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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
Commission file number 1-12672
AVALONBAY COMMUNITIES, INC.
(Exact name of registrant as specified in its charter)
--------------------
Maryland 77-0404318
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2900 Eisenhower Avenue, Suite 300
Alexandria, Virginia 22314
(Address of principal executive offices, including zip code)
(703) 329-6300
(Registrant's telephone number, including area code)
(Former name, if changed since last report)
--------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve (12) months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past ninety (90) days.
Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
------------------------------------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date:
66,169,359 shares outstanding as of May 1, 2000
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AVALONBAY COMMUNITIES, INC.
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
PAGE
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<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of March 31, 2000 (unaudited) and
December 31,1999 (audited)...................................................................... 2
Condensed Consolidated Statements of Operations (unaudited) for the three months
ended March 31, 2000 and 1999................................................................... 3
Condensed Consolidated Statements of Cash Flows (unaudited) for the three months
ended March 31, 2000 and 1999................................................................... 4-5
Notes to Condensed Consolidated Financial Statements (unaudited)................................ 6-15
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations...................................................................................... 16-38
Item 3. Quantitative and Qualitative Disclosures About Market Risk...................................... 39
PART II - OTHER INFORMATION
Item 1. Legal Proceedings............................................................................... 39
Item 2. Changes in Securities........................................................................... 39
Item 3. Defaults Upon Senior Securities................................................................. 39
Item 4. Submission of Matters to a Vote of Security Holders............................................. 39
Item 5. Other Information............................................................................... 39
Item 6. Exhibits and Reports on Form 8-K................................................................ 39-41
Signatures............................................................................................... 42
</TABLE>
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AVALONBAY COMMUNITIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
<TABLE>
<CAPTION>
3-31-00
(unaudited) 12-31-99
----------- -------------
<S> <C> <C>
ASSETS
Real estate:
Land $ 689,279 $ 663,007
Buildings and improvements 3,019,541 2,942,866
Furniture, fixtures and equipment 89,451 82,467
----------- -----------
3,798,271 3,688,340
Less accumulated depreciation (245,012) (206,962)
----------- -----------
Net operating real estate 3,553,259 3,481,378
Construction in progress (including land) 415,335 395,187
Communities held for sale 95,009 164,758
----------- -----------
Total real estate, net 4,063,603 4,041,323
Cash and cash equivalents 8,076 7,621
Cash in escrow 9,468 8,801
Resident security deposits 14,610 14,113
Investments in unconsolidated joint ventures 10,771 10,702
Deferred financing costs, net 13,194 14,056
Deferred development costs 12,125 12,938
Participating mortgage notes 21,483 21,483
Prepaid expenses and other assets 26,786 23,625
----------- -----------
TOTAL ASSETS $ 4,180,116 $ 4,154,662
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Variable rate unsecured credit facility $ 205,000 $ 178,600
Unsecured notes 985,000 985,000
Notes payable 429,170 430,047
Dividends payable 46,887 44,139
Payables for construction 17,145 18,874
Accrued expenses and other liabilities 45,749 40,226
Accrued interest payable 14,467 28,134
Resident security deposits 25,404 23,980
----------- -----------
TOTAL LIABILITIES 1,768,822 1,749,000
----------- -----------
Minority interest of unitholders in consolidated partnerships 35,502 35,377
Stockholders' equity:
Preferred stock, $.01 par value; $25 liquidation value; 50,000,000
shares authorized at both March 31, 2000 and December 31, 1999;
18,322,700 shares outstanding at both
March 31, 2000 and 1999 183 183
Common stock, $.01 par value; 140,000,000 shares authorized at both March 31, 2000
and December 31, 1999; 65,968,309 and 65,758,009 shares outstanding at March 31,
2000 and December 31, 1999, respectively 660 658
Additional paid-in capital 2,449,648 2,442,510
Deferred compensation (5,477) (3,559)
Dividends in excess of accumulated earnings (69,222) (69,507)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 2,375,792 2,370,285
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 4,180,116 $ 4,154,662
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
2
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AVALONBAY COMMUNITIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
For the three months ended
---------------------------
3-31-00 3-31-99
--------- ----------
<S> <C> <C>
Revenue:
Rental income $ 134,785 $ 118,573
Management fees 248 339
Other income 55 34
--------- ---------
Total revenue 135,088 118,946
--------- ---------
Expenses:
Operating expenses, excluding property taxes 33,338 32,701
Property taxes 11,230 10,714
Interest expense 20,067 16,468
Depreciation 29,419 27,226
General and administrative 2,947 2,368
Non-recurring charges -- 16,524
--------- ---------
Total expenses 97,001 106,001
--------- ---------
Equity in income of unconsolidated joint ventures 694 726
Interest income 1,020 1,662
Minority interest in consolidated partnerships (539) (433)
--------- ---------
Income before gain on sale of communities 39,262 14,900
Gain on sale of communities 7,910 --
--------- ---------
Net income 47,172 14,900
Dividends attributable to preferred stock (9,945) (9,945)
--------- ---------
Net income available to common stockholders $ 37,227 $ 4,955
========= =========
Per common share:
Net income - basic $ 0.56 $ 0.08
========= =========
Net income - diluted $ 0.55 $ 0.08
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
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AVALONBAY COMMUNITIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
For the three months ended
--------------------------
3-31-00 3-31-99
-------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 47,172 $ 14,900
Adjustments to reconcile net income to cash provided
by operating activities:
Depreciation and amortization 29,419 27,226
Amortization of deferred compensation 1,248 460
Decrease (increase) in investments in unconsolidated
joint ventures (69) 164
Income allocated to minority interest in consolidated
partnerships 539 433
Gain on sale of communities (7,910) --
Decrease (increase) in cash in escrow (667) 18
Increase in resident security deposits, accrued interest on
participating mortgage notes, prepaid expenses and
other assets (3,518) (3,641)
Increase (decrease) in accrued expenses, other liabilities and accrued
interest payable (5,907) 11,496
-------- ---------
Net cash provided by operating activities 60,307 51,056
-------- ---------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Decrease in construction payables (1,729) (8,024)
Proceeds from sale of communities, net of selling costs 29,325 12,991
Purchase and development of real estate (72,392) (127,598)
-------- ---------
Net cash used in investing activities (44,796) (122,631)
-------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock 3,974 7,428
Dividends paid (44,139) (43,323)
Proceeds from sale of unsecured notes -- 125,000
Payment of deferred financing costs -- (797)
Repayments of notes payable (877) (838)
Net borrowings under (repayments of) unsecured facility 26,400 (6,000)
Distributions to minority partners (414) (195)
-------- ---------
Net cash provided by (used in) financing activities (15,056) 81,275
-------- ---------
Net increase in cash 455 9,700
Cash and cash equivalents, beginning of period 7,621 8,890
-------- ---------
Cash and cash equivalents, end of period $ 8,076 $ 18,590
======== =========
Cash paid during period for interest, net of amount capitalized $ 31,801 $ 21,903
======== =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
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Supplemental disclosures of non-cash investing and financing activities (dollars
in thousands):
During the three months ended March 31, 1999, 17,598 units of limited
partnership were presented for redemption to the DownREIT partnership that
issued such units and were acquired by the Company for an equal number of shares
of the Company's common stock. During the three months ended March 31, 2000,
7,048 units of limited partnership were presented for redemption to the DownREIT
partnership that issued such units and were acquired by the Company for an equal
number of shares of the Company's common stock.
Common and preferred dividends declared but not paid as of March 31, 2000 and
1999 totaled $46,887 and $42,688, respectively.
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AVALONBAY COMMUNITIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
1. Organization and Significant Accounting Policies
Organization and Recent Developments
AvalonBay Communities, Inc. (the "Company," which term is often used to refer to
AvalonBay Communities, Inc. together with its subsidiaries) is a Maryland
corporation that has elected to be taxed as a real estate investment trust
("REIT") under the Internal Revenue Code of 1986, as amended. The Company
focuses on the ownership and operation of upscale apartment communities in high
barrier-to-entry markets of the United States. These markets include Northern
and Southern California and selected markets in the Mid-Atlantic, Northeast,
Midwest and Pacific Northwest regions of the country.
At March 31, 2000, the Company owned or held a direct or indirect ownership
interest in 124 operating apartment communities containing 36,348 apartment
homes in twelve states and the District of Columbia, of which six communities
containing 2,496 apartment homes were under reconstruction. The Company also
owned nine communities with 2,473 apartment homes under construction and rights
to develop an additional 34 communities that, if developed as expected, will
contain an estimated 9,140 apartment homes.
During the three months ended March 31, 2000, the Company completed the
development of three new communities, Avalon Corners, Avalon Fox Mill and Avalon
Court North for a total investment of $92,400. These communities, which are
located in Stamford, Connecticut, Herndon, Virginia and Melville, New York,
contain an aggregate of 700 apartment homes.
In 1998, the Company adopted a strategy of disposing of certain assets in
markets that did not meet its long-term strategic direction and redeploying the
proceeds from such sales to help fund the Company's development and
redevelopment activities. In connection with this strategy, the Company sold one
community containing 360 apartment homes for net proceeds of approximately
$29,325 during the three months ended March 31, 2000. The net proceeds from this
disposition will be redeployed to develop and redevelop communities currently
under construction or reconstruction. Pending such redeployment, the proceeds
from the sale of this community were used to reduce amounts outstanding under
the Company's variable rate unsecured credit facility.
The interim unaudited financial statements have been prepared in accordance with
generally accepted accounting principles ("GAAP") for interim financial
information and in conjunction with the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures normally
included in financial statements required by GAAP have been condensed or omitted
pursuant to such rules and regulations. These unaudited financial statements
should be read in conjunction with the financial statements and notes included
in the Company's Annual Report on Form 10-K for the year ended December 31,
1999. The results of operations for the three months ended March 31, 2000 are
not necessarily indicative of the operating results for the full year.
Management believes the disclosures are adequate to make the information
presented not misleading. In the opinion of Management, all adjustments and
eliminations, consisting only of normal, recurring adjustments necessary for a
fair presentation of the financial statements for the interim periods, have been
included.
Presentation of Historical Financial Statements for the Three Months Ended
March 31, 1999
The financial presentation of the historical financial statements for the three
months ended March 31, 1999, has been changed from the presentation that
appeared in the Company's Form 10-Q for the three months ended March 31, 1999.
For a discussion of the change in the presentation and the reasons therefor, see
Footnote 2 to the consolidated financial statements presented in the Company's
Form 10-K for the fiscal year ended December 31, 1999.
Principles of Consolidation
The accompanying condensed consolidated financial statements include the
accounts of the Company and its wholly-owned partnerships and certain joint
venture partnerships in addition to subsidiary partnerships structured as
DownREITs. All significant intercompany balances and transactions have been
eliminated in consolidation.
6
<PAGE> 8
In each of the partnerships structured as DownREITs, either the Company or one
of the Company's wholly-owned subsidiaries is the general partner, and there are
one or more limited partners whose interest in the partnership is represented by
units of limited partnership interest. For each DownREIT partnership, limited
partners are entitled to receive distributions before any distribution is made
to the general partner. Although the partnership agreements for each of the
DownREITs are different, generally the distributions per unit paid to the
holders of units of limited partnership interests approximate the Company's
current common stock dividend per share. Each DownREIT partnership has been
structured so that it is unlikely the limited partners will be entitled to a
distribution greater than the initial distribution provided for in the
partnership agreement. The holders of units of limited partnership interest have
the right to present each unit of limited partnership interest for redemption
for cash equal to the fair market value of a share of the Company's common stock
on the date of redemption. In lieu of cash redemption of a unit by a partner, we
may elect to acquire any unit presented for redemption for one share of common
stock.
Real Estate
Significant expenditures that improve or extend the life of an asset are
capitalized. The operating real estate assets are stated at cost and consist of
land, buildings and improvements, furniture, fixtures and equipment, and other
costs incurred during their development, redevelopment and acquisition.
Expenditures for maintenance and repairs are charged to operations as incurred.
The capitalization of costs during the development of assets (including interest
and related loan fees, property taxes and other direct and indirect costs)
begins when active development commences and ends when the asset is delivered
and a final certificate of occupancy is issued. Cost capitalization during
redevelopment of apartment homes (including interest and related loan fees,
property taxes and other direct and indirect costs) begins when an apartment
home is taken out-of-service for redevelopment and ends when the apartment home
redevelopment is completed and the apartment home is placed in-service. The
accompanying condensed consolidated financial statements include a charge to
expense for unrecoverable deferred development costs related to pre-development
communities that are unlikely to be developed.
Depreciation is calculated on buildings and improvements using the straight-line
method over their estimated useful lives, which range from seven to thirty
years. Furniture, fixtures and equipment are generally depreciated using the
straight-line method over their estimated useful lives, which range from three
years (computer related equipment) to seven years.
Lease terms for apartment homes are generally one year or less. Rental income
and operating costs incurred during the initial lease-up or post-redevelopment
lease-up period are fully recognized as they accrue.
Development Costs of Software for Internal Use
The Company has entered into a formal joint venture cost sharing agreement with
another public multifamily real estate company to develop a new on-site property
management system and a leasing automation system to enable the Company to
capture, review and analyze data to a greater degree than the Company found
currently possible with third-party software products. The software development
process is currently being managed by Company employees who oversee a project
team of employees and third-party consultants. Development costs associated with
the software project include computer hardware costs, direct labor costs and
third-party consultant costs related to programming and documenting the system.
The project began in January 1998 and is expected to be fully implemented in
early 2001, although no assurance can be provided in this regard. The Company
will continue to develop these systems through the joint venture agreement and
the total cost of development will be shared equally between the Company and the
joint venture partner. Once developed, the Company and the joint venture partner
intend to use the property management and leasing systems in place of their
respective systems currently in use for which fees are generally paid to third
party vendors.
Costs associated with the project are accounted for in accordance with the
American Institute of Certified Public Accountants' Statement of Position 98-1
("SOP 98-1") "Accounting for Costs of Computer Software Developed or
7
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Obtained for Internal Use." Under SOP 98-1, costs of acquiring hardware and
costs of coding, documenting and testing the software are capitalized during the
application development stage. Following implementation, capitalized development
costs are amortized over the system's estimated useful life and other costs such
as training and application maintenance are expensed as incurred.
Earnings per Common Share
In accordance with the provisions of Statement of Financial Accounting Standards
("SFAS") No. 128, "Earnings per Share", basic earnings per share for the three
months ended March 31, 2000 and 1999 is computed by dividing earnings available
to common shares (net income less preferred stock dividends) by the weighted
average number of shares and units of limited partnership in the Company's
DownREIT partnerships that were outstanding during the period. Additionally,
other potentially dilutive common shares are considered when calculating
earnings per share on a diluted basis. The Company's basic and diluted weighted
average shares outstanding for the three months ended March 31, 2000 and 1999
are as follows:
<TABLE>
<CAPTION>
Three months ended
----------------------------------------------
3-31-00 3-31-99
-------------------- --------------------
<S> <C> <C>
Weighted average common shares
outstanding - basic 65,719,178 63,986,633
Weighted average units outstanding 969,300 876,546
-------------------- --------------------
Weighted average common shares
and units outstanding - basic 66,688,478 64,863,179
Effect of dilutive securities 489,010 350,441
-------------------- --------------------
Weighted average common shares
and units outstanding - diluted 67,177,488 65,213,620
==================== ====================
</TABLE>
Certain options to purchase shares of common stock in the amounts of 2,214,497
and 3,333,549 were outstanding during the three months ended March 31, 2000 and
1999, respectively, but were not included in the computation of diluted earnings
per share because the options' exercise prices were greater than the average
market price of the common shares.
Non-recurring Charges
In February 1999, the Company announced certain management changes including (i)
the departure of three senior officers who became entitled to severance benefits
in accordance with the terms of their employment agreements with the Company
dated as of March 9, 1998 and (ii) elimination of duplicate accounting functions
and related employee departures. The Company recorded a non-recurring charge of
approximately $16,100 in the first quarter of 1999 related to the expected costs
associated with this management realignment and certain related organizational
adjustments.
The expenses associated with the management realignment have been treated as a
non-recurring charge. The charge includes severance and benefits expenses, costs
to eliminate duplicate accounting functions and legal fees. Certain former
employees have elected to receive their severance benefits in an installment
basis for up to twelve months.
The non-recurring charge also includes Year 2000 remediation costs of $448 that
had been incurred for the three months ended March 31, 1999.
Selected information relating to the non-recurring charge is summarized below:
<TABLE>
<CAPTION>
Elimination
of duplicate
Severance accounting Legal
benefits costs fees Total
------------ ------------- --------- ------------
<S> <C> <C> <C> <C>
Total nonrecurring charge (1) $ 15,476 $ 250 $ 350 $ 16,076
Cash payments (15,476) (250) (252) (15,978)
------------ ------------- --------- ------------
Restructuring liability as of
March 31, 2000 $ -- $ -- $ 98 $ 98
============ ============= ========= ============
</TABLE>
(1) Excludes Y2K costs of $448.
8
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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.
Recently Issued Accounting Standards
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This
pronouncement establishes accounting and reporting standards requiring that
every derivative instrument be recorded on the balance sheet as either an asset
or liability measured at its fair value. SFAS No. 133 requires that changes in
the derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. In June 1999, the Financial Accounting
Standards Board issued SFAS No. 137, "Accounting for Derivative Instruments and
Hedging Activities - Deferral of the Effective date of SFAS No. 133." SFAS No.
137 delays the effective date of SFAS No. 133 for one year, to fiscal years
beginning after June 15, 2000. The Company currently plans to adopt this
pronouncement effective January 1, 2001, and will determine both the method and
impact of adoption, which is not expected to be material to the financial
statements.
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial Statements". SAB
101 provides guidance on applying generally accepted accounting principles to
revenue recognition issues in financial statements. The Company adopted SAB 101
effective with the March 31, 2000 reporting period, as required, and the
adoption did not have a material effect on the Company's condensed consolidated
financial statements.
2. Interest Capitalized
Capitalized interest associated with communities under development or
redevelopment totaled $3,494 and $7,283 for the three months ended March 31,
2000 and 1999, respectively.
3. Notes Payable, Unsecured Notes and Credit Facility
The Company's notes payable, unsecured notes and credit facility are summarized
as follows:
<TABLE>
<CAPTION>
3-31-00 12-31-99
------------- ------------
<S> <C> <C>
Fixed rate mortgage notes payable (conventional
and tax-exempt) $ 361,210 $ 362,087
Variable rate mortgage notes payable (tax-exempt) 67,960 67,960
Fixed rate unsecured notes 985,000 985,000
------------- ------------
Total notes payable and unsecured notes 1,414,170 1,415,047
Variable rate unsecured credit facility 205,000 178,600
------------- ------------
Total notes payable, unsecured notes and
credit facility $ 1,619,170 $ 1,593,647
============= ============
</TABLE>
Mortgage notes payable are collateralized by certain apartment communities and
mature at various dates from May 2001 through December 2036. The weighted
average interest rate of the Company's variable rate notes and credit facility
was 6.7% at March 31, 2000. The weighted average interest rate of the Company's
fixed rate notes (conventional and tax-exempt) was 6.8% at March 31, 2000.
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The maturity schedule for the Company's unsecured notes is as follows:
<TABLE>
<CAPTION>
Year of
Maturity Principal Interest Rate
- ------------------------------------------------------------------------------
<S> <C> <C>
2002 $100,000 7.375%
2003 $50,000 6.25%
$100,000 6.5%
2004 $125,000 6.58%
2005 $100,000 6.625%
$50,000 6.5%
2006 $150,000 6.8%
2007 $110,000 6.875%
2008 $50,000 6.625%
2009 $150,000 7.5%
</TABLE>
The Company's unsecured notes contain a number of financial and other covenants
with which the Company must comply, including, but not limited to, limits on the
aggregate amount of total and secured indebtedness the Company may have on a
consolidated basis and limits on the Company's required debt service payments.
The Company has a $600,000 variable rate unsecured credit facility (the
"Unsecured Facility") with Morgan Guaranty Trust Company of New York, Union Bank
of Switzerland and Fleet National Bank, serving as co-agents for a syndicate of
commercial banks. The Unsecured Facility bears interest at a spread over the
London Interbank Offered Rate ("LIBOR") based on rating levels achieved on the
Company's unsecured notes and on a maturity selected by the Company. The current
stated pricing is LIBOR plus 0.6% per annum (6.7% at March 31, 2000). In
addition, the Unsecured Facility includes a competitive bid option (which allows
banks that are part of the lender consortium to bid to make loans to the Company
at a rate that is lower than the stated rate provided by the Unsecured Facility)
for up to $400,000. The Company is subject to certain customary covenants under
the Unsecured Facility, including, but not limited to, maintaining certain
maximum leverage ratios, a minimum fixed charges coverage ratio, minimum
unencumbered assets and equity levels and restrictions on paying dividends in
amounts that exceed 95% of the Company's Funds from Operations, as defined
therein. The Unsecured Facility matures in July 2001 and has two, one-year
extension options.
4. Stockholders' Equity
The following summarizes the changes in stockholders' equity for the three
months ended March 31, 2000:
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<TABLE>
<CAPTION>
Dividends
Additional in excess of Total
Preferred Common paid-in Deferred accumulated stockholders'
stock stock capital compensation earnings equity
--------- ------ ---------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Stockholders' equity, December 31, 1999 $183 $658 $2,442,510 $(3,559) $(69,507) $ 2,370,285
Dividends declared to common and
preferred stockholders -- -- -- -- (46,887) (46,887)
Issuance of common stock -- 2 7,138 (3,166) -- 3,974
Amortization of deferred compensation -- -- 1,248 -- 1,248
Net income -- -- -- -- 47,172 47,172
---- ---- ---------- ------- -------- -----------
Stockholders' equity, March 31, 2000 $183 $660 $2,449,648 $(5,477) $(69,222) $ 2,375,792
==== ==== ========== ======= ======== ===========
</TABLE>
During the three months ended March 31, 2000, the Company issued 12,790 common
stock shares in connection with stock options exercised, 86,849 shares through
the Company's Dividend Reinvestment Plan, 7,048 shares to acquire operating
partnership units from a third party, 9,797 shares in connection with the
Company's Employee Stock Purchase Plan and 93,816 shares in connection with
restricted stock grants to employees.
5. Investments in Unconsolidated Joint Ventures
At March 31, 2000, the Company's investments in unconsolidated joint ventures
consisted of a 50% general partnership interest in Falkland Partners, a 49%
general partnership interest in Avalon Run and a 50% limited liability company
membership interest in Avalon Grove. Also during 1999, the Company entered into
a joint venture to develop an on-site property management system and a leasing
automation system; the Company's joint venture interest consists of a 60%
limited liability company membership interest. The following is a combined
summary of the financial position of these joint ventures as of the dates
presented.
<TABLE>
<CAPTION>
3-31-00
(unaudited) 12-31-99
----------- --------
<S> <C> <C>
Assets:
Real estate, net $ 93,897 $ 94,644
Other assets 11,056 10,666
-------- --------
Total assets $104,953 $105,310
======== ========
Liabilities and partners' equity:
Mortgage notes payable $ 26,000 $ 26,000
Other liabilities 6,260 6,479
Partners' equity 72,693 72,831
-------- --------
Total liabilities and partners' equity $104,953 $105,310
======== ========
</TABLE>
The following is a combined summary of the operating results of these joint
ventures for the periods presented:
<TABLE>
<CAPTION>
Three months ended
(Unaudited)
----------------------
3-31-00 3-31-99
------- -------
<S> <C> <C>
Rental income $ 5,263 $ 5,088
Operating and other expenses (1,462) (1,379)
Mortgage interest expense (238) (184)
Depreciation and amortization (777) (772)
------- -------
Net income $ 2,786 $ 2,753
======= =======
</TABLE>
11
<PAGE> 13
6. Communities Held for Sale
During 1998, the Company completed a strategic planning effort resulting in a
decision to pursue a disposition strategy for certain assets in markets that did
not meet the Company's long-term strategic direction. In connection with this
strategy, the Company solicits competing bids from unrelated parties for
individual assets, and considers the sales price and tax ramifications of each
proposal. In connection with this strategy, the Company sold one community
during the three months ended March 31, 1999. Similarly, one community, Avalon
Chase, a 360 apartment home community located in Marlton, New Jersey was sold in
connection with this strategy during the three months ended March 31, 2000. The
net proceeds of approximately $29,325 from the sale of Avalon Chase will be
redeployed to development and redevelopment communities. Pending such
redeployment, the proceeds from the sale of this community were primarily used
to reduce amounts outstanding under the Company's Unsecured Facility.
Management intends to market additional communities for sale during the
remainder of 2000. However, there can be no assurance that such assets will be
sold, or that such sales will prove to be beneficial to the Company. The assets
targeted for sale include land, buildings and improvements and furniture,
fixtures and equipment, and are recorded at the lower of cost or fair value less
estimated selling costs. The Company has not recognized a write-down in its real
estate to arrive at net realizable value, although there can be no assurance
that the Company can sell these assets for amounts that equal or exceed its
estimates of net realizable value. At March 31, 2000, total real estate, net of
accumulated depreciation, subject to sale totaled $95,009. Certain individual
assets are secured by mortgage indebtedness which may be assumed by the
purchaser or repaid by the Company from the net sales proceeds.
The Company's Condensed Consolidated Statements of Operations include net income
of the communities held for sale at March 31, 2000 of $1,821 and $820 for the
three months ended March 31, 2000 and 1999, respectively.
7. Segment Reporting
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," 131 established standards for reporting financial and descriptive
information about operating segments in annual financial statements. Operating
segments are defined as components of an enterprise about which separate
financial information is available that is evaluated regularly by the chief
operating decision maker, or decision making group, in deciding how to allocate
resources and in assessing performance. The Company's chief operating decision
making group consists primarily of the Company's senior officers.
The Company's reportable operating segments include Stable Communities,
Developed Communities and Redeveloped Communities:
- Stable Communities are communities that 1) have attained
stabilized occupancy levels (at least 95% occupancy) and operating
costs since the beginning of the prior calendar year (these
communities are also known as Established Communities); or 2) were
acquired after the beginning of the previous calendar year but
were stabilized in terms of occupancy levels and operating costs
at the time of acquisition, and remained stabilized throughout the
end of the current calendar year. Stable Communities do not
include communities where planned redevelopment or development
activities have not yet commenced. The primary financial measure
for this business segment is Net Operating Income ("NOI"), which
represents total revenue less operating expenses and property
taxes. With respect to Established Communities, an additional
financial measure of performance is NOI for the current year as
compared against the prior year and against current year budgeted
NOI. With respect to other Stable Communities, performance is
primarily based on reviewing growth in NOI for the current period
as compared against prior periods within the calendar year and
against current year budgeted NOI.
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<PAGE> 14
- Developed Communities are communities which completed development
during the prior calendar year of presentation. The primary
financial measure for this business segment is Operating Yield
(defined as NOI divided by total capitalized costs). Lease-up
activities immediately following the completion of development
adversely impact operating yields, as stabilized occupancy and
operating costs are not yet reached. Performance of Developed
Communities is based on comparing Operating Yields against
projected yields as determined by Management prior to undertaking
the development activity.
- Redeveloped Communities are communities that completed
redevelopment during the prior calendar year of presentation.
The primary financial measure for this business segment is
Operating Yield. Lease-up activities immediately following the
completion of redevelopment adversely impact operating yields,
as stabilized occupancy and operating costs are not yet reached.
Performance for Redeveloped Communities is based on comparing
Operating Yields against projected yields as estimated by
Management prior to undertaking the redevelopment activity.
Other communities owned by the Company which are not included in the above
segments are communities that were under development or redevelopment at any
point in time during the applicable calendar year as well as communities held
for sale. The primary performance measure for these assets depends on the stage
of development or redevelopment of the community. While under development or
redevelopment, Management monitors actual construction costs against budgeted
costs as well as economic occupancy. The primary performance measure for
communities held for sale is NOI.
Net Operating Income for each community is generally equal to that community's
contribution to Funds from Operations ("FFO"), except that interest expense
related to indebtedness secured by an individual community and depreciation and
amortization on non-real estate assets are not included in the community's NOI
although such expenses decrease the Company's consolidated net income and FFO.
The segments are classified based on the individual community's status as of the
beginning of the given calendar year. Therefore, each year the composition of
communities within each business segment is adjusted. Accordingly, the amounts
between years are not directly comparable.
In addition to reporting segments based on the above property types, Management
currently reviews its operating segments by geographic regions, including
Northern and Southern California, Pacific Northwest, Northeast, Mid-Atlantic and
Midwest regions. Because the various locations within each individual region
have similar economic and other characteristics, Management finds it useful to
review the performance of the Company's communities in those locations on a
regional, aggregated basis.
The accounting policies applicable to the operating segments described above are
the same as those described in the summary of significant accounting policies.
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<TABLE>
<CAPTION>
Stable Developed Redeveloped
Communities Communities Communities Other Total
------------ ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
For the three months ended 3/31/00
- ----------------------------------
Segment Results
Total revenue $ 75,276 $ 23,866 $ 8,757 $ 26,805 $ 134,704
Net Operating Income $ 54,893 $ 17,936 $ 5,755 $ 18,002 $ 96,586
Gross real estate $2,146,801 $655,564 $292,655 $ 912,691 $4,007,711
Operating Yield 10.2% 10.9% 7.9%
Non-allocated operations
Total revenue $ -- $ -- $ -- $ 384 $ 384
Net Operating Income $ -- $ -- $ -- $ 306 $ 306
Gross real estate $ -- $ -- $ -- $ 307,550 $ 307,550
Total, AvalonBay
Total revenue $ 75,276 $ 23,866 $ 8,757 $ 27,189 $ 135,088
Net Operating Income $ 54,893 $ 17,936 $ 5,755 $ 18,308 $ 96,892
Gross real estate $2,146,801 $655,564 $292,655 $1,220,241 $4,315,261
For the three months ended 3/31/99
- ----------------------------------
Segment Results
Total revenue $ 87,580 $ 7,721 $ 7,044 $ 16,092 $ 118,437
Net Operating Income $ 60,544 $ 5,766 $ 4,917 $ 9,356 $ 80,583
Gross real estate $2,569,690 $225,171 $231,864 $ 911,271 $3,937,996
Operating Yield 9.4% 10.2% 8.5%
Non-allocated operations
Total revenue $ -- $ -- $ -- $ 509 $ 509
Net Operating Income $ -- $ -- $ -- $ 450 $ 450
Gross real estate $ -- $ -- $ -- $ 172,958 $ 172,958
Total, AvalonBay
Total revenue $ 87,580 $ 7,721 $ 7,044 $ 16,601 $ 118,946
Net Operating Income $ 60,544 $ 5,766 $ 4,917 $ 9,806 $ 81,033
Gross real estate $2,569,690 $225,171 $231,864 $1,084,229 $4,110,954
</TABLE>
Operating expenses as reflected on the Condensed Consolidated Statements of
Operations include $6,372 and $5,502 for the three months ended March 31, 2000
and 1999, respectively, of property management overhead costs that are not
allocated to individual communities. These costs are not reflected in NOI as
shown in the above tables. The amount reflected for "Communities held for sale"
on the Condensed Consolidated Balance Sheets is net of $6,646 of accumulated
depreciation as of March 31, 2000.
8. Subsequent Events
In March 2000, the Company and Gilbert M. Meyer, the Company's Executive
Chairman of the Board, announced that Mr. Meyer would retire from his management
position on May 10, 2000, the date of the Company's 2000 Annual Meeting of
Stockholders ("Annual Meeting"). Although his role as an executive officer of
the Company ceased on that date, Mr. Meyer was reelected as a director of the
Company at the Annual Meeting. In connection with his retirement, Mr. Meyer
entered into various agreements with the Company. Pursuant to a consulting
agreement,
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<PAGE> 16
Mr. Meyer will serve as a consultant to the Company for three years following
his retirement. The Company will pay to Mr. Meyer an annual fee of $1,395 in
accordance with the terms of the consulting agreement, and will also pay to Mr.
Meyer 5,880 shares of common stock during each of the first four calendar
quarters of the consulting period. During the period of the consultant
agreement, Mr. Meyer has agreed that he will not participate, as an officer,
employee, consultant or in any other manner, in the affairs of a publicly-traded
real estate investment trust or publicly-traded real estate company that is
significantly involved in the ownership, operation, management or rental of
multifamily apartment homes. Mr. Meyer also agreed, in a retirement agreement,
to more restrictive non-competition provisions that will apply for as long as he
is a director of the Company.
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<PAGE> 17
ITEM 2. MANAGMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Forward-Looking Statements
This Form 10-Q, including the footnotes to the Company's condensed consolidated
financial statements, contains "forward-looking statements" as that term is
defined under the Private Securities Litigation Reform Act of 1995. You can
identify forward-looking statements by our use of the words "believe," "expect,"
"anticipate," "intend," "estimate," "assume," and other similar expressions in
this Form 10-Q, that predict or indicate future events and trends or that do not
relate to historical matters. In addition, information concerning the following
are forward-looking statements:
- the timing and cost of completion of apartment communities under
construction, reconstruction, development or redevelopment;
- the timing of lease-up and occupancy of apartment communities;
- the pursuit of land on which we are considering future
development;
- cost, yield and earnings estimates;
- the development, implementation and use of management information
systems.
We cannot assure the future results or outcome of the matters described in these
statements; rather, these statements merely reflect our current expectations of
the approximate outcomes of the matters discussed. You should not rely on
forward-looking statements because they involve known and unknown risks,
uncertainties and other factors, some of which are beyond our control. These
risks, uncertainties and other factors may cause our actual results, performance
or achievements to differ materially from the anticipated future results,
performance or achievements expressed or implied by these forward-looking
statements. Some of the factors that could cause our actual results, performance
or achievements to differ materially from those expressed or implied by these
forward-looking statements include, but are not limited to, the following:
- we may be unsuccessful in managing our current growth in the
number of apartment communities and the related growth of our
business operations;
- our previous or possible future expansion into new geographic
market areas may not produce financial results that are consistent
with our historical performance;
- we may fail to secure development opportunities due to an
inability to reach agreements with third parties or to obtain
desired zoning and other local approvals;
- we may abandon development opportunities for a number of reasons,
including changes in local market conditions which make
development less desirable, increases in costs of development and
increases in the cost of capital;
- 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 expense, construction costs and rental revenues that are
lower than originally expected;
- occupancy rates and market rents may be adversely affected by
local economic and market conditions which are beyond our control;
- financing may not be available on favorable terms or at all, and
our cash flow from operations and access to cost effective capital
may be insufficient for the development of our pipeline and could
limit our pursuit of opportunities;
- our cash flow 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; and
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<PAGE> 18
- the development, implementation and use of new management
information systems may cost more than anticipated or may be
delayed for a number of reasons, including unforeseen
technological or integration issues.
You should read our unaudited condensed consolidated financial statements and
notes included in this report and the audited financial statements for the year
ended December 31, 1999 and the notes included in our annual report on Form 10-K
in conjunction with the following discussion. These forward-looking statements
represent our estimates and assumptions only as of the date of this report. We
do not undertake to update these forward-looking statements, and you should not
rely upon them after the date of this report.
Business Description and Community Information
AvalonBay is a Maryland corporation that has elected to be treated as a real
estate investment trust, or REIT, for federal income tax purposes. We focus on
the ownership and operation of upscale apartment communities (which we consider
to be apartment communities that generally command among the highest rents in
their submarkets) in high barrier-to-entry markets of the United States. This is
because we believe that the limited new supply of upscale apartment homes in
these markets helps achieve more predictable cash flows. These barriers-to-entry
generally include a difficult and lengthy entitlement process with local
jurisdictions and dense in-fill locations where zoned and entitled land is in
limited supply. These markets are located in Northern and Southern California
and selected states in the Mid-Atlantic, Northeast, Midwest and Pacific
Northwest regions of the country.
We are a fully-integrated real estate organization with in-house expertise in
the following areas:
- acquisition;
- development and redevelopment;
- construction and reconstruction;
- financing;
- marketing;
- leasing and management; and
- information technologies.
With our expertise and in-house capabilities, we believe we are well-positioned
to continue to pursue opportunities to develop and acquire upscale apartment
homes in our target markets. Our ability to pursue attractive opportunities,
however, may be constrained by capital market conditions that limit the
availability of cost effective capital to finance these activities. Recently, we
have limited our acquisition activity as compared to prior years due to these
capital constraints, and we expect to direct most of our invested capital to new
developments and redevelopments, rather than acquisitions, for the foreseeable
future. See "Liquidity and Capital Resources" and "Future Financing and Capital
Needs."
We believe apartment communities present an attractive investment opportunity
compared to other real estate investments because a broad potential resident
base results in relatively stable demand during all phases of a real estate
cycle. We intend, subject to the availability of cost-effective capital, to
pursue appropriate new investments, including both new developments and
acquisitions of communities, in markets where constraints to new supply exist
and where new household formations have out-paced multifamily permit activity in
recent years.
Our real estate investments as of May 1, 2000 consist primarily of stabilized
operating apartment communities as well as communities in various stages of the
development and redevelopment cycle and land or land options held for
development. We classify these investments into the following categories:
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<PAGE> 19
<TABLE>
<CAPTION>
Number of Number of
communities apartment homes
----------- ---------------
<S> <C> <C>
Current Communities 124 36,348
Stabilized Communities 118 33,852
Established Communities: 74 19,593
Northern California 24 6,275
Southern California 8 1,855
Mid-Atlantic 17 4,835
Northeast 18 4,773
Midwest 6 1,591
Pacific Northwest 1 264
Other Stabilized Communities: 44 14,259
Northern California 11 3,174
Southern California 6 2,180
Mid-Atlantic 6 1,829
Northeast 16 5,761
Midwest 2 624
Pacific Northwest 3 691
Lease-Up Communities -- --
Redevelopment Communities 6 2,496
Development Communities 9 2,473
Development Rights 34 9,140 (*)
</TABLE>
(*) Represents an estimate
Current Communities are apartment communities that have been completed and have
reached occupancy of at least 95%, have been complete for one year, are in the
initial lease-up process or are under redevelopment. Current Communities consist
of the following:
Stabilized Communities. Represents all Current Communities that have
completed initial lease-up by attaining physical occupancy levels of at
least 95% or have been completed for one year, whichever occurs earlier.
Stabilized Communities are categorized as either Established Communities
or Other Stabilized Communities.
- Established Communities. Represents all Stabilized Communities
owned as of January 1, 1999, with stabilized operating costs as of
January 1, 1999 such that a comparison of 1999 operating results
to 2000 operating results is meaningful. Each of the Established
Communities falls into one of the following six geographic areas:
Northern California, Southern California, Mid-Atlantic, Northeast,
Midwest and Pacific Northwest regions.
- Other Stabilized Communities. Represents Stabilized Communities as
defined above, but which became stabilized or were acquired after
January 1, 1999.
Lease-Up Communities. Represents all communities where construction has
been complete for less than one year and where occupancy has not reached
at least 95%. As of May 1, 2000, there were no lease-up communities.
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<PAGE> 20
Redevelopment Communities. Represents all communities where
substantial redevelopment has begun. Redevelopment is considered
substantial when capital invested during the reconstruction effort
exceeds the lesser of $5 million or 10% of the community's
acquisition cost.
Development Communities are communities that are under construction and
for which a final certificate of occupancy has not been received. These
communities may be partially complete and operating.
Development Rights are development opportunities in the early phase of
the development process for which we have an option to acquire land or
where we own land to develop a new community. We capitalize all related
pre-development costs incurred in pursuit of these new developments.
Of the Current Communities as of May 1, 2000, we owned:
- a fee simple, or absolute, ownership interest in 109 operating
communities, one of which is on land subject to a 149 year land
lease;
- a general partnership interest in five partnerships that each own
a fee simple interest in an operating community;
- a general partnership interest in four partnerships structured as
"DownREITs," as described more fully below, that own an aggregate
of nine communities; and
- a 100% interest in a senior participating mortgage note secured by
one community, which allows us to share in part of the rental
income or resale proceeds of the community.
We also hold a fee simple ownership interest in eight of the Development
Communities and a membership interest in a limited liability company that holds
a fee simple interest in one Development Community.
In each of the four partnerships structured as DownREITs, either AvalonBay or
one of our wholly-owned subsidiaries is the general partner, and there are one
or more limited partners whose interest in the partnership is represented by
units of limited partnership interest. For each DownREIT partnership, limited
partners are entitled to receive distributions before any distribution is made
to the general partner. Although the partnership agreements for each of the
DownREITs are different, generally the distributions per unit paid to the
holders of units of limited partnership interests approximate thecurrent
AvalonBay common stock dividend rate per share. Each DownREIT partnership has
been structured so that it is unlikely the limited partners will be entitled to
a distribution greater than the initial distribution provided for in the
partnership agreement. The holders of units of limited partnership interest have
the right to present each unit of limited partnership interest for redemption
for cash equal to the fair market value of a share of AvalonBay common stock on
the date of redemption. In lieu of cash redemption of a unit, we may elect to
acquire any unit presented for redemption for one share of our common stock. As
of March 31, 2000, there were 966,822 units outstanding. The DownREIT
partnerships are consolidated for financial reporting purposes.
At March 31, 2000, we had positioned our portfolio of Stabilized Communities,
excluding communities owned by unconsolidated joint ventures, to an average
physical occupancy level of 97.5%. Our strategy is to maximize total rental
revenue through management of rental rates and occupancy levels. Our strategy of
maximizing total rental revenue could lead to lower occupancy levels. Given the
current high occupancy level of our portfolio, we believe that any rental
revenue and net income gains from our Established Communities would be achieved
primarily through higher rental rates and the lower average operating costs per
apartment home that result from economies of scale due to national and regional
growth of our portfolio.
We elected to be taxed as a REIT for federal income tax purposes for the year
ended December 31, 1994
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<PAGE> 21
and we have not revoked that election. We were incorporated under the laws of
the State of California in 1978, and we were reincorporated in the State of
Maryland in July 1995. Our principal executive offices are located at 2900
Eisenhower Avenue, Suite 300, Alexandria, Virginia, 22314, and our telephone
number at that location is (703) 329-6300. We also maintain regional offices and
administrative or specialty offices in or near the following cities:
- San Jose, California;
- Wilton, Connecticut;
- Boston, Massachusetts;
- Chicago, Illinois;
- Los Angeles, California;
- Minneapolis, Minnesota;
- Newport Beach, California;
- New York, New York;
- Princeton, New Jersey; and
- Seattle, Washington.
Recent Developments
Sales of Existing Communities. During 1998, we completed a strategic planning
effort that resulted in our decision to increase our geographical concentration
in selected high barrier-to-entry markets where we believe we can:
- apply sufficient market and management presence to enhance revenue
growth;
- reduce operating expenses; and
- leverage management talent.
To effect this increased concentration, we adopted an aggressive capital
redeployment strategy and are selling assets in certain markets where our
current presence is limited. We intend to redeploy the proceeds from sales to
develop and redevelop communities currently under construction or
reconstruction. Pending such redeployment, we will use the proceeds from the
sale of these communities to reduce amounts outstanding under our variable rate
unsecured credit facility. Accordingly, we sold one community containing 360
apartment homes in connection with our capital redeployment strategy during the
three months ended March 31, 2000. Net proceeds from this sale totaled
$29,325,000. We intend to dispose of additional assets as described more fully
under "Future Financing and Capital Needs."
Development, Redevelopment and Acquisition Activities. During the three months
ended March 31, 2000, we completed the development of three new communities,
Avalon Corners, Avalon Fox Mill and Avalon Court North, for a total investment
of $92,400,000. These communities, which are located in Stamford, Connecticut,
Herndon, Virginia and Melville, New York, contain an aggregate of 700 apartment
homes.
We also acquired one land parcel located in Darien, Connecticut during the first
quarter of 2000 on which construction has not yet begun. We expect to develop
one new community containing a total of 189 apartment homes on this parcel. The
total investment in this community, including land acquisition costs of
$5,474,000, is projected to be approximately $37,000,000.
During the first quarter of 2000, we began the redevelopment of two communities,
Avalon at Cortez Hill and Lakeside. These communities are located in San Diego,
California and Burbank, California, respectively. The total projected investment
in redevelopment for these communities (i.e., excluding acquisition costs),
which contain 1,041 apartment homes, is $29,400,000.
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<PAGE> 22
The development and redevelopment of communities involves risks that the
investment will fail to perform in accordance with expectations. See "Risks of
Development and Redevelopment" for our discussion of these and other risks
inherent in developing or redeveloping communities.
In March 2000, AvalonBay and Gilbert M. Meyer, AvalonBay's Executive
Chairman of the Board, announced that Mr. Meyer would retire from his management
position on May 10, 2000, the date of AvalonBay's 2000 Annual Meeting of
Stockholders. Although his role as an executive officer of AvalonBay ceased on
that date, Mr. Meyer was reelected as a director of AvalonBay at the May 2000
Annual Meeting of Stockholders. In connection with his retirement, Mr. Meyer
entered into various agreements with AvalonBay. Pursuant to a consulting
agreement, Mr. Meyer will serve as a consultant to AvalonBay for three years
following his retirement. AvalonBay will pay to Mr. Meyer an annual fee of
$1,395,000 in accordance with the terms of the consulting agreement, and will
also pay to Mr. Meyer 5,880 shares of common stock during each of the first four
calendar quarters of the consulting period. During the period of the consultant
agreement, Mr. Meyer has agreed that he will not participate, as an officer,
employee, consultant or in any other manner, in the affairs of a publicly-traded
real estate investment trust or publicly-traded real estate company that is
significantly involved in the ownership, operation, management or rental of
multifamily apartment homes. Mr. Meyer also agreed, in a retirement agreement,
to more restrictive non-competition provisions that will apply for as long as he
is a director of AvalonBay.
Results of Operations
Historically, the changes in our operating results from period-to-period have
been primarily the result of increases in the number of apartment homes owned.
Where appropriate, period-to-period comparisons of the number of occupied
apartment homes are made on a weighted average basis to adjust for changes in
the number of apartment homes during the period. For Stabilized Communities,
excluding communities owned by unconsolidated joint ventures, all occupied
apartment homes are included in the calculation of weighted average occupied
apartment homes for each reporting period. For communities in the initial
lease-up phase, only apartment homes of communities that are completed and
occupied are included in the weighted average number of occupied apartment homes
calculation for each reporting period.
The financial presentation of our historical financial statements for the three
months ended March 31, 1999, has been changed from the presentation that
appeared in AvalonBay's Form 10-Q for the three months ended March 31, 1999. For
a discussion of the change in the presentation and the reasons therefor, see
Footnote 2 to the consolidated financial statements presented in AvalonBay's
Form 10-K for the fiscal year ended December 31, 1999.
A comparison of our operating results for the three months ended March 31, 2000
and March 31, 1999 follows.
Net income available to common stockholders increased $32,272,000 to $37,227,000
for the three months ended March 31, 2000 compared to $4,955,000 for the
comparable period of the preceding year. Adjusting for non-recurring charges and
gain on sale of communities, net income available to common stockholders
increased by $7,838,000 for the three months ended March 31, 2000 compared to
the comparable period of the preceding year. The increase in net income, as
adjusted, for the three months ended March 31, 2000 is primarily attributable to
additional operating income from newly developed or redeveloped communities as
well as growth in operating income from Established Communities.
Rental income increased $16,212,000 (13.7%) to $134,785,000 for the three months
ended March 31, 2000 compared to $118,573,000 for the comparable period of the
preceding year. The increase is primarily due to the addition of newly
developed, redeveloped and acquired apartment homes, partially offset by the
sale of communities during the three months ended March 31, 2000 and 1999.
Overall Portfolio - The $16,212,000 increase in rental income is
primarily due to an increase in the weighted average monthly rental
income per occupied apartment home offset by a decrease in the weighted
average number of occupied apartment homes. The weighted average number
of occupied apartment homes decreased from 34,291 apartment homes for the
three months ended March 31, 1999 to 33,746 apartment homes for the three
months ended March 31, 2000 primarily
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<PAGE> 23
as a result of the sale of communities during 1999, offset by the
development, redevelopment and acquisition of new communities. For the
three months ended March 31, 2000, the weighted average monthly revenue
per occupied apartment home increased $184 (16.1%) to $1,328 compared to
$1,144 for the comparable period of the preceding year, which is
primarily attributable to the development of new apartment communities
with higher average rents and the sale of communities with lower average
rents. These newly developed apartment communities were funded in part
from the proceeds of communities sold in markets where rental rates are
lower.
Established Communities - Rental revenue increased $4,678,000 (6.6%) for
the three months ended March 31, 2000 compared to the comparable period
of the preceding year. The increase is due to market conditions that
allowed for higher average rents and higher economic occupancy levels.
For the three months ended March 31, 2000, weighted average monthly
revenue per occupied apartment home increased $64 (5.2%) to $1,314
compared to $1,250 for the comparable period of the preceding year. The
average economic occupancy increased from 96.1% for the three months
ended March 31, 1999 to 97.5% for the three months ended March 31, 2000.
Management fees decreased $91,000 (26.8%) to $248,000 for the three months ended
March 31, 2000 compared to $339,000 for the comparable period of the preceding
year. The decrease is primarily attributable to a decline in the number of third
party communities that we manage from five communities at March 31, 1999 to two
communities at March 31, 2000. We anticipate that management and development
fees will increase over the next several years due to the receipt of fees
pursuant to joint venture arrangements.
Operating expenses, excluding property taxes increased $637,000 (1.9%) to
$33,338,000 for the three months ended March 31, 2000 compared to $32,701,000
for the comparable period of the preceding year.
Overall Portfolio - The increase for the three months ended March 31,
2000 is primarily due to the addition of newly developed, redeveloped and
acquired apartment homes, partially offset by the sale of communities
during the three months ended March 31, 2000 and 1999. Maintenance,
insurance and other costs associated with Development and Redevelopment
Communities are expensed as communities move from the initial
construction and lease-up phase to the stabilized operating phase.
Established Communities - Operating expenses increased $422,000 (3.0%) to
$14,370,000 for the three months ended March 31, 2000 compared to
$13,948,000 for the comparable period of the preceding year. The net
change is the result of higher redecorating, maintenance, payroll,
insurance and administrative costs offset by lower utility and marketing
costs.
Property taxes increased $516,000 (4.8%) to $11,230,000 for the three months
ended March 31, 2000 compared to $10,714,000 for the comparable period of the
preceding year.
Overall Portfolio - The increase for the three months ended March 31,
2000 is primarily due to the addition of newly developed, redeveloped or
acquired apartment homes, partially offset by the sale of communities
during the three months ended March 31, 2000 and 1999. Property taxes on
Development and Redevelopment Communities are expensed as communities
move from the initial construction and lease-up phase to the stabilized
operating phase.
Established Communities - Property taxes decreased $310,000 (4.9%) to
$6,013,000 for the three months ended March 31, 2000 compared to
$6,323,000 for the comparable period of the preceding year. The decrease
is primarily a result of revised base year tax assessments for previously
renovated communities which resulted in supplemental taxes that were
lower than those originally projected.
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<PAGE> 24
Interest expense increased $3,599,000 (21.9%) to $20,067,000 for the three
months ended March 31, 2000 compared to $16,468,000 for the comparable period of
the preceding year. The increase is primarily attributable to a decrease in
capitalized interest and secondarily to the issuance of unsecured notes during
1999. This reflects our strategy to mitigate the risk of floating rate debt in a
rising interest rate environment by repaying floating rate debt under the
unsecured credit facility (with relatively lower current interest rates) with
longer dated fixed rate unsecured debt that has a higher current interest rate.
Depreciation increased $2,193,000 (8.1%) to $29,419,000 for the three months
ended March 31, 2000 compared to $27,226,000 for the comparable period of the
preceding year. The increase is primarily due to the addition of newly
developed, redeveloped and acquired apartment homes, partially offset by the
sale of communities during the three months ended March 31, 2000 and 1999.
General and administrative increased $579,000 (24.5%) to $2,947,000 for the
three months ended March 31, 2000 compared to $2,368,000 for the comparable
period of the preceding year. The increase is the result of additional overhead
from both the hiring of one officer and the recognition of expense in the
current period for an existing senior officer whose salary was previously
capitalized when he served the Company in a different capacity. Cost savings
attained from a management reorganization in the first quarter of 1999 partially
offset the increase in expense.
Equity in income of unconsolidated joint ventures decreased $32,000 (4.4%) to
$694,000 for the three months ended March 31, 2000 compared to $726,000 for the
comparable period of the preceding year. The decrease is primarily attributable
to costs incurred related to the formation of the joint venture to develop our
on-site property management system. Equity in income of unconsolidated joint
ventures represents our share of income from joint ventures.
Interest income decreased $642,000 (38.6%) to $1,020,000 for the three months
ended March 31, 2000 from $1,662,000 for the comparable period of the preceding
year. The decrease is primarily attributable to the sale of the Fairlane Woods
participating mortgage note that was sold in the fourth quarter of 1999.
Gain on sale of communities of $7,910,000 for the three months ended March 31,
2000 was attributable to the sale of one community in conjunction with the
disposition strategy we implemented in the third quarter of 1998.
Capitalization of Fixed Assets and Community Improvements
Our policy with respect to capital expenditures is generally to capitalize only
non-recurring expenditures. We capitalize improvements and upgrades only if the
item:
- exceeds $15,000;
- extends the useful life of the asset; and
- is not related to making an apartment home ready for the next
resident.
Under this policy, virtually all capitalized costs are non-recurring, as
recurring make-ready costs are expensed as incurred. Recurring make-ready costs
include the following:
- carpet and appliance replacements;
- floor coverings;
- interior painting; and
- other redecorating costs.
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<PAGE> 25
We capitalize purchases of personal property, such as computers and furniture,
only if the item is a new addition and the item exceeds $2,500. We generally
expense purchases of personal property made for replacement purposes. The
application of these policies for the three months ended March 31, 2000 resulted
in non-revenue generating capitalized expenditures for Stabilized Communities of
approximately $12 per apartment home. For the three months ended March 31, 2000,
we charged to maintenance expense, including carpet and appliance replacements,
a total of approximately $8,631,000 for Stabilized Communities or $272 per
apartment home. We anticipate that capitalized costs per apartment home will
gradually increase as the average age of our communities increases.
Liquidity and Capital Resources
Liquidity. The primary source of liquidity is our cash flows from operations.
Operating cash flows have historically been determined by:
- the number of apartment homes;
- rental rates;
- occupancy levels; and
- our expenses with respect to these apartment homes.
The timing, source and amount of cash flows provided by financing activities and
used in investing activities are sensitive to the capital markets environment,
particularly to changes in interest rates that are charged to us because changes
in interest rates affect our decision as to whether to issue debt securities,
borrow money and invest in real estate. Thus, changes in the capital markets
environment affect our plans for the undertaking of construction and development
as well as acquisition activity.
Cash and cash equivalents increased from $7,621,000 at March 31, 1999 to
$8,076,000 at March 31, 2000 due to the excess of cash provided by operating
activities over cash used in investing and financing activities.
Net cash provided by operating activities increased by $9,251,000 from
$51,056,000 for the three months ended March 31, 1999 to $60,307,000 for
the three months ended March 31, 2000. The increase is primarily from
additional operating cash flow from Established Communities as well as
the development and redevelopment of new communities, offset by the loss
of cash flow from communities sold during the three months ended March
31, 2000 and 1999.
Net cash used in investing activities decreased by $77,835,000 from
$122,631,000 for the three months ended March 31, 1999 to $44,796,000 for
the three months ended March 31, 2000. This decrease in expenditures
reflects a reduction in development, redevelopment and acquisition
activity offset by increased proceeds from the sale of communities. The
decrease in acquisitions is attributable to a shift in our investment
focus away from acquisitions and towards development opportunities that
offer higher projected yields, primarily in response to the lack of
available properties that meet our increased yield requirements combined
with a decrease in the availability of cost-effective capital.
Net cash provided by financing activities decreased by $96,331,000 from
$81,275,000 for the three months ended March 31, 1999 to $15,056,000 used
in financing activities for the three months ended March 31, 2000. The
decrease is primarily due to our development and redevelopment activities
increasingly being funded through the sale of existing communities as
opposed to incurring debt or selling equity, which reflects a reduction
in our use of debt financing as opposed to other sources of financing in
response to market conditions.
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<PAGE> 26
We regularly review our short and long-term liquidity needs and the adequacy of
Funds from Operations, as defined below, and other expected liquidity sources to
meet these needs. We believe our principal short-term liquidity needs are to
fund:
- normal recurring operating expenses;
- debt service payments;
- the distributions required with respect to our series of preferred
stock;
- the minimum dividend payments required to maintain our REIT
qualification under the Internal Revenue Code of 1986; and
- development and redevelopment activity in which we are currently
engaged.
We anticipate that we can fully satisfy these needs from a combination of cash
flows provided by operating activities and borrowing capacity under the
unsecured revolving credit facility. We anticipate that we can satisfy any
short-term liquidity needs not satisfied by current operating cash flows from
our unsecured revolving credit facility.
We believe our principal long-term liquidity needs are the reduction of medium
and long-term debt, as well as the procurement of long-term debt to refinance
construction and other development related short-term debt. We anticipate that
no significant portion of the principal of any indebtedness will be repaid prior
to maturity. If we do not have funds on hand sufficient to repay our
indebtedness, it will be necessary for us to refinance this debt. This
refinancing may be accomplished through additional debt financing, which may be
collateralized by mortgages on individual communities or groups of communities,
by uncollateralized private or public debt offerings or by additional equity
offerings. We also anticipate having significant retained cash flow in each year
so that when a debt obligation matures, some or all of each maturity can be
satisfied from this retained cash. Although we believe we will have the capacity
to meet our long-term liquidity needs, we cannot assure you that additional debt
financing or debt or equity offerings will be available or, if available, that
they will be on terms we consider satisfactory.
Capital Resources. We intend to match the long-term nature of our real estate
assets with long-term cost effective capital to the extent permitted by
prevailing market conditions. We follow a focused strategy to help facilitate
uninterrupted access to capital. This strategy includes:
- Hiring, training and retaining associates with a strong resident
service focus, which should lead to higher rents, lower turnover
and reduced operating costs;
- Managing, acquiring and developing upscale communities in dense
locations where the availability of zoned and entitled land is
limited to provide consistent, sustained earnings growth;
- Operating in markets with growing demand, as measured by household
formation and job growth, and high barriers-to-entry. We believe
these characteristics generally combine to provide a favorable
demand-supply balance, which we believe will create a favorable
environment for future rental rate growth while protecting
existing and new communities from new supply. We expect this
strategy to result in a high level of quality to the revenue
stream;
- Maintaining a conservative capital structure, largely comprised of
equity, and with modest, cost-effective leverage. We generally
avoid secured debt except in order to obtain low cost, tax-exempt
debt. We believe that such a structure should promote an
environment whereby current credit ratings levels can be
maintained;
- Following accounting practices that provide a high level of
quality to reported earnings; and
- Providing timely, accurate and detailed disclosures to the
investment community.
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<PAGE> 27
We believe these strategies provide a disciplined approach to capital access to
help position AvalonBay to fund portfolio growth.
Capital markets conditions have decreased our access to cost effective capital.
See "Future Financing and Capital Needs" for a discussion of our response to the
current capital markets environment.
The following is a discussion of specific capital transactions, arrangements and
agreements.
Unsecured Facility
Our unsecured revolving credit facility is furnished by a consortium of banks
and provides up to $600,000,000 in short-term credit. We pay these banks an
annual facility fee of $900,000 in equal quarterly installments. The unsecured
facility bears interest at varying levels tied to the London Interbank Offered
Rate (LIBOR) based on ratings levels achieved on our unsecured notes and on a
maturity selected by us. The current stated pricing is LIBOR plus 0.6% per
annum. The unsecured facility matures in July 2001, however we have two one-year
extension options. Therefore, subject to certain conditions, we may extend the
maturity to July 2003. A competitive bid option is available for borrowings of
up to $400,000,000. This option allows banks that are part of the lender
consortium to bid to provide us loans at a rate that is lower than the stated
pricing provided by the unsecured facility. The competitive bid option may
result in lower pricing if market conditions allow. Pricing under the
competitive bid option resulted in average pricing of LIBOR plus 0.5% for
amounts most recently borrowed under the competitive bid option. At May 1, 2000,
$246,500,000 was outstanding, $83,142,000 was used to provide letters of credit
and $270,358,000 was available for borrowing under the unsecured facility. We
intend to use borrowings under the unsecured facility for:
- capital expenditures;
- construction, development and redevelopment costs;
- acquisitions of developed or undeveloped communities;
- credit enhancement for tax-exempt bonds; and
- working capital purposes.
Interest Rate Protection Agreements
We are not a party to any long-term interest rate agreements, other than
interest rate protection and swap agreements on approximately $190 million of
our variable rate tax-exempt indebtedness. We intend, however, to evaluate the
need for long-term interest rate protection agreements as interest rate market
conditions dictate, and we have engaged a consultant to assist in managing our
interest rate risks and exposure.
Financing Commitments/Transactions Completed
During January 2000, we entered into a joint venture agreement with an entity
controlled by Multi-Employer Development Partners ("MEDP") to develop Avalon on
the Sound, a 412 apartment high rise community in New Rochelle, New York, with
total capitalized costs estimated to be $92,130,000. The terms of the limited
liability company operating agreement contemplate a long-term capital structure
comprised of 60% equity and 40% debt. Equity contributions will be funded 25% by
AvalonBay and 75% by MEDP. Construction financing that converts to long-term
financing following completion of construction will provide the debt capital.
Operating cash flow will be distributed 25% to AvalonBay and 75% to MEDP until
each receives a 9% return on invested capital for three consecutive months.
Thereafter, operating cash flow will be distributed equally to AvalonBay and
MEDP. Upon a sale to a third party, cash will be distributed first to each
partner until capital contributions are recovered. Thereafter, sales proceeds
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<PAGE> 28
will be distributed based upon achievement of certain internal rate of return
levels. Distributions that result in an internal rate of return to MEDP and the
Company of 12-15% are made 40% to AvalonBay and 60% to MEDP. Thereafter, sales
proceeds will be distributed equally to AvalonBay and MEDP. After three years
following completion of construction, buy-sell provisions are in effect.
AvalonBay will receive construction, development and management fees for
services rendered to the joint venture.
Future Financing and Capital Needs
As of March 31, 2000, we had 18 new communities under construction either by us
or by unaffiliated third parties with whom we have entered into forward purchase
commitments. As of March 31, 2000, a total estimated cost of $237,449,000
remained to be invested in these communities. In addition, we had six other
communities under reconstruction, for which an estimated $62,412,000 remained to
be invested as of March 31, 2000.
Substantially all of the capital expenditures necessary to complete the
communities currently under construction and reconstruction will be funded from:
- the remaining capacity under our $600,000,000 unsecured credit
facility;
- the net proceeds from sales of existing communities;
- retained operating cash; and/or
- the issuance of debt or equity securities.
We expect to continue to fund deferred development costs related to future
developments from retained operating cash and borrowings under the unsecured
facility. We believe these sources of capital will be adequate to take the
proposed communities to the point in the development cycle where construction
can begin.
We have observed and been impacted by a reduction in the availability of cost
effective capital since the third quarter of 1998. We cannot assure you that
cost effective capital will be available to meet future expenditures required to
begin planned reconstruction activity or the construction of the Development
Rights. Before planned reconstruction activity or the construction of a
Development Right begins, we intend to arrange adequate capital sources to
complete these undertakings, although we cannot assure you that we will be able
to obtain such financing. In the event that financing cannot be obtained, we may
have to abandon Development Rights, write-off associated pursuit costs and/or
forego reconstruction activity. In such instances, we will not realize the
increased revenues and earnings that we expected from such pursuits, and the
related write-off of costs will increase current period expenses and reduce
Funds from Operations.
To meet the balance of our liquidity needs, we will need to arrange additional
capacity under our existing unsecured facility, sell additional existing
communities and/or issue additional debt or equity securities. While we believe
we have the financial position to expand our short term credit capacity and
support our capital markets activity, we cannot assure you that we will be
successful in completing these arrangements, offerings or sales. The failure to
complete these transactions on a cost-effective basis could have a material
adverse impact on our operating results and financial condition, including the
abandonment of deferred development costs and a resultant charge to earnings.
During 1998, we determined that we would pursue a disposition strategy for
certain assets in markets that did not meet our long-term strategic direction.
Under this program, we solicit competing bids from unrelated parties for these
individual assets, and consider the sales price and tax ramifications of each
proposal. In connection with this disposition program, we have disposed of one
community since January 1, 2000. The net proceeds from the sale of this asset
were approximately $29,325,000. We intend to
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<PAGE> 29
actively seek buyers for the remaining communities held for sale. However, we
cannot assure you that these assets can be sold on terms that we consider
satisfactory.
The remaining assets that we have identified for disposition include land,
buildings and improvements and furniture, fixtures and equipment. Total real
estate, net of accumulated depreciation, of all communities identified for sale
at March 31, 2000 totaled $95,009,000. Certain individual assets are secured by
mortgage indebtedness which may be assumed by the purchaser or repaid from our
net sales proceeds. Our Condensed Consolidated Statements of Operations include
net income from the communities held for sale of $1,821,000 for the three months
ended March 31, 2000 and $820,000 for the three months ended March 31, 1999.
Because the proceeds from the sale of communities are used initially to reduce
borrowings under our unsecured facility, the immediate effect of a sale of a
community is to reduce Funds from Operations. This is because the yield on a
community that is sold exceeds the interest rate on the borrowings that are
repaid from such net proceeds. Therefore, changes in the number and timing of
dispositions, and the redeployment of the resulting net proceeds, may have a
material and adverse effect on our Funds from Operations.
Debt Maturities
The table on the following page details debt maturities for the next five years,
excluding the unsecured facility:
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<PAGE> 30
(Dollars in thousands)
<TABLE>
<CAPTION>
ALL-IN PRINCIPALG BALANCE OUTSTANDING
INTEREST MATURITY ----------------------
Community Rate (1) Date 12-31-99 3-31-00
- ------------------------------- ----------- ---------- ----------- ----------
TAX-EXEMPT BONDS
FIXED RATE
<S> <C> <C> <C> <C>
Canyon Creek 6.48% Jun-25 $ 37,535 $ 37,400
Waterford 5.88% Aug-14 33,100 33,100
City Heights 5.80% Jun-25 20,263 20,202
CountryBrook 7.87% Mar-12 19,264 19,184
Villa Mariposa 5.88% Mar-17 18,300 18,300
Sea Ridge 6.48% Jun-25 17,026 16,965
Foxchase I 5.88% Nov-07 16,800 16,800
Barrington Hills 6.48% Jun-25 12,843 12,797
Foxchase II 5.88% Nov-07 9,600 9,600
Fairway Glen 5.88% Nov-07 9,580 9,580
Crossbrook 6.48% Jun-25 8,273 8,244
Larkspur Canyon 5.50% Jun-25 7,445 7,423
Avalon View 7.55% Aug-24 18,795 18,715
Avalon at Lexington 6.56% Feb-25 14,602 14,539
Avalon Knoll 6.95% Jun-26 13,580 13,534
Avalon at Dulles 7.04% Jul-24 12,360 12,360
Avalon Fields 7.57% May-27 11,756 11,720
Avalon at Symphony Glen 7.06% Jul-24 9,780 9,780
Avalon West 7.73% Dec-36 8,632 8,619
Avalon Landing 6.85% Jun-26 6,721 6,698
----------- ----------
306,255 305,560
VARIABLE RATE
Avalon Devonshire Dec-25 27,305 27,305
Avalon at Fairway Hills I Jun-26 11,500 11,500
Laguna Brisas Mar-09 10,400 10,400
Avalon Ridge May-26 18,755 18,755
----------- ----------
67,960 67,960
CONVENTIONAL LOANS:
FIXED RATE
$100 Million Unsecured Notes 7.375% Sep-02 100,000 100,000
$100 Million Unsecured Notes 6.625% Jan-05 100,000 100,000
$110 Million Unsecured Notes 6.875% Dec-07 110,000 110,000
$50 Million Unsecured Notes 6.25% Jan-03 50,000 50,000
$50 Million Unsecured Notes 6.50% Jan-05 50,000 50,000
$50 Million Unsecured Notes 6.625% Jan-08 50,000 50,000
$100 Million Unsecured Notes 6.50% Jul-03 100,000 100,000
$150 Million Unsecured Notes 6.80% Jul-06 150,000 150,000
$125 Million Medium Term Notes 6.58% Feb-04 125,000 125,000
$150 Million Medium Term Notes 7.50% Jul-09 150,000 150,000
Governor's Square 7.65% Aug-04 13,923 13,886
The Arbors 7.25% May-04 12,870 12,870
Gallery Place 7.31% May-01 11,272 11,216
Avalon Walk II 8.93% Nov-04 12,541 12,482
Avalon Pines 8.00% Dec-03 5,226 5,196
----------- ----------
1,040,832 1,040,650
VARIABLE RATE-NONE -- --
----------- ----------
TOTAL INDEBTEDNESS - EXCLUDING CREDIT FACILITY $1,415,047 $1,414,170
=========== ==========
</TABLE>
<TABLE>
<CAPTION>
-------- -------- --------- --------- --------- ---------
Community 2000 2001 2002 2003 2004 Thereafter
- ------------------------------- -------- -------- --------- --------- --------- ---------
TAX-EXEMPT BONDS
FIXED RATE
<S> <C> <C> <C> <C> <C> <C>
Canyon Creek $ 419 $ 594 $ 637 $ 684 $ 733 $ 34,333
Waterford -- -- -- -- -- 33,100
City Heights 189 268 288 308 331 18,818
CountryBrook 250 357 386 417 451 17,323
Villa Mariposa -- -- -- -- -- 18,300
Sea Ridge 190 270 289 310 332 15,574
Foxchase I -- -- -- -- -- 16,800
Barrington Hills 144 203 218 234 251 11,747
Foxchase II -- -- -- -- -- 9,600
Fairway Glen -- -- -- -- -- 9,580
Crossbrook 88 126 136 146 157 7,591
Larkspur Canyon 69 98 105 112 121 6,918
Avalon View 250 350 373 397 425 16,920
Avalon at Lexington 192 271 288 307 326 13,155
Avalon Knoll 141 200 214 230 246 12,503
Avalon at Dulles -- -- -- -- -- 12,360
Avalon Fields 111 157 169 180 193 10,910
Avalon at Symphony Glen -- -- -- -- -- 9,780
Avalon West 40 57 61 65 70 8,326
Avalon Landing 72 101 108 116 124 6,177
-------- -------- --------- --------- --------- ---------
2,155 3,052 3,272 3,506 3,760 289,815
VARIABLE RATE
Avalon Devonshire -- -- -- -- -- 27,305
Avalon at Fairway Hills I -- -- -- -- -- 11,500
Laguna Brisas -- -- -- -- -- 10,400
Avalon Ridge -- -- -- -- -- 18,755
-------- -------- --------- --------- --------- ---------
-- -- -- -- -- 67,960
CONVENTIONAL LOANS:
FIXED RATE
$100 Million Unsecured Notes -- -- 100,000 -- -- --
$100 Million Unsecured Notes -- -- -- -- -- 100,000
$110 Million Unsecured Notes -- -- -- -- -- 110,000
$50 Million Unsecured Notes -- -- -- 50,000 -- --
$50 Million Unsecured Notes -- -- -- -- -- 50,000
$50 Million Unsecured Notes -- -- -- -- -- 50,000
$100 Million Unsecured Notes -- -- -- 100,000 -- --
$150 Million Unsecured Notes -- -- -- -- -- 150,000
$125 Million Medium Term Notes -- -- -- -- 125,000 --
$150 Million Medium Term Notes -- -- -- -- -- 150,000
Governor's Square 116 165 178 193 13,234 --
The Arbors -- -- -- -- 12,870 --
Gallery Place 174 11,042 -- -- -- --
Avalon Walk II 182 264 288 315 11,433 --
Avalon Pines 91 131 142 4,832 -- --
-------- -------- --------- --------- --------- ---------
563 11,602 100,608 155,340 162,537 610,000
VARIABLE RATE-NONE -- -- -- -- -- --
-------- -------- --------- --------- --------- ---------
TOTAL INDEBTEDNESS - EXCLUDING CREDIT FACILITY $ 2,718 $ 14,654 $ 103,880 $ 158,846 $ 166,297 $ 967,775
======== ======== ========= ========= ========= =========
</TABLE>
(1) Includes credit enhancement fees, facility fees, trustees, etc.
Inflation
Substantially all of the leases at the Current Communities are for a term of one
year or less. This may enable us to realize increased rents upon renewal of
existing leases or the beginning of new leases. Short-term leases generally
minimize our risk from the adverse effects of inflation, although these leases
generally permit residents to leave at the end of the lease term without
penalty. We believe that short-term leases combined with relatively consistent
demand allow rents, and therefore cash flow, from our portfolio of apartments to
provide an attractive inflation hedge.
Funds from Operations
We generally consider Funds from Operations, or FFO, to be an appropriate
measure of our operating performance because it helps investors understand our
ability to incur and service debt and to make capital expenditures. We believe
that to understand our operating results, FFO should be examined with net income
as presented in the Condensed Consolidated Statements of Operations included
elsewhere in this report. FFO is determined based on a definition adopted by the
Board of Governors of the National Association of Real Estate Investment
Trusts(R) (NAREIT), and is defined as:
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- net income or loss computed in accordance with generally accepted
accounting principles (GAAP), except that excluded from net income
or loss are gains or losses on sales of property and extraordinary
(as defined by GAAP) gains or losses on debt restructuring;
- plus depreciation of real estate assets; and
- after adjustments for unconsolidated partnerships and joint
ventures.
FFO does not represent cash generated from operating activities in accordance
with GAAP. Therefore it should not be considered an alternative to net income as
an indication of our performance. FFO should also not be considered an
alternative to net cash flows from operating activities as determined by GAAP as
a measure of liquidity. Additionally, it is not necessarily indicative of cash
available to fund cash needs. Further, FFO as calculated by other REITs may not
be comparable to our calculation of FFO.
For the three months ended March 31, 2000, FFO increased to $58,614,000 from
$48,896,000 for the comparable period of the preceding year. This increase is
primarily due to the completion of new development and redevelopment communities
as well as growth in earnings from Established Communities.
FFO previously reported for the three months ended March 31, 1999 excluded a
non-recurring restructuring charge of $16,524,000 in conformance with the NAREIT
definition of FFO calculations then in effect, or the original definition.
NAREIT issued a White Paper dated October 1999 that clarifies the definition of
FFO and the treatment of certain nonrecurring charges. The clarified definition
includes non-recurring charges in the calculation of FFO. Although we believe
the comparison of FFO using the original definition represents a better guide to
investors of comparable operations and growth between years, both FFO
calculations are presented below for the three months ended March 31, 2000 and
1999 (dollars in thousands):
<TABLE>
<CAPTION>
For the three months ended
----------------------------
3-31-00 3-31-99
------- -------
<S> <C> <C>
Net income $47,172 $14,900
Preferred dividends (9,945) (9,945)
Depreciation - real estate assets 28,594 26,797
Joint venture adjustments 194 187
Minority interest expense 509 433
(Gain) loss on sale of communities (7,910) --
------------- -------------
Funds from Operations - Clarified Definition (1) $58,614 $32,372
Non-recurring charges (2) -- 16,524
------------- -------------
Funds from Operations - Original Definition (3) $58,614 $48,896
============= =============
Net cash provided by operating activities $ 60,307 $ 51,056
============= =============
Net cash used in investing activities $ (44,796) $ (122,631)
============= =============
Net cash provided by (used in) financing activities $ (15,056) $ 81,275
============= =============
</TABLE>
(1) Represents Funds from Operations calculated in accordance with
NAREIT's October 1999 White Paper on FFO. Our calculation of FFO
in accordance with NAREIT's clarified definition of FFO includes
the effect on earnings of non-recurring charges for certain
management and other organizational changes and Year 2000
remediation costs.
(2) Consists of $16,076 related to management and other organizational
changes announced during 1998 and $706 for Year 2000 remediation
costs.
(3) Funds from Operations calculated based on NAREIT's definition of
FFO prior to the issuance of the October 1999 White Paper on FFO.
Previously, the effect on earnings of non-recurring charges for
certain management and other organizational changes and Year 2000
remediation costs were excluded from the calculation of FFO.
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Management Information Systems
We believe that an innovative management information systems infrastructure will
be an important element in managing our future growth. This is because timely
and accurate collection of financial and resident profile data will enable us to
maximize revenue through careful leasing decisions and financial management. We
currently employ a proprietary company-wide intranet using a digital network
with high-speed digital lines. This network connects all of our communities and
offices to central servers in Alexandria, Virginia, providing access to our
associates and to AvalonBay's corporate information throughout the country from
all locations.
We are currently engaged in the development of an innovative on-site property
management system and a leasing automation system to enable management to
capture, review and analyze data to a greater extent than is possible using
existing commercial software. We have entered into a formal joint venture
agreement, in the form of a limited liability company agreement, with United
Dominion Realty Trust, Inc., another public multifamily real estate company, to
continue development of these systems and system software, which are
collectively referred to in this discussion as the "system." The system
development process is currently managed by our employees, who have significant
related project management experience, and the employees of the joint venturer.
The actual programming and documentation of the system is being conducted by our
employees, the employees of our joint venturer and third party consultants under
the supervision of these experienced project managers. We currently expect that
the total development costs over a three-year period will be approximately $8.0
million including hardware costs and expenses, the costs of employees and
related overhead, and the costs of engaging third party consultants. These
development costs will generally be shared on an equal basis by our joint
venture partner and us, although we may fund 60% of some costs. Once developed,
we intend to use the property management system in place of current property
management information software for which we pay a license fee to third
parties, and we intend to use the leasing automation system to make the lease
application process easier for residents and more efficient for us to manage.
We currently project that the property management system will undergo an
on-site test (i.e., a "beta test") during the last half of 2000 and that the
system will be functional and implemented during early 2001.
We believe that when implemented the system will result in cost savings due to
increased data reliability and efficiencies in management time and overhead, and
that these savings will largely offset the expense associated with amortizing
the system development costs and maintaining the software. We also believe that
it is possible that other real estate companies may desire to use the system
concept and system software that we are developing and that therefore there may
be an opportunity to recover, in the future, a portion of our investment by
licensing the system to others and/or admitting one or more other real estate
companies to the joint venture. However, at the present time these potential
cost savings and ancillary revenue are speculative, and we cannot assure that
the system will provide sufficient benefits to offset the cost of development
and maintenance.
We have never before engaged in the development of systems or system software on
this scale and have never licensed a system concept or system software to
others. There are a variety of risks associated with the development of the
system, both for internal use and for potential sale or licensing to third
parties. Among the principal risks associated with this undertaking are the
following:
- we may not be able to maintain the schedule or budget that we have
projected for the development and implementation of the system;
- we may be unable to implement the system with the functionality
and efficiencies we desire on commercially reasonable terms;
- we may decide not to endeavor to license the system to other
enterprises, the system may not be attractive to other
enterprises, and we may not be able to effectively manage the
licensing of the system to other enterprises; and
31
<PAGE> 33
- the system may not provide AvalonBay with meaningful cost savings
or a meaningful source of ancillary revenues.
The occurrence of any of the events described above could prevent us from
achieving increased efficiencies, realizing revenue growth produced by ancillary
revenues or recovering our initial investment.
Natural Disasters
Many of our West Coast communities are located in the general vicinity of active
earthquake faults. In July 1998, we obtained a seismic risk analysis from an
engineering firm which estimated the probable maximum damage for each of the 60
West Coast communities that we owned at that time and for each of the five West
Coast communities under development at that time. The seismic risk analysis was
obtained for each individual community and for all of those communities
combined. To establish a probable maximum damage, the engineers first define a
severe earthquake event for the applicable geographic area, which is an
earthquake that has only a 10% likelihood of occurring over a 50-year period.
The probable maximum damage is determined as the structural and architectural
damage and business interruption loss that is estimated to have only a 10%
probability of being exceeded in the event of such an earthquake. Because a
significant number of our communities are located in the San Francisco Bay Area,
the engineers' analysis defined an earthquake on the Hayward Fault with a
Richter Scale magnitude of 7.1 as a severe earthquake with a 10% probability of
occurring within a 50-year period. The engineers then established an aggregate
probable maximum damage at that time of $113 million for the 60 West Coast
communities that we owned at that time and the five West Coast communities then
under development. The $113 million probable maximum damage for those
communities was a probable maximum level that the engineers expected to be
exceeded only 10% of the time in the event of such a severe earthquake. The
actual aggregate probable maximum damage could be higher or lower as a result of
variations in soil classifications and structural vulnerabilities. For each
community, the engineers' analysis calculated an individual probable maximum
damage as a percentage of the community's replacement cost and projected
revenues. We cannot assure you that:
- an earthquake would not cause damage or losses greater than the
probable maximum damage assessments indicate;
- future probable maximum damage levels will not be higher than the
current probable maximum damage levels described above for our
communities located on the West Coast; or
- acquisitions or developments after July 1998 will not have
probable maximum damage assessments indicating the possibility of
greater damage or losses than currently indicated.
In August 1999, we renewed our earthquake insurance, both for physical damage
and lost revenue, with respect to all communities we owned at that time and all
of the communities under development. For any single occurrence, we have in
place $75,000,000 of coverage with a five percent deductible. The five percent
deductible is subject to a minimum of $100,000 and a maximum of $25,000,000 per
occurrence. In addition, our general liability and property insurance program
provides coverage for public liability and fire damage. In the event an
uninsured disaster or a loss in excess of insured limits were to occur, we could
lose our capital invested in the affected community, as well as anticipated
future revenue from that community. We would also continue to be obligated to
repay any mortgage indebtedness or other obligations related to the community.
Any such loss could materially and adversely affect our business and our
financial condition and results of operations.
32
<PAGE> 34
Development Communities
As of March 31, 2000, we had nine Development Communities under construction. We
expect these Development Communities, when completed, to add a total of 2,473
apartment homes to our portfolio for a total capitalized cost, including land
acquisition costs, of approximately $410.9 million. Statements regarding the
future development or performance of the Development Communities are
forward-looking statements. We cannot assure you that:
- we will complete the Development Communities;
- our budgeted costs or estimates of occupancy rates will be
realized;
- our schedule of leasing start dates or construction completion
dates will be achieved; or
- future developments will realize returns comparable to our past
developments.
You should carefully review the discussion under "Risks of Development and
Redevelopment" below.
We hold a fee simple ownership interest in eight of the Development Communities
and a membership interest in a limited liability company that holds a fee simple
interest in one Development Community. The following table presents a summary of
the Development Communities:
<TABLE>
<CAPTION>
Number of Budgeted Estimated Estimated
apartment cost (1) Construction Initial completion stabilization
homes ($ millions) start occupancy (2) date date (3)
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1. Avalon Willow
Mamaroneck, NY 227 $46.8 Q2 1997 Q1 1999 Q2 2000 Q3 2000
2. Avalon Essex
Peabody, MA 154 $21.4 Q2 1999 Q2 2000 Q3 2000 Q4 2000
3. Avalon at Florham Park
Florham Park, NJ 270 $41.0 Q2 1999 Q1 2000 Q2 2001 Q4 2001
4. Avalon River Mews
Edgewater, NJ 408 $75.6 Q3 1999 Q1 2001 Q3 2001 Q1 2002
5. Avalon Haven
North Haven, CT 128 $14.4 Q3 1999 Q2 2000 Q4 2000 Q1 2001
6. Avalon Bellevue
Bellevue, WA 202 $29.9 Q4 1999 Q1 2001 Q2 2001 Q3 2001
7. Avalon at Arlington Square I
Arlington, VA 510 $69.9 Q4 1999 Q4 2000 Q4 2001 Q3 2002
8. Avalon on the Sound (4)
New Rochelle, NY 412 $92.1 Q4 1999 Q3 2001 Q4 2001 Q3 2002
9. Avalon Estates
Hull, MA 162 $19.8 Q4 1999 Q4 2000 Q2 2001 Q4 2001
-------------------------------
Total 2,473 $410.9
===============================
</TABLE>
(1) Total budgeted cost includes all capitalized costs projected to be
incurred to develop the respective Development Community, including land
acquisition costs, construction costs, real estate taxes, capitalized
interest and loan fees, permits, professional fees, allocated development
overhead and other regulatory fees determined in accordance with GAAP.
(2) Future initial occupancy dates are estimates.
(3) Stabilized operations is defined as the first full quarter of 95% or
greater occupancy after completion of construction.
(4) This community will be developed under a joint venture structure with
third party financing. AvalonBay's portion of the Budgeted Cost is
expected to be $13.3 million.
33
<PAGE> 35
Redevelopment Communities
As of March 31, 2000, we had six communities under redevelopment. We expect the
total budgeted cost to complete these Redevelopment Communities, including the
cost of acquisition and redevelopment, to be approximately $263.1 million, of
which approximately $68.1 million is the additional capital invested or expected
to be invested above the original purchase cost. Statements regarding the future
redevelopment or performance of the Redevelopment Communities are
forward-looking statements. We have found that the cost to redevelop an existing
apartment community is more difficult to budget than the cost to develop a new
community. Accordingly, we expect that actual costs may vary over a wider range
than for a new development community. We cannot assure you that we will meet our
schedules for redevelopment completion, or that we will meet our budgeted costs,
either individually or in the aggregate. See the discussion under "Risks of
Development and Redevelopment" below.
The following presents a summary of Redevelopment Communities:
<TABLE>
<CAPTION>
($ millions)
Number of --------------------------------- Estimated
apartment Acquisition Total Reconstruction Reconstruction restabilized
homes cost cost (1) start completion (2) operations (3)
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1. Avalon Greenbriar (4)
Renton, WA 421 $25.3 $35.7 Q3 1998 Q2 2000 Q2 2000
2. Avalon at Mission Bay
San Diego, CA 564 $43.8 $57.3 Q3 1998 Q2 2000 Q3 2000
3. Avalon at Creekside
Mountain View, CA 294 $29.0 $39.8 Q2 1999 Q3 2000 Q4 2000
4. Laguna Brisas
Laguna Niguel, CA 176 $17.2 $21.2 Q3 1999 Q2 2000 Q4 2000
5. Avalon at Cortez Hill
San Diego, CA 293 $24.4 $33.8 Q1 2000 Q1 2001 Q2 2001
6. Lakeside
Burbank, CA 748 $55.3 $75.3 Q1 2000 Q1 2002 Q2 2002
--------------------------------------------------
Total 2,496 $195.0 $263.1
==================================================
</TABLE>
(1) Total budgeted cost includes all capitalized costs projected to be
incurred to redevelop the respective Redevelopment Community, including
costs to acquire the community, reconstruction costs, real estate taxes,
capitalized interest and loan fees, permits, professional fees, allocated
redevelopment overhead and other regulatory fees determined in accordance
with GAAP.
(2) Reconstruction completion dates are estimates.
(3) Restabilized operations is defined as the first full quarter of 95% or
greater occupancy after completion of reconstruction.
(4) Formerly named Avalon Ridge.
34
<PAGE> 36
Development Rights
As of March 31, 2000, we are considering the development of 34 new apartment
communities. These Development Rights range from land owned or under contract
for which design and architectural planning has just begun to land under
contract or owned by us with completed site plans and drawings where
construction can begin almost immediately. We estimate that the successful
completion of all of these communities would ultimately add 9,140 upscale
apartment homes to our portfolio. At March 31, 2000, the cumulative capitalized
costs incurred in pursuit of the 34 Development Rights, including the cost of
land acquired in connection with seven of the Development Rights, was
approximately $74.0 million, of which $46.0 million was land. Substantially all
of these apartment homes will offer features like those offered by the
communities we currently own.
We generally hold Development Rights through options to acquire land, although
one Development Right located in New Canaan, Connecticut is controlled through a
joint venture partnership that owns the land. The properties comprising the
Development Rights are in different stages of the due diligence and regulatory
approval process. The decisions as to which of the Development Rights to pursue,
if any, or to continue to pursue once an investment in a Development Right is
made are business judgments that we make after we perform financial, demographic
and other analysis. Finally, we currently intend to limit the percentage of debt
used to finance new developments in order to maintain our general historical
practice with respect to the proportion of debt in our capital structure.
Therefore, other financing alternatives may be required to finance the
development of those Development Rights scheduled to start construction after
April 1, 2000. Although the development of any particular Development Right
cannot be assured, we believe that the Development Rights, in the aggregate,
present attractive potential opportunities for future development and growth of
our FFO.
Statements regarding the future development of the Development Rights are
forward-looking statements. We cannot assure you that:
- we will succeed in obtaining zoning and other necessary
governmental approvals or the financing required to develop these
communities, or that we will decide to develop any particular
community; or
- if we undertake construction of any particular community, that we
will complete construction at the total budgeted cost assumed in
the financial projections below.
The following presents a summary of the 34 Development Rights we are currently
pursuing:
35
<PAGE> 37
<TABLE>
<CAPTION>
Total
Estimated budgeted
number costs
Location of homes ($ millions)
------------------------ ---------------- -----------------
<S> <C> <C> <C> <C>
1. Mountain View, CA (1) 211 60
2. San Jose, CA (1) 217 42
3. Stamford, CT 323 60
4. Freehold, NJ 296 35
5. Orange, CT (1) 168 18
6. New Canaan, CT (1) (2) 104 26
7. Darien, CT (1) 189 37
8. Yonkers, NY 256 35
9. Greenburgh - II, NY 500 83
10. Greenburgh - III, NY 266 44
11. Arlington II, VA (1) 332 40
12. Hopewell, NJ 280 34
13. Port Jefferson, NY 232 28
14. Yorktown, NY 396 47
15. Marlborough, MA 202 22
16. Newtown, CT 304 34
17. Wilton, CT 115 21
18. North Potomac, MD 564 64
19. Los Angeles, CA 241 39
20. Weymouth, MA 304 33
21. San Diego, CA (1) 378 54
22. Long Island City, NY 372 102
23. Coram, NY 450 61
24. Westborough, MA 386 44
25. Lawrence, NJ 342 38
26. Salem, MA 176 20
27. Wilmington, MA 120 16
28. North Bethesda, MD 414 42
29. San Francisco, CA 250 70
30. Andover, MA 156 20
31. St. James, NY 112 16
32. Seattle, WA 100 19
33. Washington, D.C. 209 41
34. Seattle, WA 175 31
---------------- -----------------
Totals 9,140 $1,376
================ =================
</TABLE>
(1) AvalonBay owns land, but construction has not yet begun.
(2) The land currently is owned by a limited partnership in which AvalonBay
is a majority partner. It is currently anticipated that the land seller
will retain a minority limited partner interest.
36
<PAGE> 38
Risks of Development and Redevelopment
We intend to continue to pursue the development and redevelopment of apartment
home communities. Our development and redevelopment activities may be exposed to
the following industry risks:
- we may abandon opportunities we have already begun to explore
based on further review of, or changes in, financial, demographic,
environmental or other factors;
- we may encounter liquidity constraints, including the
unavailability of financing on favorable terms for the development
or redevelopment of a community;
- we may be unable to obtain, or we may experience delays in
obtaining, all necessary zoning, land-use, building, occupancy,
and other required governmental permits and authorizations;
- we may incur construction or reconstruction costs for a community
that exceed our original estimates due to increased materials,
labor or other expenses, which could make completion or
redevelopment of the community uneconomical;
- occupancy rates and rents at a newly completed or redevelopment
community may fluctuate depending on a number of factors,
including market and general economic conditions, and may not be
sufficient to make the community profitable; and
- we may be unable to complete construction and lease-up on
schedule, resulting in increased debt service expense and
construction costs.
The occurrence of any of the events described above could adversely affect our
ability to achieve our projected yields on communities under development or
redevelopment and could affect our payment of distributions to our stockholders.
Construction costs are projected by us based on market conditions prevailing in
the community's market at the time our budgets are prepared and reflect changes
to those market conditions that we anticipated at that time. Although we attempt
to anticipate changes in market conditions, we cannot predict with certainty
what those changes will be. Construction costs have been increasing and, for
some of our Development Communities, the total construction costs have been or
are expected to be higher than the original budget. Total budgeted cost includes
all capitalized costs projected to be incurred to develop the respective
Development or Redevelopment Community, including:
- land and/or property acquisition costs;
- construction costs;
- real estate taxes;
- capitalized interest;
- loan fees;
- permits;
- professional fees;
- allocated development overhead; and
- other regulatory fees determined in accordance with generally
accepted accounting principles.
Nonetheless, because of increases in prevailing market rents we believe that, in
the aggregate, we will still achieve our targeted projected yield (i.e., return
on invested capital) for those communities experiencing costs in excess of the
original budget. We believe that we could experience similar increases in
construction costs and market rents with respect to other development
communities resulting in total construction costs that exceed original budgets.
Likewise, costs to redevelop communities that have been acquired have, in some
cases, exceeded our original estimates and similar increases in costs may be
experienced in the future. We cannot assure that market rents in effect at the
time new development communities or repositioned communities complete lease-up
will be sufficient to fully offset the effects of any increased construction or
reconstruction costs.
37
<PAGE> 39
Capitalized Interest
In accordance with generally accepted accounting principles, we capitalize
interest expense during construction or reconstruction until a building obtains
a certificate of occupancy. Thereafter, the interest allocated to that completed
building within the community is expensed. Capitalized interest totaled
$3,494,000 for the three months ended March 31, 2000 and $7,283,000 for the
three months ended March 31, 1999.
38
<PAGE> 40
PART I. FINANCIAL INFORMATION (CONTINUED)
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not Applicable
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
We are involved in certain ordinary routine litigation
incidental to the conduct of our business. In addition, as
reported in the Company's Form 10-K for the year ended
December 31, 1999, we are currently involved in litigation
with York Hunter Construction, Inc., and National Union Fire
Insurance Company. While the outcome of such litigation
cannot be predicted with certainty, we do not expect any
current litigation, including the litigation with York Hunter
and National Union, to have a material effect on our business
or financial condition.
Item 2. Changes in Securities
On February 28, 2000, the Company filed a Form 8-A/A (i) to
file an amendment to the Company's Shareholder Rights
Agreement that affects the rights of holders of the Company's
Preferred Stock Purchase Rights and (ii) to describe the
terms of such Shareholder Rights Agreement, as amended. The
description set forth in such Form 8-A/A is incorporated
herein by reference.
During the three months ended March 31, 2000, the Company
issued 7,048 shares of common stock in exchange for units of
limited partnership held by a limited partner of Avalon
DownREIT V, L.P., a DownREIT partnership subsidiary of the
Company. These shares were issued in reliance on an
exemption from registration under Section 4(2) of the
Securities Act of 1933. The Company is relying on the
exemption based upon factual representations received from the
limited partner who received these shares.
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C> <C>
3(i).1 -- 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-Q of the Company filed August 14, 1998.)
3(i).2 -- Articles of Amendment, dated as of October 2, 1998.
(Incorporated by reference to Exhibit 3.1(ii) to Form 8-K of
the Company filed on October 6, 1998.)
</TABLE>
39
<PAGE> 41
<TABLE>
<S> <C> <C>
3(i).3 -- Articles Supplementary, dated as of October 13, 1998,
relating to the 8.70% Series H Cumulative Redeemable
Preferred Stock. (Incorporated by reference to Exhibit 1 to
Form 8-A of the Company filed October 14, 1998.)
3(ii).1 -- Bylaws of the Company, as amended and restated, dated as of
July 24, 1998. (Incorporated by reference to Exhibit 3(ii).1
to Form 10-Q of the Company filed August 14, 1998.)
3(ii).2 -- Amendment to Bylaws of the Company, dated February 10, 1999.
(Incorporated by reference to Exhibit 3(ii).2 to Form 10-K of
the Company filed March 31, 1999.)
3(ii).3 -- Amendment to Bylaws of the Company, dated May 5, 1999.
(Incorporated by reference to Exhibit 3(ii).3 to Form 10-Q of
the Company filed on August 16, 1999.)
4.1 -- Indenture of Avalon Properties, Inc. (hereinafter referred to
as "Avalon Properties") dated as of September 18, 1995.
(Incorporated by reference to Form 8-K of Avalon Properties
dated September 18, 1995.)
4.2 -- First Supplemental Indenture of Avalon Properties dated as of
September 18, 1995. (Incorporated by reference to Avalon
Properties' Current Report on Form 8-K dated September 18,
1995.)
4.3 -- Second Supplemental Indenture of Avalon Properties dated as
of December 16, 1997. (Incorporated by reference to Avalon
Properties' Current Report on Form 8-K filed January 26,
1998.)
4.4 -- Third Supplemental Indenture of Avalon Properties dated as of
January 22, 1998. (Incorporated by reference to Avalon
Properties' Current Report on Form 8-K filed on January 26,
1998.)
4.5 -- Indenture, 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 Form 8-K of the
Company filed on January 21, 1998.)
4.6 -- First Supplemental Indenture, dated as of January 20, 1998,
between the Company and the Trustee. (Incorporated by
reference to Exhibit 4.2 to Form 8-K of the Company filed on
January 21, 1998.)
4.7 -- Second Supplemental Indenture, dated as of July 7, 1998,
between the Company and the Trustee. (Incorporated by
reference to Exhibit 4.2 to Form 8-K of the Company filed on
July 9, 1998.)
4.8 -- Third Supplemental Indenture, dated as of December 21, 1998
between the Company and the Trustee, including forms of
Floating Rate Note and Fixed Rate Note (Incorporated by
reference to Exhibit 4.4 to Form 8-K filed on December 21,
1998.)
4.9 -- Dividend Reinvestment and Stock Purchase Plan of the Company
filed on September 14, 1999. (Incorporated by reference to
Form 3-S of the Company, File No. 333-87063.)
4.10 -- Amendment to the Company's 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.)
</TABLE>
40
<PAGE> 42
<TABLE>
<S> <C> <C>
4.11 -- Shareholder Rights Agreement, dated as of March 9, 1998 (the
"Rights Agreement"), between the Company and First Union
National Bank (as successor to American Stock Transfer and
Trust Company) as Rights Agent (including the form of Rights
Certificate as Exhibit B). (Incorporated by reference to
Exhibit 4.1 to Form 8-A of the Company filed March 11, 1998.)
4.12 -- Amendment No. 1 to the Rights Agreement, dated as of February
28, 2000, between the Company and the Rights Agent.
(Incorporated by reference to Exhibit 4.2 of Form 8-A/A of
the Company filed February 28, 2000.)
10.1 -- Mutual Release and Separation Agreement, dated as of March
24, 2000, between the Company and Gilbert M. Meyer.
10.2 -- Retirement Agreement, dated as of March 24, 2000, between the
Company and Gilbert M. Meyer.
10.3 -- Consulting Agreement, dated as of March 24, 2000, between the
Company and Gilbert M. Meyer.
12.1 -- Statements re: Computation of Ratios.
27.1 -- Financial Data Schedule.
(b) REPORTS ON FORM 8-K
</TABLE>
On March 10, 2000, the Company filed a report on Form 8-K with respect to Item
5 thereof (Other Event) to report the mailing of a letter to stockholders and to
file a copy of such letter.
41
<PAGE> 43
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
AVALONBAY COMMUNITIES, INC.
Date: May 15, 2000 /s/: RICHARD L. MICHAUX
-----------------------------------------------
Richard L. Michaux
President, Chief Executive Officer and Director
Date: May 15, 2000 /s/: THOMAS J. SARGEANT
-----------------------------------------------
Thomas J. Sargeant
Chief Financial Officer and Treasurer
42
<PAGE> 1
AVALONBAY COMMUNITIES, INC.
2900 EISENHOWER AVENUE, THIRD FLOOR
ALEXANDRIA, VA 22314 MARCH 24, 2000
Gilbert M. Meyer
26007 Torello Lane
Los Altos Hills, CA 94022
RE: MUTUAL RELEASE AND SEPARATION AGREEMENT
Dear Mr. Meyer:
By execution this day of a Retirement Agreement and a Consulting
Agreement (the "Retirement and Consulting Agreements"), you and AvalonBay
Communities, Inc. (the "Company", a term which for purposes of this Agreement
includes its related or affiliated entities) have agreed that as of a day in
May 2000, you will retire from the Company and commence a consulting
arrangement with the Company. This letter agreement (the "Agreement") confirms
certain additional terms you and the Company have agreed upon in light of your
retirement from your offices and employment with the Company. In consideration
of the mutual covenants contained in this Agreement, you and the Company agree
as follows:
1. Release of Claims.
(a) You, on behalf of yourself and your successors,
heirs, assigns, executors, administrators and/or estate, hereby irrevocably and
unconditionally release, acquit and forever discharge the Company, its
subsidiaries, divisions and related or affiliated entities, and each of their
respective predecessors, successors or assigns, and the officers, directors,
partners, shareholders, representatives, employees and agents of each of the
foregoing (the "Releasees"), from any and all charges, complaints, claims,
liabilities, obligations, promises, agreements, controversies, damages,
actions, causes of action, suits, rights, demands, costs, losses, debts and
expenses (including attorneys' fees and costs actually incurred), known or
unknown, that directly or indirectly arise out of, relate to or concern your
employment or termination of employment with the Company ("Claims"), which you
have, own or hold, or at any time heretofore had, owned or held against the
Releasees up to the date on which you execute this Agreement, including without
limitation, express or implied, all Claims for: breach of express or implied
contract; promissory estoppel; fraud, deceit or misrepresentation; intentional,
reckless or negligent infliction of emotional distress; breach of any express
or implied covenant of employment, including the covenant of good faith and
fair dealing; interference with contractual or advantageous relations;
discrimination on any basis or retaliation under federal, state or local law,
including without limitation, Title VII of the Civil Rights Act of 1964, as
amended, the Americans
<PAGE> 2
Gilbert M. Meyer
March 24, 2000
Page 2
with Disabilities Act, as amended, the Age Discrimination in Employment Act, as
amended, and the California Fair Employment and Housing Act, Cal. Gov't. Code
Sections 12940, et seq., as amended; and all claims for defamation or damaged
reputation.
(b) You acknowledge that you are familiar with Section
1542 of the California Civil Code, which reads as follows:
A general release does not extend to claims which the
creditor does not know or suspect to exist in his favor at
the time of executing the release, which if known by him must
have materially affected his settlement with the debtor.
You acknowledge and agree that you are releasing unknown claims and waive all
rights that you may have under Civil Code Section 1542 or under any other
statute or common law principle of similar effect.
(c) You represent and warrant that you have not filed
any complaints or charges asserting any Claims against the Releasees with any
local, state or federal agency or court. You further represent and warrant that
you have not assigned or transferred to any person or entity any Claims or any
part or portion thereof.
(d) You agree that you will not hereafter pursue any
Claim against any Releasee (including without limitation any claim seeking
reinstatement with, or damages of any nature, severance, incentive or retention
pay, attorney's fees, or costs) by filing a lawsuit in any local, state or
federal court for or on account of anything which has occurred up to the
present time as a result of your employment or termination of employment.
(e) Nothing in this Section 1 shall be deemed to release
the Company from, and the preceding paragraph (d) shall not apply to, any
claims that you may have (i) under this Agreement or the Retirement and
Consulting Agreements, (ii) for indemnification pursuant to and in accordance
with applicable statutes, the by-laws of the Company and Section 4(b) of the
Employment Agreement, dated March 9, 1998, by and between you and the Bay
Apartment Communities, Inc. (a predecessor name of the Company) (the
"Employment Agreement"), (iii) vested pension or retirement benefits under the
terms of qualified employee pension benefit plans, (iv) accrued but unpaid
wages, or (v) for excise tax payments pursuant to Section 7(d) of the
Employment Agreement.
<PAGE> 3
Gilbert M. Meyer
March 24, 2000
Page 3
2. Release by the Company.
(a) The Company, on behalf of itself, its subsidiaries,
divisions and related or affiliated entities and each of their respective
predecessors, successors or assigns hereby irrevocably and unconditionally
releases, acquits and forever discharges you, your successors, heirs, assigns,
executors, administrators and/or estate (the "Meyer Releasees"), from any and
all charges, complaints, claims, liabilities, obligations, promises,
agreements, controversies, damages, actions, causes of action, suits, rights,
demands, costs, losses, debts and expenses (including attorney's fees and costs
actually incurred) that directly or indirectly arise out of, relate to or
concern your employment or termination of employment with the Company (the
"Company Claims") which the Company has, owns or holds, or at any time
heretofore had, owned or held against the Meyer Releasees up to the date on
which it executes this Agreement.
(b) The Company acknowledges that it is familiar with
Section 1542 of the California Civil Code, which reads as follows:
A general release does not extend to claims which the
creditor does not know or suspect to exist in his favor at
the time of executing the release, which if known by him must
have materially affected his settlement with the debtor.
The Company acknowledges and agrees that it is releasing unknown claims and
waives all rights that it may have under Civil Code Section 1542 or under any
other statute or common law principle of similar effect.
(c) The Company represents and warrants that it has not
filed any complaints or charges asserting any Company Claims against the Meyer
Releasees with any local, state or federal agency or court. The Company further
represents and warrants that it has not assigned or transferred to any person
or entity any Company Claims or any part or portion thereof.
(d) The Company agrees that it will not hereafter pursue
any Company Claims against any Meyer Releasee by filing a lawsuit in any local,
state or federal court for or on account of anything which has occurred up to
the present time as a result of your employment or termination of employment.
<PAGE> 4
Gilbert M. Meyer
March 24, 2000
Page 4
(e) Nothing in this Section 2 shall be deemed to release
you from, and the preceding paragraph (d) shall not apply to, any claims the
Company may have (i) under this Agreement or the Retirement and Consulting
Agreements, or (ii) for breaches prior to the date hereof of the nondisclosure
provisions of Section 6 of the Employment Agreement or Annex B thereto, or any
provision of Section 8 of the Employment Agreement, except, in the case of this
subsection (ii), to the extent such breaches are actually known by the
Company's senior management (i.e., individuals holding the title of Senior Vice
President or above) or reasonably should have been known to such senior
management prior to the date hereof.
3. Employment Agreement.
(a) Except as set forth in this Section 3 or as
expressly provided elsewhere in this Agreement or the Retirement and Consulting
Agreements, this Agreement supersedes all provisions of the Employment
Agreement and all such provisions terminate upon the Effective Date. Nothing
contained herein, however, shall be deemed to terminate your obligations to the
Company or the Company's obligations to you under Sections 4(b)
(Indemnification), 6 (Records/Nondisclosure/Company Policies), 7(d) (Excise Tax
Payment), 8 (b) (as clarified by Section 14(i) of the Retirement Agreement),
8(c) (Non-Solicitation; Specific Enforcement) and 13(a) (Resolution of
Disputes) (as amended by Section 5 hereinbelow) of the Employment Agreement,
Annex B (Nondisclosure Agreement) thereto, or the Company's Stock Option Plan
or the stock option agreements, restricted stock agreements or deferred stock
award agreements entered into by you from time to time (as modified by Section
5 of the Retirement Agreement).
(b) By way of clarification, it is noted that the fact
that Section 7(d) of the Employment Agreement survives means that, in the event
that any of the payments made to you under the Retirement and Consulting
Agreements are subject to the excise tax referred to therein, you shall be
entitled to a Partial Gross-Up Payment subject to and in accordance with the
terms of said Section 7(d).
4. Nondisparagement and Nondisclosure.
(a) You agree not to take any action or make any
statement, written or oral, which disparages or criticizes the Company or its
officers, directors, agents, or management and business practices, or which
disrupts or impairs the Company's normal operations. The Company and its
directors and senior management (i.e., individuals holding the title of Senior
Vice President or above) shall not take any action or make any statement,
written or oral, which disparages or criticizes you or your management and
business practices. The provisions of this Section 4 shall not apply to any
truthful statement required to be made by you or any director or senior officer
of the Company, as the case may be, in any legal proceeding, governmental or
regulatory investigation, in any public filing or disclosure legally required
to be filed or made, and also shall not apply to any confidential discussion or
consultation with professional advisors.
(b) In furtherance of your obligations under this
Agreement, you and the Company each agree to not make any statements or
comments to the media concerning the circumstances surrounding your retirement
from the Company except for statements which are consistent with press releases
that shall be mutually agreed upon in accordance with Section 1 of the
Retirement Agreement.
(c) You agree not to disclose the terms of this
Agreement, except (i) to your professional advisors, including accountants and
attorneys (provided they agree to keep such information confidential), (ii) to
the extent that, prior to your disclosure, the Company has previously disclosed
such information publicly, whether in its filings with the Securities and
Exchange Commission or otherwise, or (iii) (A) pursuant to a valid subpoena or
(B) as otherwise required by law, but in the case of either (iii)(A) or
(iii)(B), only after providing the Company, to the attention of its Chief
Executive Officer, with prior written notice and reasonable opportunity to
contest such subpoena or other requirement. In the case of the circumstances
contemplated by subsections 4(c)(iii)(A) or (B)
<PAGE> 5
Gilbert M. Meyer
March 24, 2000
Page 5
herein, written notice shall be provided to the Company as soon as practicable,
but in no event less than five business days before any such disclosure is
compelled, or, if later, at least one business day after you receive notice
compelling such disclosure.
5. Arbitration.
(a) Any controversy or claim arising out of or relating
to this Agreement or the Retirement and the Consulting Agreements or the breach
of any of the foregoing (a "Dispute") shall be resolved in the manner set forth
in Section 13(a) (Resolution of Disputes) of the Employment Agreement, as
modified by this Section 5.
(b) Subject to Section 5(e) below, in the event any
legal action or proceeding, including arbitration or declaratory relief, is
commenced by the Company with respect to any Dispute or otherwise to enforce
any rights or obligations under this Agreement, the Retirement Agreement or the
Consulting Agreement, the arbitrator or, in the case of a claim for equitable
relief, the judge in such proceeding (i) shall have discretion to award to you
if you are the prevailing party reasonable attorney's fees and costs, if any,
in said action or proceeding, but (ii) regardless of the outcome in said action
or proceeding, shall not award to the Company any of its attorney's fees or
costs.
(c) Subject to Section 5(e) below, in the event any
legal action or proceeding, including arbitration or declaratory relief, is
commenced by you with respect to any Dispute or otherwise to enforce any rights
or obligations under this Agreement, the Retirement Agreement or the Consulting
Agreement, the arbitrator or, in the case of a claim for equitable relief, the
judge in such proceeding shall have discretion to award the prevailing party
reasonable attorney's fees and costs, if any, in said action or proceeding.
(d) An award of attorney's fees and costs pursuant to
subsections (b) or (c) above shall take into account the amount or degree of
relief awarded to the prevailing party relative to that party's demands. An
award of reasonable attorney's fees and costs also shall take into account any
offer of settlement or judgment by the non-prevailing party. Attorney's fees
and costs incurred by the prevailing party from and after the date of such an
offer of settlement or judgment may be limited or eliminated to the extent that
the value of the final judgment in favor of the prevailing party does not
materially exceed the value of the offer of settlement or judgment.
(e) It is the intention of the Company to fulfill its
obligations and make all payments required under this Agreement, the Consulting
Agreement and the Retirement Agreement. A non-material breach by you of this
Agreement, the Retirement Agreement or the Consulting Agreement shall not
justify the Company's failure to pay or deliver, it being the understanding
that in the case of a non-material breach the Company's remedy is to commence
an arbitration proceeding to determine the damages to the Company, which
damages then may be set off against future payments. However, in the event you
believe that any fees, payments or other consideration are owed to you by the
Company under this Agreement, the Consulting Agreement or the Retirement
Agreement and have not been paid or delivered when due, you may make a written
demand for payment or delivery of such disputed fees, payment or consideration.
In such event, there shall be deemed to be a "Dispute." In the event of a
Dispute, the Company shall pay the overdue fees or payment or deliver such
other consideration on which the Dispute is based to a mutually acceptable
escrow agent to be held in an escrow account pending an arbitration award or
satisfactory resolution of the Dispute by the parties. The escrowed fees,
payments or other consideration shall be invested as directed by the Company,
but if cumulative earnings as of the end of any calendar month are less than
18% on an annualized basis compounded monthly the Company shall pay an amount
equal to the shortfall of such cumulative earnings into the escrow account
monthly until the Dispute is resolved (said fees, payments, or other
consideration, together with interest thereon hereinafter referred to as the
"Escrow"). Promptly following the commencement of a Dispute, you and the
Company shall commence an arbitration proceeding to determine whether in fact
the Company owes the Escrow to you. The arbitrator shall direct that the Escrow
be paid over to the prevailing party. In
<PAGE> 6
Gilbert M. Meyer
March 24, 2000
Page 6
connection with such arbitration, the Company shall advance you reasonable
attorney's fees, subject to your undertaking to repay such advanced fees in the
event the Company prevails. In the event that the Company prevails in such an
arbitration, you shall pay to the Company interest at the Determined Rate (as
defined below) on (i) the deposits made by the Company into the Escrow from
time to time (by way of clarification, this excludes cumulative investment
earnings but includes shortfall payments) and (ii) the amount of advances for
attorney's fees made from time to time. The Determined Rate means 8%, (on an
annualized basis compounded monthly) except that the arbitrator shall be
directed to make a finding as to whether your commencement of the Dispute was
(i) made in good faith and (ii) not reckless or dilatory, and in the event that
the arbitrator finds that the standard set forth in the preceding clause (i) or
(ii) has not been met, the Determined Rate shall be 10% (on an annualized basis
compounded monthly). In all other respects, arbitration under this Section 5(e)
shall be in accordance with all other provisions of this Section 5.
(f) Claims for equitable relief relating to violations
or alleged violations of Section 4 hereof, Section 5(e) (with respect to
funding of the Escrow) hereof, Section 10 of the Retirement Agreement or
Sections 3 or 4 of the Consulting Agreement may be brought in a court of law.
6. Fees. The Company will pay the reasonable fees and expenses
of your professional advisors and valuation experts incurred in connection with
the negotiation and execution of this Agreement and the Consulting and
Retirement Agreement, provided, that such advisors submit to the Company
invoices for such fees and expenses. You have advised us that, as of the date
hereof, your professional advisors and valuation experts reasonably estimate
that you have incurred $55,000 in fees in aggregate.
7. Notices, Acknowledgments and Other Terms.
(a) You are advised to consult with an attorney and tax
advisor before signing this Agreement. You acknowledge that you have consulted
with an attorney of your choice.
(b) You acknowledge and agree that the Company's
promises in this Agreement include consideration in addition to anything of
value to which you are otherwise entitled by reason of the termination of your
employment.
(c) You acknowledge that you have been given the
opportunity, if you so desired, to consider this Agreement for twenty-one (21)
days before executing it. If you breach any of the conditions of the Agreement
within the twenty-one (21) day period, the offer of this Agreement will be
withdrawn and your execution of the Agreement will not be valid. In the event
that you execute and return this Agreement within twenty-one (21) days or less
of the date of its delivery to you, you acknowledge that such decision was
entirely voluntary and that you had the opportunity to consider this letter
agreement for the entire twenty-one (21) day period.
(d) You may revoke this Agreement at any time within
seven (7) days of executing it by delivering a written notice of revocation to
the Company so that its is received by the close of business on such seventh
(7th) day. This Agreement shall not become effective or enforceable unless and
until seven (7) days have expired following your execution of same (the
"Effective Date").
(e) By signing this Agreement, you acknowledge that you
are doing so voluntarily and knowingly, fully intending to be bound by this
Agreement. You also acknowledge that you are not relying on any representations
by any representative of the Company concerning the meaning of any aspect of
this Agreement. You understand that this Agreement shall not in any way be
construed as an admission by the Company of any liability or any act of
wrongdoing whatsoever by the Company against you and that the Company
specifically disclaims any liability or wrongdoing whatsoever against you on
the part of itself and its officers, directors, shareholders, employees and
agents. You understand that if you do not to enter into this Agreement and
bring any claims against
<PAGE> 7
Gilbert M. Meyer
March 24, 2000
Page 7
the Company, the Company will dispute the merits of those claims and contend
that it acted lawfully and for good business reasons with respect to you.
(f) In the event of any dispute, this Agreement will be
construed as a whole, will be interpreted in accordance with its fair meaning,
and will not be construed strictly for or against either you or the Company.
Section headings and parenthetical explanations of section references are for
convenience only and shall not be used to interpret the meaning of any
provision or term of this Agreement.
(g) Any notices required to be given under this
Agreement shall be provided in writing and delivered by hand or certified mail,
and shall be deemed to have been duly given when received at the following
addresses, unless and to the extent that notice of change of address has been
duly given hereunder
If to you at:
Mr. Gilbert M. Meyer
26007 Torello Lane
Los Altos Hills, CA 94022
<PAGE> 8
Gilbert M. Meyer
March 24, 2000
Page 8
with a copy to:
Ethan Lipsig, Esq.
Paul, Hastings, Janofsky & Walker LLP
555 South Flower Street
Los Angeles, CA 90071-2371
If to the Company, to it at:
AvalonBay Communities, Inc.
2900 Eisenhower Avenue, Third Floor
Alexandria, VA 22314
Attention: Chief Executive Officer
with a copy to:
AvalonBay Communities, Inc.
2900 Eisenhower Avenue, Third Floor
Alexandria, VA 22314
Attention: General Counsel
and a copy to:
Joseph A. Piacquad, Esq,
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, MA 02109-2881
(h) The law of the State of Maryland will govern any
dispute about this Agreement, including any interpretation or enforcement of
this Agreement.
(i) In the event that any provision or portion of a
provision of this Agreement shall be determined to be illegal, invalid or
unenforceable, the remainder of this Agreement shall be enforced to the fullest
extent possible and the illegal, invalid or unenforceable provision or portion
of a provision will be amended by a court of competent jurisdiction, or
otherwise thereafter shall be interpreted, to reflect as nearly as possible
without being illegal, invalid or
<PAGE> 9
Gilbert M. Meyer
March 24, 2000
Page 9
unenforceable the parties' intent if possible. If such amendment or
interpretation is not possible, the illegal, invalid or unenforceable provision
or portion of a provision will be severed from the remainder of this Agreement
and the remainder of this Agreement shall be enforced to the fullest extent
possible as if such illegal, invalid or unenforceable provision or portion of a
provision was not included.
(j) This Agreement may be modified only by a written
agreement signed by you and an authorized representative of the Company.
(k) This Agreement, the Consulting and Retirement
Agreements and Sections 4(b), 6, 7(d), 8(a) (as amended by Section 10 of the
Retirement Agreement), 8(b) (as clarified by Section 14(i) of the Retirement
Agreement), 8(c) and 13(a) (as amended by Section 5 of this Agreement), and
Annex B of the Employment Agreement constitute the entire agreement between the
parties with respect to the subject matter hereof and, except as expressly
provided therein, supersede all prior agreements between the parties with
respect to any related subject matter.
(l) Subject in all events to applicable law, in the
event of your death any payments or other consideration then due and payable or
deliverable to you by the Company under this Agreement will be paid or
delivered to your designated beneficiary, or, if you are not survived by such
designated beneficiary, or you fail to effectively designate a beneficiary, to
your estate. The Company acknowledges that you have designated The Meyer 1997
Irrevocable Trust, dated February 10, 1997, Jo Ann Conner, or her successor,
Trustee, as the beneficiary. You may designate a beneficiary or change such
designation from time-to-time in accordance with the notice provisions of this
Agreement. The Company will reasonably cooperate with you to modify this
provision to the extent reasonably necessary so as to give effect to the
purpose of this provision in a manner that complies with applicable laws.
(m) This Agreement shall be binding upon each of the
parties and upon their respective heirs, administrators, representatives,
executors, successors and assigns, and shall inure to the benefit of each party
and to their heirs, administrators, representatives, executors, successors, and
assigns.
<PAGE> 10
Gilbert M. Meyer
March 24, 2000
Page 10
If you agree to these terms, please sign and date below and return
this Agreement to the Company's Chief Executive Officer. This Agreement may be
executed in counterparts and/or by facsimile transmission, each of which shall
be deemed to be an original but all of which together shall constitute one and
the same instrument. The execution of this Agreement may be by actual or
facsimile signature.
Sincerely,
AvalonBay Communities, Inc.
By:/s/ RICHARD L. MICHAUX
----------------------------
Richard L. Michaux
Its: Chief Executive Officer
Accepted and Agreed to:
/s/ GILBERT M. MEYER
- --------------------------------
Gilbert M. Meyer
Dated: March 24, 2000
-------------------------
<PAGE> 1
AVALONBAY COMMUNITIES, INC.
2900 EISENHOWER AVENUE, THIRD FLOOR
ALEXANDRIA, VA 22314
MARCH 24, 2000
Gilbert M. Meyer
26007 Torello Lane
Los Altos Hills, CA 94022
RE: RETIREMENT AGREEMENT
Dear Mr. Meyer:
This letter agreement (the "Agreement") confirms the terms that will
govern your resignation, by reason of retirement, from your offices and
employment with AvalonBay Communities, Inc. (the "Company," a term which for
purposes of this Agreement includes its related or affiliated entities).
1. Retirement; Nomination as Director at 2000 Annual Meeting. You
and the Company hereby confirm that you will retire (i) effective immediately
following the next annual meeting of the shareholders of the Company if held in
May 2000, or (ii) if such annual meeting is held after May 2000, effective as of
May 10, 2000 (such date as may apply, the "Date of Retirement"). Accordingly,
you hereby irrevocably tender your resignation, as of the Date of Retirement, as
Executive Chairman of the Company and (except for your position as a Director of
AvalonBay Communities, Inc.) from all positions and offices you hold with the
Company or any of its affiliated entities. The Company hereby acknowledges your
retirement and accepts your resignations effective as of the Date of Retirement.
Subject to the execution in good faith by the Company's Board
of Directors of its fiduciary duties, the Company agrees that the Board (i)
shall nominate you for re-election at the Company's 2000 annual meeting of
stockholders as a Director of the Company and, (ii) following the 2000 annual
meeting shall grant you the honorary title of "Founder". Following the Date of
Retirement and upon your re-election as a Director, if applicable, in calendar
year 2001 and thereafter for so long as you remain a Director, you will receive
the same compensation as other outside non-employee Directors of the Company.
You waive your right, if any, to receive compensation, whether in the form of
stock grants, options awards or otherwise, as an outside non-employee Director
during calendar year 2000.
The Company will make a public announcement on or promptly
following the date hereof, in a mutually acceptable form, regarding your
retirement in May 2000.
2. Compensation Through Date of Retirement.
(a) Through the Date of Retirement, you will continue to
receive a base salary at a rate of $410,000 per year (subject to applicable
withholding).
(b) On the Date of Retirement, you will be paid in lieu
of a prorated cash bonus for calendar year 2000 the amount of $73,374.32
(subject to applicable withholding).
<PAGE> 2
Gilbert M. Meyer
March 24, 2000
Page 2
(c) As of the date of this letter, your accrued but
unused vacation is 56 days. From and after the date hereof, you will no longer
accrue additional vacation per bi-weekly pay period and/or be charged against
such accrual for vacation days you reasonably use between the date of this
letter and the Date of Retirement. You will be paid $62,904.11 (i.e., 56/365
($410,000)) for all accrued but unused vacation days on the Date of Retirement
(subject to applicable withholding).
(d) Through the Date of Retirement, you will receive the
benefits for which you are eligible under the Company's other generally
applicable employee benefit plans, practices and policies.
(e) By vote of the Compensation Committee on February 28,
2000, your cash bonus and equity awards in respect of service during 1999 are
as follows: $243,200 cash bonus (which is fully vested and has been paid to you
in accordance with the Company's practice for senior managers); 7,260
restricted shares of common stock; and 59,400 stock options with an exercise
price equal to the market closing price on February 28, 2000. Such options and
shares will vest in accordance with the customary terms provided therein,
subject, in the case of options, to acceleration on the Date of Retirement as
provided herein, and, in the case of restricted shares, subject to Section 4
hereinbelow.
3. Split Dollar Life Insurance/Term Life.
(a) In recognition of your services to the Company, the
Company will continue to pay, for so long as such payments are due, all
premiums then due and payable on, but only to the extent relating to, the
whole-life portion of, the split dollar life insurance policy obtained for you
pursuant to Section 3(d) of the Employment Agreement dated March 9, 1998, by
and between you and the Bay Apartment Communities, Inc. (a predecessor name of
the Company) (the "Employment Agreement"); provided that the Company's
obligations to pay under this Section 3 are conditioned upon your payment of
all premiums payable on, but only to the extent relating to, the term-life
portion of, said split dollar life insurance policy. You agree to cooperate
with the Company in verifying your continuing satisfaction of the foregoing
condition. The Company agrees to promptly notify you and you agree to promptly
notify the Company of any premium notice or other notice it or you receive from
the insurer relating to the policy. In the event that the Company determines
that its obligation to make payments under this Section 3 has ceased by reason
of your non-payment of premiums relating to the term-life portion of said split
dollar life insurance policy, the Company shall provide you with thirty (30)
days advance written notice of its intent to terminate payments hereunder. Such
notice shall identify specifically your non-payment of the term life premium
that is the basis on which the Company asserts its right to cease payments and
shall provide you with a
<PAGE> 3
Gilbert M. Meyer
March 24, 2000
Page 3
reasonable opportunity to cure.
(b) As an additional retirement benefit, the Company has
agreed to provide you with the following death benefit, which shall provide
assurances to you that the fees payable to you under the Consulting Agreement
in respect of your services during the three year period following the date
hereof will accrue to you or your estate in the event of your death during such
period:
(i) In the event that you die during the three year
period following the Date of Retirement, the Company
will pay in accordance with Sections 14(j) below, on
the date or dates when such payments would otherwise
have been due, the remaining cash consulting Fees due
to you under the Consulting Agreement.
(ii) You agree to use reasonable best efforts to cause a
life insurance company to tender to you an offer of a
term life insurance policy with reasonable commercial
rates that will provide a death benefit approximately
equal to the cash consulting Fees still due you under
the Consulting Agreement. You will advise the Company
of the premiums due therefor prior to entering into
such life insurance policy, and the Company will
advise you as to whether the Company intends to
reimburse you for the premiums therefor in accordance
with the next clause (iii). To satisfy this clause
(ii), you may procure two policies, one of which may
lapse after one year.
(iii) If the Company reimburses you for the premiums
therefore, you will enter into such policy,
whereupon, during the term of such policy, the
Company's obligations under clause (i) shall not
apply. You shall have the right to designate, and
from time to time change, the beneficiary(ies) under
such policy.
(iv) If the Consulting Period is terminated by the Company
for Cause (as set forth in the Consulting Agreement),
the Company's obligations in this Section 3(b) shall
not apply after the date of such termination.
(v) By way of clarification, you and the Company agree
that in no event shall you or your estate or other
beneficiaries be paid in the aggregate, by virtue of
the Company's obligations hereunder, or under the
Consulting Agreement, or by virtue of the term life
insurance policy that may be procured as contemplated
hereby, an
<PAGE> 4
Gilbert M. Meyer
March 24, 2000
Page 4
amount in cash that exceeds the cash consulting Fees
that you otherwise would have received under the
Consulting Agreement for full service thereunder,
and, in the event that you or your estate does
receive such excess cash payments, the amount of such
excess shall be promptly reported to and remitted to
the Company.
(c) As an additional retirement benefit, the Company
further has agreed that, in the event you die before all common stock
deliverable to you as Additional Fees under the Consulting Agreement has been
delivered, the Company shall deliver such installment or installments of common
stock in accordance with Section 14(j) below, on the date or dates when such
deliveries would otherwise have been due under Section 1(b) of the Consulting
Agreement.
4. Restricted Stock, Deferred Stock Awards and Founder's Stock.
(a) You and the Company agree and acknowledge that the
Company's 1994 Stock Incentive Plan, as amended (the "Stock Incentive Plan")
provides that all remaining shares of the restricted common stock of the
Company that you were granted as Restricted Stock Awards are to continue to
vest from and after the Date of Retirement in accordance with the terms of each
such grant. For clarification, Exhibit A hereto describes all such Restricted
Stock. Notwithstanding the foregoing, for good and valuable consideration, you
hereby waive your right to and forfeit, as of the Date of Retirement, all then
remaining unvested Restricted Stock. To the extent the Company has not already
done so with respect to previously vested Restricted Stock, the Company shall
(or shall cause the Company's transfer agent to) (i) promptly deliver to you
certificates representing such stock with no restrictive legends, and such
stock shall be freely transferable by you subject to applicable securities laws
and the Company's insider trading policy, which shall apply to you in your
capacity as a Director; and (ii) remove all restrictive legends on shares
previously issued to you. In the event that you hold or were given certificates
regarding such restricted shares, the Company's obligation in the preceding
sentence is subject to: (A) delivery by you to the Company or its agent of such
certificate; or (B) your delivery to the Company or its agent of a loss
affidavit. You acknowledge that the Company has advised you to consult an
attorney regarding your continuing obligations under Section 16 of the
Securities Exchange Act of 1934, as amended, as well as other federal and state
securities (including insider trading) laws. You agree that you shall continue
to be bound by the Company's insider trading policy for so long as you are a
Director.
(b) The Company acknowledges that as of the date hereof,
you have 24,977 Deferred Stock Awards, which number will continue to grow as a
result of the reinvestment of "phantom" dividends in accordance with the
Company's current practice and shall be adjusted equitably to reflect stock
splits, stock dividends or similar changes
<PAGE> 5
Gilbert M. Meyer
March 24, 2000
Page 5
affecting the common stock of the Company prior to your conversion of such
Deferred Stock as provided hereinbelow. The Company agrees that you may convert
some or all of your Deferred Stock Awards into common stock of the Company at
any time after May 10, 2000 upon ten (10) business days written notice (with
stock certificates promptly delivered to you). Your right to convert the
Deferred Stock Awards remains subject to all applicable securities laws.
Promptly upon your ceasing to serve as a Director, any remaining Deferred Stock
Awards promptly shall be converted into common stock of the Company and paid to
you. Your right to have the Deferred Stock Awards convert into common stock and
be paid to you will in no way depend on your service under the Consulting
Agreement or any defaults by you thereunder.
(c) The Company shall (or shall cause the Company's
transfer agent to) remove all restrictive legends from your founder's shares
(i.e., stock you held in Bay Apartment Communities, Inc. at the time of its
initial public offering). In the event that you hold or were given
certificates regarding such founder's shares, the Company's obligation in the
preceding sentence is subject to: (i) delivery by you to the Company or its
agent of such certificate; or (ii) your delivery to the Company or its agent of
a loss affidavit.
5. Stock Options.
(a) You and the Company agree and acknowledge that the
Stock Incentive Plan provides that by reason of your retirement, all options to
purchase shares of the Company's common stock that you were granted shall
automatically vest as of the Date of Retirement. For clarification, Exhibit B
hereto lists all such options and their respective exercise prices. The Company
acknowledges that, assuming that you continue to serve as a Director
immediately following your retirement, the exercise periods with respect to
your various options are unaffected by your retirement. Accordingly, (i) you
have until the earlier of (A) the expiration of three (3) months following the
termination of your membership on the Company's board of directors (or six (6)
months from your death if you die while a director) or (B) the expiration of
the original term of such option (i.e., ten years after its grant date), in
which to exercise those options granted to you prior to 1999; and (ii) you have
until the earlier of (A) the expiration of twelve months following the
termination of your membership on the Company's board of directors (or six (6)
months from your death if you die while a director) or (B) the expiration of
the original term of such option (i.e., ten years after its grant date) in
which to exercise those options granted to you in or after 1999.
(b) Notwithstanding the foregoing, the Board of
Directors, or the Compensation Committee of the Board of Directors of the
Company, has taken such action as is necessary so that with respect to options
granted on January 24, 1997, January 30, 1998, and February 28, 2000 you will
have until January 24, 2007,
<PAGE> 6
Gilbert M. Meyer
March 24, 2000
Page 6
January 30, 2008 and February 28, 2010, respectively in which to exercise such
options (collectively, the "Extended Options") subject to the following
provisions. In the event that you wilfully and materially breach the terms of
the Consulting Agreement or the Mutual Release and Separation Agreement each
dated as of March 24, 2000, by and between you and the Company (respectively,
the "Consulting Agreement" and the "Separation Agreement"), (a "Material
Breach") at any time after the date hereof and within thirty-six (36) months of
the Date of Retirement, in addition to the Company's rights to obtain equitable
relief or damages for such breach, the Company may suspend thirty-three percent
(33%) of the original amount of each tranche of the Extended Options (or, with
respect to a tranche of Extended Options for which less than thirty-three
percent (33%) of the original amount is outstanding at that time, all such
tranche of Extended Options) ("Suspended Options"). The Company shall suspend
your right to exercise the Suspended Options by (i) filing a request for
arbitration within a reasonable time after any Senior Manager (i.e., any
individual holding the title of Senior Vice President or higher) learns of the
Material Breach, which request specifically states that the Company is
suspending your right to exercise, or (ii) in the event the Company reasonably
determines that your asserted Material Breach is curable, by sending you a
written notice describing the Material Breach and the steps you must take to
cure such Material Breach. In the event that the Company asks you to cure a
Material Breach and you fail to cure such breach to the Company's satisfaction
within five (5) business days following delivery to you of written notice from
the Company, the Company then may commence an arbitration proceeding, in which
case your right to exercise the Suspended Options will remain suspended. In the
event that an arbitrator determines that you have not committed a Material
Breach, the arbitrator may award you damages directly caused by the suspension
of your right to exercise the Suspended Options. In the event that an
arbitrator determines that you have committed a Material Breach, the exercise
period of the Suspended Options shall terminate immediately, without prejudice
to the Company's right to obtain equitable relief or damages for such Material
Breach; provided that an award of additional damages (if any) shall take into
account termination of the Suspended Options. Nothing contained herein
otherwise shall be deemed to limit the Company's right to obtain equitable
relief or damages for a Material Breach that occurs before or after thirty-six
(36) months after the date you execute this Agreement.
In the event of your death, your options shall be exercisable by
your legal representative or legatee in accordance with their terms.
6. Loan Forgiveness. The Company will forgive, on the Date of
Retirement, the amount you owe in consideration of loans the Company made to
you in connection with the grant of restricted stock prior to the date hereof
(i.e., approximately $72,500). On or promptly following the Date of Retirement,
the promissory notes representing the
<PAGE> 7
Gilbert M. Meyer
March 24, 2000
Page 7
approximately said indebtedness shall be returned to you marked "Paid in Full."
You understand and acknowledge that the Company will not make any further loans
to you with respect to restricted stock awarded to you in calendar year 2000.
7. Expense Reimbursement. You shall continue to be entitled to
reimbursement of reasonable business expenses incurred through the Date of
Retirement in accordance with Section 4(a) of the Employment Agreement. As a
Director, you will be entitled to reimbursement of reasonable business expenses
in accordance with the Company's customary practices, from and after the Date
of Retirement.
8. Status of Other Benefits. Except as expressly provided
hereinabove, your eligibility to participate in any of the Company's employee
benefit plans or programs ceases on or after the Date of Retirement in
accordance with the terms and conditions of each of those benefit plans and
programs and your rights to benefits under any of the employee benefit plans or
programs, if any, are governed by the terms and conditions of each of those
employee benefit plans and programs; provided, that nothing in this Section 8
shall be construed to affect you or your dependents' rights thereafter to
receive continuation coverage to the extent authorized by and consistent with
29 U.S.C. Section 1161, et. seq. (commonly known as "COBRA") and applicable
group health and dental plan terms, entirely at your or their own cost (as
determined for COBRA premium purposes). Notwithstanding any shorter period that
may be provided under COBRA, the Company will make its group health and dental
plans (or reasonably comparable health and dental insurance) available to you
and your qualified dependents for three years following the Date of Retirement,
such coverage to be entirely at your or their own cost (as determined for COBRA
premium purposes).
9. Return of Property. In accordance with Section 4 of the
Nondisclosure Agreement, dated as of March 9, 1998, by and between you and Bay
Apartment Communities, Inc. (a predecessor name to the Company), and
incorporated in the Employment Agreement as Annex B ("Nondisclosure
Agreement"), you agree that, on or promptly following the Date of Retirement,
you will promptly return to the Company (a) all records, correspondence, notes,
financial statements, computer printouts and other documents and recorded
material of every nature (including copies thereof) that may be in your
possession or control dealing with Confidential Information (as defined in
Section 8 of the Nondisclosure Agreement), provided, however, that you may keep
your laptop computer and personal home computer, but at the Company's request,
you will allow the Company to delete all Company records therefrom and to
discontinue computer access to the Company's computer files. Additionally, you
may keep materials you properly possess in your capacity as a Director, and may
download and keep your calendar and rolodex (except to the extent that the
Company reasonably and specifically notifies you that any such information
constitutes Confidential Information, in which case the specifically cited
information may not be downloaded).
<PAGE> 8
Gilbert M. Meyer
March 24, 2000
Page 8
10. Non-Compete Section 8(a) of the Employment Agreement is
hereby amended and restated and incorporated herein as of the Effective Date as
follows:
For so long as Executive remains a Director of the Company,
Executive shall not, without the prior written consent of
the Board of Directors, become associated with, or engage in
any "Restricted Activities" with respect to any "Competing
Enterprise," as such terms are hereinafter defined, whether
as an officer, employee, principal, partner, agent,
consultant, independent contractor or shareholder.
"Competing Enterprise," for purposes of this Agreement,
shall mean any person, corporation, partnership, venture or
other entity which (a) is a publicly traded real estate
investment trust, or (b) is engaged in the business of
managing, owning, leasing or joint venturing residential
real estate within 30 miles of residential real estate owned
or under management by the Company or its affiliates.
"Restricted Activities," for purposes of this Agreement,
shall mean executive, managerial, directorial,
administrative, strategic, business development or
supervisory responsibilities and activities relating to all
aspects of residential real estate ownership, management,
residential real estate franchising, and residential real
estate joint-venturing.
(a) The Executive's interest in and performance of
services for Greenbriar Homes Communities, Inc. and
its affiliates (collectively, "Greenbriar"), shall
not be deemed to be an association with or engaging
in Restricted Activities with respect to any
Competing Enterprise within the meaning of this
Section 8(a) of the Employment Agreement, but only to
the extent that his association with or involvement
with Greenbriar relates to the single family,
for-sale home business.
(b) The Executive's investment of personal funds in
apartment buildings, developments or complexes and
the Executive's investment of personal funds in
partnerships that invest in apartment buildings,
developments or complexes shall not be deemed to be
an association with or engaging in Restricted
Activities with respect to any Competing Enterprise
within the meaning of this Section 8(a) of the
Employment Agreement, but only to the extent that (i)
such personal investments of equity capital do not
exceed $20,000,000 in the aggregate (inclusive of
such investments already made) for all such
investments (which value is determined at cost as of
the date of the Executive's initial
<PAGE> 9
Gilbert M. Meyer
March 24, 2000
Page 9
cash investment) and (ii) such personal funds account
for at least 75% of the equity capital invested in
any such building, development, complex or
partnership. Personal funds include the funds of the
Executive's immediate family, any family trusts and
any family partnership.
(c) In addition the Executive may request consent from
the Board to engage in any activity that he believes
is not competitive with the Company's then current
business or prospective business, and the Board will
not unreasonably withhold its consent if the Board
concludes in good faith that such activity is not in
competition with the Company's then current business
or prospective business.
(d) The provisions regarding non-competition above in no
way shall limit the Executive's fiduciary and common
law obligations to the Company in his role as a
Director of the Company.
11. Exclusivity. This Agreement sets forth all the consideration
to which you are entitled by reason of your retirement and resulting
termination of your employment, and you agree that you shall not be entitled to
or eligible for any payments or benefits under any other Company severance,
bonus, retention or incentive policy, arrangement or plan.
12. Tax Matters. All payments and other consideration provided
to you pursuant to this Agreement shall be subject to any deductions,
withholding or tax reporting that the Company reasonably determines to be
required for tax purposes; provided, that nothing contained in this Section 12
affects your independent obligation and primary responsibility, which
obligation and responsibility you hereby affirm, to determine and make proper
judgments regarding the payment of taxes under applicable law. In the case of
non-cash compensation (i.e., vesting of restricted stock, loan forgiveness,
etc.) you hereby authorize the Company to offset amounts required to be
withheld against any other cash compensation or fees then payable by the
Company to you, including Fees under the Consulting Agreement.
13. Sale of Equity Interests. On or prior to the Date of
Retirement, you will sell to Bryce Blair or another designee of the Company all
of your interests in AvalonBay Services I, Inc. and AvalonBay Services II, Inc.
pursuant to documents substantially similar in terms to those used when you
purchased such shares from Charles Berman. The price therefor will be the fair
price as determined by you and the Company, which price you acknowledge has not
changed significantly since you purchased said shares from Charles Berman.
<PAGE> 10
Gilbert M. Meyer
March 24, 2000
Page 10
14. Notices, Acknowledgments and Other Terms
(a) This Agreement shall become effective on the
Effective Date of the Separation Agreement (as defined in Section 7(d) thereof)
(the "Effective Date").
(b) You are advised to consult with an attorney and tax
advisor before signing this Agreement. You acknowledge that you have consulted
with an attorney of your choice.
(c) By signing this Agreement, you acknowledge that you
are doing so voluntarily and knowingly, fully intending to be bound by this
Agreement. You also acknowledge that you are not relying on any representations
by any representative of the Company concerning the meaning of any aspect of
this Agreement.
(d) In the event of any dispute, this Agreement will be
construed as a whole, will be interpreted in accordance with its fair meaning,
and will not be construed strictly for or against either you or the Company.
Section headings and parenthetical explanations of section references are for
convenience only and shall not be used to interpret the meaning of any
provision or term of this Agreement.
(e) Any notices required to be given under this Agreement
shall be provided in writing and delivered by hand or certified mail, and shall
be deemed to have been duly given when received at the following addresses,
unless and to the extent that notice of change of address has been duly given
hereunder
If to you at:
Mr. Gilbert M. Meyer
26007 Torello Lane
Los Altos Hills, CA 94022
with a copy to:
Ethan Lipsig, Esq.
Paul, Hastings, Janofsky & Walker LLP
555 South Flower Street
Los Angeles, CA 90071-2371
If to the Company, to it at:
AvalonBay Communities, Inc.
<PAGE> 11
Gilbert M. Meyer
March 24, 2000
Page 11
2900 Eisenhower Avenue, Third Floor
Alexandria, VA 22314
Attention: Chief Executive Officer
with a copy to:
AvalonBay Communities, Inc.
2900 Eisenhower Avenue, Third Floor
Alexandria, VA 22314
Attention: General Counsel
and a copy to:
Joseph A. Piacquad, Esq,
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, MA 02109-2881
(f) The law of the State of Maryland will govern any
dispute about this Agreement, including any interpretation or enforcement of
this Agreement.
(g) In the event that any provision or portion of a
provision of this Agreement shall be determined to be illegal, invalid or
unenforceable, the remainder of this Agreement shall be enforced to the fullest
extent possible and the illegal, invalid or unenforceable provision or portion
of a provision will be amended by a court of competent jurisdiction, or
otherwise thereafter shall be interpreted, to reflect as nearly as possible
without being illegal, invalid or unenforceable the parties' intent if
possible. If such amendment or interpretation is not possible, the illegal,
invalid or unenforceable provision or portion of a provision will be severed
from the remainder of this Agreement and the remainder of this Agreement shall
be enforced to the fullest extent possible as if such illegal, invalid or
unenforceable provision or portion of a provision was not included.
(h) This Agreement may be modified only by a written
agreement signed by you and an authorized representative of the Company.
(i) This Agreement, the Separation Agreement and the
Consulting Agreement and Sections 4(b), 6, 7(d), 8(a) (as amended by Section 10
of the Retirement Agreement), 8(b) (as clarified hereinbelow), 8(c) and 13(a)
(as amended by Section 5 of the Separation Agreement), and Annex B of the
Employment Agreement which are incorporated herein, constitute the entire
agreement between the parties with respect to the subject matter hereof and,
except as expressly provided therein, supersede all prior
<PAGE> 12
Gilbert M. Meyer
March 24, 2000
Page 12
agreements between the parties with respect to any related subject matter.
Without limiting your fiduciary duties as a Director, it is hereby acknowledged
that the contractual one year non-solicitation clause in Section 8(b) of the
Employment Agreement expires one year after the May 10, 2000, Date of
Retirement.
(j) Subject in all events to applicable law, in the event
of your death any payments or other consideration then due and payable or
deliverable to you by the Company under this Agreement will be paid or
delivered to your designated beneficiary, or, if you are not survived by such
designated beneficiary, or you fail to effectively designate a beneficiary, to
your estate. The Company acknowledges that you have designated The Meyer 1997
Irrevocable Trust, dated February 10, 1997, Jo Ann Conner, or her successor,
Trustee, as the beneficiary. You may designate a beneficiary or change such
designation from time-to-time in accordance with the notice provisions of this
Agreement. The Company will reasonably cooperate with you to modify this
provision to the extent reasonably necessary so as to give effect to the
purpose of this provision in a manner that complies with applicable laws.
(k) This Agreement shall be binding upon each of the
parties and upon their respective heirs, administrators, representatives,
executors, successors and assigns, and shall inure to the benefit of each party
and to their heirs, administrators, representatives, executors, successors, and
assigns.
If you agree to these terms, please sign and date below and return
this Agreement to the Company's Chief Executive Officer. This Agreement may be
executed in counterparts and/or by facsimile transmission, each of which shall
be deemed to be an original but all of which together shall constitute one and
the same instrument. The execution of this Agreement may be by actual or
facsimile signature.
Sincerely,
AvalonBay Communities, Inc.
By: /s/ RICHARD L. MICHAUX
----------------------
Richard L. Michaux
Its: Chief Executive Officer
<PAGE> 13
Gilbert M. Meyer
March 24, 2000
Page 13
Accepted and Agreed to:
/s/ GILBERT M. MEYER
- ------------------------
Gilbert M. Meyer
Dated: March 24, 2000
----------------
<PAGE> 14
Gilbert M. Meyer
March 24, 2000
Page 14
EXHIBIT A
RESTRICTED STOCK GRANTS
<TABLE>
<CAPTION>
--------------------------------------
Issue Date Total Shares
--------------------------------------
<S> <C>
1/24/97 20,000
--------------------------------------
1/30/98 10,000
--------------------------------------
2/17/99 6,200
--------------------------------------
2/28/00 7,260
--------------------------------------
TOTAL: 43,460
--------------------------------------
</TABLE>
<PAGE> 15
Gilbert M. Meyer
March 24, 2000
Page 15
EXHIBIT B
STOCK OPTIONS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
ISSUE DATE SHARES STRIKE $ EXERCISED OUTSTANDING
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
3/10/94 100,000 $20.0000 -- 100,000
- ----------------------------------------------------------------------------------------------------------
3/31/95 60,000 $18.3750 -- 60,000
- ----------------------------------------------------------------------------------------------------------
1/26/96 40,000 $23.3750 -- 40,000
- ----------------------------------------------------------------------------------------------------------
1/24/97 100,000 $36.6250 -- 100,000
- ----------------------------------------------------------------------------------------------------------
1/30/98 100,000 $37.9375 -- 100,000
- ----------------------------------------------------------------------------------------------------------
2/17/99 62,000 $32.0000 -- 62,000
- ----------------------------------------------------------------------------------------------------------
2/28/00 59,400 $33.7500 -- 59,400
- ----------------------------------------------------------------------------------------------------------
TOTAL: 521,400 N/A -- 521,400
- ----------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 1
CONSULTING AGREEMENT
This Consulting Agreement (the "Agreement"), made as of the
Effective Date (as that term is defined in Section 7(a) below), by and between
AvalonBay Communities, Inc. (the "Company," a term which for purposes of this
Agreement includes its related or affiliated entities) and Gilbert M. Meyer
(the "Consultant")
WITNESSETH
WHEREAS, the Consultant and the Company have agreed that the
Consultant shall retire as Executive Chairman of the Company on the 10th day of
May 2000 (the "Date of Retirement"); and
WHEREAS, the Company and the Consultant have agreed that the
Consultant will continue to serve the Company as a consultant for a period of
time following the Consultant's retirement as Executive Chairman of the
Company;
NOW THEREFORE, in consideration of the mutual covenants contained in
this Agreement, the Company and the Consultant agree as follows:
1. Consulting Fees.
(a) In consideration of the Consultant's provision of
Consulting Services, in accordance with and subject to Section 2 below, the
Company will pay the Consultant the consulting fees (the "Fees") in three
installments as follows on the following payment dates:
(i) One Million Three Hundred Ninety-Five
Thousand Dollars ($1,395,000) on the Date
of Retirement;
(ii) One Million Three Hundred Ninety-Five
Thousand Dollars ($1,395,000) on the first
anniversary of the Date of Retirement; and
(iii) One Million Three Hundred Ninety-Five
Thousand Dollars ($1,395,000) on the
second anniversary of the Date of
Retirement.
(b) The Consultant and the Company acknowledge that, due
to transitional issues, on-going developments, and other activities during the
first year of the Consulting Period, the Consultant will provide more services
than in the second and third years. As additional consideration for the
Consultant's provision of Consulting Services during the first year of the
Consulting Period, in accordance with and subject to Section 2 below, the
Company will deliver to the Consultant 5,880 shares (which shall be adjusted
equitably to reflect stock splits, stock dividends or similar changes affecting
the common stock of the Company occurring prior to the date such shares are to
be delivered to the Consultant) of the Company's common stock on each of the
Date of Retirement (i.e., May 10, 2000), July 1, 2000, October 1, 2000 and
January 1, 2001 (the "Additional Fees"). Such common stock may bear a
restricted securities legend to the extent the Company reasonably deems such
legend necessary to comply with applicable law.
2. Consulting Services and Payment Therefore
(a) The Consultant hereby agrees to provide non-exclusive
consulting services to the Company for a period of three (3) years following
the Date of Retirement (the "Consulting Period"). By way of clarification, the
parties agree that the Consulting Period will continue in accordance with the
terms of this Agreement regardless of Consultant's continuing role as a
Director of the Company and that the Consultant's failure or inability to
continue as a Director shall not constitute "Cause" as defined in Section 2(f)
below.
(b) In his capacity as a consultant to the Company, the
Consultant, upon reasonable advance notice and at times reasonably agreeable to
the Consultant, shall (i) assist with respect to transitional matters that may
arise in connection with the Consultant's retirement as Executive Chairman of
the Company; (ii) respond to
<PAGE> 2
requests for assistance or information concerning business matters with which
the Consultant became familiar while employed; and (iii) provide business
advice and counsel to the Company with respect to business strategies and
acquisition, dispositions, development and redevelopment of multi-family rental
properties (collectively, the "Consulting Services").
(c) It is intended and agreed by and between the parties
that while providing Consulting Services, the Consultant is and shall at all
times be and remain, an independent contractor. The Consultant understands and
agrees that during the Consulting Period, he is not an employee of the Company
or any of its affiliates and shall not be treated as an employee for any
purpose. The Consultant understands that he will not be entitled by reason of
providing the Consulting Services to any compensation other than the
consideration provided in this Agreement, including, without limitation, the
Fees and Additional Fees described in Section 1 above. The Company shall
promptly reimburse the Consultant for all reasonable out-of-pocket costs
incurred by him in connection with providing Consulting Services, subject to
approval and documentation in accordance with applicable policies as may be in
effect from time to time. Nothing in this Agreement or otherwise shall be
construed as identifying the Consultant as an employee, agent or legal
representative of the Company or any of its affiliates during the Consulting
Period for any purpose whatsoever. The Consultant will not be authorized to
transact business, incur obligations, sell goods, receive payments, solicit
orders or assign or create any obligation of any kind, express or implied, on
behalf of the Company, or to bind in any way whatsoever, or to make any
promise, warranty or representation on behalf of the Company with respect to
any matter, except as expressly authorized in writing by the Company. The
Consultant shall not use any of the Company's trade names, trademarks, service
names or servicemarks without the prior written approval of the Company.
(d) The Company will indemnify and hold the Consultant
harmless with respect to any liability, cost, claims, damage (including
reasonable attorney's fees) arising from his provision of Consulting Services
except to the extent arising from the Consultant's reckless or willful
misconduct and provided in any such case, that the Consultant promptly notify
the Company, in writing, of any claim for indemnification made hereunder and
allow the Company to assume the defense of any claim with counsel reasonably
acceptable to the Consultant.
(e) During the Consulting Period, the Consultant shall be
free to pursue other business opportunities or employment, except to the extent
that such other business opportunities or employment might violate the terms of
this Agreement, any other agreement between the Consultant and the Company, or
the Consultant's fiduciary duties to the Company to the extent he remains a
Director of the Company. The Consultant shall not be required to provide
Consulting Services in a manner that unreasonably interferes with his ability
to pursue such other business opportunities or employment; provided, that the
Consultant shall remain available in any event to provide and shall provide, on
reasonable notice, Consulting Services to the Company.
(f) This Agreement shall terminate prior to the end of
the Consulting Period, without further obligation on the part of the Company,
automatically upon the death of the Consultant or the Company's termination of
this Agreement for "Cause". For purposes of this Agreement, the term "Cause"
shall mean the Consultant's reckless or willful misconduct in the provision of
Consulting Services or the Consultant's willful and material breach of this
Agreement. Notwithstanding the foregoing, no termination of this Agreement by
the Company shall be treated as for Cause unless and until all the steps
described in Subparagraphs (i) to (iii) below have been complied with:
(i) Notice of intention to terminate for Cause
has been given to the Consultant in writing by the Company within 120 days
after the Chief Executive Officer of the Company learns of the act, failure to
act or event (or latest in a series of acts, failures to act or events)
constituting Cause;
(ii) Consultant has been given written notice
of the particular acts, failures to act or events which forms the basis for the
Company's assertion of Cause and has been afforded at least 30 days in which
(A) to present his position with respect to such basis in writing and, (B) if,
in the reasonable judgment of the Company, such act, failure to act or event is
curable, Consultant has been given a reasonable opportunity to cure the
asserted basis for Cause; and
(iii) In the event the Company reasonably
determines that the Consultant's written statement of his position with respect
to the Company's assertion of Cause is not satisfactory and, if curable,
2
<PAGE> 3
Consultant failed to cure to the Company's reasonable satisfaction, the Company
then may commence an arbitration proceeding to establish that it has Cause to
terminate the Agreement. In the event that an arbitrator determines that the
Company does not have a basis to terminate this Agreement for Cause, the
Company's obligation to continue paying the Fees shall continue. The
arbitration shall take place in accordance with the procedures described in
Section 5 of the Mutual Release and Separation Agreement, of even date
herewith, by and between the Consultant and the Company (the "Separation
Agreement"). In the event that the date of payment for any installment of the
Fees or date of delivery of the Additional Fees occurs while the process
described in Subsections (i) through (iii) hereof is pending, the Company shall
pay that installment of the Fees or deliver that installment of the Additional
Fees into an escrow account in accordance with and subject to the escrow
provisions of Section 5(e) of the Separation Agreement. The arbitrator shall
direct that the amount held in escrow, including accrued interest, be paid over
to the prevailing party. Nothing in this Section 2(f) shall be deemed to
preclude the Company or the Consultant from seeking equitable relief in a court
as specified in, and for the limited purposes set forth in, Section 5(f) of the
Separation Agreement.
3. Non-Compete.
(a) During the Consulting Period, the Consultant
covenants and agrees that he shall not participate in any manner, directly or
indirectly, whether as an officer, employee, principal, partner, agent,
consultant, independent contractor or shareholder (other than through ownership
of less than 3% of the outstanding shares), in any publicly-traded real estate
investment trust or publicly-traded real estate company that, in either case,
is primarily or significantly involved in the ownership, operation, management
or rental of multi-family apartment homes. This provision in no way shall limit
the Consultant's fiduciary and common law obligations to the Company in his
role as a director of the Company.
(b) In furtherance of the Consultant's obligations under
this Agreement, Consultant further agrees that he shall not disclose, provide
or reveal, directly or indirectly, any confidential information concerning the
Company, including without implication of limitation, their respective
operations, plans, strategies or administration, to any other person or entity
unless compelled to do so pursuant to (i) a valid subpoena or (ii) as otherwise
required by law, but in either case only after providing the Company, to the
attention of its Chief Executive Officer, with prior written notice and
opportunity to contest such subpoena or other requirement. Written notice shall
be provided to the Company as soon as practicable, but in no event less than
five (5) business days before any such disclosure is compelled, or, if later,
at least one (1) business day after the Consultant receives notice compelling
such disclosure.
(c) By way of background, the Consultant acknowledges
that he presently is under the following obligations that may limit his ability
to compete with the Company: Section 3 of this Agreement, Section 10 of that
certain Retirement Agreement, of even date herewith, by and between the
Consultant and the Company (the "Retirement Agreement"); Annex B to the
Employment Agreement; and ongoing fiduciary obligations to the extent
Consultant remains a Director of the Company (collectively, the
"Restrictions"). The Company agrees that aside from the Restrictions: (i)
nothing else in this or any other agreement prohibits the Consultant from
competing with, or providing services, to an entity that competes with, the
Company; (ii) such competition or services alone would not constitute a
violation of this or any other agreement or law; and (iii) the Company will not
assert that such competition or services alone constitutes a violation of this
or any agreement or law on the theory that it inevitably would result in the
disclosure of confidential information or trade secrets. This provision,
however, shall not relieve the Consultant of any obligations he may have under
Sections 8(b) or 8(c) of the Employment Agreement, Annex B thereto, or common
or statutory law not to use or disclose trade secrets or confidential
information of the Company.
4. Adverse Actions. The Consultant agrees that for forty-eight
(48) months following the date he executes this Agreement, or, if later, until
that date on which he ceases to be a Director of the Company, without the prior
written consent of the Company the Consultant shall not, directly or indirectly
or in any manner, or solicit, request, advise, assist or encourage any other
person or entity to, (a) undertake any action that would be reasonably likely
to, or is intended to, result in a Change in Control (as that term is defined
in the Employment Agreement) of the Company, including, for these purposes,
without limitation, a valuation of the Company; (b) seek to change or control
in any manner the management or the Board of Directors of the Company, or the
business, operations or affairs of the Company; or (c) undertake an investment
(other than in respect to the equity rights with respect to option awards and
stock grants provided to the Consultant in consideration of his employment), in
the Company. The foregoing shall not apply to the Consultant's routine
participation as a Director of the Company or to routine interests in Company
equity, such as through reinvestments of Company dividends.
3
<PAGE> 4
5. Exclusivity. This Agreement sets forth all the
consideration to which the Consultant is entitled by reason of providing
Consulting Services.
6. Tax Matters. All payments and other consideration provided
to the Consultant pursuant to this Agreement shall be subject to any
deductions, withholding or tax reporting that the Company reasonably determines
to be required for tax purposes; provided, that nothing contained in this
Section 6 affects the Consultant's independent obligation and primary
responsibility, which obligation and responsibility the Consultant hereby
affirms, to determine and make proper judgments regarding the payment of taxes
under applicable law. The Company represents that it is the Company's current
belief that withholding of income taxes on the Fees is not required and the
Company further intends to pay to the Consultant the full amount of the Fees
(subject to offsets, if any, authorized by the Consultant) and report same for
tax purposes on a Form 1099.
7. Notices, Acknowledgments and Other Terms
(a) This Agreement shall become effective on the
Effective Date of the Separation Agreement, as defined in Section 7(d) of the
Separation Agreement (the "Effective Date").
(b) By signing this Agreement, the Consultant
acknowledges that he is doing so voluntarily and knowingly, fully intending to
be bound by this Agreement. The Consultant also acknowledges that he is not
relying on any representations by any representative of the Company concerning
the meaning of any aspect of this Agreement.
(c) In the event of any dispute, this Agreement will be
construed as a whole, will be interpreted in accordance with its fair meaning,
and will not be construed strictly for or against either the Consultant or the
Company. Section headings and parenthetical explanations of section references
are for convenience only and shall not be used to interpret the meaning of any
provision or term of this Agreement.
(d) Any notices required to be given under this Agreement
shall be provided in writing and delivered by hand or certified mail, and shall
be deemed to have been duly given when received at the following addresses,
unless and to the extent that notice of change of address has been duly given
hereunder
If to the Consultant at:
Mr. Gilbert M. Meyer
26007 Torello Lane
Los Altos Hills, CA 94022
with a copy to:
Ethan Lipsig, Esq.
Paul, Hastings, Janofsky & Walker LLP
4
<PAGE> 5
555 South Flower Street
Los Angeles, CA 90071-2371
If to the Company, to it at:
AvalonBay Communities, Inc.
2900 Eisenhower Avenue, Third Floor
Alexandria, VA 22314
Attention: Chief Executive Officer
with a copy to:
AvalonBay Communities, Inc.
2900 Eisenhower Avenue, Third Floor
Alexandria, VA 22314
Attention: General Counsel
and a copy to:
Joseph A. Piacquad, Esq,
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, MA 02109-2881
(f) The law of the State of Maryland will govern any
dispute about this Agreement, including any interpretation or enforcement of
this Agreement.
(g) In the event that any provision or portion of a
provision of this Agreement shall be determined to be illegal, invalid or
unenforceable, the remainder of this Agreement shall be enforced to the fullest
extent possible and the illegal, invalid or unenforceable provision or portion
of a provision will be amended by a court of competent jurisdiction, or
otherwise thereafter shall be interpreted, to reflect as nearly as possible
without being illegal, invalid or unenforceable the parties' intent if
possible. If such amendment or interpretation is not possible, the illegal,
invalid or unenforceable provision or portion of a provision will be severed
from the remainder of this Agreement and the remainder of this Agreement shall
be enforced to the fullest extent possible as if such illegal, invalid or
unenforceable provision or portion of a provision was not included.
(h) This Agreement may be modified only by a written
agreement signed by the Consultant and an authorized representative of the
Company.
(i) This Agreement, the Retirement Agreement and the
Separation Agreement and Sections 4(b), 6, 7(d), 8(a) (as amended by Section 10
of the Retirement Agreement), 8(b) (as clarified by Section 14(i) of the
Retirement Agreement), 8(c) and 13(a) (as amended by Section 5 of the
Separation Agreement), and Annex B of the Employment Agreement constitute the
entire agreement between the parties with respect to the subject matter hereof
and, except as
5
<PAGE> 6
expressly provided therein, supersede all prior agreements between the parties
with respect to any related subject matter.
(j) Neither the Company nor the Consultant may make any
assignment of this Agreement or any interest herein, by operation of law or
otherwise, without the prior written consent of the other party; provided that
the Company may assign its rights under this Agreement without the consent of
the Consultant in the event that the Company shall effect a reorganization,
consolidate with or merge into any other corporation, partnership, organization
or other entity, or transfer all or substantially all of its properties or
assets to any other corporation, partnership, organization or other entity.
This Agreement shall inure to the benefit of and be binding upon the Company
and the Consultant, their respective successors, executors, administrators,
heirs and permitted assigns.
(k) Subject in all events to applicable laws, in the
event of the Consultant's death, any payments or other consideration then due
and payable or deliverable to the Consultant by the Company under this
Agreement will be paid or delivered to the Consultant's designated beneficiary,
or, if the Consultant is not survived by such designated beneficiary, or the
Consultant fails to effectively designate a beneficiary, to the Consultant's
estate. The Company acknowledges that you have designated The Meyer 1997
Irrevocable Trust, dated February 10, 1997, Jo Ann Conner, or her successor,
Trustee, as the beneficiary. The Consultant may designate a beneficiary or
change such designation from time-to-time in accordance with the notice
provisions of this Agreement. The Company will reasonably cooperate with you to
modify this provision to the extent reasonably necessary so as to give effect
to the purpose of this provision in a manner that complies with applicable
laws.
(l) This Agreement may be executed in counterparts and/or
by facsimile transmission, each of which shall be deemed to be an original but
all of which together shall constitute one and the same instrument. The
execution of this Agreement may be by actual or facsimile signature.
IN WITNESS WHEREOF, this Agreement has been executed as a sealed
instrument by the Company, by its duly authorized officer, and by the
Consultant.
<TABLE>
<CAPTION>
CONSULTANT: AVALONBAY COMMUNITIES, INC.
<S> <C>
/s/ GILBERT M. MEYER By: /s/ RICHARD L. MICHAUX
- -------------------------- --------------------------
Gilbert M. Meyer Richard L. Michaux
Its: Chief Executive Officer
Dated: March 24, 2000 Dated: March 24, 2000
-------------------- -----------------------
</TABLE>
6
<PAGE> 1
EXHIBIT 12.1
AVALONBAY COMMUNITIES, INC.
RATIOS OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
<TABLE>
<CAPTION>
Three Months Year Year
Ended Ended Ended
March 31, December 31, December 31,
2000 1999 1998
------------ ------------ ------------
<S> <C> <C> <C>
Net Operating Income $ 47,172 $ 172,276 $ 123,535
(Less) Nonrecurring item:
Gain on sale $ (7,910) $ (47,093) $ (25,270)
Non-recurring charges - 16,782 -
(Plus) Extraordinary item:
Unamortized loan fee write-off $ - $ - $ 245
(Plus) Fixed charges:
Portion of rents representative
of the interest factor $ 110 $ 526 $ 293
Interest expense 20,067 74,699 54,650
Interest capitalized 3,494 21,888 14,724
Debt cost amortization 677 2,624 2,068
Preferred dividend 9,945 39,779 28,132
------------ ---------- ----------
Total fixed charges (1) $ 34,293 $ 139,516 $ 99,867
(Less):
Interest capitalized $ 3,494 $ 21,888 $ 14,724
Preferred dividend 9,945 39,779 28,132
Adjusted earnings (2) $ 60,116 $ 219,814 $ 155,521
------------ ---------- ----------
Ratio (2 divided by 1) 1.75 1.58 1.56
------------ ---------- ----------
Year Year Year
Ended Ended Ended
December 31, December 31, December 31,
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Net Operating Income $ 64,916 $ 51,651 $ 30,937
(Less) Nonrecurring item:
Gain on sale $ (677) $ (7,850) $ -
Non-recurring charges - - -
(Plus) Extraordinary item:
Unamortized loan fee write-off $ 1,183 $ 2,356 $ 1,158
(Plus) Fixed charges:
Portion of rents representative
of the interest factor $ 172 $ 150 $ 117
Interest expense 16,977 9,545 11,056
Interest capitalized 9,024 12,883 6,004
Debt cost amortization 700 1,842 1,869
Preferred dividend 19,656 10,422 -
---------- ---------- ----------
Total fixed charges (1) $ 46,529 $ 34,842 $ 19,046
(Less):
Interest capitalized $ 9,024 $ 12,883 $ 6,004
Preferred dividend 19,656 10,422 -
Adjusted earnings (2) $ 83,271 $ 57,694 $ 45,137
---------- ---------- ----------
Ratio (2 divided by 1) 1.79 1.66 2.37
---------- ---------- ----------
</TABLE>
<PAGE> 2
EXHIBIT 12.1 (CONTINUED)
AVALONBAY COMMUNITIES, INC.
RATIOS OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Three Months Year Year
Ended Ended Ended
March 31, December 31, December 31,
2000 1999 1998
------------ ------------ ------------
<S> <C> <C> <C>
Net Operating Income $ 47,172 $ 172,276 $ 123,535
(Less) Nonrecurring item:
Gain on sale $ (7,910) $ (47,093) $ (25,270)
Non-recurring charges - 16,782 -
(Plus) Extraordinary item:
Unamortized loan fee write-off $ - $ - $ 245
(Plus) Fixed charges:
Portion of rents representative
of the interest factor $ 110 $ 526 $ 293
Interest expense 20,067 74,699 54,650
Interest capitalized 3,494 21,888 14,724
Debt cost amortization 677 2,624 2,068
------------ ------------ ------------
Total fixed charges (1) $ 24,348 $ 99,737 $ 71,735
(Less):
Interest capitalized $ 3,494 $ 21,888 $ 14,724
Adjusted earnings (2) $ 60,116 $ 219,814 $ 155,521
------------ ----------- -----------
Ratio (2 divided by 1) 2.47 2.20 2.17
============ =========== ===========
Year Year Year
Ended Ended Ended
December 31, December 31, December 31,
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Net Operating Income $ 64,916 $ 51,651 $ 30,937
(Less) Nonrecurring item:
Gain on sale $ (677) $ (7,850) -
Non-recurring charges - - -
(Plus) Extraordinary item:
Unamortized loan fee write-off $ 1,183 $ 2,356 $ 1,158
(Plus) Fixed charges:
Portion of rents representative
of the interest factor $ 172 $ 150 $ 117
Interest expense 16,977 9,545 11,056
Interest capitalized 9,024 12,883 6,004
Debt cost amortization 700 1,842 1,869
------------ ------------ ------------
Total fixed charges (1) $ 26,873 $ 24,420 $ 19,046
(Less):
Interest capitalized $ 9,024 $ 12,883 $ 6,004
Adjusted earnings (2) $ 83,271 $ 57,694 $ 45,137
----------- ----------- -----------
Ratio (2 divided by 1) 3.10 2.36 2.37
=========== =========== ===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 8,076
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 48,270
<PP&E> 4,315,667
<DEPRECIATION> 252,063
<TOTAL-ASSETS> 4,180,116
<CURRENT-LIABILITIES> 149,652
<BONDS> 1,619,170
0
183
<COMMON> 660
<OTHER-SE> 2,374,949
<TOTAL-LIABILITY-AND-EQUITY> 4,180,116
<SALES> 0
<TOTAL-REVENUES> 135,088
<CGS> 0
<TOTAL-COSTS> 47,515
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 20,067
<INCOME-PRETAX> 47,172
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 47,172
<EPS-BASIC> 0.56
<EPS-DILUTED> 0.55
</TABLE>
