UNITED STATES
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
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)
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Maryland
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77-0404318 |
(State or other jurisdiction of
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(I.R.S. Employer Identification No.) |
incorporation or organization) |
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2900 Eisenhower Avenue, Suite 300
Alexandria, Virginia 22314
(Address of principal executive office)
(703) 329-6300
(Registrants telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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Common Stock, par value $.01 per share
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New York Stock Exchange |
(Title of each class)
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(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):
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Large accelerated filer þ |
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Accelerated filer o |
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Non-accelerated filer o
(Do not check if a smaller reporting company) |
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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
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PAGE |
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PART I |
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ITEM 1.
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BUSINESS
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1 |
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ITEM 1a.
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RISK FACTORS
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8 |
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ITEM 1b.
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UNRESOLVED STAFF COMMENTS
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17 |
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ITEM 2.
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COMMUNITIES
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17 |
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ITEM 3.
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LEGAL PROCEEDINGS
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33 |
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ITEM 4.
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SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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34 |
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PART II |
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ITEM 5.
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MARKET FOR REGISTRANTS COMMON EQUITY, RELATED
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
SECURITIES
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35 |
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ITEM 6.
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SELECTED FINANCIAL DATA
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37 |
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ITEM 7.
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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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40 |
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ITEM 7a.
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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
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61 |
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ITEM 8.
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FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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63 |
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ITEM 9.
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CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
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63 |
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ITEM 9a.
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CONTROLS AND PROCEDURES
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63 |
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ITEM 9b.
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OTHER INFORMATION
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63 |
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PART III |
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ITEM 10.
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DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
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64 |
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ITEM 11.
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EXECUTIVE COMPENSATION
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64 |
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ITEM 12.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
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64 |
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ITEM 13.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
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65 |
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ITEM 14.
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PRINCIPAL ACCOUNTING FEES AND SERVICES
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65 |
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PART IV |
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ITEM 15.
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EXHIBITS, FINANCIAL STATEMENT SCHEDULE
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66 |
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SIGNATURES
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72 |
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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:
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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; |
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14 communities under construction that are expected to contain an aggregate of 4,564
apartment homes when completed; and |
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rights to develop an additional 27 communities that, if developed in the manner
expected, will contain an estimated 7,304 apartment homes. |
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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.
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:
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Boston, Massachusetts; |
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Chicago, Illinois; |
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Long Island, New York; |
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Los Angeles, California; |
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New York, New York; |
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Newport Beach, California; |
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San Francisco, California; |
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San Jose, California; |
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Seattle, Washington; |
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Shelton, Connecticut; |
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Virginia Beach, Virginia; and |
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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
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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:
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strong focus on resident satisfaction; |
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staggering lease terms such that lease expirations are better matched to traffic
patterns; |
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balancing high occupancy with premium pricing, and increasing rents as market
conditions permit; and |
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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:
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we use purchase order controls, acquiring goods and services from pre-approved
vendors; |
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we purchase supplies in bulk where possible; |
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we bid third-party contracts on a volume basis; |
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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; |
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we perform turnover work in-house or hire third parties, generally depending upon
the least costly alternative; |
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we undertake preventive maintenance regularly to maximize resident satisfaction and
property and equipment life; and |
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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
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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
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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.
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
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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.
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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:
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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; |
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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; |
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we may incur costs that exceed our original estimates due to increased material, labor
or other costs; |
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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; |
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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; |
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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; |
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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;
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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:
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land and/or property acquisition costs; |
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fees paid to secure air rights and/or tax abatements; |
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construction or reconstruction costs; |
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costs of environmental remediation; |
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real estate taxes; |
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capitalized interest; |
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loan fees; |
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permits; |
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professional fees; |
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allocated development or redevelopment overhead; and
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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:
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plant closings, industry slowdowns and other factors that adversely affect the local
economy; |
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an oversupply of, or a reduced demand for, apartment homes; |
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a decline in household formation or employment or lack of employment growth; |
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the inability or unwillingness of residents to pay rent increases; |
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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 |
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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:
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an acquired property may fail to perform as we expected in analyzing our investment;
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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:
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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; |
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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; |
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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; |
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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 |
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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:
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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; |
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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; |
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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; |
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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; |
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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
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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; |
15
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|
|
no environmental liabilities have developed since the environmental assessments were
prepared; |
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|
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; |
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|
future uses or conditions, including, without limitation, changes in applicable
environmental laws and regulations, will not result in the imposition of environmental
liability; and |
|
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|
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:
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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. |
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|
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. |
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|
Lease-Up Communities are communities where construction has been
complete for less than one year and where physical occupancy has not
reached 95%. |
17
|
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|
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:
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|
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|
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:
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vaulted ceilings; |
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|
|
|
lofts; |
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|
|
|
fireplaces; |
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|
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|
patios/decks; and |
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|
|
|
modern appliances. |
Other features at various communities may include:
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swimming pools; |
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|
fitness centers; |
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|
tennis courts; and |
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|
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:
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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)
|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Baltimore, MD |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Seattle, WA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oakland-East Bay, CA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Orange County, CA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
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|
|
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
|
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|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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. |
|
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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. |
|
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|
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
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|
|
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. |
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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. |
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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. |
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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. |
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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. |
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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
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|
|
|
|
|
|
|
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|
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|
|
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 |
|
|
|
|
|
|
|
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|
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(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:
|
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our potential development, redevelopment, acquisition or disposition of communities; |
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the timing and cost of completion of apartment communities under construction,
reconstruction, development or redevelopment; |
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the timing of lease-up, occupancy and stabilization of apartment communities; |
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the pursuit of land on which we are considering future development; |
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the anticipated operating performance of our communities; |
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cost, yield, revenue, NOI and earnings estimates; |
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our declaration or payment of distributions; |
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our joint venture and discretionary fund activities; |
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our policies regarding investments, indebtedness, acquisitions, dispositions,
financings and other matters; |
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our qualification as a REIT under the Internal Revenue Code; |
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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; |
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the availability of debt and equity financing; |
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interest rates; |
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general economic conditions including the recent economic downturn; and |
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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:
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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; |
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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; |
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construction costs of a community may exceed our original estimates; |
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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; |
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occupancy rates and market rents may be adversely affected by competition and
local economic and market conditions which are beyond our control; |
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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; |
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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; |
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we may be unsuccessful in our management of the Fund, Fund II
or the REIT vehicles that are used with each respective Fund; and |
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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:
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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. |
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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
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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 |
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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.
62
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.
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ITEM 9. |
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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. |
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(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.:
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
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.:
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
F-2
AVALONBAY
COMMUNITIES, INC.
CONSOLIDATED BALANCE SHEETS
(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)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
14,109 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2006 |
|
|
4,000,000 |
|
|
|
74,668,372 |
|
|
|
40 |
|
|
|
747 |
|
|
|
2,482,516 |
|
|
|
93,430 |
|
|
|
(3,579 |
) |
|
|
2,573,154 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
358,160 |
|
|
|
|
|
|
|
358,160 |
|
Unrealized gain on cash flow hedges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
213 |
|
|
|
213 |
|
Change in redemption value of minority interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,124 |
) |
|
|
|
|
|
|
(6,124 |
) |
Dividends declared to common
and preferred stockholders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(276,823 |
) |
|
|
|
|
|
|
(276,823 |
) |
Issuance of common stock |
|
|
|
|
|
|
5,130,855 |
|
|
|
|
|
|
|
51 |
|
|
|
619,359 |
|
|
|
(1,741 |
) |
|
|
|
|
|
|
617,669 |
|
Purchase of common stock |
|
|
|
|
|
|
(2,480,616 |
) |
|
|
|
|
|
|
(25 |
) |
|
|
(93,501 |
) |
|
|
(164,403 |
) |
|
|
|
|
|
|
(257,929 |
) |
Amortization of deferred compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,334 |
|
|
|
|
|
|
|
|
|
|
|
18,334 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007 |
|
|
4,000,000 |
|
|
|
77,318,611 |
|
|
|
40 |
|
|
|
773 |
|
|
|
3,026,708 |
|
|
|
2,499 |
|
|
|
(3,366 |
) |
|
|
3,026,654 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
411,487 |
|
|
|
|
|
|
|
411,487 |
|
Unrealized gain on cash flow hedges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
434 |
|
|
|
434 |
|
Change in redemption value of minority interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,443 |
|
|
|
|
|
|
|
11,443 |
|
Dividends declared to common
and preferred stockholders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(423,118 |
) |
|
|
|
|
|
|
(423,118 |
) |
Issuance of common stock |
|
|
|
|
|
|
323,085 |
|
|
|
|
|
|
|
3 |
|
|
|
5,838 |
|
|
|
(185 |
) |
|
|
|
|
|
|
5,656 |
|
Purchase of common stock |
|
|
|
|
|
|
(521,733 |
) |
|
|
|
|
|
|
(5 |
) |
|
|
(18,086 |
) |
|
|
(24,068 |
) |
|
|
|
|
|
|
(42,159 |
) |
Redemption of preferred stock |
|
|
(4,000,000 |
) |
|
|
|
|
|
|
(40 |
) |
|
|
|
|
|
|
(96,425 |
) |
|
|
|
|
|
|
|
|
|
|
(96,465 |
) |
Amortization of deferred compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,464 |
|
|
|
|
|
|
|
|
|
|
|
22,464 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008 |
|
|
|
|
|
|
77,119,963 |
|
|
$ |
|
|
|
$ |
771 |
|
|
$ |
2,940,499 |
|
|
$ |
(21,942 |
) |
|
$ |
(2,932 |
) |
|
$ |
2,916,396 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to Consolidated Financial Statements
F-5
AVALONBAY COMMUNITIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended |
|
|
|
12-31-08 |
|
|
12-31-07 |
|
|
12-31-06 |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
411,487 |
|
|
$ |
358,160 |
|
|
$ |
266,546 |
|
Adjustments to reconcile net income to cash provided
by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense |
|
|
194,150 |
|
|
|
168,324 |
|
|
|
149,352 |
|
Depreciation expense from discontinued operations |
|
|
5,302 |
|
|
|
13,401 |
|
|
|
14,777 |
|
Amortization of deferred financing costs and debt premium/discount |
|
|
6,003 |
|
|
|
4,934 |
|
|
|
4,474 |
|
Amortization of stock-based compensation |
|
|
11,888 |
|
|
|
14,353 |
|
|
|
10,095 |
|
(Income) Loss allocated to minority interest in consolidated partnerships |
|
|
(741 |
) |
|
|
1,585 |
|
|
|
573 |
|
Equity in income of unconsolidated entities, net of eliminations |
|
|
(3,436 |
) |
|
|
(58,122 |
) |
|
|
(6,480 |
) |
Return on investment of unconsolidated entities |
|
|
|
|
|
|
130 |
|
|
|
298 |
|
Impairment loss land holdings |
|
|
57,899 |
|
|
|
|
|
|
|
|
|
Gain on retirement of unsecured notes |
|
|
(1,950 |
) |
|
|
|
|
|
|
|
|
Abandonment of
development pursuits |
|
|
9,428 |
|
|
|
3,429 |
|
|
|
|
|
Gain on sale of real estate assets |
|
|
(284,901 |
) |
|
|
(107,032 |
) |
|
|
(110,930 |
) |
Decrease (increase) in cash in operating escrows |
|
|
3,054 |
|
|
|
(7,403 |
) |
|
|
(844 |
) |
(Increase) decrease in resident security deposits,
prepaid expenses and other assets |
|
|
(4,902 |
) |
|
|
8,747 |
|
|
|
(4,381 |
) |
(Decrease) increase in accrued expenses, other liabilities
and accrued interest payable |
|
|
(16,426 |
) |
|
|
54,368 |
|
|
|
28,180 |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
386,855 |
|
|
|
454,874 |
|
|
|
351,660 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Development/redevelopment of real estate assets including
land acquisitions and deferred development costs |
|
|
(881,503 |
) |
|
|
(1,112,590 |
) |
|
|
(735,167 |
) |
Acquisition of real estate assets, including partner equity interest |
|
|
|
|
|
|
(13,841 |
) |
|
|
(74,924 |
) |
Capital expenditures existing real estate assets |
|
|
(15,534 |
) |
|
|
(13,851 |
) |
|
|
(21,289 |
) |
Capital expenditures non-real estate assets |
|
|
(5,290 |
) |
|
|
(1,424 |
) |
|
|
(957 |
) |
Proceeds from sale of real estate
communities, net of selling costs |
|
|
529,777 |
|
|
|
261,089 |
|
|
|
272,223 |
|
(Decrease)
increase in payables for construction |
|
|
(27,018 |
) |
|
|
32,348 |
|
|
|
34,542 |
|
Decrease in cash in construction escrows |
|
|
126,611 |
|
|
|
54,149 |
|
|
|
19,572 |
|
Decrease (increase) in investments in unconsolidated real estate entities |
|
|
6,648 |
|
|
|
(15,127 |
) |
|
|
(5,371 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(266,309 |
) |
|
|
(809,247 |
) |
|
|
(511,371 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock |
|
|
7,433 |
|
|
|
621,029 |
|
|
|
26,551 |
|
Repurchase of common stock |
|
|
(42,159 |
) |
|
|
(257,929 |
) |
|
|
|
|
Redemption of preferred stock |
|
|
(100,000 |
) |
|
|
|
|
|
|
|
|
Dividends paid |
|
|
(278,795 |
) |
|
|
(268,966 |
) |
|
|
(234,958 |
) |
Net (repayments) borrowings under unsecured credit facility |
|
|
(390,500 |
) |
|
|
514,500 |
|
|
|
(66,800 |
) |
Issuance of mortgage notes payable and draws on construction loans |
|
|
697,046 |
|
|
|
59,126 |
|
|
|
113,849 |
|
Repayments of mortgage notes payable |
|
|
(67,442 |
) |
|
|
(27,256 |
) |
|
|
(6,827 |
) |
Issuance of unsecured debt |
|
|
330,000 |
|
|
|
|
|
|
|
343,743 |
|
Repayment of unsecured notes |
|
|
(219,050 |
) |
|
|
(260,000 |
) |
|
|
|
|
Payment of deferred financing costs |
|
|
(9,491 |
) |
|
|
(6,550 |
) |
|
|
(12,698 |
) |
Redemption of units for cash by minority partners |
|
|
(1,756 |
) |
|
|
(6,851 |
) |
|
|
(80 |
) |
Contributions from minority and profit-sharing partners |
|
|
|
|
|
|
1,333 |
|
|
|
|
|
Distributions to DownREIT partnership unitholders |
|
|
(216 |
) |
|
|
(280 |
) |
|
|
(392 |
) |
Distributions to joint venture and profit-sharing partners |
|
|
(181 |
) |
|
|
(1,796 |
) |
|
|
(108 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash
(used in) provided by financing activities |
|
|
(75,111 |
) |
|
|
366,360 |
|
|
|
162,280 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents |
|
|
45,435 |
|
|
|
11,987 |
|
|
|
2,569 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, beginning of year |
|
|
20,271 |
|
|
|
8,284 |
|
|
|
5,715 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year |
|
$ |
65,706 |
|
|
$ |
20,271 |
|
|
$ |
8,284 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the period for interest, net of amount capitalized |
|
$ |
110,290 |
|
|
$ |
98,594 |
|
|
$ |
102,640 |
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to Consolidated Financial Statements.
F- 6
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
Supplemental disclosures of non-cash investing and financing activities (dollars in thousands):
During the year ended December 31, 2008:
|
|
|
130,325 shares of common stock valued at $11,646 were issued in connection with stock
grants, 5,703 shares valued at $458 were issued through the Companys dividend reinvestment
plan, 24,407 shares valued at $1,357 were issued to members of the Board of Directors in
fulfillment of deferred stock awards, 39,633 shares valued at $3,483 were withheld to
satisfy employees tax withholding and other liabilities and 1,101 shares valued at $109
were forfeited, for a net value of $9,869. In addition, the Company granted 401,212
options for common stock at a value of $3,976. |
|
|
|
|
The Company recorded a decrease to other liabilities and a corresponding gain to other
comprehensive income of $434 to adjust the Companys Hedging Derivatives (as defined in
Note 5, Derivative Instruments and Hedging Activities) to their fair value. |
|
|
|
|
The Company issued $135,000 of variable rate debt relating to Avalon Walnut
Creek. The proceeds were placed in an escrow account until requisitioned for construction
funding and no amounts have been drawn for use in the development of the community. |
|
|
|
|
Common and preferred dividends declared but not paid totaled $208,209. |
|
|
|
|
The Company recorded a decrease of $11,443 to minority interest with a corresponding
gain to accumulated earnings less dividends to adjust the redemption value associated with
the put option held by a joint venture partner. This put option allows our partner to
require the Company to purchase their interest in the investment at the future fair market
value, payable in cash or, at the Companys option, shares of the Companys common stock.
For further discussion of the nature and valuation of the put option, see Note 11, Fair
Value Measurements. |
During the year ended December 31, 2007:
|
|
|
75,231 shares of common stock valued at $10,971 were issued in connection with stock
grants, 2,929 shares valued at $365 were issued through the Companys dividend reinvestment
plan, 41,000 shares valued at $4,381 were withheld to satisfy employees tax withholding
and other liabilities and 8,609 shares valued at $231 were forfeited, for a net value of
$6,724. In addition, the Company granted 331,356 options for common stock, net of
forfeitures, at a value of $7,518. |
|
|
|
|
19,231 units of limited partnership, valued at $887, were presented for redemption to
the DownREIT partnerships that issued such units and were acquired by the Company in
exchange for an equal number of shares of the Companys common stock. |
|
|
|
|
The Company recorded a decrease to other liabilities and a corresponding gain to other
comprehensive income of $213 to adjust the Companys Hedging Derivatives to their fair
value. |
|
|
|
|
The Company issued $100,000 of variable rate tax-exempt debt relating to Avalon
Morningside Park. The proceeds were placed in an escrow account until requisitioned for
construction funding, none of which was drawn for use in the development of the community. |
|
|
|
|
Common and preferred dividends declared but not paid totaled $67,909. |
|
|
|
|
The Company recorded an increase of $6,124 to minority interest with a corresponding
decrease to accumulated earnings less dividends to adjust the redemption value associated
with a put option held by a joint venture partner. This put option allows our partner to
require the Company to purchase their interest in the investment at the future fair market
value, payable in cash or, at the Companys option, shares of the Companys common stock. |
During the year ended December 31, 2006:
|
|
|
122,172 shares of common stock valued at $12,568 were issued in connection with stock
grants, 2,306 shares valued at $256 were issued through the Companys dividend reinvestment
plan, 47,111 shares valued at $3,449 were withheld to satisfy employees tax withholding
and other liabilities and 5,910 shares valued at $193 were forfeited, for a net value of
$9,182. In addition, the Company granted 849,769 options for common stock, net of
forfeitures, at a value of $9,946. |
|
|
|
|
308,345 units of limited partnership, valued at $14,166, were presented for redemption
to the DownREIT partnerships that issued such units and were acquired by the Company in
exchange for an equal number of shares of the Companys common stock. |
|
|
|
|
The Company issued $187,300 of variable rate, tax-exempt debt, of which $107,451 in
proceeds were not received, but placed in an escrow until requisitioned for construction
funding. |
|
|
|
|
The Company recorded a decrease to other liabilities and a corresponding gain to other
comprehensive income of $891 to adjust the Companys Hedging Derivatives to their fair
value. |
|
|
|
|
The Company recorded an increase of $2,593 to minority interest with a corresponding
decrease to accumulated earnings less dividends to adjust the redemption value associated
with a put option held by a joint venture partner. This put option allows our partner to
require the Company to purchase their interest in the investment at the future fair market
value, payable in cash or, at the Companys option, shares of the Companys common stock. |
|
|
|
|
Common and preferred dividends declared but not paid totaled $60,417. |
F- 7
AVALONBAY COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
1. Organization and Significant Accounting Policies
Organization
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 taxed as a real estate investment trust (REIT) under the Internal Revenue
Code of 1986 (the Code), as amended. The Company focuses on the development, acquisition,
ownership and operation of apartment communities in high barrier-to-entry markets of the United
States. These markets are located in the New England, Metro New York/New Jersey, Mid-Atlantic,
Midwest, Pacific Northwest, and Northern and Southern California regions of the country.
At December 31, 2008, the Company 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 nine communities containing 2,610 apartment homes were under reconstruction. In
addition, the Company owned or held a direct or indirect ownership interest in 14 communities under
construction that are expected to contain an aggregate of 4,564 apartment homes when completed.
The Company also owned or held a direct or indirect ownership interest in rights to develop an
additional 27 communities that, if developed as expected, will contain an estimated 7,304 apartment
homes.
Principles of Consolidation
The accompanying Consolidated Financial Statements include the accounts of the Company and its
wholly owned partnerships, certain joint venture partnerships, subsidiary partnerships structured
as DownREITs and any variable interest entities consolidated under FASB Interpretation No. 46 (FIN
46(R)), Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51, as revised
in December 2003. All significant intercompany balances and transactions have been eliminated in
consolidation.
The Company assesses consolidation of variable interest entities under the guidance of FIN 46(R).
The Company accounts for joint venture entities and subsidiary partnerships, including those
structured as DownREITs, that are not variable interest entities, in accordance with Emerging
Issues Task Force (EITF) 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, Statement of Position (SOP) 78-9, Accounting for Investments in Real
Estate Ventures, Accounting Principles Board (APB) Opinion No. 18, The Equity Method of
Accounting for Investments in Common Stock and EITF Topic D-46, Accounting for Limited
Partnership Investments. The Company uses EITF Issue No. 04-5 to evaluate the partnership of each
joint venture entity and determine whether control over the partnership, as defined by the EITF,
lies with the general partner, or the limited partners, when the limited partners have certain
rights. If the Company is the general partner and has control over the partnership, or if the
Companys limited partnership ownership includes the ability to dissolve the partnership, or has
substantive participating rights, the Company consolidates the investments. If the Company is not
the general partner, or the Companys partnership interest does not overcome the presumption of
control in a limited partnership residing with the general partner as discussed in the EITF, the
Company then looks to the guidance in SOP 78-9, APB No. 18 and EITF Topic D-46 to determine the
accounting framework to apply. The Company generally uses the equity method to account for these
investments unless its ownership interest is so minor that it has virtually no influence over the
partnerships operating and financial policies. Investments in which the Company has little or no
influence are accounted for using the cost method.
In each of the partnerships structured as DownREITs, either the Company or one of the Companys
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 of current
cash flow 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 the Companys
current common stock dividend
F- 8
per share. The holders of units of limited partnership interests 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 the Companys common stock. In lieu of cash
redemption, the Company may elect to exchange such units for an equal number of shares of the
Companys common stock. In 2008, the Company redeemed 44,592 operating units for cash.
In conjunction with the acquisition and development of investments in unconsolidated entities, the
Company may incur costs in excess of its equity in the underlying assets. These costs are
capitalized and depreciated over the life of the underlying assets to the extent that the Company
expects to recover the costs.
If there is an event or change in circumstance that indicates a loss in the value of an investment,
the Companys policy is to record the loss and reduce the value of the investment to its fair
value. A loss in value would be indicated if the Company could not recover the carrying value of
the investment or if the investee could not sustain an earnings capacity that would justify the
carrying amount of the investment. The Company did not recognize an impairment loss on any of its
investments in unconsolidated entities during the years ended December 31, 2008, 2007 or 2006.
Revenue and Gain Recognition
Rental income related to leases is recognized on an accrual basis when due from residents in
accordance with SEC Staff Accounting Bulletin No. 104, Revenue Recognition, and Statement of
Financial Accounting Standards (SFAS) No. 13, Accounting for Leases. In accordance with the
Companys standard lease terms, rental payments are generally due on a monthly basis. Any cash
concessions given at the inception of the lease are amortized over the approximate life of the
lease, which is generally one year.
The Company accounts for sales of real estate assets and the related gain recognition in accordance
with SFAS No. 66, Accounting for Sales of Real Estate.
Real Estate
Operating real estate assets are stated at cost and consist of land, buildings and improvements,
furniture, fixtures and equipment, and other costs incurred during their development, redevelopment
and acquisition. Significant expenditures which improve or extend the life of an asset are
capitalized. Expenditures for maintenance and repairs are charged to expense as incurred.
The Companys policy with respect to capital expenditures is generally to capitalize only
non-recurring expenditures. Improvements and upgrades are capitalized only if the item exceeds $15,
extends the useful life of the asset and is not related to making an apartment home ready for the
next resident. Purchases of personal property, such as computers and furniture, are capitalized
only if the item is a new addition and exceeds $2.5. The Company generally expenses purchases of
personal property made for replacement purposes.
Project costs related to the development, construction and redevelopment of real estate projects
(including interest and related loan fees, property taxes and other direct costs) are capitalized
as a cost of the project. Indirect project costs that relate to several projects are capitalized
and allocated to the projects to which they relate. Indirect costs not clearly related to
development, construction and redevelopment activity are expensed as incurred. For development,
capitalization begins when the Company has determined that development of the future asset is
probable and ends when the asset, or a portion of an 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 costs incurred during the initial lease-up or post-redevelopment lease-up period are
recognized as they accrue.
In accordance with SFAS No. 67, Accounting for Costs and Initial Rental Operations of Real Estate
Projects, the Company capitalizes pre-development costs incurred in pursuit of new development
opportunities for which the Company currently believes future development is probable (Development Rights). Future
development of these Development Rights is dependent upon various factors, including zoning and
regulatory approval, rental market
F- 9
conditions, construction costs and the availability of capital. Pre-development costs
incurred in the pursuit of Development Rights for which future development is not yet considered
probable are expensed as incurred. In addition, if the status of a Development Right changes,
making future development by the Company no longer probable, any capitalized pre-development costs
are written-off with a charge to expense. The Company expensed costs related to abandoned
pursuits, which includes the abandonment or impairment of Development Rights, acquisition pursuits
and disposition pursuits, in the amounts of $12,511 in 2008, $6,974 in 2007 and $2,115 in 2006.
These costs are included in operating expenses, excluding property taxes on the accompanying
Consolidated Statements of Operations and Other Comprehensive Income. Abandoned pursuit costs can
vary greatly, and the costs incurred in any given period may be significantly different in future
years.
The
Company owns 11 land parcels improved
with office buildings, industrial space and other commercial
ventures occupied by unrelated third parties, four of which are Development
Rights. In December 2008, the Company decided to no longer pursue development on seven of these
parcels, resulting in the recognition of an impairment loss, as
discussed below. For the
parcels of land for which the Company does not intend to pursue development, rental revenue from
the incidental operations will be recognized as a component of rental and other income. For those
land parcels on which the Company intends to pursue development, the Company intends to manage the
current improvements until such time as all tenant obligations have been satisfied or eliminated
through negotiation, and construction of new apartment communities is ready to begin. As provided
under the guidance of SFAS No. 67, the revenue from incidental operations received from the current
improvements in excess of any incremental costs are being recorded as a reduction of total
capitalized costs of the Development Right and not as part of net income.
In connection with the acquisition of an operating community, the Company performs a valuation,
allocating to each asset and liability acquired in such transaction, their estimated fair values at
the date of acquisition in accordance with SFAS No. 141, Business Combinations. The purchase
price allocations to tangible assets, such as land, buildings and improvements, and furniture,
fixtures and equipment, are reflected in real estate assets and depreciated over their estimated
useful lives. Any purchase price allocation to intangible assets, such as in-place leases, is
included in prepaid expenses and other assets on the accompanying Consolidated Balance Sheets and
amortized over the average remaining lease term of the acquired leases. The fair value of acquired
in-place leases is determined based on the estimated cost to replace such leases, including
foregone rents during an assumed re-lease period, as well as the impact on projected cash flow of
acquired leases with leased rents above or below current market rents.
Depreciation is calculated on buildings and improvements using the straight-line method over their
estimated useful lives, which range from seven to thirty years. Furniture, fixtures and equipment
are generally depreciated using the straight-line method over their estimated useful lives, which
range from three years (primarily computer-related equipment) to seven years.
It is the Companys policy to perform a quarterly qualitative analysis to determine if there are
changes in circumstances that suggest the carrying value of a long-lived asset may not be
recoverable. If there is an event or change in circumstance that indicates an impairment in the
value of a real estate asset, the Company compares the current and projected net cash flow from the
asset over its remaining useful life, or estimated holding period for those assets expected to be
disposed of, on an undiscounted basis, to the Companys carrying amount of the asset. If the
carrying amount is in excess of the estimated projected net cash flows, the Company would recognize
an impairment loss equivalent to an amount required to adjust the carrying amount to its estimated
fair market value. In the fourth quarter of 2008, the Company concluded that a general
deterioration in capital market conditions and the related decline in employment levels do not
support the development and construction of certain new apartment communities previously in
planning, for which the Company owns the related land parcels. As a result of the conditions
discussed above, the Company recognized an impairment loss of $57,899 relating to eight land
parcels for which the Company no longer intends to pursue development, as well as a charge for
severance and employment related costs associated with the reduction in planned development
activity of approximately $3,400 reported as a component of general and administrative expense.
The recent economic downturn resulted in there being few or no transactions negotiated in the
second half of 2008 upon which to base pricing. The Company therefore looked to a combination of
internal models and third-party pricing estimates to determine the fair values for these land
parcels at December 31, 2008. Considering the Companys knowledge of multifamily residential
development, the fair values of the land parcels that are zoned for multifamily residential
development were generated using an internal model, and the land parcels zoned for other purposes were valued using third party estimates of fair
value. For the internally
F- 10
generated fair values, the Company used a discounted cash flow analysis on the expected cash flows
for a multifamily residential rental community.
The Company did not recognize an impairment loss on any of its non-operating assets during the
years ended December 31, 2007 or 2006. In addition, the Company did not recognize an impairment
loss on any of its operating communities during the years ended December 31, 2008, 2007 or 2006.
Income Taxes
As of December 31, 2008, the Company did not have any unrecognized tax benefits as defined in FASB
Interpretation No. 48, Accounting for Uncertainty in Income Taxes an Interpretation of FASB
Statement No. 109, (FIN 48). We do not believe that there will be any material changes in our
unrecognized tax positions over the next 12 months. The Company is subject to examination by the
respective taxing authorities for the tax years 2005 through 2007.
The Company elected to be taxed as a REIT under the Code, as amended, for the year ended December
31, 1994 and has 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, the Company generally will not be subject to corporate level federal
income tax on taxable income if it distributes 100% of the taxable income over the time period
allowed under the Code to its stockholders. Management believes that all such conditions for the
avoidance of income taxes have been met for the periods presented. Accordingly, no provision for
federal and state income taxes has been made. If the Company fails to qualify as a REIT in any
taxable year, it will be subject to federal income taxes at regular corporate rates (including any
applicable alternative minimum tax) and may not be able to qualify as a REIT for four subsequent
taxable years. Even if the Company qualifies for taxation as a REIT, the Company may be subject to
certain state and local taxes on its income and property, and to federal income and excise taxes on
its undistributed taxable income. The Company incurred a charge of $3,200 for federal excise taxes
as a component of general and administrative expense in the Consolidated Statement of Operations
and Other Comprehensive Income as a result of the excess income attributable to gains on asset
sales from the Companys disposition activities during 2008. For further discussion of the real
estate disposition activities, see Note 7, Real Estate Disposition Activities. In addition,
taxable income from non-REIT activities performed through taxable REIT subsidiaries is subject to
federal, state and local income taxes.
The following reconciles net income available to common stockholders to taxable net income for the
years ended December 31, 2008, 2007 and 2006 (unaudited):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
|
Estimate |
|
|
Actual |
|
|
Actual |
|
Net income available to common stockholders |
|
$ |
401,033 |
|
|
$ |
349,460 |
|
|
$ |
257,846 |
|
Dividends attributable to preferred stock,
not deductible for tax |
|
|
7,215 |
|
|
|
8,700 |
|
|
|
8,700 |
|
GAAP gain on sale of communities less than tax gain |
|
|
70,398 |
|
|
|
12,245 |
|
|
|
7,242 |
|
Depreciation/Amortization timing differences on real estate |
|
|
(21,929 |
) |
|
|
(78,438 |
) |
|
|
(21,974 |
) |
Tax compensation expense less than (in excess of) GAAP |
|
|
11,479 |
|
|
|
(24,239 |
) |
|
|
(26,540 |
) |
Impairment loss |
|
|
53,399 |
|
|
|
|
|
|
|
|
|
Other adjustments |
|
|
3,694 |
|
|
|
17,186 |
|
|
|
13,335 |
|
|
|
|
|
|
|
|
|
|
|
Taxable net income |
|
$ |
525,289 |
|
|
$ |
284,914 |
|
|
$ |
238,609 |
|
|
|
|
|
|
|
|
|
|
|
The following summarizes the tax components of the Companys common and preferred dividends
declared for the years ended December 31, 2008, 2007 and 2006 (unaudited):
|
|
|
|
|
|
|
|
|
2008 |
|
2007 |
|
2006 |
Ordinary income |
|
16% |
|
35% |
|
48% |
15% capital gain |
|
60% |
|
54% |
|
43% |
Unrecaptured §1250 gain |
|
24% |
|
11% |
|
9% |
F- 11
Deferred Financing Costs
Deferred financing costs include fees and other expenditures necessary to obtain debt financing and
are amortized on a straight-line basis, which approximates the effective interest method, over the
shorter of the term of the loan or the related credit enhancement facility, if applicable.
Unamortized financing costs are charged to interest expense, net when debt is retired before the
maturity date. Accumulated amortization of deferred financing costs was $24,264 at December 31,
2008 and was $19,368 at December 31, 2007.
Cash, Cash Equivalents and Cash in Escrow
Cash and cash equivalents include all cash and liquid investments with an original maturity of
three months or less from the date acquired. Cash in escrow consists primarily of construction
financing proceeds that are restricted for use in the construction of a specific community. The
majority of the Companys cash, cash equivalents and cash in escrows are held at major commercial
banks.
Interest Rate Contracts
The Company utilizes derivative financial instruments to manage interest rate risk and generally
designates these financial instruments as cash flow hedges under the guidance of SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities, as amended. As of December 31,
2008 and December 31, 2007, the Company had approximately $61,298 and $213,108, respectively, in
variable rate debt subject to cash flow hedges. Excluding debt on communities classified as held
for sale, the Company did not apply hedge accounting for an additional $125,310 in variable rate
debt which is subject to interest rate caps as of December 31, 2008. See Note 5, Derivative
Instruments and Hedging Activities, for further discussion of derivative financial instruments.
Comprehensive Income
Comprehensive income, as reflected on the Consolidated Statements of Operations and Other
Comprehensive Income, is defined as all changes in equity during each period except for those
resulting from investments by or distributions to shareholders. Accumulated other comprehensive
loss as reflected on the Consolidated Statements of Stockholders Equity, reflects the effective
portion of the cumulative changes in the fair value of derivatives in qualifying cash flow hedge
relationships.
Earnings per Common Share
In accordance with the provisions of SFAS No. 128, Earnings per Share, basic earnings per share
is computed by dividing earnings available to common stockholders by the weighted average number of
shares outstanding during the period. Other potentially dilutive common shares, and the related
impact to earnings, are considered when calculating earnings per share on a diluted basis. The
Companys earnings per common share are determined as follows:
F- 12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended |
|
|
|
12-31-08 |
|
|
12-31-07 |
|
|
12-31-06 |
|
Basic and diluted shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares basic |
|
|
76,783,515 |
|
|
|
78,680,043 |
|
|
|
74,125,795 |
|
Weighted average DownREIT units outstanding |
|
|
59,886 |
|
|
|
105,859 |
|
|
|
172,255 |
|
Effect of dilutive securities |
|
|
735,451 |
|
|
|
1,071,025 |
|
|
|
1,288,848 |
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares diluted |
|
|
77,578,852 |
|
|
|
79,856,927 |
|
|
|
75,586,898 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Calculation of Earnings
per Share basic |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common stockholders |
|
$ |
401,033 |
|
|
$ |
349,460 |
|
|
$ |
257,846 |
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares basic |
|
|
76,783,515 |
|
|
|
78,680,043 |
|
|
|
74,125,795 |
|
|
|
|
|
|
|
|
|
|
|
Earnings per common share basic |
|
$ |
5.22 |
|
|
$ |
4.44 |
|
|
$ |
3.48 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Calculation of Earnings per Share diluted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common stockholders |
|
$ |
401,033 |
|
|
$ |
349,460 |
|
|
$ |
257,846 |
|
Add: Minority interest of DownREIT unitholders
in consolidated partnerships, including
discontinued operations |
|
|
216 |
|
|
|
280 |
|
|
|
391 |
|
|
|
|
|
|
|
|
|
|
|
Adjusted net income available to common stockholders |
|
$ |
401,249 |
|
|
$ |
349,740 |
|
|
$ |
258,237 |
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares diluted |
|
|
77,578,852 |
|
|
|
79,856,927 |
|
|
|
75,586,898 |
|
|
|
|
|
|
|
|
|
|
|
Earnings per common share diluted |
|
$ |
5.17 |
|
|
$ |
4.38 |
|
|
$ |
3.42 |
|
|
|
|
|
|
|
|
|
|
|
In the fourth quarter of 2008, the Company declared a combined special and regular dividend of
$2.70 per share. Shareholders had the option to receive payment of the dividend in cash, shares of
common stock, or a combination of cash and shares of common stock, provided that the aggregate cash
payable to all stockholders, other than cash payable in lieu of fractional shares, was limited to
an amount equal to the regular dividend of $0.8925 per share, multiplied by the number of shares
outstanding on the record date. As discussed in Note 15, Subsequent Events, the Company issued
approximately 2,626,000 shares in payment of the special dividend. The Company concluded that the stock issued
for the special dividend did not qualify for accounting treatment as a stock dividend as that term
is defined within Accounting Research Bulletin No. 43, Restatement and Revision of Accounting
Research Bulletins (ARB 43), and therefore will not restate the number of shares outstanding or
per share results for 2008 or prior year periods. However, in accordance with the provisions of
SFAS No. 128, Earnings per Share (SFAS 128), the shares
issued under the special dividend are considered to be contingently issuable shares. Therefore the
Company included approximately 109,000 shares in the calculation of the Earnings per common share -
diluted for the year ended December 31, 2008 resulting from the special dividend, and prior year
shares outstanding were not adjusted to reflect the impact of the additional shares outstanding
pursuant to the special dividend.
In addition, certain options to purchase shares of common stock in the amounts of 1,534,784 and
335,856 were outstanding at December 31, 2008 and 2007, respectively, but were not included in the
computation of diluted earnings per share because in applying the treasury stock method under the
provisions of SFAS No. 123(R), Share Based Payments as discussed below, such options are
anti-dilutive.
Stock-Based Compensation
The Company adopted the provisions of SFAS No. 123(R) using the modified prospective transition
method on January 1, 2006. The adoption of SFAS No. 123(R) did not have a material impact on the
Companys financial position or results of operations. However, the adoption of SFAS No. 123(R)
changed the service period for, and timing of, the recognition of compensation cost related to
retirement eligibility, which will generally result in accelerated expense recognition by the
Company for its stock-based compensation programs.
Under the provisions of SFAS No. 123(R), the Company is required to estimate the forfeiture of
stock options and recognize compensation cost net of the estimated forfeitures. The estimated
forfeitures included in compensation cost are adjusted to reflect actual forfeitures at the end of the vesting period. Prior to the adoption
of SFAS No. 123(R), option forfeitures were recognized as they occurred. The forfeiture rate at
December 31, 2008 was 2.2%. The application of estimated forfeitures did not materially impact
compensation expense for the years ended December 31,
F- 13
2008, 2007 or 2006.
Assets Held for Sale & Discontinued Operations
The Company follows SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets
(SFAS No. 144) which requires that the assets and liabilities of any communities which have been
sold, or otherwise qualify as held for sale, be presented separately in the Consolidated Balance
Sheets. In addition, the results of operations for those assets that meet the definition of
discontinued operations are presented as such in the Companys Consolidated Statements of
Operations and Other Comprehensive Income. Held for sale and discontinued operations
classifications are provided in both the current and prior periods presented. Real estate assets
held for sale are measured at the lower of the carrying amount or the fair value less the cost to
sell. Both the real estate assets and corresponding liabilities are presented separately in the
accompanying Consolidated Balance Sheets. Subsequent to classification of a community as held for
sale, no further depreciation is recorded. For those assets qualifying for classification as
discontinued operations, the community specific components of net income presented as discontinued
operations include net operating income, minority interest expense, depreciation expense and
interest expense, net. For periods prior to the asset qualifying for discontinued operations under
SFAS No. 144, the Company reclassified the results of operations to discontinued operations in
accordance with SFAS No. 144. In addition, the net gain or loss (including any impairment loss) on
the eventual disposal of communities held for sale will be presented as discontinued operations
when recognized. A change in presentation for held for sale or discontinued operations will not
have any impact on the Companys financial condition or results of operations. The Company
combines the operating, investing and financing portions of cash flows attributable to discontinued
operations with the respective cash flows from continuing operations on the accompanying
Consolidated Statements of Cash Flows. The Company did not have any assets that qualified for held
for sale presentation at December 31, 2008.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make certain
estimates and assumptions. These estimates and assumptions affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenue and expenses during the reporting periods. Actual
results could differ from those estimates.
Reclassifications
Certain reclassifications have been made to amounts in prior years financial statements to conform
to current year presentations.
Recently Issued Accounting Standards
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements, which standardizes the
definition of fair value, establishes a framework for measuring fair value and expands disclosures
about fair value measurements. SFAS No. 157 applies under other accounting pronouncements that
require or permit fair value measurements, and accordingly, this statement does not require any new
fair value measurements. SFAS No. 157 is effective for all fiscal years beginning after November
15, 2007. The FASB issued FASB Staff Position (FSP) SFAS No. 157-2, Effective Date of FASB
Statement No. 157 (FSP 157-2), which allowed for the delay of the application of SFAS No. 157 for
non-financial assets until fiscal years beginning after November 15, 2008. In accordance with this
FSP, the Company elected to defer applying the provisions of SFAS
No. 157 for non-financial instruments until January 2009. The
Company does not believe the adoption of SFAS No. 157 will have a material impact on its financial
position on results of operations.
In December 2007, the FASB issued Statement No. 141(R), Business Combinations. This statement
changes the accounting for acquisitions, specifically eliminating the step acquisition model,
changing the recognition of contingent consideration from being recognized when it is probable to
being recognized at the time of acquisition, disallowing the capitalization of transaction costs
and delays when restructurings related to acquisitions can be recognized. The Company will adopt
this standard beginning January 1, 2009 and will apply the
accounting to acquisitions
subsequent to adoption.
F- 14
In December 2007, the FASB issued Statement No. 160, Accounting and Reporting of Noncontrolling
Interests in Consolidated Financial Statements, an amendment of ARB No. 51. Under this statement,
noncontrolling interests are considered equity and thus the practice of reporting minority
interests in the mezzanine section of the Consolidated Balance Sheets will be eliminated. Also,
under the new standard, net income will encompass the total income of all consolidated subsidiaries
and there will be separate disclosure on the face of the Consolidated Statement of Operations and
Other Comprehensive Income of the attribution of that income between controlling and noncontrolling
interests. Finally, increases and decreases in noncontrolling interests will be treated as equity
transactions. The Company will adopt this standard on a prospective basis as of January 1, 2009,
with the presentation and disclosure requirements applied to all periods presented on a
retrospective basis.
In March 2008, the FASB issued FASB Statement No. 161, Disclosures about Derivative Instruments
and Hedging Activities (an amendment of FASB Statement No. 133). This statement require entities
to provide greater transparency about how and why an entity uses derivative instruments, how
derivative instruments and related hedged items are accounted for under SFAS No. 133 and its
related interpretations, and how derivative instruments and related hedged items affect an entitys
financial positions, results of operations, and cash flows. SFAS No. 161 is effective for fiscal
years beginning after November 15, 2008. The Company will adopt the expanded disclosure
requirements of this standard effective January 1, 2009.
In June 2008, the FASB issued FSP EITF 03-6-1, Determining Whether Instruments Granted in
Share-Based Payment Transactions are Participating Securities. In this FSP, the FASB concluded
that all outstanding unvested share-based payment awards that contain rights to non-forfeitable
dividends or dividend equivalents participate in undistributed earnings with common shareholders
and, accordingly, are considered participating securities that shall be included in the two-class
method of computing basic and diluted EPS. The FSP does not address awards that contain rights to
forfeitable dividends. The FSP is effective for the Companys fiscal year beginning January 1,
2009, with early adoption prohibited. The Company does not believe the provisions of FSP EITF
03-6-1 will have a material impact on its financial position or results of operations.
In November 2008, the FASB ratified the consensus of Emerging Issues Task Force on Issue 08-6,
Equity Method Investment Accounting Considerations (EITF No. 08-6). EITF No. 08-6 addresses
the impact of SFAS 141(R) and SFAS 160 on accounting for equity method investments. The Task Force
reached a consensus that the initial carrying value of an equity method investment should be
determined by applying the cost accumulation model set forth in SFAS 141(R) and that an entity
should use the other-than-temporary impairment model of APB 18 when testing an equity method
investment for impairment. Further, share issuances by an investee should be accounted for as if
the equity method investor had sold a proportionate share of its investment and recognize any gain
or loss in earnings. Finally, when an investment no longer is within the scope of equity method
accounting, the current carrying amount of the investment should be its initial cost and the
investor should prospectively apply the provisions of APB 18 or SFAS No. 115, Accounting for
Certain Investments in Debt and Equity Securities in applying cost method or other appropriate
accounting. EITF 08-6 is effective for fiscal years beginning on or after December 15, 2008, with
early adoption prohibited. The Company does not believe that the provisions of EITF 08-6 will have
a material impact on its financial position or results of operations.
In
December 2008, the FASB issued FSP No. FAS 140-4 and FIN 46(R)-8, Disclosures by Public Entities
(Enterprises) about Transfers of Financial Assets and Interests in Variable Interest Entities.
Under this FSP, entities are required to provide additional disclosures about transfers of
financial assets and their involvement with variable interest entities (VIEs), including
qualifying special purpose entities. The additional disclosures related to VIEs include the method
for determining whether an enterprise is the primary beneficiary of a VIE, including significant
judgments and assumptions made, and whether the consolidation conclusion has changed in the most
recent financial statements. It also requires disclosure of the details of any financial or other
support provided to a VIE that the enterprise was not previously contractually required to provide,
as well as the primary reasons for providing such support. Finally, the primary beneficiary of a
VIE is required to disclose the terms of any arrangements that could require the enterprise to provide
future support to the VIE. This FSP is effective for the first reporting period ending after
December 15, 2008. The Company has included the required disclosures in this Form 10-K.
2. Interest Capitalized
The Company capitalizes interest during the development and redevelopment of real estate assets in
accordance with
F- 15
SFAS No. 34, Capitalization of Interest Cost. Capitalized interest associated with
communities under development or redevelopment totaled $74,621 for 2008, $73,118 for 2007 and
$46,388 for 2006.
3. Notes Payable, Unsecured Notes and Credit Facility
The Companys mortgage notes payable, unsecured notes and variable rate unsecured credit facility
as of December 31, 2008 and December 31, 2007 are summarized below. The following amounts and
discussion do not include the mortgage notes related to the communities classified as held for
sale, if any, as of December 31, 2008 and 2007, as shown in the Consolidated Balance Sheets (see
Note 7, Real Estate Disposition Activities).
|
|
|
|
|
|
|
|
|
|
|
12-31-08 |
|
|
12-31-07 |
|
Fixed rate
unsecured notes (1)
|
|
$ |
1,672,965 |
|
|
$ |
1,893,499 |
|
Variable rate unsecured notes |
|
|
330,000 |
|
|
|
|
|
Fixed rate mortgage notes payable conventional and tax-exempt |
|
|
901,181 |
|
|
|
224,299 |
|
Variable rate mortgage notes payable conventional and tax-exempt |
|
|
646,311 |
|
|
|
525,763 |
|
|
|
|
|
|
|
|
Total notes payable and unsecured notes |
|
|
3,550,457 |
|
|
|
2,643,561 |
|
Variable rate unsecured credit facility |
|
|
124,000 |
|
|
|
514,500 |
|
|
|
|
|
|
|
|
Total mortgage notes payable, unsecured notes and unsecured credit facility |
|
$ |
3,674,457 |
|
|
$ |
3,158,061 |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Balances at December 31, 2008 and December 31, 2007 include $2,035 and $2,501 of debt discount,
respectively. |
The following debt activity occurred during the year ended December 31, 2008:
|
|
|
the Company repaid $50,000 in previously issued 6.625% unsecured notes, along with any
unpaid interest, pursuant to their scheduled maturity; |
|
|
|
|
the Company repurchased $10,000 principal amount of its $150,000, 7.5% unsecured notes,
due August 2009 for $10,288 with the premium above par recorded as a charge to earnings; |
|
|
|
|
the Company repaid the 6.95% loan in the amount of $11,522 secured by Avalon Knoll
located in Gaithersburg, Maryland, and a variable-rate loan secured by Avalon at Fairway
Hills in Columbia, Maryland in the amount of $11,500 early at par. The loans for Avalon
Knoll and Avalon at Fairway Hills had contractual maturities of June 2026; |
|
|
|
|
the Company repaid $146,000 of unsecured notes with an annual interest rate of 8.25%
pursuant to their scheduled maturity; |
|
|
|
|
the Company repaid the $4,368, 6.99% loan secured by a development right in Wheaton,
Maryland pursuant to its scheduled maturity; |
|
|
|
|
the Company repurchased $15,000 of its $250,000, 5.5% unsecured notes due January 2012
for $13,050 with the discount below par recorded as a gain; |
|
|
|
|
the Company executed two separate five-year, interest only mortgage loans for aggregate
borrowings of approximately $264,697 at a weighted average effective interest rate of
approximately 4.78%. One mortgage loan for approximately $170,125 is secured by Avalon at
Arlington Square, located in Arlington, Virginia. The second mortgage loan, for
approximately $94,572 is secured by Avalon at Cameron Court, located in Alexandria,
Virginia; |
|
|
|
|
the Company executed two separate seven-year, interest only mortgage loans for aggregate
borrowings of approximately $260,600 at a weighted average effective interest rate of
approximately 5.58%. One mortgage loan for approximately $110,600 is secured by Avalon
Crescent, located in McLean, Virginia. The second mortgage loan, for approximately
$150,000 is secured by Avalon Silicon Valley, located in Sunnyvale, California; |
|
|
|
|
the Company entered into a $330,000 variable rate, unsecured term loan comprised of
three tranches, each representing approximately one third of the borrowing, bearing
interest at LIBOR plus a spread of 1.25%. One tranche matures in each of the next three
years, with the final tranche maturing in January 2011; |
|
|
|
|
the Company closed variable-rate bond financing relating to Avalon Walnut Creek in the
aggregate amount of $135,000, of which $126,000 is tax-exempt. In addition, the Company
also closed a 4.0% fixed rate construction loan for $2,500 related to Avalon Walnut Creek; |
|
|
|
|
the Company executed three fixed rate mortgage loans for an aggregate borrowing of
$169,249 with a weighted average interest rate of 6.0% of which $55,100 is secured by
Avalon Commons, located in |
F- 16
|
|
|
Smithtown, New York, $51,749 is secured by Avalon Darien, located in Darien, Connecticut and
$62,400 is secured by Avalon at Greyrock Place, located in Stamford, Connecticut; and |
|
|
|
|
the Company used a portion of the net proceeds from these borrowings to reduce the
amounts outstanding under its unsecured credit facility to $124,000. |
In the aggregate, secured notes payable mature at various dates from April 2009 through July 2066,
and are secured by certain apartment communities and improved land parcels (with a net carrying
value of $1,567,783 as of December 31, 2008). As of December 31, 2008, the Company has guaranteed
approximately $390,171 of mortgage notes payable held by wholly owned subsidiaries; all such
mortgage notes payable are consolidated for financial reporting purposes. The weighted average
interest rate of the Companys fixed rate mortgage notes payable (conventional and tax-exempt) was
5.7% and 6.5% at December 31, 2008 and December 31, 2007, respectively. The weighted average
interest rate of the Companys variable rate mortgage notes payable, unsecured term loan and its
unsecured credit facility, including the effect of certain financing related fees, was 2.9% at
December 31, 2008 and 5.4% at December 31, 2007.
Scheduled payments and maturities of mortgage notes payable and unsecured notes outstanding at
December 31, 2008 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stated |
|
|
|
|
|
|
|
|
|
|
|
Unsecured |
|
|
interest rate |
|
|
|
Secured notes |
|
|
Secured notes |
|
|
notes |
|
|
of unsecured |
|
Year |
|
payments (1)
|
|
|
maturities |
|
|
maturities |
|
|
notes (2)
|
|
2009 |
|
$ |
5,108 |
|
|
$ |
58,855 |
|
|
$ |
140,000 |
|
|
|
7.500 |
% |
|
|
|
|
|
|
|
|
|
|
|
105,600 |
|
|
|
3.720 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
4,626 |
|
|
|
29,388 |
|
|
|
200,000 |
|
|
|
7.500 |
% |
|
|
|
|
|
|
|
|
|
|
|
112,200 |
|
|
|
3.720 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
3,425 |
|
|
|
36,594 |
|
|
|
300,000 |
|
|
|
6.625 |
% |
|
|
|
|
|
|
|
|
|
|
|
50,000 |
|
|
|
6.625 |
% |
|
|
|
|
|
|
|
|
|
|
|
112,200 |
|
|
|
3.720 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012 |
|
|
2,181 |
|
|
|
27,156 |
|
|
|
250,000 |
|
|
|
6.125 |
% |
|
|
|
|
|
|
|
|
|
|
|
235,000 |
|
|
|
5.500 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013 |
|
|
2,323 |
|
|
|
319,797 |
|
|
|
100,000 |
|
|
|
4.950 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2014 |
|
|
2,475 |
|
|
|
33,100 |
|
|
|
150,000 |
|
|
|
5.375 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015 |
|
|
2,637 |
|
|
|
374,749 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016 |
|
|
2,806 |
|
|
|
|
|
|
|
250,000 |
|
|
|
5.750 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017 |
|
|
2,989 |
|
|
|
18,300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018 |
|
|
3,185 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thereafter |
|
|
369,114 |
|
|
|
248,684 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
400,869 |
|
|
$ |
1,146,623 |
|
|
$ |
2,005,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Secured notes payments are comprised of the principal pay downs
for amortizing mortgage notes. |
|
(2) |
|
The stated interest rate for variable-rate unsecured notes is
the rate as of December 31, 2008. |
The Companys unsecured notes are redeemable at our option, in whole or in part, at a redemption
price equal to the greater of (i) 100% of their principal amount or (ii) the sum of the present
value of the remaining scheduled payments of principal and interest discounted at a rate equal to
the yield on U.S. Treasury securities with a comparable maturity plus a spread of 25 basis points,
plus accrued and unpaid interest to the redemption date. The indenture under which the Companys
unsecured notes were issued contains restrictions on incurring debt and using
our assets as security in other financing transactions and other customary financial and other
covenants, with which the Company was in compliance at December 31, 2008.
F- 17
The Company has a variable rate unsecured credit facility (the Credit Facility) in the amount of
$1,000,000 with a syndicate of commercial banks, to whom the Company pays, in the aggregate, an
annual facility fee of approximately $1,250. The Company had $124,000 outstanding under the Credit
Facility and $45,976 outstanding in letters of credit as of December 31, 2008. At December 31,
2007, there was $514,500 outstanding under the Credit Facility and $61,689 outstanding in letters
of credit. The Credit Facility bears interest at varying levels based on the London Interbank
Offered Rate (LIBOR), rating levels achieved on the Companys unsecured notes and on a maturity
schedule selected by the Company. The current stated pricing is LIBOR
plus 0.40% per annum (0.84%
at December 31, 2008). The stated spread over LIBOR can vary from LIBOR plus 0.325% to LIBOR plus
1.00% based on the Companys credit ratings. In addition, the Credit Facility includes a
competitive bid option, which allows banks that are part of the lender consortium to bid to make
loans to the Company at a rate that is lower than the stated rate provided by the Credit Facility
for up to $422,500. The competitive bid option may result in lower pricing than the stated rate if
market conditions allow. The Company did not have any amounts outstanding under this competitive
bid option as of December 31, 2008. The Credit Facility matures in November 2011, assuming
exercise of a one-year renewal option by the Company.
The Company was in compliance at December 31, 2008 with certain customary financial and other
covenants under the Credit Facility, the $330,000 variable rate unsecured term loan and the
Companys unsecured notes.
4. Stockholders Equity
As of December 31, 2008 and 2007, the Company had authorized for issuance 140,000,000 and
50,000,000 shares of common and preferred stock, respectively. In October 2008, the Company
redeemed all 4,000,000 outstanding shares of its Series H Cumulative Redeemable Preferred Stock,
including accrued but unpaid dividends, for $100,701. As of December 31, 2007, the Company had
4,000,000 shares of Series H redeemable preferred stock outstanding at a stated liquidation
preference of $100,000.
During the year ended December 31, 2008, the Company:
|
(i) |
|
issued 155,291 shares of common stock in connection with stock options exercised; |
|
|
(ii) |
|
recognized 24,407 common shares granted to members of the Board of Directors in
fulfillment of deferred stock awards; |
|
|
(iii) |
|
issued 5,703 common shares through the Companys dividend reinvestment plan;
|
|
|
(iv) |
|
issued 130,325 common shares in connection with stock grants; |
|
|
(v) |
|
issued 8,460 common shares through the Companys employee stock purchase plan; |
|
|
(vi) |
|
withheld 39,633 common shares to satisfy employees tax withholding and other liabilities; |
|
|
(vii) |
|
purchased 482,100 common shares through the Companys stock repurchase program; |
|
|
(viii) |
|
had 1,101 shares of restricted common stock forfeited; and |
|
|
(ix) |
|
redeemed all 4,000,000 shares of outstanding preferred stock. |
In addition, the Company granted 401,212 options for common stock to employees. As required under
SFAS No. 123(R), any deferred compensation related to the Companys stock option and restricted
stock grants during 2008 is not reflected on the Companys Consolidated Balance Sheet as of
December 31, 2008, and will not be reflected until earned as compensation cost.
Dividends per common share were $5.3775 for the year ended December 31, 2008, which 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. 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, which resulted in aggregate gains recognized for federal income tax
purposes of $355,000. 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.
Stockholders had the option to receive payment of the Special Dividend and regular dividend
(collectively the Combined Dividend) in the form of cash, shares of common stock or a combination
of cash and shares of common stock, provided that the aggregate amount of cash payable to all
stockholders (other than cash payable in
lieu of
F-18
fractional shares) was limited to an amount equal to the regular dividend of $0.8925 per
share multiplied by the number of shares outstanding at the record date.
Dividends per common share were $3.40 for the year ended December 31, 2007 and $3.12 for the year
ended December 31, 2006. The average dividend for preferred shares was $1.81 for the year ended
December 31, 2008. The average dividend for all non-redeemed preferred shares during the years
ended December 31, 2007 and 2006 was $2.18 per share.
The Company offers a Dividend Reinvestment and Stock Purchase Plan (the DRIP), which allows for
holders of the Companys common stock to purchase shares of common stock through
either reinvested dividends or optional cash payments. The purchase price per share for newly
issued shares of common stock under the DRIP will be equal to the last reported sale price for a
share of the Companys common stock as reported by the New York Stock Exchange (NYSE) on the
applicable investment date.
In February 2008, the Company announced that its Board of Directors increased the Companys common
stock repurchase program for purchases of shares of its common stock in open market or negotiated
transactions to $500,000. During the year ended December 31, 2008, the Company repurchased 482,100
shares at an average price of $87.42 per share through this program, bringing the total amount of
common stock purchased under the program to approximately $300,000.
5. Derivative Instruments and Hedging Activities
The Company enters into interest rate swap and interest rate cap agreements (collectively, the
Hedging Derivatives) to reduce the impact of interest rate fluctuations on its variable rate,
tax-exempt bonds and its variable rate conventional secured debt (collectively, the Hedged Debt).
The Company has not entered into any interest rate hedge agreements for its conventional unsecured
debt and does not enter into derivative transactions for trading or other speculative purposes.
The following table summarizes the consolidated Hedging Derivatives at December 31, 2008, excluding
derivatives executed to hedge debt on communities classified as held for sale (dollars in
thousands):
|
|
|
|
|
|
|
|
|
|
|
Interest |
|
Interest |
|
|
Rate Caps |
|
Rate Swaps |
Notional balance |
|
$ |
188,885 |
|
|
$ |
44,937 |
|
Weighted
average interest rate (1)
|
|
|
3.6 |
% |
|
|
6.5 |
% |
Weighted average capped interest rate |
|
|
7.2 |
% |
|
|
n/a |
|
Earliest maturity date |
|
May-09 |
|
Jun-10 |
Latest maturity date |
|
Mar-14 |
|
Jun-10 |
Estimated fair value, asset/(liability) |
|
$ |
116 |
|
|
$ |
(2,561 |
) |
|
|
|
(1) |
|
For interest rate caps, this represents the weighted average interest rate on the
debt. |
Excluding derivatives executed to hedge debt on communities classified as held for sale, the
Company had three derivatives designated as cash flow hedges and seven derivatives not designated
as hedges at December 31, 2008. For the derivative positions that the Company has determined
qualify as effective cash flow hedges under SFAS No. 133, the Company has recorded the effective
portion of cumulative changes in the fair value of the Hedging Derivatives in other comprehensive
income. Amounts recorded in other comprehensive income will be reclassified into earnings in the
periods in which earnings are affected by the hedged cash flow. To adjust the Hedging Derivatives
to their fair value and recognize the impact of hedge accounting, the Company recorded an increase
in other comprehensive income of $434, $213 and $891 during the years ended December 31, 2008, 2007
and 2006, respectively. Amounts in other comprehensive income will be reclassified into earnings
in conjunction with the periodic adjustment of the floating rates on the Hedged Debt, in interest
expense, net. The amount reclassified into earnings in 2008, as well as the estimated amount
included in accumulated other comprehensive income as of December 31, 2008, expected to be
reclassified into earnings within the next twelve months to offset the variability of cash flows of
the hedged items during this period are not material.
The Company assesses both at inception and on an on-going basis, the effectiveness of qualifying
cash flow hedges. Hedge ineffectiveness, reported as a component of general and administrative
expenses, did not have a material impact on earnings of the Company for any prior period, and the
Company does not anticipate that it will have a material effect in the future. The fair values of
the Hedging Derivatives are included in accrued expenses and other liabilities on the
F-19
accompanying Consolidated Balance Sheets.
Derivative financial instruments expose the Company to credit risk in the event of nonperformance
by the counterparties under the terms of the Hedging Derivatives. The Company minimizes its credit
risk on these transactions by dealing with major, creditworthy financial institutions which have an
A+ or better credit rating by the Standard & Poors Ratings Group. As part of its on-going control
procedures, the Company monitors the credit ratings of counterparties and the exposure of the
Company to any single entity, thus minimizing credit risk concentration. The Company believes the
likelihood of realizing losses from counterparty non-performance is remote. Consistent with the
provisions of SFAS No. 157, the Company incorporates credit valuation adjustments to appropriately
reflect both its own nonperformance risk and the respective counterpartys nonperformance risk in
the fair value measurements of its derivative financial instruments. Refer to Note 13, Fair Value
Measurements, for further discussion of fair value measurements under SFAS No. 157.
6. Investments in Real Estate Entities
Investments in Unconsolidated Real Estate Entities
The Company accounts for its investments in unconsolidated real estate entities in accordance with
the literature as discussed in Note 1, Organization and
Significant Accounting Policies, under
Principles of Consolidation.
As of December 31, 2008, the Company had investments in the following real estate entities:
|
|
|
Arna Valley View LP In connection with the municipal approval process for the
development of a consolidated community, the Company agreed to participate in the formation
of a limited partnership in February 1999 to develop, finance, own and operate Arna Valley
View, a 101 apartment-home community located in Arlington, Virginia. This community has
affordable rents for 100% of apartment homes related to the tax-exempt bond financing and
tax credits used to finance construction of the community. A subsidiary of the Company is
the general partner of the partnership with a 0.01% ownership interest. The Company is
responsible for the day-to-day operations of the community and is the management agent
subject to the terms of a management agreement. As of December 31, 2008, Arna Valley View
has $5,520 of variable rate, tax-exempt bonds outstanding, which mature in June 2032. In
addition, Arna Valley View has $5,121 of 4% fixed rate county bonds outstanding that mature
in December 2030. Arna Valley Views debt is neither guaranteed by, nor recourse to the
Company. Due to the Companys limited ownership in this venture and the terms of the
management agreement regarding the rights of the limited partners, it is accounted for
using the cost method. |
|
|
|
CVP I, LLC In February 2004, the Company entered into a joint venture agreement with
an unrelated third-party for the development of Avalon Chrystie Place, a 361 apartment-home
community located in New York, New York, for which construction was completed in late 2005.
The Company has contributed $6,270 to this joint venture and holds a 20% equity interest
(with a right to 50% of distributions after achievement of a threshold return, which was
achieved in 2008). The Company is the managing member of CVP I, LLC, however, property
management services at the community are performed by an unrelated third party. |
As of December 31, 2008, CVP I, LLC has tax-exempt variable rate bonds in the amount of
$117,000 outstanding, which have a permanent credit enhancement and mature in February 2036.
The Company has guaranteed, under limited circumstance, the repayment to the credit
enhancer of any advance in fulfillment of CVP I LLCs repayment obligations under the bonds.
The Company has also guaranteed the credit enhancer that CVP I, LLC will obtain a final
certificate of occupancy for the project overall once tenant
improvements related to a retail tenant are complete, which is expected in 2009. The
Companys maximum obligation under this guarantee at December 31, 2008 was $117,000. The
Companys 80% partner in this venture has agreed that it will reimburse the Company its pro
rata share of any amounts paid relative to these guaranteed obligations. The Company does
not currently expect to incur any liability under either of these guarantees. The estimated
fair value of, and the Companys obligation under these guarantees, both at inception and as
of December 31, 2008 were not significant. As a result, the Company has not recorded any
F-20
obligation associated with these guarantees at December 31, 2008. This community is
unconsolidated for financial reporting purposes and is accounted for under the equity
method.
In addition, the Company and the joint venture that owns Avalon Chrystie Place, in which it
has an interest, are defendants in a matter related to FHA accessibility. See discussion in
Note 8, Commitments and Contingencies.
|
|
|
Avalon Del Rey Apartments, LLC In March 2004, the Company entered into an agreement
with an unrelated third party which provided that, upon construction completion, Avalon Del
Rey would be owned and operated by a joint venture between the Company and the third party.
Avalon Del Rey is a 309 apartment-home community located in Los Angeles, California that
was developed by the Company, with construction completed during the third quarter of 2006.
During the fourth quarter of 2006, the third-party venture partner invested $49,000 and
was granted a 70% ownership interest in the venture, with the Company retaining a 30%
equity interest. The Company continues to be responsible for the day-to-day operations of
the community and is the management agent subject to the terms of a management agreement.
Avalon Del Rey Apartments, LLC has a variable rate $50,000 secured construction loan, of
which $40,763 is outstanding as of December 31, 2008 and which matures in September 2009,
subject to the exercise of an additional one-year extension option. In conjunction with
the construction management services that the Company provided to Avalon Del Rey
Apartments, LLC, the Company has provided a construction completion guarantee to the
construction loan lender in order to fulfill their standard financing requirements related
to construction financing. Although the obligation of the Company under this guarantee
exists at December 31, 2008, the Company does not have any potential liability at December
31, 2008, as construction has been completed. This guarantee will terminate at the time
that Avalon Del Rey Apartments LLC refinances the note. |
In conjunction with the admittance of the joint venture partner to the LLC, the Company
provided the third-party investor an operating guarantee. This guarantee, which extended
for one year, provided that if the one-year return for the initial year of the joint venture
partners investment was less than a threshold return of 7% on its initial equity
investment, that the Company would pay the joint venture partner an amount equal to the
shortfall, up to the 7% threshold return required. Over the guarantee period, the cash
flows and return on investment for Avalon Del Rey exceeded the initial year threshold return
required by our joint venture partner, satisfying all obligations of the Company under this
guarantee.
Concurrent with the satisfaction of the operating guarantee in the fourth quarter of 2007,
the Company recognized the sale of a 70% ownership interest in the entity that owns Avalon
Del Rey, reporting a gain of $3,607 as a component of equity in income of unconsolidated
entities on the Consolidated Statements of Operations and Other Comprehensive Income.
Therefore, in the fourth quarter of 2007, the Company began to account for its investment in
the joint venture under the equity method of accounting.
|
|
|
Juanita Construction, Inc. In April 2004, a taxable REIT subsidiary of the Company
entered into an agreement to develop Avalon at Juanita Village, a 211 apartment-home
community located in Kirkland, Washington, for which construction was completed in late
2005. Avalon at Juanita Village was developed through Juanita Construction, Inc., a
wholly owned taxable REIT subsidiary and was sold to a joint venture in the first quarter
of 2006, at which point, the subsidiary was reimbursed for all the costs of construction
and retained a promoted interest in the residual profits of the joint venture. The
third-party joint venture partner received a 100% equity interest in the joint venture and
will control the joint venture. The Company was engaged to manage the community for a
property management fee. This community is unconsolidated for financial reporting purposes
effective with the sale to the joint venture. |
|
|
|
Aria at Hathorne LLC In the second quarter of 2007, a wholly owned taxable REIT
subsidiary of the Company entered into an LLC agreement with a joint venture partner to
develop 64 for-sale town homes with a total capital cost of $23,621 in Danvers,
Massachusetts. The homes will be developed between 2008 and 2010 on an out parcel adjacent
to our Avalon Danvers rental apartment community. The out parcel was zoned for for-sale
activity, and was contributed to the LLC by the subsidiary of the Company in exchange for a
50% ownership interest. The LLC has $1,868 outstanding on a variable rate $5,400 secured
construction loan and $2,608 outstanding on a $3,200 variable rate development loan as of
December 31,
|
F-21
2008. The Companys joint venture partner has provided a payment and
completion guarantee to both the acquisition and development and the construction loan
lender. In addition, the LLC has a short-term note for $263 that is expected to be repaid
in 2009. The Company accounts for this investment under the equity method.
|
|
|
MVP I, LLC In December 2004, the Company entered into a joint venture agreement with
an unrelated third-party for the development of Avalon at Mission Bay North II.
Construction for Avalon at Mission Bay North II, a 313 apartment-home community located in
San Francisco, California, was completed in December 2006. The Company has contributed
$5,902 to this venture and holds a 25% equity interest. The Company is responsible for the
day-to-day operations of the community and is the management agent subject to the terms of
a management agreement. In December 2007, MVP I, LLC executed a seven-year, fixed rate
conventional loan. The Company has guaranteed, under limited circumstance, the repayment
to the credit enhancer of any advance in fulfillment of MVP I, LLCs repayment obligations
under the bonds. The Companys 75% partner in this venture has agreed that it will
reimburse the Company its pro rata share of any amounts paid relative to this guarantee
obligation. The Company does not currently expect to incur any liability under this
guarantee. The estimated fair value of, and the Companys obligation under this guarantee,
both at inception and as of December 31, 2008 was not
significant. As a result, the Company
has not recorded any obligation associated with this guarantee at December 31, 2008. This
community is unconsolidated for financial reporting purposes and is accounted for under the
equity method. |
|
|
|
AvalonBay Value Added Fund, LP (the Fund) In March 2005, the Company admitted
outside investors into the Fund, a private, discretionary investment vehicle, which
acquired and operates communities in the Companys markets. The Fund served as the
principal vehicle through which the Company acquired investments in apartment communities,
subject to certain exceptions until March 2008. The Fund has nine institutional investors,
including the Company, and a combined equity capital commitment of $330,000. A significant
portion of the investments made in the Fund by its investors were made through AvalonBay
Value Added Fund, Inc., a Maryland corporation that qualifies as a REIT under the Internal
Revenue Code (the Fund REIT). A wholly owned subsidiary of the Company is the general
partner of the Fund and has committed $50,000 to the Fund and the Fund REIT, representing a
15.2% combined general partner and limited partner equity interest.
At December 31, 2008,
the Fund was fully invested. The Company receives asset management fees, property
management fees and redevelopment fees, as well as a promoted interest if certain
thresholds are met (which were not achieved in 2008). |
As of December 31, 2008, the Fund owns the following 19 communities, subject to certain
mortgage debt. In addition, as of December 31, 2008, the Fund has $3,000 outstanding under
its variable rate credit facility, which matures in December 2009. The Company has not
guaranteed any of the Fund debt, nor does it have any obligation to fund this debt should
the Fund be unable to do so.
F-22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding Debt |
|
|
|
|
|
|
# of apt |
|
|
|
|
|
|
|
|
|
Interest |
|
Maturity |
Community Name |
|
Location |
|
homes |
|
Amount |
|
Type |
|
Rate |
|
Date |
Avalon at Redondo Beach |
|
Los Angeles, CA
|
|
|
105 |
|
|
$ |
21,033 |
|
|
Fixed |
|
|
4.87 |
% |
|
Oct 2011 |
Avalon Lakeside |
|
Chicago, IL
|
|
|
204 |
|
|
|
12,056 |
|
|
Fixed |
|
|
5.74 |
% |
|
Mar 2012 |
Avalon Columbia |
|
Baltimore, MD
|
|
|
170 |
|
|
|
22,275 |
|
|
Fixed |
|
|
5.48 |
% |
|
Apr 2012 |
Avalon Sunset |
|
Los Angeles, CA
|
|
|
82 |
|
|
|
12,750 |
|
|
Fixed |
|
|
5.41 |
% |
|
Feb 2014 |
Avalon at Poplar Creek |
|
Chicago, IL
|
|
|
196 |
|
|
|
16,500 |
|
|
Fixed |
|
|
4.83 |
% |
|
Oct 2012 |
Avalon at Civic Center |
|
Norwalk, CA
|
|
|
192 |
|
|
|
27,001 |
|
|
Fixed |
|
|
5.38 |
% |
|
Aug 2013 |
Avalon Paseo Place |
|
Fremont, CA
|
|
|
134 |
|
|
|
11,800 |
|
|
Fixed |
|
|
5.74 |
% |
|
Nov 2013 |
Avalon at Yerba Buena |
|
San Francisco, CA
|
|
|
160 |
|
|
|
41,500 |
|
|
Fixed |
|
|
5.88 |
% |
|
Mar 2014 |
Avalon at Aberdeen Station |
|
Aberdeen, NJ
|
|
|
290 |
|
|
|
39,842 |
|
|
Fixed |
|
|
5.64 |
% |
|
Sep 2013 |
The Springs |
|
Corona, CA
|
|
|
320 |
|
|
|
26,000 |
|
|
Fixed |
|
|
6.06 |
% |
|
Oct 2014 |
The Covington |
|
Lombard, IL
|
|
|
256 |
|
|
|
17,243 |
|
|
Fixed |
|
|
5.43 |
% |
|
Jan 2014 |
Avalon Cedar Place |
|
Columbia, MD
|
|
|
156 |
|
|
|
12,000 |
|
|
Fixed |
|
|
5.68 |
% |
|
Feb 2014 |
Avalon Centerpoint |
|
Baltimore, MD
|
|
|
392 |
|
|
|
45,000 |
|
|
Fixed |
|
|
5.74 |
% |
|
Dec 2013 |
Middlesex Crossing |
|
Billerica, MA
|
|
|
252 |
|
|
|
24,100 |
|
|
Fixed |
|
|
5.49 |
% |
|
Dec 2013 |
Avalon Crystal Hill |
|
Ponoma, NY
|
|
|
168 |
|
|
|
24,500 |
|
|
Fixed |
|
|
5.43 |
% |
|
Dec 2013 |
Skyway Terrace |
|
San Jose, CA
|
|
|
348 |
|
|
|
37,500 |
|
|
Fixed |
|
|
6.11 |
% |
|
Mar 2014 |
Avalon Rutherford Station |
|
East Rutherford, NJ
|
|
|
108 |
|
|
|
20,382 |
|
|
Fixed |
|
|
6.13 |
% |
|
Sep 2016 |
South Hills Apartments |
|
West Covina, CA
|
|
|
85 |
|
|
|
11,761 |
|
|
Fixed |
|
|
5.92 |
% |
|
Dec 2013 |
Colonial Towers/South Shore Manor |
|
Weymouth, MA
|
|
|
211 |
|
|
|
13,455 |
|
|
Fixed |
|
|
5.12 |
% |
|
Mar 2015 |
In addition, as part of the formation of the Fund, the Company provided a guarantee to one
of the limited partners. 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 the total capital
contributions made by that partner, then the Company will pay the partner an amount equal to
the shortfall, but in no event more than 10% of the total capital contributions made by the
partner (maximum of approximately $7,192 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 under the expected Fund liquidation scenario. The estimated fair
value of and the Companys obligation under this guarantee, both at inception and as of
December 31, 2008 was not significant and therefore the Company has not recorded any
obligation for this guarantee as of December 31, 2008.
In June 2008, the Fund sold Avalon Redmond, located in Redmond, WA. Avalon Redmond contains
400 apartment homes and was sold for a sales price of $81,250 resulting in a gain in
accordance with GAAP of $25,417. The Companys share of the gain in accordance with GAAP
was approximately $3,483 reported as a component of equity in income of unconsolidated
entities on the Consolidated Statements of Operations and Other Comprehensive Income.
F-23
The following is a combined summary of the financial position of the entities accounted for using
the equity method, as of the dates presented:
|
|
|
|
|
|
|
|
|
|
|
12-31-08 |
|
|
12-31-07 |
|
|
|
(unaudited) |
|
|
(unaudited) |
|
Assets: |
|
|
|
|
|
|
|
|
Real estate, net |
|
$ |
995,680 |
|
|
$ |
997,319 |
|
Other assets |
|
|
12,869 |
|
|
|
31,772 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
1,008,549 |
|
|
$ |
1,029,091 |
|
|
|
|
|
|
|
|
Liabilities and partners capital: |
|
|
|
|
|
|
|
|
Mortgage notes payable and credit facility |
|
$ |
705,332 |
|
|
$ |
719,310 |
|
Other liabilities |
|
|
18,063 |
|
|
|
20,494 |
|
Partners capital |
|
|
285,154 |
|
|
|
289,287 |
|
|
|
|
|
|
|
|
Total liabilities and partners capital |
|
$ |
1,008,549 |
|
|
$ |
1,029,091 |
|
|
|
|
|
|
|
|
The following is a combined summary of the operating results of the entities accounted for using
the equity method, for the years presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended |
|
|
|
12-31-08 |
|
|
12-31-07 |
|
|
12-31-06 |
|
|
|
(unaudited) |
|
|
(unaudited) |
|
|
(unaudited) |
|
Rental and other income |
|
$ |
105,421 |
|
|
$ |
92,078 |
|
|
$ |
67,207 |
|
Operating and other expenses |
|
|
(43,992 |
) |
|
|
(39,952 |
) |
|
|
(30,913 |
) |
Gain on sale of communities |
|
|
25,417 |
|
|
|
|
|
|
|
26,661 |
|
Interest expense, net |
|
|
(38,478 |
) |
|
|
(40,791 |
) |
|
|
(23,545 |
) |
Depreciation expense |
|
|
(31,152 |
) |
|
|
(26,622 |
) |
|
|
(18,054 |
) |
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
17,216 |
|
|
$ |
(15,287 |
) |
|
$ |
21,356 |
|
|
|
|
|
|
|
|
|
|
|
In conjunction with the acquisition and development of the investments in unconsolidated entities,
the Company incurred costs in excess of its equity in the underlying net assets of the respective
investments. These costs represent $4,817 at December 31, 2008 and $5,375 at December 31, 2007 of
the respective investment balances.
In October 2007, the Company completed the sale of its partnership interest in Avalon Grove to its
thirdparty venture partner for $63,446 with a gain in accordance with GAAP of $56,320 reported as
a component of equity in income of unconsolidated entities on the Consolidated Statements of
Operations and Other Comprehensive Income. Avalon Grove, located in the Fairfield-New Haven market
of Connecticut, was previously reported as an unconsolidated real estate investment. The Company
continues to manage this community for a customary property management fee.
Investments in Unconsolidated Non-Real Estate Entities
The following is a summary of the Companys equity in income (loss) of unconsolidated entities for
the years presented:
F-24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended |
|
|
|
12-31-08 |
|
|
12-31-07 |
|
|
12-31-06 |
|
Town Grove, LLC (1)
|
|
$ |
31 |
|
|
$ |
57,821 |
|
|
$ |
1,457 |
|
Avalon Del Rey, LLC (2)
|
|
|
241 |
|
|
|
3,616 |
|
|
|
|
|
CVP I, LLC |
|
|
1,109 |
|
|
|
567 |
|
|
|
(68 |
) |
Town Run Associates |
|
|
|
|
|
|
107 |
|
|
|
298 |
|
|
Avalon Terrace, LLC (3)
|
|
|
|
|
|
|
22 |
|
|
|
6,736 |
|
MVP I, LLC |
|
|
(474 |
) |
|
|
(1,261 |
) |
|
|
(662 |
) |
|
AvalonBay Value Added Fund, L.P. (4)
|
|
|
2,532 |
|
|
|
(1,775 |
) |
|
|
(799 |
) |
Rent.com |
|
|
|
|
|
|
|
|
|
|
433 |
|
Constellation Real Technologies |
|
|
|
|
|
|
72 |
|
|
|
60 |
|
Aria at Hathorne, LLC |
|
|
1,127 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
4,566 |
|
|
$ |
59,169 |
|
|
$ |
7,455 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Equity in income from this entity for 2007 includes a gain
of $56,320 for the Company from the fourth quarter disposition of its
partnership interest in Avalon Grove, an asset held by Town Grove, LLC. |
|
(2) |
|
Equity in income from this entity for 2007 includes a gain
of $3,607 for the Company from the fourth quarter disposition of its
ownership interest in Avalon Del Rey, the sole asset held by Avalon Del
Rey, LLC. |
|
(3) |
|
Equity in income from this entity for 2006 includes a gain of
$6,609 for the Companys 25% share of the gain from the fourth quarter disposition
of Avalon Bedford, the sole asset held by Avalon Terrace, LLC. |
|
(4) |
|
Equity in income from this entity for 2008 includes a gain of $3,483
for the Companys 15.2% share of the gain from the second quarter disposition of
Avalon Redmond, an asset held by AvalonBay Value Added Fund, L.P. |
Investments in Consolidated Real Estate Entities
|
|
|
PHVP I LP In the third quarter of 2008, the Company became the general partner of PHVP
I, LP, acquiring a 99% controlling interest in the entity. The Company also entered into a
ground lease in connection with the land related to the proposed development of Avalon at
Walnut Creek, and became the borrower under the increased bond financing of $135,000 and a
$2,500, 4.0% fixed rate loan in order to fund construction of Avalon at Walnut Creek, the
multifamily portion of the development. |
|
|
|
|
On September 2, 2008, the Company announced the formation of AvalonBay Value Added Fund
II, LP (Fund II), a private, discretionary investment vehicle with commitments from five
institutional investors including the Company. Fund II has equity commitments totaling
$333,000. The Company has committed $150,000 to Fund II, representing a 45% equity
interest. |
Fund II will acquire and operate multifamily apartment communities primarily in the
Companys 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 the Company 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 the
Companys development activities. The Company will receive, in addition to any returns on
its invested equity, asset management fees, property management fees and redevelopment fees.
The Company will also receive a promoted interest if certain return thresholds are met. As
of December 31, 2008, Fund II has not made any investments.
The Company, which serves as the general partner for Fund II, evaluated its investment in
Fund II under EITF 04-5 and determined that the presumption of control by the Company was
not overcome by the rights of the limited partners. The Company therefore accounts for its
investment in Fund II as a consolidated subsidiary.
F-25
In conjunction with the formation of Fund II, we have provided to one of the limited
partners a guarantee. The guarantee provides that if, upon final liquidation of Fund II,
the total amount of all distributions to that partner during the life of Fund II (whether
from operating cash flow or property sales) does not equal a minimum of the total capital
contributions made by that partner, then we will pay the partner an amount equal to the
shortfall, but in no event more than 10% of the total capital contributions made by the
partner. As of December 31, 2008, there have not yet been any capital contributions by the
partners of Fund II. The estimated fair value of, and our obligation under this guarantee,
both at inception and as of December 31, 2008 is zero and therefore we have not recorded any
obligation for this guarantee as of December 31, 2008.
7. Real Estate Disposition Activities
During the year ended December 31, 2008, the Company sold ten wholly owned communities for an
aggregate gross sales price of $564,950, a portion of which was used to repay outstanding debt
related to these dispositions in the amount of $43,715. These dispositions resulted in a gain in
accordance with GAAP of approximately $284,901. Details regarding the community asset sales are
summarized in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period |
|
Apartment |
|
|
|
|
|
|
Gross sales |
|
|
Net |
|
Community Name |
|
Location |
|
of sale |
|
homes |
|
|
Debt |
|
|
price |
|
|
proceeds |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Avalon at West Grove |
|
Westmont, IL |
|
Q208 |
|
|
400 |
|
|
$ |
|
|
|
$ |
38,650 |
|
|
$ |
36,829 |
|
Avalon Haven |
|
North Haven,IL
|
|
Q208 |
|
|
128 |
|
|
|
|
|
|
|
23,750 |
|
|
|
22,953 |
|
Avalon at Foxchase I and II |
|
San Jose, CA |
|
Q208 |
|
|
396 |
|
|
|
26,400 |
|
|
|
91,250 |
|
|
|
62,478 |
|
Avalon Landing |
|
Annapolis, MD |
|
Q308 |
|
|
158 |
|
|
|
|
|
|
|
25,750 |
|
|
|
24,935 |
|
Avalon Walk |
|
Hamden, CT |
|
Q308 |
|
|
764 |
|
|
|
|
|
|
|
124,000 |
|
|
|
120,816 |
|
Avalon at Pruneyard |
|
Campbell, CA |
|
Q308 |
|
|
252 |
|
|
|
|
|
|
|
53,800 |
|
|
|
53,093 |
|
Avalon Wynhaven |
|
Issaquah, WA |
|
Q308 |
|
|
333 |
|
|
|
|
|
|
|
66,250 |
|
|
|
59,780 |
|
Avalon Blossom Hill |
|
San Jose, CA |
|
Q308 |
|
|
324 |
|
|
|
|
|
|
|
84,000 |
|
|
|
83,193 |
|
Avalon Ledges |
|
Weymouth, MA |
|
Q408 |
|
|
304 |
|
|
|
17,315 |
|
|
|
57,500 |
|
|
|
39,300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total of all 2008 asset sales |
|
|
|
|
|
|
3,059 |
|
|
$ |
43,715 |
|
|
$ |
564,950 |
|
|
$ |
503,377 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total of all 2007 asset sales |
|
|
|
|
|
|
1,384 |
|
|
$ |
8,116 |
|
|
$ |
268,096 |
|
|
$ |
257,396 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total of all 2006 asset sales |
|
|
|
|
|
|
1,036 |
|
|
$ |
37,200 |
|
|
$ |
261,850 |
|
|
$ |
218,492 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company is a party to litigation with the developer of the planned community in which Avalon
Wynhaven is a member, concerning shared costs with another association controlled by the same
developer. The Company believes that the developer has overcharged, and continues to overcharge
the community. In conjunction with the sale of Avalon Wynhaven, the Company provided the purchaser
with an indemnification for past costs and certain future costs to the extent that the dispute is
resolved in favor of the developer. The Company has deferred recognition of $3,272 associated with
these potential costs. As of December 31, 2008, the Company had no communities that qualified as
discontinued operations and held for sale under the provisions of SFAS No. 144.
In accordance with the requirements of SFAS No. 144, the operations for any communities sold from
January 1, 2006 through December 31, 2008 and the communities that qualified as discontinued
operations and held for sale as of December 31, 2008 have been presented as such in the
accompanying Consolidated Financial Statements and are reported as a component of the Companys
Other Stabilized results in Note 9 Segment Reporting. Accordingly, certain reclassifications
have been made in prior periods to reflect discontinued operations consistent with current period
presentation.
The following is a summary of income from discontinued operations for the periods presented:
F-26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended |
|
|
|
12-31-08 |
|
|
12-31-07 |
|
|
12-31-06 |
|
Rental income |
|
$ |
28,497 |
|
|
$ |
56,989 |
|
|
$ |
61,446 |
|
Operating and other expenses |
|
|
(9,497 |
) |
|
|
(19,407 |
) |
|
|
(21,701 |
) |
Interest expense, net |
|
|
(1,490 |
) |
|
|
(3,692 |
) |
|
|
(4,775 |
) |
Depreciation expense |
|
|
(5,302 |
) |
|
|
(13,401 |
) |
|
|
(14,777 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations |
|
$ |
12,208 |
|
|
$ |
20,489 |
|
|
$ |
20,193 |
|
|
|
|
|
|
|
|
|
|
|
The Companys Consolidated Balance Sheets include other assets (excluding net real estate) of $0
and $3,730 as of December 31, 2008 and 2007, respectively, $0 and $50,141 of mortgage notes as of
December 31, 2008 and 2007, respectively and other liabilities of $0 and $7,525 as of December 31,
2008 and 2007, respectively relating to real estate assets sold or classified as held for sale.
During the year ended December 31, 2008, the Company did not sell any land parcels. The Company
had gains on the sale of land parcels of $545 in 2007 and $13,519 in 2006.
8. Commitments and Contingencies
Employment Agreements and Arrangements
As of December 31, 2008, the Company had employment agreements with four executive officers. The
employment agreements provide for severance payments and generally provide for accelerated vesting
of stock options and restricted stock in the event of a termination of employment (except for a
termination by the Company with cause or a voluntary termination by the employee). The current
terms of these agreements end on dates that vary between December 2009 and November 2010. The
employment agreements provide for one-year automatic renewals (two years in the case of the Chief
Executive Officer (CEO)) after the initial term unless an advance notice of non-renewal is
provided by either party. Upon a notice of non-renewal by the Company, each of the officers may
terminate his employment and receive a severance payment. Upon a change in control, the agreements
provide for an automatic extension of up to three years from the date of the change in control.
The employment agreements provide for base salary and incentive compensation in the form of cash
awards, stock options and stock grants subject to the discretion of, and attainment of performance
goals established by the Compensation Committee of the Board of Directors.
The Companys stock incentive plan, as described in Note 10, Stock-Based Compensation Plans,
provides that upon an employees Retirement (as defined in the plan documents) from the Company,
all outstanding stock options and restricted shares of stock held by the employee will vest, and
the employee will have up to 12 months to exercise any options held upon retirement. Under the
plan, Retirement means a termination of employment, other than for cause, after attainment of age
50, provided that (i) the employee has worked for the Company for at least 10 years, (ii) the
employees age at Retirement plus years of employment with the Company equals at least 70, (iii)
the employee provides at least six months written notice of his intent to retire, and (iv) the
employee enters into a one year non-compete and employee non-solicitation agreement.
The Company also has an Officer Severance Program (the Program) for the benefit of those officers
of the Company who do not have employment agreements. Under the Program, in the event an officer
who is not otherwise covered by a severance arrangement is terminated (other than for cause) within
two years following a change in control (as defined) of the Company, such officer will generally
receive a cash lump sum payment equal to the sum of such officers base salary and cash bonus, as
well as accelerated vesting of stock options and restricted stock. Costs related to the Companys
employment agreements and the Program are accounted for in accordance with SFAS No. 5, Accounting
for Contingencies, and therefore are recognized when considered by management to be probable and
estimable.
F-27
Construction and Development Contingencies
In connection with the pursuit of a development in Pleasant Hill, California, $125,000 in
bond financing was previously issued by the Contra Costa County Redevelopment Agency (the Agency)
in connection with the future construction of a multifamily rental community by PHVP I, LP. The
bond proceeds were invested in their entirety in a guaranteed investment contract (GIC)
administered by a trustee. This development, Avalon Walnut Creek, in Walnut Creek, California is
planned as a mixed-use development, with residential, for-sale, retail and office components. In
the third quarter of 2008, the Company became the general partner of PHVP I, LP, entered into a
ground lease in connection with the land related to the proposed development, and became the
borrower under the increased bond financing of $135,000 in order to fund construction of Avalon
Walnut Creek, the multifamily portion of the development, which began in the third quarter of 2008.
In addition, the Company obtained a construction loan of $2,500 related to the community. The
Company consolidates PHVP I, LP, reporting the outstanding bond financing as a component of
Mortgage notes payable on the accompanying Consolidated Balance Sheet as of December 31, 2008.
In addition, as part of providing construction management services to PHVP I, LLC for the
construction of a public garage, the Company has provided a construction completion guarantee to
the related lender in order to fulfill their standard financing requirements related to the garage
construction financing. The Companys obligations under this guarantee will terminate following
construction completion of the garage once all of the lenders standard completion requirements
have been satisfied, which the Company currently expects to occur in 2009. The estimated fair
value of and the Companys obligation under this guarantee, both at inception and as of December
31, 2008 was not significant and therefore the Company has not recorded any obligation for this
guarantee as of December 31, 2008.
In 2007 the Company entered into a non-cancelable commitment (the Commitment) to acquire land in
Brooklyn, New York for an aggregate purchase price of approximately $111,000. Under the terms of
the Commitment, the Company will close on the various parcels over a period as 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 the Company or the seller can compel execution of the remaining
transactions. During the fourth quarter of 2008, the Company acquired a portion of the land under
the Commitment for aggregate purchase price of approximately $48,481. At December 31, 2008, the
Company had an outstanding commitment to purchase the remaining land for approximately $62,519.
Legal Contingencies
The Company is currently involved in litigation alleging that 100 communities currently or formerly
owned by the Company violated the accessibility requirements of the Fair Housing Act (FHA) and
the Americans with Disabilities Act. The lawsuit, Equal Rights Center v. AvalonBay Communities,
Inc., was filed on September 23, 2005 in the federal district court in Maryland. The plaintiff
seeks compensatory and punitive damages in unspecified amounts as well as injunctive relief (such
as modification of existing communities), an award of attorneys fees, expenses and costs of suit.
The Company has filed a motion to dismiss all or parts of the suit, which has not been ruled on yet
by the court. In a matter also related to the FHA, on August 13, 2008 the U.S. Attorneys Office
for the Southern District of New York filed a civil lawsuit against the Company and the joint
venture in which it has an interest that owns Avalon Chrystie Place. The lawsuit alleges that
Avalon Chrystie Place was not designed and constructed in accordance with the accessibility
requirements of the FHA. The Company designed and constructed the community 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 the Company
believes satisfies the requirements of the FHA. Due to the
preliminary nature of these matters, we
cannot predict or determine the outcome of either lawsuit, nor is it reasonably possible to
estimate the amount of loss, if any, that would be associated with an adverse decision or
settlement.
In addition, the Company is subject to various other legal proceedings and claims that arise in the
ordinary course of business. These matters are frequently covered by insurance. If it has been
determined that a loss is probable to occur and such probable loss
can be estimated, the estimated amount of the loss is expensed in the
financial statements. While the resolution of these matters cannot be predicted with certainty,
management currently believes the final outcome of such matters will not have a material adverse
effect on the financial position or results of operations of the Company.
F-28
Lease Obligations
The Company owns 11 apartment communities and one commercial property which are located on land
subject to land leases expiring between November 2028 and March 2142. In addition, the Company
leases certain office space. These leases are accounted for as operating leases under SFAS No. 13,
Accounting for Leases. These leases have varying escalation terms, and four of these leases have
purchase options exercisable between 2008 and 2095. The Company incurred costs of $16,937, $15,516
and $14,850 in the years ended December 31, 2008, 2007 and 2006, respectively, related to these
leases.
The following table details the future minimum lease payments under the Companys current leases:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments due by period |
2009 |
|
2010 |
|
2011 |
|
2012 |
|
2013 |
|
Thereafter |
$16,262 |
|
$ |
16,328 |
|
|
$ |
16,449 |
|
|
$ |
16,347 |
|
|
$ |
16,567 |
|
|
$ |
2,234,496 |
|
9. Segment Reporting
The Companys reportable operating segments include Established Communities, Other Stabilized
Communities, and Development/Redevelopment Communities. Annually as of January 1st, the
Company determines which of its communities fall into each of these categories and maintains that
classification, unless disposition plans regarding a community change, throughout the year for the
purpose of reporting segment operations.
|
|
|
Established Communities (also known as Same Store Communities) are communities where a
comparison of operating results from the prior year to the current year is meaningful, as
these communities were owned and had stabilized occupancy and operating expenses as of the
beginning of the prior year. For the year 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 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. |
|
|
|
|
Development/Redevelopment Communities consists of communities that are under
construction and have not received a final certificate of occupancy, communities where
substantial redevelopment is in progress or is planned to begin during the current year
and communities under lease-up, that had not reached stabilized occupancy, as defined
above, as of January 1, 2007. |
In addition, the Company owns land for future development and has other corporate assets that are
not allocated to an operating segment.
SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, requires that
segment disclosures present the measure(s) used by the chief operating decision maker for purposes
of assessing such segments performance. The Companys chief operating decision maker is comprised
of several members of its executive management team who use net operating income (NOI) as the
primary financial measure for Established Communities and Other Stabilized Communities. NOI is
defined by the Company as total revenue less direct property operating expenses. Although the
Company considers NOI a useful measure of a communitys or communities operating performance, NOI
should not be considered an alternative to net income or net cash flow from operating activities,
as determined in accordance with GAAP. NOI excludes a number of income and expense categories as
detailed in the reconciliation of NOI to net income.
A reconciliation of NOI to net income for years ended December 31, 2008, 2007 and 2006 is as
follows:
F-29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 primary performance measure for communities under development or redevelopment depends on the
stage of completion. While under development, management monitors actual construction costs
against budgeted costs as well as lease-up pace and rent levels compared to budget.
The following table provides details of the Companys segment information as of the dates
specified. The segments are classified based on the individual communitys status as of the
beginning of the given calendar year. Therefore, each year the composition of communities within
each business segment is adjusted. Accordingly, the amounts between years are not directly
comparable. The accounting policies applicable to the operating segments described above are the
same as those described in Note 1, Organization and Significant Accounting Policies. Segment
information for the years ended December 31, 2008, 2007 and 2006 have been adjusted for the
communities that were sold from January 1, 2006 through December 31, 2008, or otherwise qualify as
discontinued operations as of December 31, 2008, as described in Note 7, Real Estate Disposition
Activities.
F-30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
% NOI change |
|
|
Gross |
|
|
|
revenue |
|
|
NOI |
|
|
from prior year |
|
|
real estate (1) |
|
For the year ended December 31, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Established
New England |
|
$ |
126,958 |
|
|
$ |
82,181 |
|
|
|
2.7 |
% |
|
$ |
824,369 |
|
Metro NY/NJ |
|
|
144,295 |
|
|
|
99,060 |
|
|
|
2.0 |
% |
|
|
931,783 |
|
Mid-Atlantic/Midwest |
|
|
124,067 |
|
|
|
78,490 |
|
|
|
2.0 |
% |
|
|
765,501 |
|
Pacific Northwest |
|
|
21,524 |
|
|
|
15,493 |
|
|
|
7.5 |
% |
|
|
175,503 |
|
Northern California |
|
|
127,659 |
|
|
|
94,862 |
|
|
|
8.0 |
% |
|
|
1,039,280 |
|
Southern California |
|
|
61,449 |
|
|
|
44,048 |
|
|
|
1.1 |
% |
|
|
377,841 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Established (2) |
|
|
605,952 |
|
|
|
414,134 |
|
|
|
3.6 |
% |
|
|
4,114,277 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Stabilized |
|
|
111,952 |
|
|
|
74,864 |
|
|
|
n/a |
|
|
|
1,013,232 |
|
Development / Redevelopment |
|
|
129,736 |
|
|
|
80,124 |
|
|
|
n/a |
|
|
|
2,502,820 |
|
Land Held for Future Development |
|
|
n/a |
|
|
|
n/a |
|
|
|
n/a |
|
|
|
239,456 |
|
Non-allocated (3) |
|
|
6,568 |
|
|
|
n/a |
|
|
|
n/a |
|
|
|
132,702 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
854,208 |
|
|
$ |
569,122 |
|
|
|
12.1 |
% |
|
$ |
8,002,487 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Established
New England |
|
$ |
127,596 |
|
|
$ |
81,860 |
|
|
|
2.6 |
% |
|
$ |
851,473 |
|
Metro NY/NJ |
|
|
141,424 |
|
|
|
97,860 |
|
|
|
4.7 |
% |
|
|
903,347 |
|
Mid-Atlantic/Midwest |
|
|
119,817 |
|
|
|
75,517 |
|
|
|
6.5 |
% |
|
|
741,691 |
|
Pacific Northwest |
|
|
28,294 |
|
|
|
19,671 |
|
|
|
16.1 |
% |
|
|
237,464 |
|
Northern California |
|
|
144,052 |
|
|
|
104,670 |
|
|
|
12.5 |
% |
|
|
1,239,407 |
|
Southern California |
|
|
56,091 |
|
|
|
40,219 |
|
|
|
5.9 |
% |
|
|
349,719 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Established (2) |
|
|
617,274 |
|
|
|
419,797 |
|
|
|
7.1 |
% |
|
|
4,323,101 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Stabilized |
|
|
47,821 |
|
|
|
30,324 |
|
|
|
n/a |
|
|
|
356,038 |
|
Development / Redevelopment |
|
|
95,426 |
|
|
|
57,314 |
|
|
|
n/a |
|
|
|
2,171,207 |
|
Land Held for Future Development |
|
|
n/a |
|
|
|
n/a |
|
|
|
n/a |
|
|
|
288,423 |
|
Non-allocated (3) |
|
|
6,142 |
|
|
|
n/a |
|
|
|
n/a |
|
|
|
47,793 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
766,663 |
|
|
$ |
507,435 |
|
|
|
14.1 |
% |
|
$ |
7,186,562 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Established
New England |
|
$ |
84,572 |
|
|
$ |
55,410 |
|
|
|
3.0 |
% |
|
$ |
564,627 |
|
Metro NY/NJ |
|
|
106,251 |
|
|
|
73,840 |
|
|
|
7.4 |
% |
|
|
617,609 |
|
Mid-Atlantic/Midwest |
|
|
105,740 |
|
|
|
65,269 |
|
|
|
14.3 |
% |
|
|
678,737 |
|
Pacific Northwest |
|
|
28,202 |
|
|
|
19,025 |
|
|
|
13.9 |
% |
|
|
263,245 |
|
Northern California |
|
|
134,525 |
|
|
|
94,196 |
|
|
|
12.0 |
% |
|
|
1,251,531 |
|
Southern California |
|
|
57,632 |
|
|
|
41,115 |
|
|
|
9.3 |
% |
|
|
374,605 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Established (2) |
|
|
516,922 |
|
|
|
348,855 |
|
|
|
9.7 |
% |
|
|
3,750,354 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Stabilized |
|
|
88,546 |
|
|
|
55,337 |
|
|
|
n/a |
|
|
|
876,127 |
|
Development / Redevelopment |
|
|
65,914 |
|
|
|
40,580 |
|
|
|
n/a |
|
|
|
1,259,469 |
|
Land Held for Future Development |
|
|
n/a |
|
|
|
n/a |
|
|
|
n/a |
|
|
|
202,314 |
|
Non-allocated (3) |
|
|
6,259 |
|
|
|
n/a |
|
|
|
n/a |
|
|
|
42,437 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
677,641 |
|
|
$ |
444,772 |
|
|
|
11.7 |
% |
|
$ |
6,130,701 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Does not include gross real estate assets held for sale of $0, $370,178 and $484,891 as of
December 31, 2008, 2007 and 2006, respectively. |
|
(2) |
|
Gross real estate for the Companys established communities includes capitalized additions of
approximately $15,534, $13,851 and $21,289 in 2008, 2007 and 2006,
respectively. |
|
(3) |
|
Revenue represents third-party management, accounting and developer fees and miscellaneous
income which are not allocated to a reportable segment.
|
F-31
10. Stock-Based Compensation Plans
The Company has a stock incentive plan (the 1994 Plan), which was amended and restated on
December 8, 2004, and amended on February 9, 2006, December 6, 2006 and September 19, 2007.
Individuals who are eligible to participate in the 1994 Plan include officers, other associates,
outside directors and other key persons of the Company and its subsidiaries who are responsible for
or contribute to the management, growth or profitability of the Company and its subsidiaries. The
1994 Plan authorizes (i) the grant of stock options that qualify as incentive stock options
(ISOs) under Section 422 of the Internal Revenue Code, (ii) the grant of stock options that do
not so qualify, (iii) grants of shares of restricted and unrestricted common stock, (iv) grants of
deferred stock awards, (v) performance share awards entitling the recipient to acquire shares of
common stock and (vi) dividend equivalent rights.
Shares of common stock of 1,744,159, 2,160,738 and 1,791,861 were available for future option or
restricted stock grant awards under the 1994 Plan as of December 31, 2008, 2007 and 2006,
respectively. Annually on January 1st, the maximum number available for issuance under
the 1994 Plan is increased by up to 1.00% of the total number of shares of common stock and
DownREIT units actually outstanding on such date. Notwithstanding the foregoing, the maximum
number of shares of stock for which ISOs may be issued under the 1994 Plan shall not exceed
2,500,000 and no awards shall be granted under the 1994 Plan after May 11, 2011. Options and
restricted stock granted under the 1994 Plan vest and expire over varying periods, as determined by
the Compensation Committee of the Board of Directors.
Under the 1995 Equity Incentive Plan (the Avalon 1995 Incentive Plan), a maximum number of
3,315,054 shares of common stock were issuable, plus any shares of common stock represented by
awards under Avalons 1993 Stock Option and Incentive Plan (the Avalon 1993 Plan) that were
forfeited, canceled, reacquired by Avalon, satisfied without the issuance of common stock or
otherwise terminated (other than by exercise). Options granted to officers, non-employee directors
and associates under the Avalon 1995 Incentive Plan generally vested over a three-year term, expire
ten years from the date of grant and are exercisable at the market price on the date of grant. As
of June 4, 1998, options and other awards ceased to be granted under the Avalon 1993 Plan or the
Avalon 1995 Incentive Plan. Accordingly, there were no options to purchase shares of common stock
available for grant under the Avalon 1995 Incentive Plan or the Avalon 1993 Plan at December 31,
2008, 2007 or 2006.
Pursuant
to the terms of the 1994 Plan, because the Special Dividend
was an extraordinary dividend,
the exercise price and number of options underlying the awards were
adjusted so that
option holders would be neither advantaged nor disadvantaged as a
result of the shares issued under the Special Dividend.
F-32
Information with respect to stock options granted under the 1994 Plan and the Avalon 1995 Incentive
Plan is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
Avalon 1995 |
|
|
Weighted |
|
|
|
|
|
|
|
average |
|
|
and Avalon |
|
|
average |
|
|
|
1994 Plan |
|
|
exercise price |
|
|
1993 Plan |
|
|
exercise price |
|
|
|
shares |
|
|
per share |
|
|
shares |
|
|
per share |
|
Options Outstanding, December 31, 2005 |
|
|
2,229,778 |
|
|
$ |
51.40 |
|
|
|
26,624 |
|
|
$ |
37.09 |
|
Exercised |
|
|
(592,308 |
) |
|
|
50.09 |
|
|
|
(22,384 |
) |
|
|
37.15 |
|
Granted |
|
|
867,113 |
|
|
|
99.28 |
|
|
|
|
|
|
|
|
|
Forfeited |
|
|
(17,344 |
) |
|
|
79.72 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding, December 31, 2006 |
|
|
2,487,239 |
|
|
$ |
69.65 |
|
|
|
4,240 |
|
|
$ |
36.81 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(471,024 |
) |
|
|
56.57 |
|
|
|
(3,472 |
) |
|
|
36.86 |
|
Granted |
|
|
344,429 |
|
|
|
147.39 |
|
|
|
|
|
|
|
|
|
Forfeited |
|
|
(38,929 |
) |
|
|
110.28 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding, December 31, 2007 |
|
|
2,321,715 |
|
|
$ |
83.15 |
|
|
|
768 |
|
|
$ |
36.61 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(154,523 |
) |
|
|
46.15 |
|
|
|
(768 |
) |
|
|
36.61 |
|
Granted |
|
|
401,212 |
|
|
|
89.06 |
|
|
|
|
|
|
|
|
|
Forfeited |
|
|
(23,413 |
) |
|
|
112.51 |
|
|
|
|
|
|
|
|
|
Special Dividend Option Adjustment (1)
|
|
|
78,144 |
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding, December 31, 2008 |
|
|
2,623,135 |
|
|
$ |
83.49 |
|
|
|
|
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Exercisable: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2006 |
|
|
1,041,360 |
|
|
$ |
47.99 |
|
|
|
4,240 |
|
|
$ |
36.81 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007 |
|
|
1,230,428 |
|
|
$ |
60.84 |
|
|
|
768 |
|
|
$ |
36.61 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008 (1)
|
|
|
1,711,508 |
|
|
$ |
72.97 |
|
|
|
|
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
In accordance with the applicable equity award plan documents,
the number and exercise price of outstanding awards have been
adjusted as a result of the special dividend to maintain their value.
The following summarizes the exercise prices and contractual lives of options outstanding as of
December 31, 2008:
|
|
|
|
|
|
|
|
|
Weighted Average |
|
|
|
|
Remaining Contractual Term |
Number of Options |
|
Range - Exercise Price |
|
(in years) |
163,190 |
|
30.00 - 39.99 |
|
1.7 |
420,678 |
|
40.00 - 49.99 |
|
3.6 |
499,331 |
|
60.00 - 69.99 |
|
6.2 |
1,030 |
|
70.00 - 79.99 |
|
6.5 |
416,040 |
|
80.00 - 89.99 |
|
8.0 |
781,171 |
|
90.00 - 99.99 |
|
7.1 |
6,698 |
|
100.00 - 109.99 |
|
7.4 |
5,152 |
|
110.00 - 119.99 |
|
8.5 |
329,845 |
|
140.00 - 149.99 |
|
8.1 |
|
|
|
|
|
2,623,135 |
|
|
|
|
|
|
|
|
|
Options
outstanding under the 1994 Plan at December 31, 2008 had no intrinsic value. Options
exercisable at December 31, 2008 under the 1994 plan had a weighted average
contractual life of 6.43 years and no intrinsic value. The intrinsic value of
options exercised during 2008, 2007 and 2006 was $8,565, $17,895 and $49,440, respectively.
F-33
The cost related to stock-based employee compensation for employee stock options included in the
determination of net income is based on estimated forfeitures for the given year. Estimated
forfeitures are adjusted to reflect actual forfeitures at the end of the vesting period. The
following table summarizes the weighted average fair value of employee stock options for the
periods shown and the associated assumptions used to calculate the value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
2007 |
|
2006 |
Weighted average fair value
per share |
|
$ |
9.91 |
|
|
$ |
21.83 |
|
|
$ |
11.47 |
|
Life of options (in years) |
|
|
7.0 |
|
|
|
7.0 |
|
|
|
7.0 |
|
Dividend yield |
|
|
5.5 |
% |
|
|
4.0 |
% |
|
|
5.0 |
% |
Volatility |
|
|
22.17 |
% |
|
|
17.32 |
% |
|
|
17.61 |
% |
Risk-free interest rate |
|
|
3.09 |
% |
|
|
4.73 |
% |
|
|
4.55 |
% |
At December 31, 2008 and 2007, the Company had 207,070 and 200,940 outstanding unvested shares
granted under restricted stock awards. The Company issued 130,325 shares of restricted stock
valued at $11,646 as part of its stock-based compensation plan during the year ended December 31,
2008. Compensation cost is recognized over the requisite service period, which varies, but does
not exceed five years. The fair value of restricted stock is the closing stock price on the date
of the grant. Provisions of SFAS No. 123(R) require the Company to recognize compensation cost
taking into consideration retirement eligibility. The cost related to stock-based compensation for
restricted stock included in the determination of net income is based on actual forfeitures for the
given year. Restricted stock awards typically vest over a five-year period with the exception of
accelerated vesting provisions. Restricted stock vesting during the year ended December 31, 2008
totaled 122,063 shares and had fair values ranging from $50.04 to $147.75 per share. The total fair
value of shares vested was $10,668, $8,590 and $7,655 for the years ended December 31, 2008, 2007
and 2006, respectively.
Total employee stock-based compensation cost recognized in income was $17,268, $13,502 and $10,095
for the years ended December 31, 2008, 2007 and 2006, respectively, and total capitalized
stock-based compensation cost was $6,499, $5,106 and $4,014 for the years ended December 31, 2008,
2007 and 2006, respectively. At December 31, 2008, there was a total of $3,819 and $8,797 in
unrecognized compensation cost for unvested stock options and unvested restricted stock,
respectively, which does not include estimated forfeitures. The unrecognized compensation cost for
unvested stock options and restricted stock is expected to be recognized over a weighted average
period of 1.54 years and 2.36 years, respectively.
Deferred Stock Performance Plan
The Companys Board of Directors and its Compensation Committee approved a multiyear performance
plan (the 2008 Performance Plan). On June 1, 2008, awards in connection with this plan with an
estimated compensation cost of $8,958 were granted to senior management and other selected officers
(2008 Performance Plan Awards). The 2008 Performance Plan awards are initially in the form of
deferred stock awards, with no dividend rights, granted under the Companys 1994 Plan. These
deferred stock awards will be forfeited in their entirety unless the Companys total return to
shareholders, consisting of stock price appreciation plus cumulative dividends without reinvestment
or compounding (the Actual TRS), over the measurement period exceeds both (i) an Absolute TRS
Target and (ii) a Relative TRS Target. The measurement period of the 2008 Performance Plan began
on June 1, 2008 with a starting common stock price equal to the average closing price of the
Companys common stock on the twenty trading days prior to June 1, 2008. The measurement period
will end on May 31, 2011, again using a twenty-day average closing price. The measurement period
will end earlier upon a change in control of the Company.
The Absolute TRS Target that must be exceeded during the measurement period is a 32% total return
performance (or a pro rated amount in the event the measurement period is less than three years due
to a change in control). The Relative TRS Target that must be exceeded is the total return
performance (stock price appreciation plus cumulative dividends without reinvestment or
compounding) during the measurement period of the Financial Times and the London Stock Exchange
(FTSE) NAREIT Apartment Index. If the Actual TRS exceeds both the Absolute TRS Target and the Relative TRS Target, the total funding pool will equal
10% of the simple average of (i) the excess shareholder value created by the Actual TRS exceeding
the Absolute TRS Target and (ii) the excess
F-34
shareholder value created by the Actual TRS exceeding the Relative TRS Target, provided that in no event will the total funding pool exceed $60 million.
Each participating officers 2008 Performance Plan award is designated as a specified
Participation Percentage in the 2008 Performance Plan. If both TRS targets are exceeded at the
end of the measurement period, then each participating officer will earn deferred stock awards
having a total value (based on the closing price of the Companys common stock on the last day of
the measurement period) equal to that officers participation percentage multiplied by the total
funding pool. The total funding pool will under no circumstance exceed $60 million. Any unearned
deferred stock awards (i.e., deferred stock awards in excess of the number of awards having a value
equal to that officers participation percentage in the total funding pool) will be forfeited.
Earned deferred stock awards will convert into vested unrestricted common stock (50%), and unvested
restricted common stock with a one-year vesting period (50%), subject to earlier forfeiture or
acceleration under certain circumstances. Dividends will be paid on both the unrestricted common
stock and the restricted common stock. As of December 31, 2008, the Company has reserved 633,179
shares within the 1994 Plan relating to deferred stock awards under the 2008 Performance Plan.
The Company will recognize compensation expense for the 2008 Performance Plan over the three year
measurement period for the 50% of each award which vests at the end of the measurement period. For
the remaining 50% of each award, the Company will recognize compensation expense over the four year
period which includes the measurement period as well as the one-year vesting period subsequent to
the end of the measurement period. The recognition of compensation cost will take into account
actual forfeitures as well as retirement eligibility. The Company used a Monte Carlo model to
assess the compensation cost associated with the 2008 Performance Plan. As of December 31, 2008,
the estimated compensation cost was derived using the following assumptions: baseline share value
of $102.16, dividend yield of 3.53%, estimated volatility figures over the life of the plan using
50% historical volatility and 50% implied volatility and risk free rates over the life of the plan
ranging from 2.13% to 2.97%, resulting in an estimated fair value per share of $14.15. During the
year ended December 31, 2008, the components of total stock-based compensation that the Company
recognized for the 2008 Performance Plan was compensation expense of $1,013 recognized in earnings
and capitalized stock-based compensation costs of $582.
Employee Stock Purchase Plan
In October 1996, the Company adopted the 1996 Non-Qualified Employee Stock Purchase Plan (as
amended, the ESPP). Initially 1,000,000 shares of common stock were reserved for issuance under
this plan. There are currently 772,275 shares remaining available for issuance under the plan.
Full-time employees of the Company generally are eligible to participate in the ESPP if, as of the
last day of the applicable election period, they have been employed by the Company for at least one
month. All other employees of the Company are eligible to participate provided that, as of the
applicable election period they have been employed by the Company for 12 months. Under the ESPP,
eligible employees are permitted to acquire shares of the Companys common stock through payroll
deductions, subject to maximum purchase limitations. The purchase period is a period of seven
months beginning each April 1 and ending each October 30. The purchase price for common stock
purchased under the plan is 85% of the lesser of the fair market value of the Companys common
stock on the first day of the applicable purchase period or the last day of the applicable purchase
period. The offering dates, purchase dates and duration of purchase periods may be changed, if the
change is announced prior to the beginning of the affected date or purchase period. The Company
issued 8,460 shares, 8,577 shares and 10,830 shares and recognized compensation expense of $90,
$158 and $173 under the ESPP for the years ended December 31, 2008, 2007 and 2006, respectively.
The Company accounts for transactions under the ESPP using the fair value method prescribed under
SFAS No. 123(R), as further discussed in Note 1, Organization and Significant Accounting
Policies.
11. Fair Value of Financial Instruments
Cash and cash equivalent balances are held with various financial institutions within principal
protected accounts. The Company monitors credit ratings of these financial institutions and the
concentration of cash and cash equivalent balances with any one financial institution and believes the likelihood of realizing
material losses related to cash and cash equivalent balances is remote.
F-35
The valuation of financial instruments whose face amount does not approximate fair value is
determined using widely accepted valuation techniques including discounted cash flow analysis on
the expected cash flows of each instrument. This analysis reflects the contractual terms of the
instrument, including the period to maturity, and uses observable market-based inputs, including
interest rate curves. To comply with the provisions of SFAS No. 157, the Company incorporates
credit valuation adjustments to appropriately reflect its own nonperformance risk in the fair value
measurements of our bond indebtedness and notes payable. The use of different market assumptions
and/or estimation methodologies may have a material effect on the estimated fair value amounts.
|
|
|
Cash equivalents, rents receivable, accounts and construction payable and accrued
expenses, and other liabilities are carried at their face amounts, which reasonably
approximate their fair values. |
|
|
|
|
Bond indebtedness and notes payable with an aggregate outstanding par amount of
approximately $3,676,000 and $3,160,500 had an estimated aggregate fair value of
$3,612,130 and $3,220,330 at December 31, 2008 and 2007, respectively. |
The Company reports all derivative instruments at fair value in accordance with SFAS No. 133, as
amended. See Note 5, Derivative Instruments and Hedging Activities, and Note 13, Fair Value Measurements, for further discussion.
12. Related Party Arrangements
Unconsolidated Entities
The Company manages unconsolidated real estate entities for which it receives asset management,
property management, development and redevelopment fee revenue. From these entities, the Company
received fees of $6,568, $6,142 and $6,259 in the years ended December 31, 2008, 2007 and 2006,
respectively. These fees are included in management, development and other fees on the
accompanying Consolidated Statements of Operations and Other Comprehensive Income.
Director Compensation
Directors of the Company who are also employees receive no additional compensation for their
services as a director. Following each annual meeting of stockholders starting with the 2006
annual meeting, non-employee directors receive (i) a number of shares of restricted stock (or
deferred stock awards) having a value of $100 and (ii) a cash payment of $40, payable in quarterly
installments of $10. After September 20, 2007, the cash payment increased to $50, payable in
quarterly installments of $12.5. The value of the restricted stock or deferred stock award
increased to $125 following the 2008 annual meeting. The number of shares of restricted stock (or
deferred stock awards) is calculated based on the closing price on the day of the award.
Non-employee directors may elect to receive all or a portion of cash payments in the form of a
deferred stock award. In addition, the Lead Independent Director receives an annual fee of $30
payable in equal monthly installments of $2.5.
The Company recorded non-employee director compensation expense relating to the restricted stock
grants and deferred stock awards in the amount of $2,170, $855 and $1,013 for the years ended
December 31, 2008, 2007 and 2006, respectively as a component of general and administrative
expense. Deferred compensation relating to these restricted stock grants and deferred stock awards
was $137 and $766 on December 31, 2008 and December 31, 2007, respectively. Compensation expense
during 2008 includes additional expense associated primarily with the accelerated award vesting for
directors.
13. Fair Value Measurements
As a basis for applying a market-based approach in fair value measurements, SFAS No. 157
establishes a fair value hierarchy that distinguishes between market participant assumptions based
on market data obtained from sources independent of the reporting entity and the reporting entitys
own assumptions about market participant assumptions.
Derivative Financial Instruments
Currently, the Company uses interest rate swap and interest rate cap agreements to manage its
interest rate risk. The valuation of these instruments is determined using widely accepted
valuation techniques including discounted cash flow analysis on the expected cash flows of each
derivative. This analysis reflects the contractual terms of the
F-36
derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied
volatilities.
To comply with the provisions of SFAS No. 157, the Company incorporates credit valuation
adjustments to appropriately reflect both its own nonperformance risk and the respective
counterpartys nonperformance risk in the fair value measurements. In adjusting the fair value of
its derivative contracts for the effect of nonperformance risk, the Company has considered the
impact of its net position with a given counterparty, as well as any applicable credit
enhancements, such as collateral postings, thresholds, mutual puts, and guarantees.
Although the Company has determined that the majority of the inputs used to value its derivatives
fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with
its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the
likelihood of default by itself and its counterparties. However, as of December 31, 2008, the
Company has assessed the significance of the impact of the credit valuation adjustments on the
overall valuation of its derivative positions and has determined it is not significant. As a
result, the Company has determined that its derivative valuations are classified in Level 2 of the
fair value hierarchy. See Note 5, Derivative Instruments and Hedging Activities, for derivative
values and Note 11, Fair Value of Financial Instruments, for all other financial instruments of the Company at December 31, 2008.
Other Financial Instruments
In conjunction with a joint venture agreement, the Company provided our joint venture partner with
a redemption option (the Put). This Put allows our partner to require the Company to purchase
their interest in the investment at the future fair market value, payable in cash or, at the
Companys option, common equity shares of the Company. Consistent with the guidance in EITF Topic
D-98, Classification and Measurement of Redeemable Securities, we classify our obligation under
this Put as a component of minority interest at fair value, with a corresponding offset for changes
in the fair value of the Put recorded in accumulated earnings less dividends. The fair value of
the Put is based on the fair market value of the net assets of the joint venture. The Company
calculates the fair value of the Put based on unobservable inputs considering the assumptions that
market participants would make in pricing this obligation. Accordingly, the valuation of the Put
is classified in Level 3 of the fair value hierarchy. At December 31, 2008, the fair value of the
Put was $7,723, which represents an unrealized decrease in the fair value of this obligation of
$11,443 for the year ended December 31, 2008.
14. Quarterly Financial Information (Unaudited)
The following summary represents the quarterly results of operations for the years ended December
31, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended |
|
|
3-31-08 |
|
6-30-08 |
|
9-30-08 |
|
12-31-08 |
Total revenue (1)
|
|
$ |
204,172 |
|
|
$ |
211,191 |
|
|
$ |
218,492 |
|
|
$ |
220,353 |
|
Income from continuing operations(1)(3)
|
|
$ |
43,635 |
|
|
$ |
48,088 |
|
|
$ |
48,177 |
|
|
$ |
(25,523 |
) |
Income from discontinued operations(1)
|
|
$ |
4,814 |
|
|
$ |
79,246 |
|
|
$ |
185,404 |
|
|
$ |
27,645 |
|
Net income available to common stockholders |
|
$ |
46,274 |
|
|
$ |
125,159 |
|
|
$ |
231,406 |
|
|
$ |
(1,806 |
) |
Net income per common share basic(2)
|
|
$ |
0.60 |
|
|
$ |
1.63 |
|
|
$ |
3.01 |
|
|
$ |
(0.02 |
) |
Net income per common share diluted (2)
|
|
$ |
0.60 |
|
|
$ |
1.61 |
|
|
$ |
2.98 |
|
|
$ |
(0.02 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended |
|
|
3-31-07 |
|
6-30-07 |
|
9-30-07 |
|
12-31-07 |
Total revenue (1)
|
|
$ |
181,452 |
|
|
$ |
188,128 |
|
|
$ |
196,531 |
|
|
$ |
200,552 |
|
Income from continuing operations(1)
|
|
$ |
41,490 |
|
|
$ |
45,064 |
|
|
$ |
45,684 |
|
|
$ |
98,946 |
|
Income from discontinued operations(1)
|
|
$ |
5,030 |
|
|
$ |
5,988 |
|
|
$ |
83,085 |
|
|
$ |
32,873 |
|
Net income available to common stockholders |
|
$ |
44,345 |
|
|
$ |
48,877 |
|
|
$ |
126,594 |
|
|
$ |
129,644 |
|
Net income per common share basic(2)
|
|
$ |
0.57 |
|
|
$ |
0.62 |
|
|
$ |
1.60 |
|
|
$ |
1.66 |
|
Net income per common share diluted (2)
|
|
$ |
0.56 |
|
|
$ |
0.61 |
|
|
$ |
1.58 |
|
|
$ |
1.65 |
|
|
|
|
(1) |
|
Amounts may not equal previously reported results due to reclassification
between income from continuing operations and income from discontinued operations. |
|
(2) |
|
Amounts may not equal full year results due to rounding. |
|
(3) |
|
Income from continuing operations for the fourth quarter of 2008 includes an impairment charge of approximately $57,899 associated with the Companys planned reduction in development activity. |
F-37
15. Subsequent Events
In January 2009, the Company made a cash tender offer for any and all of its 7.5% unsecured
notes due August 2009 and December 2010. The Company purchased $37,438 of its $150,000, 7.5%
unsecured notes due August 2009 at par. In addition, the Company purchased $64,423 of its
$200,000, 7.5% unsecured notes due December 2010 at a discount price of 98% of face value, for
approximately $63,135, representing a yield to maturity of 8.66%. The Company will report a gain
of approximately $1,062 in the first quarter of 2009 in conjunction with this purchase activity.
All of the notes purchased in the tender offer were cancelled. The Company had previously acquired
and cancelled an aggregate of $10,000 of the 7.5% unsecured notes due in August 2009.
Also in January 2009, under the Special Dividend, the Company issued 2,626,823 shares of its common
stock.
In February 2009, the Company purchased its joint venture partners interest in a consolidated
subsidiary which owns Avalon at Grosvenor Station for $4,400. The joint venture was formed to
develop, own and operate Avalon at Grosvenor Station, a 497 apartment-home community located in
Bethesda, Maryland. Avalon at Grosvenor Station is subsequently a wholly owned community and will
continue to be consolidated for financial reporting purposes.
F-38
AVALONBAY
COMMUNITIES, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2008
(Dollars in thousands)
|
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Initial Cost |
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Total Cost |
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Building / |
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Costs |
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Building / |
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Construction in |
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Subsequent to |
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Construction in |
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Total Cost, Net of |
|
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|
Year of |
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|
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Progress & |
|
Acquisition / |
|
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|
Progress & |
|
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Accumulated |
|
Accumulated |
|
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|
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Completion |
|
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Land |
|
Improvements |
|
Construction |
|
Land |
|
Improvements |
|
Total |
|
Depreciation |
|
Depreciation |
|
Encumbrances |
|
/ Acquisition |
Current Communities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Avalon at Lexington |
|
|
2,124 |
|
|
|
12,599 |
|
|
|
1,738 |
|
|
|
2,124 |
|
|
|
14,337 |
|
|
|
16,461 |
|
|
|
7,067 |
|
|
|
9,394 |
|
|
|
11,665 |
|
|
|
1994 |
|
Avalon Oaks |
|
|
2,129 |
|
|
|
18,656 |
|
|
|
490 |
|
|
|
2,129 |
|
|
|
19,146 |
|
|
|
21,275 |
|
|
|
6,704 |
|
|
|
14,571 |
|
|
|
16,940 |
|
|
|
1999 |
|
Avalon Summit |
|
|
1,743 |
|
|
|
14,670 |
|
|
|
1,281 |
|
|
|
1,743 |
|
|
|
15,951 |
|
|
|
17,694 |
|
|
|
7,005 |
|
|
|
10,689 |
|
|
|
|
|
|
|
1986/1996 |
|
Avalon Essex |
|
|
5,230 |
|
|
|
16,303 |
|
|
|
423 |
|
|
|
5,230 |
|
|
|
16,726 |
|
|
|
21,956 |
|
|
|
5,282 |
|
|
|
16,674 |
|
|
|
|
|
|
|
2000 |
|
Avalon at Faxon Park |
|
|
1,292 |
|
|
|
14,001 |
|
|
|
591 |
|
|
|
1,292 |
|
|
|
14,592 |
|
|
|
15,884 |
|
|
|
5,594 |
|
|
|
10,290 |
|
|
|
|
|
|
|
1998 |
|
Avalon at Prudential Center |
|
|
25,811 |
|
|
|
104,399 |
|
|
|
27,085 |
|
|
|
25,811 |
|
|
|
131,484 |
|
|
|
157,295 |
|
|
|
43,897 |
|
|
|
113,398 |
|
|
|
|
|
|
|
1968/1998 |
|
Avalon Oaks West |
|
|
3,303 |
|
|
|
13,467 |
|
|
|
104 |
|
|
|
3,303 |
|
|
|
13,571 |
|
|
|
16,874 |
|
|
|
3,431 |
|
|
|
13,443 |
|
|
|
16,795 |
|
|
|
2002 |
|
Avalon Orchards |
|
|
2,975 |
|
|
|
18,037 |
|
|
|
339 |
|
|
|
2,975 |
|
|
|
18,376 |
|
|
|
21,351 |
|
|
|
4,505 |
|
|
|
16,846 |
|
|
|
19,322 |
|
|
|
2002 |
|
Avalon at Flanders Hill |
|
|
3,572 |
|
|
|
33,504 |
|
|
|
488 |
|
|
|
3,572 |
|
|
|
33,992 |
|
|
|
37,564 |
|
|
|
7,697 |
|
|
|
29,867 |
|
|
|
19,735 |
|
|
|
2003 |
|
Avalon at Newton Highlands |
|
|
11,038 |
|
|
|
45,527 |
|
|
|
250 |
|
|
|
11,038 |
|
|
|
45,777 |
|
|
|
56,815 |
|
|
|
8,719 |
|
|
|
48,096 |
|
|
|
34,945 |
|
|
|
2003 |
|
Avalon at The Pinehills I |
|
|
3,623 |
|
|
|
16,292 |
|
|
|
69 |
|
|
|
3,623 |
|
|
|
16,361 |
|
|
|
19,984 |
|
|
|
2,557 |
|
|
|
17,427 |
|
|
|
|
|
|
|
2004 |
|
Avalon at Crane Brook |
|
|
12,381 |
|
|
|
42,298 |
|
|
|
145 |
|
|
|
12,381 |
|
|
|
42,443 |
|
|
|
54,824 |
|
|
|
6,675 |
|
|
|
48,149 |
|
|
|
31,530 |
|
|
|
2004 |
|
Essex Place |
|
|
4,643 |
|
|
|
19,007 |
|
|
|
10,915 |
|
|
|
4,643 |
|
|
|
29,922 |
|
|
|
34,565 |
|
|
|
3,105 |
|
|
|
31,460 |
|
|
|
|
|
|
|
2004 |
|
Avalon at Bedford Center |
|
|
4,258 |
|
|
|
20,547 |
|
|
|
|
|
|
|
4,258 |
|
|
|
20,547 |
|
|
|
24,805 |
|
|
|
2,232 |
|
|
|
22,573 |
|
|
|
16,361 |
|
|
|
2005 |
|
Avalon Chestnut Hill |
|
|
14,572 |
|
|
|
45,781 |
|
|
|
|
|
|
|
14,572 |
|
|
|
45,781 |
|
|
|
60,353 |
|
|
|
3,507 |
|
|
|
56,846 |
|
|
|
41,834 |
|
|
|
2007 |
|
Avalon Shrewsbury |
|
|
5,147 |
|
|
|
30,608 |
|
|
|
6 |
|
|
|
5,147 |
|
|
|
30,614 |
|
|
|
35,761 |
|
|
|
2,389 |
|
|
|
33,372 |
|
|
|
|
|
|
|
2007 |
|
Avalon Danvers |
|
|
7,002 |
|
|
|
78,548 |
|
|
|
|
|
|
|
7,002 |
|
|
|
78,548 |
|
|
|
85,550 |
|
|
|
3,313 |
|
|
|
82,237 |
|
|
|
|
|
|
|
2006 |
|
Avalon Woburn |
|
|
20,631 |
|
|
|
62,351 |
|
|
|
4 |
|
|
|
20,631 |
|
|
|
62,355 |
|
|
|
82,986 |
|
|
|
3,775 |
|
|
|
79,211 |
|
|
|
|
|
|
|
2007 |
|
Avalon at Lexington Hills |
|
|
8,659 |
|
|
|
77,692 |
|
|
|
|
|
|
|
8,659 |
|
|
|
77,692 |
|
|
|
86,351 |
|
|
|
2,492 |
|
|
|
83,859 |
|
|
|
|
|
|
|
2007 |
|
Avalon Acton |
|
|
13,124 |
|
|
|
50,561 |
|
|
|
|
|
|
|
13,124 |
|
|
|
50,561 |
|
|
|
63,685 |
|
|
|
1,266 |
|
|
|
62,419 |
|
|
|
45,000 |
|
|
|
2007 |
|
Avalon Sharon |
|
|
4,735 |
|
|
|
25,276 |
|
|
|
|
|
|
|
4,735 |
|
|
|
25,276 |
|
|
|
30,011 |
|
|
|
465 |
|
|
|
29,546 |
|
|
|
|
|
|
|
2007 |
|
Avalon at Center Place |
|
|
|
|
|
|
26,816 |
|
|
|
2,438 |
|
|
|
|
|
|
|
29,254 |
|
|
|
29,254 |
|
|
|
11,908 |
|
|
|
17,346 |
|
|
|
|
|
|
|
1991/1997 |
|
Avalon Gates |
|
|
4,414 |
|
|
|
31,268 |
|
|
|
1,902 |
|
|
|
4,414 |
|
|
|
33,170 |
|
|
|
37,584 |
|
|
|
13,235 |
|
|
|
24,349 |
|
|
|
|
|
|
|
1997 |
|
Avalon Glen |
|
|
5,956 |
|
|
|
23,993 |
|
|
|
2,602 |
|
|
|
5,956 |
|
|
|
26,595 |
|
|
|
32,551 |
|
|
|
13,494 |
|
|
|
19,057 |
|
|
|
|
|
|
|
1991 |
|
Avalon Springs |
|
|
2,116 |
|
|
|
14,664 |
|
|
|
496 |
|
|
|
2,116 |
|
|
|
15,160 |
|
|
|
17,276 |
|
|
|
6,176 |
|
|
|
11,100 |
|
|
|
|
|
|
|
1996 |
|
Avalon Valley |
|
|
2,277 |
|
|
|
23,781 |
|
|
|
339 |
|
|
|
2,277 |
|
|
|
24,120 |
|
|
|
26,397 |
|
|
|
8,152 |
|
|
|
18,245 |
|
|
|
|
|
|
|
1999 |
|
Avalon Orange |
|
|
2,108 |
|
|
|
19,983 |
|
|
|
6 |
|
|
|
2,108 |
|
|
|
19,989 |
|
|
|
22,097 |
|
|
|
2,737 |
|
|
|
19,360 |
|
|
|
|
|
|
|
2005 |
|
Avalon on Stamford Harbor |
|
|
10,836 |
|
|
|
51,989 |
|
|
|
106 |
|
|
|
10,836 |
|
|
|
52,095 |
|
|
|
62,931 |
|
|
|
12,143 |
|
|
|
50,788 |
|
|
|
|
|
|
|
2003 |
|
Avalon New Canaan |
|
|
4,835 |
|
|
|
19,485 |
|
|
|
59 |
|
|
|
4,835 |
|
|
|
19,544 |
|
|
|
24,379 |
|
|
|
4,609 |
|
|
|
19,770 |
|
|
|
|
|
|
|
2002 |
|
Avalon at Greyrock Place |
|
|
13,819 |
|
|
|
56,499 |
|
|
|
526 |
|
|
|
13,819 |
|
|
|
57,025 |
|
|
|
70,844 |
|
|
|
12,789 |
|
|
|
58,055 |
|
|
|
62,400 |
|
|
|
2002 |
|
Avalon Danbury |
|
|
4,905 |
|
|
|
30,581 |
|
|
|
48 |
|
|
|
4,905 |
|
|
|
30,629 |
|
|
|
35,534 |
|
|
|
3,751 |
|
|
|
31,783 |
|
|
|
|
|
|
|
2005 |
|
Avalon Darien |
|
|
6,922 |
|
|
|
34,594 |
|
|
|
82 |
|
|
|
6,922 |
|
|
|
34,676 |
|
|
|
41,598 |
|
|
|
6,326 |
|
|
|
35,272 |
|
|
|
51,749 |
|
|
|
2004 |
|
Avalon Milford I |
|
|
8,746 |
|
|
|
22,699 |
|
|
|
57 |
|
|
|
8,746 |
|
|
|
22,756 |
|
|
|
31,502 |
|
|
|
3,603 |
|
|
|
27,899 |
|
|
|
|
|
|
|
2004 |
|
Avalon Huntington |
|
|
3,146 |
|
|
|
20,810 |
|
|
|
|
|
|
|
3,146 |
|
|
|
20,810 |
|
|
|
23,956 |
|
|
|
72 |
|
|
|
23,884 |
|
|
|
|
|
|
|
2008 |
|
Avalon Commons |
|
|
4,679 |
|
|
|
28,509 |
|
|
|
880 |
|
|
|
4,679 |
|
|
|
29,389 |
|
|
|
34,068 |
|
|
|
11,453 |
|
|
|
22,615 |
|
|
|
55,100 |
|
|
|
1997 |
|
Avalon Towers |
|
|
3,118 |
|
|
|
12,709 |
|
|
|
5,655 |
|
|
|
3,118 |
|
|
|
18,364 |
|
|
|
21,482 |
|
|
|
7,504 |
|
|
|
13,978 |
|
|
|
|
|
|
|
1990/1995 |
|
Avalon Court |
|
|
9,228 |
|
|
|
50,021 |
|
|
|
940 |
|
|
|
9,228 |
|
|
|
50,961 |
|
|
|
60,189 |
|
|
|
17,601 |
|
|
|
42,588 |
|
|
|
|
|
|
|
1997/2000 |
|
Avalon at Glen Cove South |
|
|
7,871 |
|
|
|
59,969 |
|
|
|
125 |
|
|
|
7,871 |
|
|
|
60,094 |
|
|
|
67,965 |
|
|
|
9,388 |
|
|
|
58,577 |
|
|
|
|
|
|
|
2004 |
|
Avalon Pines I |
|
|
6,029 |
|
|
|
41,053 |
|
|
|
(206 |
) |
|
|
6,029 |
|
|
|
40,847 |
|
|
|
46,876 |
|
|
|
5,614 |
|
|
|
41,262 |
|
|
|
|
|
|
|
2005 |
|
Avalon at Glen Cove North |
|
|
2,577 |
|
|
|
37,336 |
|
|
|
|
|
|
|
2,577 |
|
|
|
37,336 |
|
|
|
39,913 |
|
|
|
2,135 |
|
|
|
37,778 |
|
|
|
|
|
|
|
2007 |
|
Avalon Pines II |
|
|
2,877 |
|
|
|
21,878 |
|
|
|
|
|
|
|
2,877 |
|
|
|
21,878 |
|
|
|
24,755 |
|
|
|
2,096 |
|
|
|
22,659 |
|
|
|
|
|
|
|
2006 |
|
Avalon Cove |
|
|
8,760 |
|
|
|
82,453 |
|
|
|
2,248 |
|
|
|
8,760 |
|
|
|
84,701 |
|
|
|
93,461 |
|
|
|
34,242 |
|
|
|
59,219 |
|
|
|
|
|
|
|
1997 |
|
Avalon at Edgewater |
|
|
14,529 |
|
|
|
60,240 |
|
|
|
586 |
|
|
|
14,529 |
|
|
|
60,826 |
|
|
|
75,355 |
|
|
|
15,604 |
|
|
|
59,751 |
|
|
|
|
|
|
|
2002 |
|
F-39
AVALONBAY COMMUNITIES, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2008
(Dollars in thousands)
|
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Initial Cost |
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Total Cost |
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Building / |
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Costs |
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Building / |
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Construction in |
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Subsequent to |
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Construction in |
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|
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Total Cost, Net of |
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|
Year of |
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Progress & |
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Acquisition / |
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Progress & |
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Accumulated |
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Accumulated |
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Completion |
|
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Land |
|
Improvements |
|
Construction |
|
Land |
|
Improvements |
|
Total |
|
Depreciation |
|
Depreciation |
|
Encumbrances |
|
/ Acquisition |
Avalon at Florham Park |
|
|
6,647 |
|
|
|
34,906 |
|
|
|
561 |
|
|
|
6,647 |
|
|
|
35,467 |
|
|
|
42,114 |
|
|
|
10,306 |
|
|
|
31,808 |
|
|
|
|
|
|
|
2001 |
|
Avalon Lyndhurst |
|
|
18,620 |
|
|
|
62,358 |
|
|
|
|
|
|
|
18,620 |
|
|
|
62,358 |
|
|
|
80,978 |
|
|
|
3,790 |
|
|
|
77,188 |
|
|
|
|
|
|
|
2006 |
|
Avalon Run East |
|
|
1,579 |
|
|
|
14,668 |
|
|
|
215 |
|
|
|
1,579 |
|
|
|
14,883 |
|
|
|
16,462 |
|
|
|
6,205 |
|
|
|
10,257 |
|
|
|
|
|
|
|
1996 |
|
Avalon Watch |
|
|
5,585 |
|
|
|
22,394 |
|
|
|
2,217 |
|
|
|
5,585 |
|
|
|
24,611 |
|
|
|
30,196 |
|
|
|
13,186 |
|
|
|
17,010 |
|
|
|
|
|
|
|
1988 |
|
Avalon at Freehold |
|
|
4,116 |
|
|
|
30,514 |
|
|
|
180 |
|
|
|
4,116 |
|
|
|
30,694 |
|
|
|
34,810 |
|
|
|
7,765 |
|
|
|
27,045 |
|
|
|
|
|
|
|
2002 |
|
Avalon Run East II |
|
|
6,765 |
|
|
|
45,377 |
|
|
|
59 |
|
|
|
6,765 |
|
|
|
45,436 |
|
|
|
52,201 |
|
|
|
6,665 |
|
|
|
45,536 |
|
|
|
|
|
|
|
2003 |
|
Avalon Run |
|
|
13,071 |
|
|
|
45,818 |
|
|
|
1,374 |
|
|
|
13,071 |
|
|
|
47,192 |
|
|
|
60,263 |
|
|
|
3,696 |
|
|
|
56,567 |
|
|
|
|
|
|
|
1994 |
|
Avalon at Tinton Falls |
|
|
7,939 |
|
|
|
32,579 |
|
|
|
|
|
|
|
7,939 |
|
|
|
32,579 |
|
|
|
40,518 |
|
|
|
541 |
|
|
|
39,977 |
|
|
|
|
|
|
|
2007 |
|
Avalon Gardens |
|
|
8,428 |
|
|
|
45,660 |
|
|
|
1,492 |
|
|
|
8,428 |
|
|
|
47,152 |
|
|
|
55,580 |
|
|
|
17,888 |
|
|
|
37,692 |
|
|
|
|
|
|
|
1998 |
|
Avalon Green |
|
|
1,820 |
|
|
|
10,525 |
|
|
|
1,606 |
|
|
|
1,820 |
|
|
|
12,131 |
|
|
|
13,951 |
|
|
|
5,320 |
|
|
|
8,631 |
|
|
|
|
|
|
|
1995 |
|
Avalon Willow |
|
|
6,207 |
|
|
|
40,791 |
|
|
|
572 |
|
|
|
6,207 |
|
|
|
41,363 |
|
|
|
47,570 |
|
|
|
13,206 |
|
|
|
34,364 |
|
|
|
|
|
|
|
2000 |
|
The Avalon |
|
|
2,889 |
|
|
|
28,324 |
|
|
|
331 |
|
|
|
2,889 |
|
|
|
28,655 |
|
|
|
31,544 |
|
|
|
9,374 |
|
|
|
22,170 |
|
|
|
|
|
|
|
1999 |
|
Avalon on the Sound |
|
|
|
|
|
|
116,231 |
|
|
|
1,029 |
|
|
|
|
|
|
|
117,260 |
|
|
|
117,260 |
|
|
|
27,190 |
|
|
|
90,070 |
|
|
|
|
|
|
|
2001 |
|
Avalon Riverview I |
|
|
|
|
|
|
94,166 |
|
|
|
532 |
|
|
|
|
|
|
|
94,698 |
|
|
|
94,698 |
|
|
|
21,514 |
|
|
|
73,184 |
|
|
|
|
|
|
|
2002 |
|
Avalon Bowery Place I |
|
|
18,575 |
|
|
|
72,900 |
|
|
|
741 |
|
|
|
18,575 |
|
|
|
73,641 |
|
|
|
92,216 |
|
|
|
5,683 |
|
|
|
86,533 |
|
|
|
93,800 |
|
|
|
2006 |
|
Avalon Riverview North |
|
|
|
|
|
|
173,788 |
|
|
|
|
|
|
|
|
|
|
|
173,788 |
|
|
|
173,788 |
|
|
|
6,920 |
|
|
|
166,868 |
|
|
|
|
|
|
|
2007 |
|
Avalon on the Sound East |
|
|
|
|
|
|
179,477 |
|
|
|
|
|
|
|
|
|
|
|
179,477 |
|
|
|
179,477 |
|
|
|
7,537 |
|
|
|
171,940 |
|
|
|
|
|
|
|
2007 |
|
Avalon Bowery Place II |
|
|
9,104 |
|
|
|
46,425 |
|
|
|
94 |
|
|
|
9,104 |
|
|
|
46,519 |
|
|
|
55,623 |
|
|
|
1,928 |
|
|
|
53,695 |
|
|
|
48,500 |
|
|
|
2007 |
|
Avalon at Fairway Hills I, II & III |
|
|
8,612 |
|
|
|
34,432 |
|
|
|
9,644 |
|
|
|
8,612 |
|
|
|
44,076 |
|
|
|
52,688 |
|
|
|
18,424 |
|
|
|
34,264 |
|
|
|
|
|
|
|
1987/1996 |
|
Avalon Symphony Woods (SGlen) |
|
|
1,594 |
|
|
|
6,384 |
|
|
|
3,728 |
|
|
|
1,594 |
|
|
|
10,112 |
|
|
|
11,706 |
|
|
|
4,490 |
|
|
|
7,216 |
|
|
|
9,780 |
|
|
|
1986 |
|
Avalon Symphony Woods (SGate) |
|
|
7,207 |
|
|
|
29,151 |
|
|
|
2,424 |
|
|
|
7,207 |
|
|
|
31,575 |
|
|
|
38,782 |
|
|
|
2,150 |
|
|
|
36,632 |
|
|
|
|
|
|
|
1986/2006 |
|
Avalon at Foxhall |
|
|
6,848 |
|
|
|
27,614 |
|
|
|
10,532 |
|
|
|
6,848 |
|
|
|
38,146 |
|
|
|
44,994 |
|
|
|
16,599 |
|
|
|
28,395 |
|
|
|
|
|
|
|
1982 |
|
Avalon at Gallery Place I |
|
|
8,800 |
|
|
|
39,731 |
|
|
|
514 |
|
|
|
8,800 |
|
|
|
40,245 |
|
|
|
49,045 |
|
|
|
8,128 |
|
|
|
40,917 |
|
|
|
|
|
|
|
2003 |
|
Avalon at Decoverly |
|
|
6,157 |
|
|
|
24,800 |
|
|
|
1,885 |
|
|
|
6,157 |
|
|
|
26,685 |
|
|
|
32,842 |
|
|
|
12,118 |
|
|
|
20,724 |
|
|
|
|
|
|
|
1991/1995 |
|
Avalon Fields I & II |
|
|
4,047 |
|
|
|
18,553 |
|
|
|
201 |
|
|
|
4,047 |
|
|
|
18,754 |
|
|
|
22,801 |
|
|
|
7,964 |
|
|
|
14,837 |
|
|
|
9,988 |
|
|
|
1998 |
|
Avalon Knoll |
|
|
1,412 |
|
|
|
5,673 |
|
|
|
1,915 |
|
|
|
1,412 |
|
|
|
7,588 |
|
|
|
9,000 |
|
|
|
4,531 |
|
|
|
4,469 |
|
|
|
|
|
|
|
1985 |
|
Avalon at Rock Spring |
|
|
|
|
|
|
81,796 |
|
|
|
544 |
|
|
|
|
|
|
|
82,340 |
|
|
|
82,340 |
|
|
|
16,925 |
|
|
|
65,415 |
|
|
|
|
|
|
|
2003 |
|
Avalon at Grosvenor Station |
|
|
29,151 |
|
|
|
52,940 |
|
|
|
90 |
|
|
|
29,151 |
|
|
|
53,030 |
|
|
|
82,181 |
|
|
|
9,580 |
|
|
|
72,601 |
|
|
|
|
|
|
|
2004 |
|
Avalon at Traville |
|
|
14,360 |
|
|
|
55,400 |
|
|
|
254 |
|
|
|
14,360 |
|
|
|
55,654 |
|
|
|
70,014 |
|
|
|
9,674 |
|
|
|
60,340 |
|
|
|
|
|
|
|
2004 |
|
Avalon at Decoverly II |
|
|
5,708 |
|
|
|
24,886 |
|
|
|
|
|
|
|
5,708 |
|
|
|
24,886 |
|
|
|
30,594 |
|
|
|
1,947 |
|
|
|
28,647 |
|
|
|
|
|
|
|
2007 |
|
Avalon Fairlakes |
|
|
6,096 |
|
|
|
24,400 |
|
|
|
7,376 |
|
|
|
6,096 |
|
|
|
31,776 |
|
|
|
37,872 |
|
|
|
10,892 |
|
|
|
26,980 |
|
|
|
|
|
|
|
1989/1996 |
|
Avalon at Ballston Washington
Towers |
|
|
7,291 |
|
|
|
29,177 |
|
|
|
2,747 |
|
|
|
7,291 |
|
|
|
31,924 |
|
|
|
39,215 |
|
|
|
15,683 |
|
|
|
23,532 |
|
|
|
|
|
|
|
1990 |
|
Avalon at Cameron Court |
|
|
10,292 |
|
|
|
32,930 |
|
|
|
902 |
|
|
|
10,292 |
|
|
|
33,832 |
|
|
|
44,124 |
|
|
|
12,644 |
|
|
|
31,480 |
|
|
|
94,572 |
|
|
|
1998 |
|
Avalon at Providence Park |
|
|
2,152 |
|
|
|
8,907 |
|
|
|
815 |
|
|
|
2,152 |
|
|
|
9,722 |
|
|
|
11,874 |
|
|
|
3,945 |
|
|
|
7,929 |
|
|
|
|
|
|
|
1988/1997 |
|
Avalon Crescent |
|
|
13,851 |
|
|
|
43,397 |
|
|
|
667 |
|
|
|
13,851 |
|
|
|
44,064 |
|
|
|
57,915 |
|
|
|
17,587 |
|
|
|
40,328 |
|
|
|
110,600 |
|
|
|
1996 |
|
Avalon at Arlington Square |
|
|
22,041 |
|
|
|
90,296 |
|
|
|
864 |
|
|
|
22,041 |
|
|
|
91,160 |
|
|
|
113,201 |
|
|
|
23,737 |
|
|
|
89,464 |
|
|
|
170,125 |
|
|
|
2001 |
|
Avalon at Danada Farms |
|
|
7,535 |
|
|
|
31,299 |
|
|
|
1,196 |
|
|
|
7,535 |
|
|
|
32,495 |
|
|
|
40,030 |
|
|
|
11,986 |
|
|
|
28,044 |
|
|
|
|
|
|
|
1997 |
|
Avalon at Stratford Green |
|
|
4,326 |
|
|
|
17,569 |
|
|
|
343 |
|
|
|
4,326 |
|
|
|
17,912 |
|
|
|
22,238 |
|
|
|
6,757 |
|
|
|
15,481 |
|
|
|
|
|
|
|
1997 |
|
Avalon Arlington Heights |
|
|
9,728 |
|
|
|
39,661 |
|
|
|
7,558 |
|
|
|
9,728 |
|
|
|
47,219 |
|
|
|
56,947 |
|
|
|
12,313 |
|
|
|
44,634 |
|
|
|
|
|
|
|
1987/2000 |
|
Avalon Redmond Place |
|
|
4,558 |
|
|
|
18,368 |
|
|
|
8,956 |
|
|
|
4,558 |
|
|
|
27,324 |
|
|
|
31,882 |
|
|
|
8,671 |
|
|
|
23,211 |
|
|
|
|
|
|
|
1991/1997 |
|
Avalon at Bear Creek |
|
|
6,786 |
|
|
|
27,641 |
|
|
|
1,431 |
|
|
|
6,786 |
|
|
|
29,072 |
|
|
|
35,858 |
|
|
|
10,253 |
|
|
|
25,605 |
|
|
|
|
|
|
|
1998 |
|
Avalon Bellevue |
|
|
6,664 |
|
|
|
24,119 |
|
|
|
183 |
|
|
|
6,664 |
|
|
|
24,302 |
|
|
|
30,966 |
|
|
|
6,990 |
|
|
|
23,976 |
|
|
|
|
|
|
|
2001 |
|
Avalon RockMeadow |
|
|
4,777 |
|
|
|
19,742 |
|
|
|
474 |
|
|
|
4,777 |
|
|
|
20,216 |
|
|
|
24,993 |
|
|
|
6,060 |
|
|
|
18,933 |
|
|
|
|
|
|
|
2000 |
|
Avalon WildReed |
|
|
4,253 |
|
|
|
18,676 |
|
|
|
167 |
|
|
|
4,253 |
|
|
|
18,843 |
|
|
|
23,096 |
|
|
|
5,634 |
|
|
|
17,462 |
|
|
|
|
|
|
|
2000 |
|
F-40
AVALONBAY COMMUNITIES, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2008
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Initial Cost |
|
|
|
|
|
Total Cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Building / |
|
Costs |
|
|
|
|
|
Building / |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction in |
|
Subsequent to |
|
|
|
|
|
Construction in |
|
|
|
|
|
|
|
|
|
Total Cost, Net of |
|
|
|
|
|
Year of |
|
|
|
|
|
|
Progress & |
|
Acquisition / |
|
|
|
|
|
Progress & |
|
|
|
|
|
Accumulated |
|
Accumulated |
|
|
|
|
|
Completion |
|
|
Land |
|
Improvements |
|
Construction |
|
Land |
|
Improvements |
|
Total |
|
Depreciation |
|
Depreciation |
|
Encumbrances |
|
/ Acquisition |
Avalon HighGrove |
|
|
7,569 |
|
|
|
32,041 |
|
|
|
269 |
|
|
|
7,569 |
|
|
|
32,310 |
|
|
|
39,879 |
|
|
|
9,238 |
|
|
|
30,641 |
|
|
|
|
|
|
|
2000 |
|
Avalon ParcSquare |
|
|
3,789 |
|
|
|
15,146 |
|
|
|
581 |
|
|
|
3,789 |
|
|
|
15,727 |
|
|
|
19,516 |
|
|
|
4,719 |
|
|
|
14,797 |
|
|
|
|
|
|
|
2000 |
|
Avalon Brandemoor |
|
|
8,630 |
|
|
|
36,679 |
|
|
|
362 |
|
|
|
8,630 |
|
|
|
37,041 |
|
|
|
45,671 |
|
|
|
10,179 |
|
|
|
35,492 |
|
|
|
|
|
|
|
2001 |
|
Avalon Belltown |
|
|
5,644 |
|
|
|
12,733 |
|
|
|
122 |
|
|
|
5,644 |
|
|
|
12,855 |
|
|
|
18,499 |
|
|
|
3,523 |
|
|
|
14,976 |
|
|
|
|
|
|
|
2001 |
|
Avalon Meydenbauer |
|
|
12,654 |
|
|
|
76,465 |
|
|
|
|
|
|
|
12,654 |
|
|
|
76,465 |
|
|
|
89,119 |
|
|
|
1,634 |
|
|
|
87,485 |
|
|
|
|
|
|
|
2008 |
|
Avalon Fremont |
|
|
10,746 |
|
|
|
43,399 |
|
|
|
2,794 |
|
|
|
10,746 |
|
|
|
46,193 |
|
|
|
56,939 |
|
|
|
17,179 |
|
|
|
39,760 |
|
|
|
|
|
|
|
1994 |
|
Avalon Dublin |
|
|
5,276 |
|
|
|
19,642 |
|
|
|
3,448 |
|
|
|
5,276 |
|
|
|
23,090 |
|
|
|
28,366 |
|
|
|
8,375 |
|
|
|
19,991 |
|
|
|
|
|
|
|
1989/1997 |
|
Avalon Pleasanton |
|
|
11,610 |
|
|
|
46,552 |
|
|
|
4,843 |
|
|
|
11,610 |
|
|
|
51,395 |
|
|
|
63,005 |
|
|
|
19,652 |
|
|
|
43,353 |
|
|
|
|
|
|
|
1988/1994 |
|
Avalon at Union Square |
|
|
4,249 |
|
|
|
16,820 |
|
|
|
1,669 |
|
|
|
4,249 |
|
|
|
18,489 |
|
|
|
22,738 |
|
|
|
7,070 |
|
|
|
15,668 |
|
|
|
|
|
|
|
1973/1996 |
|
Waterford |
|
|
11,324 |
|
|
|
45,717 |
|
|
|
5,149 |
|
|
|
11,324 |
|
|
|
50,866 |
|
|
|
62,190 |
|
|
|
19,629 |
|
|
|
42,561 |
|
|
|
33,100 |
|
|
|
1985/1986 |
|
Avalon at Willow Creek |
|
|
6,581 |
|
|
|
26,583 |
|
|
|
3,329 |
|
|
|
6,581 |
|
|
|
29,912 |
|
|
|
36,493 |
|
|
|
11,458 |
|
|
|
25,035 |
|
|
|
|
|
|
|
1985/1994 |
|
Avalon at Dublin Station I |
|
|
10,058 |
|
|
|
74,211 |
|
|
|
|
|
|
|
10,058 |
|
|
|
74,211 |
|
|
|
84,269 |
|
|
|
2,151 |
|
|
|
82,118 |
|
|
|
|
|
|
|
2006 |
|
Avalon at Cedar Ridge |
|
|
4,230 |
|
|
|
9,659 |
|
|
|
13,645 |
|
|
|
4,230 |
|
|
|
23,304 |
|
|
|
27,534 |
|
|
|
8,550 |
|
|
|
18,984 |
|
|
|
|
|
|
|
1972/1997 |
|
Avalon at Nob Hill |
|
|
5,403 |
|
|
|
21,567 |
|
|
|
1,221 |
|
|
|
5,403 |
|
|
|
22,788 |
|
|
|
28,191 |
|
|
|
8,401 |
|
|
|
19,790 |
|
|
|
20,800 |
|
|
|
1990/1995 |
|
Crowne Ridge |
|
|
5,982 |
|
|
|
16,885 |
|
|
|
10,233 |
|
|
|
5,982 |
|
|
|
27,118 |
|
|
|
33,100 |
|
|
|
10,587 |
|
|
|
22,513 |
|
|
|
|
|
|
|
1973/1996 |
|
Avalon Foster City |
|
|
7,852 |
|
|
|
31,445 |
|
|
|
4,871 |
|
|
|
7,852 |
|
|
|
36,316 |
|
|
|
44,168 |
|
|
|
12,884 |
|
|
|
31,284 |
|
|
|
|
|
|
|
1973/1994 |
|
Avalon Towers by the Bay |
|
|
9,155 |
|
|
|
57,631 |
|
|
|
263 |
|
|
|
9,155 |
|
|
|
57,894 |
|
|
|
67,049 |
|
|
|
18,475 |
|
|
|
48,574 |
|
|
|
|
|
|
|
1999 |
|
Avalon Pacifica |
|
|
6,125 |
|
|
|
24,796 |
|
|
|
1,439 |
|
|
|
6,125 |
|
|
|
26,235 |
|
|
|
32,360 |
|
|
|
9,746 |
|
|
|
22,614 |
|
|
|
17,600 |
|
|
|
1971/1995 |
|
Avalon Sunset Towers |
|
|
3,561 |
|
|
|
21,321 |
|
|
|
3,997 |
|
|
|
3,561 |
|
|
|
25,318 |
|
|
|
28,879 |
|
|
|
9,892 |
|
|
|
18,987 |
|
|
|
|
|
|
|
1961/1996 |
|
Avalon at Diamond Heights |
|
|
4,726 |
|
|
|
19,130 |
|
|
|
3,823 |
|
|
|
4,726 |
|
|
|
22,953 |
|
|
|
27,679 |
|
|
|
7,884 |
|
|
|
19,795 |
|
|
|
|
|
|
|
1972/1994 |
|
Avalon at Mission Bay North |
|
|
13,814 |
|
|
|
78,452 |
|
|
|
670 |
|
|
|
13,814 |
|
|
|
79,122 |
|
|
|
92,936 |
|
|
|
16,173 |
|
|
|
76,763 |
|
|
|
|
|
|
|
2003 |
|
Avalon Campbell |
|
|
11,830 |
|
|
|
47,828 |
|
|
|
875 |
|
|
|
11,830 |
|
|
|
48,703 |
|
|
|
60,533 |
|
|
|
17,628 |
|
|
|
42,905 |
|
|
|
38,800 |
|
|
|
1995 |
|
CountryBrook |
|
|
9,384 |
|
|
|
38,791 |
|
|
|
4,576 |
|
|
|
9,384 |
|
|
|
43,367 |
|
|
|
52,751 |
|
|
|
14,843 |
|
|
|
37,908 |
|
|
|
14,680 |
|
|
|
1985/1996 |
|
Avalon at River Oaks |
|
|
8,904 |
|
|
|
35,121 |
|
|
|
983 |
|
|
|
8,904 |
|
|
|
36,104 |
|
|
|
45,008 |
|
|
|
13,034 |
|
|
|
31,974 |
|
|
|
|
|
|
|
1990/1996 |
|
Avalon at Parkside |
|
|
7,406 |
|
|
|
29,823 |
|
|
|
1,098 |
|
|
|
7,406 |
|
|
|
30,921 |
|
|
|
38,327 |
|
|
|
11,417 |
|
|
|
26,910 |
|
|
|
|
|
|
|
1991/1996 |
|
Avalon on the Alameda |
|
|
6,119 |
|
|
|
50,230 |
|
|
|
556 |
|
|
|
6,119 |
|
|
|
50,786 |
|
|
|
56,905 |
|
|
|
17,287 |
|
|
|
39,618 |
|
|
|
|
|
|
|
1999 |
|
Avalon Rosewalk |
|
|
15,814 |
|
|
|
62,028 |
|
|
|
2,021 |
|
|
|
15,814 |
|
|
|
64,049 |
|
|
|
79,863 |
|
|
|
22,735 |
|
|
|
57,128 |
|
|
|
|
|
|
|
1997/1999 |
|
Avalon Silicon Valley |
|
|
20,713 |
|
|
|
99,573 |
|
|
|
3,030 |
|
|
|
20,713 |
|
|
|
102,603 |
|
|
|
123,316 |
|
|
|
37,224 |
|
|
|
86,092 |
|
|
|
150,000 |
|
|
|
1997 |
|
Avalon Mountain View |
|
|
9,755 |
|
|
|
39,393 |
|
|
|
7,032 |
|
|
|
9,755 |
|
|
|
46,425 |
|
|
|
56,180 |
|
|
|
15,558 |
|
|
|
40,622 |
|
|
|
18,300 |
|
|
|
1986 |
|
Avalon at Creekside |
|
|
6,546 |
|
|
|
26,301 |
|
|
|
10,624 |
|
|
|
6,546 |
|
|
|
36,925 |
|
|
|
43,471 |
|
|
|
13,002 |
|
|
|
30,469 |
|
|
|
|
|
|
|
1962/1997 |
|
Avalon at Cahill Park |
|
|
4,760 |
|
|
|
47,600 |
|
|
|
347 |
|
|
|
4,760 |
|
|
|
47,947 |
|
|
|
52,707 |
|
|
|
10,954 |
|
|
|
41,753 |
|
|
|
|
|
|
|
2002 |
|
Avalon Towers on the Peninsula |
|
|
9,560 |
|
|
|
56,136 |
|
|
|
57 |
|
|
|
9,560 |
|
|
|
56,193 |
|
|
|
65,753 |
|
|
|
13,570 |
|
|
|
52,183 |
|
|
|
|
|
|
|
2002 |
|
Countrybrook II |
|
|
3,534 |
|
|
|
14,256 |
|
|
|
101 |
|
|
|
3,534 |
|
|
|
14,357 |
|
|
|
17,891 |
|
|
|
714 |
|
|
|
17,177 |
|
|
|
|
|
|
|
2007 |
|
Avalon Newport |
|
|
1,975 |
|
|
|
3,814 |
|
|
|
4,628 |
|
|
|
1,975 |
|
|
|
8,442 |
|
|
|
10,417 |
|
|
|
3,141 |
|
|
|
7,276 |
|
|
|
|
|
|
|
1956/1996 |
|
Avalon Mission Viejo |
|
|
2,517 |
|
|
|
9,257 |
|
|
|
2,321 |
|
|
|
2,517 |
|
|
|
11,578 |
|
|
|
14,095 |
|
|
|
4,524 |
|
|
|
9,571 |
|
|
|
7,635 |
|
|
|
1984/1996 |
|
Avalon at South Coast |
|
|
4,709 |
|
|
|
16,063 |
|
|
|
5,258 |
|
|
|
4,709 |
|
|
|
21,321 |
|
|
|
26,030 |
|
|
|
8,201 |
|
|
|
17,829 |
|
|
|
|
|
|
|
1973/1996 |
|
Avalon Santa Margarita |
|
|
4,607 |
|
|
|
16,911 |
|
|
|
3,010 |
|
|
|
4,607 |
|
|
|
19,921 |
|
|
|
24,528 |
|
|
|
7,524 |
|
|
|
17,004 |
|
|
|
|
|
|
|
1990/1997 |
|
Avalon at Pacific Bay |
|
|
4,871 |
|
|
|
19,745 |
|
|
|
8,299 |
|
|
|
4,871 |
|
|
|
28,044 |
|
|
|
32,915 |
|
|
|
10,153 |
|
|
|
22,762 |
|
|
|
|
|
|
|
1971/1997 |
|
Avalon Warner Place |
|
|
7,885 |
|
|
|
44,714 |
|
|
|
|
|
|
|
7,885 |
|
|
|
44,714 |
|
|
|
52,599 |
|
|
|
850 |
|
|
|
51,749 |
|
|
|
|
|
|
|
2007 |
|
Avalon at Mission Bay |
|
|
9,922 |
|
|
|
40,633 |
|
|
|
16,254 |
|
|
|
9,922 |
|
|
|
56,887 |
|
|
|
66,809 |
|
|
|
20,068 |
|
|
|
46,741 |
|
|
|
|
|
|
|
1969/1997 |
|
Avalon at Mission Ridge |
|
|
2,710 |
|
|
|
10,924 |
|
|
|
8,999 |
|
|
|
2,710 |
|
|
|
19,923 |
|
|
|
22,633 |
|
|
|
7,518 |
|
|
|
15,115 |
|
|
|
|
|
|
|
1960/1997 |
|
Avalon at Cortez Hill |
|
|
2,768 |
|
|
|
20,134 |
|
|
|
11,844 |
|
|
|
2,768 |
|
|
|
31,978 |
|
|
|
34,746 |
|
|
|
11,484 |
|
|
|
23,262 |
|
|
|
|
|
|
|
1973/1998 |
|
Avalon Fashion Valley |
|
|
19,627 |
|
|
|
44,014 |
|
|
|
|
|
|
|
19,627 |
|
|
|
44,014 |
|
|
|
63,641 |
|
|
|
238 |
|
|
|
63,403 |
|
|
|
|
|
|
|
2008 |
|
Avalon at Media Center |
|
|
22,483 |
|
|
|
28,104 |
|
|
|
26,290 |
|
|
|
22,483 |
|
|
|
54,394 |
|
|
|
76,877 |
|
|
|
19,064 |
|
|
|
57,813 |
|
|
|
|
|
|
|
1961/1997 |
|
F-41
AVALONBAY COMMUNITIES, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2008
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Initial Cost |
|
|
|
|
|
Total Cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Building / |
|
Costs |
|
|
|
|
|
Building / |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction in |
|
Subsequent to |
|
|
|
|
|
Construction in |
|
|
|
|
|
|
|
|
|
Total Cost, Net of |
|
|
|
|
|
Year of |
|
|
|
|
|
|
Progress & |
|
Acquisition / |
|
|
|
|
|
Progress & |
|
|
|
|
|
Accumulated |
|
Accumulated |
|
|
|
|
|
Completion |
|
|
Land |
|
Improvements |
|
Construction |
|
Land |
|
Improvements |
|
Total |
|
Depreciation |
|
Depreciation |
|
Encumbrances |
|
/ Acquisition |
Avalon Woodland Hills |
|
|
23,828 |
|
|
|
40,372 |
|
|
|
26,810 |
|
|
|
23,828 |
|
|
|
67,182 |
|
|
|
91,010 |
|
|
|
19,117 |
|
|
|
71,893 |
|
|
|
|
|
|
|
1989/1997 |
|
Avalon at Warner Center |
|
|
7,045 |
|
|
|
12,986 |
|
|
|
7,282 |
|
|
|
7,045 |
|
|
|
20,268 |
|
|
|
27,313 |
|
|
|
8,314 |
|
|
|
18,999 |
|
|
|
|
|
|
|
1979/1998 |
|
Avalon Glendale |
|
|
|
|
|
|
41,434 |
|
|
|
46 |
|
|
|
|
|
|
|
41,480 |
|
|
|
41,480 |
|
|
|
7,858 |
|
|
|
33,622 |
|
|
|
|
|
|
|
2003 |
|
The Promenade |
|
|
14,052 |
|
|
|
56,827 |
|
|
|
6,793 |
|
|
|
14,052 |
|
|
|
63,620 |
|
|
|
77,672 |
|
|
|
12,917 |
|
|
|
64,755 |
|
|
|
30,142 |
|
|
|
1988/2002 |
|
Avalon Camarillo |
|
|
8,469 |
|
|
|
39,741 |
|
|
|
|
|
|
|
8,469 |
|
|
|
39,741 |
|
|
|
48,210 |
|
|
|
3,689 |
|
|
|
44,521 |
|
|
|
|
|
|
|
2006 |
|
Avalon Wilshire |
|
|
5,452 |
|
|
|
41,076 |
|
|
|
204 |
|
|
|
5,452 |
|
|
|
41,280 |
|
|
|
46,732 |
|
|
|
2,234 |
|
|
|
44,498 |
|
|
|
|
|
|
|
2007 |
|
Avalon Encino |
|
|
12,834 |
|
|
|
48,183 |
|
|
|
|
|
|
|
12,834 |
|
|
|
48,183 |
|
|
|
61,017 |
|
|
|
189 |
|
|
|
60,828 |
|
|
|
|
|
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
1,032,388 |
|
|
|
5,264,784 |
|
|
|
361,294 |
|
|
|
1,032,388 |
|
|
|
5,626,079 |
|
|
|
6,658,467 |
|
|
|
1,323,153 |
|
|
|
5,335,314 |
|
|
|
1,291,798 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Development Communities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Avalon Anaheim |
|
|
2,663 |
|
|
|
89,366 |
|
|
|
|
|
|
|
2,663 |
|
|
|
89,366 |
|
|
|
92,029 |
|
|
|
21 |
|
|
|
92,008 |
|
|
|
|
|
|
|
N/A |
|
Avalon Union City |
|
|
|
|
|
|
97,057 |
|
|
|
|
|
|
|
|
|
|
|
97,057 |
|
|
|
97,057 |
|
|
|
|
|
|
|
97,057 |
|
|
|
|
|
|
|
N/A |
|
Avalon Jamboree Village |
|
|
|
|
|
|
55,581 |
|
|
|
|
|
|
|
|
|
|
|
55,581 |
|
|
|
55,581 |
|
|
|
|
|
|
|
55,581 |
|
|
|
|
|
|
|
N/A |
|
Avalon at Mission Bay North III |
|
|
|
|
|
|
109,420 |
|
|
|
|
|
|
|
|
|
|
|
109,420 |
|
|
|
109,420 |
|
|
|
|
|
|
|
109,420 |
|
|
|
|
|
|
|
N/A |
|
Avalon Walnut Creek |
|
|
|
|
|
|
36,591 |
|
|
|
|
|
|
|
|
|
|
|
36,591 |
|
|
|
36,591 |
|
|
|
|
|
|
|
36,591 |
|
|
|
137,500 |
|
|
|
N/A |
|
Avalon Norwalk |
|
|
|
|
|
|
20,238 |
|
|
|
|
|
|
|
|
|
|
|
20,238 |
|
|
|
20,238 |
|
|
|
|
|
|
|
20,238 |
|
|
|
|
|
|
|
N/A |
|
Avalon at Hingham Shipyard |
|
|
4,204 |
|
|
|
46,578 |
|
|
|
|
|
|
|
4,204 |
|
|
|
46,578 |
|
|
|
50,782 |
|
|
|
155 |
|
|
|
50,627 |
|
|
|
|
|
|
|
N/A |
|
Avalon Northborough I |
|
|
|
|
|
|
9,225 |
|
|
|
|
|
|
|
|
|
|
|
9,225 |
|
|
|
9,225 |
|
|
|
|
|
|
|
9,225 |
|
|
|
|
|
|
|
N/A |
|
Avalon Blue Hills |
|
|
|
|
|
|
29,519 |
|
|
|
|
|
|
|
|
|
|
|
29,519 |
|
|
|
29,519 |
|
|
|
|
|
|
|
29,519 |
|
|
|
|
|
|
|
N/A |
|
Avalon White Plains |
|
|
3,578 |
|
|
|
127,793 |
|
|
|
|
|
|
|
3,578 |
|
|
|
127,793 |
|
|
|
131,371 |
|
|
|
244 |
|
|
|
131,127 |
|
|
|
|
|
|
|
N/A |
|
Avalon Morningside Park |
|
|
|
|
|
|
105,801 |
|
|
|
|
|
|
|
|
|
|
|
105,801 |
|
|
|
105,801 |
|
|
|
696 |
|
|
|
105,105 |
|
|
|
100,000 |
|
|
|
N/A |
|
Avalon Charles Pond |
|
|
|
|
|
|
38,674 |
|
|
|
|
|
|
|
|
|
|
|
38,674 |
|
|
|
38,674 |
|
|
|
|
|
|
|
38,674 |
|
|
|
|
|
|
|
N/A |
|
Avalon Fort Greene |
|
|
|
|
|
|
143,887 |
|
|
|
|
|
|
|
|
|
|
|
143,887 |
|
|
|
143,887 |
|
|
|
|
|
|
|
143,887 |
|
|
|
|
|
|
|
N/A |
|
Avalon Towers Bellevue |
|
|
|
|
|
|
13,425 |
|
|
|
|
|
|
|
|
|
|
|
13,425 |
|
|
|
13,425 |
|
|
|
|
|
|
|
13,425 |
|
|
|
|
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
10,445 |
|
|
|
923,155 |
|
|
|
|
|
|
|
10,445 |
|
|
|
923,155 |
|
|
|
933,600 |
|
|
|
1,116 |
|
|
|
932,484 |
|
|
|
237,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land held for development |
|
|
239,456 |
|
|
|
|
|
|
|
|
|
|
|
239,456 |
|
|
|
|
|
|
|
239,456 |
|
|
|
|
|
|
|
239,456 |
|
|
|
18,194 |
|
|
|
|
|
Corporate Overhead |
|
|
108,623 |
|
|
|
31,052 |
|
|
|
31,289 |
|
|
|
108,623 |
|
|
|
62,341 |
|
|
|
170,964 |
|
|
|
28,475 |
|
|
|
142,489 |
|
|
|
2,126,965 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,390,912 |
|
|
$ |
6,218,992 |
|
|
$ |
392,583 |
|
|
$ |
1,390,912 |
|
|
$ |
6,611,575 |
|
|
$ |
8,002,487 |
|
|
$ |
1,352,744 |
|
|
$ |
6,649,743 |
|
|
$ |
3,674,457 |
|
|
|
|
|
|
|
|
|
|
|
|
F-42
AVALONBAY COMMUNITIES, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2008
(Dollars in thousands)
Amounts include real estate assets held for sale.
Depreciation of AvalonBay Communities, Inc. building, improvements, upgrades and furniture, fixtures and equipment (FF&E) is calculated over the following useful lives,
on a straight line basis:
Building 30 years
Improvements, upgrades and FF&E not to exceed 7 years
The aggregate cost of total real estate for
federal income tax purposes was approximately $7,733,000 at December 31, 2008.
The changes in total real estate assets for the years ended December 31, 2008, 2007 and 2006 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31, |
|
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
Balance, beginning of period |
|
$ |
7,556,740 |
|
|
$ |
6,615,593 |
|
|
$ |
5,940,146 |
|
Acquisitions, construction costs and improvements |
|
|
757,835 |
|
|
|
1,097,959 |
|
|
|
825,981 |
|
Dispositions, including impairment loss on planned dispositions |
|
|
(312,088 |
) |
|
|
(156,812 |
) |
|
|
(150,534 |
) |
|
|
|
|
|
|
|
|
|
|
Balance, end of period |
|
$ |
8,002,487 |
|
|
$ |
7,556,740 |
|
|
$ |
6,615,593 |
|
|
|
|
|
|
|
|
|
|
|
The changes in accumulated depreciation for the years ended December 31, 2008, 2007 and 2006, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31, |
|
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
Balance, beginning of period |
|
$ |
1,259,558 |
|
|
$ |
1,105,231 |
|
|
$ |
960,821 |
|
Depreciation, including discontinued operations |
|
|
199,452 |
|
|
|
180,697 |
|
|
|
164,128 |
|
Dispositions |
|
|
(106,266 |
) |
|
|
(26,370 |
) |
|
|
(19,718 |
) |
|
|
|
|
|
|
|
|
|
|
Balance, end of period |
|
$ |
1,352,744 |
|
|
$ |
1,259,558 |
|
|
$ |
1,105,231 |
|
|
|
|
|
|
|
|
|
|
|