Why was this 10-K/A filed, and does it change reported earnings?

The amendment restates historical statements under SFAS No. 144 to present communities sold or held for sale in early 2003 as discontinued operations, and it supports a new S-3 registration. The company states the change has no effect on net income available to common stockholders or FFO, although reported revenue, operating expenses, and NOI for continuing operations are lower.

How much did core property performance weaken in 2002?

Net operating income for the whole portfolio fell 3.8% to $422.0M, and Established Community NOI fell 10.3%. Average economic occupancy in Established Communities dropped from 95.5% to 93.5%, and average monthly revenue per occupied home declined 4.3% to $1,537, partly due to higher concessions.

Which markets are most exposed?

Northern California saw average rental rates drop 12.6% (from $1,788 to $1,562) on tech-sector job losses, and the Northeast saw economic occupancy fall from 96.9% to 92.6% on financial-sector weakness. Management expects these conditions to persist for most of 2003.

How is the company funding its development pipeline and debt maturities?

The company plans to use retained operating cash flow, the unsecured credit facility (about $329M available at February 28, 2003), asset sales, and unsecured notes or equity offerings. It has $50M of notes repaid in January 2003 and $100M maturing later in 2003, and it intends to fund the remaining $254M of development costs and $7.7M of redevelopment costs from these sources.

What are the main risks flagged for investors?

Key risks include weak demand and falling rents in technology and financial-services markets, development cost overruns and delays (construction costs have risen above budgets on some projects), reliance on capital market access and interest rates, rising insurance costs (including about an 80% expected increase in D&O premiums), and a pending York Hunter construction litigation trial set for April 2003.

AVB 10-K FY2002 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K/A filed July 23, 2003. Cited figures are marked; the original filing is the authoritative source.

AvalonBay Communities (AVB) filed this Form 10-K/A on July 23, 2003 to amend its FY2002 10-K, primarily to restate historical financials under SFAS No. 144 so that communities sold or designated held-for-sale in early 2003 are presented as discontinued operations.

The amendment does not change reported net income available to common stockholders ($155.7 million^a, or $2.26 basic EPS) or FFO ($258.2 million), but it reduces reported continuing revenue and NOI and shifts gains into discontinued operations. The company's portfolio at February 1, 2003 comprised 137 operating communities with 40,179 apartment homes, plus 12 communities under development (3,429 homes) and rights to 38 future communities (9,950 homes), concentrated in high barrier-to-entry markets in the Northeast, Mid-Atlantic, Northern and Southern California, and the Pacific Northwest. 2002 was a difficult year: Established Community NOI fell 10.3%, with Northern California (-17.5%) and the Northeast (-8.5%) hit hardest by technology and financial-sector job losses.

Average economic occupancy in Established Communities declined from 95.5% to 93.5%, and average rental rates fell as concessions rose. Management expects weak demand to persist through most of 2003, and plans to accelerate dispositions and reduce acquisitions and development. Balance sheet and liquidity remain conservative by REIT standards, with debt-to-total market capitalization of 46.1% at year-end 2002, a $500 million^b unsecured credit facility with $329 million available at February 28, 2003, and mostly unsecured fixed-rate notes.

Net cash from operations fell to $307.8 million^c. The company repurchased common stock under a $100 million program, redeemed Series C and I preferred shares, and announced the redemption of Series D preferred. A $6.8 million impairment was recorded on two land parcels, and the company changed auditors from Arthur Andersen to Ernst & Young.

02—Key points

Key Highlights

Restated for SFAS 144: one community sold and six reclassified as held for sale in Q1 2003 are shown as discontinued operations; net income available to common stockholders ($155.7M, $2.26/share) and FFO ($258.2M) are unchanged.
Net income available to common fell 28.1% to $155.7M in 2002 from $216.5M in 2001, driven by fewer gains on sale ($48.9M in 2002 vs. $62.9M in 2001) and weaker NOI.
Established Community NOI declined 10.3% in 2002; Northern California NOI fell 17.5% and the Northeast 8.5%, reflecting tech and financial-sector job losses.
Total revenue rose only 0.9% to $612.9M; rental income was essentially flat at $604.4M, with economic occupancy in Established Communities down to 93.5% and monthly revenue per occupied home down 4.3%.
Portfolio of 137 current communities (40,179 homes) plus 12 development communities ($645.7M budgeted cost) and 38 development rights (9,950 homes, $2.0B estimated cost) provides a multi-year growth pipeline.
Capital structure remains conservative: debt-to-total market capitalization of 46.1%, $329M available on the $500M unsecured credit facility, and $100M of unsecured notes maturing in the remainder of 2003.
Management plans to increase dispositions and reduce acquisitions and development in 2003, and expects weak demand to continue for most of the year; a $6.8M impairment was recorded on two land parcels.

03—Questions

Frequently Asked Questions

Why was this 10-K/A filed, and does it change reported earnings?
The amendment restates historical statements under SFAS No. 144 to present communities sold or held for sale in early 2003 as discontinued operations, and it supports a new S-3 registration. The company states the change has no effect on net income available to common stockholders or FFO, although reported revenue, operating expenses, and NOI for continuing operations are lower.
How much did core property performance weaken in 2002?
Net operating income for the whole portfolio fell 3.8% to $422.0M, and Established Community NOI fell 10.3%. Average economic occupancy in Established Communities dropped from 95.5% to 93.5%, and average monthly revenue per occupied home declined 4.3% to $1,537, partly due to higher concessions.
Which markets are most exposed?
Northern California saw average rental rates drop 12.6% (from $1,788 to $1,562) on tech-sector job losses, and the Northeast saw economic occupancy fall from 96.9% to 92.6% on financial-sector weakness. Management expects these conditions to persist for most of 2003.
How is the company funding its development pipeline and debt maturities?
The company plans to use retained operating cash flow, the unsecured credit facility (about $329M available at February 28, 2003), asset sales, and unsecured notes or equity offerings. It has $50M of notes repaid in January 2003 and $100M maturing later in 2003, and it intends to fund the remaining $254M of development costs and $7.7M of redevelopment costs from these sources.
What are the main risks flagged for investors?
Key risks include weak demand and falling rents in technology and financial-services markets, development cost overruns and delays (construction costs have risen above budgets on some projects), reliance on capital market access and interest rates, rising insurance costs (including about an 80% expected increase in D&O premiums), and a pending York Hunter construction litigation trial set for April 2003.

04—Continue

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