10-QPeriod: Q3 FY2003

AVALONBAY COMMUNITIES INC Quarterly Report for Q3 Ended Sep 30, 2003

Filed November 7, 2003For Securities:AVB

Summary

AvalonBay Communities, Inc. (AVB) reported its third-quarter 2003 financial results, demonstrating resilience in a challenging market. The company experienced a significant increase in net income, largely driven by substantial gains from the sale of communities. Despite a softening rental market, particularly in established communities, AVB managed to grow its total revenue through new developments and strategic dispositions. Key financial highlights include a substantial increase in net income available to common stockholders, fueled by significant gains on property sales. While Net Operating Income (NOI) from established communities saw a decline due to economic headwinds and increased concessions, overall revenue growth was supported by new development completions and acquisitions. The company actively managed its balance sheet, including debt redemptions and stock repurchases, while maintaining a robust development pipeline. Investors should note the company's strategic focus on high-barrier-to-entry markets and its proactive approach to asset disposition and capital allocation in the current economic climate.

Key Highlights

  • 1Net income available to common stockholders increased significantly by 123.7% for the three months ended September 30, 2003, driven by substantial gains from property sales.
  • 2Total revenue grew by 3.8% for the quarter, indicating growth despite a weakening rental market, primarily due to rental income from newly developed and acquired communities, partially offset by sales.
  • 3The company actively managed its portfolio by selling eight communities during the nine-month period, generating significant gains of $82.16 million.
  • 4Funds From Operations (FFO) attributable to common stockholders saw a decrease of 9.3% for the quarter, reflecting the impact of property sales gains exclusion from FFO calculation and other adjustments.
  • 5The company's balance sheet shows total assets of $4.97 billion and total liabilities of $2.68 billion as of September 30, 2003.
  • 6AvalonBay maintained a strong focus on development, with 10 communities under construction and 41 Development Rights being pursued, indicating a commitment to future growth.

Frequently Asked Questions

The substantial increase in net income, particularly for the nine months ended September 30, 2003, was primarily driven by significant gains realized from the sale of communities. The company reported gains of $82.16 million from these sales during this period.

The company is experiencing declining effective rental rates and increased concessions in its established communities due to weakened demand in certain submarkets, influenced by job losses and economic conditions. While this impacts Net Operating Income (NOI) from these communities, AvalonBay is strategically selling underperforming assets and focusing on higher-barrier-to-entry markets where it believes long-term growth is more sustainable.

AvalonBay continues to invest in development, with 10 communities under construction and 41 development rights being pursued. However, in 2003, the company prioritized disposition activity over acquiring existing communities due to market conditions. Proceeds from asset sales are being redeployed into new development projects and for general corporate purposes.

The company actively manages its capital structure. During the period, it redeemed preferred stock and repaid unsecured notes. It also has a significant unsecured credit facility available and is focused on maintaining long-term, cost-effective capital. Debt maturities are managed through operational cash flow, asset dispositions, and potential refinancing or equity offerings.