10-QPeriod: Q3 FY2002

AVALONBAY COMMUNITIES INC Quarterly Report for Q3 Ended Sep 30, 2002

Filed November 14, 2002For Securities:AVB

Summary

AvalonBay Communities, Inc. (AVB) reported a significant decrease in net income available to common stockholders for the three and nine months ended September 30, 2002, largely due to the absence of property sales compared to the prior year. Net operating income also declined, particularly in "Established Communities," driven by weakened demand, job losses in key sectors (technology and financial services), and declining market rental rates and occupancy, especially in Northern California and Northeast submarkets. Despite these challenges, AVB continues to actively manage its portfolio, with substantial investment in development and redevelopment communities. The company has maintained access to capital through its unsecured credit facility and debt issuances, though it notes increasing insurance costs and potential impacts from future market conditions. AVB's strategic focus remains on high barrier-to-entry markets with a commitment to developing and operating upscale apartment communities. The company is carefully evaluating its capital allocation between development, acquisitions, and stock repurchases. While facing near-term headwinds from economic contraction in several key markets, AVB believes its integrated expertise and market positioning will allow it to pursue future growth opportunities.

Key Highlights

  • 1Net income available to common stockholders decreased by 68.8% and 42.1% for the three and nine months ended September 30, 2002, respectively, primarily due to the absence of property sales in 2002.
  • 2Net operating income (NOI) decreased by 6.7% and 3.2% for the three and nine months ended September 30, 2002, driven by weakened economic conditions and declining rental rates and occupancy in key submarkets.
  • 3Established Communities saw a significant decline in NOI, particularly in Northern California and Northeast submarkets, impacted by job losses in technology and financial services sectors.
  • 4Operating expenses, excluding property taxes, increased by 11.5% and 7.8% for the three and nine months ended September 30, 2002, due to increased marketing, bad debt, and insurance costs.
  • 5The company is actively engaged in development, with 14 communities under construction representing a total projected investment of approximately $786.2 million and 36 development rights in various stages.
  • 6AVB has access to a $500 million unsecured revolving credit facility and recently issued $250 million in unsecured notes, indicating continued access to capital markets.
  • 7The company authorized a common stock repurchase program of up to $100 million and has repurchased approximately $957,900 shares as of November 12, 2002.

Frequently Asked Questions

The primary reason for the decrease in net income available to common stockholders is the absence of significant gains from property sales in the current year compared to the prior year. Additionally, deteriorating market conditions in several key markets led to a decline in net operating income, alongside increased interest and depreciation expenses.

NOI and rental revenue have declined due to weakened economic conditions in several of AVB's submarkets, leading to job losses, particularly in the technology and financial services sectors. This has resulted in decreased demand, causing market rental rates and occupancy levels to fall, especially in Northern California and Northeast regions.

AvalonBay is actively pursuing development with 14 communities under construction and holds 36 development rights. The company plans to fund these activities through its unsecured credit facility, operating cash flow, asset dispositions, and potential debt or equity issuances, demonstrating a continued commitment to expanding its portfolio in high barrier-to-entry markets.

Key risks highlighted include the potential for development costs to exceed estimates, delays in construction and lease-up, adverse impacts from local economic and market conditions on occupancy and rents, and the availability and cost of capital for development and refinancing. The company also notes increasing insurance costs and potential uninsured losses.