10-Q: Quarterly report pursuant to Section 13 or 15(d)
Published on May 14, 1999
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
Commission file number 1-12672
AVALONBAY COMMUNITIES, INC.
(Exact name of registrant as specified in its charter)
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Maryland 77-0404318
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2900 Eisenhower Avenue, Suite 300
Alexandria, Virginia 22314
(Address of principal executive offices, including zip code)
(703) 329-6300
(Registrant's telephone number, including area code)
(Former name, if changed since last report)
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve (12) months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past ninety (90) days.
Yes[X] No[ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date:
64,471,749 shares outstanding as of May 1, 1999
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AVALONBAY COMMUNITIES, INC.
FORM 10-Q
INDEX
1
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
AVALONBAY COMMUNITIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
The accompanying notes are an integral part of these condensed consolidated
financial statements.
2
AVALONBAY COMMUNITIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Dollars in thousands, except share data)
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
AVALONBAY COMMUNITIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
Supplemental disclosures of non-cash investing and financing activities:
The Company assumed debt in connection with acquisitions totaling $10,400 during
the three months ended March 31, 1998. During the three months ended March 31,
1999, 17,598 units of limited partnership were presented for redemption to the
DownREIT partnership that issued such units and were acquired by the Company for
an equal number of shares of the Company's Common Stock.
Dividends declared but not paid as of March 31, 1999 and 1998 totaled $42,688
and $12,695, respectively.
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AVALONBAY COMMUNITIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
1. Organization and Significant Accounting Policies
Organization and Recent Developments
AvalonBay Communities, Inc. (together with its subsidiaries, except as the
context may otherwise require, the "Company") is a Maryland corporation that has
elected to be taxed as a real estate investment trust ("REIT") under the
Internal Revenue Code of 1986, as amended. The Company focuses on the ownership
and operation of institutional-quality apartment communities in high
barrier-to-entry markets of the United States. These markets include Northern
and Southern California and selected states in the Mid-Atlantic, Northeast,
Midwest and Pacific Northwest regions of the country. The Company is the
surviving corporation from the merger (the "Merger") of Avalon Properties, Inc.
("Avalon") with and into the Company (sometimes hereinafter referred to as "Bay"
before the Merger) on June 4, 1998. The Merger was accounted for as a purchase
of Avalon by Bay. In connection with the Merger, the Company changed its name
from Bay Apartment Communities, Inc. to AvalonBay Communities, Inc.
At March 31, 1999, the Company owned or held an ownership interest in 127
operating apartment communities containing 37,969 apartment homes in sixteen
states and the District of Columbia of which 12 communities containing 4,158
apartment homes were under reconstruction. The Company also owned 13 communities
with 2,951 apartment homes under construction and rights to develop an
additional 31 communities that will contain an estimated 8,314 apartment homes.
During the first quarter of 1999, one new development community, CentreMark,
located in the San Jose, California area was completed containing 311 apartment
homes for a total investment of $49,000.
During the first quarter of 1999, the Company purchased two parcels of land for
the future development of two apartment communities. The cost of the land was
approximately $19,200. The commencement of construction related to these
communities is pending availability of cost effective capital and the Company
has not established a date for the commencement of construction at this time.
Dispositions during the first quarter of 1999 consisted of the sale of one
community, Blairmore, located in the Central Valley, California area. Net
proceeds from the sale of the 252 apartment home community were approximately
$13,000 resulting in a net gain of approximately $3,600. The proceeds will be
re-deployed to development and redevelopment communities. Pending such
redeployment, the proceeds from the sale of this community were primarily used
to repay amounts outstanding under the Company's variable rate unsecured credit
facility (the "Unsecured Facility").
During the first quarter of 1999, financing in the amount of $6,320 which was
provided to the purchaser of Sommerset, a community sold by the Company in the
fourth quarter of 1998, was repaid. Accordingly, in 1999, the Company recognized
gain on the sale of Sommerset of approximately $1,500 that was deferred as of
December 31, 1998.
During the first quarter of 1999, the Company issued $125,000 of medium-term
notes. The notes bear interest at 6.58%, and will mature on February 15, 2004.
The net proceeds of approximately $124,300 to the Company were used to repay
amounts outstanding under the Company's Unsecured Facility.
In February 1999, the Company announced certain management changes including (i)
the departure of three senior officers who became entitled to severance in
connection with the termination of their employment and (ii) the relocation of
the Company's west coast accounting group to the Company's
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Alexandria, Virginia headquarters and related employee departures. The Company
recorded a non-recurring charge of approximately $16,000 in the first quarter of
1999 relating to this management realignment including severance costs and
certain related organizational adjustments. Because a plan of management
realignment was not in existence on June 4, 1998, the date of the Company's
merger with Avalon, this charge is not considered a part of the Company's
purchase price for Avalon, and accordingly, the expenses associated with the
management realignment have been treated as a non-recurring charge in the first
quarter of 1999.
The interim unaudited financial statements have been prepared in accordance with
generally accepted accounting principles ("GAAP") for interim financial
information and in conjunction with the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures normally
included in financial statements required by GAAP have been condensed or omitted
pursuant to such rules and regulations. These unaudited financial statements
should be read in conjunction with the financial statements and notes included
in the Company's Annual Report on Form 10-K for the year ended December 31,
1998. The results of operations for the three months ended March 31, 1999 are
not necessarily indicative of the operating results for the full year.
Management believes the disclosures are adequate to make the information
presented not misleading. In the opinion of Management, all adjustments and
eliminations, consisting only of normal, recurring adjustments necessary for a
fair presentation of the financial statements for the interim periods have been
included.
Principles of Consolidation
The accompanying condensed consolidated financial statements include the
accounts of the Company and its wholly-owned partnerships as well as four
subsidiary partnerships structured as DownREITs. In each of the four
partnerships structured as DownREITs, the Company is the general partner and
there are one or more limited partners whose interest in the partnership is
denominated in units of limited partnership interest ("Units"). For each
DownREIT partnership, limited partners who hold Units are entitled to receive
certain distributions (a "Stated Distribution") prior to any distribution that
such DownREIT partnership makes to the general partner. Although the
partnership agreements for each of the DownREITs are different, currently the
Stated Distributions that are paid in respect of the DownREIT Units in general
approximate the dividend rate applicable to shares of Common Stock of the
Company. Each DownREIT partnership has been structured in a manner that makes
it unlikely that the limited partners will be entitled to any greater
distribution than the Stated Distribution. Each holder of Units has the right
to require the DownREIT partnership that issued a Unit to redeem that Unit at a
cash price equal to the then fair market value of a share of Common Stock of
the Company, except that the Company has the right to acquire any Unit so
presented for redemption for one share of Common Stock. All significant
intercompany balances and transactions have been eliminated in consolidation.
Real Estate
Significant expenditures which improve or extend the life of the asset are
capitalized. The operating real estate assets are stated at cost and consist of
land, buildings and improvements, furniture, fixtures and equipment, and other
costs incurred during development, redevelopment and acquisition. Expenditures
for maintenance and repairs are charged to operations as incurred.
The capitalization of costs during the development of assets (including interest
and related loan fees, property taxes and other direct and indirect costs)
begins when active development commences and ends when the asset is delivered
and a final certificate of occupancy is issued. Cost capitalization during
redevelopment of assets (including interest and related loan fees, property
taxes and other direct and indirect costs) begins when an apartment home is
taken out-of-service for redevelopment and ends when the apartment home
redevelopment is completed and the apartment home is placed-in-service. The
Company increased the West Coast portfolio's threshold for capitalization of
community improvements from $5,000 per occurrence to $15,000 per occurrence
effective January 1, 1999, in order to conform to the company-wide threshold for
capitalization of community improvements.
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The accompanying condensed consolidated financial statements include a charge to
expense for unrecoverable deferred development costs related to pre-development
communities that are unlikely to be developed.
Depreciation is calculated on buildings and improvements using the straight-line
method over their estimated useful lives, which range from ten to thirty years.
Furniture, fixtures and equipment are generally depreciated using the
straight-line method over their estimated useful lives, which range from three
to seven years.
Lease terms for apartment homes are generally one year or less. Rental income
and operating costs incurred during the initial lease-up or post-redevelopment
lease-up period are fully recognized as they accrue.
Earnings per Common Share
The Company has adopted Statement of Financial Accounting Standards ("SFAS") No.
128, "Earnings per Share." In accordance with the provisions of SFAS No. 128,
basic earnings per share for the three months ended March 31, 1999 and 1998 is
computed by dividing earnings available to common shares (net income less
preferred stock dividends) by the weighted average number of shares outstanding
during the period. Additionally, other potentially dilutive common shares are
considered when calculating earnings per share on a diluted basis. The Company's
basic and diluted weighted average shares outstanding for the three months ended
March 31, 1999 and 1998 are as follows:
On a weighted average basis, at March 31, 1998, there were 2,713,822 shares of
convertible Preferred Stock, 278,669 Common Stock options and 295,121 operating
partnership units that were antidilutive. Therefore, for the three months ended
March 31, 1998, there were effectively no dilutive common share equivalents
outstanding.
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.
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Reclassifications
Certain reclassifications have been made to amounts in prior years' financial
statements to conform with current year presentations.
Newly Issued Accounting Standards
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This
pronouncement establishes accounting and reporting standards requiring that
every derivative instrument be recorded in the balance sheet as either an asset
or liability measured at its fair value. SFAS No. 133 requires that changes in
the derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. SFAS No. 133 is effective for fiscal years
beginning after June 15, 1999 and cannot be applied retroactively. The Company
currently plans to adopt this pronouncement effective January 1, 2000, and will
determine both the method and impact of adoption prior to that date.
2. Merger between Bay and Avalon
In June 1998, the Company completed the Merger with Avalon. The Merger and
related transactions were accounted for using the purchase method of accounting
in accordance with GAAP. Accordingly, the assets and liabilities of Avalon were
adjusted to fair value for financial accounting purposes and the results of
operations of Avalon prior to June 4, 1998 are not included in the results of
operations of the Company.
As part of the fair value adjustment discussed above, management made certain
estimates related to individual community real estate asset values. Subsequent
to the Merger, the Company sold several assets previously owned by Avalon,
which would have resulted in the recognition of material gains prior to the
Merger, but resulted in no gain due to each asset's fair value allocation. In
the future, for a period of no more than one year after the Merger, management
will continue to reassess, on an asset-by-asset basis, the value assigned to
real estate assets previously owned by Avalon as they are disposed, to ensure
that any potential gain or loss based on the current purchase price allocation
is appropriate based on any change in economic events between the Merger and
the date of sale.
3. Interest Capitalized
Capitalized interest associated with projects under development or redevelopment
totaled $7,283 and $2,964 for the three months ended March 31, 1999 and 1998,
respectively.
4. Notes Payable, Unsecured Senior Notes and Credit Facility
The Company's notes payable, unsecured senior notes and credit facility are
summarized as follows:
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Notes payable are collateralized by certain apartment communities and mature at
various dates from July 1999 through December 2036. The weighted average
interest rate of variable rate notes (tax-exempt) was 4.3% at March 31, 1999.
The weighted average interest rate of fixed rate notes (conventional and
tax-exempt) was 6.7% at March 31, 1999.
The Company's unsecured senior notes consist of the following:
The Company's unsecured senior notes contain a number of financial and other
covenants with which the Company must comply, including, but not limited to,
limits on the aggregate amount of total and secured indebtedness the Company may
have on a consolidated basis and limits on the Company's required debt service
payments.
The Company's $600,000 Unsecured Facility is with Morgan Guaranty Trust Company
of New York, Union Bank of Switzerland and Fleet National Bank, serving as
co-agents for a syndicate of commercial banks. The Unsecured Facility bears
interest at a spread over the London Interbank Offered Rate ("LIBOR") based on
rating levels achieved on the Company's senior unsecured notes and on a maturity
selected by the Company. The current stated pricing is LIBOR plus .6% per annum.
The Unsecured Facility, which was put into place during June 1998, replaced
three separate credit facilities previously available to the separate companies
prior to the Merger. The terms of the retired facilities were similar to the
Unsecured Facility. In addition, the Unsecured 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 Unsecured Facility) for up to $400,000. The Company is subject to certain
customary covenants under the Unsecured Facility, including, but not limited to,
maintaining certain maximum leverage ratios, a minimum fixed charges coverage
ratio, minimum unencumbered assets and equity levels and restrictions on paying
dividends in amounts that exceed 95% of the Company's Funds from Operations, as
defined therein. The Unsecured Facility matures in July 2001 and has two,
one-year extension options.
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5. Stockholders' Equity
The following summarizes the changes in stockholders' equity for the three
months ended March 31, 1999:
6. Investments in Unconsolidated Joint Ventures
In connection with the Merger, the Company succeeded to certain investments in
unconsolidated joint ventures. At March 31, 1999, these investments consisted of
a 50% general partnership interest in Falkland Partners, a 49% equity interest
in Avalon Run and a 50% partnership interest in Avalon Grove. The following is a
combined summary of the financial position of these joint ventures as of the
dates presented (which includes the period prior to the Merger):
The following is a combined summary of the operating results of these joint
ventures for the periods presented (which includes the periods prior to the
Merger):
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7. Communities Held for Sale
During 1998, the Company completed a strategic planning effort resulting in a
decision to pursue a disposition strategy for certain assets in markets that did
not meet the Company's long-term strategic direction. The Company will solicit
competing bids from unrelated parties for these individual assets, and will
consider the sales price and tax ramifications of each proposal. Management sold
seven communities in connection with this disposition strategy in 1998, and one
community during the first quarter of 1999. Management intends to actively
market the remaining assets for sale during 1999. However, there can be no
assurance that such assets can be sold, or that the sales will be on terms that
are beneficial to the Company.
The assets targeted for sale include land, buildings and improvements and
furniture, fixtures and equipment, and are recorded at the lower of cost or fair
value less estimated selling costs. The Company has not recognized a write down
in its real estate to arrive at net realizable value. At March 31, 1999, total
real estate, net of accumulated depreciation, subject to sale totaled $273,792.
Certain individual assets are secured by mortgage indebtedness which may be
assumed by the purchaser or repaid by the Company from the net sales proceeds.
The Company's condensed consolidated statements of operations include net income
of the communities held for sale of $2,006 and $320 for the three months ended
March 31, 1999 and 1998, respectively. Depreciation expense on these assets,
which was not recognized subsequent to the date of held-for-sale classification,
totaled $2,113 for the three months ended March 31, 1999.
8. Segment Reporting
The Company adopted SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information," during 1998. SFAS No. 131 established standards for
reporting financial and descriptive information about operating segments in
annual financial statements. Operating segments are defined as components of an
enterprise about which separate financial information is available that is
evaluated regularly by the chief operating decision maker, or decision making
group, in deciding how to allocate resources and in assessing performance. The
Company's chief operating decision making group consists primarily of the
Company's senior officers.
The Company's reportable operating segments include Stable Communities,
Developed Communities and Redeveloped Communities:
- - Stable Communities are communities that 1) have attained stabilized
occupancy levels (95% occupancy) and operating costs since the beginning of
the prior calendar year (these communities are also known as Established
Communities); or 2) were acquired subsequent to the beginning of the
previous calendar year but were stabilized in terms of occupancy levels and
operating costs at the time of acquisition, and remained stabilized
throughout the end of the current calendar year. Stable Communities do not
include communities where planned redevelopment or development activities
have not yet commenced. The primary financial measure for this business
segment is Net Operating Income ("NOI"), which represents total revenue less
operating expenses and property taxes. With respect to Established
Communities, an additional financial measure of performance is NOI for the
current year as compared against the prior year and against current year
budgeted NOI. With respect to other Stable Communities, performance is
primarily based on reviewing growth in NOI for the current period as
compared against prior periods within the calendar year and against current
year budgeted NOI.
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- - Developed Communities are communities that were under active development
during any portion of the preceding calendar year that attained stabilized
occupancy and expense levels during the current calendar year of
presentation. The primary financial measure for this business segment is
Operating Yield (defined as NOI divided by total capitalized costs).
Performance of Developed Communities is based on comparing Operating Yields
against projected yields as determined by Management prior to undertaking
the development activity.
- - Redeveloped Communities are communities that were under active redevelopment
during any portion of the preceding calendar year that attained stabilized
occupancy and expense levels during the current calendar year of
presentation. The primary financial measure for this business segment is
Operating Yield. Performance for Redeveloped Communities is based on
comparing Operating Yields against projected yields as estimated by
Management prior to undertaking the redevelopment activity.
Other communities owned by the Company which are not included in the above
segments are communities that were under development or redevelopment or
lease-up at any point in time during the applicable calendar year. The primary
performance measure for these assets depends on the stage of development or
redevelopment of the community. While under development or redevelopment,
Management monitors actual construction costs against budgeted costs as well as
economic occupancy. While under lease-up, the primary performance measures for
these assets are projected Operating Yield as defined above, lease-up pace
compared to budget and rent levels compared to budget.
Net Operating Income for each community is generally equal to that community's
contribution to Funds from Operations ("FFO"). Interest expense related to
indebtedness secured by an individual community and depreciation and
amortization on non-real estate assets are not included in the community's NOI
whereas these amounts do decrease FFO.
The segments are classified based on the individual community's status as of the
beginning of the given calendar year. Therefore, each year the composition of
communities within each business segment is adjusted. Accordingly, the amounts
between years are not directly comparable.
In addition to reporting segments based on the above property types, the Company
previously reported results within these segments based on the West and East
Coast geographic areas. This disclosure was provided because the West and East
Coast geographic areas substantially reflected the operating communities of Bay
and Avalon, respectively, prior to the Merger. Management currently reviews its
operating segments by geographic regions, including Northern and Southern
California, Pacific Northwest, Northeast, Mid-Atlantic and Midwest regions.
These individual regions contain similar economic characteristics and also meet
the other criteria which permit the regions to be aggregated into one reportable
region.
The accounting policies applicable to the operating segments described above are
the same as those described in the summary of significant accounting policies in
the Company's Form 10-K.
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Operating expenses as reflected on the Condensed Consolidated Statements of
Operations include $5,688 and $1,167 for the three months ended March 31, 1999
and 1998, respectively, of property management overhead costs that are not
allocated to individual communities. These costs are not reflected in Net
Operating Income as shown in the above tables. Communities held for sale as
reflected on the Condensed Consolidated Balance Sheets is net of $9,891 of
accumulated depreciation as of March 31, 1999.
In June 1998, the Company completed the Merger with Avalon. The Merger and
related transactions were accounted for using the purchase method of accounting
in accordance with GAAP. Accordingly, the results of operations of the Avalon
communities prior to June 4, 1998 are not included in the results of operations
of the Company. Avalon communities are included in Established Communities for
Management's decision making purposes although the results of operations prior
to the Merger are not included in the Company's historical operating results
determined in accordance with GAAP. For comparative purposes, the 1998 operating
information for the Company is presented on the following page on a pro forma
basis (unaudited) assuming the Merger had occurred as of January 1, 1998.
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9. Subsequent Events
During May 1999, the Company sold Avalon at Park Center, a 492 apartment home
community located in Northern Virginia, and Avalon at Lake Arbor, a 209
apartment home community located in Southern Maryland. The net proceeds of
approximately $57,000 from the sale of the community will be re-deployed to
development and redevelopment communities. Pending such redeployment, the
proceeds from the sale of these communities were used to repay amounts
outstanding under the Company's Unsecured Facility.
During May 1999, the Company purchased a parcel of land for the future
development of one apartment community. The cost of the land was approximately
$4,800. The commencement of construction related to this community is pending
availability of cost effective capital and the Company has not established a
date for the commencement of constrution at this time.
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PART I. FINANCIAL INFORMATION (CONTINUED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Forward-Looking Statements
Certain statements in this Form 10-Q, including the footnotes to the Company's
condensed consolidated financial statements, constitute "forward-looking
statements" as that term is defined under the Private Securities Litigation
Reform Act of 1995 (the "Reform Act"). The words "believe," "expect,"
"anticipate," "intend," "estimate," "assume" and other similar expressions which
are predictions of or indicate future events and trends and which do not solely
report historical matters identify forward-looking statements. In addition,
information concerning construction, occupancy and completion of Development and
Redevelopment Communities and Development Rights (as each term is hereinafter
defined) and related cost, yield and EBITDA estimates, as well as the cost,
timing and effectiveness of Year 2000 compliance, are forward-looking
statements. Reliance should not be placed on forward-looking statements as they
involve known and unknown risks, uncertainties and other factors, which are in
some cases beyond the control of the Company and may cause the actual results,
performance or achievements of the Company to differ materially from the
anticipated future results, performance or achievements expressed or implied by
such forward-looking statements.
Certain factors that might cause such differences include, but are not limited
to, the following: the Company may not be successful in managing its current
growth in the number of apartment communities and the related growth of its
business operations; the Company's expansion into new geographic market areas
may not produce financial results that are consistent with its historical
performance; the Company may fail to secure or may abandon development
opportunities; construction costs of a community may exceed original estimates;
construction and lease-up of Development and Redevelopment Communities may not
be completed on schedule, resulting in increased debt service expense,
construction costs and reduced rental revenues; occupancy rates and market rents
may be adversely affected by local economic and market conditions which are
beyond management's control; financing may not be available on favorable terms
and reliance on cash flow from operations and access to cost effective capital
may be insufficient to enable the Company to pursue opportunities or develop its
pipeline of Development Rights; the Company's cash flow may be insufficient to
meet required payments of principal and interest, and existing indebtedness may
not be able to be refinanced or the terms of such refinancing may not be as
favorable as the terms of existing indebtedness; and the Company and its
suppliers and service providers may experience unanticipated delays or expenses
in achieving Year 2000 compliance.
The following discussion should be read in conjunction with the unaudited
condensed consolidated financial statements and notes included in this report
and the audited financial statements for the year ended December 31, 1998 and
the notes included in the Company's annual report on Form 10-K.
General
The Company is a Maryland corporation that has elected to be treated as a real
estate investment trust ("REIT") for federal income tax purposes. The Company
is focused on the ownership and operation of institutional-quality
apartment communities in high barrier-to-entry markets of the United States.
These markets are located in Northern and Southern California and selected
states in the Mid-Atlantic, Northeast, Midwest and Pacific Northwest regions of
the country. The Company is the surviving corporation from the merger (the
"Merger") of Avalon Properties, Inc. ("Avalon") with and into the Company
(sometimes hereinafter referred to as "Bay" before the Merger) on June 4, 1998.
The Merger was accounted for as a purchase of Avalon by Bay. In conjunction with
the Merger, the Company changed its name from Bay Apartment Communities, Inc. to
AvalonBay Communities, Inc.
The Company is a fully-integrated real estate organization with in-house
acquisition, development,
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redevelopment, construction, reconstruction, financing, marketing, leasing and
management expertise. With its experience and in-house capabilities, the Company
believes it is well-positioned to continue to pursue opportunities to develop
and acquire upscale apartment homes in its target markets, although the Company
may be constrained in its ability to pursue attractive opportunities by capital
market conditions that limit the availability of cost effective capital to
finance these activities.
The Company's management ("Management") believes apartment communities present
an attractive investment opportunity compared to other real estate investments
because a broad potential resident base results in relatively stable demand
during all phases of a real estate cycle. The Company intends to pursue
appropriate new investments (both new developments and acquisitions of
communities) in markets where constraints to new supply exist and where new
household formations have out-paced multifamily permit activity in recent years.
The Company's real estate investments as of May 1, 1999 consist primarily of
apartment communities in various stages of the development cycle and land or
land options held for development. Such investments can be divided into the
following categories:
(*) Represents an estimate
Current Communities are apartment communities where construction is
complete and the community has either reached stabilized occupancy or is
in the initial lease-up process or under redevelopment. Current
Communities include the following sub-classifications:
Stabilized Communities. Represents all Current Communities that have
completed initial lease-up by attaining physical occupancy levels of
at least 95% or have been completed for one year, whichever occurs
earlier.
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- Established Communities. Represents all Stabilized Communities
owned by Bay (or by Avalon and subsequently acquired by the
Company in connection with the Merger) as of January 1, 1998, with
stabilized operating costs as of January 1, 1998 such that a
comparison of 1998 operating results to 1999 operating results is
meaningful. The Established Communities fall into one of six
geographic areas including Northern California, Southern
California, Mid-Atlantic, Northeast and Midwest regions. At March
31, 1999, there were no Established Communities in the Pacific
Northwest.
- Other Stabilized Communities. Represents Stabilized Communities as
defined above, but which attained such classification or were
acquired after January 1, 1998.
Lease-Up Communities. Represents all Current Communities where
construction has been complete for less than one year and the
communities are in the initial lease-up process.
Redevelopment Communities. Represents all Current Communities where
substantial redevelopment has either begun or is scheduled to begin.
Redevelopment is considered substantial when additional capital
invested during the reconstruction effort exceeds the lesser of $5
million or 10% of the community's acquisition cost.
Development Communities are communities that are under construction and
for which a final certificate of occupancy has not been received. These
communities may be partially complete and operating.
Development Rights are development opportunities in the early phase of
the development process for which the Company has an option to acquire
land or owns land to develop a new community. Related pre-development
costs have been incurred and capitalized in pursuit of these new
developments.
Of the Current Communities, the Company holds a fee simple ownership interest in
107 operating communities (one of which is on land subject to a 149 year land
lease); a general partnership interest in four partnerships that hold a fee
simple interest in four other operating communities; a general partnership
interest in four partnerships structured as "DownREITs" (as described more fully
below) that own 13 communities; and a 100% interest in a senior participating
mortgage note secured by one community. The Company holds a fee simple ownership
interest in each of the Development Communities except for two communities that
are owned by partnerships in which the Company holds a general partnership
interest.
In each of the four partnerships structured as DownREITs, the Company is the
general partner and there are one or more limited partners whose interest in the
partnership is denominated in units of limited partnership interest ("Units").
For each DownREIT partnership, limited partners who hold Units are entitled to
receive certain distributions (a "Stated Distribution") prior to any
distribution that such DownREIT partnership makes to the general partner.
Although the partnership agreements for each of the DownREITs are different,
currently the Stated Distributions that are paid in respect of the DownREIT
Units in general approximate the dividend rate applicable to shares of Common
Stock of the Company. Each DownREIT partnership has been structured in a manner
that makes it unlikely that the limited partners will be entitled to any
greater distribution than the Stated Distribution. Each holder of Units has the
right to require the DownREIT partnership that issued a Unit to redeem that
Unit at a cash price equal to the then fair market value of a share of Common
Stock of the Company, except that the Company has the right to acquire any Unit
so presented for redemption for one share of Common Stock.
18
As of May 1, 1999, there were 876,546 Units outstanding. The DownREIT
partnerships are consolidated for financial reporting purposes.
At March 31, 1999, Management had positioned the Company's portfolio of
Stabilized Communities, excluding communities owned by joint ventures, to an
average physical occupancy level of 95.8% and achieved an average economic
occupancy of 95.8% and 97.1% for the three months ended March 31, 1999 and 1998,
respectively. This continued high occupancy was achieved through aggressive
marketing efforts combined with limited and targeted pricing adjustments. This
positioning has resulted in overall growth in rental revenue from Established
Communities between periods. It is Management's strategy to maximize total
rental revenue through management of rental rates and occupancy levels. If
market and economic conditions change, Management's strategy of maximizing total
rental revenue could lead to lower occupancy levels. Given the high occupancy
level of the portfolio, Management anticipates that any rental revenue and net
income gains from the Company's Established Communities would be achieved
primarily through higher rental rates and enhanced operating cost leverage
provided by high occupancy.
The Company elected to be taxed as a REIT for federal income tax purposes for
the year ended December 31, 1994 and has not revoked that election. The Company
was incorporated under the laws of the State of California in 1978 and was
reincorporated in the State of Maryland in July 1995. Its principal executive
offices are located at 2900 Eisenhower Avenue, Suite 300, Alexandria, Virginia
22314, and its telephone number at that location is (703) 329-6300. The Company
also maintains regional offices in San Jose, California and Wilton, Connecticut
and acquisition, development, redevelopment, construction, reconstruction or
administrative offices in or near Boston, Massachusetts; Chicago, Illinois;
Minneapolis, Minnesota; New York, New York; Newport Beach, California; Los
Angeles, California; Princeton, New Jersey; Richmond, Virginia; and Seattle,
Washington.
Recent Developments
Sales of Existing Communities. During 1998, the Company completed a strategic
planning effort resulting in a decision to emphasize high barrier-to-entry
markets where the Company believes it can achieve a sufficient market and
management presence so as to achieve greater revenue growth, reduced operating
expenses and leverage management talent. As part of this strategy, the Company
is pursuing a disposition strategy for certain assets in markets that do not
meet these requirements. The proceeds from the sale of these communities will be
redeployed to the development and redevelopment of communities currently under
construction or reconstruction. Pending such redeployment, the proceeds from the
sale of these communities have been used to repay amounts outstanding under the
Company's variable rate unsecured credit facility (the "Unsecured Facility").
In connection with this disposition strategy, the Company sold Blairmore,
located in the Central Valley, California area, during the first quarter of
1999. Net proceeds from the sale of the 252 apartment home community were
approximately $13,000,000 resulting in a net gain of approximately $3,600,000.
During the fourth quarter of 1998, the Company sold Sommerset, a community
located in the San Francisco, California area. To facilitate the sale of
Sommerset, the Company provided short-term financing to the purchaser for
$6,320,000, which was repaid during the first quarter of 1999. Accordingly, in
1999, the Company recognized gain on the sale of Sommerset of approximately
$1,500,000 that had been deferred as of December 31, 1998.
The Company sold two additional communities, Avalon at Park Center, a 492
apartment home community located in the Northern Virginia area, and Avalon at
Lake Arbor, a 209 apartment home community located in Southern Maryland, in
April 1999 in connection with the disposition strategy. The net proceeds from
the sale of these communities were approximately $57,000,000.
19
Land Acquired for Development. Since January 1, 1999, the Company has purchased
three parcels of land for the future development of three apartment
communities. The cost of the land was approximately $24,000,000. The
commencement of construction related to these communities is pending
availability of cost effective capital and the Company has not established a
date for the commencement of construction at this time.
The development of communities entail risks that the investment will fail to
perform in accordance with expectations. See "Risks of Development and
Redevelopment" for Management's discussion of these and other risks inherent in
developing new communities.
Organizational Changes. In February 1999, the Company announced certain
management changes. The management changes included the departures of Charles H.
Berman, the Company's President, Chief Operating Officer and a director; Jeffrey
B. Van Horn, Senior Vice President-Investments; and Max L. Gardner, Senior Vice
President-Development/Acquisitions. Messrs. Berman, Van Horn and Gardner are
entitled to severance benefits in accordance with the terms of their employment
agreements with the Company dated as of March 9, 1998. In addition, the Company
decided to relocate the west coast accounting group to the Company's Alexandria
Virginia headquarters. The Company recorded a non-recurring charge of
approximately $16 million in the first quarter of 1999 related to this
management realignment and certain related organizational adjustments. Because
a plan of management realignment was not in existence on June 4, 1998, the date
of the Company's merger with Avalon, this charge is not considered a part of
the Company's purchase price for Avalon and, accordingly, the expenses
associated with the management realignment have been treated as a non-recurring
charge. The recurring cost reductions associated with the organizational
adjustments giving rise to the non-recurring charge are estimated by management
to total approximately $3.5 million annually (some of which was previously
capitalized overhead costs). The non-recurring charge is an estimate, and no
assurance can be given as to the ultimate amount of payments related to this
reorganization which could be greater or less than the estimates provided.
Results of Operations
The changes in operating results from period-to-period (on a historical basis)
are primarily the result of increases in the number of apartment homes owned due
to the Merger as well as the development and acquisition of additional
communities. Where appropriate, comparisons are made on a weighted average basis
for the number of occupied apartment homes in order to adjust for such changes
in the number of apartment homes. For Stabilized Communities (excluding
communities owned by joint ventures), all occupied apartment homes are included
in the calculation of weighted average occupied apartment homes for each
reporting period. For communities in the initial lease-up phase, only apartment
homes of communities that are completed and occupied are included in the
weighted average number of occupied apartment homes calculation for each
reporting period.
The analysis that follows compares the operating results of the Company for the
three months ended March 31, 1999 and 1998.
Net income available to common stockholders increased $912,000 (10.2%) to
$9,862,000 for the three months ended March 31, 1999 compared to $8,950,000 for
the comparable period of the preceding year. Excluding non-recurring charges and
gain on sale of communities, net income (as adjusted) increased by $12,357,000
from the comparable period of 1998. The primary reason for the increase in net
income (as adjusted) is additional operating income from the communities
acquired by the Company as a result of the Merger. The increase is also
attributable to additional operating income from communities developed or
acquired during 1998 and the first quarter of 1999, as well as growth in
operating income from Established Communities.
20
Rental income increased $72,865,000 (160.8%) to $118,191,000 for the three
months ended March 31, 1999 compared to $45,326,000 for the comparable period of
the preceding year. Of the increase, $609,000 relates to rental revenue
increases from Established Communities and $72,256,000 relates to rental revenue
attributable to newly developed, redeveloped or acquired apartment homes, of
which $60,091,000 relates to rental revenue attributable to communities the
Company succeeded to in connection with the Merger.
Overall Portfolio - The $72,865,000 increase is primarily due to increases
in the weighted average number of occupied apartment homes as well as an
increase in the weighted average monthly rental income per occupied
apartment home. The weighted average number of occupied apartment homes
increased from 8,535 apartment homes for the three months ended March 31,
1998 to 28,499 apartment homes for the three months ended March 31, 1999 as
a result of additional apartment homes from the former Avalon communities
and the development, redevelopment and acquisition of new communities. For
the three months ended March 31, 1999, the weighted average monthly revenue
per occupied apartment home increased $106 (9.6%) to $1,209 compared to
$1,103 for the comparable period of the preceding year.
Established Communities - Rental revenue increased $609,000 (2.5%) for the
three months ended March 31, 1999, compared to the comparable period of the
preceding year due to market conditions that allowed for higher average
rents, but lower economic occupancy levels. For the three months ended March
31, 1999, weighted average monthly revenue per occupied apartment home
increased $58 (4.9%) to $1,246 compared to $1,188 for the comparable period
of the preceding year. The average economic occupancy decreased 2.2% from
97.4% for the three months ended March 31, 1998 to 95.2% for the three
months ended March 31, 1999.
The Company's Established Communities consist only of communities located
within the Northern California and Southern California markets. Compared to
the prior year, most of the sub-markets within Northern California where the
Company's communities are located have maintained a strong economic
environment that has allowed for high occupancy levels and rent growth.
However, Management believes that, beginning in October 1998, certain
Northern California sub-markets that are primarily dependent on Silicon
Valley employment have softened, in part due to Asian economic difficulties.
These impacted sub-markets have experienced reduced rent growth and
occupancy compared to other Northern California sub-markets.
Established Communities (on a pro forma basis, assuming the Merger had
occurred on January 1, 1998) - Rental revenue increased $2,773,000 (4.6%)
for the three months ended March 31, 1999 compared to the comparable period
of the preceding year due to market conditions that allowed for higher
average rents, but lower economic occupancy levels. For the three months
ended March 31, 1999, weighted average monthly revenue per occupied
apartment home increased $58 (5.1%) to $1,191 compared to $1,133 for the
comparable period of the preceding year. The average economic occupancy
decreased from 96.6% for the three months ended March 31, 1998 to 96.1% for
the three months ended March 31, 1999.
Established Communities on a pro forma basis include the Established
Communities as well as the communities owned by Avalon at
January 1, 1998 with stabilized occupancy levels and operating costs as of
that date, such that a comparison of 1998 operating results to 1999
operating results is meaningful. Established Communities on a pro forma
basis include communities located in the Northeast, Mid-Atlantic and Midwest
in addition to those communities located in Northern California and Southern
California.
Management fees totaling $339,000 for the three months ended March 31, 1999
represent revenue from certain third-party contracts the Company succeeded to in
connection with the Merger.
21
Operating expenses increased $21,010,000 (184.4%) to $32,401,000 for the three
months ended March 31, 1999 compared to $11,391,000 for the comparable period of
the preceding year.
Overall Portfolio - The increase in operating expenses for the three months
ended March 31, 1999 is primarily due to additional operating expenses from
the former Avalon communities, and secondarily, due to the addition of newly
developed, redeveloped or acquired apartment homes. Maintenance, insurance
and other costs associated with Development and Redevelopment Communities
are expensed as communities move from the initial construction and lease-up
phase to the stabilized operating phase.
Established Communities - Operating expenses increased $377,000 (8.4%) to
$4,850,000 for the three months ended March 31, 1999 compared to $4,473,000
for the comparable period of the preceding year. The net change is the
result of higher payroll, administrative and maintenance costs, offset by
lower utility and insurance costs.
Established Communities (on a pro forma basis, assuming the Merger had
occurred on January 1, 1998) - Operating expenses increased $701,000 (5.9%)
to $12,513,000 for the three months ended March 31, 1999 compared to
$11,812,000 for the comparable period of the preceding year. The net change
is the result of higher payroll and maintenance costs, offset by lower
utility and insurance costs.
Property taxes increased $7,031,000 (193.9%) to $10,657,000 for the three months
ended March 31, 1999 compared to $3,626,000 for the comparable period of the
preceding year.
Overall Portfolio - The increase for the three months ended March 31, 1999
is primarily due to additional expense from the former Avalon communities
and secondarily due to the addition of newly developed, redeveloped or
acquired apartment homes. Property taxes on Development and Redevelopment
Communities are expensed as communities move from the initial construction
and lease-up phase to the stabilized operating phase.
Established Communities - Property taxes increased $19,000 (1.0%) to
$1,862,000 for the three months ended March 31, 1999 compared to $1,843,000
for the comparable period of the preceding year. The increase is primarily
the result of annual increases in property tax assessments.
Established Communities (on a pro forma basis, assuming the Merger had
occurred on January 1, 1998) - Property taxes increased $258,000 (4.9%) to
$5,484,000 for the three months ended March 31, 1999 compared to $5,226,000
for the comparable period of the preceding year. The increase is primarily
the result of increased assessments of property values and increased
property tax rates in the Northeast and Mid-Atlantic regions.
Interest expense increased $10,088,000 (161.4%) to $16,337,000 for the three
months ended March 31, 1999 compared to $6,249,000 for the comparable period of
the preceding year. The increase is primarily attributable to debt assumed in
connection with the Merger and secondarily due to the issuance of unsecured
senior notes in 1998 and 1999, offset by an increase in capitalized interest due
to an increase in the number of apartment homes under construction or
reconstruction.
Depreciation and amortization increased $17,636,000 (178.7%) to $27,503,000 for
the three months ended March 31, 1999 compared to $9,867,000 for the comparable
period of the preceding year. The increase is primarily attributable to
additional expense from the former Avalon communities and secondarily to
acquisitions, development and redevelopment of communities in 1998 and 1999.
22
General and administrative expenses increased $1,196,000 (102.1%) to $2,367,000
for the three months ended March 31, 1999 compared to $1,171,000 for the
comparable period of the preceding year. The increase is primarily due to costs
incurred to support the Company's current portfolio as a result of the Merger.
Equity in income of unconsolidated joint ventures of $726,000 for the three
months ended March 31, 1999 represents the Company's share of income of certain
joint ventures that the Company succeeded to in connection with the Merger.
Interest income increased $1,558,000 to $1,665,000 for the three months ended
March 31, 1999 compared to $107,000 for the comparable period of the preceding
year. The increase is primarily due to the interest on the Avalon Arbor
promissory note that the Company succeeded to in connection with the Merger and
on the Fairlane Woods promissory note acquired in August 1998.
Capitalization of Fixed Assets and Community Improvements
The Company maintains a policy with respect to capital expenditures that
generally provides that only non-recurring expenditures are capitalized.
Improvements and upgrades are capitalized only if the item exceeds $15,000,
extends the useful life of the asset and is not related to making an apartment
home ready for the next resident. Effective January 1, 1999, the Company
increased the West Coast portfolio's threshold for capitalization of community
improvements from $5,000 per occurrence to $15,000 per occurrence, in order to
conform to the company-wide threshold for capitalization of community
improvements. Under this policy, virtually all capitalized costs are
non-recurring, as recurring make ready costs are expensed as incurred, including
costs of carpet and appliance replacements, floor coverings, interior painting
and other redecorating costs. Purchases of personal property (such as computers
and furniture) are capitalized only if the item is a new addition (i.e., not a
replacement) and only if the item exceeds $2,500. The application of these
policies for the three months ended March 31, 1999 resulted in non-revenue
generating capitalized expenditures for Stabilized Communities of approximately
$20 per apartment home. For the three months ended March 31, 1999, the Company
charged to maintenance expense, including carpet and appliance replacements, a
total of approximately $7,800,000 for Stabilized Communities or $247 per
apartment home. Management anticipates that capitalized costs per apartment home
will gradually rise as the Company's portfolio of communities matures.
Liquidity and Capital Resources
Liquidity. A primary source of liquidity to the Company is cash flows from
operations. Operating cash flows have historically been determined by the number
of apartment homes, rental rates, occupancy levels and the Company's expenses
with respect to such apartment homes. The timing, source and amount of cash
flows provided by financing activities and used in investing activities have
historically been sensitive to the capital markets environment. Thus, changes in
the capital markets environment will affect the Company's plans for the
undertaking of construction and development as well as acquisition activity.
Cash and cash equivalents increased from $2,892,000 at March 31, 1998 to
$18,590,000 at March 31, 1999 due to the excess of cash provided by financing
and operating activities over cash flow used in investing activities.
Net cash provided by operating activities increased by $25,931,000 from
$25,194,000 for the three months ended March 31, 1998 to $51,125,000 for the
three months ended March 31, 1999 primarily due to an increase in operating
income from the former Avalon communities as well as the existing Bay
communities.
23
Cash used in investing activities increased by $1,721,000 from $120,979,000
for the three months ended March 31, 1998 to $122,700,000 for the three
months ended March 31, 1999. This increase in expenditures reflects
increased construction and reconstruction activity, offset by a decrease in
acquisition activity (which is attributable to higher yield requirements
combined with a decrease in the availability of cost-effective capital) and
the proceeds from the sale of one community in the first quarter of 1999.
Net cash provided by financing activities decreased by $14,214,000 from
$95,489,000 for the three months ended March 31, 1998 to $81,275,000 for the
three months ended March 31, 1999 primarily due to higher repayments on the
Unsecured Facility as well as an increase in dividends paid as a result of
additional common and preferred shares issued in connection with the Merger.
The Company regularly reviews its short and long-term liquidity needs and the
adequacy of Funds from Operations ("FFO") and other expected liquidity sources
to meet these needs. The Company believes that its principal short-term
liquidity needs are to fund normal recurring operating expenses, debt service
payments, the distribution required with respect to the Preferred Stock and the
minimum dividend payments required to maintain the Company's REIT qualification
under the Internal Revenue Code of 1986, as amended. Management anticipates that
these needs will be fully funded from cash flows provided by operating
activities. Any short-term liquidity needs not provided by current operating
cash flows would be funded from the Company's Unsecured Facility.
The Company believes that its principal long-term liquidity need is the
repayment of medium and long-term debt, as well as the procurement of long-term
debt to refinance construction and other development related short-term debt.
Management anticipates that no significant portion of the principal of any
indebtedness will be repaid prior to maturity. If the Company does not have
funds on hand sufficient to repay such indebtedness, it will be necessary for
the Company to refinance this debt. Such refinancing may be accomplished through
additional debt financing, which may be collateralized by mortgages on
individual communities or groups of communities, by uncollateralized private or
public debt offerings or by additional equity offerings. The Company also
anticipates to have significant retained cash flow in each year so that when a
debt obliqation matures, a portion of each maturity can be satisfied from such
retained cash. Although the Company believes that it is well positioned and will
have the capacity to meet its long-term liquidity needs, there can be no
assurance that such additional debt financing or debt or equity offerings will
be available or, if available, that they will be on terms satisfactory to the
Company.
Capital Resources. Management intends to match the long-term nature of its real
estate assets with long-term cost effective capital. Management follows a
focused strategy to help facilitate uninterrupted access to capital. This
strategy includes:
1. Hiring, training and retaining associates with a strong resident service
focus, which should lead to higher rents, lower turnover and reduced
operating costs;
2. Managing, acquiring and developing institutional quality communities with
in-fill locations that should provide consistent, sustained earnings growth;
3. Operating in markets with growing demand (as measured by household formation
and job growth) and high barriers-to-entry. These characteristics combine to
provide a favorable demand-supply balance, which the Company believes will
create a favorable environment for future rental rate growth while
protecting existing and new communities from new supply. This strategy is
expected to result in a high level of quality to the revenue stream;
4. Maintaining a conservative capital structure largely comprised of equity and
with modest, cost-effective leverage. Secured debt will generally be avoided
and used primarily to obtain low cost, tax-exempt debt. Management believes
that such a structure should promote an environment whereby current ratings
levels can be maintained;
24
5. Following accounting practices that provide a high level of quality to
reported earnings; and
6. Providing timely, accurate and detailed disclosures to the investment
community.
Management believes these strategies provide a disciplined approach to capital
access to help position the Company to fund portfolio growth.
Recent volatility in the capital markets has decreased the Company's access to
cost effective capital. See "Future Financing and Capital Needs" for a
discussion of Management's response to the current capital markets environment.
The following is a discussion of specific capital transactions, arrangements and
agreements that are important to the capital resources of the Company.
Unsecured Facility
The Company's Unsecured Facility is furnished by a consortium of banks that
provides $600,000,000 in short-term credit and is subject to an annual facility
fee of $900,000. The Unsecured Facility bears interest at varying levels tied to
the London Interbank Offered Rate ("LIBOR") based on ratings levels achieved on
the Company's senior unsecured notes and on a maturity selected by the Company.
The current stated pricing is LIBOR plus .6% per annum and matures in July 2001,
with two one-year extension options. 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 Unsecured Facility)
is available for up to $400,000,000 which may result in lower pricing if market
conditions allow. Pricing under the competitive bid option resulted in average
pricing of LIBOR plus .52% for balances most recently placed under the
competitive bid option. At May 1, 1999, $306,806,000 was outstanding,
$41,342,000 was used to provide letters of credit and $251,852,000 was available
for borrowing under the Unsecured Facility. The Company will use borrowings
under the Unsecured Facility for capital expenditures, acquisitions of developed
or undeveloped communities, construction, development and renovation costs,
credit enhancement for tax-exempt bonds and for working capital purposes.
Interest Rate Protection Agreements
The Company is not a party to any long-term interest rate agreements, other than
interest rate protection and swap agreements on certain tax-exempt indebtedness.
The Company intends, however, to evaluate the need for long-term interest rate
protection agreements as interest rate market conditions dictate and has engaged
a consultant to assist in managing the Company's interest rate risks and
exposure.
Financing Commitments/Transactions Completed
In January 1999, the Company issued $125,000,000 of medium-term notes bearing
interest at 6.58% and maturing in February 2004. Semi-annual interest payments
are payable on February 15 and August 15. The net proceeds of approximately
$124,300,000 were used to reduce borrowings under the Company's Unsecured
Facility.
Future Financing and Capital Needs
As of March 31, 1999, the Company had 23 new communities under construction by
the Company or by unaffiliated third parties on behalf of the Company (for which
the Company has entered into forward purchase commitments) with a total
estimated cost of $350,000,000 remaining to be invested as of that date. In
addition, the Company had a total of 12 communities that were under
reconstruction of which an estimated $41,650,000 remained to be invested as of
that date.
25
Substantially all of the capital expenditures to complete the communities
currently under construction and reconstruction will be funded from the
Unsecured Facility, the sale of existing communities, retained operating cash or
the issuance of debt or equity securities. Management expects to continue to
fund deferred development costs related to future developments from FFO and
borrowings under the Unsecured Facility as these sources of capital are expected
to be adequate to take the proposed communities to the point in the development
cycle where construction can commence.
The real estate industry and the Company have seen a reduction in the
availability of cost effective capital over the last nine months. No assurance
can be provided that cost effective capital will be available to meet future
expenditures required to commence planned reconstruction activity or the
construction of the Development Rights. Before planned reconstruction activity
or the construction of a Development Right commences, the Company intends to
arrange adequate capital sources to complete such undertakings, although no
assurance can be given that it will be able to obtain such financing. In the
event that such financing cannot be obtained, the Company may have to abandon
Development Rights (and write-off associated pursuit costs) and forego
reconstruction activity which the Company believes would have enhanced revenues.
Management estimates that a significant portion of the Company's liquidity needs
will be met from retained operating cash and borrowings under the Company's
Unsecured Facility. To meet the balance of the Company's liquidity needs, it
will be necessary to arrange additional capacity under the Company's existing
Unsecured Facility, sell additional existing communities and/or issue additional
debt or equity securities. While Management believes the Company has the
financial position to expand its short term credit capacity and support such
capital markets activity, no assurance can be provided that the Company will be
successful in completing these arrangements, offerings or sales. If these
transactions cannot be completed on a cost-effective basis, then a continuation
of the current capital market conditions described herein could have a material
adverse impact on the operating results and financial condition of the Company,
including the abandonment of deferred development costs and a resultant charge
to earnings.
During 1998, the Company determined that it would pursue a disposition strategy
for certain assets in markets that did not meet the Company's long-term
strategic direction. The Company will solicit competing bids from unrelated
parties for these individual assets, and will consider the sales price and tax
ramifications of each proposal. Management intends to actively seek buyers for
these assets during 1999. However, there can be no assurance that such assets
can be sold on terms that are satisfactory to the Company. In connection with
this disposition strategy, the Company has disposed of three communities since
January 1, 1999. The net proceeds from the sale of these communities were
approximately $70,000,000.
The remaining assets that have been identified for disposition include land,
buildings and improvements and furniture, fixtures and equipment. At March 31,
1999, total real estate, net of accumulated depreciation, of all communities
identified for sale at that date totaled $273,792,000. Certain individual assets
are secured by mortgage indebtedness which may be assumed by the purchaser or
repaid by the Company from the net sales proceeds. The Company's Condensed
Consolidated Statements of Operations include net income from the communities
held for sale $2,006,000 and $320,000 ($2,701,000 on a pro forma basis
assuming the Merger had occurred on January 1, 1998) for the three months ended
March 31, 1999 and 1998, respectively.
26
Because the proceeds from the sale of communities are used initially to reduce
borrowings under the Unsecured Facility, the immediate effect of a sale of a
community is to reduce earnings, as the yield on a community that is sold
exceeds the interest rate on borrowings under the Unsecured Facility. Therefore,
changes in the timing, number of dispositions and the redeployment of the
resulting net proceeds may have a material and adverse effect on the Company's
earnings.
Debt Maturities
The following table summarizes debt maturities for the next five years
(excluding the Unsecured Facility):
AVALONBAY COMMUNITIES, INC.
DEBT MATURITY SCHEDULE
(Dollars in thousands)
Inflation
Substantially all of the leases at the Current Communities are for a term of one
year or less, which may enable the Company to realize increased rents upon
renewal of existing leases or commencement of new leases. Such short-term leases
generally minimize the risk to the Company of the adverse effects of inflation,
although these leases generally permit residents to leave at the end of the
lease term without penalty. Short-term leases combined with relatively
consistent demand allow rents, and, therefore, cash flow from the Company's
portfolio of apartments, to provide an attractive inflation hedge.
27
Year 2000 Compliance
The statements in the following section include "Year 2000 readiness disclosure"
within the meaning of the Year 2000 Information and Readiness Disclosure Act of
1998.
The Year 2000 compliance issue concerns the inability of computer systems to
accurately calculate, store or use a date after December 31, 1999. This could
result in a system failure causing disruptions of operations or create erroneous
results. The Year 2000 issue affects virtually all companies and organizations.
Management has been taking steps to determine the nature and extent of the work
required to make its information computer systems ("IT Systems") and
non-information embedded systems ("Non-IT Systems") Year 2000 compliant, as well
as to determine what effects non-compliance by the Company's significant
business partners may have on the Company. Management has assigned key personnel
to the Company's Year 2000 Task Force ("the Task Force") to coordinate
compliance efforts. The Task Force is represented by executive, financial and
community operation functions. An outside consulting firm ("Y2K Consultants")
has been engaged by the Company to assist the Task Force in detecting Non-IT
Systems that are not Year 2000 compliant. The Y2K Consultants will aid in
assessing the compliance of the Company's Non-IT Systems and, for non-compliant
systems, will recommend replacement, upgrades or alternative solutions based on
the system's importance to business operations or financial impact, likelihood
of failure, life safety concerns and available contingency options.
Management has identified certain phases necessary to become Year 2000 compliant
and has established an estimated timetable for completion of those phases, as
shown below:
28
The Year 2000 Task Force has completed the Inventory System Phase for
computerized IT Systems. The assessment determined that it will be necessary to
modify, update or replace limited portions of the Company's computer hardware
and software applications.
The Company anticipates that replacing and upgrading its existing hardware and
software IT Systems in the normal course of business will result in Year 2000
compliance by the end of the second quarter of 1999. The vendor that provides
the Company's existing accounting software has a compliant version of its
product, but growth in the Company's operations requires a general ledger system
with scope and functionality that is not present in either the system currently
in use or the Year 2000 compliant version of that system. Accordingly, the
Company is replacing the current general ledger system with an enhanced
29
system that, in addition to increased functionality, is Year 2000 compliant. The
new general ledger system has been selected and is expected to be implemented by
the third quarter of 1999. The Company is not treating the cost of this new
system as a Year 2000 expense because the implementation date has not been
accelerated due to Year 2000 compliance concerns. The cost of the new general
ledger system, after considering anticipated efficiencies provided by the new
system, is not currently expected to have a material effect (either beneficial
or adverse) on the Company's financial condition or results of operations.
The Task Force has also substantially completed the Inventory System
Phase of the Company's Non-IT Systems (e.g., security, heating and cooling, fire
and elevator systems) at each community that may not be Year 2000 compliant and
has identified areas of risks for non-compliance by community type. The
high-rises, mid-rises and newer garden communities represent the greatest risk
of non-compliant systems as they have the most systems per community. In
conjunction with the Y2K Consultants, the Task Force has conducted an assessment
of these systems at all communities to identify and evaluate the changes and
modifications necessary to make these systems compliant for Year 2000
processing. The Task Force has substantially completed the Follow-up Review of
the Inventory System Phase to ensure all Non-IT Systems are addressed for Year
2000 compliance.
The Company is aware that it is believed by some that the world's Year 2000
problem, if uncorrected, may result in a major economic crisis and cause major
dislocations of business and governmental organizations. The Company is unable
to determine whether such predictions are true or false. As mentioned above,
the Company expects that the nature of its income (rent from residents under
leases that generally are one year or less) should serve as a hedge against
any short term disruptions of business. However, if a general worst case
scenario proves true, all companies (including the Company) will experience the
effects.
The Company, together with the Y2K Consultants, have substantially completed the
process of verifying inventory and obtaining risk assurance regarding Year 2000
compliance of detected Non-IT Systems. The remaining Non-IT Systems for which
this process is not complete relate to systems which are not critical to
business operations or life safety and for which the likelihood of failure and
remediation costs are low. The Task Force and Y2K Consultants have prioritized
the non-compliant systems and are proceeding according to the phases described
above. No assurance, however, can be given that the completion of the process of
verifying inventory and obtaining risk assurance has identified all
non-compliant systems.
Upon completion of each of the above described upgrades and replacements of the
Company's IT and Non-IT Systems, the Company will commence testing to ensure
Year 2000 compliance. Testing will be performed on systems:
- which are critical to business operations or life safety;
- which entail a material financial impact in the event of non-compliance;
- with a high likelihood of failure;
- for which the Task Force is unable to obtain reliable third party
assurance that the detected system is Year 2000 compliant; and
- which are not deemed to have acceptable contingency options.
The Company currently expects its testing to be completed during the fourth
quarter of 1999. While the Company anticipates such tests will be successful in
all material respects, the Task Force intends to closely monitor the Company's
Year 2000 compliance progress and will develop contingency plans in the event
Non-IT Systems are not compliant. The Task Force will create functional
contingency plans by community type that will encompass substantially all of the
Company's existing portfolio, discussed above as General Community contingency
plans. For certain communities, primarily communities with high-rise buildings,
specific contingency plans may be required, discussed above as Site Specific
contingency plans. The Task Force will continue to review both compliance and
contingency plans, throughout all of the above phases, in an effort to detect if
any systems will not be compliant on time.
Management currently anticipates that the costs of becoming Year 2000 compliant
for all impacted systems will be approximately $750,000, based on the
completion of the Prioritize and Budget Phase. Based on available information,
the Company believes that the ultimate cost of achieving Year 2000 compliance
will not have a material adverse effect on its business, financial condition or
results of operations. However, no assurance can be given that the Company will
be Year 2000 compliant by December 31, 1999 or that the Company will not incur
significant costs pursuing Year 2000 compliance.
30
The third parties with which the Company has material relationships include the
Company's utility providers and the vendor that will provide the Company's new
accounting software system. The Company, together with the Y2K Consultants, has
communicated with these and other third party vendors to determine the efforts
being made on their part for compliance and to request representation that their
systems will be Year 2000 compliant. Substantially all of the vendors that have
responded to the Company's inquiries have represented that Year 2000 compliance
plans are being implemented for their systems. No assurance can be given that
the Company's utility providers will be Year 2000 compliant based on the
responses received. As described above, the Company expects that its accounting
software will be Year 2000 compliant.
The Company is not aware of third parties, other than its residents and owners
of communities for which the Company provides community management services, to
which it could have potential material liabilities should its IT or Non-IT
Systems be non-compliant on January 1, 2000. The inability of the Company to
achieve Year 2000 compliance on its Non-IT Systems by January 1, 2000 may cause
disruption in services that could potentially lead to declining occupancy rates,
rental concessions, or higher operating expenses, and other material adverse
effects, which are not quantifiable at this time. These disruptions may include,
but are not limited to, disabled fire control systems, lighting controls,
utilities, telephone and elevator operations.
Currently, the Company has not delayed any information technology or
non-information technology projects due to the Year 2000 compliance efforts.
However, the Company can neither provide assurance that future delays in such
projects will not occur as a result of Year 2000 compliance efforts, nor
anticipate the effects of such delays on the Company's operations.
Funds from Operations
Management generally considers Funds from Operations to be an appropriate
measure of the operating performance of the Company because it provides
investors an understanding of the ability of the Company to incur and service
debt and to make capital expenditures. The Company believes that in order to
facilitate a clear understanding of the operating results of the Company, FFO
should be examined in conjunction with net income as presented in the
consolidated financial statements included elsewhere in this report. FFO is
determined in accordance with a definition adopted by the Board of Governors of
the National Association of Real Estate Investment Trusts(R), and is defined as
net income (loss) computed in accordance with generally accepted accounting
principles, excluding gains (or losses) from debt restructuring, other
non-recurring items and sales of property, plus depreciation of real estate
assets and after adjustments for unconsolidated partnerships and joint ventures.
FFO does not represent cash generated from operating activities in accordance
with GAAP and therefore should not be considered an alternative to net income as
an indication of the Company's performance or to net cash flows from operating
activities as determined by GAAP as a measure of liquidity and is not
necessarily indicative of cash available to fund cash needs. Further, FFO as
calculated by other REITs may not be comparable to the Company's calculation of
FFO.
For the three months ended March 31, 1999, FFO increased to $48,860,000 from
$19,736,000 for the three months ended March 31, 1998. This increase is
primarily due to the acquisition of additional communities in connection with
the Merger and to delivery of new development and redevelopment communities.
Growth in earnings from Established Communities as well as acquisition activity
in 1998 also contributed to the increase.
FFO for the three months ended March 31, 1999 and the preceding four quarters
are summarized as follows (dollars in thousands):
31
(1) Represents the amortization of pre-1986 bond issuance costs carried forward
to the Company and costs associated with the reissuance of tax-exempt bonds
incurred prior to the initial public offering of Bay in March 1994 (the
"Initial Offering") in order to preserve the tax-exempt status of the bonds
at the Initial Offering.
(2) Consists of $16,076 related to certain management and other organizational
changes and $448 for Year 2000 remediation costs.
Natural Disasters
Many of the Company's West Coast communities are located in the general vicinity
of active earthquake faults. In July 1998, the Company obtained a seismic risk
analysis from an engineering firm which estimated the probable maximum damage
("PMD") for each of the 60 West Coast communities that the Company owned at that
time and for each of the five West Coast communities under development at that
time, individually and for all of those communities combined. To establish a
PMD, the engineers first define a severe earthquake event for the applicable
geographic area, which is an earthquake that has only a 10% likelihood of
occurring over a 50-year period. The PMD is determined as the structural and
architectural damage and business interruption loss that has a 10% probability
of being exceeded in the event of such an earthquake. Because a significant
number of the Company's communities are located in the San Francisco Bay Area,
the engineers' analysis defined an earthquake on the Hayward Fault with a
Richter Scale magnitude of 7.1 as a severe earthquake with a 10% probability of
occurring within a 50-year period. The engineers then established an aggregate
PMD at that time of $113 million for the 60 West Coast communities that the
Company owned at that time and the five West Coast communities under
development. The $113 million PMD for those communities was a PMD level that the
engineers expected to be exceeded only 10% of the time in the event of such a
severe earthquake. The actual aggregate PMD could be higher or lower as a result
of variations in soil classifications and structural vulnerabilities. For each
community, the engineers' analysis calculated an individual PMD as a percentage
of the community's replacement cost and projected revenues. No assurance can be
given that an earthquake would not cause damage or losses greater than the PMD
assessments indicate, that future PMD levels will not be higher than the current
PMD levels described above for the Company's communities located on the West
Coast, or that future acquisitions or developments will not have PMD assessments
indicating the possibility of greater damage or losses than currently indicated.
In August 1998, the Company renewed its earthquake insurance, both for physical
damage and lost revenue, with respect to all communities it owned at that time
and all of the communities under development. For any
32
single occurrence, the Company has in place $75,000,000 of coverage with a five
percent deductible, not to exceed $25,000,000 and not less than $100,000. In
addition, the Company's general liability and property casualty insurance
provides coverage for personal liability and fire damage. In the event an
uninsured disaster or a loss in excess of insured limits were to occur, the
Company could lose its capital invested in the affected community, as well as
anticipated future revenue from that community, and would continue to be
obligated to repay any mortgage indebtedness or other obligations related to the
community. Any such loss could materially and adversely affect the business of
the Company and its financial condition and results of operations.
Development Communities
As of March 31, 1999, there were 13 Development Communities under construction
which are expected to add a total of 2,951 apartment homes to the Company's
portfolio upon completion. The total capitalized cost of the Development
Communities, when completed, is expected to be approximately $486.2 million.
Statements regarding the future development or performance of the Development
Communities are forward-looking statements. There can be no assurance that the
Company will complete the Development Communities, that the Company's budgeted
costs, leasing, start dates, completion dates, occupancy or estimates of
"Projected EBITDA as a % of Total Budgeted Cost" will be realized or that future
developments will realize comparable returns. See the discussion under "Risks of
Development and Redevelopment" below.
The Company holds a fee simple ownership interest in each of the Development
Communities except for two communities that are owned by partnerships in which
the Company holds a general partnership interest. The following page presents a
summary of Development Communities:
33
AVALONBAY COMMUNITIES, INC.
DEVELOPMENT COMMUNITIES SUMMARY
(1) Total budgeted cost includes all capitalized costs projected to be incurred
to develop the respective Development Community, including land acquisition
costs, construction costs, real estate taxes, capitalized interest and loan
fees, permits, professional fees, allocated development overhead and other
regulatory fees determined in accordance with generally accepted accounting
principles.
(2) Stabilized operations is defined as the first full quarter of 95% or greater
occupancy after completion of construction.
(3) Projected EBITDA represents gross potential earnings projected to be
achieved at completion of construction before interest, income taxes,
depreciation, amortization and extraordinary items, minus (a) projected
economic vacancy and (b) projected stabilized operating expenses.
(4) Represents a combined yield for Avalon Valley and Avalon Lake.
(5) Formerly named "Paseo Alameda."
(6) Financed with tax-exempt bonds.
34
Redevelopment Communities
As of March 31, 1999, the Company had 12 Redevelopment Communities. The total
budgeted cost of these Redevelopment Communities, including the cost of
acquisition and redevelopment when completed, is expected to be approximately
$400.5 million, of which approximately $78.7 million is the additional capital
invested or expected to be invested above the original purchase cost. Statements
regarding the future redevelopment or performance of the Redevelopment
Communities are forward-looking statements. The Company has 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, the Company
expects that actual costs may vary over a wider range than for a new development
community. The Company cannot provide any assurance that the Company will not
exceed budgeted costs, either individually or in the aggregate, or that
projected unleveraged returns on cost will be achieved. See the discussion under
"Risks of Development and Redevelopment" below.
The following presents a summary of Redevelopment Communities:
AVALONBAY COMMUNITIES, INC.
REDEVELOPMENT COMMUNITIES SUMMARY (1)
(1) Redevelopment Communities are communities acquired for which redevelopment
costs are expected to exceed 10% of the original acquisition cost or
$5,000,000.
(2) Total budgeted cost includes all capitalized costs projected to be incurred
to redevelop the respective Redevelopment Community, including costs to
acquire the community, reconstruction costs, real estate taxes, capitalized
interest and loan fees, permits, professional fees, allocated redevelopment
overhead and other regulatory fees determined in accordance with generally
accepted accounting principles.
(3) Restabilized operations is defined as the first full quarter of 95% or
greater occupancy after completion of redevelopment.
(4) Projected EBITDA represents gross potential earnings projected to be
achieved at completion of redevelopment before interest, income taxes,
depreciation, amortization and extraordinary items, minus (a) projected
economic vacancy and (b) projected stabilized operating expenses.
(5) Formerly named "Bay Pointe."
35
Development Rights
As of March 31, 1999, the Company is considering the development of 31 new
apartment communities. These Development Rights range from land owned or under
contract for which design and architectural planning has just commenced to land
under contract or owned by the Company with completed site plans and drawings
where construction can commence almost immediately. Management estimates that
the successful completion of all of these communities would ultimately add 8,314
institutional-quality apartment homes to the Company's portfolio. At March 31,
1999, the cumulative capitalized costs incurred in pursuit of the 31 Development
Rights, including the cost of land acquired in connection with five of the
Development Rights, was approximately $60 million. Substantially all of these
apartment homes will offer features like those offered by the communities
currently owned by the Company.
The Company generally holds Development Rights through options to acquire land,
although one development right is controlled through a joint venture partnership
that owns land (New Canaan, CT). The properties comprising the Development
Rights are in different stages of the due diligence and regulatory approval
process. The decisions as to which of the Development Rights to pursue, if any,
or to continue to pursue once an investment in a Development Right is made are
business judgments to be made by Management after financial, demographic and
other analysis is performed. Finally, Management currently intends to limit the
percentage of debt used to finance new developments. To comply with Management's
policy on the use of debt, other financing alternatives may be required to
finance the development of those Development Rights scheduled to start
construction after March 31, 1999. Although the development of any particular
Development Right cannot be assured, Management believes that the Development
Rights, in the aggregate, present attractive potential opportunities for future
development and growth of the Company's FFO.
Statements regarding the future development of the Development Rights are
forward-looking statements. There can be no assurance that:
- the Company will succeed in obtaining zoning and other necessary
governmental approvals or the financing required to develop these
communities, or that the Company will decide to develop any
particular community; or
- construction of any particular community will be undertaken or, if
undertaken, will begin at the expected times assumed in the financial
projections or be completed by the anticipated date and/or at the
total budgeted cost assumed in the financial projections.
36
AVALONBAY COMMUNITIES, INC.
DEVELOPMENT RIGHTS SUMMARY
(1) Company owns land, but construction has not yet begun.
(2) Currently anticipated that the land seller will retain a minority limited
partner interest.
37
Risks of Development and Redevelopment
The Company intends to continue to pursue the development and redevelopment of
apartment home communities in accordance with the Company's business and
financial policies. Risks associated with the Company's development and
redevelopment activities may include:
- - the abandonment of opportunities explored by the Company based on further
financial, demographic or other analysis;
- - liquidity constraints, including the unavailability of financing on
favorable terms for the development or redevelopment of a community;
- - the inability to obtain, or delays in obtaining, all necessary zoning,
land-use, building, occupancy, and other required governmental permits and
authorizations;
- - construction or reconstruction costs of a community may exceed original
estimates due to increased materials, labor or other expenses, which could
make completion or redevelopment of a community uneconomical;
- - occupancy rates and rents at a newly completed or redevelopment community
are dependent on a number of factors, including market and general economic
conditions, and may not be sufficient to make the community profitable; and
- - construction and lease-up may not be completed on schedule, resulting in
increased debt service expense and construction costs.
The occurrence of any of the events described above could adversely affect the
Company's ability to achieve its projected yields on communities under
development or redevelopment and could prevent the Company from paying
distributions to its stockholders.
For each Development and Redevelopment Community, the Company establishes a
target for projected EBITDA as a percentage of total budgeted cost. Projected
EBITDA represents gross potential earnings projected to be achieved at
completion of development or redevelopment before interest, income taxes,
depreciation, amortization and extraordinary items, minus (a) projected economic
vacancy and (b) projected stabilized operating expenses. Total budgeted cost
includes all capitalized costs projected to be incurred to develop the
respective Development or 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 determined in accordance with GAAP. Gross potential earnings and
construction costs reflect market conditions prevailing in the community's
market at the time the Company's budgets are prepared taking into consideration
certain changes to those market conditions anticipated by the Company at the
time. Although the Company attempts to anticipate changes in market conditions,
the Company cannot predict with certainty what those changes will be.
Construction costs have been increasing and, for certain of the Company's
Development Communities, the total construction costs have been or are expected
to be higher than the original budget. Nonetheless, because of increases in
prevailing market rents Management believes that, in the aggregate, the Company
will still achieve its targeted projected EBITDA as a percentage of total
budgeted cost for those communities experiencing costs in excess of the original
budget. Management believes that it could experience similar increases in
construction costs and market rents with respect to other development
communities resulting in total construction costs that exceed original budgets.
Likewise, costs to redevelop communities that have been acquired have, in some
cases, exceeded Management's original estimates and similar increases in costs
may be experienced in the future. There can be no assurances that market rents
in effect at the time new development communities or repositioned communities
complete lease-up will be sufficient to fully offset the effects of any
increased construction costs.
38
Capitalized Interest
In accordance with GAAP, the Company capitalizes interest expense during
construction or reconstruction until each building obtains a certificate of
occupancy; thereafter, interest for each completed building is expensed.
Capitalized interest during the three months ended March 31, 1999 and 1998
totaled $7,283,000 and $2,964,000, respectively.
39
PART I. FINANCIAL INFORMATION (CONTINUED)
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is involved in certain ordinary routine litigation
incidental to the conduct of its business. While the outcome of
such litigation cannot be predicted with certainty, management
does not expect any current litigation to have a material effect
on the business or financial condition of the Company.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) EXHIBITS
40
(b) REPORTS ON FORM 8-K
There were no reports filed by the Company on Form 8-K for the quarter
ending March 31, 1999.
41
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
AVALONBAY COMMUNITIES, INC.
Date: May 14, 1999 /s/ Richard L. Michaux
-----------------------------------------------
Richard L. Michaux
President, Chief Executive Officer and Director
Date: May 14, 1999 /s/ Thomas J. Sargeant
-----------------------------------------------
Thomas J. Sargeant
Chief Financial Officer and Treasurer
42