controls and procedures. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Companys disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commissions rules and forms. We continue to review and document our disclosure controls and procedures, including our internal control over financial reporting, and may from time to time make changes aimed at enhancing their effectiveness and to ensure that our systems evolve with our business. | |
(b) | Managements Report on Internal Control Over Financial Reporting. Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2008 based on the framework in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on that evaluation, our management concluded that our internal control over financial reporting was effective as of December 31, 2008. |
Our internal control over financial reporting as of December 31, 2008 has been audited by Ernst
& Young LLP, an independent registered public accounting firm, as stated in their report which
is included elsewhere herein.
(c) | Changes in Internal Control Over Financial Reporting. There was no change in our internal control over financial reporting that occurred during the fourth quarter of the period covered by this Annual Report on Form 10-K that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. |
ITEM 9b. OTHER INFORMATION
None.
63
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information pertaining to directors and executive officers of the Company and the Companys Code of
Conduct are incorporated herein by reference to the Companys Proxy Statement to be filed with the
Securities and Exchange Commission within 120 days after the end of the year covered by this Form
10-K with respect to the Annual Meeting of Stockholders to be held on May 21, 2009.
ITEM 11. EXECUTIVE COMPENSATION
Information pertaining to executive compensation is incorporated herein by reference to the
Companys Proxy Statement to be filed with the Securities and Exchange Commission within 120 days
after the end of the year covered by this Form 10-K with respect to the Annual Meeting of
Stockholders to be held on May 21, 2009.
ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
Information pertaining to security ownership of management and certain beneficial owners of the
Companys common stock is incorporated herein by reference to the Companys Proxy Statement to be
filed with the Securities and Exchange Commission within 120 days after the end of the year covered
by this Form 10-K with respect to the Annual Meeting of Stockholders to be held on May 21, 2009.
The Company maintains the 1994 Stock Incentive Plan (the 1994 Plan) and the 1996 Non-Qualified
Employee Stock Purchase Plan (the ESPP), pursuant to which common stock or other equity awards
may be issued or granted to eligible persons.
The following table gives information about equity awards under the Companys 1994 Plan and ESPP as
of December 31, 2008:
(c) | ||||||||||||
Number of securities | ||||||||||||
(a) | (b) | remaining available for | ||||||||||
Number of securities to be | Weighted-average | future issuance under equity | ||||||||||
issued upon exercise of | exercise price of | compensation plans | ||||||||||
outstanding options, | outstanding options, | (excluding securities | ||||||||||
Plan category | warrants and rights | warrants and rights | reflected in column (a)) | |||||||||
Equity compensation
plans approved by
security holders (1)
|
2,733,553 | (2) | $ | 83.49 | (3) | 1,744,159 | ||||||
Equity compensation
plans not approved by
security holders (4)
|
| n/a | 772,275 | |||||||||
Total |
2,733,553 | $ | 83.49 | (3) | 2,516,434 | |||||||
(1) | Consists of the 1994 Plan. | |
(2) | Includes 110,418 deferred units granted under the 1994 Plan, which, subject to vesting requirements, will convert in the future to common stock on a one-for-one basis, but does not include 207,070 shares of restricted stock that are outstanding and that are already reflected in the Companys outstanding shares. | |
(3) | Excludes deferred units granted under the 1994 Plan, which, subject to vesting requirements, will convert in the future to common stock on a one-for-one basis. | |
(4) | Consists of the ESPP. |
64
The ESPP, which was adopted by the Board of Directors on October 29, 1996, has not been approved by
our shareholders. A further description of the ESPP appears in Note 10, Stock-Based Compensation
Plans, of our Consolidated Financial Statements included in this report.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Information pertaining to certain relationships and related transactions is incorporated herein by
reference to the Companys Proxy Statement to be filed with the Securities and Exchange Commission
within 120 days after the end of the year covered by this Form 10-K with respect to the Annual
Meeting of Stockholders to be held on May 21, 2009.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information pertaining to the fees paid to and services provided by the Companys principal
accountant is incorporated herein by reference to the Companys Proxy Statement to be filed with
the Securities and Exchange Commission within 120 days after the end of the year covered by this
Form 10-K with respect to the Annual Meeting of Stockholders to be held on May 21, 2009.
65
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULE
15(a)(1)
|
Financial Statements | |||
Index to Financial Statements | ||||
Consolidated Financial Statements and Financial Statement Schedule: | ||||
Reports of Independent Registered Public Accounting Firm | F-1 | |||
Consolidated Balance Sheets as of December 31, 2008 and 2007 | F-3 | |||
Consolidated Statements of Operations and Other Comprehensive Income for the years ended December 31, 2008, 2007 and 2006 | F-4 | |||
Consolidated Statements of Stockholders Equity for the years ended December 31, 2008, 2007 and 2006 | F-5 | |||
Consolidated Statements of Cash Flows for the years ended December 31, 2008, 2007 and 2006 | F-6 | |||
Notes to Consolidated Financial Statements | F-8 | |||
15(a)(2)
|
Financial Statement Schedule | |||
Schedule III Real Estate and Accumulated Depreciation | F-39 | |||
All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and therefore have been omitted. | ||||
15(a)(3)
|
Exhibits | |||
The exhibits listed on the accompanying Index to Exhibits are filed as a part of this report. |
66
INDEX TO EXHIBITS
3(i).1
|
| Articles of Amendment and Restatement of Articles of Incorporation of the Company, dated as of June 4, 1998. (Incorporated by reference to Exhibit 3(i).1 to Form 10-K of the Company filed March 1, 2007.) | ||
3(i).2
|
| Articles of Amendment, dated as of October 2, 1998. (Incorporated by reference to Exhibit 3(i).2 to Form 10-K of the Company filed March 1, 2007.) | ||
3(ii).1
|
| Amended and Restated Bylaws of the Company, as adopted by the Board of Directors on February 13, 2003. (Filed herewith.) | ||
4.1
|
| Indenture for Senior Debt Securities, dated as of January 16, 1998, between the Company and State Street Bank and Trust Company, as Trustee. (Incorporated by reference to Exhibit 4.1 to Registration Statement on Form S-3 of the Company (File No. 333-139839), filed January 8, 2007.) | ||
4.2
|
| First Supplemental Indenture, dated as of January 20, 1998, between the Company and State Street Bank and Trust Company as Trustee. (Incorporated by reference to Exhibit 4.2 to Registration Statement on Form S-3 of the Company (File No. 333-139839), filed January 8, 2007.) | ||
4.3
|
| Second Supplemental Indenture, dated as of July 7, 1998, between the Company and State Street Bank and Trust Company as Trustee. (Incorporated by reference to Exhibit 4.3 to Registration Statement on Form S-3 of the Company (File No. 333-139839), filed January 8, 2007.) | ||
4.4
|
| Amended and Restated Third Supplemental Indenture, dated as of July 10, 2000 between the Company and State Street Bank and Trust Company as Trustee. (Incorporated by reference to Exhibit 4.4 to Registration Statement on Form S-3 of the Company (File No. 333-139839), filed January 8, 2007.) | ||
4.5
|
| Fourth Supplemental Indenture, dated as of September 18, 2006, between the Company and U.S. Bank National Association as Trustee. (Incorporated by reference to Exhibit 4.5 to Registration Statement on Form S-3 of the Company (File No. 333-139839), filed January 8, 2007.) | ||
4.6
|
| Dividend Reinvestment and Stock Purchase Plan of the Company. (Incorporated by reference to Exhibit 8.1 to Registration Statement on Form S-3 of the Company (File No. 333-87063), filed September 14, 1999.) | ||
4.7
|
| Amendment to the Companys Dividend Reinvestment and Stock Purchase Plan filed on December 17, 1999. (Incorporated by reference to the Prospectus Supplement filed pursuant to Rule 424(b)(2) of the Securities Act of 1933 on December 17, 1999.) | ||
4.8
|
| Amendment to the Companys Dividend Reinvestment and Stock Purchase Plan filed on March 26, 2004. (Incorporated by reference to the Prospectus Supplement filed pursuant to Rule 424(b)(3) of the Securities Act of 1933 on March 26, 2004.) | ||
10.1
|
| Amended and Restated Distribution Agreement, dated August 6, 2003, among the Company and the Agents, including Administrative Procedures, relating to the MTNs. (Filed herewith.) |
67
10.2
|
| Amended and Restated Limited Partnership Agreement of AvalonBay Value Added Fund, L.P., dated as of March 16, 2005. (Incorporated by reference to Exhibit 10.1 to Form 10-Q of the Company filed May 6, 2005.) | ||
10.3
|
| Term Loan Agreement, dated May 15, 2008, among the Company, as Borrower, JPMorgan Chase Bank, N.A., as Syndication Agent, Sumitomo Mitsui Banking Corporation, Wells Fargo Bank, N.A., and Deutsche Bank Trust Company Americas, each as a Documentation Agent, the other banks signatory thereto, each as a Bank, J.P. Morgan Securities, Inc., as Sole Bookrunner and Lead Arranger, and Bank of America, N.A., as Administrative Agent. (Incorporated by reference to Exhibit 10.1 to Form 8-K of the Company filed on May 19, 2008.) | ||
10.4+
|
| Endorsement Split Dollar Agreements and Amendments thereto with Messrs. Blair, Naughton, Fuller, Sargeant, Horey and Meyer (Incorporated by reference to Exhibit 10.2 to Form 10-Q of the Company filed May 6, 2005.) | ||
10.5+
|
| Form of Amendment to Endorsement Split Dollar Agreement with Messrs. Blair, Naughton, Sargeant, and Horey. (Filed herewith.) | ||
10.6+
|
| Employment Agreement, dated as of July 1, 2003, between the Company and Thomas J. Sargeant. (Incorporated by reference to Exhibit 10.1 to Amendment No. 3 to the Companys Registration Statement on Form S-3 (File No. 333-103755), filed July 7, 2003.) | ||
10.7+
|
| First Amendment to Employment Agreement between the Company and Thomas J. Sargeant, dated as of March 31, 2005. (Incorporated by reference to Exhibit 10.5 to Form 10-Q of the Company filed May 6, 2005.) | ||
10.8+
|
| Form of Second Amendment to Employment Agreements between the Company and Certain Executive Officers. (Incorporated by reference to Exhibit 10.2 to form 8-K of the Company filed on May 22, 2008.) | ||
10.9+
|
| Third Amendment to Employment Agreement between the Company and Thomas J. Sargeant, dated as of December 14, 2008. (Filed herewith.) | ||
10.10+
|
| Employment Agreement, dated as of January 10, 2003, between the Company and Bryce Blair. (Filed herewith.) | ||
10.11+
|
| First Amendment to Employment Agreement between the Company and Bryce Blair, dated as of March 31, 2005. (Incorporated by reference to Exhibit 10.3 to Form 10-Q of the Company filed May 6, 2005.) | ||
10.12+
|
| Third Amendment to Employment Agreement between the Company and Bryce Blair, dated as of December 14, 2008. (Filed herewith.) | ||
10.13+
|
| Employment Agreement, dated as of February 26, 2001, between the Company and Timothy J. Naughton. (Incorporated by reference to Exhibit 10.8 to Form 10-K of the Company filed March 1, 2007.) | ||
10.14+
|
| First Amendment to Employment Agreement between the Company and Timothy J. Naughton, dated as of March 31, 2005. (Incorporated by reference to Exhibit 10.4 to Form 10-Q of the Company filed May 6, 2005.) | ||
10.15+
|
| Third Amendment to Employment Agreement between the Company and Timothy J. Naughton, dated as of December 14, 2008. (Filed herewith.) |
68
10.16+
|
| Employment Agreement, dated as of September 10, 2001, between the Company and Leo S. Horey. (Incorporated by reference to Exhibit 10.10 to Form 10-K of the Company filed March 1, 2007.) | ||
10.17+
|
| First Amendment to Employment Agreement between the Company and Leo S. Horey, dated as of March 31, 2005. (Incorporated by reference to Exhibit 10.6 to Form 10-Q of the Company filed May 6, 2005.) | ||
10.18+
|
| Third Amendment to Employment Agreement between the Company and Leo S. Horey, dated as of December 14, 2008.) (Filed herewith.) | ||
10.19+
|
| Retirement Agreement, dated as of March 24, 2000, between the Company and Gilbert M. Meyer. (Incorporated by reference to Exhibit 10.15 to Form 10-K of the Company filed March 1, 2007.) | ||
10.20+
|
| First Amendment to Retirement Agreement between the Company and Gilbert M. Meyer, dated as of March 31, 2005. (Incorporated by reference to Exhibit 10.8 to Form 10-Q of the Company filed May 6, 2005.) | ||
10.21+
|
| AvalonBay Communities, Inc. 1994 Stock Incentive Plan, as amended and restated in full on December 8, 2004. (Filed herewith.) | ||
10.22+
|
| Amendment, dated February 9, 2006, to the AvalonBay Communities, Inc. 1994 Stock Incentive Plan, as amended and restated on December 8, 2004. (Incorporated by reference to Exhibit 10.32 to Form 10-K of the Company filed March 14, 2006.) | ||
10.23+
|
| Amendment, dated December 6, 2006, to the AvalonBay Communities, Inc. 1994 Stock Incentive Plan, as amended and restated on December 8, 2004. (Incorporated by reference to Exhibit 10.22 1 to Form 10-K of the Company filed March 1, 2007.) | ||
10.24+
|
| Amendment, dated September 20, 2007, to the AvalonBay Communities, Inc. 1994 Stock Incentive Plan, as amended and restated on December 8, 2004. (Incorporated by reference to Exhibit 10.1 to Form 10-Q of the Company filed November 9, 2007.) | ||
10.25+
|
| 1996 Non-Qualified Employee Stock Purchase Plan, dated June 26, 1997, as amended and restated. (Incorporated by reference to Exhibit 99.1 to Post-effective Amendment No. 1 to Registration Statement on Form S-8 of the Company (File No. 333-16837), filed June 26, 1997.) | ||
10.26+
|
| 1996 Non-Qualified Employee Stock Purchase Plan Plan Information Statement dated June 26, 1997. (Incorporated by reference to Exhibit 99.2 to Registration Statement on Form S-8 of the Company (File No. 333-16837), filed November 26, 1996.) | ||
10.27+
|
| Form of Indemnity Agreement between the Company and its Directors. (Incorporated by reference to Exhibit 10.1 to Form 10-Q of the Company filed November 9, 2005.) | ||
10.28+
|
| The Companys Officer Severance Plan, as amended and restated on November 18, 2008. (Filed herewith.) | ||
10.29+
|
| Form of AvalonBay Communities, Inc. Non-Qualified Stock Option Agreement (1994 Stock Incentive Plan, as Amended and Restated). (Incorporated by reference to Exhibit 10.1 to the Companys Form 8-K filed on February 12, 2008.) |
69
10.30+
|
| Form of Addendum to AvalonBay Communities, Inc. Non-Qualified Stock Option Agreement for Certain Officers. (Filed herewith.) | ||
10.31+
|
| Form of AvalonBay Communities, Inc. Incentive Stock Option Agreement (1994 Stock Incentive Plan, as Amended and Restated). (Incorporated by reference to Exhibit 10.2 to the Companys Form 8-K filed on February 12, 2008.) | ||
10.32+
|
| Form of Addendum to AvalonBay Communities, Inc. Incentive Stock Option Agreement for Certain Officers. (Filed herewith.) | ||
10.33+
|
| Form of AvalonBay Communities, Inc. Employee Stock Grant and Restricted Stock Agreement. (Filed herewith.) | ||
10.34+
|
| Form of AvalonBay Communities, Inc. Director Restricted Unit Agreement. (Incorporated by reference to Exhibit 10.4 to the Companys Form 10-Q filed on November 9, 2007.) | ||
10.35+
|
| Form of AvalonBay Communities, Inc. Director Restricted Stock Agreement. (Incorporated by reference to Exhibit 10.3 to the Companys Form 10-Q filed on November 9, 2007.) | ||
10.36.1
|
| Second Amended and Restated Revolving Loan Agreement, dated as of November 14, 2006, among the Company, as Borrower, JPMorgan Chase Bank, N.A., and Wachovia Bank, National Association, each as a Bank and Syndication Agent, Bank of America, N.A., as a Bank, Swing Lender and Issuing Bank, Morgan Stanley Bank, Wells Fargo Bank, National Association, and Deutsche Bank Trust Company Americas, each as a Bank and Documentation Agent, the other banks signatory thereto, each as a Bank, J.P. Morgan Securities, Inc., as Sole Bookrunner and Lead Arranger, and Bank of America, N.A., as Administrative Agent. (Incorporated by reference to Exhibit 10.1 to Form 8-K of the Company filed November 17, 2006.) | ||
10.36.2
|
| First Amendment to the Second Amended and Restated Revolving Loan Agreement, dated as of November 13, 2007, among the Company, as Borrower, the banks signatory thereto, each as a Bank, and Bank of America, N.A., as Administrative Agent. (Incorporated by reference to Exhibit 10.1 to Form 8-K of the Company filed November 16, 2007.) | ||
10.37+
|
| Rules and Procedures for Non-Employee Directors Deferred Compensation Program. (Incorporated by reference to Exhibit 10.33 to Form 10-K of the Company filed March 1, 2007.) | ||
10.38+
|
| Amendment to Rules and Procedures for Non-Employee Directors Deferred Compensation Program adopted December 11, 2008. (Filed herewith.) | ||
10.39+
|
| Compensation Arrangements for Directors and Named Executive Officers. (Incorporated by reference to Item 5.02 of the Companys Current Report on Form 8-K filed February 12, 2008.) | ||
10.40+
|
| Amendment, effective September 30, 2007, to the Companys quarterly compensation of Non-Employee Directors. (Incorporated by reference to Exhibit 10.2 to the Companys Form 10-Q filed on November 9, 2007.) |
70
10.41+
|
| Form of AvalonBay Communities, Inc. 2008 Performance Plan Deferred Stock Award Agreement. (Incorporated by reference to Exhibit 10.1 to Form 8-K of the Company filed on May 22, 2008). | ||
10.42+
|
| Amended and Restated AvalonBay Communities, Inc. Deferred Compensation Plan. (Filed herewith.) | ||
12.1
|
| Statements re: Computation of Ratios. (Filed herewith.) | ||
21.1
|
| Schedule of Subsidiaries of the Company. (Filed herewith.) | ||
23.1
|
| Consent of Ernst & Young LLP. (Filed herewith.) | ||
31.1
|
| Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Chief Executive Officer). (Filed herewith.) | ||
31.2
|
| Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Chief Financial Officer). (Filed herewith.) | ||
32
|
| Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Executive Officer and Chief Financial Officer). (Furnished herewith.) |
+ | Management contract or compensatory plan or arrangement required to be filed or incorporated by reference as an exhibit to this Form 10-K pursuant to Item 15(a)(3) of Form 10-K. |
71
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: February 27, 2009 | By: | /s/ Bryce Blair | ||
Bryce Blair, Chairman of the Board and Chief | ||||
Executive Officer | ||||
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the registrant and in the capacities and on the dates
indicated.
Date: February 27, 2009 | By: | /s/ Bryce Blair | ||
Bryce Blair, Director, Chairman of the Board | ||||
and Chief Executive Officer (Principal Executive Officer) |
||||
Date: February 27, 2009 | By: | /s/ Thomas J. Sargeant | ||
Thomas J. Sargeant, Chief Financial Officer | ||||
(Principal Financial and Accounting Officer) | ||||
Date: February 27, 2009 | By: | /s/ Bruce A. Choate | ||
Bruce A. Choate, Director | ||||
Date: February 27, 2009 | By: | /s/ John J. Healy, Jr. | ||
John J. Healy, Jr., Director | ||||
Date: February 27, 2009 | By: | /s/ Gilbert M. Meyer | ||
Gilbert M. Meyer, Director | ||||
Date: February 27, 2009 | By: | /s/ Timothy J. Naughton | ||
Timothy J. Naughton, Director | ||||
Date: February 27, 2009 | By: | /s/ Lance R. Primis | ||
Lance R. Primis, Director | ||||
Date: February 27, 2009 | By: | /s/ Peter S. Rummell | ||
Peter S. Rummell, Director | ||||
Date: February 27, 2009 | By: | /s/ H. Jay Sarles | ||
H. Jay Sarles, Director | ||||
Date: February 27, 2009 | By: | /s/ W. Edward Walter | ||
W. Edward Walter, Director | ||||
72
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of
AvalonBay Communities, Inc.:
AvalonBay Communities, Inc.:
We have audited the accompanying consolidated balance sheets of AvalonBay Communities, Inc. as of
December 31, 2008 and 2007, and the related consolidated statements of operations and other
comprehensive income, stockholders equity, and cash flows for each of the three years in the
period ended December 31, 2008. Our audits also included the financial statement schedule listed in
the Index at Item 15(a)(2). These financial statements and schedule are the responsibility of the
Companys management. Our responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material
respects, the consolidated financial position of AvalonBay Communities, Inc. at December 31, 2008
and 2007, and the consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 2008 in conformity with U.S. generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly in all material
respects, the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), AvalonBay Communities, Inc.s internal control over financial reporting as
of December 31, 2008, based on criteria established in Internal Control-Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated
February 25, 2009 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
McLean, Virginia
February 25, 2009
February 25, 2009
F-1
Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting
The Board of Directors and Stockholders of
AvalonBay Communities, Inc.:
AvalonBay Communities, Inc.:
We have audited AvalonBay Communities, Inc.s internal control over financial reporting as of
December 31, 2008, based on criteria established in Internal ControlIntegrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). AvalonBay
Communities, Inc.s management is responsible for maintaining effective internal control over
financial reporting, and for its assessment of the effectiveness of internal control over financial
reporting included in the accompanying Managements Report on Internal Control over Financial
Reporting in Item 9a. Our responsibility is to express an opinion on the companys internal control
over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness exists, testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk,
and performing such other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. A
companys internal control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of management and directors of the company;
and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
In our opinion, AvalonBay Communities, Inc. maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2008, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the consolidated balance sheets of AvalonBay Communities, Inc. as of
December 31, 2008 and 2007, and the related consolidated statements of operations and other
comprehensive income, stockholders equity, and cash flows for each of the three years in the
period ended December 31, 2008 of AvalonBay Communities, Inc.
and our report dated February 25,
2009 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
McLean, Virginia
February 25, 2009
February 25, 2009
F-2
AVALONBAY
COMMUNITIES, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
(Dollars in thousands, except per share data)
12-31-08 | 12-31-07 | |||||||
ASSETS |
||||||||
Real estate: |
||||||||
Land |
$ | 1,151,456 | $ | 966,021 | ||||
Buildings and improvements |
5,569,034 | 4,833,328 | ||||||
Furniture, fixtures and equipment |
175,480 | 151,976 | ||||||
6,895,970 | 5,951,325 | |||||||
Less accumulated depreciation |
(1,352,744 | ) | (1,158,899 | ) | ||||
Net operating real estate |
5,543,226 | 4,792,426 | ||||||
Construction in progress, including land |
867,061 | 946,814 | ||||||
Land held for development |
239,456 | 288,423 | ||||||
Operating real estate assets held for sale, net |
| 269,519 | ||||||
Total real estate, net |
6,649,743 | 6,297,182 | ||||||
Cash and cash equivalents |
65,706 | 20,271 | ||||||
Cash in escrow |
193,599 | 188,264 | ||||||
Resident security deposits |
29,935 | 29,240 | ||||||
Investments in unconsolidated real estate entities |
55,025 | 57,990 | ||||||
Deferred financing costs, net |
31,374 | 27,421 | ||||||
Deferred development costs |
57,365 | 60,996 | ||||||
Prepaid expenses and other assets |
90,627 | 55,120 | ||||||
Total assets |
$ | 7,173,374 | $ | 6,736,484 | ||||
LIABILITIES AND STOCKHOLDERS EQUITY |
||||||||
Unsecured notes, net |
$ | 2,002,965 | $ | 1,893,499 | ||||
Variable rate unsecured credit facility |
124,000 | 514,500 | ||||||
Mortgage notes payable |
1,547,492 | 750,062 | ||||||
Dividends payable |
208,209 | 67,909 | ||||||
Payables for construction |
64,257 | 91,275 | ||||||
Accrued expenses and other liabilities |
227,827 | 233,326 | ||||||
Accrued interest payable |
32,651 | 38,503 | ||||||
Resident security deposits |
40,603 | 39,938 | ||||||
Liabilities related to real estate assets held for sale |
| 57,666 | ||||||
Total liabilities |
4,248,004 | 3,686,678 | ||||||
Minority interest in consolidated ventures |
8,974 | 23,152 | ||||||
Commitments and contingencies |
| | ||||||
Stockholders equity: |
||||||||
Preferred stock, $0.01 par value; $25 liquidation preference;
50,000,000 shares
authorized at both December 31, 2008 and December 31,
2007; zero shares
issued and outstanding at December 31, 2008 and 4,000,000
shares issued
and outstanding at December 31, 2007 |
| 40 | ||||||
Common stock, $0.01 par value; 140,000,000 shares authorized at
both December 31, 2008
and December 31, 2007; 77,119,963 and 77,318,611 shares
issued and outstanding at
December 31, 2008 and December 31, 2007, respectively |
771 | 773 | ||||||
Additional paid-in capital |
2,940,499 | 3,026,708 | ||||||
Accumulated earnings less dividends |
(21,942 | ) | 2,499 | |||||
Accumulated other comprehensive loss |
(2,932 | ) | (3,366 | ) | ||||
Total stockholders equity |
2,916,396 | 3,026,654 | ||||||
Total liabilities and stockholders equity |
$ | 7,173,374 | $ | 6,736,484 | ||||
See accompanying notes to Consolidated Financial Statements.
F-3
AVALONBAY
COMMUNITIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
AND OTHER COMPREHENSIVE INCOME
(Dollars in thousands, except per share data)
AND OTHER COMPREHENSIVE INCOME
(Dollars in thousands, except per share data)
For the year ended | ||||||||||||
12-31-08 | 12-31-07 | 12-31-06 | ||||||||||
Revenue: |
||||||||||||
Rental and other income |
$ | 847,640 | $ | 760,521 | $ | 671,382 | ||||||
Management, development and other fees |
6,568 | 6,142 | 6,259 | |||||||||
Total revenue |
854,208 | 766,663 | 677,641 | |||||||||
Expenses: |
||||||||||||
Operating expenses, excluding property taxes |
258,162 | 231,688 | 206,059 | |||||||||
Property taxes |
77,267 | 70,562 | 62,651 | |||||||||
Interest expense, net |
114,878 | 94,540 | 106,271 | |||||||||
Depreciation expense |
194,150 | 168,324 | 149,352 | |||||||||
General and administrative expense |
42,781 | 28,494 | 24,767 | |||||||||
Impairment loss land holdings |
57,899 | | | |||||||||
Total expenses |
745,137 | 593,608 | 549,100 | |||||||||
Equity in income of unconsolidated entities |
4,566 | 59,169 | 7,455 | |||||||||
Minority interest income (expense) in
consolidated partnerships |
741 | (1,585 | ) | (573 | ) | |||||||
Gain on sale of land |
| 545 | 13,519 | |||||||||
Income from continuing operations |
114,378 | 231,184 | 148,942 | |||||||||
Discontinued operations: |
||||||||||||
Income from discontinued operations |
12,208 | 20,489 | 20,193 | |||||||||
Gain on sale of communities |
284,901 | 106,487 | 97,411 | |||||||||
Total discontinued operations |
297,109 | 126,976 | 117,604 | |||||||||
Net income |
411,487 | 358,160 | 266,546 | |||||||||
Dividends attributable to preferred stock |
(10,454 | ) | (8,700 | ) | (8,700 | ) | ||||||
Net income available to common stockholders |
$ | 401,033 | $ | 349,460 | $ | 257,846 | ||||||
Other comprehensive income: |
||||||||||||
Unrealized gain on cash flow hedges |
434 | 213 | 891 | |||||||||
Comprehensive income |
$ | 401,467 | $ | 349,673 | $ | 258,737 | ||||||
Earnings per common share basic: |
||||||||||||
Income from continuing operations
(net of dividends attributable to preferred stock) |
$ | 1.35 | $ | 2.83 | $ | 1.89 | ||||||
Discontinued operations |
3.87 | 1.61 | 1.59 | |||||||||
Net income available to common stockholders |
$ | 5.22 | $ | 4.44 | $ | 3.48 | ||||||
Earnings per common share diluted: |
||||||||||||
Income from continuing operations
(net of dividends attributable to preferred stock) |
$ | 1.34 | $ | 2.79 | $ | 1.86 | ||||||
Discontinued operations |
3.83 | 1.59 | 1.56 | |||||||||
Net income available to common stockholders |
$ | 5.17 | $ | 4.38 | $ | 3.42 | ||||||
See accompanying notes to Consolidated Financial Statements.
F-4
AVALONBAY
COMMUNITIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
(Dollars in thousands)
(Dollars in thousands)
Accumulated | Accumulated | |||||||||||||||||||||||||||||||
Shares issued | Additional | earnings | other | Total | ||||||||||||||||||||||||||||
Preferred | Common | Preferred | Common | paid-in | less | comprehensive | stockholders | |||||||||||||||||||||||||
stock | stock | stock | stock | capital | dividends | loss | equity | |||||||||||||||||||||||||
Balance at December 31, 2005 |
4,000,000 | 73,663,048 | $ | 40 | $ | 737 | $ | 2,429,568 | $ | 71,950 | $ | (4,470 | ) | $ | 2,497,825 | |||||||||||||||||
Net income |
| | | | | 266,546 | | 266,546 | ||||||||||||||||||||||||
Unrealized gain on cash flow hedges |
| | | | | | 891 | 891 | ||||||||||||||||||||||||
Change in redemption value of minority interest |
| | | | | (2,593 | ) | | (2,593 | ) | ||||||||||||||||||||||
Dividends declared to common
and preferred stockholders |
| | | | | (241,155 | ) | | (241,155 | ) | ||||||||||||||||||||||
Issuance of common stock |
| 1,005,324 | | 10 | 38,839 | (1,318 | ) | | 37,531 | |||||||||||||||||||||||
Amortization of deferred compensation |
| | | | 14,109 |