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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 September 30, 2013

 

Commission file number 1-12672

 

AVALONBAY COMMUNITIES, INC.

(Exact name of registrant as specified in its charter)

 

 

 

Ballston Tower

671 N. Glebe Rd, Suite 800

Arlington, Virginia  22203

(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)

 

 

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 o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x No o

 

Indicate by check mark whether the Exchange registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes o  No x

 

APPLICABLE ONLY TO CORPORATE ISSUERS

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date:

 

129,413,103 shares of common stock, par value $0.01 per share, were outstanding as of October 31, 2013

 

 

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AVALONBAY COMMUNITIES, INC.

FORM 10-Q

INDEX

 

			Page
PART I - FINANCIAL INFORMATION
Item 1.	Condensed Consolidated Financial Statements
		Condensed Consolidated Balance Sheets as of September 30, 2013 (unaudited) and December 31, 2012	1
		Condensed Consolidated Statements of Comprehensive Income (unaudited) for the three and nine months ended September 30, 2013 and 2012	2
		Condensed Consolidated Statements of Cash Flows (unaudited) for the nine months ended September 30, 2013 and 2012	3-4
		Notes to Condensed Consolidated Financial Statements (unaudited)	5-25
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		26-53
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		54
Item 4.	Controls and Procedures		54
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings		55
Item 1a.	Risk Factors		55
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		55
Item 3.	Defaults Upon Senior Securities		55
Item 4.	Mine Safety Disclosures		55
Item 5.	Other Information		56
Item 6.	Exhibits		56
Signatures			59

 

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AVALONBAY COMMUNITIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except per share data)

 

		9-30-13			12-31-12
		(unaudited)
ASSETS
Real estate:
Land		$	3,302,403		$	1,424,797
Buildings and improvements		11,116,909			6,934,099
Furniture, fixtures and equipment		333,638			251,537
		14,752,950			8,610,433
Less accumulated depreciation		(2,445,294		)	(1,988,764		)
Net operating real estate		12,307,656			6,621,669
Construction in progress, including land		1,418,836			802,857
Land held for development		282,285			316,037
Operating real estate assets held for sale, net		275,874			274,556
Total real estate, net		14,284,651			8,015,119
Cash and cash equivalents		112,910			2,733,618
Cash in escrow		98,429			49,950
Resident security deposits		27,868			24,748
Investments in unconsolidated real estate entities		347,386			129,352
Deferred financing costs, net		39,085			38,700
Deferred development costs		33,799			24,665
Prepaid expenses and other assets		200,979			143,926
Total assets		$	15,145,107		$	11,160,078
LIABILITIES AND EQUITY
Unsecured notes, net		$	2,245,191		$	1,945,798
Variable rate unsecured credit facility		—			—
Mortgage notes payable		3,852,441			1,905,235
Dividends payable		138,459			110,966
Payables for construction		84,027			52,903
Accrued expenses and other liabilities		254,144			217,259
Accrued interest payable		23,965			33,056
Resident security deposits		47,020			37,691
Liabilities related to real estate assets held for sale		8,275			9,350
Total liabilities		6,653,522			4,312,258
Redeemable noncontrolling interests		18,255			7,027
Equity:
Preferred stock, $0.01 par value; $25 liquidation preference; 50,000,000 shares authorized at both September 30, 2013 and December 31, 2012; zero shares issued and outstanding at September 30, 2013 and December 31, 2012, respectively		—			—
Common stock, $0.01 par value; 280,000,000 shares authorized at September 30, 2013 and 140,000,000 shares authorized at December 31, 2012; 129,402,556 and 114,403,472 shares issued and outstanding at September 30, 2013 and December 31, 2012, respectively		1,294			1,144
Additional paid-in capital		8,976,780			7,086,407
Accumulated earnings less dividends		(458,229		)	(142,329		)
Accumulated other comprehensive loss		(50,094		)	(108,007		)
Total equity		8,469,751			6,837,215
Noncontrolling interest		3,579			3,578
Total equity		8,473,330			6,840,793
Total liabilities and equity		$	15,145,107		$	11,160,078

 

See accompanying notes to Condensed Consolidated Financial Statements.

 

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AVALONBAY COMMUNITIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF

COMPREHENSIVE INCOME

(unaudited)

(Dollars in thousands, except per share data)

 

		For the three months ended						For the nine months ended
		9-30-13			9-30-12			9-30-13			9-30-12
Revenue:
Rental and other income		$	390,113		$	258,788		$	1,072,273		$	742,254
Management, development and other fees		3,014			2,533			8,198			7,852
Total revenue		393,127			261,321			1,080,471			750,106
Expenses:
Operating expenses, excluding property taxes		97,650			67,471			258,605			196,325
Property taxes		42,678			25,475			116,515			73,171
Interest expense, net		43,945			33,985			127,772			100,804
Loss on interest rate contract		53,484			—			51,000			—
Loss on extinguishment of debt, net		—			—			—			1,179
Depreciation expense		160,682			62,750			457,837			183,688
General and administrative expense		9,878			8,372			31,262			26,398
Expensed acquisition, development and other pursuit costs		2,176			608			46,041			1,749
Total expenses		410,493			198,661			1,089,032			583,314
Equity in income (loss) of unconsolidated entities		3,260			5,553			(16,244		)	9,801
Gain on sale of land		—			—			240			280
Gain on acquisition of unconsolidated real estate entity		—			14,194			—			14,194
(Loss) income from continuing operations		(14,106		)	82,407			(24,565		)	191,067
Discontinued operations:
Income from discontinued operations		3,221			4,340			7,073			15,062
Gain on sale of real estate assets		—			—			118,173			95,049
Total discontinued operations		3,221			4,340			125,246			110,111
Net (loss) income		(10,885		)	86,747			100,681			301,178
Net loss attributable to noncontrolling interests		170			97			248			334
Net (loss) income attributable to common stockholders		$	(10,715	)	$	86,844		$	100,929		$	301,512
Other comprehensive income:
Unrealized loss on cash flow hedges		—			(6,977		)	—			(23,767		)
Cash flow hedge losses reclassified to earnings		54,948			—			57,913			—
Comprehensive income		$	44,233		$	79,867		$	158,842		$	277,745
Earnings per common share - basic:
(Loss) income from continuing operations attributable to common stockholders		$	(0.11	)	$	0.85		$	(0.19	)	$	1.99
Discontinued operations attributable to common stockholders		0.03			0.04			0.99			1.15
Net (loss) income attributable to common stockholders		$	(0.08	)	$	0.89		$	0.80		$	3.14
Earnings per common share - diluted:
(Loss) income from continuing operations attributable to common stockholders		$	(0.11	)	$	0.85		$	(0.19	)	$	1.99
Discontinued operations attributable to common stockholders		0.03			$	0.04		$	0.99		$	1.14
Net (loss) income attributable to common stockholders		$	(0.08	)	$	0.89		$	0.80		$	3.13
Dividends per common share:		$	1.07		$	0.97		$	3.21		$	2.91

 

See accompanying notes to Condensed Consolidated Financial Statements.

 

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AVALONBAY COMMUNITIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(Dollars in thousands)

 

		For the nine months ended
		9-30-13			9-30-12
Cash flows from operating activities:
Net income		$	100,681		$	301,178
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation expense		457,837			183,688
Depreciation expense from discontinued operations		10,727			10,641
Amortization of deferred financing costs and debt (premium) discount		(15,831		)	4,122
Amortization of stock-based compensation		8,720			8,548
Equity in (income) loss of, and return on, unconsolidated entities and noncontrolling interests, net of eliminations		45,215			(7,484		)
Cash flow hedge losses reclassified to earnings		57,913			—
Loss on extinguishment of debt, net		—			1,781
Gain on sale of real estate assets		(118,413		)	(95,329		)
Gain on sale of joint venture real estate assets		(12,667		)	—
Gain on acquisition of unconsolidated entity		—			(14,194		)
(Increase) decrease in cash in operating escrows		(12,883		)	6,644
Increase in resident security deposits, prepaid expenses and other assets		(66,709		)	(8,069		)
Increase (decrease) in accrued expenses, other liabilities and accrued interest payable		15,333			(16,353		)
Net cash provided by operating activities		469,923			375,173
Cash flows from investing activities:
Development/redevelopment of real estate assets including land acquisitions and deferred development costs		(908,215		)	(567,867		)
Acquisition of real estate assets, including partnership interest		(749,275		)	(105,904		)
Capital expenditures - existing real estate assets		(10,527		)	(13,449		)
Capital expenditures - non-real estate assets		(7,286		)	(1,094		)
Proceeds from sale of real estate, net of selling costs		432,380			182,225
Increase in payables for construction		31,124			14,419
Decrease in cash in construction escrows		—			16,944
Decrease (increase) in investments in unconsolidated real estate entities		16,788			(8,006		)
Net cash used in investing activities		(1,195,011		)	(482,732		)
Cash flows from financing activities:
Issuance of common stock		2,874			326,653
Dividends paid		(387,658		)	(270,866		)
Issuance of mortgage notes payable		71,210			—
Repayments of mortgage notes payable, including prepayment penalties		(1,789,399		)	(106,255		)
Issuance of unsecured notes		400,000			450,000
Settlement of interest rate contract		(51,000		)	(54,930		)
Repayment of unsecured notes		(100,000		)	(179,400		)
Payment of deferred financing costs and issuance discounts		(6,093		)	(6,744		)
Acquisition of joint venture partner equity interest		(1,965		)	(3,350		)
Redemption of preferred interest obligation		(33,327		)	—
Distributions to DownREIT partnership unitholders		(24		)	(22		)
Distributions to joint venture and profit-sharing partners		(238		)	(247		)
Net cash (used in) provided by financing activities		(1,895,620		)	154,839
Net (decrease) increase in cash and cash equivalents		(2,620,708		)	47,280
Cash and cash equivalents, beginning of period		2,733,618			616,853
Cash and cash equivalents, end of period		$	112,910		$	664,133
Cash paid during the period for interest, net of amount capitalized		$	137,081		$	101,121

 

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

 

Supplemental disclosures of non-cash investing and financing activities (amounts in whole dollars):

 

During the nine months ended September 30, 2013:

 

·                  As described in Note 4, “Equity,” 14,889,706 shares of common stock valued at $1,875,210,000 were issued as partial consideration for the Archstone Acquisition (as defined in this Form 10-Q); 123,977 shares of common stock valued at $16,019,000 were issued in connection with stock grants;  1,465 shares valued at $200,000 were issued through the Company’s dividend reinvestment plan; 44,750 shares valued at $5,706,000 were withheld to satisfy employees’ tax withholding and other liabilities; and 5,214 shares and certain options valued at $780,000 previously issued in connection with employee compensation were cancelled upon forfeiture. In addition, the Company granted 215,230 options for common stock at a value of $5,768,000.

 

·                  The Company reclassified $4,429,000 of deferred cash flow hedge losses from other comprehensive income to interest expense, net, and $53,484,000 to loss on interest rate contract, to record the impact of the Company’s derivative and hedge accounting activity.

 

·                  Common dividends declared but not paid totaled $138,459,000.

 

·                  The Company recorded $13,262,000 in redeemable noncontrolling interests associated with consolidated joint ventures acquired as part of the Archstone Acquisition.  The Company also recorded an increase of $441,000 in redeemable noncontrolling interest with a corresponding decrease to accumulated earnings less dividends to adjust the redemption value associated with the put options held by joint venture partners and DownREIT partnership units. For further discussion of the nature and valuation of these items, see Note 11, “Fair Value.”

 

·                  The Company assumed secured indebtedness with a principal amount of $3,512,202,000 in conjunction with the Archstone Acquisition, discussed further in Note 3, “Notes Payable, Unsecured Notes and Credit Facility.” The Company also assumed an obligation related to outstanding preferred interests of approximately $66,500,000, included in accrued expenses and other liabilities, and discussed further in Note 5, “Archstone Acquisition.”

 

During the nine months ended September 30, 2012:

 

·                  The Company issued 96,592 shares of common stock valued at $12,883,000 in connection with stock grants; 1,830 shares valued at $254,000 were issued through the Company’s dividend reinvestment plan; 120,952 shares valued at $15,491,000 were withheld to satisfy employees’ tax withholding and other liabilities; and 7,558 shares and options valued at $393,000 previously issued in connection with employee compensation were cancelled upon forfeiture. In addition, the Company granted 115,303 options for common stock at a value of $3,357,000.

 

·                  The Company recorded an increase to other liabilities and a corresponding decrease to other comprehensive income of $23,767,000, and recorded a decrease to prepaid expenses and other assets of $11,000, with a corresponding offset to the basis of unsecured notes, net to record the impact of the Company’s hedge accounting activity.

 

·                  Common dividends declared but not paid totaled $94,778,000.

 

·                  The Company recorded an increase of $480,000 in redeemable noncontrolling interests with a corresponding decrease to accumulated earnings less dividends to adjust the redemption value associated with the put option held by a joint venture partner and DownREIT partnership units.

 

·                  The Company assumed a 4.61% coupon fixed rate mortgage loan with an outstanding balance of $11,958,000 in conjunction with the acquisition of The Mark Pasadena.

 

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AVALONBAY COMMUNITIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

1.  Organization, Basis of Presentation and Significant Accounting Policies

 

Organization and Basis of Presentation

 

AvalonBay Communities, Inc. (the “Company,” which term, unless the context otherwise requires, refers to AvalonBay Communities, Inc. together with its consolidated subsidiaries), is a Maryland corporation that elected to be taxed as a real estate investment trust (“REIT”) under the Internal Revenue Code of 1986 (the “Code”). The Company focuses on the development, acquisition, ownership and operation of apartment communities primarily in high barrier to entry markets of the United States. The Company’s primary markets are located in the New England, Metro New York/New Jersey, Mid-Atlantic, Pacific Northwest, and Northern and Southern California regions of the country.

 

At September 30, 2013, excluding real estate investments owned through the Residual JV discussed in this Form 10-Q, the Company owned or held a direct or indirect ownership interest in 247 operating apartment communities containing 73,884 apartment homes in 12 states and the District of Columbia, of which five communities containing 1,712 apartment homes were under reconstruction. In addition, the Company owned or held a direct or indirect ownership interest in 29 communities under construction that are expected to contain an aggregate of 8,692 apartment homes when completed. The Company also owned or held a direct or indirect ownership interest in land or rights to land in which the Company expects to develop an additional 45 communities that, if developed as expected, will contain an estimated 13,089 apartment homes.

 

The interim unaudited financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and in conjunction with the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements required by GAAP have been condensed or omitted pursuant to such rules and regulations. These unaudited financial statements should be read in conjunction with the financial statements and notes included in the Company’s 2012 Annual Report on Form 10-K. The results of operations for the three and nine months ended September 30, 2013 are not necessarily indicative of the operating results for the full year. Management believes the disclosures are adequate to ensure the information presented is not misleading.  In the opinion of management, all adjustments and eliminations, consisting only of normal, recurring adjustments necessary for a fair presentation of the financial statements for the interim periods, have been included.

 

Capitalized terms used without definition have the meaning as provided elsewhere in this Form 10-Q.

 

Earnings per Common Share

 

Basic earnings per share is computed by dividing net income attributable to common stockholders by the weighted average number of shares outstanding during the period. All outstanding unvested restricted share awards contain rights to non-forfeitable dividends and participate in undistributed earnings with common shareholders and, accordingly, are considered participating securities that are included in the two-class method of computing basic earnings per share (“EPS”). Both the unvested restricted shares and other potentially dilutive common shares, and the related impact to earnings, are considered when calculating earnings per share on a diluted basis. The Company’s earnings per common share are determined as follows (dollars in thousands, except per share data):

 

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		For the three months ended						For the nine months ended
		9-30-13			9-30-12			9-30-13			9-30-12
Basic and diluted shares outstanding
Weighted average common shares - basic		129,208,839			97,044,603			126,057,793			95,742,676
Weighted average DownREIT units outstanding		7,500			7,500			7,500			7,500
Effect of dilutive securities (1)		—			494,466			411,821			651,382
Weighted average common shares - diluted		129,216,339			97,546,569			126,477,114			96,401,558
Calculation of Earnings per Share - basic
Net (loss) income attributable to common stockholders		$	(10,715	)	$	86,844		$	100,929		$	301,512
Net loss (income) allocated to unvested restricted shares		16			(186		)	(166		)	(1,003		)
Net (loss) income attributable to common stockholders, adjusted		$	(10,699	)	$	86,658		$	100,763		$	300,509
Weighted average common shares - basic		129,208,839			97,044,603			126,057,793			95,742,676
(Loss) earnings per common share - basic		$	(0.08	)	$	0.89		$	0.80		$	3.14
Calculation of Earnings per Share - diluted
Net (loss) income attributable to common stockholders		$	(10,715	)	$	86,844		$	100,929		$	301,512
Add: noncontrolling interests of DownREIT unitholders in consolidated partnerships, including discontinued operations		8			7			24			21
Adjusted net (loss) income attributable to common stockholders		$	(10,707	)	$	86,851		$	100,953		$	301,533
Weighted average common shares - diluted		129,216,339			97,546,569			126,477,114			96,401,558
(Loss) earnings per common share - diluted		$	(0.08	)	$	0.89		$	0.80		$	3.13

 

(1)         Securities considered antidilutive for the three months ended September 30, 2013 due to recognition of net loss.

 

Certain options to purchase shares of common stock in the amounts of 605,899 and 418,177 were outstanding at September 30, 2013 and 2012, respectively, but were not included in the computation of diluted earnings per share because such options were anti-dilutive.

 

The Company is required to estimate the forfeiture of stock options and recognize compensation cost net of the estimated forfeitures.  The estimated forfeitures included in compensation cost are adjusted to reflect actual forfeitures at the end of the vesting period.  The forfeiture rate at September 30, 2013 is based on the average forfeiture activity over a period equal to the estimated life of the stock options, and was 1.2%. The application of estimated forfeitures did not materially impact compensation expense for the three and nine months ended September 30, 2013 or 2012.

 

Derivative Instruments and Hedging Activities

 

The Company enters into interest rate swap and interest rate cap agreements (collectively, the “Hedging Derivatives”) for interest rate risk management purposes and in conjunction with certain variable rate secured debt to satisfy lender requirements.  The Company does not enter into derivative transactions for trading or other speculative purposes. The Company assesses both at inception and on an on-going basis, the effectiveness of qualifying cash flow and fair value hedges. Hedge ineffectiveness is reported as a component of general and administrative expenses. The fair values of the Hedging Derivatives that are in an asset position are recorded in prepaid expenses and other assets. The fair value of the Hedging Derivatives that are in a liability position are included in accrued expenses and other liabilities. Fair value changes for derivatives that are not in qualifying hedge relationships are reported as a component of interest expense, net.  For the derivative positions that the Company has determined qualify as effective cash flow hedges, the Company has recorded the effective portion of cumulative changes in the fair value of the Hedging Derivatives in other comprehensive income.  Amounts recorded in other comprehensive income will be reclassified into earnings in the periods in which earnings are affected by the hedged cash flow. The effective portion of the change in fair value of the Hedging Derivatives that the Company has determined qualified as effective fair value hedges is reported as an adjustment to the carrying amount of the corresponding debt being hedged.

 

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Legal and Other Contingencies

 

The Company is involved in various claims and/or administrative proceedings that arise in the ordinary course of the Company’s business. While no assurances can be given, the Company does not believe that any of these outstanding litigation matters, individually or in the aggregate, will have a material adverse effect on the Company’s financial position or results of operations.

 

Acquisitions of Investments in Real Estate

 

The Company accounts for acquisitions of investments in real estate in accordance with the authoritative guidance for the initial measurement, which require the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree to be recognized at fair value. Typical assets and liabilities acquired include land, building, furniture, fixtures, and equipment, and identified intangible assets and liabilities, consisting of the value of above-below market leases and in-place leases.  In making estimates of fair values for purposes of allocating purchase price, we utilize various sources, including our own analysis of recently acquired and existing comparable properties in our portfolio and other market data.

 

Use of Estimates

 

The preparation of financial statements in conformity with GAAP requires management to make certain estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods.  Actual results could differ from those estimates.

 

Reclassifications

 

Certain reclassifications have been made to amounts in prior period financial statements to conform to current period presentations.

 

2.  Interest Capitalized

 

The Company capitalizes interest during the development and redevelopment of real estate assets. Capitalized interest associated with the Company’s development or redevelopment activities totaled $17,205,000 and $12,504,000 for the three months ended September 30, 2013 and 2012, respectively, and $47,168,000 and $37,449,000 for the nine months ended September 30, 2013 and 2012, respectively.

 

3.  Notes Payable, Unsecured Notes and Credit Facility

 

The Company’s mortgage notes payable, unsecured notes and Credit Facility, as defined below, as of September 30, 2013 and December 31, 2012, are summarized below (dollars in thousands).  The following amounts and discussion do not include the mortgage notes related to the communities classified as held for sale, if any, as of September 30, 2013 and December 31, 2012, as shown in the Condensed Consolidated Balance Sheets (see Note 7, “Real Estate Disposition Activities”).

 

		9-30-13			12-31-12
Fixed rate unsecured notes (1)		$	2,250,000		$	1,950,000
Fixed rate mortgage notes payable - conventional and tax-exempt (2)		2,710,673			1,427,133
Variable rate mortgage notes payable - conventional and tax-exempt(2)		1,011,609			476,935
Total notes payable and unsecured notes		5,972,282			3,854,068
Credit Facility		—			—
Total mortgage notes payable, unsecured notes and Credit Facility		$	5,972,282		$	3,854,068

 

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(1)         Balances at September 30, 2013 and December 31, 2012 exclude $4,809 and $4,202, respectively, of debt discount as reflected in unsecured notes on the Company’s Condensed Consolidated Balance Sheets.

(2)         Balances at September 30, 2013 and December 31, 2012 exclude $130,159 and $1,167, respectively of debt premium as reflected in mortgage notes payable on the Company’s Condensed Consolidated Balance Sheets.

 

The following debt activity occurred during the nine months ended September 30, 2013:

 

·                  In February 2013, as a portion of the consideration for the Archstone Acquisition, the Company assumed $3,512,202,000 consolidated principal amount of Archstone’s existing secured indebtedness, repaying $1,477,720,000 principal amount of the indebtedness assumed concurrent with the closing of the Archstone Acquisition.

·                  In March 2013, the Company repaid $100,000,000 of its 4.95% unsecured notes in accordance with the scheduled maturity.

·                  In April 2013, the Company obtained a 3.06% fixed rate, secured mortgage loan in the amount of $15,000,000 that matures in April 2018.

·                  In April 2013, the Company repaid a 4.69% fixed rate, secured mortgage note in the amount of $170,125,000 pursuant to its scheduled maturity date.

·                  In May 2013, the Company repaid a $5,393,000 fixed rate secured mortgage note with an interest rate of 5.55% at par and without penalty in advance of its July 2028 scheduled maturity date.

·                  In May 2013, the Company obtained a 3.08% fixed rate secured mortgage loan that matures in May 2020 in the amount of $56,210,000, in association with the refinancing of an existing $47,000,000 variable rate secured mortgage note.

·                  In May 2013, the Company repaid a $52,806,000 fixed rate secured mortgage note with an interest rate of 5.24% pursuant to its scheduled maturity date.

·                  In September 2013, the Company issued $400,000,000 principal amount of unsecured notes in a public offering under its existing shelf registration statement for net proceeds of approximately $396,212,000. The notes mature in October 2020 and were issued at a 3.63% interest rate. The notes have an effective interest rate of 3.79% including the effect of offering costs.

 

The Company has a $1,300,000,000 revolving variable rate unsecured credit facility with a syndicate of banks (the “Credit Facility”) which matures in April 2017. The Company has the option to extend the maturity by up to one year for a fee of $1,950,000. The Credit Facility bears interest at varying levels based on the London Interbank Offered Rate (“LIBOR”), rating levels achieved on our unsecured notes and on a maturity schedule selected by us. The current stated pricing is LIBOR plus 1.05% (1.23% at September 30, 2013, assuming a one month borrowing rate).  The annual facility fee is approximately $1,950,000 based on the $1,300,000,000 facility size and based on our current credit rating.

 

The Company had no borrowings outstanding under the Credit Facility and had $72,610,000 and $44,883,000 outstanding in letters of credit that reduced the borrowing capacity as of September 30, 2013 and December 31, 2012, respectively.

 

In the aggregate, secured notes payable mature at various dates from May 2015 through July 2066, and are secured by certain apartment communities and improved land parcels (with a net carrying value of $4,697,609,000, excluding communities classified as held for sale, as of September 30, 2013).

 

As of September 30, 2013, the Company has guaranteed approximately $309,358,000 of mortgage notes payable by wholly owned subsidiaries; all such mortgage notes payable are consolidated for financial reporting purposes.  The weighted average interest rate of the Company’s fixed rate mortgage notes payable (conventional and tax-exempt) was 4.6% and 5.8% at September 30, 2013 and December 31, 2012, respectively.  The weighted average interest rate of the Company’s variable rate mortgage notes payable and its Credit Facility, including the effect of certain financing related fees, was 2.4% and 2.7% at September 30, 2013 and December 31, 2012, respectively.

 

Scheduled payments and maturities of mortgage notes payable and unsecured notes outstanding at September 30, 2013 are as follows (dollars in thousands):

 

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											Stated
		Secured			Secured			Unsecured			interest rate
		notes			notes			notes			of unsecured
Year		payments			maturities			maturities			notes
2013		$	4,395		$	—		$	—		—
2014		18,056			—			150,000			5.375	%
2015		16,722			904,011			—			—
2016		17,951			16,255			250,000			5.750	%
2017		19,033			710,491			250,000			5.700	%
2018		18,398			77,189			—			—
2019		7,125			610,814			—			—
2020		6,190			50,824			250,000			6.100	%
								400,000			3.625	%
2021		5,965			27,844			250,000			3.950	%
2022		6,332			—			450,000			2.950	%
2022		90,048			1,114,639			250,000			2.850	%
		$	210,215		$	3,512,067		$	2,250,000

 

The Company was in compliance at September 30, 2013 with certain customary financial and other covenants under the Credit Facility and the Company’s unsecured notes.

 

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4.  Equity

 

The following summarizes the changes in stockholders’ equity for the nine months ended September 30, 2013 (dollars in thousands):

 

								Accumulated			Accumulated			Total
					Additional			earnings			other			AvalonBay
		Common			paid-in			less			comprehensive			stockholders’			Noncontrolling			Total
		stock			capital			dividends			loss			equity			interests			equity
Balance at December 31, 2012		$	1,144		$	7,086,407		$	(142,329	)	$	(108,007	)	$	6,837,215		$	3,578		$	6,840,793
Net income attributable to common stockholders		—			—			100,929			—			100,929			—			100,929
Cash flow hedge loss reclassified to earnings		—			—			—			57,913			57,913			—			57,913
Change in redemption value of redeemable noncontrolling interest		—			—			(441		)	—			(441		)	—			(441		)
Noncontrolling interests income allocation		—			—			—			—			—			1			1
Dividends declared to common stockholders		—			—			(415,353		)	—			(415,353		)	—			(415,353		)
Issuance of common stock, net of withholdings		150			1,872,684			(1,035		)	—			1,871,799			—			1,871,799
Amortization of deferred compensation		—			17,689			—			—			17,689			—			17,689
Balance at September 30, 2013		$	1,294		$	8,976,780		$	(458,229	)	$	(50,094	)	$	8,469,751		$	3,579		$	8,473,330

 

During the nine months ended September 30, 2013, the Company:

 

(i)                                     issued 33,900 shares of common stock in connection with stock options exercised;

(ii)                                  issued 1,465 common shares through the Company’s dividend reinvestment plan;

(iii)                               issued 123,977 common shares in connection with stock grants;

(iv)                              withheld 44,750 common shares to satisfy employees’ tax withholding and other liabilities;

(v)                                 cancelled 5,214 shares of restricted common stock upon forfeiture; and

(vi)                              issued 14,889,706 common shares in connection with the closing of the Archstone Acquisition.

 

With respect to the 14,889,706 common shares issued in conjunction with the Archstone Acquisition to Lehman (as defined below), the Company and Lehman entered into a shareholders agreement (the “Shareholders Agreement”). Under the Shareholders Agreement, until February 27, 2014 Lehman will vote all of its shares of the Company’s common stock in accordance with the recommendation of the Company’s board of directors on any matter other than an extraordinary transaction.  After February 14, 2014, and for so long as Lehman holds more than 5% of the Company’s common stock, Lehman will vote all of its shares of the Company’s common stock (i) in accordance with the recommendations of the Company’s board of directors with respect to any election of directors, compensation and equity plan matters, and any amendment to our charter to increase our authorized capital stock; (ii) on all matters proposed by other shareholders, either proportionately in accordance with the votes of the other shareholders or, at its election, in accordance with the recommendation of the Company’s board of directors; and (iii) on all other matters, in its sole and absolute discretion.  In May 2013, Lehman sold 7,870,000 of the Company’s common shares it received as consideration for the Archstone Acquisition. Lehman received all of the net proceeds from the offering, and the sale did not impact the total number of the Company’s common shares outstanding.

 

In addition, during the nine months ended September 30, 2013 the Company granted 215,230 options for common stock to employees.  Any deferred compensation related to the Company’s stock option and restricted stock grants during the nine months ended September 30, 2013 is not reflected on the Company’s Condensed Consolidated Balance Sheet as of September 30, 2013, and will not be reflected until earned as compensation cost.

 

In August 2012, the Company commenced a third continuous equity program (“CEP III”), under which the Company is authorized to sell up to $750,000,000 of shares of its common stock from time to time during a 36-month period. The Company had no sales under CEP III during the nine months ended September 30, 2013, and has $646,274,000 of shares that remain authorized for issuance under this program as of September 30, 2013.

 

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