QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 |
Maryland
(State or other jurisdiction of incorporation or organization) |
77-0404318
(I.R.S. Employer Identification No.) |
Large accelerated filer þ | Accelerated filer o | Non-accelerated filer o (Do not check if a smaller reporting company) | Smaller reporting company o |
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1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
(Dollars in thousands, except per share data)
AND OTHER COMPREHENSIVE INCOME
(Dollars in thousands, except per share data)
For the three months ended
For the six months ended
6-30-10
6-30-09
6-30-10
6-30-09
$
218,784
$
210,182
$
432,522
$
418,447
1,684
2,077
3,533
3,545
220,468
212,259
436,055
421,992
65,885
66,001
130,916
128,781
23,175
19,945
46,347
40,831
41,458
36,880
83,999
67,010
(1,062
)
57,479
51,174
113,574
101,247
4,041
5,390
12,936
12,637
20,302
20,302
192,038
199,692
387,772
369,746
463
492
689
3,949
28,893
13,059
48,972
56,195
244
3,664
2,240
7,629
21,929
72,220
22,173
3,664
74,460
7,629
51,066
16,723
123,432
63,824
59
951
216
1,275
$
51,125
$
17,674
$
123,648
$
65,099
(677
)
421
(135
)
797
$
50,448
$
18,095
$
123,513
$
65,896
$
0.35
$
0.17
$
0.59
$
0.72
0.26
0.05
0.90
0.10
$
0.61
$
0.22
$
1.49
$
0.82
$
0.35
$
0.17
$
0.59
$
0.72
0.26
0.05
0.90
0.10
$
0.61
$
0.22
$
1.49
$
0.82
$
0.8925
$
0.8925
$
1.7850
$
1.7850
(unaudited)
For the six months ended
6-30-10
6-30-09
$
123,432
$
63,824
113,574
101,247
5,130
3,908
3,598
3,409
3,638
120
(4,288
)
20,302
(72,220
)
(1,062
)
1,185
(775
)
3,009
(5,843
)
(4,693
)
3,957
171,724
189,728
(233,994
)
(311,577
)
(4,872
)
(1,708
)
(524
)
(383
)
187,587
(6,180
)
(9,100
)
21,224
47,413
2,781
(702
)
(33,978
)
(276,057
)
306,817
1,114
(146,258
)
(139,928
)
(124,000
)
741,140
(27,930
)
(27,774
)
(206,173
)
(2,218
)
(7,727
)
(202
)
(27
)
(39
)
(100
)
130,284
236,411
268,030
150,082
105,691
65,706
$
373,721
$
215,788
$
78,009
$
57,402
As described in Note 4, Stockholders Equity, 102,984 shares of common stock valued at
$7,777 were issued in connection with stock grants, 3,609 shares valued at $308 were issued
through the Companys dividend reinvestment plan, 45,165 shares valued at $3,812 were
withheld to satisfy employees tax withholding and other liabilities, 1,300 shares valued
at $38 were forfeited, 61,055 shares valued at $3,322 were issued to members of the board
of directors in fulfillment of deferred stock awards for a net value of $7,556. In
addition, the Company granted 126,484 options for common stock at a value of $2,460.
The Company recorded an increase to other liabilities and a corresponding decrease to
other comprehensive income of $135 and recorded an increase to prepaid expenses and other
assets of $1,412, with a corresponding offset to the basis of unsecured notes, net to
record the impact of the Companys hedge accounting activity (as described in Note 5,
Derivative Instruments and Hedging Activities).
Common dividends declared but not paid totaled $75,944.
The Company recorded an increase of $3,928 in redeemable noncontrolling interests 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.
2,624,641 shares of common stock valued at $139,058 were issued as part of the special
dividend declared in the fourth quarter of 2008, 169,851 shares of common stock valued at
$8,360 were issued in connection with stock grants, 5,623 shares valued at $307 were issued
through the Companys dividend reinvestment plan, 30,612 shares valued at $1,327 were
withheld to satisfy employees tax withholding and other liabilities and 1,031 shares
valued at $147 were forfeited, for a net value of $146,251. In addition, the Company
granted 344,801 options for common stock at a value of $2,252.
The Company recorded a decrease to other liabilities and a corresponding increase to
other comprehensive income of $797 to record the impact of the Companys hedge accounting
activity.
Common dividends declared but not paid totaled $71,346.
The Company recorded a decrease of $2,827 in redeemable noncontrolling interests with a
corresponding increase to accumulated earnings less dividends to adjust the redemption
value associated with the put options held by joint venture partners and DownREIT
partnership units.
In May 2009, the Company obtained $93,440 in variable rate tax-exempt bond financing
related to a Development Right (as defined elsewhere in this Form 10-Q), the proceeds of
which will be held in escrow until requisitioned for construction funding. This loan
provides an option for the Company to request an additional construction loan of up to
$83,560 subject to the lenders discretion.
For the three months ended
For the six months ended
6-30-10
6-30-09
6-30-10
6-30-09
83,517,908
79,662,223
82,583,638
79,210,349
15,351
15,888
15,351
17,648
711,846
364,183
649,006
670,290
84,245,105
80,042,294
83,247,995
79,898,287
$
51,125
$
17,674
$
123,648
$
65,099
(143
)
(56
)
(368
)
(206
)
$
50,982
$
17,618
$
123,280
$
64,893
83,517,908
79,662,223
82,583,638
79,210,349
$
0.61
$
0.22
$
1.49
$
0.82
$
51,125
$
17,674
$
123,648
$
65,099
14
14
27
39
$
51,139
$
17,688
$
123,675
$
65,138
84,245,105
80,042,294
83,247,995
79,898,287
$
0.61
$
0.22
$
1.49
$
0.82
6-30-10
12-31-09
$
1,358,437
$
1,358,257
301,184
299,772
1,562,463
1,632,605
726,450
684,238
3,948,534
3,974,872
$
3,948,534
$
3,974,872
(1)
Balances at June 30, 2010 and December 31, 2009 include $2,040 and $2,220
of debt discount.
(2)
Balances at June 30, 2010 and December 31, 2009 include $1,184 and ($228)
for basis adjustments resulting from qualifying fair
value hedging relationships.
In February 2010, the Company repaid a 6.47% fixed rate secured mortgage note in the
amount of $13,961 in advance of its March 2012 scheduled maturity date.
In March 2010, the Company repaid a 6.95% fixed rate secured mortgage note in the amount
of $11,226 in advance of its February 2025 scheduled maturity date.
Stated interest
Secured notes
Secured notes
Unsecured notes
rate of unsecured
Year
payments
(1)
maturities
maturities
notes
$
2,520
$
28,989
$
14,576
7.500
%
75,000
7.317
%(2)
10,776
36,610
39,900
6.625
%
150,000
5.946
%(2)
14,034
108,224
201,601
6.125
%
104,400
5.500
%
75,000
4.377
%(2)
14,876
264,697
100,000
4.950
%
15,769
33,100
150,000
5.375
%
14,725
365,130
15,600
250,000
5.750
%
16,533
18,300
250,000
5.700
%
17,522
2,588
699,529
110,707
498,684
250,000
6.100
%
$
235,650
$
2,053,263
$
1,660,477
(1)
Secured note payments are comprised of the principal pay downs for amortizing mortgage
notes.
(2)
The weighted average interest rate for the swapped unsecured notes as of June 30, 2010.
Accumulated
Accumulated
Total
Additional
earnings
other
AvalonBay
Common
paid-in
less
comprehensive
stockholders
stock
capital
dividends
loss
equity
$
815
$
3,200,367
$
(149,988
)
$
(1,067
)
$
3,050,127
123,648
123,648
(135
)
(135
)
(3,928
)
(3,928
)
(149,737
)
(149,737
)
36
306,484
76
306,596
8,338
8,338
$
851
$
3,515,189
$
(179,929
)
$
(1,202
)
$
3,334,909
(i)
issued 3,003,504 shares of common stock through public offerings;
(ii)
issued 425,090 shares of common stock in connection with stock options exercised;
(iii)
issued 3,609 common shares through the Companys dividend reinvestment plan;
(iv)
issued 102,984 common shares in connection with stock grants;
(v)
issued 61,055 shares to a retiring member of the Board of Directors in fulfillment of
deferred stock awards;
(vi)
withheld 45,165 common shares to satisfy employees tax withholding and other
liabilities; and
(vii)
redeemed 1,300 shares of restricted common stock upon forfeiture.
Non-designated
Cash Flow
Fair Value
Hedges
Hedges
Hedges
Interest
Interest
Interest
Rate Caps
Rate Caps
Rate Swaps
$
109,847
$
151,963
$
300,000
1.5
%
2.6
%
5.9
%
6.9
%
5.0
%
N/A
Apr-11
Jun-12
Dec-10
Mar-14
Jun-15
Jan-12
$
39
$
632
$
1,184
(1)
For interest rate caps, this represents the weighted average interest rate on the
debt.
Company
# of
Total
Debt
Ownership
Apartment
Capitalized
Interest
Maturity
Unconsolidated Real Estate Investments
Percentage
Homes
Cost (1)
Amount (2)
Type
Rate (3)
Date
Fund I
1.
105
$
24,622
$
21,033
Fixed
4.87
%
Oct 2011
2.
204
18,304
12,056
Fixed
5.74
%
Mar 2012
3.
170
29,366
22,275
Fixed
5.48
%
Apr 2012
4.
82
20,903
12,750
Fixed
5.41
%
Mar 2014
5.
196
28,093
16,500
Fixed
4.83
%
Oct 2012
6.
192
42,756
27,001
Fixed
5.38
%
Aug 2013
7.
134
24,832
11,800
Fixed
5.74
%
Nov 2013
8.
160
66,791
41,500
Fixed
5.88
%
Mar 2014
9.
290
58,300
39,842
Fixed
5.64
%
Sep 2013
10.
320
48,392
26,000
Fixed
6.06
%
Oct 2014
11.
256
35,319
17,243
Fixed
5.43
%
Jan 2014
12.
156
24,439
12,000
Fixed
5.68
%
Feb 2014
13.
392
79,606
45,000
Fixed
5.74
%
Dec 2013
14.
252
38,062
24,100
Fixed
5.49
%
Dec 2013
15.
168
38,606
24,500
Fixed
5.43
%
Dec 2013
16.
348
78,179
37,500
Fixed
6.11
%
Mar 2014
17.
108
36,794
19,943
Fixed
6.13
%
Sep 2016
18.
85
24,756
11,761
Fixed
5.92
%
Oct 2013
19.
211
25,298
13,455
Fixed
5.12
%
Mar 2015
15.2
%
3,829
$
743,418
$
436,259
5.6
%
Fund II
1.
220
$
33,852
$
21,515
Fixed
5.52
%
Jun 2019
2.
491
71,815
42,600
Fixed
5.26
%
May 2017
3.
203
31,259
18,750
Variable
2.94
%
Jun 2017
N/A
N/A
1,500
Variable
2.85
%
2010(4)
31.3
%
914
$
136,926
$
84,365
4.8
%
Other Operating Joint Ventures
1.
20.0
%
361
$
135,325
$
117,000
Variable
0.97
%
Nov 2036
2.
25.0
%
313
124,014
105,000
Fixed
6.02
%
Dec 2015
3.
30.0
%
309
70,037
45,506
Variable
3.69
%
Apr 2016
Other Development Joint Ventures
1.
50.0
%
64
N/A
1,860
Variable
4.19
%
Jun 2010 (8)
1,047
$
329,376
$
269,366
3.4
%
5,790
$
1,209,720
$
789,990
4.8
%
(1)
Represents total capitalized cost as of June 30, 2010.
(2)
The Company has not guaranteed the debt of its unconsolidated investees and bears no
responsibility for the repayment, other than the construction and completion and related
financing guarantee for Avalon Chrystie Place I associated with the construction completion
and occupancy certificate.
(3)
Represents weighted average rate on outstanding debt.
(4)
As of June 30, 2010, these borrowings are drawn under an unsecured credit facility
maturing in December 2011, assuming exercise of a one-year extension option.
(5)
After the venture makes certain threshold distributions to the third-party partner, the
Company generally receives 50% of all further distributions.
(6)
The Company has contributed land at a stepped up basis as its only capital contribution
to this development.
(7)
After the venture makes certain threshold distributions to the Company, the Company
receives 50% of all further distributions.
(8)
The loan for this venture matured in June 2010. As of June 30, 2010, the amounts under
this borrowing have not been repaid. The venture is negotiating an extension or refinancing
of the amounts outstanding. The lender has not to date declared an event of default with
respect to the note or required the venture to pay a default rate of interest. Although the
Company bears no responsibility to repay the amounts outstanding, the Company has the right
to cure any event of default by the venture.
6-30-10
12-31-09
(unaudited)
(unaudited)
$
1,098,125
$
1,065,328
41,046
39,502
$
1,139,171
$
1,104,830
$
789,990
$
758,487
20,400
19,669
328,781
326,674
$
1,139,171
$
1,104,830
For the three months ended
For the six months ended
(unaudited)
(unaudited)
6-30-10
6-30-09
6-30-10
6-30-09
$
27,510
$
26,613
$
54,543
$
51,769
(12,363
)
(13,727
)
(25,791
)
(25,583
)
(9,894
)
(9,279
)
(19,383
)
(18,181
)
(8,937
)
(8,222
)
(17,918
)
(16,028
)
$
(3,684
)
$
(4,615
)
$
(8,549
)
$
(8,023
)
For the three months ended
For the six months ended
6-30-10
6-30-09
6-30-10
6-30-09
$
548
$
9,885
$
3,750
$
19,831
(304
)
(3,153
)
(1,510
)
(6,389
)
(505
)
(683
)
(2,563
)
(5,130
)
$
244
$
3,664
$
2,240
$
7,629
For the three months ended
For the six months ended
6-30-10
6-30-09
6-30-10
6-30-09
$
51,066
$
16,723
$
123,432
$
63,824
7,849
7,362
15,080
15,936
1,047
907
2,086
1,822
443
2,281
947
3,375
41,458
36,880
83,999
67,010
(1,062
)
4,041
5,390
12,936
12,637
(463
)
(492
)
(689
)
(3,949
)
57,479
51,174
113,574
101,247
20,302
20,302
(21,929
)
(72,220
)
(244
)
(3,664
)
(2,240
)
(7,629
)
$
140,747
$
136,863
$
276,905
$
273,513
For the three months ended
For the six months ended
Total
% NOI change
Gross
Total
% NOI change
Gross
revenue
NOI
from prior year
real estate (1)
revenue
NOI
from prior year
real estate (1)
$
35,654
$
22,300
(2.3
%)
$
1,094,054
$
70,847
$
43,944
(3.4
%)
$
1,094,054
45,287
30,589
(4.5
%)
1,389,706
89,677
60,096
(4.0
%)
1,389,706
29,931
18,665
0.7
%
751,070
59,322
36,211
(2.4
%)
751,070
6,614
4,249
(14.1
%)
239,836
13,231
8,675
(14.5
%)
239,836
29,537
20,245
(7.2
%)
1,109,337
58,952
40,403
(11.0
%)
1,109,337
14,686
9,431
(7.8
%)
467,668
29,459
19,137
(8.8
%)
467,668
161,709
105,479
(4.4
%)
5,051,671
321,488
208,466
(6.0
%)
5,051,671
30,006
18,146
N/A
1,558,293
58,924
35,014
N/A
1,558,293
27,069
17,122
N/A
1,497,779
52,110
33,425
N/A
1,497,779
N/A
N/A
N/A
237,529
N/A
N/A
N/A
237,529
1,684
N/A
N/A
87,487
3,533
N/A
N/A
87,487
$
220,468
$
140,747
2.8
%
$
8,432,759
$
436,055
$
276,905
1.2
%
$
8,432,759
$
30,712
$
19,366
(8.6
%)
$
857,417
$
61,353
$
38,629
(5.9
%)
$
857,417
39,408
27,308
(3.7
%)
1,047,187
78,948
53,588
(3.8
%)
1,047,187
30,519
18,954
(4.2
%)
774,189
61,048
38,109
(2.7
%)
774,189
7,172
4,959
(6.8
%)
238,554
14,554
10,173
(3.3
%)
238,554
24,975
18,161
(5.1
%)
855,406
50,831
37,589
(1.8
%)
855,406
15,776
10,906
(8.6
%)
426,653
31,891
22,252
(7.1
%)
426,653
148,562
99,654
(5.7
%)
4,199,406
298,625
200,340
(4.0
%)
4,199,406
31,760
20,268
N/A
1,428,158
62,757
40,078
N/A
1,428,158
29,860
16,941
N/A
2,039,259
57,065
33,095
N/A
2,039,259
N/A
N/A
N/A
225,634
N/A
N/A
N/A
225,634
2,077
N/A
N/A
62,976
3,545
N/A
N/A
62,976
$
212,259
$
136,863
0.7
%
$
7,955,433
$
421,992
$
273,513
3.3
%
$
7,955,433
(1)
Does not include gross real estate assets held for sale of $0 and $325,009 as of June 30, 2010 and 2009, respectively.
(2)
Revenue represents third-party management, asset management and developer fees and miscellaneous income which are not
allocated to a reportable segment.
Weighted
Weighted
average
average
2009 Plan
exercise price
1994 Plan
exercise price
shares
per share
shares
per share
$
2,836,254
$
80.76
(425,090
)
55.87
126,484
74.20
(33,626
)
99.45
126,484
$
74.20
2,377,538
$
84.95
N/A
2,027,198
$
88.81
Puts The Company provided redemption options (the Puts) that allow two of the
Companys joint venture partners to require the Company to purchase their interests in the
investments at the future fair market value. One Put is payable in cash or, at the
Companys option, common stock of the Company, and the second is payable in cash. The
Company determines the fair value of the Puts based on unobservable inputs considering the
assumptions that market participants would make in pricing the obligations. The Company
applies discount factors to the estimated future cash flows of the asset underlying the
associated joint venture, which in the case of the Puts is the NOI from an apartment
community, as well as potential disposition proceeds utilizing market capitalization rates,
to derive the fair value of the position. Given the significance of the unobservable
inputs, the valuations are classified in Level 3 of the fair value hierarchy. At December
31, 2009, the Puts aggregate fair value was $4,101. At June 30, 2010, the aggregate fair
value of the Puts was $7,512.
DownREIT units The Company issued units of limited partnership interest in DownREITs
which provide the DownREIT limited partners the ability to present all or some of their
units for redemption for a cash amount as determined by the applicable partnership
agreement. Under the DownREIT agreements, for each limited partnership unit, the limited
partner is entitled to receive cash in the amount equal to the fair value of the Companys
common stock on or about the date of redemption. In lieu of cash redemption, the Company
may elect to exchange such units for an equal number of shares in the Companys common
stock. The limited partnership units in DownREITs are valued using the market price of the
Companys common stock, a Level 1 price under the fair value hierarchy. At December 31,
2009, the fair value of the DownREIT units was $1,260. At June 30, 2010, the fair value of
the DownREIT units was $1,433.
ITEM 2.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Net income attributable to common stockholders for the quarter ended June 30, 2010
was $51,125,000, as compared to $17,674,000 for the quarter ended June 30, 2009, an
increase of 189.3%. The increase is attributable primarily to asset impairments reported in
2009, with no comparable write-downs in 2010, coupled with the gain on an asset sale in the
second quarter 2010 with no dispositions in the prior year period.
Our Established Community portfolio experienced a 4.4% decrease in NOI over the
comparable period of 2009, comprised of a 2.1% decrease in rental revenue and an increase
in operating expenses of 2.5%. Sequential rental revenue increased by 1.3% as compared to
the first quarter 2010.
Established Communities (also known as Same Store Communities)
are
consolidated communities where a comparison of operating results from
the prior year to the current year is meaningful, as these
communities were owned and had stabilized occupancy and operating
expenses as of the beginning of the prior year. For the period ended
June 30, 2010, the Established Communities are communities that are
consolidated for financial reporting purposes, had stabilized occupancy
and operating expenses as of January 1, 2009, are not conducting or
planning to conduct substantial redevelopment activities and are not
held for sale or planned for disposition within the current year. A
community is considered to have stabilized occupancy at the earlier of
(i) attainment of 95% physical occupancy or (ii) the one-year
anniversary of completion of development or redevelopment.
Other Stabilized Communities
are all other completed communities that
we own or have a direct or indirect ownership interest in, and that have
stabilized occupancy, as defined above. Other Stabilized Communities do
not include communities that are conducting or planning to conduct
substantial redevelopment activities within the current year.
Lease-Up Communities
are communities where construction has been
complete for less than one year and where physical occupancy has not
reached 95%.
Redevelopment Communities
are communities where substantial
redevelopment is in progress or is planned to begin during the current
year. Redevelopment is considered substantial when capital invested
during the reconstruction effort is expected to exceed either $5,000,000
or 10% of the communitys pre-redevelopment basis and is expected to
have a material impact on the operations of the community, including
occupancy levels and future rental rates.
Number of
Number of
communities
apartment homes
25
6,442
21
6,908
15
5,944
8
1,943
20
5,975
12
3,460
101
30,672
9
2,169
9
2,423
12
3,368
4
1,021
8
2,145
13
3,130
55
14,256
1
276
7
2,197
164
47,401
7
2,509
28
7,329
For the three months ended
For the six months ended
6-30-10
6-30-09
$ Change
% Change
6-30-10
6-30-09
$ Change
% Change
$
218,784
$
210,182
$
8,602
4.1
%
$
432,522
$
418,447
$
14,075
3.4
%
1,684
2,077
(393
)
(18.9
%)
3,533
3,545
(12
)
(0.3
%)
220,468
212,259
8,209
3.9
%
436,055
421,992
14,063
3.3
%
55,133
53,179
1,954
3.7
%
109,567
103,906
5,661
5.4
%
23,175
19,945
3,230
16.2
%
46,347
40,831
5,516
13.5
%
78,308
73,124
5,184
7.1
%
155,914
144,737
11,177
7.7
%
9,262
9,634
(372
)
(3.9
%)
18,316
19,678
(1,362
)
(6.9
%)
1,047
907
140
15.4
%
2,086
1,822
264
14.5
%
443
2,281
(1,838
)
(80.6
%)
947
3,375
(2,428
)
(71.9
%)
41,458
36,880
4,578
12.4
%
83,999
67,010
16,989
25.4
%
N/A
N/A
(1,062
)
1,062
(100.0
%)
57,479
51,174
6,305
12.3
%
113,574
101,247
12,327
12.2
%
4,041
5,390
(1,349
)
(25.0
%)
12,936
12,637
299
2.4
%
20,302
(20,302
)
(100.0
%)
20,302
(20,302
)
(100.0
%)
113,730
126,568
(12,838
)
(10.1
%)
231,858
225,009
6,849
3.0
%
463
492
(29
)
(5.9
%)
689
3,949
(3,260
)
(82.6
%)
28,893
13,059
15,834
121.2
%
48,972
56,195
(7,223
)
(12.9
%)
244
3,664
(3,420
)
(93.3
%)
2,240
7,629
(5,389
)
(70.6
%)
21,929
21,929
100.0
%
72,220
72,220
100.0
%
22,173
3,664
18,509
505.2
%
74,460
7,629
66,831
876.0
%
51,066
16,723
34,343
205.4
%
123,432
63,824
59,608
93.4
%
59
951
(892
)
(93.8
%)
216
1,275
(1,059
)
(83.1
%)
$
51,125
$
17,674
$
33,451
189.3
%
$
123,648
$
65,099
$
58,549
89.9
%
For the three months ended
For the six months ended
6-30-10
6-30-09
6-30-10
6-30-09
$
51,066
$
16,723
$
123,432
$
63,824
7,849
7,362
15,080
15,936
1,047
907
2,086
1,822
443
2,281
947
3,375
41,458
36,880
83,999
67,010
(1,062
)
4,041
5,390
12,936
12,637
(463
)
(492
)
(689
)
(3,949
)
57,479
51,174
113,574
101,247
20,302
20,302
(21,929
)
(72,220
)
(244
)
(3,664
)
(2,240
)
(7,629
)
$
140,747
$
136,863
$
276,905
$
273,513
For the three months ended
For the six months ended
6-30-10
6-30-09
$
(4,890
)
$
(13,304
)
7,808
16,836
966
(140
)
$
3,884
$
3,392
For the three months ended
For the six months ended
6-30-10
6-30-09
6-30-10
6-30-09
$
161,641
$
165,104
$
321,280
$
331,670
1,146
2,724
2,746
5,632
(475
)
(2,567
)
(1,069
)
(4,775
)
$
162,312
$
165,261
$
322,957
$
332,527
(2.1
%)
(3.1
%)
(1.8
%)
(2.9
%)
gains or losses on sales of previously depreciated operating communities;
extraordinary gains or losses (as defined by GAAP);
depreciation of real estate assets; and
adjustments for unconsolidated partnerships and joint ventures.
For the three months ended
For the six months ended
6-30-10
6-30-09
6-30-10
6-30-09
$
51,125
$
17,674
$
123,648
$
65,099
58,593
54,126
115,605
107,651
14
14
27
39
(21,929
)
(72,220
)
$
87,803
$
71,814
$
167,060
$
172,789
84,245,105
80,042,294
83,247,995
79,898,287
$
0.61
$
0.22
$
1.49
$
0.82
$
1.04
$
0.90
$
2.01
$
2.16
For the three months ended
For the six months ended
6-30-10
6-30-09
6-30-10
6-30-09
$
102,841
$
98,907
$
171,724
$
189,728
$
2,065
$
(146,376
)
$
(33,978
)
$
(276,057
)
$
145,518
$
172,922
$
130,284
$
236,411
development and redevelopment activity in which we are currently engaged;
the minimum dividend payments on our common stock required to maintain our REIT
qualification under the Code;
debt service and principal payments either at maturity or opportunistic pre-payments;
normal recurring operating expenses; and
capital calls for Fund II, as required.
We invested approximately $233,994,000 in the development of communities.
We had capital expenditures of $5,396,000 for real estate and non-real estate assets.
limitations on the amount of total and secured debt in relation to our overall capital
structure;
limitation on the amount of our unsecured debt relative to the undepreciated basis of
real estate assets that are not encumbered by property-specific financing; and
minimum levels of debt service coverage.
we repaid a 6.47% fixed rate secured mortgage note in the amount of $13,961,000 in
advance of its March 2012 scheduled maturity date; and
we repaid a 6.95% fixed rate secured mortgage note in the amount of $11,226,000 in
advance of its February 2025 scheduled maturity date.
All-In
Principal
interest
maturity
Balance outstanding
Scheduled maturities
Community
rate (1)
date
12-31-09
6-30-10
2010
2011
2012
2013
2014
Thereafter
Mar-2012
$
13,961
$
$
$
$
$
$
$
5.17
%
Jul-2024
9,780
9,780
9,780
Feb-2025
11,226
Jun-2025
29,881
(2)
Jun-2025
13,554
(2)
7.79
%
May-2027
9,714
9,569
150
316
339
364
390
8,010
7.49
%
Feb-2041
16,794
16,717
80
168
180
193
207
15,889
7.54
%
Apr-2043
16,661
16,592
72
152
162
173
185
15,848
6.15
%
Oct-2047
41,501
41,328
177
368
388
409
432
39,554
163,072
93,986
479
1,004
1,069
1,139
1,214
89,081
2.06
%
Oct-2010
29,387
28,989
28,989
1.15
%
Jul-2014
33,100
33,100
(4)
33,100
1.20
%
Feb-2017
18,300
18,300
(4)
18,300
1.42
%
Jun-2025
7,635
7,635
(4)
7,635
1.37
%
Jun-2025
20,800
20,800
(4)
20,800
1.66
%
Jun-2025
8,919
38,800
(2)
38,800
1.68
%
Jun-2025
4,046
17,600
(2)
17,600
3.21
%
Nov-2037
93,800
93,800
93,800
4.58
%
Nov-2039
48,500
48,500
(5)
48,500
1.68
%
Jul-2040
45,000
45,000
(5)
45,000
3.91
%
Nov-2040
100,000
100,000
(5)
100,000
0.18
%
May-2012
93,440
93,440
(5)
93,440
2.97
%
Mar-2046
116,000
116,000
(5)
116,000
2.94
%
Mar-2046
10,000
10,000
(5)
10,000
628,927
671,964
28,989
93,440
33,100
516,435
7.67
%
Dec-2010
14,576
14,576
14,576
6.79
%
Sep-2011
39,900
39,900
39,900
5.74
%
Jan-2012
104,400
104,400
104,400
6.26
%
Nov-2012
201,601
201,601
201,601
5.11
%
Mar-2013
100,000
100,000
100,000
5.52
%
Apr-2014
150,000
150,000
150,000
5.89
%
Sep-2016
250,000
250,000
250,000
5.82
%
Mar-2017
250,000
250,000
250,000
6.19
%
Mar-2020
250,000
250,000
250,000
7.25
%
Oct-2011
7,578
7,460
121
7,339
5.55
%
Jul-2028
6,045
5,954
92
193
204
216
229
5,020
7.78
%
Jul-2033
19,011
18,847
169
357
382
409
438
17,092
4.81
%
Apr-2013
170,125
170,125
170,125
5.07
%
Apr-2013
94,572
94,572
94,572
5.59
%
May-2015
110,600
110,600
110,600
5.74
%
Jul-2015
150,000
150,000
150,000
6.22
%
Nov-2015
51,172
50,866
354
702
746
793
843
47,428
6.12
%
Nov-2015
61,690
61,313
434
861
914
971
1,031
57,102
6.10
%
Jan-2019
55,100
55,100
693
734
779
826
52,068
4.00
%
Jul-2066
2,500
2,500
2,500
5.92
%
May-2019
21,130
21,130
183
285
301
319
20,042
5.92
%
May-2019
41,321
41,321
357
557
589
624
39,194
5.92
%
May-2019
65,695
65,695
568
885
937
992
62,313
5.94
%
May-2019
36,630
36,630
317
493
522
553
34,745
5.94
%
May-2019
39,250
39,250
339
529
560
592
37,230
6.05
%
May-2019
66,237
66,237
572
892
945
1,000
62,828
6.10
%
May-2019
78,565
78,565
679
1,058
1,120
1,186
74,522
6.05
%
May-2019
59,010
59,010
510
795
841
891
55,973
6.05
%
May-2019
45,850
45,850
396
618
654
692
43,490
5.91
%
May-2019
77,700
77,700
672
1,047
1,108
1,173
73,700
5.91
%
May-2019
26,698
26,698
231
360
381
403
25,323
5.90
%
May-2019
53,980
53,980
467
727
770
815
51,201
5.90
%
May-2019
73,269
73,269
633
987
1,045
1,106
69,498
5.90
%
May-2019
55,805
55,805
482
752
796
842
52,933
2,830,010
2,828,954
15,746
56,451
318,966
378,434
164,555
1,894,802
2.19
%
Mar-2011
30,440
29,870
(4)
599
29,271
1.82
%
May-2012
15,871
15,616
(4)
272
560
14,784
3.11
%
Mar-2046
9,000
9,000
(5)
9,000
7.32
%
Dec-2010
75,000
75,000
(7)
75,000
5.95
%
Sep-2011
100,000
100,000
(7)
100,000
5.95
%
Sep-2011
50,000
50,000
(7)
50,000
4.38
%
Jan-2012
75,000
75,000
(7)
75,000
355,311
354,486
75,871
179,831
89,784
9,000
$
3,977,320
$
3,949,390
$
121,085
$
237,286
$
503,259
$
379,573
$
198,869
$
2,509,318
(1)
Includes credit enhancement fees, facility fees, trustees fees and other fees.
(2)
Variable rate, tax-exempt debt for which the interest rate on a portion of this debt was
effectively fixed through an interest rate swap agreement through the maturity of the swap in
early June 2010. Concurrent with the maturity of the interest rate swap, we executed an
interest rate cap limiting the maximum interest rate paid on the portion of the debt hedged.
The entire outstanding balance has therefore been presented as variable rate financing
beginning June 30, 2010.
(3)
Variable rates are given as of June 30, 2010.
(4)
Financed by variable rate debt, but interest rate is capped through an interest rate
protection agreement.
(5)
Represents full amount of the debt as of June 30, 2010. Actual amounts drawn on the debt as
of June 30, 2010 are $47,074 for Bowery Place II, $44,804 for Avalon Acton, $89,019 for
Morningside Park, $84,697 for Walnut Creek, and $0 for West Chelsea.
(6)
Balances outstanding represent total amounts due at maturity, and are not net of $856 and
$2,448 of debt discount and basis adjustments associated with the unsecured notes as of June
30, 2010 and December 31, 2009, respectively, as reflected in unsecured notes on our Condensed
Consolidated Balance Sheets included elsewhere in this report.
(7)
In October 2009, we executed $300,000 of interest rate swaps allowing us to effectively
convert $300,000 principal of our fixed rate unsecured notes to floating rate debt.
cash currently on hand, including cash in construction escrows, invested in highly
liquid overnight money market funds and repurchase agreements, and short-term investment
vehicles;
the remaining capacity under our $1,000,000,000 Credit Facility;
retained operating cash;
the net proceeds from sales of existing communities;
the issuance of debt or equity securities; and/or
private equity funding, including joint venture activity.
CVP I, LLC has outstanding tax-exempt, variable rate bonds maturing in November 2036 in
the amount of $117,000,000, which have permanent credit enhancement. We have agreed to
guarantee, under limited circumstances, the repayment to the credit enhancer of any
advances it may make in fulfillment of CVP I, LLCs repayment obligations under the bonds
.
We have also guaranteed to the credit enhancer that CVP I, LLC will obtain a final
certificate of occupancy for the project (Chrystie Place in New York City), which is
expected in 2010. Our 80% partner in this venture has agreed that it will reimburse us
its pro rata share of any amounts paid relative to these guaranteed obligations. The
estimated fair value of and our obligation under these guarantees, both at inception and as of June 30, 2010, were not significant. As a result we have not
recorded any obligation associated with these guarantees at June 30, 2010.
Subsidiaries of Fund I have 21 loans secured by individual assets with amounts
outstanding in the aggregate of $436,259,000, with varying maturity dates (or dates after
which the loans can be prepaid), ranging from October 2011 to September 2016. These
mortgage loans are secured by the underlying real estate. The mortgage loans are payable
by the subsidiaries of Fund I with operating cash flow or disposition proceeds from the
underlying real estate. We have not guaranteed the debt of Fund I, nor do we have any
obligation to fund this debt should Fund I be unable to do so.
In addition, as part of the formation of Fund I, we have provided to one of the limited
partners a guarantee. The guarantee provides that if, upon final liquidation of Fund I,
the total amount of all distributions to that partner during the life of Fund I (whether
from operating cash flow or property sales) does not equal a minimum of the total capital
contributions made by that partner, then we will pay the partner an amount equal to the
shortfall, but in no event more than 10% of the total capital contributions made by the
partner (maximum of approximately $7,500,000 as of June 30, 2010). As of June 30, 2010, the
expected realizable value of the real estate assets owned by Fund I is considered adequate
to cover such potential payment to that partner under the expected Fund I liquidation
scenario. The estimated fair value of, and our obligation under this guarantee, both at
inception and as of June 30, 2010 was not significant and therefore we have not recorded
any obligation for this guarantee as of June 30, 2010.
As of June 30, 2010, subsidiaries of Fund II have three loans secured by individual
assets with amounts outstanding in the aggregate of $82,865,000 with varying maturity
dates (or dates after which the loans can be prepaid), ranging from June 2017 to June
2019. During the three months ended June 30, 2010, two subsidiaries of Fund II each
obtained a separate fixed rate secured note, one for $42,600,000 with a 5.26% fixed
interest rate with a maturity of May 2017 and the other for $18,750,000 with a variable
interest rate with a maturity of June 2016. As of June 30, 2010, Fund II also has
$1,500,000 outstanding under a credit facility that matures in December 2011 assuming the
exercise of a one year extension by Fund II. The mortgage loans are payable by the
subsidiaries of Fund II with operating cash flow or disposition proceeds from the
underlying real estate, and the credit facility is payable by Fund II and is secured by
capital commitments. We have not guaranteed, beyond our proportionate share of capital
commitments supporting the credit facility of Fund II, the debt of Fund II, nor do we have
any obligation to fund this debt should Fund II be unable to do so.
In addition, as part of the formation of Fund II, we have provided to one of the limited
partners a guarantee. The guarantee provides that if, upon final liquidation of Fund II,
the total amount of all distributions to that partner during the life of Fund II (whether
from operating cash flow or property sales) does not equal a minimum of the total capital
contributions made by that partner, then we will pay the partner an amount equal to the
shortfall, but in no event more than 10% of the total capital contributions made by the
partner (maximum of approximately $1,470,000 as of June 30, 2010). As of June 30, 2010,
the expected realizable value of the real estate assets owned by Fund II is considered
adequate to cover such potential payment to that partner under the expected Fund II
liquidation scenario. The estimated fair value of, and our obligation under this
guarantee, both at inception and as of June 30, 2010 was not significant and therefore we
have not recorded any obligation for this guarantee as of June 30, 2010.
Each individual mortgage loan of Fund I or Fund II was made to a special purpose,
single asset subsidiary of the Funds. Each mortgage loan provides that it is the
obligation of the respective subsidiary only, except under exceptional circumstances (such
as fraud or misapplication of funds) in which case the respective fund could also have
obligations with respect to the mortgage loan. In no event do the mortgage loans provide
for recourse against investors in the Funds, including against us or our wholly owned
subsidiaries that invest in the Funds. Similarly, in no event are investors in Fund II obligated with respect to the credit facility for Fund II except with
respect to their capital commitment to Fund II. A default by a fund or a fund subsidiary
on any loan to it would not constitute a default under any of our loans or any loans of our
other non-fund subsidiaries or affiliates. If either the Funds or a subsidiary of one of
the Funds were unable to meet its obligations under a loan, the value of our investment in
that fund would likely decline and we might also be more likely to be obligated under the
guarantee we provided to one of the fund partners in each fund as described above. If
either of the Funds or a subsidiary of one of the Funds were unable to meet its obligations
under a loan, we and/or the other investors might evaluate whether it was in our respective
interests to voluntarily support the fund through additional equity contributions and/or
take other actions to avoid a default under a loan or the consequences of a default (such
as foreclosure of a fund asset).
In the future, in the event either of the Funds were unable to meet their obligations under
a loan, we cannot predict at this time whether we would provide any voluntary support, or
take any other action, as any such action would depend on a variety of factors, including
the amount of support required and the possibility that such support could enhance the
return of either of the Funds and/or our returns by providing time for performance to
improve.
MVP I, LLC, the entity that owns Avalon at Mission Bay North II, has a loan secured by
the underlying real estate assets of the community for $105,000,000. The loan is a fixed
rate, interest-only note bearing interest at 6.02%, maturing in December 2015. We have
not guaranteed the debt of MVP I, LLC, nor do we have any obligation to fund this debt
should MVP I, LLC be unable to do so.
Avalon Del Rey Apartments, LLC has a loan secured by the underlying real estate assets
of the community for $45,506,000 maturing in April 2016. The variable rate loan had an
interest rate of 3.69% at June 30, 2010. We have not guaranteed the debt of Avalon Del Rey
Apartments, LLC, nor do we have any obligation to fund this debt should Avalon Del Rey
Apartments, LLC be unable to do so.
Aria at Hathorne Hill, LLC is a joint venture in which we have a non-managing member
interest. The LLC is developing for-sale town homes in Danvers, Massachusetts. The LLC
has a variable rate loan for $1,860,000 at an interest rate of 4.19% that matured in June
2010. As of June 30, 2010, the amounts under this borrowing have not been repaid, and the
venture is negotiating an extension or refinancing of the amounts outstanding. The lender
has not to date declared an event of default with respect to the note or required the
venture to pay a default rate of interest. Although we bear no responsibility to repay the
amounts outstanding, we have the right to cure any event of default by the venture.
In 2007 we entered into a non-cancelable commitment (the Commitment) to acquire
parcels of land in Brooklyn, New York for an aggregate purchase price of approximately
$111,000,000. Under the terms of the Commitment, we are closing on the various parcels
over a period determined by the sellers ability to execute unrelated purchase
transactions and achieve deferral of gains for the land sold under this Commitment.
However, under no circumstances will the Commitment extend beyond 2011, at which time
either we or the seller can compel execution of the remaining transactions. At June 30,
2010, we have an outstanding commitment to purchase the remaining land for approximately
$51,500,000.
Total
Number of
capitalized
apartment
cost (1)
Construction
Initial
Estimated
Estimated
homes
($ millions)
start
occupancy(2)
completion
stabilization(3)
1
New York, NY
631
$
305.4
Q4 2007
Q4 2009
Q4 2010
Q2 2011
2
Walnut Creek, CA
422
151.7
Q3 2008
Q2 2010
Q1 2011
Q3 2011
3
Norwalk, CT
311
85.4
Q3 2008
Q2 2010
Q2 2011
Q4 2011
4
Bellevue, WA
397
126.1
Q4 2008
Q2 2010
Q2 2011
Q4 2011
5
Northborough, MA
219
35.7
Q4 2009
Q1 2010
Q4 2010
Q2 2011
6
West Long Branch, NJ
180
28.1
Q4 2009
Q3 2010
Q1 2011
Q3 2011
7
Rockville Centre, NY
349
110.7
Q1 2010
Q3 2011
Q3 2012
Q1 2013
2,509
$
843.1
(1)
Total capitalized cost includes all capitalized costs projected to be or actually
incurred to develop the respective Development Community, determined in accordance with GAAP,
including land acquisition costs, construction costs, real estate taxes, capitalized interest
and loan fees, permits, professional fees, allocated development overhead and other regulatory
fees. Total capitalized cost for communities identified as having joint venture ownership,
either during construction or upon construction completion, represents the total projected
joint venture contribution amount.
(2)
Future initial occupancy dates are estimates. There can be no assurance that we will pursue
to completion any or all of these proposed developments.
(3)
Stabilized operations is defined as the earlier of (i) attainment of 95% or greater
physical occupancy or (ii) the one-year anniversary of completion of development.
(4)
This community is being financed in part by third-party, tax-exempt and taxable debt.
Total cost
Number of
($ millions)
Estimated
Estimated
apartment
Pre-redevelopment
Total capitalized
Reconstruction
reconstruction
restabilized
homes
cost
cost(1)
start
completion
operations(2)
1.
San Francisco, CA
154
25.3
30.6
Q4 2007
Q4 2010
Q2 2011
2.
400
71.0
94.4
Q3 2008
Q3 2010
Q1 2011
3.
456
63.0
80.9
Q2 2009
Q4 2011
Q2 2012
4.
512
30.2
49.9
Q2 2009
Q1 2012
Q3 2012
5.
195
27.7
33.8
Q3 2009
Q4 2010
Q2 2011
6.
235
36.5
44.0
Q4 2009
Q1 2011
Q3 2011
7.
245
17.7
26.8
Q2 2010
Q4 2011
Q2 2012
2,197
$
271.4
$
360.4
(1)
Total capitalized cost includes all capitalized costs projected to be or actually incurred
to redevelop the respective Redevelopment Community, including land acquisition costs,
construction costs, real estate taxes, capitalized interest and loan fees, permits,
professional fees, allocated development overhead and other regulatory fees, all as determined
in accordance with GAAP.
(2)
Restabilized operations is defined as the earlier of (i) attainment of 95% or greater
physical occupancy or (ii) the one-year anniversary of completion of redevelopment.
(3)
The Company commenced the redevelopment of Avalon at Prudential Center in Boston, MA and
Crowne Ridge in San Rafael, CA during the second quarter 2010 for an
estimated total capitalized
cost of $35.4 million. The redevelopment of these communities is primarily focused on the
exterior and/or common area and is not expected to have a material impact on community
operations, including occupancy, or the expected future level of rental revenue. These
communities are therefore included in the Established Community portfolio and not classified
as Redevelopment Communities.
Development Rights
Total
Estimated
capitalized
number
cost
Location
of homes
($ millions) (1)
1.
204
$
57
2.
100
31
3.
91
18
4.
444
120
5.
82
18
6.
164
47
7.
354
80
8.
173
65
9.
266
60
10.
220
52
11.
396
169
12.
180
97
13.
160
51
14.
115
27
15.
200
41
16.
140
32
17.
861
443
18.
486
145
19.
130
25
20.
424
100
21.
338
87
22.
309
57
23.
295
142
24.
272
81
25.
249
54
26.
240
57
27.
210
44
28.
226
48
7,329
$
2,248
(1)
Total capitalized cost includes all capitalized costs incurred to date (if any) and
projected to be incurred to develop the respective community, determined in accordance with
GAAP, including land acquisition costs, construction costs, real estate taxes, capitalized
interest and loan fees, permits, professional fees, allocated development overhead and other
regulatory fees.
Inflation and Deflation
our potential development, redevelopment, acquisition or disposition of communities;
the timing and cost of completion of apartment communities under construction,
reconstruction, development or redevelopment;
the timing of lease-up, occupancy and stabilization of apartment communities;
the pursuit of land on which we are considering future development;
the anticipated operating performance of our communities;
cost, yield, revenue, NOI and earnings estimates;
our declaration or payment of distributions;
our joint venture and discretionary fund activities;
our policies regarding investments, indebtedness, acquisitions, dispositions,
financings and other matters;
our qualification as a REIT under the Internal Revenue Code;
the real estate markets in Northern and Southern California and markets in
selected states in the Mid-Atlantic, Midwest, New England, Metro New York/New
Jersey and Pacific Northwest regions of the United States and in general;
the availability of debt and equity financing;
interest rates;
general economic conditions including the recent economic downturn; and
trends affecting our financial condition or results of operations.
we may fail to secure development opportunities due to an inability to reach
agreements with third-parties to obtain land at attractive prices or to obtain
desired zoning and other local approvals;
we may abandon or defer development opportunities for a number of reasons,
including changes in local market conditions which make development less
desirable, increases in costs of development, increases in the cost of capital or
lack of capital availability, resulting in losses;
construction costs of a community may exceed our original estimates;
we may not complete construction and lease-up of communities under development
or redevelopment on schedule, resulting in increased interest costs and
construction costs and a decrease in our expected rental revenues;
occupancy rates and market rents may be adversely affected by competition and
local economic and market conditions which are beyond our control;
financing may not be available on favorable terms or at all, and our cash
flows from operations and access to cost effective capital may be insufficient
for the development of our pipeline which could limit our pursuit of
opportunities;
our cash flows may be insufficient to meet required payments of principal and
interest, and we may be unable to refinance existing indebtedness or the terms of
such refinancing may not be as favorable as the terms of existing indebtedness;
we may be unsuccessful in our management of Fund I, Fund II or the REIT
vehicles that are used with each respective Fund; and
we may be unsuccessful in managing changes in our portfolio composition.
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes to our exposures to market
risk since December 31, 2009.
Item 4.
Controls and Procedures
(a)
Evaluation of disclosure controls and procedures.
The Company carried out an evaluation under the supervision and with the
participation of the Companys management, including the Companys Chief
Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operation of the Companys disclosure controls and procedures
as of June 30, 2010. Based upon that evaluation, the Chief Executive
Officer and Chief Financial Officer concluded that the Companys
disclosure controls and procedures are effective to ensure that
information required to be disclosed by the Company in the reports it
files or submits under the Exchange Act is recorded, processed, summarized
and reported, within the time periods specified in the Securities and
Exchange Commissions rules and forms.
We continue to review and document our disclosure controls and procedures,
including our internal controls and procedures for financial reporting,
and may from time to time make changes aimed at enhancing their
effectiveness and to ensure that our systems evolve with our business.
(b)
Changes in internal controls over financial reporting.
None.
Item 1.
Legal Proceedings
As previously reported, on August 13, 2008 the U.S. Attorneys Office for the
Southern District of New York filed a civil lawsuit against the Company and the
joint venture (CVP I, LLC) in which it has an interest that owns Avalon Chrystie
Place. The lawsuit alleges that Avalon Chrystie Place was not designed and
constructed in accordance with the accessibility requirements of the Fair Housing
Act. The Company designed and constructed Avalon Chrystie Place with a view to
compliance with New York Citys Local Law 58, which for more than 20 years has been
New York Citys code regulating the accessible design and construction of
apartments. After the filing of its answer and affirmative defenses, during the
fourth quarter of 2009 the plaintiff served the Company with discovery requests
relating to communities owned by the Company nationwide. The Company objected to
these discovery requests as being overly broad, as the plaintiffs complaint made
factual allegations with regard to Avalon Chrystie Place only. A magistrate judge
agreed with the Company and limited discovery to Avalon Chrystie Place. The
plaintiff is appealing the magistrate judges ruling. Due to the preliminary
nature of the Department of Justice matter, including whether the scope of their
suit will be extended to other properties, we cannot predict or determine the
outcome of that matter, nor is it reasonably possible to estimate the amount of
loss, if any, that would be associated with an adverse decision or settlement.
In addition to the outstanding litigation described above, we are involved in
various other claims and/or administrative proceedings that arise in the ordinary
course of our business.
While no assurances can be given, we do not believe that
any of these other outstanding litigation matters, individually or in the
aggregate, will have a material adverse effect on our operations.
Item 1a.
Risk Factors
In addition to the other information set forth in this report, you should carefully consider
the risk factors which could materially affect our business, financial condition or future
results discussed in our Form 10-K in Part I, Item 1a. Risk Factors. The risks described in
our Form 10-K are not the only risks that could affect the Company. Additional risks and
uncertainties not currently known to us or that we currently deem to be immaterial also may
materially adversely affect our business, financial condition and/or operating results in the
future. There have been no material changes to our risk factors since December 31, 2009.
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
None.
Issuer Purchases of Equity Securities
(d)
Maximum Dollar
(c)
Amount that May
(a)
Total Number of
Yet be Purchased
Total Number
Shares Purchased
Under the Plans or
of Shares
(b)
as Part of Publicly
Programs
Purchased
Average Price
Announced Plans
(in thousands)
Period
(1)
Paid per Share
or Programs
(2)
156
$
90.48
$
200,000
6,049
$
104.37
$
200,000
$
200,000
(1)
Reflects shares surrendered to the Company in connection with vesting
of restricted stock or exercise of stock options as payment of taxes or as
payment of exercise price.
(2)
As disclosed in our Form 10-Q for the quarter ended March
31, 2008, represents amounts remaining under the Companys $500,000,000
Stock Repurchase Program. There is no scheduled expiration date to this
program.
Item 3.
Defaults Upon Senior Securities
None.
Item 4.
(Removed and Reserved)
Item 5.
Other Information
None.
Exhibit No.
Description
Articles of Amendment and Restatement of Articles of Incorporation of AvalonBay Communities (the
Company), dated as of June 4, 1998. (Incorporated by reference to Exhibit 3(i).1 to Form 10-K of the
Company filed on March 1, 2007.)
Articles of Amendment, dated as of October 2, 1998. (Incorporated by reference to Exhibit 3(i).2 to Form
10-K of the Company filed on March 1, 2007.)
Amended and Restated Bylaws of the Company, as adopted by the Board of Directors on May 21, 2009.
(Incorporated by reference to Exhibit 3(ii).1 to Form 10-K of the Company filed on March 1, 2010.)
Amendment to Amended and Restated Bylaws of the Company, dated February 10, 2010. (Incorporated by
reference to Exhibit 3.2 to Form 8-K of the Company filed February 12, 2010.)
Indenture for Senior Debt Securities, dated as of January 16, 1998, between the Company and State Street
Bank and Trust Company, as Trustee. (Incorporated by reference to Exhibit 4.1 to Registration Statement
on form S-3 of the Company (File No. 333-139839), filed January 8, 2007.)
First Supplemental Indenture, dated as of January 20, 1998, between the Company and the State Street Bank
and Trust Company as Trustee. (Incorporated by reference to Exhibit 4.2 to Registration Statement on Form
S-3 of the Company (File No. 333-139839), filed January 8, 2007.)
Second Supplemental Indenture, dated as of July 7, 1998, between the Company and State Street Bank and
Trust Company as Trustee. (Incorporated by reference to Exhibit 4.3 to Registration Statement on Form S-3
of the Company (File No. 333-139839), filed January 8, 2007.)
Amended and Restated Third Supplemental Indenture, dated as of July 10, 2000 between the Company and State
Street Bank and Trust Company as Trustee. (Incorporated by reference to Exhibit 4.4 to Registration
Statement on Form S-3 of the Company (File No. 333-139839), filed January 8, 2007.)
Fourth Supplemental Indenture, dated as of September 18, 2006 between the Company and U.S. Bank National
Association as Trustee. (Incorporated by reference to Exhibit 4.5 to Registration Statement on Form S-3
of the Company (File No. 333-139839), filed January 8, 2007.)
Dividend Reinvestment and Stock Purchase Plan of the Company. (Incorporated by reference to Exhibit 8.1 to
Registration Statement on Form S-3 of the Company (File No. 333-87063), filed September 14, 1999.)
Amendment to the Companys Dividend Reinvestment and Stock Purchase Plan filed on December 17, 1999.
(Incorporated by reference to the Prospectus Supplement filed pursuant to Rule 424(b)(2) of the Securities
Act of 1933 on December 17, 1999.)
Amendment to the Companys Dividend Reinvestment and Stock Purchase Plan filed on March 26, 2004.
(Incorporated by reference to the Prospectus Supplement filed pursuant to Rule 424(b)(3) of the Securities
Act of 1933 on March 26, 2004.)
Exhibit No.
Description
Amendment to the Companys Dividend Reinvestment and Stock Purchase Plan filed on May 15, 2006.
(Incorporated by references to the Prospectus Supplement filed pursuant to Rule 424(b)(3) of the
Securities Act of 1933 on May 15, 2006.)
Amended and Restated Deferred Compensation Plan adopted June 28, 2010. (Filed herewith.)
Statements re: Computation of Ratios. (Filed herewith.)
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Chief Executive Officer). (Filed
herewith.)
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Chief Financial Officer). (Filed
herewith.)
Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Executive Officer and Chief
Financial Officer). (Furnished herewith.)
XBRL (Extensible Business Reporting Language). The following materials from AvalonBay Communities, Inc.s
Quarterly Report on form 10-Q for the period ended June 30, 2010, formatted in XBRL: (i) condensed
consolidated balance sheets, (ii) condensed consolidated statements of operations, (iii) condensed
consolidated statements of cash flows, and (iv) notes to consolidated financial statements.
*
*
As provided in Rule 406T of Regulation S-T,
this information is furnished and not filed for purposes of Sections 11 and 12
of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of
1934.
Date: August 6, 2010
/s/
Bryce Blair
Bryce Blair
Chief Executive Officer
(Principal Executive Officer)
Date: August 6, 2010
/s/
Thomas J. Sargeant
Thomas J. Sargeant
Chief Financial Officer
(Principal Financial Officer)
Page | ||||||
PURPOSE
|
1 | |||||
|
||||||
ARTICLE 1 - DEFINITIONS | 1 | |||||
1.1
|
Annual Bonus | 1 | ||||
1.2
|
Annual Deferral Amount | 1 | ||||
1.3
|
Base Annual Salary | 1 | ||||
1.4
|
Beneficiary | 1 | ||||
1.5
|
Beneficiary Designation Form | 2 | ||||
1.6
|
Cause | 2 | ||||
1.7
|
Claimant | 2 | ||||
1.8
|
Code | 2 | ||||
1.9
|
Compensation Committee | 2 | ||||
1.10
|
Deferral Account | 2 | ||||
1.11
|
Election Form | 2 | ||||
1.12
|
Eligible Employee | 2 | ||||
1.13
|
Employee | 2 | ||||
1.14
|
ERISA | 2 | ||||
1.15
|
Newly Eligible Participant | 2 | ||||
1.16
|
Non-Qualified Predetermined Annuity Account | 2 | ||||
1.17
|
Participant | 3 | ||||
1.18
|
Plan | 3 | ||||
1.19
|
Plan Year | 3 | ||||
1.20
|
Retirement, Retire(s) or Retired | 3 | ||||
1.21
|
Retirement Planning Committee | 3 | ||||
1.22
|
Separation from Service or Separates from Service | 3 | ||||
1.23
|
Sponsor | 3 | ||||
1.24
|
Trust | 3 | ||||
1.25
|
Unforeseeable Financial Emergency | 3 | ||||
1.26
|
Years of Service | 3 | ||||
|
||||||
ARTICLE 2 - SELECTION, ENROLLMENT, ELIGIBILITY | 4 | |||||
2.1
|
Selection by Compensation Committee | 4 | ||||
2.2
|
Enrollment Requirements | 4 | ||||
2.3
|
Eligibility; Commencement of Participation | 4 | ||||
2.4
|
Special Enrollment Rules for a Newly Eligible Participant | 4 | ||||
2.5
|
Termination of Participation and/or Deferrals | 4 | ||||
|
||||||
ARTICLE 3 - DEFERRAL COMMITMENTS/VESTING/CREDITING/TAXES | 4 | |||||
3.1
|
Minimum Deferrals Annual Deferral Amount | 4 | ||||
3.2
|
Maximum Deferral Base Annual Salary and Annual Bonus | 4 | ||||
3.3
|
Election to Defer; Effect of Election Form. | 5 | ||||
3.4
|
Withholding of Annual Deferral Amounts | 5 |
Page | ||||||
3.5
|
Vesting | 5 | ||||
3.6
|
Crediting/Debiting of Deferral Accounts | 5 | ||||
3.7
|
FICA and Other Taxes | 6 | ||||
|
||||||
ARTICLE 4 - DEATH BENEFIT | 7 | |||||
4.1
|
Death Benefit | 7 | ||||
4.2
|
Payment of Death Benefit | 7 | ||||
|
||||||
ARTICLE 5 - TERMINATION BENEFIT | 7 | |||||
5.1
|
Termination Benefit | 7 | ||||
5.2
|
Payment of Termination Benefit | 7 | ||||
5.3
|
Forfeiture if Termination for Cause | 7 | ||||
|
||||||
ARTICLE 6 - SHORT-TERM PAYOUTS | 7 | |||||
6.1
|
Short-Term Payouts | 7 | ||||
6.2
|
Grandfathered Election | 7 | ||||
6.3
|
Withdrawal for Unforeseeable Financial Emergencies | 7 | ||||
|
||||||
ARTICLE 7 - BENEFICIARY DESIGNATION | 8 | |||||
7.1
|
Beneficiary | 8 | ||||
7.2
|
Beneficiary Designation; Change; Spousal Consent | 8 | ||||
7.3
|
Acknowledgment | 8 | ||||
7.4
|
No Beneficiary Designation | 8 | ||||
7.5
|
Doubt as to Beneficiary | 8 | ||||
7.6
|
Discharge of Obligations | 9 | ||||
|
||||||
ARTICLE 8 - LEAVE OF ABSENCE | 9 | |||||
8.1
|
Leave of Absence | 9 | ||||
|
||||||
ARTICLE 9 - TERMINATION, AMENDMENT OR MODIFICATION | 9 | |||||
9.1
|
Termination | 9 | ||||
9.2
|
Amendment | 9 | ||||
9.3
|
Delegation to Retirement Planning Committee | 9 | ||||
9.4
|
Effect of Payment | 9 | ||||
|
||||||
ARTICLE 10 - ADMINISTRATION | 9 | |||||
10.1
|
Retirement Planning Committee Duties | 9 | ||||
10.2
|
Agents | 10 | ||||
10.3
|
Binding Effect of Decisions | 10 | ||||
10.4
|
Exculpation and Indemnity of Retirement Planning Committee | 10 | ||||
10.5
|
Sponsor Information | 10 | ||||
|
||||||
ARTICLE 11 - OTHER BENEFITS AND AGREEMENTS | 10 | |||||
11.1
|
Coordination with Other Benefits | 10 | ||||
|
||||||
ARTICLE 12 - CLAIMS PROCEDURES | 10 | |||||
12.1
|
Presentation of Claim | 10 | ||||
12.2
|
Notification of Decision | 11 |
(ii)
Page | ||||||
12.3
|
Review of a Denied Claim | 11 | ||||
12.4
|
Decision on Review | 12 | ||||
12.5
|
Legal Action | 12 | ||||
|
||||||
ARTICLE 13 - TRUST | 12 | |||||
13.1
|
Establishment of the Trust | 12 | ||||
13.2
|
Interrelationship of the Plan and the Trust | 12 | ||||
13.3
|
Distributions From the Trust | 12 | ||||
|
||||||
ARTICLE 14 - MISCELLANEOUS | 12 | |||||
14.1
|
Status of Plan | 12 | ||||
14.2
|
Unsecured General Creditor | 13 | ||||
14.3
|
Sponsors Liability | 13 | ||||
14.4
|
Nonassignability | 13 | ||||
14.5
|
Not a Contract of Employment | 13 | ||||
14.6
|
Furnishing Information | 13 | ||||
14.7
|
Terms | 13 | ||||
14.8
|
Captions | 14 | ||||
14.9
|
Governing Law | 14 | ||||
14.10
|
Notice | 14 | ||||
14.11
|
Successors | 14 | ||||
14.12
|
Spouses Interest | 14 | ||||
14.13
|
Validity | 14 | ||||
14.14
|
Incompetent | 14 | ||||
14.15
|
Court Order | 15 | ||||
14.16
|
Distribution in the Event of Taxation | 15 |
(iii)
2
3
4
5
6
7
8
9
10
11
12
13
14
AVALONBAY COMMUNITIES, INC.
|
||||
By: | /s/ Keri A. Shea | |||
Keri A. Shea | ||||
VP, Finance & Treasurer |
15
Six Months | Year | Year | Year | Year | ||||||||||||||||
Ended | Ended | Ended | Ended | Ended | ||||||||||||||||
June 30, 2010 | December 31, 2009 | December 31, 2008 (1) | December 31, 2007 (1) | December 31, 2006 (1) | ||||||||||||||||
Income from continuing operations before cumulative
effect of change in accounting principle
|
$ | 48,972 | $ | 76,413 | $ | 98,492 | $ | 219,364 | $ | 137,306 | ||||||||||
|
||||||||||||||||||||
(Plus):
|
||||||||||||||||||||
Equity in income of unconsolidated entities,
net of distributions received
|
2,093 | 5,475 | 6,728 | 9,532 | 7,478 | |||||||||||||||
Amortization of capitalized interest (2)
|
7,343 | 14,035 | 12,428 | 9,941 | 7,503 | |||||||||||||||
|
||||||||||||||||||||
|
||||||||||||||||||||
Earnings before fixed charges
|
$ | 58,408 | $ | 95,923 | $ | 117,648 | $ | 238,837 | $ | 152,287 | ||||||||||
|
||||||||||||||||||||
|
||||||||||||||||||||
(Plus) Fixed charges:
|
||||||||||||||||||||
Portion of rents representative
of the interest factor
|
$ | 2,907 | $ | 6,241 | $ | 5,287 | $ | 3,165 | $ | 1,410 | ||||||||||
Interest expense
|
83,999 | 150,323 | 114,910 | 92,175 | 103,910 | |||||||||||||||
Interest capitalized
|
19,491 | 48,226 | 74,621 | 73,118 | 46,388 | |||||||||||||||
Preferred dividend
|
| | 10,454 | 8,700 | 8,700 | |||||||||||||||
|
||||||||||||||||||||
|
||||||||||||||||||||
Total fixed charges (3)
|
$ | 106,397 | $ | 204,790 | $ | 205,272 | $ | 177,158 | $ | 160,408 | ||||||||||
|
||||||||||||||||||||
|
||||||||||||||||||||
(Less):
|
||||||||||||||||||||
Interest capitalized
|
19,491 | 48,226 | 74,621 | 73,118 | 46,388 | |||||||||||||||
Preferred dividend
|
| | 10,454 | 8,700 | 8,700 | |||||||||||||||
|
||||||||||||||||||||
|
||||||||||||||||||||
Earnings (4)
|
$ | 145,314 | $ | 252,487 | $ | 237,845 | $ | 334,177 | $ | 257,607 | ||||||||||
|
||||||||||||||||||||
|
||||||||||||||||||||
Ratio (4 divided by 3)
|
1.37 | 1.23 | 1.16 | 1.89 | 1.61 | |||||||||||||||
|
Six Months | Year | Year | Year | Year | ||||||||||||||||
Ended | Ended | Ended | Ended | Ended | ||||||||||||||||
June 30, 2010 | December 31, 2009 | December 31, 2008 (1) | December 31, 2007 (1) | December 31, 2006 (1) | ||||||||||||||||
Income from continuing operations before cumulative
effect of change in accounting principle
|
$ | 48,972 | $ | 76,413 | $ | 98,492 | $ | 219,364 | $ | 137,306 | ||||||||||
|
||||||||||||||||||||
(Plus):
|
||||||||||||||||||||
Equity in income of unconsolidated entities,
net of distributions received
|
2,093 | 5,475 | 6,728 | 9,532 | 7,478 | |||||||||||||||
Amortization of capitalized interest (2)
|
7,343 | 14,035 | 12,428 | 9,941 | 7,503 | |||||||||||||||
|
||||||||||||||||||||
|
||||||||||||||||||||
Earnings before fixed charges
|
$ | 58,408 | $ | 95,923 | $ | 117,648 | $ | 238,837 | $ | 152,287 | ||||||||||
|
||||||||||||||||||||
|
||||||||||||||||||||
(Plus) Fixed charges:
|
||||||||||||||||||||
Portion of rents representative
of the interest factor
|
$ | 2,907 | $ | 6,241 | $ | 5,287 | $ | 3,165 | $ | 1,410 | ||||||||||
Interest expense
|
83,999 | 150,323 | 114,910 | 92,175 | 103,910 | |||||||||||||||
Interest capitalized
|
19,491 | 48,226 | 74,621 | 73,118 | 46,388 | |||||||||||||||
|
||||||||||||||||||||
|
||||||||||||||||||||
Total fixed charges (3)
|
$ | 106,397 | $ | 204,790 | $ | 194,818 | $ | 168,458 | $ | 151,708 | ||||||||||
|
||||||||||||||||||||
|
||||||||||||||||||||
(Less):
|
||||||||||||||||||||
Interest capitalized
|
19,491 | 48,226 | 74,621 | 73,118 | 46,388 | |||||||||||||||
|
||||||||||||||||||||
|
||||||||||||||||||||
Earnings (4)
|
$ | 145,314 | $ | 252,487 | $ | 237,845 | $ | 334,177 | $ | 257,607 | ||||||||||
|
||||||||||||||||||||
|
||||||||||||||||||||
Ratio (4 divided by 3)
|
1.37 | 1.23 | 1.22 | 1.98 | 1.70 | |||||||||||||||
|
(1) | The results of operations for 2006 through 2010 have been adjusted to reflect discontinued operations for properties sold or held for sale as of June 30, 2010. | |
(2) | Represents an estimate of capitalized interest costs based on the Companys established depreciation policy and an analysis of interest costs capitalized since 1998 (the year in which AvalonBay was formed). |
1. | I have reviewed this quarterly report on Form 10-Q of AvalonBay Communities, Inc.; | ||
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | ||
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | ||
4. | The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | ||
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | ||
(c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | ||
(d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and | ||
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
/s/ Bryce Blair | ||||
Bryce Blair | ||||
Chief Executive Officer |
1. | I have reviewed this quarterly report on Form 10-Q of AvalonBay Communities, Inc.; | ||
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | ||
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | ||
4. | The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | ||
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | ||
(c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | ||
(d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and | ||
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
/s/ Thomas J. Sargeant | ||||
Thomas J. Sargeant | ||||
Chief Financial Officer |
Date: August 6, 2010 | /s/ Bryce Blair | |||
Bryce Blair | ||||
Chief Executive Officer | ||||
/s/ Thomas J. Sargeant | ||||
Thomas J. Sargeant | ||||
Chief Financial Officer | ||||