================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 -------------------- FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2001 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 office, including zip code) (703) 329-6300 (Registrant's telephone number, including area code) -------------------- Securities registered pursuant to Section 12(b) of the Act: <TABLE> <S> <C> Common Stock, par value $.01 per share New York Stock Exchange, Pacific Exchange Preferred Stock Purchase Rights New York Stock Exchange, Pacific Exchange 8.50% Series C Cumulative Redeemable Preferred Stock, New York Stock Exchange, Pacific Exchange par value $.01 per share 8.00% Series D Cumulative Redeemable Preferred Stock, New York Stock Exchange, Pacific Exchange par value $.01 per share 8.70% Series H Cumulative Redeemable Preferred Stock, New York Stock Exchange, Pacific Exchange par value $.01 per share (Title of each class) (Name of each exchange on which registered) </TABLE> Securities registered pursuant to Section 12(g) of the Act: None 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 [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the Registrant's Common Stock, par value $.01 per share, held by nonaffiliates of the Registrant, as of March 1, 2002 was $3,229,266,823. The number of shares of the Registrant's Common Stock, par value $.01 per share, outstanding as of March 1, 2002 was 68,780,976. Documents Incorporated by Reference ----------------------------------- Portions of AvalonBay Communities, Inc.'s Proxy Statement for the 2002 annual meeting of stockholders, a definitive copy of which will be filed with the SEC within 120 days after the year end of the year covered by this Form 10-K, are incorporated by reference herein as portions of Part III of this Form 10-K. ================================================================================
TABLE OF CONTENTS <TABLE> <CAPTION> PAGE ---- <S> <C> PART I ITEM 1. BUSINESS.................................................................................1 ITEM 2. COMMUNITIES..............................................................................6 ITEM 3. LEGAL PROCEEDINGS.......................................................................29 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS.........................................29 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS...........................................................30 ITEM 6. SELECTED FINANCIAL DATA.................................................................31 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS...........................................34 ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK...................................................................47 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.............................................49 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE........................................49 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT..........................................49 ITEM 11. EXECUTIVE COMPENSATION..................................................................49 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT................................................................49 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..........................................49 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K...........................................................50 SIGNATURES ........................................................................................55 </TABLE>
PART I This Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Our actual results could differ materially from those set forth in each forward-looking statement. Certain factors that might cause such a difference are discussed in this report, including in the section entitled "Forward-Looking Statements" on page 34 of this Form 10-K. ITEM 1. BUSINESS General 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 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, over the long term, the limited new supply of upscale apartment homes in these markets will result in larger increases in cash flows relative to other markets. 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. Our markets are located in the Northeast, Mid-Atlantic, Midwest, Pacific Northwest, and Northern and Southern California regions of the United States. We believe that we have penetrated substantially all of the high barrier-to-entry markets of the country. As of March 1, 2002, we owned or held a direct or indirect ownership interest in 126 operating apartment communities containing 37,228 apartment homes in eleven states and the District of Columbia, of which three communities containing 1,896 apartment homes were under redevelopment. In addition to these operating communities, we also owned 15 communities under construction that will contain 3,963 apartment homes and rights to develop an additional 30 communities that, if developed as expected, will contain an estimated 8,918 apartment homes. We generally obtain ownership in an apartment community by developing a new community on vacant land or by acquiring and either repositioning or redeveloping an existing community. In selecting sites for development, redevelopment or acquisition, we favor locations that are near expanding employment centers and convenient to recreation areas, entertainment, shopping and dining. Our real estate investments consist of Established Communities, Other Stabilized Communities, Development Communities and Redevelopment Communities. A description of these segments and other related information can be found in Note 9 of the Consolidated Financial Statements set forth in Item 8 of this report. Our principal operating objectives are to develop, own and operate, in our selected markets, high quality, upscale communities that contain features and amenities desired by prospective residents, and to provide our residents with efficient and effective service. Our principal financial goals are to successfully implement those operating objectives in a cost effective manner and thereby increase long-term stockholder value by increasing operating cash flow and Funds from Operations (as defined by the National Association of Real Estate Investment Trusts). For a description of the meaning of Funds from Operations and its use and limitation as an operating measure, see the discussion titled "Funds from Operations" in Item 7 of this report. Our strategies and goals to achieve these objectives include: - generating consistent, sustained earnings growth at each community through increased revenue, by balancing high occupancy with premium pricing, and increased operating margins from operating expense management; - investing selectively in new development, redevelopment and acquisition communities in markets with growing or high potential for demand and high barriers-to-entry; - selling communities in markets where we seek to adjust our market penetration; and - maintaining a conservative capital structure to provide continuous access to cost-effective capital. We believe that we can generally implement these strategies best by developing, redeveloping, acquiring and managing upscale assets in supply-constrained markets while maintaining the financial discipline to ensure balance sheet flexibility. 1
Development Strategy. We carefully select land for development and follow established procedures that we believe minimize both the cost and the risks of development. As one of the largest developers of multifamily apartment communities in high barrier-to-entry markets of the United States, we identify development opportunities through local market presence and access to local market information achieved through our regional offices. In addition to our principal executive offices in Alexandria, Virginia, we also maintain regional offices and administrative or specialty offices in or near the following cities: - Boston, Massachusetts; - Chicago, Illinois; - Newport Beach, California; - New York, New York; - San Jose, California; - Wilton, Connecticut; - Woodbridge, New Jersey; and - Seattle, Washington After selecting a target site, we usually negotiate for the right to acquire the site either through an option or a long-term conditional contract. Options and long-term conditional contracts generally enable us to acquire the target site shortly before the start of construction, which reduces development-related risks as well as preserves capital. After we acquire land, we generally shift our focus to construction. Except for certain mid-rise and high-rise apartment communities where we may elect to use third-party general contractors or construction managers, we act as our own general contractor and construction manager. We believe this enables us to achieve higher construction quality, greater control over construction schedules and significant cost savings. Our development and property management teams monitor construction progress to ensure high quality workmanship and a smooth and timely transition into the leasing and operational phase. Redevelopment Strategy. When we undertake the redevelopment of a community, our goal is to generally renovate and/or rebuild an existing community so that our total investment is significantly below replacement cost and the community is the highest quality apartment community or best rental value for an upscale apartment community in its local area. We have established procedures to minimize both the cost and risks of redevelopment. Our redevelopment teams, which include key redevelopment, construction and property management personnel, monitor redevelopment progress. We believe we achieve significant cost savings by acting as our own general contractor. More importantly, this helps to ensure high quality design and workmanship and a smooth and timely transition into the lease-up and restabilization phase. Disposition Strategy. To optimize our concentration of communities in selected high barrier-to-entry markets, we sell assets that do not meet our long-term investment criteria when market conditions are favorable and redeploy the proceeds from those sales to develop and redevelop communities under construction or reconstruction. This disposition strategy acts as a source of capital because we are able to redeploy the net proceeds from our dispositions in lieu of raising that amount of capital externally. When we decide to sell a community, 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 disposed of a total of seven communities since January 1, 2001. The net proceeds from the sale of these assets were approximately $239,000,000. However, we cannot provide assurance that we will be able to continue our current disposition strategy or that assets we identify for sale can be sold on terms that are satisfactory to us. For 2002, we plan to significantly curtail disposition activity in response to the current capital and real estate markets. Acquisition Strategy. Our core competencies in development and redevelopment discussed above allow us to be selective in the acquisitions we target. Between January 1, 2001 and March 1, 2002, we acquired three communities containing 995 apartment homes. These communities were acquired in connection with a forward purchase contract agreed to in 1997. This expansion is consistent with our strategy to achieve long-term earnings growth by providing a high quality platform for expansion while also providing additional economic and geographic diversity. The acquisition of these presale communities was designed to achieve rapid penetration into markets that are generally 2
supply constrained and in which we had no significant presence. We have one presale commitment provided for under a separate agreement which is expected to close in the second quarter of 2002. Property Management Strategy. We intend to increase operating income through innovative, proactive property management that will result in higher revenue with controlled operating expenses from communities. Our principle strategies to maximize revenue include: - strong focus on resident satisfaction; - staggering lease terms based on vacancy exposure by apartment type, so that lease expirations are better matched to each community's traffic patterns; - increasing rents as market conditions permit; - managing community occupancy for optimal rental revenue levels; and - applying new technology to optimize revenue from each community. Controlling operating expenses is another way in which we intend to increase earnings growth. Growth in our portfolio and the resulting increase in revenue allows for fixed operating costs to be spread over a larger volume of revenue, thereby increasing operating margins. We aggressively pursue real estate tax appeals and control operating expenses as follows: - record invoices on-site to ensure careful monitoring of budgeted versus actual expenses; - purchase supplies in bulk where possible; - bid third-party contracts on a volume basis; - strive to retain residents through high levels of service in order to eliminate the cost of preparing an apartment home for a new resident and to reduce marketing and vacant apartment utility costs; - perform turnover work in-house or hire third-parties, generally depending upon the least costly alternative; and - undertake preventive maintenance regularly to maximize resident satisfaction and property and equipment life. On-site property management teams receive bonuses based largely upon the net operating income produced at their respective communities. We are also pursuing ancillary services which could provide additional revenue sources. On a limited basis, we also manage properties for third parties, believing that doing so will provide information about new markets or provide an acquisition opportunity, thereby enhancing opportunities for growth. Technology Strategy. We believe that an innovative management information system 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 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 have invested in five technology companies in the belief that the development and application of their technology and services will improve the operating performance of our real estate holdings. Our most significant technology investment is in Realeum, Inc. Realeum is engaged in the development of an on-site property management system and leasing automation system to enable management to capture, review and analyze data to a greater extent than is possible using existing commercial software. To help monitor this investment, Thomas J. Sargeant, our Executive Vice President and Chief Financial Officer, is a director of Realeum. We are also a member of Constellation Real Technologies LLC, an entity formed by a number of real estate investment trusts and real estate operating companies for the purpose of investing in multi-sector real estate technology opportunities. Our original commitment to Constellation was $4,000,000 and we have contributed $959,000 to date. Constellation has proposed a reduction in the aggregate amount of capital commitments from its members. If that proposal is accepted, our revised commitment would fall to $2,600,000. The aggregate carrying value of all of our technology investments, including Realeum and Constellation, at March 1, 2002 was $4,800,000. 3
Financing Strategy. We have consistently maintained, and intend to continue to maintain, a conservative capital structure, largely comprised of common equity. At December 31, 2001, our debt-to-total market capitalization (i.e., the aggregate of the market value of common stock, the liquidation preference of preferred stock and the principle amount of debt) was 37.1%, and our permanent long-term floating rate debt, not including borrowings under the unsecured credit facility, was only 1.2% of total market capitalization. Before planned construction or reconstruction activity begins, we intend to arrange adequate capital sources to complete such undertakings, although we cannot assure you that we will be able to obtain such financing. During 2001, substantially all of our construction and reconstruction activities were funded by issuance of unsecured debt securities, asset sales, through nontaxable like-kind exchanges, and retained operating cash. In the event that financing cannot be obtained, we may have to abandon planned development activities, 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. We estimate that a portion of our short-term liquidity needs will be met from retained operating cash and borrowings under our $500,000,000 variable rate unsecured credit facility. At March 1, 2002, zero was outstanding, $85,820,000 was used to provide letters of credit and $414,180,000 was available for borrowing under the unsecured credit facility. If required, to meet the balance of our liquidity needs we will need to arrange additional capacity under our existing unsecured credit 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 access the capital markets as needed, we cannot assure you that we will be successful in completing these arrangements, sales or offerings. 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. Inflation and Tax Matters Substantially all of our leases are for a term of one year or less, which may enable us to realize increased rents upon renewal of existing leases or the beginning of new leases. Such short-term leases generally minimize the risk to us of the adverse effects of inflation, although as a general rule these leases permit residents to leave at the end of the lease term without penalty. Our current policy is generally to permit residents to terminate leases upon an agreed advance written notice and a lease termination payment, as provided for in the resident's lease. Short-term leases combined with relatively consistent demand have allowed rents, and therefore cash flow from the portfolio, to provide an attractive inflation hedge. We filed an election with our initial federal income tax return to be taxed as a REIT under the Internal Revenue Code of 1986, as amended, and intend to maintain our qualification as a REIT in the future. As a qualified REIT, with limited exceptions, we will not be taxed under federal and certain state income tax laws at the corporate level on our net income to the extent net income is distributed to our stockholders. We expect to make sufficient distributions to avoid income tax at the corporate level. Environmental Matters Under various federal, state and local environmental laws, ordinances and regulations, a current or previous owner or operator of real estate may be required, in many instances regardless of knowledge or responsibility, to investigate and remediate the effects of hazardous or toxic substances or petroleum product releases at such property. The owner or operator may be held liable to a governmental entity or to third parties for property damage and for investigation and remediation costs incurred by such parties in connection with the contamination, which may be substantial. The presence of such substances, or the failure to properly remediate the contamination, may adversely affect the owner's ability to borrow against, sell or rent such property. In addition, some environmental 4
laws create a lien on the contaminated site in favor of the government for damages and costs it incurs in connection with the contamination. Certain federal, state and local laws, regulations and ordinances govern the removal, encapsulation or disturbance of asbestos-containing materials, or ACMs, when such materials are in poor condition or in the event of construction, remodeling, renovation or demolition of a building. Such laws may impose liability for release of ACMs and may provide for third parties to seek recovery from owners or operators of real properties for personal injury associated with ACMs. In connection with our ownership and operation of apartment communities, we potentially may be liable for such costs. We are not aware that any ACMs were used in connection with the construction of the communities developed by us. However, we are aware that ACMs were used in connection with the construction of certain communities acquired by us. We do not anticipate that we will incur any material liabilities in connection with the presence of ACMs at these communities. We currently have an operations and maintenance program for ACMs at each of the communities at which ACMs have been detected. When excessive moisture accumulates in buildings or on building materials, mold growth may occur, particularly if the moisture problem remains undiscovered or is not addressed over a period of time. Some molds may produce toxins or irritants. Concern about indoor exposure to mold has been increasing as exposure to mold may cause a variety of health effects and symptoms, including allergic or other reactions. As a result, the presence of significant mold at a community owned by us could require us to undertake a costly remediation program to contain or remove the mold from the affected community. In addition, the presence of significant mold could expose us to liability from residents and others if property damage or health concerns arise. We are also aware that certain communities have lead paint and we are undertaking or intend to undertake appropriate remediation. All of our stabilized operating communities, and all of the communities that we are currently developing or redeveloping, have been subjected to at least a Phase I or similar environmental assessment which generally does not involve invasive techniques such as soil or ground water sampling. These assessments have not revealed any environmental conditions that we believe will have a material adverse effect on our business, assets, financial condition or results of operations. We are not aware of any other environmental conditions which would have such a material adverse effect. However, we are aware that the migration of contamination from an upgradient landowner near a community owned by us (Avalon at Silicon Valley, formerly known as Toscana) has affected the groundwater there. The upgradient landowner is undertaking remedial response actions and a ground water treatment system has been installed. We expect that the upgradient landowner will take all necessary remediation actions and ensure the ongoing operation and maintenance of the ground water treatment system. The upgradient landowner has also provided an indemnity that runs to current and future owners of the property and upon which we may be able to rely if environmental liability arises from the groundwater contamination. Additionally, prior to 1994, we had occasionally been involved in developing, managing, leasing and operating various properties for third parties. Consequently, we may be considered to have been an operator of such properties and, therefore, potentially liable for removal or remediation costs or other potential costs which could relate to hazardous or toxic substances. We are not aware of any material environmental liabilities with respect to properties that we managed or developed for such third parties. 5
We cannot provide assurance that: - the environmental assessments identified all potential environmental liabilities; - no prior owner created any material environmental condition not known to us or the consultants who prepared the assessments; - no environmental liabilities developed since such environmental assessments were prepared; - the condition of land or operations in the vicinity of our communities, such as the presence of underground storage tanks, will not affect the environmental condition of such communities; - future uses or conditions, including, without limitation, changes in applicable environmental laws and regulations, will not result in the imposition of environmental liability; or - no environmental liabilities will develop at communities that have been sold pursuant to our disposition strategy for which we may have liability. ITEM 2. COMMUNITIES Our real estate investments consist of current operating apartment communities, communities in various stages of development, and land or land options held for development. The following is a description of each category: Current Communities are categorized as Established, Other Stabilized, Lease-Up, or Redevelopment according to the following: - Established Communities (also known as Same Store Communities) are communities where a comparison of operating results from the prior year to the current year is meaningful, as these communities were owned and had stabilized operating costs as of the beginning of the prior year. We determine which of our communities fall into the Established Communities category annually on January 1 of each year and maintain that classification throughout the year. For the year 2001, the Established Communities were communities that had stabilized operating costs as of January 1, 2000. - Other Stabilized Communities are all other completed communities that have stabilized occupancy and are not undergoing or planning redevelopment activities. We consider a community to have stabilized occupancy at the earlier of (i) attainment of 95% occupancy or (ii) the one-year anniversary of completion of development or redevelopment. For the year 2001, Other Stabilized Communities therefore include communities that were either acquired or achieved stabilization after January 1, 2000 and that were not undergoing or planning redevelopment activities. - Lease-Up Communities are communities where construction has been complete for less than one year and where occupancy has not reached 95%. - Redevelopment Communities are communities where substantial redevelopment is in progress or is planned to take place during the current year. Redevelopment is considered substantial when capital invested during the reconstruction effort exceeds the lesser of $5,000,000 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, a leasehold interest, for which we are the buyer under a long-term conditional contract to purchase 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. 6
As of December 31, 2001, our communities were classified as follows: <TABLE> <CAPTION> Number of Number of communities apartment homes ----------- --------------- <S> <C> <C> Current Communities - ------------------- Established Communities: Northeast 20 5,416 Mid-Atlantic 18 5,297 Midwest 6 1,591 Pacific Northwest 2 486 Northern California 27 7,851 Southern California 11 3,112 ------ ------ Total Established 84 23,753 Other Stabilized Communities: Northeast 15 3,901 Mid-Atlantic 3 1,125 Midwest 3 1,033 Pacific Northwest 9 2,573 Northern California 3 1,038 Southern California 4 1,397 ------ ------ Total Other Stabilized 37 11,067 Lease-Up Communities 2 512 Redevelopment Communities 3 1,896 ------ ------ Total Current Communities 126 37,228 ====== ====== Development Communities 15 3,963 - ----------------------- ====== ====== Development Rights 30 8,918 - ------------------ ====== ====== </TABLE> Our holdings under each of the above categories are discussed on the following pages. Current Communities The Current Communities are primarily garden-style apartment communities consisting of two and three-story buildings in landscaped settings. The Current Communities, as of March 1, 2002, include 100 garden-style, 15 high-rise and 11 mid-rise apartment communities. The Current Communities offer many attractive amenities including some or all of the following: - vaulted ceilings; - lofts; - fireplaces; - patios/decks; and - modern appliances. Other features at various communities may include: - swimming pools; - fitness centers; - tennis courts; and - business centers. We also have an extensive and ongoing maintenance program to keep all communities and apartment homes substantially free of deferred maintenance and, where vacant, available for immediate occupancy. We believe that 7
the aesthetic appeal of our communities and a service oriented property management team focused on the specific needs of residents enhances market appeal to discriminating residents. We believe this will ultimately achieve higher rental rates and occupancy levels while minimizing resident turnover and operating expenses. These Current Communities are located in the following geographic markets: <TABLE> <CAPTION> Number of Number of Percentage of total communities at apartment homes at apartment homes at ------------------- ------------------- --------------------- 1-1-01 3-1-02 1-1-01 3-1-02 1-1-01 3-1-02 ------ ------ ------ ------ ------ ------ <S> <C> <C> <C> <C> <C> <C> NORTHEAST 36 38 11,043 10,877 29.7% 29.3% Boston, MA 10 11 2,734 2,839 7.3% 7.6% Fairfield County, CT 11 11 2,960 2,939 8.0% 7.9% Hartford, CT 1 -- 932 - 2.5% 0.0% Long Island, NY 3 3 915 915 2.5% 2.5% Northern New Jersey 3 4 1,124 1,394 3.0% 3.8% Central New Jersey 3 3 1,144 1,144 3.1% 3.1% New York, NY 5 6 1,234 1,646 3.3% 4.4% MID-ATLANTIC 20 21 5,910 6,422 15.9% 17.2% Baltimore, MD 4 4 1,052 1,054 2.8% 2.8% Washington, DC 16 17 4,858 5,368 13.1% 14.4% MIDWEST 9 9 2,624 2,624 7.1% 7.1% Chicago, IL 4 4 1,296 1,296 3.5% 3.5% Minneapolis, MN 5 5 1,328 1,328 3.6% 3.6% PACIFIC NORTHWEST 9 12 2,638 3,159 7.1% 8.5% Portland, OR 2 -- 776 - 2.1% 0.0% Seattle, WA 7 12 1,862 3,159 5.0% 8.5% NORTHERN CALIFORNIA 31 30 9,115 8,889 24.6% 23.8% Oakland-East Bay, CA 6 6 2,090 2,090 5.6% 5.6% San Francisco, CA 9 8 1,991 1,765 5.4% 4.7% San Jose, CA 16 16 5,034 5,034 13.6% 13.5% SOUTHERN CALIFORNIA 18 16 5,817 5,257 15.6% 14.1% Los Angeles, CA 6 4 2,561 2,001 6.9% 5.4% Orange County, CA 8 8 2,022 2,022 5.4% 5.4% San Diego, CA 4 4 1,234 1,234 3.3% 3.3% ------ ------ ------ ------ ------ ------ 123 126 37,147 37,228 100.0% 100.0% ====== ====== ====== ====== ====== ====== </TABLE> We manage and operate all of the Current Communities. During the year ended December 31, 2001, we completed construction of 1,656 apartment homes in six communities for a total cost of $274,000,000. The average age of the Current Communities, on a weighted average basis according to number of apartment homes, is 6.9 years. 8
Of the Current Communities, as of March 1, 2002, we own: - a fee simple, or absolute, ownership interest in 103 operating communities, one of which is on land subject to a 149 year land lease; - a general partnership interest in four 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 17 communities; - 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; and - a membership interest in a limited liability company that holds a fee simple interest in one Redevelopment community. We also hold a fee simple ownership interest in eleven 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 we 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 paid to the holders of units of limited partnership interests approximate the current AvalonBay common stock dividend amount. 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 our common stock on the date of redemption. In lieu of cash, we may elect to acquire any unit presented for redemption for one share of our common stock. As of December 31, 2001, there were 905,946 units outstanding. The DownREIT partnerships are consolidated for financial reporting purposes. 9
PROFILE OF CURRENT AND DEVELOPMENT COMMUNITIES (Dollars in thousands, except per apartment home data) <TABLE> <CAPTION> Approx. Number of rentable area City and state homes (Sq. Ft.) Acres ------------------------------------------------ ---------------------------- ----------- --------------- --------- <S> <C> <C> <C> <C> CURRENT COMMUNITIES (1) NORTHEAST BOSTON, MA Avalon at Prudential Center Boston, MA 781 747,954 1.0 Longwood Towers Brookline, MA 277 289,361 4.5 Avalon Summit Quincy, MA 245 203,848 9.1 Avalon at Lexington Lexington, MA 198 231,182 18.0 Avalon at Faxon Park Quincy, MA 171 175,494 8.3 Avalon West Westborough, MA 120 147,472 10.1 Avalon Oaks Wilmington, MA 204 229,748 22.5 Avalon Essex Peabody, MA 154 173,520 11.1 Avalon at Center Place Providence, RI 225 231,671 1.2 Avalon Estates Hull, MA 162 188,392 55.0 FAIRFIELD-NEW HAVEN, CT Avalon Walk I & II Hamden, CT 764 761,441 38.4 Avalon Glen Stamford, CT 238 221,828 4.1 Avalon Gates Trumbull, CT 340 381,322 37.0 Avalon Springs Wilton, CT 102 158,259 12.0 Avalon Valley Danbury, CT 268 297,479 17.1 Avalon Lake Danbury, CT 135 166,231 32.0 Avalon Corners Stamford, CT 195 192,174 3.2 Avalon Haven North Haven, CT 128 140,107 10.6 LONG ISLAND, NY Avalon Commons Smithtown, NY 312 363,049 20.6 Avalon Towers Long Beach, NY 109 124,836 1.3 Avalon Court Melville, NY 494 597,104 35.4 NORTHERN NEW JERSEY Avalon Cove Jersey City, NJ 504 574,675 11.1 The Tower at Avalon Cove Jersey City, NJ 269 241,825 2.8 Avalon Crest Fort Lee, NJ 351 371,411 13.1 Avalon at Florham Park Florham Park, NJ 270 331,560 41.9 CENTRAL NEW JERSEY Avalon Watch West Windsor, NJ 512 485,871 64.0 Avalon Run East Lawrenceville, NJ 206 265,198 27.0 NEW YORK, NY Avalon Gardens Nanuet, NY 504 638,439 55.0 Avalon View Wappingers Falls, NY 288 335,088 41.0 Avalon Green Elmsford, NY 105 113,538 16.9 The Avalon Bronxville, NY 110 119,186 1.5 Avalon Willow Mamaroneck, NY 227 199,945 4.0 Avalon on the Sound New Rochelle, NY 412 372,860 2.4 <CAPTION> Average economic Year of Average Physical occupancy completion/ size occupancy at ------------------------- acquisition (Sq. Ft.) 12/31/01 2001 2000 ------------------------------------------------ ------------- ----------- -------------- --------- --------- <S> <C> <C> <C> <C> <C> CURRENT COMMUNITIES (1) NORTHEAST BOSTON, MA Avalon at Prudential Center 1968/98 958 92.0% 94.9% (2) 98.1% (2) Longwood Towers 1993 1,045 95.5% 96.4% 96.6% Avalon Summit 1996 832 96.7% 96.8% 98.3% Avalon at Lexington 1994 1,168 92.9% 96.5% 98.5% Avalon at Faxon Park 1998 1,026 97.7% 97.4% 98.0% Avalon West 1996 1,229 97.5% 97.8% 97.9% Avalon Oaks 1999 1,023 92.2% 96.3% 98.3% Avalon Essex 2000 1,127 97.4% 96.4% 69.8% (3) Avalon at Center Place 1997 1,030 91.4% 96.1% 97.2% Avalon Estates 2001 1,163 96.9% 91.2% (3) N/A FAIRFIELD-NEW HAVEN, CT Avalon Walk I & II 1992/94 996 96.2% 98.5% 97.9% Avalon Glen 1991 932 95.4% 96.5% 97.4% Avalon Gates 1997 1,122 97.9% 98.8% 98.4% Avalon Springs 1996 1,552 88.2% 95.9% 99.1% Avalon Valley 1999 1,070 99.6% 99.0% 99.0% Avalon Lake 1999 1,184 96.3% 98.1% 99.2% Avalon Corners 2000 986 91.8% 96.5% 92.9% (3) Avalon Haven 2000 1,095 96.9% 98.8% 71.8% (3) LONG ISLAND, NY Avalon Commons 1997 1,164 93.6% 97.1% 98.8% Avalon Towers 1995 1,145 97.3% 99.0% 98.8% Avalon Court 1997/2000 1,209 99.4% 99.3% 97.3% (3) NORTHERN NEW JERSEY Avalon Cove 1997 1,140 91.7% 96.7% 98.0% The Tower at Avalon Cove 1999 905 89.2% 96.6% 98.6% Avalon Crest 1998 1,058 91.7% 94.2% 96.9% Avalon at Florham Park 2001 1,228 96.7% 91.8% (3) N/A CENTRAL NEW JERSEY Avalon Watch 1999 949 95.5% 96.7% 97.9% Avalon Run East 1996 1,287 95.6% 97.2% 98.3% NEW YORK, NY Avalon Gardens 1998 1,267 90.7% 94.3% 97.1% Avalon View 1993 1,164 99.0% 98.4% 98.2% Avalon Green 1995 1,081 88.6% 94.5% 98.8% The Avalon 1999 1,085 98.2% 97.8% 98.4% Avalon Willow 2000 881 91.6% 95.5% 86.2% (3) Avalon on the Sound 2001 905 77.2% 35.5% (3) N/A </Table>
<TABLE> <CAPTION> Average rental rate ------------------------ Financial $ per $ per reporting cost Apt (4) Sq. Ft. (5) ------------------------------------------------ --------- --------- ---------------- <S> <C> <C> <C> CURRENT COMMUNITIES (1) NORTHEAST BOSTON, MA Avalon at Prudential Center 2,448 2.42 (2) $ 144,558 Longwood Towers 2,085 1.97 $ 37,409 Avalon Summit 1,300 1.51 $ 16,510 Avalon at Lexington 1,997 1.65 $ 15,274 Avalon at Faxon Park 1,798 1.71 $ 15,158 Avalon West 1,844 1.47 $ 10,888 Avalon Oaks 1,702 1.46 $ 20,769 Avalon Essex 1,933 1.65 $ 21,405 Avalon at Center Place 2,103 1.96 $ 27,254 Avalon Estates 1,679 1.32 (3) $ 20,139 FAIRFIELD-NEW HAVEN, CT Avalon Walk I & II 1,242 1.23 $ 58,977 Avalon Glen 1,905 1.97 $ 31,170 Avalon Gates 1,534 1.35 $ 35,968 Avalon Springs 2,755 1.70 $ 16,711 Avalon Valley 1,540 1.37 $ 26,060 Avalon Lake 1,680 1.34 $ 16,995 Avalon Corners 2,237 2.19 $ 31,391 Avalon Haven 1,526 1.38 $ 13,765 LONG ISLAND, NY Avalon Commons 1,728 1.44 $ 33,268 Avalon Towers 2,691 2.33 $ 16,764 Avalon Court 2,081 1.71 $ 59,270 NORTHERN NEW JERSEY Avalon Cove 2,732 2.32 $ 91,722 The Tower at Avalon Cove 2,565 2.76 $ 49,619 Avalon Crest 2,302 2.05 $ 55,972 Avalon at Florham Park 2,358 1.76 (3) $ 41,286 CENTRAL NEW JERSEY Avalon Watch 1,325 1.35 $ 29,365 Avalon Run East 1,629 1.23 $ 16,272 NEW YORK, NY Avalon Gardens 1,864 1.39 $ 54,134 Avalon View 1,246 1.05 $ 18,159 Avalon Green 2,448 2.14 $ 12,567 The Avalon 3,342 3.02 $ 31,213 Avalon Willow 2,348 2.55 $ 46,946 Avalon on the Sound 2,743 1.08 (3) $ 90,218 </TABLE> 10
PROFILE OF CURRENT AND DEVELOPMENT COMMUNITIES (Dollars in thousands, except per apartment home data) <TABLE> <CAPTION> Approx. Number of rentable area City and state homes (Sq. Ft.) Acres ------------------------------------------------ ---------------------------- ----------- --------------- --------- <S> <C> <C> <C> <C> MID-ATLANTIC BALTIMORE, MD Avalon at Fairway Hills I & II Columbia, MD 720 724,253 42.1 Avalon at Symphony Glen Columbia, MD 176 179,867 10.0 Avalon Landing Annapolis, MD 158 117,033 13.8 WASHINGTON, DC Avalon at Ballston - Vermont & Quincy Towers Arlington, VA 454 420,242 2.3 Avalon Crescent McLean, VA 558 613,426 19.1 Avalon at Ballston - Washington Towers Arlington, VA 344 294,786 4.1 Avalon at Cameron Court Alexandria, VA 460 467,292 16.0 AutumnWoods Fairfax, VA 420 355,228 24.2 Avalon at Fair Lakes Fairfax, VA 234 285,822 10.0 Avalon at Dulles Sterling, VA 236 232,632 15.7 Avalon at Providence Park Fairfax, VA 141 148,211 4.0 Avalon at Fox Mill Herndon, VA 165 219,360 12.8 Avalon at Decoverly Rockville, MD 368 368,446 25.0 Avalon Knoll Germantown, MD 300 290,365 26.7 Avalon Fields I & II Gaithersburg, MD 288 292,282 9.2 Avalon Crossing Rockville, MD 132 147,690 5.0 4100 Massachusetts Avenue Washington, D.C. 308 298,725 2.7 Avalon at Arlington Square I Arlington, VA 510 583,950 14.2 MIDWEST CHICAGO, IL Avalon at Danada Farms Wheaton, IL 295 350,606 19.2 Avalon at West Grove Westmont, IL 400 388,500 17.4 Avalon at Stratford Green Bloomingdale, IL 192 237,204 12.7 200 Arlington Place Arlington Heights, IL 409 346,832 2.8 MINNEAPOLIS, MN Avalon at Devonshire Bloomington, MN 498 470,762 42.0 Avalon at Edinburgh Brooklyn Park, MN 198 222,130 11.3 Avalon at Town Centre Eagan, MN 248 235,518 18.7 Avalon at Town Square Plymouth, MN 160 144,026 8.3 Avalon at Woodbury Woodbury, MN 224 287,975 15.0 PACIFIC NORTHWEST SEATTLE, WA Avalon at Bear Creek Redmond, WA 264 288,250 22.0 Avalon Redmond Place Redmond, WA 222 206,004 22.0 Avalon Greenbriar Renton, WA 421 382,382 20.0 Avalon HighGrove Everett, WA 391 422,482 19.8 Avalon ParcSquare Redmond, WA 124 127,236 1.9 Avalon RockMeadow Mill Creek, WA 206 240,817 11.5 Avalon WildReed Everett, WA 234 259,080 22.3 Avalon Bellevue Bellevue, WA 202 164,226 1.7 Avalon Belltown Seattle, WA 100 80,200 0.7 Avalon Wynhaven Issaquah, WA 333 424,604 11.6 Avalon Brandemoor Lynwood, WA 424 453,602 22.6 Avalon WildWood Lynwood, WA 238 313,107 15.8 <CAPTION> Average economic Year of Average Physical ocupancy completion/ size occupancy at ------------------------- acquisition (Sq. Ft.) 12/31/01 2001 2000 ------------------------------------------------ ------------- ----------- -------------- --------- --------- <S> <C> <C> <C> <C> <C> MID-ATLANTIC BALTIMORE, MD Avalon at Fairway Hills I & II 1987/96 1,005 95.7% 96.8% 98.0% Avalon at Symphony Glen 1986 1,022 97.7% 97.1% 97.7% Avalon Landing 1995 741 96.8% 97.5% 97.9% WASHINGTON, DC Avalon at Ballston - Vermont & Quincy Towers 1997 926 89.2% 95.3% 97.5% Avalon Crescent 1996 1,099 91.4% 93.9% 98.2% Avalon at Ballston - Washington Towers 1990 857 95.1% 96.9% 97.6% Avalon at Cameron Court 1998 1,016 95.9% 96.3% 97.2% AutumnWoods 1996 846 94.0% 95.7% 97.7% Avalon at Fair Lakes 1998 1,221 93.2% 96.0% 97.6% Avalon at Dulles 1986 986 89.0% 95.5% 98.5% Avalon at Providence Park 1997 1,051 95.7% 96.4% 98.2% Avalon at Fox Mill 2000 1,329 92.7% 95.6% 98.0% (3) Avalon at Decoverly 1995 1,001 94.0% 97.0% 97.6% Avalon Knoll 1985 968 97.0% 97.8% 97.2% Avalon Fields I & II 1998 1,050 96.6% 97.2% 97.2% Avalon Crossing 1996 1,119 92.4% 95.3% 97.8% 4100 Massachusetts Avenue 1982 970 95.8% 96.4% 97.7% Avalon at Arlington Square I 2001 1,145 96.3% 49.9% (3) N/A MIDWEST CHICAGO, IL Avalon at Danada Farms 1997 1,188 97.6% 95.7% 96.1% Avalon at West Grove 1967 971 97.0% 96.4% 97.3% Avalon at Stratford Green 1997 1,235 90.6% 95.2% 97.1% 200 Arlington Place 1987/00 848 88.5% 95.1% 97.6% (3) MINNEAPOLIS, MN Avalon at Devonshire 1988 945 95.6% 95.4% 96.3% Avalon at Edinburgh 1992 1,122 90.4% 96.5% 94.2% Avalon at Town Centre 1986 950 92.3% 95.9% 98.4% Avalon at Town Square 1986 900 95.6% 96.8% 96.4% Avalon at Woodbury 1999 1,286 89.3% 93.9% 95.6% PACIFIC NORTHWEST SEATTLE, WA Avalon at Bear Creek 1998 1,092 91.7% 94.2% 95.5% Avalon Redmond Place 1991/97 928 91.9% 94.8% 96.4% Avalon Greenbriar 1987/88 908 96.4% 92.2% 87.8% (2) Avalon HighGrove 2000 1,081 91.6% 93.5% 94.5% (3) Avalon ParcSquare 2000 1,026 88.7% 94.2% 96.9% (3) Avalon RockMeadow 2000 1,169 93.2% 92.7% 94.4% (3) Avalon WildReed 2000 1,107 96.2% 95.9% 99.9% (3) Avalon Bellevue 2001 813 79.7% 63.5% (3) N/A Avalon Belltown 2001 802 41.0% 16.1% (3) N/A Avalon Wynhaven 2001 1,275 88.6% 95.1% (3) N/A Avalon Brandemoor 2001 1,070 95.5% 96.5% (3) N/A Avalon WildWood 2001 1,316 93.3% 96.0% (3) N/A <CAPTION> Average rental rate ------------------------ Financial $ per $ per reporting cost Apt (4) Sq. Ft. (5) ------------------------------------------------ --------- --------- ---------------- <S> <C> <C> <C> MID-ATLANTIC BALTIMORE, MD Avalon at Fairway Hills I & II 1,057 1.02 $ 44,612 Avalon at Symphony Glen 1,070 1.02 $ 9,070 Avalon Landing 977 1.28 $ 9,673 WASHINGTON, DC Avalon at Ballston - Vermont & Quincy Towers 1,422 1.46 $ 46,993 Avalon Crescent 1,668 1.42 $ 57,276 Avalon at Ballston - Washington Towers 1,407 1.59 $ 37,219 Avalon at Cameron Court 1,591 1.51 $ 43,223 AutumnWoods 1,151 1.30 $ 30,833 Avalon at Fair Lakes 1,500 1.18 $ 23,470 Avalon at Dulles 1,128 1.09 $ 11,857 Avalon at Providence Park 1,270 1.16 $ 11,299 Avalon at Fox Mill 1,647 1.18 $ 19,468 Avalon at Decoverly 1,311 1.27 $ 31,684 Avalon Knoll 1,020 1.03 $ 8,517 Avalon Fields I & II 1,286 1.23 $ 22,701 Avalon Crossing 1,701 1.45 $ 13,890 4100 Massachusetts Avenue 1,787 1.78 $ 35,692 Avalon at Arlington Square I 1,948 0.85 (3) $ 69,371 MIDWEST CHICAGO, IL Avalon at Danada Farms 1,411 1.14 $ 38,367 Avalon at West Grove 916 0.91 $ 29,706 Avalon at Stratford Green 1,433 1.10 $ 21,932 200 Arlington Place 1,235 1.38 $ 49,525 MINNEAPOLIS, MN Avalon at Devonshire 1,015 1.02 $ 37,296 Avalon at Edinburgh 1,130 0.97 $ 18,476 Avalon at Town Centre 1,007 1.02 $ 18,104 Avalon at Town Square 1,023 1.10 $ 10,852 Avalon at Woodbury 1,233 0.90 $ 25,963 PACIFIC NORTHWEST SEATTLE, WA Avalon at Bear Creek 1,270 1.10 $ 34,437 Avalon Redmond Place 1,186 1.21 $ 25,989 Avalon Greenbriar 963 0.98 $ 36,133 Avalon HighGrove 979 0.85 $ 39,604 Avalon ParcSquare 1,385 1.27 $ 19,025 Avalon RockMeadow 1,120 0.89 $ 24,457 Avalon WildReed 932 0.81 $ 22,950 Avalon Bellevue 1,399 1.09 (3) $ 30,572 Avalon Belltown 1,672 0.34 (3) $ 18,097 Avalon Wynhaven 1,380 1.03 (3) $ 52,554 Avalon Brandemoor 1,005 0.91 (3) $ 45,309 Avalon WildWood 1,194 0.87 (3) $ 32,865 </TABLE> 11
PROFILE OF CURRENT AND DEVELOPMENT COMMUNITIES (Dollars in thousands, except per apartment home data) <TABLE> <CAPTION> Approx. Number of rentable area City and state homes (Sq. Ft.) Acres ------------------------------------------------ ---------------------------- ----------- --------------- --------- <S> <C> <C> <C> <C> NORTHERN CALIFORNIA OAKLAND-EAST BAY, CA Waterford Hayward, CA 544 451,937 11.1 Avalon Fremont Fremont, CA 443 446,422 22.3 Avalon Pleasanton Pleasanton, CA 456 377,438 14.7 Avalon Dublin Dublin, CA 204 179,004 13.0 Avalon at Willow Creek Fremont, CA 235 197,575 3.5 Avalon at Union Square Union City, CA 208 150,140 8.5 SAN FRANCISCO, CA Crowne Ridge San Rafael, CA 254 221,525 21.9 Avalon at Sunset Towers San Francisco, CA 243 175,511 16.0 Avalon at Nob Hill San Francisco, CA 185 109,238 1.4 Avalon at Diamond Heights San Francisco, CA 154 123,080 2.6 Avalon Towers by the Bay San Francisco, CA 226 243,033 1.0 Avalon at Cedar Ridge Daly City, CA 195 141,411 8.0 Avalon Foster City Foster City, CA 288 222,276 11.0 Avalon Pacifica Pacifica, CA 220 186,785 7.7 SAN JOSE, CA Avalon Silicon Valley Sunnyvale, CA 710 658,591 13.6 Avalon at Blossom Hill San Jose, CA 324 322,207 7.5 Avalon Campbell Campbell, CA 348 326,796 8.0 CountryBrook San Jose, CA 360 323,012 14.0 Avalon at Pruneyard Campbell, CA 252 197,000 8.5 Avalon at Creekside Mountain View, CA 294 215,680 13.0 Avalon at River Oaks San Jose, CA 226 210,050 4.0 Avalon at Parkside Sunnyvale, CA 192 199,353 8.0 Avalon Mountain View Mountain View, CA 248 211,552 10.5 San Marino San Jose, CA 248 209,465 11.5 Avalon Sunnyvale Sunnyvale, CA 220 159,653 5.0 Avalon at Foxchase San Jose, CA 396 335,212 12.0 Fairway Glen San Jose, CA 144 119,492 6.0 Avalon Cupertino Cupertino, CA 311 293,328 8.0 Avalon on the Alameda San Jose, CA 305 299,722 8.9 Avalon Rosewalk I & II San Jose, CA 456 450,252 16.6 SOUTHERN CALIFORNIA LOS ANGELES, CA Avalon Woodland Hills Woodland Hills, CA 663 592,722 18.2 Avalon at Media Center Burbank, CA 748 530,114 14.7 Avalon Westside Terrace Los Angeles, CA 363 229,296 4.8 Avalon at Warner Center Woodland Hills, CA 227 191,645 6.8 ORANGE COUNTY, CA Avalon Huntington Beach Huntington Beach, CA 400 353,192 16.4 Avalon at Pacific Bay Huntington Beach, CA 304 268,000 9.7 Avalon at South Coast Costa Mesa, CA 258 208,890 8.9 Avalon Santa Margarita Rancho Santa Margarita, CA 301 229,593 20.0 Amberway Anaheim, CA 272 205,572 9.9 Avalon at Laguna Niguel Laguna Niguel, CA 176 174,848 10.0 Avalon Newport Costa Mesa, CA 145 120,690 6.6 Avalon Mission Viejo Mission Viejo, CA 166 124,600 7.8 <CAPTION> Average economic Year of Average Physical ocupancy completion/ size occupancy at ------------------------- acquisition (Sq. Ft.) 12/31/01 2001 2000 ------------------------------------------------ ------------- ----------- -------------- --------- --------- <S> <C> <C> <C> <C> <C> NORTHERN CALIFORNIA OAKLAND-EAST BAY, CA Waterford 1985/86 831 90.4% 94.7% 97.7% Avalon Fremont 1992/94 1,008 91.2% 95.8% 98.2% Avalon Pleasanton 1988/94 828 91.9% 92.8% 97.3% Avalon Dublin 1989/97 877 93.6% 94.4% 97.8% Avalon at Willow Creek 1985/94 841 96.6% 95.3% 98.5% Avalon at Union Square 1973/96 722 92.8% 95.5% 97.3% SAN FRANCISCO, CA Crowne Ridge 1973/96 872 98.0% 97.1% 97.4% Avalon at Sunset Towers 1961/96 722 95.1% 96.7% 98.5% Avalon at Nob Hill 1990/95 590 95.1% 93.7% 97.3% Avalon at Diamond Heights 1972/94 799 93.5% 95.2% 98.9% Avalon Towers by the Bay 1999 1,075 94.7% 91.4% 97.5% Avalon at Cedar Ridge 1975/97 725 98.0% 96.5% 97.8% Avalon Foster City 1973/94 772 97.6% 92.1% 94.8% Avalon Pacifica 1971/95 849 97.7% 97.3% 98.3% SAN JOSE, CA Avalon Silicon Valley 1997 928 85.1% 91.2% 97.9% Avalon at Blossom Hill 1995 994 82.7% 93.2% 98.1% Avalon Campbell 1995 939 82.8% 93.1% 97.0% CountryBrook 1985/96 897 84.7% 91.6% 97.4% Avalon at Pruneyard 1966/97 782 90.1% 95.9% 97.5% Avalon at Creekside 1962/97 734 95.6% 95.6% 89.9% (2) Avalon at River Oaks 1990/96 929 78.8% 93.4% 98.4% Avalon at Parkside 1991/96 1,038 96.9% 95.6% 98.1% Avalon Mountain View 1986 853 92.7% 97.5% 98.5% San Marino 1984/88 845 81.1% 91.0% 97.7% Avalon Sunnyvale 1987/95 726 90.5% 94.9% 98.5% Avalon at Foxchase 1986/87 844 89.3% 95.6% 97.5% Fairway Glen 1986 830 87.5% 94.0% 98.5% Avalon Cupertino 1999 943 92.9% 96.3% 98.3% Avalon on the Alameda 1999 983 83.0% 89.5% 96.6% Avalon Rosewalk I & II 1997/99 987 80.0% 91.9% 98.0% SOUTHERN CALIFORNIA LOS ANGELES, CA Avalon Woodland Hills 1989/97 894 94.1% 96.1% 96.1% Avalon at Media Center 1969/97 709 89.0% 83.8% (2) 89.4% (2) Avalon Westside Terrace 1966/97 632 94.2% 95.7% 92.4% Avalon at Warner Center 1979/98 844 98.7% 97.2% 97.8% ORANGE COUNTY, CA Avalon Huntington Beach 1972/97 883 91.8% 94.7% 96.1% Avalon at Pacific Bay 1971/97 882 95.7% 96.6% 96.7% Avalon at South Coast 1973/96 810 95.0% 94.8% 96.2% Avalon Santa Margarita 1990/97 763 92.0% 96.0% 97.3% Amberway 1983/98 756 94.5% 93.9% 95.5% Avalon at Laguna Niguel 1988/98 993 98.9% 96.1% 95.9% (2) Avalon Newport 1956/96 832 97.2% 97.9% 97.2% Avalon Mission Viejo 1984/96 751 98.8% 96.9% 97.1% <CAPTION> Average rental rate ------------------------ Financial $ per $ per reporting cost Apt (4) Sq. Ft. (5) ------------------------------------------------ --------- --------- ---------------- <S> <C> <C> <C> NORTHERN CALIFORNIA OAKLAND-EAST BAY, CA Waterford 1,267 1.44 $ 58,796 Avalon Fremont 1,718 1.63 $ 76,932 Avalon Pleasanton 1,443 1.62 $ 59,840 Avalon Dublin 1,540 1.66 $ 26,721 Avalon at Willow Creek 1,568 1.78 $ 33,977 Avalon at Union Square 1,341 1.77 $ 21,729 SAN FRANCISCO, CA Crowne Ridge 1,501 1.67 $ 30,869 Avalon at Sunset Towers 1,631 2.18 $ 28,123 Avalon at Nob Hill 1,638 2.60 $ 27,444 Avalon at Diamond Heights 1,611 1.92 $ 24,284 Avalon Towers by the Bay 3,260 2.77 $ 66,826 Avalon at Cedar Ridge 1,622 2.16 $ 25,530 Avalon Foster City 1,615 1.93 $ 42,790 Avalon Pacifica 1,593 1.83 $ 31,201 SAN JOSE, CA Avalon Silicon Valley 2,337 2.30 $ 120,806 Avalon at Blossom Hill 1,898 1.78 $ 60,736 Avalon Campbell 1,798 1.78 $ 59,928 CountryBrook 1,597 1.63 $ 47,777 Avalon at Pruneyard 1,548 1.90 $ 31,717 Avalon at Creekside 1,756 2.29 $ 42,966 Avalon at River Oaks 2,006 2.02 $ 45,580 Avalon at Parkside 2,026 1.87 $ 37,761 Avalon Mountain View 1,948 2.23 $ 50,260 San Marino 1,585 1.71 $ 33,739 Avalon Sunnyvale 1,645 2.15 $ 34,615 Avalon at Foxchase 1,497 1.69 $ 58,471 Fairway Glen 1,462 1.66 $ 17,074 Avalon Cupertino 2,221 2.27 $ 49,058 Avalon on the Alameda 2,284 2.08 $ 56,695 Avalon Rosewalk I & II 1,900 1.77 $ 78,110 SOUTHERN CALIFORNIA LOS ANGELES, CA Avalon Woodland Hills 1,232 1.32 $ 71,318 Avalon at Media Center 1,002 1.18 (2) $ 75,031 Avalon Westside Terrace 1,141 1.73 $ 37,079 Avalon at Warner Center 1,282 1.47 $ 26,329 ORANGE COUNTY, CA Avalon Huntington Beach 1,235 1.32 $ 37,126 Avalon at Pacific Bay 1,193 1.31 $ 31,859 Avalon at South Coast 1,128 1.32 $ 24,366 Avalon Santa Margarita 1,119 1.41 $ 23,570 Amberway 976 1.21 $ 21,260 Avalon at Laguna Niguel 1,193 1.15 $ 20,957 Avalon Newport 1,304 1.53 $ 10,102 Avalon Mission Viejo 1,097 1.42 $ 12,939 </TABLE> 12
PROFILE OF CURRENT AND DEVELOPMENT COMMUNITIES (Dollars in thousands, except per apartment home data) <TABLE> <CAPTION> Approx. Number of rentable area City and state homes (Sq. Ft.) Acres ------------------------------------------------ ---------------------------- ----------- --------------- --------- <S> <C> <C> <C> <C> SAN DIEGO, CA Avalon at Mission Bay San Diego, CA 564 402,327 5.7 Avalon at Cortez Hill San Diego, CA 294 224,840 1.2 Avalon at Mission Ridge San Diego, CA 200 208,100 4.0 Avalon at Penasquitos Hills San Diego, CA 176 141,120 8.8 DEVELOPMENT COMMUNITIES Avalon at Edgewater Edgewater, NJ 408 405,144 7.1 Avalon at Freehold Freehold, NJ 296 317,608 42.3 Avalon on Stamford Harbor Stamford, CT 323 336,566 12.1 Avalon Towers on the Peninsula Mountain View, CA 211 218,392 1.9 Avalon at Cahill Park San Jose, CA 218 218,245 3.8 Avalon Riverview Long Island City, NY 372 332,940 1.0 Avalon at Mission Bay North San Francisco, CA 250 244,224 1.4 Avalon Oaks West Wilmington, MA 120 123,960 27 Avalon Ledges Weymouth, MA 304 315,554 58.0 Avalon Orchards Marlborough, MA 156 186,500 23.0 Avalon at Arlington Square II Arlington, VA 332 325,499 6.1 Avalon at Flanders Hill Westborough, MA 280 299,978 62.0 Avalon New Canaan New Canaan, CT 104 130,104 9.1 Avalon at Rock Spring North Bethesda, MD 386 388,480 10.16 Avalon at Gallery Place I Washington, DC 203 183,326 0.5 <CAPTION> Average economic Year of Average Physical ocupancy completion/ size occupancy at ------------------------- acquisition (Sq. Ft.) 12/31/01 2001 2000 ------------------------------------------------ ------------- ----------- -------------- --------- --------- <S> <C> <C> <C> <C> <C> SAN DIEGO, CA Avalon at Mission Bay 1969/97 713 91.5% 97.1% 94.2% (2) Avalon at Cortez Hill 1973/98 765 90.1% 84.0% (2) 80.9% (2) Avalon at Mission Ridge 1960/97 1,041 98.5% 97.2% 98.0% Avalon at Penasquitos Hills 1982/97 802 93.8% 95.9% 97.6% DEVELOPMENT COMMUNITIES Avalon at Edgewater N/A 993 N/A N/A N/A Avalon at Freehold N/A 1,073 N/A N/A N/A Avalon on Stamford Harbor N/A 1,042 N/A N/A N/A Avalon Towers on the Peninsula N/A 1,035 N/A N/A N/A Avalon at Cahill Park N/A 1,001 N/A N/A N/A Avalon Riverview N/A 895 N/A N/A N/A Avalon at Mission Bay North N/A 977 N/A N/A N/A Avalon Oaks West N/A 1,033 N/A N/A N/A Avalon Ledges N/A 1,023 N/A N/A N/A Avalon Orchards N/A 1,219 N/A N/A N/A Avalon at Arlington Square II N/A 980 N/A N/A N/A Avalon at Flanders Hill N/A 1,099 N/A N/A N/A Avalon New Canaan N/A 1,251 N/A N/A N/A Avalon at Rock Spring N/A 1,006 N/A N/A N/A Avalon at Gallery Place I N/A 903 N/A N/A N/A <CAPTION> Average rental rate ------------------------ Financial $ per $ per reporting cost Apt (4) Sq. Ft. (5) ------------------------------------------------ --------- --------- ---------------- <S> <C> <C> <C> SAN DIEGO, CA Avalon at Mission Bay 1,217 1.66 $ 65,842 Avalon at Cortez Hill 1,198 1.32 (2) $ 34,282 Avalon at Mission Ridge 1,351 1.26 $ 21,567 Avalon at Penasquitos Hills 1,067 1.28 $ 14,187 DEVELOPMENT COMMUNITIES Avalon at Edgewater N/A N/A $ 72,383 Avalon at Freehold N/A N/A $ 31,740 Avalon on Stamford Harbor N/A N/A $ 36,479 Avalon Towers on the Peninsula N/A N/A $ 56,177 Avalon at Cahill Park N/A N/A $ 32,748 Avalon Riverview N/A N/A $ 67,765 Avalon at Mission Bay North N/A N/A $ 22,343 Avalon Oaks West N/A N/A $ 13,824 Avalon Ledges N/A N/A $ 22,134 Avalon Orchards N/A N/A $ 14,312 Avalon at Arlington Square II N/A N/A $ 24,119 Avalon at Flanders Hill N/A N/A $ 11,150 Avalon New Canaan N/A N/A $ 14,920 Avalon at Rock Spring N/A N/A $ 5,171 Avalon at Gallery Place I N/A N/A $ 17,711 </TABLE> (1) For the purpose of this table, Current Communities excludes communities held by unconsolidated real estate joint ventures. (2) Represents community which was under redevelopment during the year, resulting in lower average economic occupancy and average rental rate per square foot for the year. (3) Represents community that completed development or was purchased during the year, which could result in lower average economic occupancy and average rental rate per square foot for the year. (4) Represents the average rental revenue per occupied apartment home. (5) Costs are presented in accordance with generally accepted accounting principles. For current Development Communities, cost represents total costs incurred through December 31, 2001. 13
FEATURES AND RECREATIONAL AMENITIES - CURRENT AND DEVELOPMENT COMMUNITIES <TABLE> <CAPTION> 1 BR 2BR 3BR ---------- ------------------------ ------------------ Studios / 1/1.5 BA 1/1.5 BA 2/2.5/3 BA 2/2.5 BA 3BA efficiencies - --------------------------------------------------- ---------- ---------- ------------ ---------- ----- -------------- <S> <C> <C> <C> <C> <C> <C> CURRENT COMMUNITIES (1) NORTHEAST BOSTON, MA Avalon at Prudential Center 361 -- 237 -- 23 148 Longwood Towers 137 53 22 25 -- 78 Avalon Summit 154 61 28 2 -- -- Avalon at Lexington 28 24 90 56 -- -- Avalon at Faxon Park 68 -- 75 28 -- -- Avalon West 40 -- 55 25 -- -- Avalon Oaks 60 24 96 24 -- -- Avalon Essex 50 -- 62 -- -- -- Avalon at Center Place 103 -- 111 5 -- 6 Avalon Estates 66 16 80 -- -- -- FAIRFIELD-NEW HAVEN, CT Avalon Walk I & II 272 116 122 74 -- -- Avalon Glen 124 -- 114 -- -- -- Avalon Gates 122 -- 168 50 -- -- Avalon Springs -- -- 70 32 -- -- Avalon Valley 106 -- 134 28 -- -- Avalon Lake 36 -- 46 -- -- 24 Avalon Corners 118 -- 77 -- -- -- Avalon Haven 44 60 -- 24 -- -- LONG ISLAND, NY Avalon Commons 128 40 112 32 -- -- Avalon Towers -- -- 37 1 3 1 Avalon Court 172 54 194 44 30 -- NORTHERN NEW JERSEY Avalon Cove 190 -- 190 46 2 -- The Tower at Avalon Cove 147 24 74 24 -- -- Avalon Crest 96 -- 131 67 -- -- Avalon at Florham Park 46 -- 107 117 -- -- CENTRAL NEW JERSEY Avalon Watch 252 36 142 82 -- -- Avalon Run East 64 -- 106 36 -- -- NEW YORK, NY Avalon Gardens 208 48 144 104 -- -- Avalon View 115 47 62 64 -- -- Avalon Green 25 24 56 -- -- -- The Avalon 55 2 43 10 -- -- Avalon Willow 150 77 -- -- -- -- Avalon on the Sound 143 -- 184 22 20 43 MID-ATLANTIC BALTIMORE, MD Avalon at Fairway Hills I & II 283 223 154 60 -- -- Avalon at Symphony Glen 86 14 54 20 -- -- Avalon Landing 65 18 57 -- -- -- <CAPTION> Washer & dryer Parking hook-ups or Vaulted Other Total spaces units ceilings Lofts Fireplaces - --------------------------------------------------- ------- ------- --------- ------------- ---------- ------- ------------ <S> <C> <C> <C> <C> <C> <C> <C> CURRENT COMMUNITIES (1) NORTHEAST BOSTON, MA Avalon at Prudential Center 12 781 142 None None None None Longwood Towers 19 334 210 Some None None Some Avalon Summit -- 245 328 None None None None Avalon at Lexington -- 198 355 All Some Some Some Avalon at Faxon Park -- 171 287 All Some Some Some Avalon West -- 120 145 All Some Some Some Avalon Oaks -- 204 355 All Some Some Some Avalon Essex 42 154 259 All None Some Some Avalon at Center Place -- 225 345 All None None None Avalon Estates -- 162 354 All Some Some Some FAIRFIELD-NEW HAVEN, CT Avalon Walk I & II 180 764 1,528 All Some Some Half Avalon Glen -- 238 400 Most Some Some Some Avalon Gates -- 340 580 All Some Some None Avalon Springs -- 102 153 All Half Half Most Avalon Valley -- 268 626 All Some Some Some Avalon Lake 29 135 382 All Some Some Some Avalon Corners -- 195 273 All Some Some Some Avalon Haven -- 128 256 All None Some Some LONG ISLAND, NY Avalon Commons -- 312 538 All Some Some Some Avalon Towers 67 109 198 All None None None Avalon Court -- 494 1,110 All Some Most Some NORTHERN NEW JERSEY Avalon Cove 76 504 464 All Some Some Some The Tower at Avalon Cove -- 269 263 All None None None Avalon Crest 57 351 364 All Some Some Some Avalon at Florham Park -- 270 611 All Most None Some CENTRAL NEW JERSEY Avalon Watch -- 512 768 Most Some None Some Avalon Run East -- 206 345 All Some Some Some NEW YORK, NY Avalon Gardens -- 504 1,008 All Half Half Some Avalon View -- 288 576 All Some Some Some Avalon Green -- 105 179 All Some Half Some The Avalon -- 110 167 All Some Some Some Avalon Willow -- 227 379 All Some Some None Avalon on the Sound -- 412 645 Most None Some None MID-ATLANTIC BALTIMORE, MD Avalon at Fairway Hills I & II -- 720 1,137 All Some None Some Avalon at Symphony Glen -- 174 266 All Some None Most Avalon Landing 18 158 257 All None None Most <CAPTION> Large Balcony, Non- storage patio, direct Direct or walk-in deck or Built-in access access closet sunroom bookcases Carports garages garages - --------------------------------------------------- ------------ ---------- ----------- ---------- --------- --------- <S> <C> <C> <C> <C> <C> <C> CURRENT COMMUNITIES (1) NORTHEAST BOSTON, MA Avalon at Prudential Center Most Some None No No No Longwood Towers Most Some Some No No No Avalon Summit None All None No Yes No Avalon at Lexington Most All None Yes Yes No Avalon at Faxon Park All All None No Yes No Avalon West All Half None No Yes Yes Avalon Oaks All All None No Yes No Avalon Essex All All None No Yes Yes Avalon at Center Place Half Some None No No No Avalon Estates All All None No Yes Yes FAIRFIELD-NEW HAVEN, CT Avalon Walk I & II All All Some Yes No No Avalon Glen Half Most None Yes Yes No Avalon Gates All All None Yes Yes No Avalon Springs All All None No No Yes Avalon Valley All All None Yes Yes No Avalon Lake All All None No Yes No Avalon Corners All All None No Yes No Avalon Haven All All None Yes Yes No LONG ISLAND, NY Avalon Commons All All None No Yes No Avalon Towers All Most None No No Yes Avalon Court All All None No Yes Yes NORTHERN NEW JERSEY Avalon Cove All Most None No Yes Some The Tower at Avalon Cove Half Some None No Yes No Avalon Crest All All None No Yes Yes Avalon at Florham Park All Some None No No Yes CENTRAL NEW JERSEY Avalon Watch All All None No Yes No Avalon Run East All All None Yes Yes Yes NEW YORK, NY Avalon Gardens All Most None Yes Yes Yes Avalon View Most All None Yes No No Avalon Green All All None Yes No No The Avalon Most Half None No Yes No Avalon Willow Most All None No Yes Yes Avalon on the Sound Most Some None No Yes No MID-ATLANTIC BALTIMORE, MD Avalon at Fairway Hills I & II Some All Some No No No Avalon at Symphony Glen All All Half No No No Avalon Landing Most All None Yes No No <CAPTION> Homes w/ pre-wired security systems - --------------------------------------------------- ----------- <S> <C> CURRENT COMMUNITIES (1) NORTHEAST BOSTON, MA Avalon at Prudential Center None Longwood Towers Some Avalon Summit None Avalon at Lexington All Avalon at Faxon Park All Avalon West All Avalon Oaks All Avalon Essex All Avalon at Center Place None Avalon Estates All FAIRFIELD-NEW HAVEN, CT Avalon Walk I & II Half Avalon Glen Most Avalon Gates All Avalon Springs All Avalon Valley All Avalon Lake All Avalon Corners All Avalon Haven All LONG ISLAND, NY Avalon Commons All Avalon Towers All Avalon Court All NORTHERN NEW JERSEY Avalon Cove All The Tower at Avalon Cove All Avalon Crest All Avalon at Florham Park All CENTRAL NEW JERSEY Avalon Watch None Avalon Run East All NEW YORK, NY Avalon Gardens All Avalon View None Avalon Green All The Avalon All Avalon Willow All Avalon on the Sound Some MID-ATLANTIC BALTIMORE, MD Avalon at Fairway Hills I & II None Avalon at Symphony Glen None Avalon Landing None </TABLE> 14
FEATURES AND RECREATIONAL AMENITIES - CURRENT AND DEVELOPMENT COMMUNITIES <TABLE> <CAPTION> 1 BR 2BR 3BR ---------- ------------------------ ------------------ Studios / 1/1.5 BA 1/1.5 BA 2/2.5/3 BA 2/2.5 BA 3BA efficiencies - --------------------------------------------------- ---------- ---------- ------------ ---------- ----- -------------- <S> <C> <C> <C> <C> <C> <C> WASHINGTON, DC Avalon at Ballston - Vermont & Quincy Towers 333 37 84 -- -- -- Avalon Crescent 186 26 346 -- -- -- Avalon at Ballston - Washington Towers 205 28 111 -- -- -- Avalon at Cameron Court 208 -- 168 -- -- -- AutumnWoods 220 72 96 -- -- -- Avalon at Fair Lakes 45 12 125 26 26 -- Avalon at Dulles 104 40 76 -- 16 -- Avalon at Providence Park 19 -- 112 4 -- -- Avalon at Fox Mill -- -- 92 73 -- -- Avalon at Decoverly 156 -- 104 64 44 -- Avalon Knoll 136 55 81 28 -- -- Avalon Fields I & II 74 32 84 32 -- -- Avalon Crossing -- 27 105 -- -- -- 4100 Massachusetts Avenue 160 70 -- 3 -- 27 Avalon at Arlington Square I 211 20 226 53 -- -- MIDWEST CHICAGO, IL Avalon at Danada Farms 80 52 134 29 -- -- Avalon at West Grove 200 200 -- -- -- -- Avalon at Stratford Green 45 9 108 21 -- -- 200 Arlington Place 142 89 148 -- -- 30 MINNEAPOLIS, MN Avalon at Devonshire 194 -- 304 -- -- -- Avalon at Edinburgh 56 -- 114 26 -- 2 Avalon at Town Centre 104 -- 111 33 -- -- Avalon at Town Square 76 -- 68 12 -- -- Avalon at Woodbury 41 -- 147 36 -- -- PACIFIC NORTHWEST SEATTLE, WA Avalon at Bear Creek 55 40 110 59 -- -- Avalon Redmond Place 76 44 67 35 -- -- Avalon Greenbriar 16 19 217 169 -- -- Avalon HighGrove 84 119 124 56 8 -- Avalon ParcSquare 31 26 55 5 7 -- Avalon RockMeadow 28 48 86 28 16 -- Avalon WildReed 36 60 78 60 -- -- Avalon Bellevue 110 -- 67 -- -- 25 Avalon Belltown 64 -- 20 -- -- 16 Avalon Wynhaven 3 42 239 13 28 -- Avalon Brandemoor 88 109 149 78 -- -- Avalon Wildwood 5 -- 211 -- 17 -- NORTHERN CALIFORNIA OAKLAND-EAST BAY, CA Waterford 208 -- 336 -- -- -- Avalon Fremont 130 81 176 -- 56 -- Avalon Pleasanton 238 -- 218 -- -- -- Avalon Dublin 72 8 60 48 -- -- Avalon at Willow Creek 99 -- 136 -- -- -- Avalon at Union Square 124 84 -- -- -- -- <CAPTION> Washer & dryer Parking hook-ups or Vaulted Other Total spaces units ceilings Lofts Fireplaces - --------------------------------------------------- ------- ------- --------- ------------- ---------- ------- ------------ <S> <C> <C> <C> <C> <C> <C> <C> WASHINGTON, DC Avalon at Ballston - Vermont & Quincy Towers -- 454 498 All None None None Avalon Crescent -- 558 662 All Some Some Half Avalon at Ballston - Washington Towers -- 344 415 All None None Some Avalon at Cameron Court 84 460 736 All Some Some Some AutumnWoods 32 420 727 All Some None Some Avalon at Fair Lakes -- 234 505 All Half None Half Avalon at Dulles -- 236 493 All Some None Some Avalon at Providence Park 6 141 287 All None None Most Avalon at Fox Mill -- 165 343 All Most None Most Avalon at Decoverly -- 368 584 All Some Some Most Avalon Knoll -- 300 482 All Some None Half Avalon Fields I & II 66 288 443 All Some Some Half Avalon Crossing -- 132 224 All Some Some Half 4100 Massachusetts Avenue 48 308 330 All None None Some Avalon at Arlington Square I -- 510 949 All Some Some Some MIDWEST CHICAGO, IL Avalon at Danada Farms -- 295 714 All None None Some Avalon at West Grove -- 400 860 None None None None Avalon at Stratford Green 9 192 437 All None None Some 200 Arlington Place -- 409 650 All None None None MINNEAPOLIS, MN Avalon at Devonshire -- 498 498 Most Some None Some Avalon at Edinburgh -- 198 210 All None None Some Avalon at Town Centre -- 248 250 All Some None Some Avalon at Town Square 4 160 162 All Some None Some Avalon at Woodbury -- 224 513 All None None Some PACIFIC NORTHWEST SEATTLE, WA Avalon at Bear Creek -- 264 470 All All None Most Avalon Redmond Place -- 222 384 All Some None Most Avalon Greenbriar -- 421 731 All Some None Most Avalon HighGrove -- 391 713 All Some None Most Avalon ParcSquare -- 124 196 All No None None Avalon RockMeadow -- 206 308 All Some None Most Avalon WildReed -- 234 462 All Some None Most Avalon Bellevue -- 202 304 All None Some Some Avalon Belltown -- 100 134 All None None None Avalon Wynhaven 8 333 260 All Most Some Most Avalon Brandemoor -- 424 732 All Some None Most Avalon Wildwood 5 238 16 All Some None Most NORTHERN CALIFORNIA OAKLAND-EAST BAY, CA Waterford -- 544 876 Some Some None None Avalon Fremont -- 443 830 All Most None Some Avalon Pleasanton -- 456 856 All Some None Most Avalon Dublin 16 204 427 Most Some None Most Avalon at Willow Creek -- 235 240 All None None None Avalon at Union Square -- 208 210 None None None Most <CAPTION> Large Balcony, Non- storage patio, direct Direct or walk-in deck or Built-in access access closet sunroom bookcases Carports garages garages - --------------------------------------------------- ------------ ---------- ----------- ---------- --------- --------- <S> <C> <C> <C> <C> <C> <C> WASHINGTON, DC Avalon at Ballston - Vermont & Quincy Towers Most All None No No Yes Avalon Crescent Most All Some No Yes Yes Avalon at Ballston - Washington Towers Most All None No No Yes Avalon at Cameron Court All Most None No Yes Yes AutumnWoods All All Some Yes No No Avalon at Fair Lakes All Most None No Yes Yes Avalon at Dulles All All Some No No No Avalon at Providence Park All All None No No No Avalon at Fox Mill All All None No No Yes Avalon at Decoverly Most All None No No No Avalon Knoll All All Some No No No Avalon Fields I & II All Most None No Yes No Avalon Crossing All All Some No Yes Yes 4100 Massachusetts Avenue Most All Some No Yes No Avalon at Arlington Square I All Some Some No No Yes MIDWEST CHICAGO, IL Avalon at Danada Farms All Some Some No No Yes Avalon at West Grove None All None Yes No No Avalon at Stratford Green Most Some Some No Yes Yes 200 Arlington Place All Some None No Yes No MINNEAPOLIS, MN Avalon at Devonshire Most Most Some No Yes Yes Avalon at Edinburgh Some All None No Yes No Avalon at Town Centre Some All None No Yes No Avalon at Town Square Some All None No Yes No Avalon at Woodbury Some Some None No No Yes PACIFIC NORTHWEST SEATTLE, WA Avalon at Bear Creek All All Some Yes Yes Yes Avalon Redmond Place All All None Yes Yes No Avalon Greenbriar All All Some Yes No No Avalon HighGrove Most All Some Yes Yes Yes Avalon ParcSquare All All None No No No Avalon RockMeadow Most All Some Yes Yes Yes Avalon WildReed Most All Some Yes Yes No Avalon Bellevue All All None No No No Avalon Belltown All Some None No No No Avalon Wynhaven All All None Yes Yes Yes Avalon Brandemoor All All Some Yes Yes Yes Avalon Wildwood Some Most None No No Yes NORTHERN CALIFORNIA OAKLAND-EAST BAY, CA Waterford All All None Yes No No Avalon Fremont Most All None Yes Yes No Avalon Pleasanton All All None Yes Yes Yes Avalon Dublin All All None No Yes No Avalon at Willow Creek All All None Yes No No Avalon at Union Square All All None Yes No No <CAPTION> Homes w/ pre-wired security systems - --------------------------------------------------- ----------- <S> <C> WASHINGTON, DC Avalon at Ballston - Vermont & Quincy Towers None Avalon Crescent All Avalon at Ballston - Washington Towers None Avalon at Cameron Court All AutumnWoods None Avalon at Fair Lakes None Avalon at Dulles None Avalon at Providence Park None Avalon at Fox Mill All Avalon at Decoverly None Avalon Knoll None Avalon Fields I & II All Avalon Crossing All 4100 Massachusetts Avenue None Avalon at Arlington Square I All MIDWEST CHICAGO, IL Avalon at Danada Farms None Avalon at West Grove None Avalon at Stratford Green None 200 Arlington Place None MINNEAPOLIS, MN Avalon at Devonshire None Avalon at Edinburgh None Avalon at Town Centre None Avalon at Town Square None Avalon at Woodbury None PACIFIC NORTHWEST SEATTLE, WA Avalon at Bear Creek All Avalon Redmond Place None Avalon Greenbriar None Avalon HighGrove All Avalon ParcSquare All Avalon RockMeadow All Avalon WildReed All Avalon Bellevue None Avalon Belltown Some Avalon Wynhaven All Avalon Brandemoor All Avalon Wildwood All NORTHERN CALIFORNIA OAKLAND-EAST BAY, CA Waterford None Avalon Fremont All Avalon Pleasanton None Avalon Dublin None Avalon at Willow Creek None Avalon at Union Square None </TABLE> 15
FEATURES AND RECREATIONAL AMENITIES - CURRENT AND DEVELOPMENT COMMUNITIES <TABLE> <CAPTION> 1 BR 2BR 3BR ---------- ------------------------ ------------------ Studios / 1/1.5 BA 1/1.5 BA 2/2.5/3 BA 2/2.5 BA 3BA efficiencies - --------------------------------------------------- ---------- ---------- ------------ ---------- ----- -------------- <S> <C> <C> <C> <C> <C> <C> SAN FRANCISCO, CA Crown Ridge 158 68 24 -- -- 4 Avalon at Sunset Towers 183 20 20 -- -- 20 Avalon at Nob Hill 114 -- 25 -- -- 46 Avalon at Diamond Heights 90 -- 49 15 -- -- Avalon Towers by the Bay 103 -- 120 -- 3 -- Avalon at Cedar Ridge 117 33 24 -- -- 21 Avalon Foster City 124 123 1 -- -- 40 Avalon Pacifica 58 106 56 -- -- -- SAN JOSE, CA Avalon Silicon Valley 338 -- 336 18 15 3 Avalon at Blossom Hill 90 -- 210 -- 24 -- Avalon Campbell 156 -- 180 -- 12 -- CountryBrook 108 -- 252 -- -- -- Avalon at Pruneyard 212 40 -- -- -- -- Avalon at Creekside 158 128 -- -- -- 8 Avalon at River Oaks 100 -- 126 -- -- -- Avalon at Parkside 60 -- 96 36 -- -- Avalon Mountain View 108 -- 88 52 -- -- San Marino 103 -- 145 -- -- -- Avalon Sunnyvale 112 10 54 -- -- 44 Avalon at Foxchase 168 -- 228 -- -- -- Fairway Glen 60 -- 84 -- -- -- Avalon Cupertino 145 -- 152 -- 14 -- Avalon on the Alameda 113 -- 164 -- 28 -- Avalon Rosewalk I & II 168 -- 264 -- 24 -- SOUTHERN CALIFORNIA LOS ANGELES, CA Avalon Woodland Hills 222 -- 441 -- -- -- Avalon at Media Center 296 102 117 12 -- 221 Avalon Westside Terrace 126 -- 102 -- -- 135 Avalon at Warner Center 88 54 65 20 -- -- ORANGE COUNTY, CA Avalon Huntington Beach -- 36 324 40 -- -- Avalon at Pacific Bay 144 56 104 -- -- -- Avalon at South Coast 124 -- 86 -- -- 48 Avalon Santa Margarita 160 -- 141 -- -- -- Amberway 114 48 48 -- -- 62 Avalon at Laguna Niguel -- -- 176 -- -- -- Avalon Newport 44 54 -- 35 -- 12 Avalon Mission Viejo 94 28 44 -- -- -- SAN DIEGO, CA Avalon at Mission Bay 270 9 165 -- -- 120 Avalon at Cortez Hill 114 -- 83 -- -- 97 Avalon at Mission Ridge 18 1 98 83 -- -- Avalon at Penasquitos Hills 48 48 80 -- -- -- <CAPTION> Washer & dryer Parking hook-ups or Vaulted Other Total spaces units ceilings Lofts Fireplaces - --------------------------------------------------- ------- ------- --------- ------------- ---------- ------- ------------ <S> <C> <C> <C> <C> <C> <C> <C> SAN FRANCISCO, CA Crown Ridge -- 254 377 Some Some None Some Avalon at Sunset Towers -- 243 244 None None None None Avalon at Nob Hill -- 185 104 None None None None Avalon at Diamond Heights -- 154 155 None Some None None Avalon Towers by the Bay -- 226 235 All Some None Some Avalon at Cedar Ridge -- 195 258 None None Some None Avalon Foster City -- 288 490 None None None None Avalon Pacifica -- 220 299 None None None Some SAN JOSE, CA Avalon Silicon Valley -- 710 1,400 All Some Some Some Avalon at Blossom Hill -- 324 562 All Some None None Avalon Campbell -- 348 588 All Some None None CountryBrook -- 360 694 All Some None All Avalon at Pruneyard -- 252 395 All None None None Avalon at Creekside -- 294 376 None None None Some Avalon at River Oaks -- 226 354 All None None Most Avalon at Parkside -- 192 192 All Some None Half Avalon Mountain View -- 248 248 All Some None None San Marino -- 248 436 All Some None None Avalon Sunnyvale -- 220 394 Some None None None Avalon at Foxchase -- 396 719 All Some None None Fairway Glen -- 144 226 All Some None None Avalon Cupertino -- 311 526 All Some None Some Avalon on the Alameda -- 305 558 All Some None Some Avalon Rosewalk I & II -- 456 648 All Some None Some SOUTHERN CALIFORNIA LOS ANGELES, CA Avalon Woodland Hills -- 663 1,300 Some None Some None Avalon at Media Center -- 748 838 Some None None Some Avalon Westside Terrace -- 363 487 None None None None Avalon at Warner Center -- 227 252 All Some None Some ORANGE COUNTY, CA Avalon Huntington Beach -- 400 790 None None None None Avalon at Pacific Bay -- 304 478 All None None None Avalon at South Coast 258 403 Some Half None None Avalon Santa Margarita -- 301 523 All None None None Amberway -- 272 454 None Some None None Avalon at Laguna Niguel -- 176 335 None Some None All Avalon Newport -- 145 235 Most Some None Some Avalon Mission Viejo -- 166 250 None None None None SAN DIEGO, CA Avalon at Mission Bay -- 564 695 None None None None Avalon at Cortez Hill -- 294 292 None None None None Avalon at Mission Ridge -- 200 384 Most None None Most Avalon at Penasquitos Hills -- 176 176 All None None All </TABLE>
<TABLE> <CAPTION> Large Balcony, Non- storage patio, direct Direct or walk-in deck or Built-in access access closet sunroom bookcases Carports garages garages - --------------------------------------------------- ------------ ---------- ----------- ---------- --------- --------- <S> <C> <C> <C> <C> <C> <C> SAN FRANCISCO, CA Crown Ridge None All None Yes No Yes Avalon at Sunset Towers None Some None No No Yes Avalon at Nob Hill None Some Most No Yes No Avalon at Diamond Heights All All None No Yes No Avalon Towers by the Bay Half Most None No No Yes Avalon at Cedar Ridge Some All None Yes No Yes Avalon Foster City Most Most None Yes No No Avalon Pacifica Some All None Yes Yes No SAN JOSE, CA Avalon Silicon Valley Most All Some No Yes No Avalon at Blossom Hill Most All None Yes Yes No Avalon Campbell All All None Yes Yes No CountryBrook None All None Yes Yes No Avalon at Pruneyard None Half None Yes Yes No Avalon at Creekside None Most None Yes No No Avalon at River Oaks All All None No No Yes Avalon at Parkside All All Some Yes Yes No Avalon Mountain View Some All None Yes No No San Marino Most All None Yes No No Avalon Sunnyvale All All None No No Yes Avalon at Foxchase Some All None Yes No No Fairway Glen None All None Yes No No Avalon Cupertino Some All Some No Yes No Avalon on the Alameda All All Some No Yes No Avalon Rosewalk I & II Some All Most Yes Yes No SOUTHERN CALIFORNIA LOS ANGELES, CA Avalon Woodland Hills Most All None No No No Avalon at Media Center Some Some None Yes Yes No Avalon Westside Terrace None All Some No No No Avalon at Warner Center Some All None Yes No No ORANGE COUNTY, CA Avalon Huntington Beach Most Most None Yes Yes No Avalon at Pacific Bay Half All None Yes Yes No Avalon at South Coast Half All None Yes Yes No Avalon Santa Margarita None All None Yes Yes No Amberway None All None Yes Yes No Avalon at Laguna Niguel None Most None Yes No No Avalon Newport Most Most Some Yes Yes No Avalon Mission Viejo None All None Yes Yes No SAN DIEGO, CA Avalon at Mission Bay Some All None No Yes No Avalon at Cortez Hill None All None No No Yes Avalon at Mission Ridge Most Most None No Yes No Avalon at Penasquitos Hills Some All All Yes No No <CAPTION> Homes w/ pre-wired security systems - --------------------------------------------------- ----------- <S> <C> SAN FRANCISCO, CA Crown Ridge None Avalon at Sunset Towers None Avalon at Nob Hill None Avalon at Diamond Heights None Avalon Towers by the Bay All Avalon at Cedar Ridge None Avalon Foster City None Avalon Pacifica None SAN JOSE, CA Avalon Silicon Valley None Avalon at Blossom Hill All Avalon Campbell All CountryBrook None Avalon at Pruneyard None Avalon at Creekside None Avalon at River Oaks None Avalon at Parkside None Avalon Mountain View None San Marino None Avalon Sunnyvale None Avalon at Foxchase None Fairway Glen Some Avalon Cupertino None Avalon on the Alameda All Avalon Rosewalk I & II All SOUTHERN CALIFORNIA LOS ANGELES, CA Avalon Woodland Hills None Avalon at Media Center None Avalon Westside Terrace None Avalon at Warner Center None ORANGE COUNTY, CA Avalon Huntington Beach None Avalon at Pacific Bay None Avalon at South Coast None Avalon Santa Margarita None Amberway None Avalon at Laguna Niguel None Avalon Newport None Avalon Mission Viejo None SAN DIEGO, CA Avalon at Mission Bay None Avalon at Cortez Hill None Avalon at Mission Ridge None Avalon at Penasquitos Hills None </TABLE> 16
FEATURES AND RECREATIONAL AMENITIES - CURRENT AND DEVELOPMENT COMMUNITIES <TABLE> <CAPTION> 1 BR 2BR 3BR ---------- ------------------------ ------------------ Studios / 1/1.5 BA 1/1.5 BA 2/2.5/3 BA 2/2.5 BA 3BA efficiencies - --------------------------------------------------- ---------- ---------- ------------ ---------- ----- -------------- <S> <C> <C> <C> <C> <C> <C> DEVELOPMENT COMMUNITIES Avalon at Edgewater 158 -- 190 60 -- -- Avalon at Freehold 42 41 176 37 -- -- Avalon on Stamford Harbor 159 -- 130 20 -- 14 Avalon Towers on the Peninsula 90 -- 115 -- 6 -- Avalon at Cahill Park 118 -- 94 -- 6 -- Avalon Riverview 184 -- 114 -- 31 43 Avalon at Mission Bay North 148 -- 95 6 -- 1 Avalon Oaks West 48 12 48 12 -- -- Avalon Ledges 124 -- 152 28 -- -- Avalon Orchards 69 12 75 -- -- -- Avalon at Arlington Square II 172 -- 116 44 -- -- Avalon at Flanders Hill 108 -- 142 30 -- -- Avalon New Canaan 16 -- 64 24 -- -- Avalon at Rock Spring 178 39 133 36 -- -- Avalon at Gallery Place I 111 77 -- 4 -- 11 <CAPTION> Washer & dryer Parking hook-ups or Vaulted Other Total spaces units ceilings Lofts Fireplaces - --------------------------------------------------- ------- ------- --------- ------------- ---------- ------- ------------ <S> <C> <C> <C> <C> <C> <C> <C> DEVELOPMENT COMMUNITIES Avalon at Edgewater -- 408 872 All None Some Some Avalon at Freehold -- 296 611 All Some Some Some Avalon on Stamford Harbor -- 323 543 All Some Some Some Avalon Towers on the Peninsula -- 211 512 All None None None Avalon at Cahill Park -- 218 283 All Some Some Some Avalon Riverview -- 372 128 All None None None Avalon at Mission Bay North -- 250 198 All None Some None Avalon Oaks West -- 120 233 All Some Some Some Avalon Ledges -- 304 610 All None Some Some Avalon Orchards -- 156 312 All None Half Some Avalon at Arlington Square II -- 332 563 All Some Some Some Avalon at Flanders Hill -- 280 569 All None Some Some Avalon New Canaan -- 104 202 All None Some Some Avalon at Rock Spring -- 386 678 All Some Some Some Avalon at Gallery Place I -- 203 125 All Some None None <CAPTION> Large Balcony, Non- storage patio, direct Direct or walk-in deck or Built-in access access closet sunroom bookcases Carports garages garages - --------------------------------------------------- ------------ ---------- ----------- ---------- --------- --------- <S> <C> <C> <C> <C> <C> <C> DEVELOPMENT COMMUNITIES Avalon at Edgewater All All None No No Yes Avalon at Freehold All All None No Yes No Avalon on Stamford Harbor Most All None No No No Avalon Towers on the Peninsula Most All None No Yes No Avalon at Cahill Park Most All None No Yes No Avalon Riverview Most Some None No Yes No Avalon at Mission Bay North All Some None No Yes No Avalon Oaks West All All None No Yes No Avalon Ledges All Some None No Yes No Avalon Orchards Most All None No Yes Yes Avalon at Arlington Square II Some All Some No No No Avalon at Flanders Hill All Some None No Yes Yes Avalon New Canaan All All None No Yes Yes Avalon at Rock Spring Most Most Some No No Yes Avalon at Gallery Place I All Some None None None None <CAPTION> Homes w/ pre-wired security systems - --------------------------------------------------- ----------- <S> <C> DEVELOPMENT COMMUNITIES Avalon at Edgewater Some Avalon at Freehold None Avalon on Stamford Harbor All Avalon Towers on the Peninsula No Avalon at Cahill Park No Avalon Riverview Some Avalon at Mission Bay North No Avalon Oaks West All Avalon Ledges Yes Avalon Orchards All Avalon at Arlington Square II Yes Avalon at Flanders Hill Yes Avalon New Canaan Yes Avalon at Rock Spring Yes Avalon at Gallery Place I None </TABLE> 17
FEATURES AND RECREATIONAL AMENITIES - CURRENT AND DEVELOPMENT COMMUNITIES (CONTINUED) <TABLE> <CAPTION> Buildings Community entrance Building entrance w/ security systems controlled access controlled access - ---------------------------------------------------- --------------------- ------------------- ------------------- <S> <C> <C> <C> CURRENT COMMUNITIES (1) NORTHEAST BOSTON, MA Avalon at Prudential Center None No Yes Longwood Towers None No No Avalon Summit None No Yes Avalon at Lexington None No Yes Avalon at Faxon Park None No Yes Avalon West None No Yes Avalon Oaks None No Yes Avalon Essex None No Yes Avalon at Center Place None Yes Yes Avalon Estates None No No FAIRFIELD-NEW HAVEN, CT Avalon Walk I & II None No No Avalon Glen None No Yes Avalon Gates None Yes No Avalon Springs All No No Avalon Valley None No No Avalon Lake None No No Avalon Corners All Yes Yes Avalon Haven None No No LONG ISLAND, NY Avalon Commons All No Yes Avalon Towers All No No Avalon Court All Yes Yes NORTHERN NEW JERSEY Avalon Cove All Yes Yes The Tower at Avalon Cove All No Yes Avalon Crest All Yes Yes Avalon at Florham Park None No No CENTRAL NEW JERSEY Avalon Watch None No Yes Avalon Run East None No No NEW YORK, NY Avalon Gardens All No No Avalon View None No No Avalon Green All No No The Avalon All No Yes Avalon Willow All Yes Yes Avalon on the Sound All Yes Yes MID-ATLANTIC BALTIMORE, MD Avalon at Fairway Hills I & II None No No Avalon at Symphony Glen None No No Avalon Landing None No No <CAPTION> Under- Aerobics ground parking dance studio Car wash Picnic area - ---------------------------------------------------- ---------------- -------------- ---------- ------------- <S> <C> <C> <C> <C> CURRENT COMMUNITIES (1) NORTHEAST BOSTON, MA Avalon at Prudential Center Yes No No Yes Longwood Towers No Yes No Yes Avalon Summit No No No Yes Avalon at Lexington No No No Yes Avalon at Faxon Park No No No Yes Avalon West No No No Yes Avalon Oaks No No No Yes Avalon Essex No No No Yes Avalon at Center Place Yes No Yes Yes Avalon Estates No No No Yes FAIRFIELD-NEW HAVEN, CT Avalon Walk I & II No Yes No Yes Avalon Glen Yes No No No Avalon Gates No No No Yes Avalon Springs No No No Yes Avalon Valley No No No Yes Avalon Lake No No No Yes Avalon Corners Yes No No Yes Avalon Haven No No No Yes LONG ISLAND, NY Avalon Commons No No No Yes Avalon Towers Yes No Yes No Avalon Court No No Yes Yes NORTHERN NEW JERSEY Avalon Cove No No No Yes The Tower at Avalon Cove No No No Yes Avalon Crest No No No No Avalon at Florham Park No No No No CENTRAL NEW JERSEY Avalon Watch No No No Yes Avalon Run East No No No Yes NEW YORK, NY Avalon Gardens No No No Yes Avalon View No No No Yes Avalon Green No No No No The Avalon Yes No No No Avalon Willow Yes No No Yes Avalon on the Sound No No No Yes MID-ATLANTIC BALTIMORE, MD Avalon at Fairway Hills I & II No No Yes Yes Avalon at Symphony Glen No No Yes Yes Avalon Landing No No Yes Yes </TABLE>
<TABLE> <CAPTION> Walking / jogging trail Pool Sauna / whirlpool Tennis court - ---------------------------------------------------- ------------------------- ------ ------------------- -------------- <S> <C> <C> <C> <C> CURRENT COMMUNITIES (1) NORTHEAST BOSTON, MA Avalon at Prudential Center No No No No Longwood Towers No No No No Avalon Summit No Yes No No Avalon at Lexington No Yes No No Avalon at Faxon Park No Yes Yes No Avalon West No Yes No No Avalon Oaks No Yes Yes No Avalon Essex No Yes Yes No Avalon at Center Place No Yes No No Avalon Estates Yes Yes Yes No FAIRFIELD-NEW HAVEN, CT Avalon Walk I & II Yes Yes No Yes Avalon Glen No Yes No No Avalon Gates No Yes No No Avalon Springs Yes Yes No No Avalon Valley No Yes No No Avalon Lake No Yes No No Avalon Corners No Yes No No Avalon Haven No Yes No No LONG ISLAND, NY Avalon Commons No Yes No No Avalon Towers No Yes No No Avalon Court Yes Yes No No NORTHERN NEW JERSEY Avalon Cove Yes Yes No Yes The Tower at Avalon Cove Yes Yes No Yes Avalon Crest No Yes No No Avalon at Florham Park No Yes No No CENTRAL NEW JERSEY Avalon Watch No Yes No Yes Avalon Run East Yes Yes No No NEW YORK, NY Avalon Gardens No Yes No Yes Avalon View No Yes No Yes Avalon Green No Yes No No The Avalon No No No No Avalon Willow No Yes No No Avalon on the Sound Yes Yes No No MID-ATLANTIC BALTIMORE, MD Avalon at Fairway Hills I & II No Yes No Yes Avalon at Symphony Glen Yes Yes No No Avalon Landing Yes Yes No No <CAPTION> Indoor Racquetball Fitness center Sand volleyball outdoor basketball - ---------------------------------------------------- ------------- ---------------- ----------------- -------------------- <S> <C> <C> <C> <C> CURRENT COMMUNITIES (1) NORTHEAST BOSTON, MA Avalon at Prudential Center No No No No Longwood Towers No Yes No No Avalon Summit No Yes No No Avalon at Lexington No Yes No Yes Avalon at Faxon Park No Yes No No Avalon West No No No Yes Avalon Oaks No Yes No No Avalon Essex No Yes No No Avalon at Center Place No Yes No No Avalon Estates No Yes No No FAIRFIELD-NEW HAVEN, CT Avalon Walk I & II Yes Yes No Yes Avalon Glen Yes Yes No No Avalon Gates Yes Yes Yes Yes Avalon Springs No Yes No No Avalon Valley No Yes No Yes Avalon Lake No Yes No No Avalon Corners No Yes No No Avalon Haven No Yes No No LONG ISLAND, NY Avalon Commons No Yes No Yes Avalon Towers No Yes No No Avalon Court Yes Yes No Yes NORTHERN NEW JERSEY Avalon Cove Yes Yes No Yes The Tower at Avalon Cove Yes Yes No Yes Avalon Crest No Yes No Yes Avalon at Florham Park No Yes No No CENTRAL NEW JERSEY Avalon Watch Yes Yes No Yes Avalon Run East No Yes No No NEW YORK, NY Avalon Gardens Yes Yes Yes Yes Avalon View No Yes No Yes Avalon Green No No Yes No The Avalon No Yes No No Avalon Willow Yes Yes No No Avalon on the Sound No Yes No Yes MID-ATLANTIC BALTIMORE, MD Avalon at Fairway Hills I & II Yes Yes No No Avalon at Symphony Glen No Yes No No Avalon Landing No Yes No No </TABLE>
<TABLE> <CAPTION> Clubhouse / clubroom Business center Totlot Concierge - ---------------------------------------------------- ---------------------- ----------------- -------- ----------- <S> <C> <C> <C> <C> CURRENT COMMUNITIES (1) NORTHEAST BOSTON, MA Avalon at Prudential Center Yes No No Yes Longwood Towers Yes No Yes Yes Avalon Summit No No No No Avalon at Lexington Yes No Yes No Avalon at Faxon Park Yes No Yes No Avalon West Yes No Yes No Avalon Oaks Yes No Yes No Avalon Essex Yes No No No Avalon at Center Place Yes No No Yes Avalon Estates No Yes Yes No FAIRFIELD-NEW HAVEN, CT Avalon Walk I & II Yes No Yes No Avalon Glen Yes No No Yes Avalon Gates Yes No Yes No Avalon Springs Yes No Yes No Avalon Valley Yes No Yes No Avalon Lake No No No No Avalon Corners Yes Yes No Yes Avalon Haven Yes No Yes No LONG ISLAND, NY Avalon Commons Yes Yes Yes No Avalon Towers Yes No No Yes Avalon Court Yes Yes Yes No NORTHERN NEW JERSEY Avalon Cove Yes Yes Yes Yes The Tower at Avalon Cove Yes Yes Yes Yes Avalon Crest Yes Yes No No Avalon at Florham Park Yes No No No CENTRAL NEW JERSEY Avalon Watch Yes No Yes No Avalon Run East Yes No Yes No NEW YORK, NY Avalon Gardens Yes Yes Yes Yes Avalon View Yes No Yes No Avalon Green Yes No No No The Avalon Yes Yes No Yes Avalon Willow Yes Yes No Yes Avalon on the Sound Yes Yes No Yes MID-ATLANTIC BALTIMORE, MD Avalon at Fairway Hills I & II Yes Yes Yes No Avalon at Symphony Glen Yes No Yes No Avalon Landing Yes No No No </TABLE> 18
FEATURES AND RECREATIONAL AMENITIES - CURRENT AND DEVELOPMENT COMMUNITIES (CONTINUED) <TABLE> <CAPTION> Buildings Community entrance Building entrance w/ security systems controlled access controlled access - ---------------------------------------------------- --------------------- ------------------- ------------------- <S> <C> <C> <C> WASHINGTON, DC Avalon at Ballston - Vermont & Quincy Towers None Yes Yes Avalon Crescent None Yes No Avalon at Ballston - Washington Towers None Yes Yes Avalon at Cameron Court All Yes No AutumnWoods None No No Avalon at Fair Lakes None Yes No Avalon at Dulles None No No Avalon at Providence Park None No No Avalon at Fox Mill None No No Avalon at Decoverly None No No Avalon Knoll None No Yes Avalon Fields I & II All No No Avalon Crossing None Yes No 4100 Massachusetts Avenue None Yes Yes Avalon at Arlington Square I None No Yes MIDWEST CHICAGO, IL Avalon at Danada Farms None No No Avalon at West Grove None No Yes Avalon at Stratford Green None No No 200 Arlington Place None No Yes MINNEAPOLIS, MN Avalon at Devonshire None No Yes Avalon at Edinburgh None No Yes Avalon at Town Centre None No Yes Avalon at Town Square None No Yes Avalon at Woodbury None No No PACIFIC NORTHWEST SEATTLE, WA Avalon at Bear Creek All Yes No Avalon Redmond Place None No No Avalon Greenbriar None No Yes Avalon HighGrove None No No Avalon ParcSquare None Yes Yes Avalon RockMeadow None No No Avalon WildReed None No No Avalon Bellevue None No Yes Avalon Belltown None Yes Yes Avalon Wynhaven None No Yes Avalon Brandemoor All No No Avalon Wildwood All No No NORTHERN CALIFORNIA OAKLAND-EAST BAY, CA Waterford Some Yes No Avalon Fremont All No No Avalon Pleasanton None No No Avalon Dublin None No No Avalon at Willow Creek Some Yes No Avalon at Union Square None Yes No <CAPTION> Under- Aerobics ground parking dance studio Car wash Picnic area - ---------------------------------------------------- ---------------- -------------- ---------- ------------- <S> <C> <C> <C> <C> WASHINGTON, DC Avalon at Ballston - Vermont & Quincy Towers Yes No No Yes Avalon Crescent No Yes Yes Yes Avalon at Ballston - Washington Towers Yes No No Yes Avalon at Cameron Court No Yes Yes Yes AutumnWoods No No Yes Yes Avalon at Fair Lakes No No Yes Yes Avalon at Dulles No No Yes No Avalon at Providence Park No No Yes No Avalon at Fox Mill No No Yes Yes Avalon at Decoverly No No Yes Yes Avalon Knoll No No Yes Yes Avalon Fields I & II No No Yes Yes Avalon Crossing No No Yes Yes 4100 Massachusetts Avenue Yes No No No Avalon at Arlington Square I No No No Yes MIDWEST CHICAGO, IL Avalon at Danada Farms No No No No Avalon at West Grove No No No Yes Avalon at Stratford Green No No Yes Yes 200 Arlington Place No No No No MINNEAPOLIS, MN Avalon at Devonshire Yes No Yes Yes Avalon at Edinburgh Yes No Yes Yes Avalon at Town Centre Yes No Yes Yes Avalon at Town Square Yes No Yes Yes Avalon at Woodbury No No No No PACIFIC NORTHWEST SEATTLE, WA Avalon at Bear Creek No No No Yes Avalon Redmond Place No No Yes No Avalon Greenbriar No No No Yes Avalon HighGrove No No No No Avalon ParcSquare Yes No No No Avalon RockMeadow No No No Yes Avalon WildReed No No No Yes Avalon Bellevue Yes No No No Avalon Belltown Yes No No No Avalon Wynhaven Yes No No Yes Avalon Brandemoor No No No Yes Avalon Wildwood No No No No NORTHERN CALIFORNIA OAKLAND-EAST BAY, CA Waterford No No Yes No Avalon Fremont Yes Yes Yes No Avalon Pleasanton No No Yes No Avalon Dublin No No Yes Yes Avalon at Willow Creek No No Yes Yes Avalon at Union Square No No No No <CAPTION> Walking / jogging trail Pool Sauna / whirlpool Tennis court - ---------------------------------------------------- ------------------------- ------ ------------------- -------------- <S> <C> <C> <C> <C> WASHINGTON, DC Avalon at Ballston - Vermont & Quincy Towers No Yes Yes No Avalon Crescent Yes Yes No No Avalon at Ballston - Washington Towers No Yes No Yes Avalon at Cameron Court No Yes Yes No AutumnWoods Yes Yes No Yes Avalon at Fair Lakes No Yes No Yes Avalon at Dulles Yes Yes Yes Yes Avalon at Providence Park No Yes No No Avalon at Fox Mill No Yes No No Avalon at Decoverly Yes Yes No Yes Avalon Knoll Yes Yes No Yes Avalon Fields I & II No Yes No No Avalon Crossing No Yes No No 4100 Massachusetts Avenue Yes Yes No No Avalon at Arlington Square I No Yes No No MIDWEST CHICAGO, IL Avalon at Danada Farms No Yes No No Avalon at West Grove No Yes Yes No Avalon at Stratford Green Yes Yes No No 200 Arlington Place No Yes No No MINNEAPOLIS, MN Avalon at Devonshire Yes Yes No Yes Avalon at Edinburgh Yes Yes Yes No Avalon at Town Centre Yes Yes Yes Yes Avalon at Town Square Yes Yes Yes Yes Avalon at Woodbury Yes Yes No No PACIFIC NORTHWEST SEATTLE, WA Avalon at Bear Creek Yes Yes Yes No Avalon Redmond Place Yes Yes Yes No Avalon Greenbriar No Yes Yes No Avalon HighGrove No Yes Yes No Avalon ParcSquare Yes No No No Avalon RockMeadow No Yes Yes No Avalon WildReed Yes Yes Yes No Avalon Bellevue No No No No Avalon Belltown No No No No Avalon Wynhaven Yes Yes Yes No Avalon Brandemoor No Yes Yes No Avalon Wildwood Yes Yes Yes No NORTHERN CALIFORNIA OAKLAND-EAST BAY, CA Waterford No Yes Yes No Avalon Fremont No Yes Yes No Avalon Pleasanton No Yes Yes No Avalon Dublin No Yes Yes No Avalon at Willow Creek No Yes Yes No Avalon at Union Square No Yes No No <CAPTION> Indoor Racquetball Fitness center Sand volleyball outdoor basketball - ---------------------------------------------------- ------------- ---------------- ----------------- -------------------- <S> <C> <C> <C> <C> WASHINGTON, DC Avalon at Ballston - Vermont & Quincy Towers No Yes No No Avalon Crescent No Yes No No Avalon at Ballston - Washington Towers No Yes No No Avalon at Cameron Court No Yes Yes Yes AutumnWoods No Yes Yes Yes Avalon at Fair Lakes No Yes No No Avalon at Dulles No Yes No No Avalon at Providence Park No Yes No No Avalon at Fox Mill No Yes No No Avalon at Decoverly Yes Yes No Yes Avalon Knoll No Yes No Yes Avalon Fields I & II No Yes No No Avalon Crossing No Yes No No 4100 Massachusetts Avenue No Yes No No Avalon at Arlington Square I No Yes No Yes MIDWEST CHICAGO, IL Avalon at Danada Farms No Yes No No Avalon at West Grove Yes Yes No No Avalon at Stratford Green No No No No 200 Arlington Place No Yes No No MINNEAPOLIS, MN Avalon at Devonshire No Yes No No Avalon at Edinburgh No Yes No No Avalon at Town Centre No Yes Yes No Avalon at Town Square No Yes Yes No Avalon at Woodbury No Yes No No PACIFIC NORTHWEST SEATTLE, WA Avalon at Bear Creek No Yes No No Avalon Redmond Place No Yes No No Avalon Greenbriar No Yes No Yes Avalon HighGrove No Yes No No Avalon ParcSquare No Yes No No Avalon RockMeadow No Yes No No Avalon WildReed No Yes No No Avalon Bellevue No Yes No No Avalon Belltown No Yes No No Avalon Wynhaven No Yes No Yes Avalon Brandemoor No Yes No No Avalon Wildwood No Yes No No NORTHERN CALIFORNIA OAKLAND-EAST BAY, CA Waterford No Yes No Yes Avalon Fremont No Yes No No Avalon Pleasanton No Yes No Yes Avalon Dublin No Yes Yes Yes Avalon at Willow Creek No Yes No No Avalon at Union Square No Yes No No <CAPTION> Clubhouse / clubroom Business center Totlot Concierge - ---------------------------------------------------- ---------------------- ----------------- -------- ----------- <S> <C> <C> <C> <C> WASHINGTON, DC Avalon at Ballston - Vermont & Quincy Towers Yes No No No Avalon Crescent Yes Yes Yes Yes Avalon at Ballston - Washington Towers Yes No No Yes Avalon at Cameron Court Yes Yes No No AutumnWoods Yes No Yes No Avalon at Fair Lakes Yes Yes No No Avalon at Dulles Yes No No No Avalon at Providence Park Yes Yes No No Avalon at Fox Mill Yes No Yes No Avalon at Decoverly Yes No Yes No Avalon Knoll No No Yes No Avalon Fields I & II Yes No Yes No Avalon Crossing Yes No Yes No 4100 Massachusetts Avenue Yes No No No Avalon at Arlington Square I Yes Yes Yes No MIDWEST CHICAGO, IL Avalon at Danada Farms Yes Yes No Yes Avalon at West Grove Yes Yes Yes No Avalon at Stratford Green Yes No No Yes 200 Arlington Place Yes No No No MINNEAPOLIS, MN Avalon at Devonshire Yes No No No Avalon at Edinburgh Yes No No No Avalon at Town Centre Yes No Yes No Avalon at Town Square Yes No Yes No Avalon at Woodbury No No No No PACIFIC NORTHWEST SEATTLE, WA Avalon at Bear Creek Yes Yes Yes No Avalon Redmond Place Yes No Yes No Avalon Greenbriar Yes No Yes No Avalon HighGrove Yes Yes Yes No Avalon ParcSquare Yes Yes No No Avalon RockMeadow Yes Yes Yes No Avalon WildReed Yes Yes Yes No Avalon Bellevue Yes Yes No Yes Avalon Belltown Yes No No No Avalon Wynhaven Yes Yes Yes No Avalon Brandemoor Yes Yes Yes No Avalon Wildwood Yes Yes Yes No NORTHERN CALIFORNIA OAKLAND-EAST BAY, CA Waterford No No Yes No Avalon Fremont Yes No No No Avalon Pleasanton No Yes Yes No Avalon Dublin No Yes No No Avalon at Willow Creek No No No No Avalon at Union Square No No No No </TABLE> 19
FEATURES AND RECREATIONAL AMENITIES - CURRENT AND DEVELOPMENT COMMUNITIES (CONTINUED) <TABLE> <CAPTION> Buildings Community entrance Building entrance w/ security systems controlled access controlled access - ---------------------------------------------------- --------------------- ------------------- ------------------- <S> <C> <C> <C> SAN FRANCISCO, CA Crown Ridge None No No Avalon at Sunset Towers All Yes Yes Avalon at Nob Hill None Yes Yes Avalon at Diamond Heights None No Yes Avalon Towers by the Bay None Yes Yes Avalon at Cedar Ridge None No No Avalon Foster City Some No No Avalon Pacifica None No No SAN JOSE, CA Avalon Silicon Valley Some Yes Yes Avalon at Blossom Hill None Yes Yes Avalon Campbell Some Yes Yes CountryBrook None Yes No Avalon at Pruneyard None No No Avalon at Creekside Some No No Avalon at River Oaks None No No Avalon at Parkside None No No Avalon Mountain View None No No San Marino None Yes No Avalon Sunnyvale None No No Avalon at Foxchase None No No Fairway Glen Some No No Avalon Cupertino None Yes Yes Avalon on the Alameda All Yes Yes Avalon Rosewalk I & II None Yes No SOUTHERN CALIFORNIA LOS ANGELES, CA Avalon Woodland Hills None Yes No Avalon at Media Center None No Yes Avalon Westside Terrace None Yes Yes Avalon at Warner Center None Yes Yes ORANGE COUNTY, CA Avalon Huntington Beach None Yes No Avalon at Pacific Bay None Yes No Avalon at South Coast None Yes No Avalon Santa Margarita None No No Amberway None Yes No Avalon at Laguna Niguel None No No Avalon Newport None No No Avalon Mission Viejo None Yes No SAN DIEGO, CA Avalon at Mission Bay None Yes Yes Avalon at Cortez Hill All Yes Yes Avalon at Mission Ridge Some No No Avalon at Penasquitos Hills None No No <CAPTION> Under- Aerobics ground parking dance studio Car wash Picnic area - ---------------------------------------------------- ---------------- -------------- ---------- ------------- <S> <C> <C> <C> <C> SAN FRANCISCO, CA Crown Ridge Yes No No No Avalon at Sunset Towers Yes No Yes Yes Avalon at Nob Hill Yes No No Yes Avalon at Diamond Heights Yes No No No Avalon Towers by the Bay Yes No No No Avalon at Cedar Ridge No No No No Avalon Foster City No No Yes No Avalon Pacifica No No No No SAN JOSE, CA Avalon Silicon Valley Yes Yes No Yes Avalon at Blossom Hill No No Yes No Avalon Campbell Yes Yes No Yes CountryBrook No No Yes No Avalon at Pruneyard No No No Yes Avalon at Creekside No No No Yes Avalon at River Oaks No No No Yes Avalon at Parkside Yes No No Yes Avalon Mountain View Yes No Yes Yes San Marino No No Yes No Avalon Sunnyvale Yes Yes Yes Yes Avalon at Foxchase Yes No Yes No Fairway Glen No No Yes Yes Avalon Cupertino Yes No No No Avalon on the Alameda Yes No No No Avalon Rosewalk I & II No Yes No Yes SOUTHERN CALIFORNIA LOS ANGELES, CA Avalon Woodland Hills Yes No No No Avalon at Media Center No No No Yes Avalon Westside Terrace Yes No No No Avalon at Warner Center No No No No ORANGE COUNTY, CA Avalon Huntington Beach No No No Yes Avalon at Pacific Bay No No No No Avalon at South Coast No No Yes No Avalon Santa Margarita No No No Yes Amberway No No No No Avalon at Laguna Niguel Yes No No No Avalon Newport No No Yes No Avalon Mission Viejo No No No No SAN DIEGO, CA Avalon at Mission Bay Yes Yes Yes No Avalon at Cortez Hill No No No No Avalon at Mission Ridge No No No Yes Avalon at Penasquitos Hills No No No Yes </TABLE>
<TABLE> <CAPTION> Walking / jogging trail Pool Sauna / whirlpool Tennis court - ---------------------------------------------------- ------------------------- ------ ------------------- -------------- <S> <C> <C> <C> <C> SAN FRANCISCO, CA Crown Ridge Yes Yes Yes No Avalon at Sunset Towers No No No No Avalon at Nob Hill No No No No Avalon at Diamond Heights No Yes Yes No Avalon Towers by the Bay No No Yes No Avalon at Cedar Ridge No Yes Yes No Avalon Foster City Yes Yes No No Avalon Pacifica No Yes No No SAN JOSE, CA Avalon Silicon Valley No Yes Yes Yes Avalon at Blossom Hill No Yes Yes No Avalon Campbell Yes Yes Yes No CountryBrook No Yes Yes No Avalon at Pruneyard No Yes Yes No Avalon at Creekside Yes Yes No Yes Avalon at River Oaks No Yes Yes No Avalon at Parkside No Yes Yes No Avalon Mountain View No Yes No No San Marino No Yes Yes No Avalon Sunnyvale No Yes Yes No Avalon at Foxchase No Yes Yes No Fairway Glen No Yes Yes No Avalon Cupertino No Yes Yes No Avalon on the Alameda No Yes Yes No Avalon Rosewalk I & II Yes Yes Yes No SOUTHERN CALIFORNIA LOS ANGELES, CA Avalon Woodland Hills No Yes Yes No Avalon at Media Center No Yes No No Avalon Westside Terrace No Yes Yes Yes Avalon at Warner Center No Yes Yes Yes ORANGE COUNTY, CA Avalon Huntington Beach No Yes Yes No Avalon at Pacific Bay No Yes Yes No Avalon at South Coast No Yes Yes Yes Avalon Santa Margarita Yes Yes Yes No Amberway No Yes Yes No Avalon at Laguna Niguel No Yes Yes No Avalon Newport No Yes Yes No Avalon Mission Viejo Yes Yes Yes No SAN DIEGO, CA Avalon at Mission Bay No Yes Yes Yes Avalon at Cortez Hill Yes Yes Yes Yes Avalon at Mission Ridge No Yes Yes No Avalon at Penasquitos Hills Yes Yes Yes Yes <CAPTION> Indoor Racquetball Fitness center Sand volleyball outdoor basketball - ---------------------------------------------------- ------------- ---------------- ----------------- -------------------- <S> <C> <C> <C> <C> SAN FRANCISCO, CA Crown Ridge No Yes No No Avalon at Sunset Towers No No No No Avalon at Nob Hill No Yes No No Avalon at Diamond Heights No Yes No No Avalon Towers by the Bay No Yes No No Avalon at Cedar Ridge No Yes No No Avalon Foster City No No No No Avalon Pacifica No Yes No No SAN JOSE, CA Avalon Silicon Valley No Yes No Yes Avalon at Blossom Hill No Yes No No Avalon Campbell No Yes Yes No CountryBrook No Yes No No Avalon at Pruneyard No Yes Yes Yes Avalon at Creekside No Yes Yes Yes Avalon at River Oaks No Yes No No Avalon at Parkside No Yes No Yes Avalon Mountain View No Yes No No San Marino No Yes No No Avalon Sunnyvale No Yes No No Avalon at Foxchase No Yes No No Fairway Glen No Yes No No Avalon Cupertino No Yes No No Avalon on the Alameda No Yes No No Avalon Rosewalk I & II No Yes No No SOUTHERN CALIFORNIA LOS ANGELES, CA Avalon Woodland Hills No Yes No No Avalon at Media Center No Yes No No Avalon Westside Terrace No Yes No Yes Avalon at Warner Center No Yes No No ORANGE COUNTY, CA Avalon Huntington Beach No Yes No No Avalon at Pacific Bay No Yes No No Avalon at South Coast No Yes Yes No Avalon Santa Margarita No Yes No No Amberway No Yes No No Avalon at Laguna Niguel No Yes No No Avalon Newport No Yes No No Avalon Mission Viejo No Yes No No SAN DIEGO, CA Avalon at Mission Bay No Yes Yes Yes Avalon at Cortez Hill No Yes No No Avalon at Mission Ridge No Yes No No Avalon at Penasquitos Hills Yes Yes Yes No <CAPTION> Clubhouse / clubroom Business center Totlot Concierge - ---------------------------------------------------- ---------------------- ----------------- -------- ----------- <S> <C> <C> <C> <C> SAN FRANCISCO, CA Crown Ridge No Yes No No Avalon at Sunset Towers No No No No Avalon at Nob Hill No No No Yes Avalon at Diamond Heights Yes No No No Avalon Towers by the Bay Yes Yes No Yes Avalon at Cedar Ridge Yes No No No Avalon Foster City Yes No Yes No Avalon Pacifica No No No No SAN JOSE, CA Avalon Silicon Valley Yes Yes Yes Yes Avalon at Blossom Hill No Yes No No Avalon Campbell No Yes Yes No CountryBrook No No No No Avalon at Pruneyard No Yes No No Avalon at Creekside Yes Yes No No Avalon at River Oaks No Yes No No Avalon at Parkside Yes Yes Yes No Avalon Mountain View No Yes Yes No San Marino No No Yes No Avalon Sunnyvale No Yes Yes No Avalon at Foxchase No No No No Fairway Glen No No Yes No Avalon Cupertino No Yes No No Avalon on the Alameda No No No No Avalon Rosewalk I & II No Yes No No SOUTHERN CALIFORNIA LOS ANGELES, CA Avalon Woodland Hills No Yes No No Avalon at Media Center No Yes No No Avalon Westside Terrace Yes Yes Yes No Avalon at Warner Center No Yes No No ORANGE COUNTY, CA Avalon Huntington Beach Yes Yes Yes No Avalon at Pacific Bay No Yes Yes No Avalon at South Coast Yes Yes No No Avalon Santa Margarita No No Yes No Amberway No No No No Avalon at Laguna Niguel No No Yes No Avalon Newport No Yes No No Avalon Mission Viejo No Yes No No SAN DIEGO, CA Avalon at Mission Bay Yes Yes No No Avalon at Cortez Hill Yes Yes No No Avalon at Mission Ridge No No Yes No Avalon at Penasquitos Hills No Yes Yes No </TABLE> 20
FEATURES AND RECREATIONAL AMENITIES - CURRENT AND DEVELOPMENT COMMUNITIES (CONTINUED) <TABLE> <CAPTION> Buildings Community entrance Building entrance w/ security systems controlled access controlled access - ---------------------------------------------------- --------------------- ------------------- ------------------- <S> <C> <C> <C> DEVELOPMENT COMMUNITIES Avalon at Edgewater All Yes Yes Avalon at Freehold None No No Avalon on Stamford Harbor All Yes Yes Avalon Towers on the Peninsula Yes Yes Yes Avalon at Cahill Park Yes Yes Yes Avalon Riverview All Yes Yes Avalon at Mission Bay North Yes Yes Yes Avalon Oaks West All No Yes Avalon Ledges Yes No Yes Avalon Orchards No No No Avalon at Arlington Square II Yes No Yes Avalon at Flanders Hill Yes No Yes Avalon New Canaan Yes No Yes Avalon at Rock Spring No No Yes Avalon at Gallery Place I All Yes Yes <CAPTION> Under- Aerobics ground parking dance studio Car wash Picnic area - ---------------------------------------------------- ---------------- -------------- ---------- ------------- <S> <C> <C> <C> <C> DEVELOPMENT COMMUNITIES Avalon at Edgewater Yes No No No Avalon at Freehold No No No Yes Avalon on Stamford Harbor Yes No No Yes Avalon Towers on the Peninsula Yes No Yes Yes Avalon at Cahill Park Yes Yes No No Avalon Riverview No No No Yes Avalon at Mission Bay North Yes Yes No No Avalon Oaks West No No No Yes Avalon Ledges No No No Yes Avalon Orchards No No No Yes Avalon at Arlington Square II No No No Yes Avalon at Flanders Hill No No No Yes Avalon New Canaan No No No Yes Avalon at Rock Spring No No No Yes Avalon at Gallery Place I Yes No No No <CAPTION> Walking / jogging trail Pool Sauna / whirlpool Tennis court - ---------------------------------------------------- ------------------------- ------ ------------------- -------------- <S> <C> <C> <C> <C> DEVELOPMENT COMMUNITIES Avalon at Edgewater No Yes No No Avalon at Freehold No Yes No No Avalon on Stamford Harbor Yes Yes No No Avalon Towers on the Peninsula No Yes Yes No Avalon at Cahill Park No Yes Yes No Avalon Riverview Yes No No No Avalon at Mission Bay North No No No No Avalon Oaks West No Yes Yes No Avalon Ledges No Yes Yes No Avalon Orchards Yes Yes Yes No Avalon at Arlington Square II No Yes No No Avalon at Flanders Hill No Yes Yes No Avalon New Canaan Yes Yes No No Avalon at Rock Spring No Yes No No Avalon at Gallery Place I No No No No <CAPTION> Indoor Racquetball Fitness center Sand volleyball outdoor basketball - ---------------------------------------------------- ------------- ---------------- ----------------- -------------------- <S> <C> <C> <C> <C> DEVELOPMENT COMMUNITIES Avalon at Edgewater No Yes No No Avalon at Freehold No Yes No No Avalon on Stamford Harbor Yes Yes No Yes Avalon Towers on the Peninsula No Yes No No Avalon at Cahill Park No Yes No No Avalon Riverview No Yes No No Avalon at Mission Bay North No Yes No No Avalon Oaks West No Yes No No Avalon Ledges No Yes No Yes Avalon Orchards No Yes No No Avalon at Arlington Square II No Yes No Yes Avalon at Flanders Hill No Yes No Yes Avalon New Canaan No Yes No No Avalon at Rock Spring No Yes No No Avalon at Gallery Place I No Yes No No <CAPTION> Clubhouse / clubroom Business center Totlot Concierge - ---------------------------------------------------- ---------------------- ----------------- -------- ----------- <S> <C> <C> <C> <C> DEVELOPMENT COMMUNITIES Avalon at Edgewater Yes Yes No Yes Avalon at Freehold Yes Yes Yes No Avalon on Stamford Harbor Yes Yes No Yes Avalon Towers on the Peninsula No No No Yes Avalon at Cahill Park Yes Yes No No Avalon Riverview Yes Yes No Yes Avalon at Mission Bay North Yes No No Yes Avalon Oaks West Yes No Yes No Avalon Ledges Yes No Yes No Avalon Orchards Yes No Yes No Avalon at Arlington Square II Yes Yes Yes No Avalon at Flanders Hill Yes No Yes No Avalon New Canaan Yes Yes Yes No Avalon at Rock Spring Yes Yes Yes No Avalon at Gallery Place I No Yes No Yes </TABLE> (1) For the purpose of this table, Current Communities excludes communities held by unconsolidated real estate joint ventures. 21
Development Communities As of March 1, 2002, we had 15 Development Communities under construction. We expect these Development Communities, when completed, to add a total of 3,963 apartment homes to our portfolio for a total capitalized cost, including land acquisition costs, of approximately $750,300,000. Statements regarding the future development or performance of the Development Communities are forward-looking statements. We cannot assure you that: - we will complete the Development Communities; - our budgeted costs or estimates of occupancy rates will be realized; - our schedule of leasing start dates or construction completion dates will be achieved; or - future developments will realize returns comparable to our past developments. You should carefully review the discussion under "Risks of Development and Redevelopment" included elsewhere in this Item 2. 22
The following table presents a summary of the Development Communities. We hold a direct or indirect fee simple ownership interest in these communities except where noted. <TABLE> <CAPTION> Number of Budgeted Estimated Estimated apartment cost (1) Construction Initial completion stabilization homes ($ millions) start occupancy (2) date date (3) ---------- ------------ ------------ ------------- ---------- ------------- <S> <C> <C> <C> <C> <C> <C> 1. Avalon at Edgewater 408 $ 75.6 Q3 1999 Q2 2001 Q2 2002 Q4 2002 Edgewater, NJ 2. Avalon at Freehold 296 $ 33.1 Q2 2000 Q3 2001 Q1 2002 Q3 2002 Freehold, NJ 3. Avalon on Stamford Harbor 323 $ 60.7 Q3 2000 Q1 2002 Q4 2002 Q2 2003 Stamford, CT 4. Avalon Towers on the Peninsula 211 $ 65.9 Q3 2000 Q1 2002 Q2 2002 Q4 2002 Mountain View, CA 5. Avalon at Cahill Park 218 $ 50.5 Q4 2000 Q4 2001 Q3 2002 Q1 2003 San Jose, CA 6. Avalon Riverview 372 $ 102.5 Q4 2000 Q2 2002 Q4 2002 Q2 2003 Long Island City, NY 7. Avalon at Mission Bay North 250 $ 79.5 Q1 2001 Q4 2002 Q1 2003 Q3 2003 San Francisco, CA 8. Avalon Oaks West 120 $ 17.7 Q1 2001 Q4 2001 Q2 2002 Q4 2002 Wilmington, MA 9. Avalon Ledges 304 $ 37.7 Q2 2001 Q2 2002 Q1 2003 Q3 2003 Weymouth, MA 10. Avalon Orchards 156 $ 21.7 Q2 2001 Q1 2002 Q4 2002 Q2 2003 Marlborough, MA 11. Avalon at Arlington Square II 332 $ 43.9 Q3 2001 Q3 2002 Q1 2003 Q3 2003 Arlington, VA 12. Avalon at Flanders Hill 280 $ 38.4 Q3 2001 Q3 2002 Q2 2003 Q4 2003 Westborough, MA 13. Avalon New Canaan (4) 104 $ 27.2 Q3 2001 Q3 2002 Q4 2002 Q2 2003 New Canaan, CT 14. Avalon at Rock Spring (4) 386 $ 45.9 Q4 2001 Q1 2003 Q3 2003 Q1 2004 North Bethesda, MD 15. Avalon at Gallery Place I (5) 203 $ 50.0 Q4 2001 Q3 2003 Q4 2003 Q2 2004 Washington, DC ------ ------- Total 3,963 $ 750.3 ======= ======= </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 generally accepted accounting principles. (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) The land for this community is currently owned by a limited partnership in which we are a majority partner. It is currently anticipated that the land seller will retain a minority limited partner interest. The budgeted cost reflected above excludes construction and management fees due to AvalonBay. (5) The total budgeted cost for this community excludes approximately $4 million of proceeds that the Company estimates it will receive upon a sale of transferable development rights associated with the development of the community. These rights do not become transferable until construction completion and there can be no assurance that the projected amount of proceeds will be achieved. 23
Redevelopment Communities As of March 1, 2002, we had three communities under redevelopment. We expect the total budgeted cost to complete these Redevelopment Communities, including the cost of acquisition and redevelopment, to be approximately $290,800,000, of which approximately $64,100,000 is the additional capital invested or expected to be invested above the original purchase cost. Statements regarding the future redevelopment or performance of the Redevelopment Communities are forward-looking statements. We have found that the cost to redevelop an existing apartment community is more difficult to budget and estimate than the cost to develop a new community. Accordingly, we expect that actual costs may vary from our budget by a wider range than for a new development community. We cannot assure you that we will meet our schedules for reconstruction completion, or that we will meet our budgeted costs, either individually or in the aggregate. See the discussion under "Risks of Development and Redevelopment" indcluded elsewhere in this Item 2. The following presents a summary of Redevelopment Communities: <TABLE> <CAPTION> Budgeted Cost ($ 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 at Media Center Burbank, CA 748 $ 55.3 $ 75.3 Q1 2000 Q1 2002 Q2 2002 2. Avalon at Prudential Center Boston, MA 781 $ 133.9 $ 154.5 Q4 2000 Q4 2002 Q2 2003 3. Avalon Terrace (4) Stamford, CT 367 $ 37.5 $ 61.0 Q4 2000 Q2 2002 Q4 2002 ------- ------- ------- Total 1,896 $ 226.7 $ 290.8 ======= ======= ======= </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) This community is being redeveloped in a joint venture structure with third party financing. Our portion of the equity contribution for this unconsolidated joint venture is projected to be $9.6 million. Development Rights As of March 1, 2002, we are considering the development of 30 new apartment communities on land that is either owned by us, under contract, subject to a leasehold interest, or for which we hold a purchase option. These Development Rights range from those beginning design and architectural planning to those that have completed site plans and drawings and can begin construction almost immediately. We estimate that the successful completion of all of these communities would ultimately add 8,918 upscale apartment homes to our portfolio. At December 31, 2001, the cumulative capitalized costs incurred in pursuit of the 30 Development Rights was approximately $29,800,000, net of land acquisition costs associated with nine of the Development Rights. Substantially all of these apartment homes will offer features like those offered by the communities we currently own. We generally hold Development Rights through options to acquire land. The properties comprising the Development Rights are in different stages of the due diligence and regulatory approval process. The decisions as to which of the Development Rights to pursue, if any, or to continue to pursue once an investment in a Development Right is made, are business judgments that we make after we perform financial, demographic and other analyses. Finally, we currently intend to limit the percentage of debt used to finance new developments in order to maintain our general historical practice with respect to the proportion of debt in our capital structure. Therefore, other financing alternatives may be required to finance the development of those Development Rights scheduled to start construction after January 1, 2002. Although the development of any particular Development Right cannot be 24
assured, we believe that the Development Rights, in the aggregate, present attractive potential opportunities for future development and growth of our long-term stockholder value. Statements regarding the future development of the Development Rights are forward-looking statements. We cannot assure you that: - we will succeed in obtaining zoning and other necessary governmental approvals or the financing required to develop these communities, or that we will decide to develop any particular community; or - if we undertake construction of any particular community, that we will complete construction at the total budgeted cost assumed in the financial projections below. The following presents a summary of the 30 Development Rights we are currently pursuing: <TABLE> <CAPTION> Estimated Estimated number budgeted cost Location of homes ($ millions) ----------------------------------- -------------- --------------- <S> <C> <C> 1. North Bethesda, MD (1) 499 $85 2. Newton, MA 294 58 3. Lawrence, NJ 312 43 4. Los Angeles, CA (2) 309 59 5. Darien, CT (2) 189 39 6. Danbury, CT (2) 253 36 7. Glen Cove, NY (2) 256 71 8. Coram, NY 450 65 9. Orange, CT (2) 168 21 10. Bedford, MA 139 21 11. North Potomac, MD 520 61 12. New Rochelle, NY Phase II and III 588 144 13. Washington, D.C. (2) 144 30 14. Hingham, MA 270 44 15. Oakland, CA (2) 180 40 16. Seattle, WA (2) 154 50 17. Bellevue, WA 347 63 18. Long Island City, NY Phase II and III 539 162 19. Glendale, CA 223 49 20. Cohasset, MA 240 38 21. Kirkland, WA 215 50 22. Milford, CT 284 35 23. Greenburgh, NY Phase II and III 766 139 24. Stratford, CT 146 18 25. Andover, MA 136 21 26. College Park, MD 320 44 27. Wilton, CT 106 24 28. San Francisco, CA 303 106 29. Hopewell, NJ Phase I 280 40 30. Hopewell, NJ Phase II 288 43 -------------- --------------- Totals 8,918 $1,699 ============== =============== </TABLE> (1) This develoment right is owned by a DownREIT partnership. The partnership owns the land, but construction has not yet begun. (2) Land is owned, but construction has not begun. 25
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: - 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 or reconstruction costs; - real estate taxes; - capitalized interest; - loan fees; - permits; - professional fees; - allocated development or redevelopment overhead; and - other regulatory fees determined in accordance with generally accepted accounting principles. 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 because of increases in prevailing market rents. 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 you that market rents in effect at the time new development communities or redeveloped communities complete lease-up will be sufficient to fully offset the effects of any increased construction or reconstruction costs. 26
Capitalized Interest In accordance with generally accepted accounting principles, we capitalize interest expense during construction or reconstruction until a community or portion of a community obtains a certificate of occupancy. Thereafter, the interest allocated to that community or portion of a community is expensed. Capitalized interest during the years ended December 31, 2001 and 2000 totaled $27,635,000 and $18,328,000, respectively. Acquisition Activities and Other Recent Developments Acquisitions of Existing Communities. We have acquired three communities containing 995 apartment homes since January 1, 2001 for an acquisition price of approximately $129,300,000. Each of these communities was acquired pursuant to a forward purchase contract agreed to in 1997 with an unaffiliated party. One DownREIT partnership was formed since January 1, 2001 in conjunction with the acquisition of land by that partnership. Sales of Existing Communities. We seek 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 achieve this increased concentration, we sell assets that do not meet our long term investment criteria and redeploy the proceeds from those sales to develop and redevelop communities. Pending such redeployment, we will generally use the proceeds from the sale of these communities to reduce amounts outstanding under our variable rate unsecured credit facility. On occasion, we will set aside the proceeds from the sale of communities into a cash escrow account to facilitate a nontaxable like-kind exchange transaction. Accordingly, we sold seven communities, totaling 2,551 apartment homes, since January 1, 2001. Net proceeds from the sales of these assets totaled $230,400,000. 27
Land Acquisitions and Leases for New Developments. We carefully select land for development and follow established procedures that we believe minimize both the cost and the risks of development. During 2001, we acquired the following land parcels for future development: <TABLE> <CAPTION> Estimated number Budgeted Gross of apartment cost (1) Date Construction Construction acres homes ($ millions) acquired start (2) completion (2) ------- ------------ ------------ -------------- ------------ -------------- <S> <C> <C> <C> <C> <C> <C> 1. Grosvenor Village 10.0 499 $85.0 December 2001 Q1 2002 Q2 2004 North Bethesda, MD 2. Avalon del Ray 4.5 309 $59.0 January 2001 Q2 2002 Q1 2004 Los Angeles, CA 3. Avalon at Mountain Terrace 36.0 253 $36.0 November 2001 Q3 2002 Q1 2004 Danbury, CT 4. Avalon Glen Cove 3.5 256 $71.0 November 2001 Q2 2002 Q1 2004 Glen Cove, NY 5. Avalon Madison (3) 0.7 154 $50.0 August 2001 n/a n/a Seattle, WA 6. Gallery Place II 0.3 144 $30.0 February 2001 Q4 2002 Q4 2004 Washington, DC ------- ------- -------- Total 55 1,615 $331.0 ======= ======= ======== </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 generally accepted accounting principles. (2) Future construction start and completion dates are estimates. (3) In October 2001, the Company annnounced that it was deferring development of Avalon Madison until economic conditions improve. Natural Disasters Many of our West Coast communities are located in the general vicinity of active earthquake faults. A large concentration of AvalonBay communities lies near, and thus is susceptible to, the major fault lines in the San Francisco Bay Area, including the San Andreas fault and Hayward fault. We cannot assure you that an earthquake would not cause damage or losses greater than insured levels. In November 2001, we renewed our earthquake insurance. For any single occurrence, and in the aggregate, we have in place with respect to communities located in California, $67,000,000 of coverage with a deductible per building equal to five percent of the value of that building. The five percent deductible is subject to a minimum of $100,000 per occurrence. Earthquake coverage outside of California, with the exception of Washington State, is subject to a $100,000,000 limit and a $100,000 deductible per location. In addition, up to an aggregate of $2,000,000, the next $400,000 of loss per occurrence will be treated as an additional deductible. Coverage in Washington State is subject to a $65,000,000 limit, with the same deductible. 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. Americans with Disabilities Act The apartment communities we own and any apartment communities that we acquire must comply with Title III of the Americans with Disabilities Act to the extent that such properties are "public accommodations" and/or "commercial facilities" as defined by the Americans with Disabilities Act. Compliance with the Americans with Disabilities Act requirements could require removal of structural barriers to handicapped access in certain public areas of our properties 28
where such removal is readily achievable. The Americans with Disabilities Act does not, however, consider residential properties, such as apartment communities, to be public accommodations or commercial facilities, except to the extent portions of such facilities, such as leasing offices, are open to the public. We believe our properties comply in all material respects with all present requirements under the Americans with Disabilities Act and applicable state laws. Noncompliance could result in imposition of fines or an award of damages to private litigants. ITEM 3. LEGAL PROCEEDINGS AvalonBay is from time to time subject to claims and administrative proceedings arising in the ordinary course of business. Some of these claims and proceedings are expected to be covered by liability insurance. The following matter, for which we believe we have meritorious defenses and are therefore vigorously defending against, is not covered by liability insurance. However, outstanding litigation matters, individually and in the aggregate, including the matter described below, are not expected to have a material adverse effect on our business or financial condition. AvalonBay is currently involved in litigation with York Hunter Construction, Inc. and National Union Fire Insurance Company. The action arises from our October 1999 termination of York Hunter as construction manager under a contract relating to construction of the Avalon Willow community in Mamaroneck, New York, because of alleged failures and deficiencies by York Hunter and its subcontractors in performing under the contract. York Hunter initiated the litigation in October 1999 by filing a complaint against us and other defendants claiming more than $15,000,000 in damages. We have filed counterclaims against York Hunter seeking more than $9,000,000 in compensatory damages, including lost rental income and costs to complete the community. We have also filed a claim against National Union Fire Insurance, which furnished construction and performance bonds to us on behalf of York Hunter. We believe that we have meritorious defenses against all of York Hunter's claims and are vigorously contesting those claims. We also intend to pursue our counterclaims against York Hunter and National Union Fire Insurance aggressively. The litigation is pending in the Supreme Court of the State of New York, County of Westchester. A trial date has not been set. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS No matter was submitted to a vote of our security holders during the fourth quarter of 2001. 29
PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Our common stock is traded on the New York Stock Exchange (NYSE) and the Pacific Exchange (PCX) under the ticker symbol AVB. The following table sets forth the quarterly high and low sales prices per share of our common stock on the NYSE for the years 2001 and 2000, as reported by the NYSE. On March 1, 2002 there were 617 holders of record of an aggregate of 68,780,976 shares of our outstanding common stock. The number of holders does not include individuals or entities who beneficially own shares but whose shares are held of record by a broker or clearing agency, but does include each such broker or clearing agency as one recordholder. <TABLE> <CAPTION> 2001 2000 ------------------------------ ------------------------------- Sales Price Sales Price --------------------- Dividends -------------------- Dividends High Low declared High Low declared ---------- ---------- -------- --------- --------- ---------- <S> <C> <C> <C> <C> <C> <C> Quarter ended March 31 $ 50.000 $45.200 $ 0.64 $36.688 $ 32.625 $ 0.56 Quarter ended June 30 $ 47.450 $42.450 $ 0.64 $43.125 $ 36.125 $ 0.56 Quarter ended September 30 $ 51.900 $43.800 $ 0.64 $48.250 $ 42.000 $ 0.56 Quarter ended December 31 $ 49.700 $44.010 $ 0.64 $50.625 $ 44.000 $ 0.56 </TABLE> We expect to continue our policy of paying regular quarterly cash dividends. However, dividend distributions will be declared at the discretion of the Board of Directors and will depend on actual cash from operations, our financial condition, capital requirements, the annual distribution requirements under the REIT provisions of the Internal Revenue Code and other factors as the Board of Directors may consider relevant. The Board of Directors may modify our dividend policy from time to time. 30
ITEM 6. SELECTED FINANCIAL DATA The following table provides historical consolidated financial, operating and other data for AvalonBay Communities, Inc. You should read the table with our Consolidated Financial Statements and the Notes included in this report. Dollars in thousands, except per share information. <TABLE> <CAPTION> Years ended --------------------------------------------------------------- 12-31-01 12-31-00 12-31-99 12-31-98 12-31-97 ----------- ----------- ----------- ----------- ----------- <S> <C> <C> <C> <C> <C> Revenue: Rental income $ 637,379 $ 571,943 $ 504,567 $ 369,945 $ 169,442 Management fees 1,325 1,051 1,176 1,377 1,029 Other income 2,953 401 236 81 633 ----------- ----------- ----------- ----------- ----------- Total revenue 641,657 573,395 505,979 371,403 171,104 ----------- ----------- ----------- ----------- ----------- Expenses: Operating expenses, excluding property taxes 161,887 142,664 135,517 104,346 47,279 Property taxes 52,201 46,958 42,701 31,775 14,429 Interest expense 103,203 83,609 74,699 54,650 16,977 Depreciation 130,079 122,610 109,759 77,374 29,113 General and administrative 15,224 13,013 9,592 9,124 5,093 Non-recurring items -- -- 16,782 -- -- ----------- ----------- ----------- ----------- ----------- Total expenses 462,594 408,854 389,050 277,269 112,891 ----------- ----------- ----------- ----------- ----------- Equity in income of unconsolidated entities 856 2,428 2,867 2,638 5,689 Interest income 6,823 4,764 7,362 3,508 1,346 Minority interest in consolidated partnerships (597) (1,908) (1,975) (1,770) 174 ----------- ----------- ----------- ----------- ----------- Income before gain on sale of communities and extraordinary item 186,145 169,825 125,183 98,510 65,422 Gain on sale of communities 62,852 40,779 47,093 25,270 677 ----------- ----------- ----------- ----------- ----------- Income before extraordinary item 248,997 210,604 172,276 123,780 66,099 Extraordinary item -- -- -- (245) (1,183) ----------- ----------- ----------- ----------- ----------- Net income 248,997 210,604 172,276 123,535 64,916 Dividends attributable to preferred stock (32,497) (39,779) (39,779) (28,132) (19,656) ----------- ----------- ----------- ----------- ----------- Net income available to common stockholders $ 216,500 $ 170,825 $ 132,497 $ 95,403 $ 45,260 =========== =========== =========== =========== =========== PER COMMON SHARE AND SHARE INFORMATION: Per common share - basic Income before extraordinary item $ 3.19 $ 2.58 $ 2.05 $ 1.89 $ 1.64 (net of preferred dividends) Extraordinary item $ -- $ -- $ -- $ -- $ (0.04) Net income available to common stockholders $ 3.19 $ 2.58 $ 2.05 $ 1.89 $ 1.60 Weighted average common shares outstanding 67,842,752 66,309,707 64,724,799 50,387,258 28,244,845 Per common share - diluted Income before extraordinary item $ 3.12 $ 2.53 $ 2.03 $ 1.88 $ 1.63 (net of preferred dividends) Extraordinary item $ -- $ -- $ -- $ -- $ (0.04) Net income available to common stockholders $ 3.12 $ 2.53 $ 2.03 $ 1.88 $ 1.59 Weighted average common shares and units 69,781,719 68,140,998 66,110,664 51,771,247 28,431,823 outstanding Cash dividends declared $ 2.56 $ 2.24 $ 2.06 $ 2.04 $ 2.00 </TABLE> 31
<TABLE> <CAPTION> Years ended ------------------------------------------------------------------- 12-31-01 12-31-00 12-31-99 12-31-98 12-31-97 ------------- ------------- ------------- ------------ ------------ <S> <C> <C> <C> <C> <C> OTHER INFORMATION: Net income $ 248,997 $ 210,604 $ 172,276 $ 123,535 $ 64,916 Depreciation 130,079 122,610 109,759 77,374 29,113 Interest expense 103,203 83,609 74,699 54,650 16,977 Interest income (6,823) (4,764) (7,362) (3,508) (1,346) Non-recurring items -- -- 16,782 -- -- Gain on sale of communities (62,852) (40,779) (47,093) (25,270) (677) Extraordinary item -- -- -- 245 1,183 ------------- ------------- ------------- ------------ ------------ Gross EBITDA (1) $ 412,604 $ 371,280 $ 319,061 $ 227,026 $ 110,166 ============= ============= ============= ============ ============ Funds from Operations (2) $ 283,293 $ 252,013 $ 196,058 $ 148,487 $ 73,525 Number of current communities (3) 126 126 122 127 64 Number of apartment homes 37,228 37,147 36,008 37,911 19,318 BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation $ 4,837,869 $ 4,535,969 $ 4,266,426 $ 4,006,456 $ 1,534,986 Total assets $ 4,664,289 $ 4,397,255 $ 4,154,662 $ 4,005,013 $ 1,529,703 Notes payable and unsecured credit facilities $ 2,082,769 $ 1,729,924 $ 1,593,647 $ 1,484,371 $ 506,129 CASH FLOW INFORMATION: Net cash flows provided by operating activities $ 308,723 $ 296,462 $ 251,779 $ 192,339 $ 93,584 Net cash flows used in investing activities $ (259,391) $ (252,534) $ (236,687) $ (566,516) $ (421,355) Net cash flows provided by (used in) financing activities $ (33,580) $ 5,685 $ (16,361) $ 376,345 $ 320,252 </TABLE> Notes to Selected Financial Data - --------------------------------- (1) Gross EBITDA represents earnings before interest, income taxes, depreciation and amortization, non-recurring items, gain on sale of communities and extraordinary items. Gross EBITDA is relevant to an understanding of the economics of AvalonBay because it is one indication of cash flow available from continuing operations to service fixed obligations. Gross EBITDA should not be considered as an alternative to operating income (as determined in accordance with generally accepted accounting principles, or "GAAP"), as an indicator of our operating performance, or to cash flows from operating activities (as determined in accordance with GAAP) as a measure of liquidity. Our calculation of gross EBITDA may not be comparable to gross EBITDA as calculated by other companies. (2) 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 gain a clear understanding of our operating results, FFO should be examined with net income as presented in the 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) and is defined as: - net income or loss computed in accordance with GAAP, except that excluded from net income or loss are gains or losses on sales of property and extraordinary (as defined by GAAP) gains and losses on debt restructuring; - plus depreciation of real estate assets; and - after adjustments for unconsolidated partnerships and joint ventures. 32
FFO does not represent cash generated from operating activities in accordance with GAAP. Therefore it should not be considered as an alternative to net income as an indication of performance. FFO should also not be considered an alternative to net cash flows from operating activities, as determined by GAAP, or 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. Calculations for FFO are presented below: <TABLE> <CAPTION> Years ended ------------------------------------------------------------ 12-31-01 12-31-00 12-31-99 12-31-98 12-31-97 ----------- ----------- ------------ ----------- ----------- <S> <C> <C> <C> <C> <C> Net income available to common stockholders $ 216,500 $ 170,825 $ 132,497 $ 95,403 $ 45,260 Depreciation (real estate related) 126,984 119,416 107,928 75,614 27,360 Joint venture adjustments 1,102 792 751 725 399 Minority interest 1,559 1,759 1,975 1,770 -- Gain on sale of communities (62,852) (40,779) (47,093) (25,270) (677) Extraordinary items -- -- -- 245 1,183 ----------- ----------- ------------ ----------- ----------- Funds from Operations $ 283,293 $ 252,013 $ 196,058 $ 148,487 $ 73,525 Net cash provided by operating activities $ 308,723 $ 296,462 $ 251,779 $ 192,339 $ 93,584 =========== =========== ============ =========== =========== Net cash used in investing activities $(259,391) $(252,534) $ (236,687) $(566,516) $(421,355) =========== =========== ============ =========== =========== Net cash provided by (used in) financing activities $ (33,580) $ 5,685 $ (16,361) $ 376,345 $ 320,252 =========== =========== ============ =========== =========== </TABLE> (3) Current Communities consist of all communities other than those which are still under construction and have not received a final certificate of occupancy. 33
ITEM 7. MANAGMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Forward-Looking Statements This Form 10-K, including the footnotes to our Consolidated Financial Statements which immediately follows, 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," "project," and other similar expressions in this Form 10-K, that predict or indicate future events and trends or that do not report 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; and - the development of management information systems by companies in which we have an investment and our implementation and use of those 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 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 or defer development opportunities for a number of reasons, including changes in local market conditions which make development less desirable, increases in costs of development 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 and construction costs and reduced rental revenues; - 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; - we may be unsuccessful in managing our current growth in the number of apartment communities; and 34
- software applications and ancillary services being developed by companies in which we have invested may be unsuccessful in achieving their business plans or unsuccessful in obtaining additional funding, which could lead to a partial or complete loss of our investment in these companies. You should read our Consolidated Financial Statements and notes included in this report 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 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, long term, the limited new supply of upscale apartment homes in these markets will result in larger increases in cash flows relative to other markets. 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 the Northeast, Mid-Atlantic, Midwest, Pacific Northwest, and Northern and Southern California regions of the United States. We are a fully-integrated real estate organization with in-house expertise in the following areas: - development and redevelopment; - construction and reconstruction; - leasing and management; - acquisition and disposition; - financing; - marketing; and - information technologies. 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. 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 identify or pursue attractive opportunities, however, is affected by capital market conditions, including prevailing interest rates, and by the availability of attractively priced opportunities. Given current capital market and real estate market conditions, we are carefully considering the appropriate allocation of capital investment among development and redevelopment communities as well as the acquisition of established communities. We intend to pursue these investments 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 consist primarily of current operating apartment communities, communities in various stages of development, and development rights (i.e., land or land options held for development). Our current operating communities are further distinguished as Established, Other Stabilized, and Redevelopment. A description of these categories and operating performance information can be found in Note 9, "Segment Reporting," in our Consolidated Financial Statements included in this report. 35
On December 31, 2001, we owned or had an ownership interest in these categories as follows: <TABLE> <CAPTION> Number of Number of communities apartment homes ------------------- --------------------- <S> <C> <C> Current Communities -------------------- Established Communities: Northeast 20 5,416 Mid-Atlantic 18 5,297 Midwest 6 1,591 Pacific Northwest 2 486 Northern California 27 7,851 Southern California 11 3,112 -------- -------- Total Established 84 23,753 Other Stabilized Communities: Northeast 16 4,313 Mid-Atlantic 3 1,125 Midwest 3 1,033 Pacific Northwest 10 2,673 Northern California 3 1,038 Southern California 4 1,397 -------- -------- Total Other Stabilized 39 11,579 Redevelopment Communities 3 1,896 -------- -------- Total Current Communities 126 37,228 ======== ======== Development Communities 15 3,963 ----------------------- ======== ======== Development Rights 30 8,918 ------------------ ======== ======== </TABLE> 36
Results of Operations and Funds From Operations A comparison of our operating results for the years 2001, 2000, and 1999 follows (dollars in thousands): <TABLE> <CAPTION> Change ------------------------ 2001 2000 $ % 2000 ----------- ----------- ----------- ----------- ----------- <S> <C> <C> <C> <C> <C> Revenue: Rental income $ 637,379 $571,943 $ 65,436 11.4% $571,943 Management fees 1,325 1,051 274 26.1% 1,051 Other income 2,953 401 2,552 636.4% 401 ----------- ----------- ----------- ----------- ----------- Total revenue 641,657 573,395 68,262 11.9% 573,395 ----------- ----------- ----------- ----------- ----------- Expenses: Operating, excluding property taxes 161,887 142,664 19,223 13.5% 142,664 Property taxes 52,201 46,958 5,243 11.2% 46,958 ----------- ----------- ----------- ----------- ----------- Total operating expenses 214,088 189,622 24,466 12.9% 189,622 ----------- ----------- ----------- ----------- ----------- Net operating income 427,569 383,773 43,796 11.4% 383,773 Interest expense 103,203 83,609 19,594 23.4% 83,609 Depreciation expense 130,079 122,610 7,469 6.1% 122,610 General and administrative 15,224 13,013 2,211 17.0% 13,013 Non-recurring charges -- -- -- -- -- ----------- ----------- ----------- ----------- ----------- Total other expenses 248,506 219,232 29,274 13.4% 219,232 ----------- ----------- ----------- ----------- ----------- Equity in income of unconsolidated entities 856 2,428 (1,572) (64.7%) 2,428 Interest income 6,823 4,764 2,059 43.2% 4,764 Minority interest of unitholders in consolidated partnerships (597) (1,908) 1,311 (68.7%) (1,908) ----------- ----------- ----------- ----------- ----------- Income before gain on sale of communities 186,145 169,825 16,320 9.6% 169,825 Gain on sale of communities 62,852 40,779 22,073 54.1% 40,779 ----------- ----------- ----------- ----------- ----------- Net income 248,997 210,604 38,393 18.2% 210,604 Preferred dividends (32,497) (39,779) 7,282 (18.3%) (39,779) ----------- ----------- ----------- ----------- ----------- Net income available to common stockholders $216,500 $170,825 $ 45,675 26.7% $170,825 =========== =========== =========== =========== =========== </TABLE> <TABLE> <CAPTION> Change ------------------------ 1999 $ % ----------- ----------- ----------- <S> <C> <C> <C> Revenue: Rental income $ 504,567 $ 67,376 13.4% Management fees 1,176 (125) (10.6%) Other income 236 165 69.9% ----------- ----------- ----------- Total revenue 505,979 67,416 13.3% ----------- ----------- ----------- Expenses: Operating, excluding property taxes 135,517 7,147 5.3% Property taxes 42,701 4,257 10.0% ----------- ----------- ----------- Total operating expenses 178,218 11,404 6.4% ----------- ----------- ----------- Net operating income 327,761 56,012 17.1% Interest expense 74,699 8,910 11.9% Depreciation expense 109,759 12,851 11.7% General and administrative 9,592 3,421 35.7% Non-recurring charges 16,782 (16,782) (100.0%) ----------- ----------- ----------- Total other expenses 210,832 8,400 4.0% ----------- ----------- ----------- Equity in income of unconsolidated entities 2,867 (439) (15.3%) Interest income 7,362 (2,598) (35.3%) Minority interest of unitholders in consolidated partnerships (1,975) 67 (3.4%) ----------- ----------- ----------- Income before gain on sale of communities 125,183 44,642 35.7% Gain on sale of communities 47,093 (6,314) (13.4%) ----------- ----------- ----------- Net income 172,276 38,328 22.2% Preferred dividends (39,779) -- 0.0% ----------- ----------- ----------- Net income available to common stockholders $132,497 $ 38,328 28.9% =========== =========== =========== </TABLE> Net income available to common stockholders increases in 2001 and 2000 over the prior years are primarily attributable to gain on sale of communities, additional net operating income from newly developed and redeveloped communities as well as growth in operating income from Established Communities. Net operating income from newly developed and redeveloped communities exceeded the corresponding cost of capital (primarily debt) used to develop or redevelop these communities. During each of the last three years, we have funded a portion of our development and redevelopment activities through the sale of assets that did not meet our long-term investment criteria. The short-term effect of a sale of a community is that net operating income will be negatively impacted because that community's contribution to net operating income has been eliminated and the development or redevelopment community in which the proceeds from the sale are being invested is not yet complete. There will also be less interest expense than would otherwise be incurred as the proceeds from the sale of communities are initially used to repay amounts outstanding on our unsecured credit facility. We believe that, once stabilized, the net operating income generated by the newly developed and redeveloped communities will be higher than the net operating income from the assets sold. 37
Net operating income increases generated in 2001 and 2000 over the prior years resulted from changes in the following categories: <TABLE> <CAPTION> 2001 2000 Increase Increase --------------- --------------- <S> <C> <C> Established Communities $ 21,783,000 $ 22,162,000 Other Stabilized Communities 27,922,000 39,575,000 Communities sold (14,649,000) (19,629,000) Development and Redevelopment Communities 13,596,000 19,228,000 Central operating overhead (4,856,000) (5,324,000) --------------- --------------- Total net operating income increase $ 43,796,000 $ 56,012,000 =============== =============== </TABLE> These net operating income increases were largely due to the relatively high occupancy and market rents experienced in 2000, which were carried into 2001. As we begin to experience the full effects of the recession, we expect net operating income from Established Communities to decline during the first half of 2002, while total net operating income will increase modestly. If the economy recovers as anticipated in the second half of 2002, we expect to experience modest net operating income growth from Established Communities during that period. Rental income increases in 2001 and 2000 over the prior year are primarily due to an increase in the weighted average monthly rental income per occupied apartment home and an increase in the weighted average number of occupied apartment homes. Overall Portfolio - The weighted average number of occupied apartment homes increased to 34,417 apartment homes for 2001 compared to 33,976 apartment homes for 2000 and 33,726 in 1999. These changes are primarily the result of development, redevelopment and acquisition of new communities partially offset by (i) the sale of communities and (ii) for 2001, occupancy declines related to the national recession and softening conditions in certain of our markets. The weighted average monthly revenue per occupied apartment home increased to $1,543 in 2001 compared to $1,402 in 2000 and $1,242 in 1999. Monthly revenue per occupied apartment home and occupancy levels may decline in 2002 as our portfolio is affected by the national recession. Established Communities - Rental revenue increased $26,268,000 (6.6%) in 2001 and $25,911,000 (8.9%) in 2000. The increase in 2001 is due to market conditions during the past year that allowed for higher average rents partially offset by lower economic occupancy levels. Economic occupancy takes into account the fact that apartment homes of different sizes and locations have different economic impacts on a community's gross revenue and measures the percentage impact on gross revenue that the vacant apartments would have if the community were otherwise fully leased at current market rents. For 2001, the weighted average monthly revenue per occupied apartment home increased $130 (9.1%) to $1,558 compared to $1,432 for 2000. The average economic occupancy decreased from 97.6% in 2000 to 95.4% for 2001. Although most of our markets have been affected by the current recession, we have observed the most volatility in market rents and occupancy in certain Northern California sub-markets over the past two years, which accounts for approximately 37.2% of current Established Community rental revenue. This volatility in rents and occupancy was partially related to volatility in the technology sector that comprises a significant portion of the Northern California economy. While market rental rates increased substantially in 2000, we have experienced a 22.0% decline in market rental rates for that region during 2001. Economic occupancy decreased in the Northern California region, from 97.8% for 2000 to 93.9% for 2001. We could see further declines in occupancy and market rents as this market resets to more sustainable levels. Also in 2001, we experienced greater volatility in occupancy related to our corporate and furnished 38
apartment homes throughout our portfolio, partially due to reduced business travel. Our exposure to these homes fell from a peak of approximately 7.0% to approximately 4.5% of our current portfolio at year end. Operating expenses, excluding property taxes increased primarily due to the addition of newly developed, redeveloped and acquired apartment homes. In 2001, separation costs of $2,493,000 due to the departure of a senior executive during the first quarter contributed to the increase for that year. Maintenance, insurance and other costs associated with Development and Redevelopment Communities go from being capitalized when the community is under construction to expensed when and as homes within the community receive a certificate of occupancy. Insurance expense has increased over the past two years, particularly during 2001 as the insurance and reinsurance markets deteriorated, resulting in higher insurance costs for the entire real estate sector. We renewed our general liability policy on August 1, 2001 and our property coverage on November 1, 2001. While the terms of our insurance coverage has not materially changed, the level of our deductible and premium costs increased significantly. We expect that our insurance costs will increase in 2002 by approximately $9.2 million (of which $4 million is for the primary layer of property coverage) including the cost of deductible allocations, which now represents uninsured losses that previously would have been covered by insurance. The remaining $5.2 million increase is for the upper layers of property coverage and casualty coverage. For Established Communities, 2001 operating expenses, excluding property taxes and unallocated overhead expenses, increased $3,559,000 (4.8%) to $76,995,000 due to increases in insurance, utilities, marketing and office and administration expenses. During 2000, operating expenses increased $2,754,000 (4.7%) due to higher payroll, insurance, decorating and maintenance costs which were partially offset by lower utility and marketing costs. Property taxes increased due to higher assessments and the addition of newly developed, redeveloped or acquired apartment homes, partially offset by the sale of communities. Property taxes on Development and Redevelopment Communities are capitalized while the community is under construction. We begin to expense these costs as homes within the community receive a certificate of occupancy. For Established Communities, the increase in property taxes in 2001 of $969,000 was primarily due to higher assessments throughout all regions. The increase in 2000 was primarily due to an adjustment made in 1999 to eliminate accrued but unassessed taxes and payments made in 2000 to settle prior year assessments. Interest expense increased in 2001 primarily due to the issuance of $350,000,000 of unsecured notes during the second half of 2000 and the issuance of $300,000,000 of unsecured notes in September 2001. The increase in interest expense in 2000 compared to 1999 was due to the issuance of unsecured notes, an increase in short term interest rates and a decrease in capitalized interest. We expect to issue $200,000,000 or more of unsecured debt in 2002, of which $100,000,000 will be used to refinance maturing unsecured debt. Depreciation expense changes are primarily related to the timing of asset sales, acquisitions and completion of development or redevelopment activities. Depreciation expense increased $7,469,000 and $12,851,000 in 2001 and 2000, respectively. We expect that depreciation expense will continue to increase during 2002 as we anticipate a reduction in asset sales compared to prior years. General and administrative expense increased in 2001 primarily due to an increase in office personnel and related payroll costs and compensation expense of $784,000 related to the retirement of a senior executive. Contributing to the increase in 2000, there was an increase in compensation expense for a senior officer, whose salary was expensed in 2000 but capitalized in 1999 while he served the company in a different capacity and consulting costs related to services provided by a former senior officer. 39
Equity in income of unconsolidated joint ventures represents our share of net income or loss from joint ventures. The decrease in 2001 related primarily to our pro rata share of net losses from a technology investment accounted for under the equity method as well as a valuation allowance of $934,000 for an investment in a technology company accounted for under the cost method. Interest income during 2001 increased due to higher average cash balances invested. The decrease in interest income during 2000 related primarily to the sale of the Fairlane Woods participating mortgage note in the fourth quarter of 1999. Gain on sale of communities of $62,852,000, $40,779,000, and $47,093,000 were realized in 2001, 2000, and 1999, respectively. These gains are the result of our strategy to sell communities that do not meet our long-term strategic objectives and redeploy the proceeds to current Development and Redevelopment Communities. The amount of gains realized depend on many factors, including the number of communities sold, the size and carrying value of those communities, and the market conditions in the local area. In 2002, we expect to decrease our disposition activity compared to recent years. Funds from Operations We consider Funds from Operations ("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 Consolidated Statements of Operations and Comprehensive Income included elsewhere in this report. FFO is determined in accordance with a definition adopted by the Board of Governors of the National Association of Real Estate Investment Trusts(R), and is defined as: - 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, or 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. The following is a reconciliation of net income to FFO and a presentation of GAAP based cash flow metrics (dollars in thousands): <TABLE> <CAPTION> Years ended ---------------------------------- 2001 2000 1999 -------- ------ ------ <S> <C> <C> <C> Funds from Operations Net income $ 248,997 $ 210,604 $ 172,276 Preferred dividends (32,497) (39,779) (39,779) Depreciation - real estate assets 126,984 119,416 107,928 Joint venture adjustments 1,102 792 751 Minority interest expense 1,559 1,759 1,975 Gain on sale of communities (62,852) (40,779) (47,093) --------- --------- --------- Funds from Operations $ 283,293 $ 252,013 $ 196,058 ========= ========= ========= GAAP based Cash Flow Metrics Net cash provided by operating activities $ 308,723 $ 296,462 $ 251,779 ========= ========= ========= Net cash used in investing activities $(259,391) $(252,534) $(236,687) ========= ========= ========= Net cash provided by (used in) financing activities $ (33,580) $5,685 $ (16,361) ========= ========= ========= </TABLE> 40
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. 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. For Established and Other Stabilized Communities, we recorded non-revenue generating capitalized expenditures of approximately $251 per apartment home in 2001 and $225 per apartment home in 2000. The average maintenance expense, including carpet and appliance replacements, related to these communities was $1,196 per apartment home in 2001 and $1,145 in 2000. 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. Changes in the capital markets environment affect our plans for undertaking construction and development as well as acquisition activity. Cash and cash equivalents totaled $72,986,000 on December 31, 2001, an increase of $15,752,000 for the year. The following discussion relates to changes in cash due to operating, investing and financing activities, which are presented in our Consolidated Statements of Cash Flows included in this report. Operating Activities - Net cash provided by operating activities increased to $308,723,000 in 2001 from $296,462,000 in 2000 primarily due to additional operating income from newly developed and redeveloped communities as well as growth in operating income from Established Communities, partially offset by the loss of operating income from communities sold. 41
Investing Activities - Net cash used in investing activities of $259,391,000 in 2001 related to investments in assets through development and redevelopment of apartment communities partially offset by proceeds from the sales of apartment communities. During 2001, we invested $484,604,000 in the purchase and development of real estate. - We began the development of nine new communities. These communities are expected to contain a total of 2,135 apartment homes upon completion, and the total investment, including land acquisition costs, is projected to be approximately $362,000,000. Also, we completed the development of six new communities containing a total of 1,656 apartment homes for a total investment of $274,000,000. - We acquired six land parcels during 2001 on which construction has not yet commenced. If developed in the manner expected, we expect that the six new communities developed on these parcels would contain a total of 1,615 apartment homes at an investment, including land acquisition costs of $52,110,000, of approximately $331,000,000. In addition, we continue to hold three parcels of land purchased prior to January 2001 that if developed in the manner expected would contain three new communities with a total of 537 apartment homes. Total land held for future development, including carrying cost, totals $66,608,000. - We completed the redevelopment of one community containing 294 apartment homes during 2001 for a total investment in redevelopment (i.e. excluding acquisition costs) of $24,400,000. - We acquired three communities, containing 995 apartment homes, for approximately $129,300,000. We acquired these communities in connection with a fixed price forward purchase agreement signed in 1997 with an unaffiliated party. 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" in Item 2 of this report for our discussion of these and other risks inherent in developing or redeveloping communities. We sold seven apartment communities during 2001 as we seek to optimize the level of our geographical concentration in selected high barrier-to-entry markets when market conditions are favorable. The net proceeds of $238,545,000 generated by these sales are being used to develop and redevelop communities currently under construction or reconstruction. We deposited the proceeds from two of these sales into a cash escrow account to facilitate a like-kind exchange transaction. The remaining proceeds were invested or used to reduce amounts outstanding under our variable rate unsecured credit facility until needed to fund development or redevelopment activities. Financing Activities - Net cash used in financing activities totaled $33,580,000 for the year ended December 31, 2001, primarily due to dividends paid and the redemption of our Series F and Series G Preferred Stock, partially offset by the proceeds from the issuance of $300,000,000 of unsecured notes in September 2001. See Note 3 "Notes Payable, Unsecured Notes and Credit Facility" and Note 4 "Stockholders Equity" in our Consolidated Financial Statements, for additional information. We regularly review our short and long-term liquidity needs, the adequacy of Funds from Operations, as defined above, 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 preferred stock; 42
- the minimum dividend payments required to maintain our REIT qualification under the Internal Revenue Code of 1986; - opportunities for the acquisition of improved property; 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 capacity under the unsecured credit facility. One of our principal long-term liquidity needs is the repayment of medium and long-term debt at the time at which such debt matures. For unsecured senior notes, we anticipate that no significant portion of the principal of these notes 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 by additional debt financing that is 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. Since January 1, 2000, external sources of debt capital used to fund investment activities totaled $650,000,000, representing issuances of ten year unsecured debt. During this same two year period, cash flow from operating activities exceeded dividends paid by $216,000,000. We expect both sources of capital to remain available to meet our capital needs for the foreseeable future. Variable Rate Unsecured Credit Facility Our unsecured revolving credit facility is furnished by a consortium of banks and provides $500,000,000 in short-term credit. Under the terms of the credit facility, if the Company elects to increase the facility up to $650,000,000, the consortium of banks cannot prohibit such an increase of the facility and the increased lending commitment could be provided by one or more banks (from the consortium or otherwise) to the extent they choose to commit to lend additional funds. We pay participating banks an annual facility fee of $750,000 in equal quarterly installments. The unsecured credit 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 schedule selected by us. The current stated pricing is LIBOR plus 0.60% per annum (2.5% on March 1, 2002). 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 credit 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 0.43% for amounts most recently borrowed under the competitive bid option. At March 1, 2002, zero was outstanding, $85,820,000 was used to provide letters of credit and $414,180,000 was available for borrowing under the unsecured credit facility. 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 $167,000,000 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. 43
Future Financing and Capital Needs As of December 31, 2001, we had 15 new communities under construction. Also, one additional community is being built by an unaffiliated third party with whom we have entered into a fixed price forward purchase commitment. As of December 31, 2001, a total estimated cost of $404,682,000 remained to be invested in these communities. In addition, we had three other communities under reconstruction, for which an estimated $10,191,000 remained to be invested. 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 current $500,000,000 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 development costs related to pursuing Development Rights from retained operating cash and borrowings under the unsecured credit 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. Before planned reconstruction activity or the construction of a Development Right begins, we intend to arrange adequate financing 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 that were capitalized 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. Our liquidity could be adversely impacted by expanding development and acquisition activities and/or reduced capital (as compared to prior years) available from asset sales. To meet the balance of our liquidity needs under such conditions, we would need to arrange additional capacity under our existing unsecured credit 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, sales or offerings. 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 development pursuits and a resulting charge to earnings. It is our policy to sell assets that do not meet our long-term investment criteria when market conditions are favorable, and to redeploy the proceeds. Under our disposition program, we solicit competing bids from unrelated parties for these individual assets and consider the sales price and tax ramifications of each proposal. We intend to actively seek buyers for communities that we determine to hold for sale. However, we cannot assure you that the assets can be sold on terms that we consider satisfactory. We expect to significantly curtail our disposition program in 2002 in response to anticipated real estate and capital markets conditions. We have minority interest investments in five technology companies, including Constellation Real Technologies LLC, an entity formed by a number of real estate investment trusts and real estate operating companies for the purpose of investing in multi-sector real estate technology opportunities. Our original commitment to Constellation was $4 million. Constellation has proposed a reduction in the aggregate amount of capital commitments from its members. If that proposal is accepted, our revised commitment would fall to $2.6 million. As of March 1, 2002, we have contributed approximately $959,000. In January 2002, we invested an additional $2.3 million in Realeum, Inc., a company involved in the development and deployment of a property management and leasing automation system. Pursuant to an agreement with Realeum, Inc., we will utilize the property management and leasing automation system in exchange for 44
payments under a licensing arrangement. Realeum, Inc. is negotiating licensing arrangements with other real estate companies unaffiliated with AvalonBay. As of March 1, 2002, the total remaining carrying value of our investments in the five technology companies was $4.8 million. We have no obligation to contribute additional funds, other than the commitment to Constellation described above. Debt Maturities The following table details debt maturities for the next five years, excluding the unsecured credit facility: <TABLE> <CAPTION> ALL-IN PRINCIPAL BALANCE OUTSTANDING SCHEDULED MATURITIES INTEREST MATURITY ----------------------- ---------------------------------- COMMUNITY RATE (1) DATE 12-31-00 12-31-01 2002 2003 2004 - ----------------------------------- -------- -------- -------- -------- ---- ---- ---- <S> <C> <C> <C> <C> <C> <C> <C> TAX-EXEMPT BONDS FIXED RATE Avalon at Foxchase I 5.88% Nov-2007 $ 16,800 $ 16,800(2) $ -- $ -- $ -- Avalon at Foxchase II 5.88% Nov-2007 9,600 9,600(2) -- -- -- Fairway Glen 5.88% Nov-2007 9,580 9,580(2) -- -- -- CountryBrook 7.87% Mar-2012 18,934 18,577 386 417 451 Waterford 5.88% Aug-2014 33,100 33,100(2) -- -- -- Avalon at Mountain View 5.88% Mar-2017 18,300 18,300(2) -- -- -- Avalon at Dulles 7.04% Jul-2024 12,360 12,360 -- -- -- Avalon at Symphony Glen 7.00% Jul-2024 9,780 9,780 -- -- -- Avalon View 7.55% Aug-2024 18,465 18,115 373 397 425 Avalon at Lexington 6.56% Feb-2025 14,347 14,073 289 307 326 Avalon at Nob Hill 5.80% Jun-2025 20,013 19,745(2) 288 308 331 Avalon at Mission Viejo 5.50% Jun-2025 7,354 7,256(2) 105 112 121 Avalon Campbell 6.48% Jun-2025 36,981 36,386(2) 637 684 733 Avalon Pacifica 6.48% Jun-2025 16,775 16,505(2) 289 310 332 Crossbrook 6.48% Jun-2025 8,156 --(3) -- -- -- Avalon Knoll 6.95% Jun-2026 13,393 13,193 214 230 246 Avalon Landing 6.85% Jun-2026 6,626 6,525 108 116 124 Avalon Fields 7.05% May-2027 11,609 11,454 169 180 193 Avalon West 7.73% Dec-2036 8,579 8,522 61 65 70 Avalon Oaks 6.95% Feb-2041 -- 17,718 91 97 104 ---------- ---------- --------- --------- --------- 290,752 297,589 3,010 3,223 3,456 VARIABLE RATE Avalon Devonshire Dec-2025 27,305 27,305 -- -- -- Avalon at Fairway Hills I Jun-2026 11,500 11,500 -- -- -- Avalon at Laguna Niguel Mar-2009 10,400 10,400 -- -- -- Avalon Greenbriar May-2026 18,755 18,755 -- -- -- ---------- ---------- --------- --------- --------- 67,960 67,960 -- -- -- CONVENTIONAL LOANS FIXED RATE $100 Million unsecured notes 7.375% Sep-2002 100,000 100,000 100,000 -- -- $50 Million unsecured notes 6.25% Jan-2003 50,000 50,000 -- 50,000 -- $100 Million unsecured notes 6.50% Jul-2003 100,000 100,000 -- 100,000 -- $125 Million medium-term notes 6.58% Feb-2004 125,000 125,000 -- -- 125,000 $100 Million unsecured notes 6.625 Jan-2005 100,000 100,000 -- -- -- $50 Million unsecured notes 6.50% Jan-2005 50,000 50,000 -- -- -- $150 Million unsecured notes 6.80% Jul-2006 150,000 150,000 -- -- -- $110 Million unsecured notes 6.875% Dec-2007 110,000 110,000 -- -- -- $50 Million unsecured notes 6.625% Jan-2008 50,000 50,000 -- -- -- $150 Million medium-term notes 8.25% Jul-2008 150,000 150,000 -- -- -- $150 Million medium-term notes 7.50% Aug-2009 150,000 150,000 -- -- -- $200 Million medium-term notes 7.50% Dec-2010 200,000 200,000 -- -- -- $300 Million medium-term notes 6.625% Sep-2011 -- 300,000 -- -- -- Avalon Redmond Place 7.31% May-2001 11,042 -- -- -- -- Avalon at Pruneyard 7.25% May-2004 12,870 12,870 -- -- 12,870 Avalon Walk II 8.93% Aug-2004 12,300 12,036 288 315 11,433 ---------- ---------- -------- -------- -------- 1,371,212 1,659,906 100,288 150,315 149,303 VARIABLE RATE Avalon on the Sound 2002 -- 57,314 57,314 -- -- ---------- ---------- -------- -------- -------- TOTAL INDEBTEDNESS - EXCLUDING UNSECURED CREDIT FACILITY $1,729,924 $2,082,769 $160,612 $153,538 $152,759 ========== ========== ======== ======== ======== </TABLE> <TABLE> <CAPTION> SCHEDULED MATURITIES ------------------------------------- COMMUNITY 2005 2006 THEREAFTER --------- ---- ---- ---------- <S> <C> <C> <C> TAX-EXEMPT BONDS FIXED RATE Avalon at Foxchase I $ -- $ -- $ 16,800 Avalon at Foxchase II -- -- 9,600 Fairway Glen -- -- 9,580 CountryBrook 488 528 16,307 Waterford -- -- 33,100 Avalon at Mountain View -- -- 18,300 Avalon at Dulles -- -- 12,360 Avalon at Symphony Glen -- -- 9,780 Avalon View 455 485 15,980 Avalon at Lexington 347 368 12,436 Avalon at Nob Hill 355 380 18,083 Avalon at Mission Viejo 129 139 6,650 Avalon Campbell 786 843 32,703 Avalon Pacifica 356 382 14,836 Crossbrook -- -- -- Avalon Knoll 263 282 11,958 Avalon Landing 132 142 5,903 Avalon Fields 207 222 10,483 Avalon West 75 80 8,171 Avalon Oaks 112 120 17,194 --------- --------- --------- 3,705 3,971 280,224 VARIABLE RATE Avalon Devonshire -- -- 27,305 Avalon at Fairway Hills I -- -- 11,500 Avalon at Laguna Niguel -- -- 10,400 Avalon Greenbriar -- -- 18,755 --------- --------- --------- -- -- 67,960 CONVENTIONAL LOANS FIXED RATE $100 Million unsecured notes -- -- -- $50 Million unsecured notes -- -- -- $100 Million unsecured notes -- -- -- $125 Million medium-term notes -- -- -- $100 Million unsecured notes 100,000 -- -- $50 Million unsecured notes 50,000 -- -- $150 Million unsecured notes -- 150,000 -- $110 Million unsecured notes -- -- 110,000 $50 Million unsecured notes -- -- 50,000 $150 Million medium-term notes -- -- 150,000 $150 Million medium-term notes -- -- 150,000 $200 Million medium-term notes -- -- 200,000 $300 Million medium-term notes -- -- 300,000 Avalon Redmond Place -- -- -- Avalon at Pruneyard -- -- -- Avalon Walk II -- -- -- --------- --------- ----------- 150,000 150,000 960,000 VARIABLE RATE Avalon on the Sound -- -- -- --------- --------- ----------- TOTAL INDEBTEDNESS - EXCLUDING UNSECURED CREDIT FACILITY $153,705 $153,971 $1,308,184 </TABLE> - ----------------------- (1) Includes credit enhancement fees, facility fees, trustees, etc. (2) Financed by variable rate tax exempt debt, but interest rate is effectively fixed at the rate indicated through a swap agreement. The weighted average maturity of these swap agreements is 4.5 years. (3) The remaining loan balance was repaid in connection with the disposition of the community during 2001. 45
Redemption of Preferred Stock In June 2001, we redeemed all 4,455,000 outstanding shares of our 9.00% Series F Cumulative Redeemable Preferred Stock at a price of $25.00 per share, plus $0.1625 in accrued and unpaid dividends, for an aggregate redemption price of $25.1625 per share. In October 2001, we redeemed all 4,300,000 outstanding shares of our 8.96% Series G Cumulative Redeemable Preferred Stock at a price of $25.00 per share, plus $0.4418 in accrued and unpaid dividends, for an aggregate redemption price of $25.4418 per share. We currently have other series of redeemable preferred stock outstanding having an aggregate stated value of $239,192,500. These series become redeemable at our option at various times over the next seven years. As such series become redeemable, we will evaluate the requirements necessary for such redemptions as well as the cost-effectiveness based on the existing market conditions. The following preferred stock series remain outstanding: <TABLE> <CAPTION> Shares outstanding Payable Annual Liquidation Non-redeemable Series March 1, 2002 quarterly rate preference prior to ------ ------------------ ------------------------ ------- ------------ ------------------ <S> <C> <C> <C> <C> <C> C 2,300,000 March, June, September, 8.50% $25 June 20, 2002 December D 3,267,700 March, June, September, 8.00% $25 December 15, 2002 December H 4,000,000 March, June, September, 8.70% $25 October 15, 2008 December </TABLE> Inflation Substantially all of our leases 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, results in rents and cash flow which provide an attractive inflation hedge. Critical Accounting Policies Our accounting policies are in conformity with GAAP. The preparation of financial statements in conformity with GAAP requires management to use judgment in the application of accounting policies, including making estimates and assumptions. These judgments 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. If our judgment or interpretation of the facts and circumstances relating to various transactions had been different, it is possible that different accounting policies would have been applied resulting in a different presentation of our financial statements. Below is a discussion of accounting policies which we consider critical in that they may require complex judgment in their application or require estimates about matters which are inherently uncertain. Additional discussion of accounting policies which we consider significant, including further discussion of the critical accounting policies described below, can be found in the notes to our Consolidated Financial Statements. Real Estate Development Rights With few exceptions, we capitalize pre-development costs incurred in pursuit of new development opportunities. These costs include legal fees, design fees and related overhead costs. The accompanying Consolidated Financial Statements include a charge to expense to provide an allowance for unrecoverable 46
capitalized pre-development costs that may be written off if we determine that a pre-development community is unlikely to be developed. Real Estate If there is an event or change in circumstance that indicates an impairment in the value of a community, our policy is to assess the impairment by making a comparison of the current and projected operating cash flows of the community over its remaining useful life, on an undiscounted basis, to the carrying amount of the community. If the carrying amount is in excess of the estimated projected operating cash flows of the community, we would recognize an impairment loss equivalent to an amount required to adjust the carrying amount to its estimated fair market value. We have not recognized an impairment loss in 2001, 2000 or 1999 on any real estate. Investments in Technology Companies The Company has minority interest investments in five technology companies. As of March 1, 2002, the total remaining carrying value of these investments, net of an allowance of $934,000, was $4,819,000. If there is an event or change in circumstance that indicates a loss in the value of an investment, our policy is to record the loss and reduce the value of the investment to its fair value. A loss in value would be indicated if we could not recover the carrying value of the investment or if the investee could not sustain an earnings capacity that would justify the carrying amount of the investment. Due to the nature of these investments, an impairment in value can be difficult to determine. Legal Contingencies We are subject to various legal proceedings and claims that arise in the ordinary course of business. These matters are frequently covered by insurance. While the resolution of these matters cannot be predicted with certainty, we believe the final outcome of such matters will not have a material adverse effect on our financial position or the results of operations. Once it has been determined that a loss is probable to occur, the estimated amount of the loss is recorded in the financial statements. Both the amount of the loss and the point at which its occurrence is considered probable can be difficult to determine. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are exposed to certain financial market risks, the most predominant being fluctuations in interest rates. Interest rate fluctuations are monitored by us as an integral part of our overall risk management program, which recognizes the unpredictability of financial markets and seeks to reduce the potentially adverse effect on our results of operations. The effect of interest rate fluctuations historically has been small relative to other factors affecting operating results, such as rental rates and occupancy. The specific market risks and the potential impact on our operating results are described below. Our operating results are affected by changes in interest rates as a result of borrowings under our variable rate unsecured credit facility as well as outstanding bonds with variable interest rates. We had $125,274,000 and $67,960,000 in variable rate debt outstanding as of December 31, 2001 and 2000, respectively. If interest rates on the variable rate debt had been 100 basis points higher throughout 2001 and 2000, our annual interest costs would have increased by approximately $1,500,000 and $2,500,000, respectively, based on balances outstanding during the applicable years. 47
We currently use interest rate swap agreements to reduce the impact of interest rate fluctuations on certain variable rate indebtedness. Under swap agreements, - we agree to pay to a counterparty the interest that would have been incurred on a fixed principal amount at a fixed interest rate (generally, the interest rate on a particular treasury bond on the date the agreement is entered into, plus a fixed increment), and - the counterparty agrees to pay to us the interest that would have been incurred on the same principal amount at an assumed floating interest rate tied to a particular market index. As of December 31, 2001, the effect of swap agreements is to fix the interest rate on approximately $167,272,000 of our variable rate tax-exempt debt. Furthermore, swap agreements fix the interest rate on approximately $23,500,000 of unconsolidated variable rate debt as of December 31, 2001. The swap agreements were not electively entered into by us but, rather, were a requirement of either the bond issuer or the credit enhancement provider related to certain of our tax-exempt bond financings. Because the counterparties providing the swap agreements are major financial institutions which have an A+ or better credit rating by the Standard & Poor's Ratings Group and the interest rates fixed by the swap agreements are significantly higher than current market rates for such agreements, we do not believe there is exposure at this time to a default by a counterparty provider. 48
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The response to this Item 8 is included as a separate section of this Annual Report on Form 10-K. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT Information pertaining to directors and executive officers of the registrant is incorporated herein by reference to the registrant's Proxy Statement to be filed with the Securities and Exchange Commission within 120 days after the end of the year covered by this Form 10-K with respect to the Annual Meeting of Stockholders to be held on May 7, 2002. ITEM 11. EXECUTIVE COMPENSATION Information pertaining to executive compensation is incorporated herein by reference to the registrant's Proxy Statement to be filed with the Securities and Exchange Commission within 120 days after the end of the year covered by this Form 10-K with respect to the Annual Meeting of Stockholders to be held on May 7, 2002. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information pertaining to security ownership of management and certain beneficial owners of the registrant's Common Stock is incorporated herein by reference to the registrant's Proxy Statement to be filed with the Securities and Exchange Commission within 120 days after the end of the year covered by this Form 10-K with respect to the Annual Meeting of Stockholders to be held on May 7, 2002. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information pertaining to certain relationships and related transactions is incorporated herein by reference to the registrant's Proxy Statement to be filed with the Securities and Exchange Commission within 120 days after the end of the year covered by this Form 10-K with respect to the Annual Meeting of Stockholders to be held on May 7, 2002. 49
PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K 14(a)(1) FINANCIAL STATEMENTS INDEX TO FINANCIAL STATEMENTS Consolidated Financial Statements and Financial Statement Schedule: Report of Independent Accountants F-1 Consolidated Balance Sheets as of December 31, 2001 and 2000 F-2 Consolidated Statements of Operations and Other Comprehensive Income for the years ended December 31, 2001, 2000 and 1999 F-3 Consolidated Statements of Stockholders' Equity for the years ended December 31, 2001, 2000 and 1999 F-4 Consolidated Statements of Cash Flows for the years ended December 31, 2001, 2000 and 1999 F-5 Notes to Consolidated Financial Statements F-7 14(a)(2) FINANCIAL STATEMENT SCHEDULE Schedule III - Real Estate and Accumulated Depreciation F-25 14(a)(3) EXHIBITS The exhibits listed on the accompanying Index to Exhibits are filed as a part of this report. 14(b) REPORTS ON FORM 8-K On October 9, 2001, the Company filed a Report on Form 8-K for the purpose of disclosing a letter sent to holders of the Company's common and preferred stock to announce the suspension of the Company's Dividend Reinvestment and Stock Purchase Plan until further notice. 50
INDEX TO EXHIBITS EXHIBIT NO. DESCRIPTION 3(i).1 - Articles of Amendment and Restatement of Articles of Incorporation of 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 the Company's Current Report on Form 8-K filed October 6, 1998.) 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 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 Avalon Properties' Registration Statement on Form S-3(33-95412), filed on August 4, 1995.) 4.2 - First Supplemental Indenture of Avalon Properties dated as of September 18, 1995. (Filed herewith.) 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 January 26, 1998.) 51
EXHIBIT NO. DESCRIPTION 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 the Company's Current Report on Form 8-K filed 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 the Company's Current Report on Form 8-K filed 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 the Company's Current Report on Form 8-K filed 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 the Company's Current Report on Form 8-K filed December 21, 1998.) 4.9 - Amended and Restated Third Supplemental Indenture, dated as of July 10, 2000 between the Company and the Trustee, including forms of Floating Rate Note and Fixed Rate Note. (Incorporated by reference to Exhibit 4.4 to the Company's Current Report on Form 8-K filed July 11, 2000.) 4.10 - Dividend Reinvestment and Stock Purchase Plan of the Company filed September 14, 1999. (Incorporated by reference to Form S-3 of the Company, File No. 333-87063.) 4.11 - 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.) 4.12 - Shareholder Rights Agreement, dated 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.) 4.13 - 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 to Form 8-A/A of the Company filed February 28, 2000.) 4.14 - Amendment No.2 to the Rights Agreement, dated January 4, 2002, between the Company and the Rights Agent. (Incorporated by reference to Exhibit 4.3 to Form 8-K of the Company filed January 7, 2002.) 10.1 - Distribution Agreement, dated December 21, 1998, among AvalonBay Communities, Inc. (the "Company") and the Agents, including Administrative Procedures, relating to the MTNs. (Incorporated by reference to Exhibit 4.4 to the Company's Current Report on Form 8-K filed December 21, 1998.) 10.2 - First Amendment, dated as of June 27, 2000, to Distribution Agreement, dated December 21, 1998, among the Company and the Agents. (Incorporated by reference to Exhibit 1.2 to the Company's Current Report on Form 8-K filed July 11, 2000.) 10.3 - Second Amendment, dated as of August 31, 2001, to Distribution Agreement, dated December 21, 1998, among the Company and the Agents. (Incorporated by reference to Exhibit 1.3 to the Company's Current Report on Form 8-K filed September 4, 2001.) 10.4+ - Employment Agreement, dated as of March 9, 1998, between the Company and Richard L. Michaux (Incorporated by reference to Exhibit 10.1 to Form 10-Q of the Company filed August 14, 1998) and Amendment, dated as of July 30, 1999, to Employment Agreement, dated as of March 9, 1998, between the Company and Richard L. Michaux. (Incorporated by reference to Exhibit 10.1 to Form 10-Q of the Company filed August 16, 1999.) 10.5+ - Employment Agreement, dated as of March 9, 1998, between the Company and Thomas J. Sargeant. (Incorporated by reference to Exhibit 10.4 to Form 10-Q of the Company filed August 14, 1998.) 10.6+ - Employment Agreement, dated as of March 9, 1998, between the Company and Bryce Blair (Incorporated by reference to Exhibit 10.5 to Form 10-Q of the Company filed August 14, 1998) 52
<TABLE> <CAPTION> EXHIBIT NO. DESCRIPTION <S> <C> and Amendment, dated as of July 30, 1999, to Employment Agreement, dated as of March 9, 1998, between the Company and Bryce Blair. (Incorporated by reference to Exhibit 10.2 to Form 10-Q of the Company filed August 16, 1999.) 10.7+ -- Employment Agreement, dated as of February 26, 2001, between the Company and Timothy J. Naughton. (Incorporated by reference to Exhibit 10.5 to Form 10-K of the Company filed March 29, 2001.) 10.8+ -- Employment Agreement, dated as of September 10, 2001, between the Company and Leo S. Horey. (Incorporated by reference to Exhibit 10.1 to Form 10-Q of the Company filed November 14, 2001.) 10.9+ -- Employment Agreement, dated as of December 31, 2001, between the Company and Samuel B. Fuller. (Filed herewith.) 10.10+ -- Letters of clarification, dated as of July 30, 1999, to the Employment Agreements of Messrs. Michaux, Blair and Slater. (Incorporated by reference to Exhibit 10.4 to Form 10-Q of the Company filed August 16, 1999.) 10.11+ -- Letter Agreement regarding departure, dated February 26, 2001, by and between the Company and Robert H. Slater. (Incorporated by reference to Exhibit 10.8 to Form 10-K of the Company filed March 29, 2001.) 10.12+ -- Mutual Release and Separation Agreement, dated as of March 24, 2000, between the Company and Gilbert M. Meyer. (Incorporated by reference to Exhibit 10.1 to Form 10-Q of the Company filed May 15, 2000.) 10.13+ -- Retirement Agreement, dated as of March 24, 2000, between the Company and Gilbert M. Meyer. (Incorporated by reference to Exhibit 10.2 to Form 10-Q of the Company filed May 15, 2000.) 10.14+ -- Consulting Agreement, dated as of March 24, 2000, between the Company and Gilbert M. Meyer. (Incorporated by reference to Exhibit 10.3 to Form 10-Q of the Company filed May 15, 2000.) 10.15+ -- Avalon Properties, Inc. 1993 Stock Option and Incentive Plan. (Incorporated by reference to Exhibit 10.14 to Form 10-K of the Company filed March 29, 2001.) 10.16+ -- Avalon Properties, Inc. 1995 Equity Incentive Plan. (Incorporated by reference to Exhibit 10.15 to Form 10-K of the Company filed March 29, 2001.) 10.17+ -- Amendment, dated May 6, 1999, to the Avalon Properties Amended and Restated 1995 Equity Incentive Plan. (Incorporated by reference to Exhibit 10.7 to Form 10-Q of the Company filed August 16, 1999.) 10.18+ -- AvalonBay Communities, Inc. 1994 Stock Incentive Plan, as amended and restated on April 13, 1998, and subsequently amended on July 24, 1998 (incorporated by reference to Exhibit 10.1 to the Company's Form 10-Q filed November 16, 1998) and amendment thereto, dated May 6, 1999 (Incorporated by reference to Exhibit 10.8 to Form 10-Q of the Company filed August 16, 1999). </TABLE> 53
<TABLE> <CAPTION> EXHIBIT NO. DESCRIPTION <S> <C> 10.19+ -- 1996 Non-Qualified Employee Stock Purchase Plan, dated June 26, 1997, as amended and restated. (Incorporated by reference to Exhibit 99.1 to Post-effective Amendment No. 1 to Form S-8 of the Company filed June 26, 1997, File No. 333-16837.) 10.20+ -- 1996 Non-Qualified Employee Stock Purchase Plan - Plan Information Statement dated June 26, 1997. (Incorporated by reference to Exhibit 99.2 to Form S-8 of the company, File No. 333-16837.) 10.21+ -- Promissory Note and Pledge and Security Agreement between the Company and Samuel B. Fuller, dated June 15, 2000. (Incorporated by reference to Exhibit 10.23 to Form 10-K of the Company filed March 29, 2001.) 10.22+ -- Indemnification Agreements between the Company and the Directors of the Company. (Incorporated by reference to Exhibit 10.39 to Form 10-K of the Company filed March 31, 1999.) 10.23+ -- The Company's Officer Severance Plan. (Incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed July 11, 2000.) 10.24 -- Revolving Loan Agreement, dated as of May 24, 2001, among the Company, as Borrower, The Chase Manhattan Bank, as a Bank, Co-Agent and Syndication Agent, Fleet National Bank, as a Bank and Co-Agent, Bank of America, N.A., First Union National Bank and Citicorp Real Estate, Inc., each as a Bank and Documentation Agent, the other banks signatory thereto, each as a Bank, J.P. Morgan Securities, Inc., as Sole Bookrunner and Lead Arranger, and Fleet National Bank, as Administrative Agent. (Incorporated by reference to Exhibit 10.1 to Form 10-Q of the Company filed August 14, 2001.) 12.1 -- Statements re: Computation of Ratios. (Filed herewith.) 21.1 -- Schedule of Subsidiaries of the Company. (Filed herewith.) 23.1 -- Consent of Arthur Andersen LLP. (Filed herewith.) 99.1 -- Letter to Securities and Exchange Commission from the Company with respect to representations made by Arthur Andersen LLP. (Filed herewith.) </TABLE> + Management contract or compensatory plan or arrangement required to be filed or incorporated by reference as an exhibit to this Form 10-K pursuant to Item 14(c) of Form 10-K. 54
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. <TABLE> <S> <C> AVALONBAY COMMUNITIES, INC. Date: March 21, 2002 By:/s/ BRYCE BLAIR ----------------------------------------------------- Bryce Blair, Chairman of the Board, President and Chief Executive Officer </TABLE> Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. <TABLE> <S> <C> Date: March 21, 2002 By:/s/ BRYCE BLAIR ----------------------------------------------------- Bryce Blair, Chairman of the Board, President and Chief Executive Officer (Principal Executive Officer) Date: March 21, 2002 By:/s/ THOMAS J. SARGEANT ----------------------------------------------------- Thomas J. Sargeant, Chief Financial Officer and Executive VP (Principal Financial and Accounting Officer) Date: March 21, 2002 By:/s/ BRUCE A. CHOATE ----------------------------------------------------- Bruce A. Choate, Director Date: March 21, 2002 By:/s/ JOHN J. HEALY, JR. ----------------------------------------------------- John J. Healy, Jr., Director Date: March 21, 2002 By:/s/ GILBERT M. MEYER ----------------------------------------------------- Gilbert M. Meyer, Director Date: March 21, 2002 By:/s/ RICHARD L. MICHAUX ----------------------------------------------------- Richard L. Michaux, Director Date: March 21, 2002 By:/s/ CHARLES D. PEEBLER, JR. ----------------------------------------------------- Charles D. Peebler, Jr., Director Date: March 21, 2002 By:/s/ LANCE R. PRIMIS ---------------------------------------------------- Lance R. Primis, Director Date: March 21, 2002 By:/s/ ALLAN D. SCHUSTER ----------------------------------------------------- Allan D. Schuster, Director Date: March 21, 2002 By:/s/ AMY P. WILLIAMS ----------------------------------------------------- Amy P. Williams, Director </TABLE> 55
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Stockholders of AvalonBay Communities, Inc.: We have audited the accompanying consolidated balance sheets of AvalonBay Communities, Inc. (a Maryland corporation, the "Company") and subsidiaries as of December 31, 2001 and 2000, and the related consolidated statements of operations and comprehensive income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 2001. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of AvalonBay Communities, Inc. and subsidiaries as of December 31, 2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2001 in conformity with accounting principles generally accepted in the United States. As explained in Note 5 to the financial statements, effective January 1, 2001, the Company changed its method of accounting for derivative instruments and hedging activities. Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The Schedule of Real Estate and Accumulated Depreciation is presented for purposes of complying with the rules of the Securities and Exchange Commission and is not a required part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in our audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. /s/ ARTHUR ANDERSEN LLP Vienna, Virginia January 22, 2002 F-1
AVALONBAY COMMUNITIES, INC. CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except per share data) <TABLE> <CAPTION> 12-31-01 12-31-00 ------------- ------------- <S> <C> <C> ASSETS Real estate: Land $ 825,118 $ 742,863 Buildings and improvements 3,465,166 3,047,560 Furniture, fixtures and equipment 113,278 98,880 ------------- ------------- 4,403,562 3,889,303 Less accumulated depreciation (447,026) (316,045) ------------- ------------- Net operating real estate 3,956,536 3,573,258 Construction in progress (including land) 434,307 418,583 Communities held for sale, net -- 208,118 ------------- ------------- Total real estate, net 4,390,843 4,199,959 Cash and cash equivalents 72,986 57,234 Cash in escrow 49,965 16,733 Resident security deposits 20,370 18,281 Investments in unconsolidated real estate joint ventures 15,066 12,215 Deferred financing costs, net 20,357 15,265 Deferred development costs, net 26,038 16,359 Participating mortgage notes 21,483 21,483 Prepaid expenses and other assets 47,181 39,696 ------------- ------------- Total assets $ 4,664,289 $ 4,397,225 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY Unsecured notes $ 1,635,000 $ 1,335,000 Variable rate unsecured credit facility -- -- Mortgage notes payable 447,769 394,924 Dividends payable 49,007 47,572 Payables for construction 43,656 19,997 Accrued expenses and other liabilities 51,052 46,771 Accrued interest payable 38,841 32,829 Resident security deposits 29,216 28,138 ------------- ------------- Total liabilities 2,294,541 1,905,231 ------------- ------------- Minority interest of unitholders in consolidated partnerships 55,193 49,501 Commitments and contingencies Stockholders' equity: Preferred stock, $.01 par value; $25 liquidation preference; 50,000,000 shares authorized at both December 31, 2001 and December 31, 2000; 9,567,700 and 18,322,700 shares outstanding at December 31, 2001 and December 31, 2000, respectively. 96 183 Common stock, $.01 par value; 140,000,000 shares authorized at both December 31, 2001 and December 31, 2000; 68,713,384 and 67,191,542 shares both issued and outstanding at December 31, 2001 and December 31, 2000, respectively. 687 672 Additional paid-in capital 2,333,241 2,493,033 Deferred compensation (7,489) (3,550) Dividends in excess of accumulated earnings (3,497) (47,845) Accumulated other comprehensive loss (8,483) -- ------------- ------------- Total stockholders' equity 2,314,555 2,442,493 ------------- ------------- Total liabilities and stockholders' equity $ 4,664,289 $ 4,397,225 ============= ============= </TABLE> See accompanying notes to Consolidated Financial Statements. F-2
AVALONBAY COMMUNITIES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (Dollars in thousands, except per share data) <TABLE> <CAPTION> Year ended --------------------------------------- 12/31/01 12/31/00 12/31/99 ------------ ------------ ----------- <S> <C> <C> <C> Revenue: Rental income $ 637,379 $ 571,943 $ 504,567 Management fees 1,325 1,051 1,176 Other income 2,953 401 236 ------------ ------------ ----------- Total revenue 641,657 573,395 505,979 ------------ ------------ ----------- Expenses: Operating expenses, excluding property taxes 161,887 142,664 135,517 Property taxes 52,201 46,958 42,701 Interest expense 103,203 83,609 74,699 Depreciation expense 130,079 122,610 109,759 General and administrative 15,224 13,013 9,592 Non-recurring charges -- -- 16,782 ------------ ------------ ----------- Total expenses 462,594 408,854 389,050 ------------ ------------ ----------- Equity in income of unconsolidated entities 856 2,428 2,867 Interest income 6,823 4,764 7,362 Minority interest in consolidated partnerships (597) (1,908) (1,975) ------------ ------------ ----------- Income before gain on sale of communities 186,145 169,825 125,183 Gain on sale of communities 62,852 40,779 47,093 Net income 248,997 210,604 172,276 Dividends attributable to preferred stock (32,497) (39,779) (39,779) ------------ ------------ ----------- Net income available to common stockholders $ 216,500 $ 170,825 $ 132,497 ============ ============ =========== Other comprehensive loss: Cumulative effect of change in accounting principle (6,412) -- -- Unrealized loss on cash flow hedges (2,071) -- -- ------------ ------------ ----------- Other comprehensive loss (8,483) -- -- ------------ ------------ ----------- Comprehensive income $ 208,017 $ 170,825 $ 132,497 ============ ============ =========== Net income available to common stockholders: Per common share - basic $ 3.19 $ 2.58 $ 2.05 Per common share - diluted $ 3.12 $ 2.53 $ 2.03 </TABLE> See accompanying notes to Consolidated Financial Statements. F-3
AVALONBAY COMMUNITIES, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Dollars in thousands, except share data) <TABLE> <CAPTION> Shares issued Amount ------------------------------------------------------ Additional Preferred Common Preferred Common paid-in Stock Stock Stock Stock capital -------------- -------------- -------- --------- -------------- <S> <C> <C> <C> <C> <C> Balance at December 31, 1998 18,322,700 63,887,126 $ 183 $ 639 $ 2,386,087 Net income -- -- -- -- -- Dividends declared to common and preferred stockholders -- -- -- -- -- Issuance of Common Stock -- 1,870,883 -- 19 56,423 Amortization of deferred compensation -- -- -- -- -- -------------- -------------- -------- --------- -------------- Balance at December 31, 1999 18,322,700 65,758,009 183 658 2,442,510 Net income -- -- -- -- -- Dividends declared to common and preferred stockholders -- -- -- -- -- Issuance of Common Stock -- 1,433,533 -- 14 50,523 Amortization of deferred compensation -- -- -- -- -- -------------- -------------- -------- --------- -------------- Balance at December 31, 2000 18,322,700 67,191,542 183 672 2,493,033 Cumulative effect of change in accounting principle -- -- -- -- -- Net income -- -- -- -- -- Unrealized loss on cash flow hedges -- -- -- -- -- Dividends declared to common and preferred stockholders -- -- -- -- -- Redemption of Series F and G Preferred Stock (8,755,000) -- (87) -- (218,908) Issuance of Common Stock -- 1,521,842 -- 15 59,116 Amortization of deferred compensation -- -- -- -- -- -------------- -------------- -------- --------- -------------- Stockholders' equity, December 31, 2001 9,567,700 68,713,384 $ 96 $ 687 $ 2,333,241 ============== ============== ======== ========= ============== </TABLE> <TABLE> <CAPTION> Dividends in Accumulated excess of other Deferred accumulated comprehensive Stockholders' compensation earnings loss equity ------------ ------------- ------------- ---------------- <S> <C> <C> <C> <C> Balance at December 31, 1998 $ (4,356) $ (68,116) $ -- $ 2,314,437 Net income -- 172,276 -- 172,276 Dividends declared to common and preferred stockholders -- (173,667) -- (173,667) Issuance of Common Stock (3,167) -- -- 53,275 Amortization of deferred compensation 3,964 -- -- 3,964 ------------ ------------- ------------- ---------------- Balance at December 31, 1999 (3,559) (69,507) -- 2,370,285 Net income -- 210,604 -- 210,604 Dividends declared to common and preferred stockholders -- (188,942) -- (188,942) Issuance of Common Stock (3,408) -- -- 47,129 Amortization of deferred compensation 3,417 -- -- 3,417 ------------ ------------- ------------- ---------------- Balance at December 31, 2000 (3,550) (47,845) -- 2,442,493 Cumulative effect of change in accounting principle -- -- (6,412) (6,412) Net income -- 248,997 -- 248,997 Unrealized loss on cash flow hedges -- -- (2,071) (2,071) Dividends declared to common and preferred stockholders -- (204,649) -- (204,649) Redemption of Series F and G Preferred Stock -- -- -- (218,995) Issuance of Common Stock (7,545) -- -- 51,586 Amortization of deferred compensation 3,606 -- -- 3,606 ------------ ------------- ------------- ---------------- Stockholders' equity, December 31, 2001 $ (7,489) $ (3,497) $ (8,483) $ 2,314,555 ============ ============= ============= ================ </TABLE> See accompanying notes to Consolidated Financial Statements. F-4
AVALONBAY COMMUNITIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) <TABLE> <CAPTION> For the year ended -------------------------------------------- 12-31-01 12-31-00 12-31-99 ------------- ------------ ------------- <S> <C> <C> <C> Cash flows from operating activities: Net income $ 248,997 $ 210,604 $ 172,276 Adjustments to reconcile net income to cash provided by operating activities: Depreciation expense 130,079 122,610 109,759 Amortization of deferred financing costs 3,716 2,924 2,668 Amortization of deferred compensation 3,606 3,417 3,964 Income allocated to minority interest in consolidated partnerships 597 1,908 1,975 Gain on sale of communities (62,852) (40,779) (47,093) Decrease (increase) in cash in operating escrows 41 1,144 (348) Increase in resident security deposits, accrued interest receivable on participating mortgage notes, prepaid expenses and other assets (20,386) (21,059) (2,775) Increase in accrued expenses, other liabilities and accrued interest payable 4,925 15,693 11,353 ------------- ------------ ------------- Net cash provided by operating activities 308,723 296,462 251,779 ------------- ------------ ------------- Cash flows used in investing activities: Purchase and development of real estate (484,604) (435,332) (516,261) Proceeds from sale of communities, net of selling costs 238,545 156,086 285,263 Increase (decrease) in payables for construction 23,656 1,123 (29,276) Sale of participating mortgage note -- -- 25,097 Increase in cash in section 1031 exchange escrows (33,273) (9,076) -- Decrease (increase) in investments in unconsolidated real estate joint ventures (2,851) 1,280 (1,510) Proceeds received from real estate joint venture partner -- 33,385 -- Redemption of operating units in DownREIT partnerships (864) -- -- ------------- ------------ ------------- Net cash used in investing activities (259,391) (252,534) (236,687) ------------- ------------ ------------- Cash flows from financing activities: Issuance of common stock 50,912 36,203 53,275 Redemption of preferred stock and related costs (218,995) -- -- Dividends paid (203,214) (185,509) (172,333) Net repayments of unsecured credit facility -- (178,600) (150,400) Issuance of secured mortgage notes payable 75,110 -- -- Proceeds from sale of unsecured notes 300,000 350,000 275,000 Repayments of notes payable (22,265) (35,123) (33,579) Payment of deferred financing costs (8,808) (4,428) (3,654) Contributions from (distributions to) minority partners (6,320) 23,142 (3,425) Refinancings of notes payable -- -- 18,755 ------------- ------------ ------------- Net cash provided by (used in) financing activities (33,580) 5,685 (16,361) ------------- ------------ ------------- Net increase (decrease) in cash and cash equivalents 15,752 49,613 (1,269) Cash and cash equivalents, beginning of year 57,234 7,621 8,890 ------------- ------------ ------------- Cash and cash equivalents, end of year $ 72,986 $ 57,234 $ 7,621 ============= ============ ============= Cash paid during year for interest, net of amount capitalized $ 88,996 $ 72,712 $ 60,705 ============= ============ ============= </TABLE> See accompanying notes to Consolidated Financial Statements. F-5
Supplemental disclosures of non-cash investing and financing activities (dollars in thousands): During the year ended December 31, 2001: - 762 units of limited partnership, valued at $36, were presented for redemption to the DownREIT partnership that issued such units and were acquired by the Company in exchange for an equal number of shares of the Company's common stock. - the Company issued 619 units of limited partnership in DownREIT partnerships valued at $30 as consideration for acquisitions of apartment communities that were acquired pursuant to the terms of a forward purchase contract agreed to in 1997 with an unaffiliated party. In addition, the Company issued 256,940 units of limited partnership in a DownREIT partnership valued at $12,274 in connection with the formation of a DownREIT partnership and the acquisition by that partnership of land. - 186,877 shares of restricted common stock were issued at a value of $8,570 and 19,646 shares of restricted stock were forfeited at a value of $235. - $67 of deferred stock units were converted into 1,803 shares of common stock. - the Company recorded a liability and a corresponding charge to Other comprehensive loss of $8,483 to adjust the Company's Swap Agreements (as defined in Note 5 of the notes to the Consolidated Financial Statements) to their fair value. - Common and preferred dividends declared but not paid were $49,007. During the year ended December 31, 2000: - 1,520 units of limited partnership in DownREIT partnerships, valued at $60, were issued in connection with an acquisition for cash and units pursuant to a forward purchase contract agreed to in 1997 with an unaffiliated party. - 304,602 units of limited partnership in DownREIT partnerships, valued at $10,926, were exchanged for an equal number of shares of the Company's common stock. - 139,336 shares of restricted common stock were issued at a value of $4,703 and 50,310 shares of restricted stock were forfeited at a value of $1,668. - Real estate assets valued at $5,394 were contributed to a limited liability company in exchange for a 25% membership interest. - Common and preferred dividends declared but not paid totaled $47,572. During the year ended December 31, 1999: - 117,178 units of limited partnership in DownREIT partnerships, valued at $4,614, were issued in connection with an acquisition for cash and units pursuant to a forward purchase contract agreed to in 1997 with an unaffiliated party. - 22,623 units of limited partnership in DownREIT partnerships, valued at $868, were exchanged for an equal number of shares of the Company's common stock. - 97,456 shares of restricted common stock were issued at a value of $3,167. - Common and preferred dividends declared but not paid totaled $44,139. F-6
AVALONBAY COMMUNITIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 1. Organization and Significant Accounting Policies Organization AvalonBay Communities, Inc. (the "Company," which term, unless the context otherwise requires, refers 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 are located in the Northeast, Mid-Atlantic, Midwest, Pacific Northwest, and Northern and Southern California regions of the country. At December 31, 2001, the Company owned or held a direct or indirect ownership interest in 126 operating apartment communities containing 37,228 apartment homes in eleven states and the District of Columbia, of which three communities containing 1,896 apartment homes were under reconstruction. In addition, the Company owned 15 communities with 3,963 apartment homes under construction and rights to develop an additional 30 communities that, if developed as expected, will contain an estimated 8,918 apartment homes. Principles of Consolidation The Company is the surviving corporation from the merger (the "Merger") of Bay Apartment Communities, Inc. ("Bay") and Avalon Properties, Inc. ("Avalon") on June 4, 1998, where Avalon shareholders received a 0.7683 share of common stock of the Company for each share owned of Avalon common stock. The Merger was accounted for under the purchase method of accounting, with the historical financial statements for Avalon presented prior to the Merger. At that time, Avalon ceased to legally exist, and Bay as the surviving legal entity adopted the historical financial statements of Avalon. Consequently, Bay's assets were recorded in the historical financial statements of Avalon at an amount equal to Bay's debt outstanding at that time plus the value of capital stock retained by the Bay stockholders, which approximates fair value. In connection with the Merger, the Company changed its name from Bay Apartment Communities, Inc. to AvalonBay Communities, Inc. The accompanying 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. 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 have approximated 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 a cash redemption of a limited partner's unit, the Company may elect to acquire any unit presented for redemption for one share of common stock. The Company has minority interest investments in five technology companies. The Company accounts for these unconsolidated entities in accordance with Accounting Principles Board ("APB") Opinion No. 18, "The Equity Method of Accounting for Investments in Common Stock." In 2001, the Company applied the equity method of accounting to its investment in Realeum, Inc., a company involved in the development and deployment of a property management and leasing automation system. The remaining investments are accounted for under the cost F-7
method of accounting. As of December 31, 2001, the aggregate carrying value of our investment in these five companies, net of an allowance of $934, was $2,519. If there is an event or change in circumstance that indicates a loss in the value of an investment, the Company's policy is to record the loss and reduce the value of the investment to its fair value. A loss in value would be indicated if the Company could not recover the carrying value of the investment or if the investee could not sustain an earnings capacity that would justify the carrying amount of the investment. Revenue Recognition Rental income related to leases is recognized on an accrual basis when due from residents in accordance with SEC Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements." In accordance with the Company's standard lease terms, rental payments are generally due on a monthly basis. Any cash concessions given at the inception of the lease are amortized over the life of the lease - generally one year. The following reconciles total revenue in conformity with generally accepted accounting principles ("GAAP") to total revenue adjusted to state concessions on a cash basis for the years ended December 31, 2001, 2000 and 1999: <TABLE> <CAPTION> Year ended ------------------------------------ 12-31-01 12-31-00 12-31-99 ---------- ---------- ---------- <S> <C> <C> <C> Total revenue (GAAP basis) $ 641,657 $ 573,395 $ 505,979 Concessions amortized 4,036 3,043 4,828 Concessions granted (6,431) (2,349) (6,528) ---------- ---------- ---------- Total revenue adjusted to state concessions on a cash basis $ 639,262 $ 574,089 $ 504,279 ========== ========== ========== </TABLE> Real Estate Significant expenditures which 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 Company's policy with respect to capital expenditures is generally to capitalize only non-recurring expenditures. Improvements and upgrades are capitalized only if the item exceeds $15, extends the useful life of the asset and is not related to making an apartment home ready for the next resident. Purchases of personal property, such as computers and furniture, are capitalized only if the item is a new addition. The Company generally expenses purchases of personal property made for replacement purposes. 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. In accordance with Statement of Financial Accounting Standards ("SFAS") No. 67, "Accounting for Costs and Initial Rental Operations of Real Estate Projects," the Company capitalizes pre-development costs incurred in pursuit of new development opportunities for which the Company currently believes future development is probable. Future development of these communities is dependent upon various factors, including zoning and regulatory approval, rental market conditions, construction costs and availability of capital. The accompanying F-8
Consolidated Financial Statements include a charge to expense to provide an allowance 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 (primarily 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. If there is an event or change in circumstance that indicates an impairment in the value of a community, the Company's policy is to assess any impairment in value by making a comparison of the current and projected operating cash flows of the community over its remaining useful life, on an undiscounted basis, to the carrying amount of the community. If such carrying amounts are in excess of the estimated projected operating cash flows of the community, the Company would recognize an impairment loss equivalent to an amount required to adjust the carrying amount to its estimated fair market value. The Company has not recognized an impairment loss in 2001, 2000 or 1999 on any of its real estate. Income Taxes The Company elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended, for the year ended December 31, 1994 and has not revoked such election. A corporate REIT is a legal entity which holds real estate interests and must meet a number of organizational and operational requirements, including a requirement that it currently distribute at least 90% of its adjusted taxable income to stockholders. As a REIT, the Company generally will not be subject to corporate level federal income tax on taxable income it distributes currently to its stockholders. Management believes that all such conditions for the avoidance of income taxes have been met for the periods presented. Accordingly, no provision for federal and state income taxes has been made. If the Company fails to qualify as a REIT in any taxable year, it will be subject to federal income taxes at regular corporate rates (including any applicable alternative minimum tax) and may not be able to qualify as a REIT for four subsequent taxable years. Even if the Company qualifies for taxation as a REIT, the Company may be subject to certain state and local taxes on its income and property, and to federal income and excise taxes on its undistributed taxable income. In addition, taxable income from non-REIT activities managed through taxable REIT subsidiaries is subject to federal, state and local income taxes. The following reconciles net income available to common stockholders to taxable net income for the years ended December 31, 2001, 2000 and 1999: <TABLE> <CAPTION> 2001 2000 1999 Estimate Actual Actual ------------ ---------- ---------- <S> <C> <C> <C> Net income available to common stockholders $ 216,500 $170,825 $132,497 Dividends attributable to Preferred Stock, not deductible for tax 32,497 39,779 39,779 GAAP gain on sale of communities in excess of tax gain (21,961) (15,146) (5,162) Depreciation/Amortization timing differences on real estate 11,421 10,593 6,248 Tax compensation expense in excess of (less than) GAAP (7,752) (5,873) 1,285 Other adjustments (13,459) (12,576) (10,649) ------------ ---------- ---------- Taxable net income $ 217,246 $187,602 $163,998 ============ ========== ========== </TABLE> F-9
The following summarizes the tax components of the Company's common and preferred dividends declared for the years ended December 31, 2001, 2000 and 1999: <TABLE> <CAPTION> 2001 2000 1999 ----------- ----------- ------------ <S> <C> <C> <C> Ordinary income 80% 86% 76% 20% capital gain 14% 9% 11% Unrecaptured Section 1250 gain 6% 5% 13% </TABLE> Deferred Financing Costs Deferred financing costs include fees and costs incurred to obtain debt financing and are amortized on a straight-line basis, which approximates the effective interest method, over the shorter of the term of the loan or the related credit enhancement facility, if applicable. Unamortized financing costs are written-off when debt is retired before the maturity date. Accumulated amortization of deferred financing costs were $11,916 and $8,200 at December 31, 2001 and 2000, respectively. Cash, Cash Equivalents and Cash in Escrow Cash and cash equivalents include all cash and liquid investments with an original maturity of three months or less from the date acquired. The majority of the Company's cash, cash equivalents and cash in escrows is held at major commercial banks. F-10
Earnings per Common Share In accordance with the provisions of SFAS No. 128, "Earnings per Share," basic earnings per share is computed by dividing earnings available to common shareholders by the weighted average number of shares outstanding during the period. Other potentially dilutive common shares, and the related impact to earnings, are considered when calculating earnings per share on a diluted basis. The Company's earnings per common share are determined as follows: <TABLE> <CAPTION> Year ended ------------------------------------------------- 12-31-01 12-31-00 12-31-99 --------------- --------------- --------------- <S> <C> <C> <C> Basic and Diluted shares outstanding - ------------------------------------ Weighted average common shares - basic 67,842,752 66,309,707 64,724,799 Weighted average DownREIT units outstanding 682,134 861,755 933,122 Effect of dilutive securities 1,256,833 969,536 452,743 --------------- --------------- --------------- Weighted average common shares and DownREIT units - diluted 69,781,719 68,140,998 66,110,664 =============== =============== =============== Calculation of Earnings per Share - Basic - ----------------------------------------- Net income available to common stockholders $ 216,500 $ 170,825 $ 132,497 =============== =============== =============== Weighted average common shares - basic 67,842,752 66,309,707 64,724,799 =============== =============== =============== Earnings per common share - basic $ 3.19 $ 2.58 $ 2.05 =============== =============== =============== Calculation of Earnings per Share - Diluted - ------------------------------------------- Net income available to common stockholders $ 216,500 $ 170,825 $ 132,497 Add: Minority interest of DownREIT unitholders in consolidated partnerships 1,559 1,759 1,975 --------------- --------------- --------------- Adjusted net income available to common stockholders $ 218,059 $ 172,584 $ 134,472 =============== =============== =============== Weighted average common shares and DownREIT units - diluted 69,781,719 68,140,998 66,110,664 =============== =============== =============== Earnings per common share - diluted $ 3.12 $ 2.53 $ 2.03 =============== =============== =============== </TABLE> For each of the years presented, certain options to purchase shares of common stock were outstanding 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 for the period. The number of options not included totaled 18,269 in 2001, 7,500 in 2000 and 2,282,192 for 1999. Executive Separation Costs In February 2001, the Company announced certain management changes including the departure of a senior executive who became entitled to severance benefits in accordance with the terms of his employment agreement with the Company. The Company recorded a charge of approximately $2,500 in the first quarter of 2001 related to the expected costs associated with such departure. In December 2001, a senior executive of the Company retired from his management position. Upon retirement, the Company recognized compensation expense of approximately $784, relating to the accelerated vesting of restricted stock grants. F-11
Recently Issued Accounting Standards In August of 2001, the Financial Accounting Standards Board issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." This pronouncement establishes accounting and reporting standards requiring that long-lived assets held for sale be classified as discontinued operations. These assets will continue to be measured at the lower of the carrying amount or the fair value less the cost to sell. Operations, including the gain or loss on sale, for both the current and prior periods shall be reported in discontinued operations. The statement becomes effective for fiscal years beginning after December 15, 2001. The Company will adopt this pronouncement beginning January 1, 2002. In the opinion of management, the adoption of this statement will not have a material effect on the Company's Consolidated Financial Statements. 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. Reclassifications Certain reclassifications have been made to amounts in prior years' financial statements to conform with current year presentations. 2. Interest Capitalized Capitalized interest associated with communities under development or redevelopment totaled $27,635, $18,328 and $21,888 for the years ended December 31, 2001, 2000 and 1999, respectively. 3. Notes Payable, Unsecured Notes and Credit Facility Mortgage notes payable are collateralized by certain apartment communities and mature at various dates from March 2002 through February 2041. The weighted average interest rate of the Company's variable rate notes and unsecured credit facility, including certain financing related fees, was 3.1% at December 31, 2001. The weighted average interest rate of the Company's fixed rate mortgage notes (conventional and tax-exempt) was 6.7% at December 31, 2001. The Company's notes payable, unsecured notes payable and credit facility are summarized as follows: <TABLE> <CAPTION> 12-31-01 12-31-00 -------- -------- <S> <C> <C> Fixed rate unsecured notes $ 1,635,000 $ 1,335,000 Fixed rate mortgage notes payable - conventional and tax-exempt (1) 322,495 326,964 Variable rate mortgage notes payable - tax-exempt 67,960 67,960 ----------- ----------- Total notes payable and unsecured notes 2,025,455 1,729,924 Variable rate secured short term construction loan 57,314 -- Variable rate unsecured credit facility -- -- ----------- ----------- Total mortgage notes payable, unsecured notes and unsecured credit facility $ 2,082,769 $ 1,729,924 =========== =========== (1) Includes approximately $167,000 of variable rate notes in both years effectively fixed through swap agreements, as described in Note 5. </TABLE> F-12
Scheduled payments and maturities of notes payable and unsecured notes are as follows: <TABLE> <CAPTION> Secured notes Secured notes Unsecured notes Interest rate of Year payments maturities maturities unsecured notes ---- -------- ---------- ---------- --------------- <S> <C> <C> <C> <C> 2002 $ 3,298 $ 57,314 $ 100,000 7.375% 2003 $ 3,538 -- $ 50,000 6.250% $ 100,000 6.500% 2004 $ 3,653 $ 24,106 $ 125,000 6.580% 2005 $ 3,705 -- $ 100,000 6.625% $ 50,000 6.500% 2006 $ 3,971 -- $ 150,000 6.800% 2007 $ 4,257 $ 35,980 $ 110,000 6.875% 2008 $ 4,565 -- $ 50,000 6.625% $ 150,000 8.250% 2009 $ 4,895 $ 10,400 $ 150,000 7.500% 2010 $ 5,246 -- $ 200,000 7.500% 2011 $ 5,626 -- $ 300,000 6.625% Thereafter $ 219,655 $ 57,560 -- --------------- --------------- --------------- $ 262,409 $ 185,360 $ 1,635,000 =============== =============== =============== </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 $500,000 variable rate unsecured credit facility with J.P. Morgan Chase and Fleet National Bank serving as co-agents for a syndicate of commercial banks, which had zero outstanding on December 31, 2001. Under the terms of the unsecured credit facility, if the Company elects to increase the facility up to $650,000, the consortium of banks cannot prohibit such an increase of the facility and the increased lending commitment could be provided by one or more banks (from the consortium or otherwise) to the extent they choose to commit to lend additional funds. The unsecured credit 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 schedule selected by the Company. The current stated pricing is LIBOR plus 0.6% per annum (2.5% on December 31, 2001). In addition, the unsecured credit 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 credit facility for up to $400,000. The Company is subject to certain customary covenants under the unsecured credit 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 existing facility matures in May 2005 after application of a one year renewal option by the Company. F-13
4. Stockholders Equity As of both December 31, 2001 and 2000, the Company had authorized for issuance 140,000,000 and 50,000,000 of Common and Preferred Stock, respectively. Dividends on all series of issued Preferred Stock are cumulative from the date of original issue and are payable quarterly in arrears on or before the 15th day of each month as stated in the table below. None of the series of Preferred Stock are redeemable prior to the date stated in the table below, but on or after the stated date, may be redeemed for cash at the option of the Company in whole or in part at a redemption price of $25.00 per share, plus all accrued and unpaid dividends, if any. In June 2001, the Company redeemed all 4,455,000 outstanding shares of its 9.00% Series F Cumulative Redeemable Preferred Stock at a price of $25.00 per share, plus $0.1625 in accrued and unpaid dividends. In October 2001, the Company redeemed all 4,300,000 outstanding shares of its 8.96% Series G Cumulative Redeemable Preferred Stock at a price of $25.00 per share, plus $0.4418 in accrued and unpaid dividends. The series of Preferred Stock outstanding have no stated maturity and are not subject to any sinking fund or mandatory redemptions. Preferred Stock outstanding as of December 31, 2001 were as follows: <TABLE> <CAPTION> Shares outstanding Payable Annual Liquidation Non-redeemable Series December 31, 2001 quarterly rate preference prior to - ------ ----------------- ----------------------- -------- --------------- ------------------- <S> <C> <C> <C> <C> <C> C 2,300,000 March, June, September, 8.50% $25 June 20, 2002 December D 3,267,700 March, June, September, 8.00% $25 December 15, 2002 December H 4,000,000 March, June, September, 8.70% $25 October 15, 2008 December </TABLE> The Company also has 1,000,000 shares of Series E Junior Participating Cumulative Preferred Stock authorized for issuance pursuant to the Company's Shareholder Rights Agreement. As of December 31, 2001, there were no shares of Series E Preferred Stock outstanding and the Company has amended its Shareholder Rights Agreement so that it will expire effective March 31, 2002. Dividends per common share for the years ended December 31, 2001, 2000 and 1999 were $2.56, $2.24 and $2.06, respectively. In 2001, dividends per preferred share for shares redeemed during the year were $1.41 and dividends per share for all non-redeemed preferred shares were $2.10. Dividends per preferred share were $2.17 in both 2000 and 1999. 5. Derivative Instruments and Hedging Activities In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133, as amended by SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of SFAS No. 133," and SFAS No. 138, "Accounting for Certain Instruments and Certain Hedging Activities, an amendment of Statement 133," was adopted by the Company on January 1, 2001. SFAS No. 133, as amended, 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 also requires that a change in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. For fair value hedge transactions, changes in the fair value of the derivative instrument and changes in the fair value of the hedged item due to the risk being hedged are recorded through the income statement. For cash flow hedge transactions, changes in the fair value of the derivative instrument are reported in other comprehensive income. For hedges where the changes in the fair value of the derivative exceeds the change in fair value of the hedged item, the ineffective portion is recognized in current period earnings. Derivatives which are not part of a hedge relationship are recorded at fair value through earnings. The Company has historically used interest rate swap agreements (the "Swap Agreements") to reduce the impact of interest rate fluctuations on its variable rate tax-exempt bonds. The Company has not entered into any interest rate hedge agreements or treasury locks for its conventional unsecured debt. The Swap Agreements are not held for trading F-14
or other speculative purposes. As of December 31, 2001, the effect of these Swap Agreements is to fix $167,272 of the Company's tax-exempt debt at a weighted average interest rate of 6.0% with an average maturity of 4.5 years. By using derivative financial instruments to hedge exposures to changes in interest rates, the Company exposes itself to credit risk and market risk. The credit risk is the risk of a counterparty not performing under the terms of the Swap Agreement. The counterparties to these Swap Agreements are major financial institutions which have an A+ or better credit rating by the Standard & Poor's Ratings Group. The Company monitors the credit ratings of counterparties and the amount of the Company's debt subject to Swap Agreements with any one party. Therefore, the Company believes the likelihood of realizing material losses from counterparty non-performance is remote. Market risk is the adverse effect of the value of financial instruments that results from a change in interest rates. The market risk associated with interest-rate contracts is managed by the establishment and monitoring of parameters that limit the types and degree of market risk that may be undertaken. These risks are managed by the Company's Chief Financial Officer and Vice President of Finance. The Company has determined that its Swap Agreements qualify as effective cash-flow hedges under SFAS No. 133. When entering into hedging transactions, the Company documents the relationships between hedging instruments and hedged items, as well as the risk management objective and strategy. The Company assesses, both at inception and on an on-going basis, the effectiveness of all hedges in offsetting cash flows of hedged items. In accordance with SFAS No. 133, the Company records all changes in the fair value of the Swap Agreements in other comprehensive income. Amounts recorded in other comprehensive income will be reclassified into earnings in the period in which earnings are affected by the hedged cash flows. For example, the reduction in fair value on a cash flow hedge due to the periodic payment of interest under the Swap Agreements is recorded in earnings each period. The combination of this expense with the lower interest expense we expect to pay on the underlying floating rate debt should result in overall interest expense equal to the contractually fixed amount resulting from the fixed rate swaps. In all situations where hedge accounting is discontinued, the derivative will be carried at fair value with changes in its fair value recognized in income. Upon the termination of a hedging relationship, the amount in other comprehensive income will be amortized over the remaining life of the hedged cash flows. At January 1, 2001, in accordance with the transition provisions of SFAS No. 133, the Company recorded a cumulative effect adjustment of $6,412 to other comprehensive loss to recognize at fair value all of the derivatives that are designated as cash flow hedging instruments. Through December 31, 2001, the Company recorded additional unrealized losses to other comprehensive loss of $2,599 to adjust the Swap Agreements to their fair value. In connection with the sale of a community during the first quarter of 2001, a Swap Agreement with a fair value of $528 was transferred to the new owner. Hedge ineffectiveness did not have a material impact on earnings and the Company does not anticipate that it will have a material effect in the future. The Swap Agreements are included in accrued expenses and other liabilities on the accompanying Consolidated Balance Sheets. 6. Investments in Unconsolidated Real Estate Entities The Company accounts for investments in unconsolidated real estate entities in accordance with Statement of Position ("SOP") 78-9, "Accounting for Investments in Real Estate Ventures" and APB Opinion No. 18. The Company applies the equity method of accounting to an investment in an entity if it owns greater than 20% or the equity value or has significant and disproportionate influence over that entity. At December 31, 2001, the Company's investments in unconsolidated real estate entities accounted for under the equity method of accounting consisted of: - a 50% limited liability company membership interest in a limited liability company that owns the Falkland Chase community; - a 49% general partnership interest in a partnership that owns the Avalon Run community; - a 50% limited liability company membership interest in a limited liability company that owns the Avalon Grove community; and - a 50% limited liability company membership interest in a limited liability company that owns the Avalon Terrace community. F-15
The following is a combined summary of the financial position of these entities as of the dates presented: <TABLE> <CAPTION> (Unaudited) ------------------------- 12-31-01 12-31-00 -------- -------- <S> <C> <C> Assets: Real estate, net $151,590 $132,832 Other assets 10,971 10,400 -------- -------- Total assets $162,561 $143,232 ======== ======== Liabilities and partners' equity: Mortgage notes payable $ 47,195 $ 48,400 Other liabilities 10,040 8,656 Partners' equity 105,326 86,176 -------- -------- Total liabilities and partners' equity $162,561 $143,232 ======== ======== </TABLE> The following is a combined summary of the operating results of these entities for the periods presented: <TABLE> <CAPTION> Year ended (unaudited) -------------------------------------------- 12-31-01 12-31-00 12-31-99 -------- -------- -------- <S> <C> <C> <C> Rental income $ 28,746 $ 22,222 $ 20,781 Other income 170 57 26 Operating and other expenses (9,098) (6,110) (5,657) Mortgage interest expense (2,571) (1,107) (773) Depreciation expense (4,262) (3,202) (3,091) -------- -------- -------- Net income $ 12,985 $ 11,860 $ 11,286 ======== ======== ======== </TABLE> The Company also holds an investment in a real estate entity which is accounted for under the cost method of accounting. In addition, the Company holds a 25% limited liability company membership interest in the limited liability company that owns Avalon on the Sound, which is presented on a consolidated basis in the financial statements in accordance with GAAP due to the Company's control over that entity. 7. Communities Held for Sale The Company has a policy of disposing of assets that are not consistent with its long-term investment criteria when market conditions are favorable. 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. F-16
The communities sold during 2001 and the respective sales price and net proceeds are summarized below: <TABLE> <CAPTION> Period Apartment Gross sales Net Community Name Location of sale homes Debt price proceeds - ----------------------------------------------------- ------- --------- -------- ----------- -------- <S> <C> <C> <C> <C> <C> <C> Crossbrook Rohnert Park, CA 1Q01 226 $ 8,145 $ 23,250 $ 14,500 Avalon Pavilions Manchester, CT 3Q01 932 -- 81,500 81,000 Waterhouse Place Beaverton, OR 3Q01 279 -- 20,900 20,600 Avalon Palladia Hillsboro, OR 3Q01 497 -- 51,250 51,000 Avalon Colchester Brookline, MA 4Q01 57 -- 6,000 5,900 Timberwood West Covina, CA 4Q01 209 -- 22,900 22,700 Arbor Heights Hacienda Heights, CA 4Q01 351 -- 35,330 34,700 -------- -------- -------- -------- Total of all 2001 asset sales 2,551 $ 8,145 $241,130 $230,400 ======== ======== ======== ======== Total of all 2000 asset sales 1,932 $ 31,694 $160,085 $124,392 ======== ======== ======== ======== Total of all 1999 asset sales 4,464 $ 29,645 $316,512 $280,918 ======== ======== ======== ======== </TABLE> There were no communities held for sale as of December 31, 2001, however, the Company will continue to evaluate market conditions and will dispose of communities to optimize its concentration of assets when conditions are favorable. 8. Commitments and Contingencies Presale Commitments The Company occasionally enters into fixed price forward purchase commitments with unrelated third parties, which allow the Company to purchase communities upon completion of construction. The Company has an agreement to purchase a community with an estimated 306 apartment homes for an aggregate purchase price of approximately $70,000. The Company expects the acquisition to close in the second quarter of 2002. However, there can be no assurance that such acquisition will be consummated on the terms currently contemplated or at all, or on the schedule currently contemplated. Insured Fire at Development Community During 2000, a fire occurred at one of the Company's development communities, which was under construction and unoccupied at the time. The book value of the destroyed assets was reduced to zero from a balance of approximately $13,900 at the time of the fire. The Company recorded an insurance receivable for the same amount which was subsequently collected from the insurance company. The Company has property damage and business interruption insurance and prepared an insurance claim for the cost of replacing the destroyed assets as well as for business interruption losses. The Company does not anticipate this event will have a material adverse impact on the financial condition or results of operations of the Company. At December 31, 2001, the Company had an insurance receivable balance of $2,500 for business interruption through December 31, 2001. Income of $2,500 relating to the business interruption insurance claim is recorded in Other income in the accompanying Consolidated Statements of Operations and Other Comprehensive Income for 2001. In 2002, the Company expects to finalize the settlement of its insurance claim related to this fire and to recognize additional income from business interruption insurance which cannot be reasonably estimated at this time. Employment Agreements and Arrangements As of December 31, 2001, the Company has employment agreements with two executive officers that it entered into in 1998. In addition, during 2000 and 2001, six other senior officers entered into employment agreements, which are generally similar in structure to those entered into in 1998 but which generally do not provide for the same level of severance payments. The employment agreements provide for severance payments and generally also provide for accelerated vesting of stock options and restricted stock in the event of a termination of employment (except for F-17
a termination by the Company with cause or a voluntary termination by the employee). The current term of these agreements ends on dates that vary between March 2003 and April 2004. The employment agreements provide for one-year automatic renewals after the initial term unless an advance notice of non-renewal is provided by either party. Under five of the agreements, upon a notice of non-renewal by the Company, the officer may terminate his employment and receive a severance payment. Upon a change in control, the agreements provide for an automatic extension of up to three years from the date of the change in control. The employment agreements provide for base salary and incentive compensation in the form of cash awards, stock options and stock grants subject to the discretion of, and attainment of performance goals established by, the Compensation Committee of the Board of Directors. During the fourth quarter of 1999, the Company adopted an Officer Severance Program (the "Program") for the benefit of those officers of the Company who do not have employment agreements. Under the Program, in the event an officer who is not otherwise covered by a severance arrangement is terminated without cause in connection with a change in control (as defined) of the Company, such officer will generally receive a cash lump sum payment equal to the amount of such officer's base salary and cash bonus as well as accelerated vesting of stock options and restricted stock. Legal Contingencies The Company is subject to various legal proceedings and claims that arise in the ordinary course of business. These matters are frequently covered by insurance. If it has been determined that a loss is probable to occur, the estimated amount of the loss is expensed in the financial statements. While the resolution of these matters cannot be predicted with certainty, management believes the final outcome of such matters will not have a material adverse effect on the financial position or results of operations of the Company. 9. Segment Reporting The Company's reportable operating segments include Established Communities, Other Stabilized Communities, and Development/Redevelopment Communities. Annually on January 1st, the Company determines which of its communities fall into each of these categories and maintains that classification throughout the year for the purpose of reporting segment operations. - Established Communities (also known as Same Store Communities) are communities where a comparison of operating results from the prior year to the current year is meaningful, as these communities were owned and had stabilized occupancy and costs as of the beginning of the prior year. These communities are divided into geographic regions. For the year 2001, the Established Communities were communities that had stabilized occupancy and costs as of January 1, 2000. A community is considered to have stabilized occupancy at the earlier of (i) attainment of 95% occupancy or (ii) the one-year anniversary of completion of development or redevelopment. - Other Stabilized includes all other completed communities that have stabilized occupancy, as defined above, and communities held for sale. - Development/Redevelopment consists of communities that are under construction and have not received a final certificate of occupancy and communities where substantial redevelopment is in progress or is planned to take place during the current year. The primary financial measure for Established and Other Stabilized Communities is Net Operating Income ("NOI"), which represents total revenue less operating expenses and property taxes. The primary performance measure for communities under development or redevelopment depends on the stage of completion. While under development, management monitors actual construction costs against budgeted costs as well as economic occupancy. While under lease-up, the primary performance measures for these assets are lease-up pace compared to budget and rent levels compared to budget. F-18
<TABLE> <CAPTION> (Dollars in thousands) --------------------------------------------------------- Total Net operating % NOI change Gross revenue income from prior year real estate ---------- ------------- --------------- ----------- <S> <C> <C> <C> <C> For the year ended December 31, 2001 - ------------------------------------ Segment Results Established Northeast $ 113,564 $ 81,777 8.4% $ 570,551 Mid-Atlantic 81,976 60,256 8.4% 438,010 Midwest 21,069 13,089 1.7% 145,025 Pacific Northwest 6,784 4,985 3.3% 60,426 Northern California 157,736 121,923 6.9% 1,216,489 Southern California 42,462 30,188 9.2% 294,625 ---------- ---------- ---------- ---------- Total Established 423,591 312,218 7.5% 2,725,126 ---------- ---------- ---------- ---------- Other Stabilized 161,297 113,786 n/a 1,025,704 Development / Redevelopment 56,769 34,532 n/a 991,667 Land Held for Future Development n/a n/a n/a 66,608 Non-Allocated n/a n/a n/a 28,764 ---------- ---------- ---------- ---------- Total AvalonBay $ 641,657 $ 460,536 11.8% $4,837,869 ========== ========== ========== ========== For the year ended December 31, 2000 - ------------------------------------ Segment Results Established Northeast $ 92,094 $ 65,047 6.6% $ 486,217 Mid-Atlantic 68,646 49,694 9.2% 392,758 Midwest 20,455 12,869 5.0% 144,550 Pacific Northwest 3,778 2,751 17.1% 34,382 Northern California 107,342 82,126 15.9% 938,630 Southern California 23,458 16,635 11.6% 158,165 ---------- ---------- ---------- ---------- Total Established 315,773 229,122 10.7% 2,154,702 ---------- ---------- ---------- ---------- Other Stabilized 198,444 141,270 n/a 1,441,767 Development / Redevelopment 59,178 41,492 n/a 882,043 Land Held for Future Development n/a n/a n/a 33,161 Non-Allocated n/a n/a n/a 24,296 ---------- ---------- ---------- ---------- Total AvalonBay $ 573,395 $ 411,884 18.5% $4,535,969 ========== ========== ========== ========== For the year ended December 31, 1999 - ------------------------------------ Segment Results Established Northeast $ 84,786 $ 60,098 5.9% $ 475,430 Mid-Atlantic 64,645 45,863 7.6% 390,573 Midwest 5,347 3,049 7.6% 36,912 Northern California 96,182 70,662 1.1% 942,892 Southern California 6,557 4,512 15.2% 51,085 ---------- ---------- ---------- ---------- Total Established 257,517 184,184 4.7% 1,896,892 ---------- ---------- ---------- ---------- Other Stabilized 164,884 111,637 n/a 1,039,150 Development / Redevelopment 83,578 54,725 n/a 1,266,989 Land Held for Future Development n/a n/a n/a 40,459 Non-Allocated n/a n/a n/a 22,936 ---------- ---------- ---------- ---------- Total AvalonBay $ 505,979 $ 350,546 38.3% $4,266,426 ========== ========== ========== ========== </TABLE> F-19
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. The accounting policies applicable to the operating segments described above are the same as those described in the summary of significant accounting policies. Operating expenses as reflected on the Consolidated Statements of Operations and Comprehensive Income include $32,967, $28,111 and $22,786 for the years ended December 31, 2001, 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. While there were no communities held for sale at December 31, 2001, the amount reflected for "Communities held for sale" on the Consolidated Balance Sheets at December 31, 2000 is net of $19,965 for accumulated depreciation. 10. Stock-Based Compensation Plans The Company has adopted the 1994 Stock Incentive Plan, as amended and restated on March 31, 2001 (the "1994 Plan"), for the purpose of encouraging and enabling the Company's officers, associates and directors to acquire a proprietary interest in the Company and as a means of aligning management and stockholder interests and as a retention incentive for key associates. Individuals who are eligible to participate in the 1994 Plan include officers, other associates, outside directors and other key persons of the Company and its subsidiaries who are responsible for or contribute to the management, growth or profitability of the Company and its subsidiaries. The 1994 Plan authorizes (i) the grant of stock options that qualify as incentive stock options under Section 422 of the Internal Revenue Code ("ISOs"), (ii) the grant of stock options that do not so qualify, (iii) grants of shares of restricted and unrestricted Common Stock, (iv) grants of deferred stock awards, (v) performance share awards entitling the recipient to acquire shares of Common Stock and (vi) dividend equivalent rights. Under the 1994 Plan, a maximum of 6,576,859 shares of Common Stock, plus upon the passing of each December 31st starting with December 31, 2001, up to 1.0% of the total number of shares of common stock and DownREIT units actually outstanding on such date, may be issued. Notwithstanding the foregoing, the maximum number of shares of stock for which ISOs may be issued under the 1994 Plan shall not exceed 2,500,000 and no awards shall be granted under the 1994 Plan after May 11, 2011. For purposes of this limitation, shares of Common Stock which are forfeited, canceled and reacquired by the Company, satisfied without the issuance of Common Stock or otherwise terminated (other than by exercise) shall be added back to the shares of Common Stock available for issuance under the 1994 Plan. Stock Options with respect to no more than 300,000 shares of stock may be granted to any one individual participant during any one calendar year period. Options granted to officers and employees under the 1994 Plan vest over periods (and may be subject to accelerated vesting under certain circumstances) as determined by the Compensation Committee of the Board of Directors and must expire no later than ten years from the date of grant. Options granted to non-employee directors under the 1994 Plan are subject to accelerated vesting under certain limited circumstances, become exercisable on the first anniversary of the date of grant, and expire ten years from the date of grant. Restricted stock granted to officers and employees under the 1994 Plan vest over periods (and may be subject to accelerated vesting under certain circumstances) as determined by the Compensation Committee of the Board of Directors. Generally, the restricted stock grants that have been awarded to officers and employees vest over four years, with 20% vesting immediately on the grant date and the remaining 80% vesting equally over the next four years from the date of grant. Restricted stock granted to non-employee directors vests 20% on the date of issuance and 20% on each of the first four anniversaries of the date of issuance. Options to purchase 2,780,757, 3,123,713, and 3,637,724 shares of Common Stock were available for grant under the 1994 Plan at December 31, 2001, 2000 and 1999, respectively. Before the Merger, Avalon had adopted its 1995 Equity Incentive Plan (the "Avalon 1995 Incentive Plan"). Under the Avalon 1995 Incentive Plan, a maximum number of 3,315,054 shares (or 2,546,956 shares as adjusted for the Merger) of Common Stock were issuable, plus any shares of Common Stock represented by awards under Avalon's 1993 Stock Option and Incentive Plan (the "Avalon 1993 Plan") that were forfeited, canceled, reacquired by Avalon, satisfied without the issuance of Common Stock or otherwise terminated (other than by exercise). Options granted to officers, non-employee directors and associates under the Avalon 1995 Incentive Plan generally vested F-20
over a three-year term, expire ten years from the date of grant and are exercisable at the market price on the date of grant. In connection with the Merger, the exercise prices and the number of options under the Avalon 1995 Incentive Plan and the Avalon 1993 Plan were adjusted to reflect the equivalent Bay shares and exercise prices based on the 0.7683 share conversion ratio used in the Merger. Officers, non-employee directors and associates with Avalon 1995 Incentive Plan or Avalon 1993 Plan options may exercise their adjusted number of options for the Company's Common Stock at the adjusted exercise price. As of June 4, 1998, the date of the Merger, options and other awards ceased to be granted under the Avalon 1993 Plan or the Avalon 1995 Incentive Plan. Accordingly, there were no options to purchase shares of Common Stock available for grant under the Avalon 1995 Incentive Plan or the Avalon 1993 Plan at December 31, 2001, 2000 or 1999. Information with respect to stock options granted under the 1994 Plan, the Avalon 1995 Incentive Plan and the Avalon 1993 Plan is as follows: <TABLE> <CAPTION> Weighted Avalon 1995 Weighted average and Avalon average 1994 Plan exercise price 1993 Plan exercise price shares per share shares per share ---------- ---------- ---------- ---------- <S> <C> <C> <C> <C> Options outstanding, December 31, 1998 1,886,082 $ 32.74 2,052,254 $ 34.05 Exercised (311,989) 25.44 (172,977) 26.97 Granted 993,084 32.24 -- -- Forfeited (533,903) 36.25 (50,940) 37.61 ---------- ---------- ---------- ---------- Options outstanding, December 31, 1999 2,033,274 $ 32.63 1,828,337 $ 34.63 Exercised (172,376) 34.78 (327,582) 28.65 Granted 631,795 34.56 -- -- Forfeited (66,736) 33.50 (16,410) 35.84 ---------- ---------- ---------- ---------- Options outstanding, December 31, 2000 2,425,957 $ 32.96 1,484,345 $ 35.94 Exercised (367,652) 33.05 (487,312) 35.79 Granted 946,612 45.90 -- -- Forfeited (111,639) 40.34 (4,836) 36.61 ---------- ---------- ---------- ---------- Options outstanding, December 31, 2001 2,893,278 $ 36.91 992,197 $ 36.03 ========== ========== ========== ========== Options exercisable: December 31, 1999 682,110 $ 30.33 1,268,520 $ 33.22 ========== ========== ========== ========== December 31, 2000 1,183,551 $ 32.05 1,313,219 $ 35.71 ========== ========== ========== ========== December 31, 2001 1,537,194 $ 33.58 976,830 $ 35.99 ========== ========== ========== ========== </TABLE> For options outstanding at December 31, 2001 for the 1994 plan, 246,666 options had exercise prices ranging between $18.37 and $29.99 and a weighted average contractual life of 3.1 years, 1,692,300 options had exercise prices ranging between $30.00 and $39.99 and a weighted average contractual life of 7.1 years, and 954,312 options had exercise prices ranging between $40.00 and $47.50 and a weighted average contractual life of 9.1 years. Options outstanding at December 31, 2001 for the Avalon 1993 and Avalon 1995 plans had exercise prices ranging from $26.68 to $39.86 and a weighted average contractual life of 5.3 years. The Company applies APB Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations in accounting for its Plans. Accordingly, no compensation expense has been recognized for the stock option portion of the stock-based compensation plan. F-21
Had compensation expense for the Company's stock option plan been determined based on the fair value at the grant date for awards under the Plan consistent with the methodology prescribed under SFAS No. 123, "Accounting for Stock-Based Compensation," the Company's net income and earnings per share would have been reduced to the following pro forma amounts (unaudited): <TABLE> <CAPTION> Pro Forma ----------------------------------------------- Year ended Year ended Year ended 12-31-01 12-31-00 12-31-99 ----------- ----------- ----------- <S> <C> <C> <C> Net income available to common stockholders $ 212,924 $ 168,058 $ 130,882 =========== =========== =========== Per common share - basic $ 3.14 $ 2.53 $ 2.02 Per common share - diluted $ 3.07 $ 2.49 $ 2.01 </TABLE> The fair value of the options granted during 2001 is estimated at $4.83 per share on the date of grant using the Black-Scholes option pricing model with the following assumptions: dividend yield of 5.58%, volatility of 16.47%, risk-free interest rates of 5.07%, actual number of forfeitures, and an expected life of approximately 3 years. The fair value of the options granted during 2000 is estimated at $3.76 per share on the date of grant using the Black-Scholes option pricing model with the following assumptions: dividend yield of 6.51%, volatility of 15.93%, risk-free interest rates of 6.61%, actual number of forfeitures, and an expected life of approximately 3 years. The fair value of the options granted during 1999 is estimated at $3.40 per share on the date of grant using the Black-Scholes option pricing model with the following assumptions: dividend yield of 6.10%, volatility of 17.04%, risk-free interest rates of 5.54%, actual number of forfeitures, and an expected life of approximately 3 years. In connection with the Merger, the Company adopted the 1996 Non-Qualified Employee Stock Purchase Plan, as amended and restated (the "1996 ESP Plan"). The primary purpose of the 1996 ESP Plan is to encourage Common Stock ownership by eligible directors, officers and associates (the "Participants") in the belief that such ownership will increase each Participant's interest in the success of the Company. Until January 1, 2000, the 1996 ESP Plan provided for two purchase periods per year. A purchase period was a six month period beginning each January 1 and July 1 and ending each June 30 and December 31, respectively. Starting January 1, 2000, there is one purchase period per year, which begins May 1 and ends October 31. Participants may contribute portions of their compensation during a purchase period and purchase Common Stock at the end thereof. One million shares of Common Stock were initially reserved for issuance under the 1996 ESP Plan. Participation in the 1996 ESP Plan entitles each Participant to purchase Common Stock at a price which is equal to the lesser of 85% of the closing price for a share of stock on the first day of such purchase period or 85% of the closing price on the last day of such purchase period. The Company issued 14,917, 34,055 and 35,408 shares under the 1996 ESP Plan for 2001, 2000 and 1999, respectively. 11. Fair Value of Financial Instruments Cash and cash equivalent balances are held with various financial institutions and may at times exceed the applicable Federal Deposit Insurance Corporation limit. The Company monitors credit ratings of these financial institutions and the concentration of cash and cash equivalent balances with any one financial institution and believes the likelihood of realizing material losses from the excess of cash and cash equivalent balances over insurance limits is remote. The following estimated fair values of financial instruments were determined by management using available market information and established valuation methodologies, including discounted cash flows. Accordingly, the estimates presented are not necessarily indicative of the amounts the Company could realize on disposition of the financial instruments. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. - Cash equivalents, rents receivable, accounts payable and accrued expenses, and other liabilities are carried at their face amounts, which reasonably approximate their fair values. F-22
- Bond indebtedness and notes payable with an aggregate carrying value of $2,082,769 and $1,729,924 had an estimated aggregate fair value of $2,191,115 and $1,765,402 at December 31, 2001 and 2000, respectively. 12. Related Party Arrangements Purchase of Mortgage Loan An executive officer and former executive officer of the Company are partners of an entity that is the general partner of Arbor Commons Associates Limited Partnership ("Arbor Commons Associates"). Concurrently with Avalon's initial public offering in November 1993, Avalon purchased an existing participating mortgage loan made to Arbor Commons Associates that was originated by CIGNA Investments, Inc. The mortgage loan is secured by the borrower's interests in the Avalon Arbor community. This loan accrues interest at a fixed rate of 10.2% per annum, payable at 9% per annum. The balance of the note receivable at both December 31, 2001 and 2000 was $21,483. The balance of accrued interest on the note receivable as of December 31, 2001 and 2000, respectively, was $5,231 and $4,450. Related interest income of $3,081, $3,009 and $2,943 was recorded for 2001, 2000 and 1999, respectively. Under the terms of the loan, the Company (as successor to Avalon) receives (as contingent interest) 50% of the cash flow after the 10.2% accrual rate is paid and 50% of the residual profits upon the sale of the community. Sublease of San Jose Office Space to Greenbriar Homes From September 1, 1999 to August 31, 2001, the Company subleased approximately 8,500 square feet of space in its San Jose office to Greenbriar Homes, for approximately $20,552 per month. A director of the Company holds a controlling interest in Greenbriar Homes. The lease has expired and Greenbriar no longer subleases office space from the Company. Unconsolidated entities The Company manages several unconsolidated entities for which it receives management fee revenue. From these entities the Company received management fee revenue of $1,011, $691 and $612 in 2001, 2000 and 1999, respectively. Indebtedness of Management The Company has adopted a recourse loan program under which the Company lends amounts to or on behalf of employees ("Stock Loans") equivalent to the estimated employees' tax withholding liabilities related to the vesting of restricted stock under the 1994 Plan. The balance of the extended Stock Loans to employees was $1,133 and $770 as of December 31, 2001 and 2000, respectively. The balance of accrued interest on the notes receivable was $100 and $59 as of December 31, 2001 and 2000, respectively. Interest income on the notes of $62, $76, and $38 was recorded for 2001, 2000 and 1999, respectively. Pursuant to a Promissory Note and Pledge and Security Agreement dated June 15, 2000, the Company advanced a senior officer $457. Until the fifth anniversary of this loan, the loan bears interest at the rate of 6.49%, which was the Long Term Applicable Federal Rate in effect at the time the loan was made. After the fifth anniversary, the loan will bear interest at 6.49%, or, if the prevailing Short Term Applicable Federal Rate then in effect is greater than 10.49% or less than 2.49%, then at the prevailing Short Term Applicable Federal Rate thereafter in effect from time to time. This is a full recourse loan, and in addition is secured by Common Stock and rights to employee stock options owned by the officer. Dividends on the Common Stock securing the loan are applied to payment of interest and principal on the loan. The outstanding balance of the loan, including accrued interest, was $428 and $448 as of December 31, 2001 and 2000, respectively. Interest income of $28 and $14 relating to the loan was recorded for 2001 and 2000, respectively. If this loan is not repaid in full by June 15, 2005, then at any time thereafter the Company in its sole discretion may demand repayment. In addition, the officer will be required to repay the loan in full within sixty days following his termination of employment with the Company for any reason. F-23
Consulting Agreement with Mr. Meyer In March 2000, the Company and Mr. Meyer announced that Mr. Meyer would retire as Executive Chairman of the Company in May 2000. Although Mr. Meyer ceased his day-to-day involvement with the Company as an executive officer, he continues to serve as a director. In addition, pursuant to a consulting agreement, Mr. Meyer agreed to serve as a consultant to the Company for three years following his retirement for an annual fee of $1,395. In such capacity he assists with respect to transitional matters that may arise in connection with his retirement, he responds to requests for assistance or information concerning business matters with which he became familiar while employed, and he provides business advice and counsel to the Company with respect to business strategies and acquisitions, dispositions, development and redevelopment of multifamily rental properties. Director Compensation A director of the Company who is also an employee receives no additional compensation for his services as a director. Under the Stock Incentive Plan, on the fifth business day following each annual meeting of stockholders, each of the Company's non-employee directors automatically receives options to purchase 7,000 shares of Common Stock at the last reported sale price of the Common Stock on the NYSE on such date, and a restricted stock (or deferred stock award) grant of 2,500 shares of Common Stock. Subject to accelerated vesting under certain limited circumstances, all of such stock options will become exercisable one year after the date of grant and will expire ten years after the date of grant, and such shares of restricted stock (or deferred stock awards) granted to non-employee directors will vest at the rate of 20% on the date of issuance and on each of the first four anniversaries of the date of issuance. If a director elects to receive a deferred stock award in lieu of restricted stock, then at the time of such election, the director also elects at what time in the future he or she will receive shares of stock in respect of the vested portion of the deferred stock award. The Company recorded compensation expense relating to these awards in the amount of $624, $525 and $438 in 2001, 2000 and 1999, respectively. Deferred compensation relating to the Board of Directors was $688 and $507 on December 31, 2001 and 2000, respectively. 13. Quarterly Financial Information (Unaudited) The following summary represents the quarterly results of operations for the years ended December 31, 2001 and 2000: <TABLE> <CAPTION> Three months ended ----------------------------------------------------------------- 3-31-01 6-30-01 9-30-01 12-31-01 ----------- ----------- ----------- ----------- <S> <C> <C> <C> <C> Total revenue $ 155,757 $ 162,359 $ 163,269 $ 160,272 Net income available to common stockholders $ 41,654 $ 39,131 $ 79,229 $ 56,486 Net income per common share - basic $ 0.62 $ 0.58 $ 1.16 $ 0.83 Net income per common share - diluted $ 0.61 $ 0.57 $ 1.14 $ 0.81 </TABLE> <TABLE> <CAPTION> Three months ended ----------------------------------------------------------------- 3-31-00 6-30-00 9-30-00 12-31-00 ----------- ----------- ----------- ----------- <S> <C> <C> <C> <C> Total revenue $ 135,088 $ 139,958 $ 146,351 $ 151,998 Net income available to common stockholders $ 37,227 $ 40,712 $ 48,550 $ 44,336 Net income per common share - basic $ 0.57 $ 0.62 $ 0.73 $ 0.66 Net income per common share - diluted $ 0.56 $ 0.61 $ 0.71 $ 0.65 </TABLE> 14. Subsequent Events In January 2002, the Company invested an additional $2,300 in Realeum, Inc., a company involved in the development and deployment of a property management and leasing automation system. F-24
AVALONBAY COMMUNITIES, INC. REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 2001 (Dollars in thousands) <TABLE> <CAPTION> Initial Cost Total Cost ------------------------ -------------------------------------- Building / Costs Building / Construction in Subsequent to Construction in Progress & Acquisition / Progress & Land Improvements Construction Land Improvements Total -------- ------------ ------------ -------- ------------ --------- <S> <C> <C> <C> <C> <C> <C> Current Communities Avalon at Prudential Center $ 25,811 $ 103,233 $ 15,514 $ 25,811 $ 118,747 $ 144,558 Longwood Towers 3,310 13,741 20,358 3,310 34,099 37,409 Avalon Summit 1,743 14,654 113 1,743 14,767 16,510 Avalon at Lexington 2,124 12,599 551 2,124 13,150 15,274 Avalon at Faxon Park 1,136 14,019 3 1,136 14,022 15,158 Avalon West 943 9,881 64 943 9,945 10,888 Avalon Oaks 2,129 18,640 -- 2,129 18,640 20,769 Avalon Essex 5,230 15,483 692 5,230 16,175 21,405 Avalon at Center Place -- 26,816 438 -- 27,254 27,254 Avalon Estates 1,972 18,167 -- 1,972 18,167 20,139 Avalon Walk I & II 9,102 48,796 1,079 9,102 49,875 58,977 Avalon Glen 5,956 23,993 1,221 5,956 25,214 31,170 Avalon Gates 4,414 31,305 249 4,414 31,554 35,968 Avalon Springs 2,116 14,512 83 2,116 14,595 16,711 Avalon Valley 2,277 22,424 1,359 2,277 23,783 26,060 Avalon Lake 3,314 13,139 542 3,314 13,681 16,995 Avalon Corners 6,305 24,179 907 6,305 25,086 31,391 Avalon Haven 1,264 11,762 739 1,264 12,501 13,765 Avalon Commons 4,679 28,552 37 4,679 28,589 33,268 Avalon Towers 3,118 12,709 937 3,118 13,646 16,764 Avalon Court 9,228 48,920 1,122 9,228 50,042 59,270 Avalon Cove 8,760 82,356 606 8,760 82,962 91,722 The Tower at Avalon Cove 3,738 45,755 126 3,738 45,881 49,619 Avalon Crest 11,468 44,035 469 11,468 44,504 55,972 Avalon at Florham Park 6,647 34,639 -- 6,647 34,639 41,286 Avalon Watch 5,585 22,394 1,386 5,585 23,780 29,365 Avalon Run East 1,579 14,669 24 1,579 14,693 16,272 Avalon Gardens 8,428 45,706 -- 8,428 45,706 54,134 Avalon View 3,529 14,140 490 3,529 14,630 18,159 Avalon Green 1,820 10,525 222 1,820 10,747 12,567 The Avalon 2,889 28,273 51 2,889 28,324 31,213 Avalon Willow 6,207 39,852 887 6,207 40,739 46,946 Avalon on the Sound 717 89,501 -- 717 89,501 90,218 Avalon at Fairway Hills I & II 8,612 34,463 1,537 8,612 36,000 44,612 Avalon at Symphony Glen 1,594 6,384 1,092 1,594 7,476 9,070 Avalon Landing 1,849 7,409 415 1,849 7,824 9,673 Avalon at Ballston - Vermont & Quincy Towers 9,340 37,360 293 9,340 37,653 46,993 Avalon Crescent 13,851 43,401 24 13,851 43,425 57,276 Avalon at Ballston - Washington Towers 7,291 29,177 751 7,291 29,928 37,219 Avalon at Cameron Court 10,292 32,931 -- 10,292 32,931 43,223 </TABLE> <TABLE> <CAPTION> Total cost, Net of Year of Accumulated Accumulated Completion / Depreciation Depreciation Encumbrances Acquisition ------------ ------------ ------------ ----------- <S> <C> <C> <C> <C> Current Communities Avalon at Prudential Center $ 13,106 $ 131,452 $ - 1968/1998 Longwood Towers 6,767 30,642 -- 1993 Avalon Summit 2,929 13,581 -- 1996 Avalon at Lexington 3,271 12,003 14,073 1994 Avalon at Faxon Park 1,929 13,229 -- 1998 Avalon West 1,853 9,035 8,522 1996 Avalon Oaks 1,889 18,880 17,718 1999 Avalon Essex 1,033 20,372 -- 2000 Avalon at Center Place 4,302 22,952 -- 1997 Avalon Estates 717 19,422 -- 2001 Avalon Walk I & II 12,432 46,545 12,036 1992/94 Avalon Glen 6,412 24,758 -- 1991 Avalon Gates 5,036 30,932 -- 1997 Avalon Springs 2,432 14,279 -- 1996 Avalon Valley 2,198 23,862 -- 1999 Avalon Lake 1,275 15,720 -- 1999 Avalon Corners 2,007 29,384 -- 2000 Avalon Haven 703 13,062 -- 2000 Avalon Commons 4,439 28,829 -- 1997 Avalon Towers 2,839 13,925 -- 1995 Avalon Court 5,071 54,199 -- 1997 Avalon Cove 13,867 77,855 -- 1997 The Tower at Avalon Cove 4,285 45,334 -- 1999 Avalon Crest 3,989 51,983 -- 1998 Avalon at Florham Park 1,486 39,800 -- 2001 Avalon Watch 6,550 22,815 -- 1999 Avalon Run East 2,719 13,553 -- 1996 Avalon Gardens 6,387 47,747 -- 1998 Avalon View 3,913 14,246 18,115 1993 Avalon Green 2,439 10,128 -- 1995 The Avalon 2,440 28,773 -- 1999 Avalon Willow 3,197 43,749 -- 2000 Avalon on the Sound 1,443 88,775 57,314 2001 Avalon at Fairway Hills I & II 7,465 37,147 11,500 1987/96 Avalon at Symphony Glen 2,041 7,029 9,780 1986 Avalon Landing 1,815 7,858 6,525 1995 Avalon at Ballston - Vermont & Quincy Towers 6,276 40,717 -- 1997 Avalon Crescent 7,074 50,202 -- 1996 Avalon at Ballston - Washington Towers 7,752 29,467 -- 1990 Avalon at Cameron Court 4,487 38,736 -- 1998 </TABLE> F-25
AVALONBAY COMMUNITIES, INC. REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 2001 (Dollars in thousands) <TABLE> <CAPTION> Initial Cost Total Cost ------------------------ -------------------------------------- Building / Costs Building / Construction in Subsequent to Construction in Progress & Acquisition / Progress & Land Improvements Construction Land Improvements Total -------- ------------ ------------ -------- ------------ --------- <S> <C> <C> <C> <C> <C> <C> AutumnWoods 6,096 24,400 337 6,096 24,737 30,833 Avalon at Fair Lakes 4,334 19,127 9 4,334 19,136 23,470 Avalon at Dulles 2,302 9,212 343 2,302 9,555 11,857 Avalon at Providence Park 2,152 8,907 240 2,152 9,147 11,299 Avalon at Fox Mill 2,713 16,678 77 2,713 16,755 19,468 Avalon at Decoverly 6,157 24,800 727 6,157 25,527 31,684 Avalon Knoll 1,528 6,136 853 1,528 6,989 8,517 Avalon Fields I & II 4,047 18,611 43 4,047 18,654 22,701 Avalon Crossing 2,207 11,683 -- 2,207 11,683 13,890 4100 Massachusetts Avenue 6,848 27,614 1,230 6,848 28,844 35,692 Avalon at Arlington Square I 13,453 55,918 -- 13,453 55,918 69,371 Avalon at Danada Farms 7,535 30,444 388 7,535 30,832 38,367 Avalon at West Grove 5,149 20,657 3,900 5,149 24,557 29,706 Avalon at Stratford Green 4,326 17,569 37 4,326 17,606 21,932 200 Arlington Place 9,728 39,527 270 9,728 39,797 49,525 Avalon at Devonshire 7,250 29,641 405 7,250 30,046 37,296 Avalon at Edinburgh 3,541 14,758 177 3,541 14,935 18,476 Avalon at Town Centre 3,450 14,449 205 3,450 14,654 18,104 Avalon at Town Square 2,099 8,642 111 2,099 8,753 10,852 Avalon at Woodbury 5,034 20,857 72 5,034 20,929 25,963 Avalon at Bear Creek 6,786 27,035 616 6,786 27,651 34,437 Avalon Redmond Place 4,558 17,504 3,927 4,558 21,431 25,989 Avalon Greenbriar 3,808 21,239 11,086 3,808 32,325 36,133 Avalon HighGrove 7,569 32,035 -- 7,569 32,035 39,604 Avalon ParcSquare 3,789 15,093 143 3,789 15,236 19,025 Avalon RockMeadow 4,777 19,671 9 4,777 19,680 24,457 Avalon WildReed 4,253 18,676 21 4,253 18,697 22,950 Avalon Bellevue 6,664 23,908 -- 6,664 23,908 30,572 Avalon Belltown 5,644 12,453 -- 5,644 12,453 18,097 Avalon Wynhaven 11,412 41,142 -- 11,412 41,142 52,554 Avalon Brandemoor 8,630 36,679 -- 8,630 36,679 45,309 Avalon WildWood 6,268 26,597 -- 6,268 26,597 32,865 Waterford 11,324 45,717 1,755 11,324 47,472 58,796 Avalon Fremont 15,016 60,681 1,235 15,016 61,916 76,932 Avalon Pleasanton 11,610 46,552 1,678 11,610 48,230 59,840 Avalon Dublin 5,276 19,642 1,803 5,276 21,445 26,721 Avalon at Willow Creek 6,581 26,583 813 6,581 27,396 33,977 Avalon at Union Square 4,249 16,820 660 4,249 17,480 21,729 Crowne Ridge 5,982 16,885 8,002 5,982 24,887 30,869 Avalon at Sunset Towers 3,561 21,321 3,241 3,561 24,562 28,123 Avalon at Nob Hill 5,403 21,567 474 5,403 22,041 27,444 </TABLE> <TABLE> <CAPTION> Total Cost, Net of Year of Accumulated Accumulated Completion / Depreciation Depreciation Encumbrances Acquisition ------------ ------------ ------------ ----------- <S> <C> <C> <C> <C> AutumnWoods 4,356 26,477 -- 1996 Avalon at Fair Lakes 2,691 20,779 -- 1998 Avalon at Dulles 2,632 9,225 12,360 1986 Avalon at Providence Park 1,446 9,853 -- 1997 Avalon at Fox Mill 1,358 18,110 -- 2000 Avalon at Decoverly 5,412 26,272 -- 1995 Avalon Knoll 2,208 6,309 13,193 1985 Avalon Fields I & II 3,467 19,234 11,454 1998 Avalon Crossing 2,156 11,734 -- 1996 4100 Massachusetts Avenue 7,171 28,521 -- 1982 Avalon at Arlington Square I 1,222 68,149 -- 2001 Avalon at Danada Farms 4,206 34,161 -- 1997 Avalon at West Grove 3,349 26,357 -- 1967 Avalon at Stratford Green 2,424 19,508 -- 1997 200 Arlington Place 1,431 48,094 -- 1987/2000 Avalon at Devonshire 4,237 33,059 27,305 1988 Avalon at Edinburgh 1,933 16,543 -- 1992 Avalon at Town Centre 2,062 16,042 -- 1986 Avalon at Town Square 1,250 9,602 -- 1986 Avalon at Woodbury 1,805 24,158 -- 1999 Avalon at Bear Creek 3,459 30,978 -- 1998 Avalon Redmond Place 3,013 22,976 -- 1991/97 Avalon Greenbriar 3,809 32,324 18,755 1987/88 Avalon HighGrove 1,277 38,327 -- 2000 Avalon ParcSquare 852 18,173 -- 2000 Avalon RockMeadow 1,124 23,333 -- 2000 Avalon WildReed 995 21,955 -- 2000 Avalon Bellevue 775 29,797 -- 2001 Avalon Belltown 131 17,966 -- 2001 Avalon Wynhaven 1,248 51,306 -- 2001 Avalon Brandemoor 1,028 44,281 -- 2001 Avalon WildWood 737 32,128 -- 2001 Waterford 6,126 52,670 33,100 1985/86 Avalon Fremont 7,844 69,088 -- 1992/94 Avalon Pleasanton 6,141 53,699 -- 1988/94 Avalon Dublin 2,692 24,029 -- 1989/97 Avalon at Willow Creek 3,459 30,518 -- 1985/94 Avalon at Union Square 2,206 19,523 -- 1973/96 Crowne Ridge 3,155 27,714 -- 1973/96 Avalon at Sunset Towers 3,418 24,705 -- 1961/96 Avalon at Nob Hill 2,745 24,699 19,745 1990/95 </TABLE> F-26
AVALONBAY COMMUNITIES, INC. REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 2001 (Dollars in thousands) <TABLE> <CAPTION> Initial Cost Total Cost ------------------------ -------------------------------------- Building / Costs Building / Construction in Subsequent to Construction in Progress & Acquisition / Progress & Land Improvements Construction Land Improvements Total -------- ------------ ------------ -------- ------------ --------- <S> <C> <C> <C> <C> <C> <C> Avalon at Diamond Heights 4,726 19,130 428 4,726 19,558 24,284 Avalon Towers by The Bay 9,155 57,630 41 9,155 57,671 66,826 Avalon at Cedar Ridge 4,230 9,659 11,641 4,230 21,300 25,530 Avalon Foster City 7,852 31,445 3,493 7,852 34,938 42,790 Avalon Pacifica 6,125 24,796 280 6,125 25,076 31,201 Avalon Silicon Valley 20,713 99,304 789 20,713 100,093 120,806 Avalon at Blossom Hill 11,933 48,313 490 11,933 48,803 60,736 Avalon Campbell 11,830 47,828 270 11,830 48,098 59,928 CountryBrook 9,384 34,794 3,599 9,384 38,393 47,777 Avalon at Pruneyard 3,414 15,469 12,834 3,414 28,303 31,717 Avalon at Creekside 6,546 26,301 10,119 6,546 36,420 42,966 Avalon at River Oaks 8,904 35,126 1,550 8,904 36,676 45,580 Avalon at Parkside 7,406 29,823 532 7,406 30,355 37,761 Avalon Mountain View 9,755 39,393 1,112 9,755 40,505 50,260 San Marino 6,607 26,673 459 6,607 27,132 33,739 Avalon Sunnyvale 6,786 27,388 441 6,786 27,829 34,615 Avalon at Foxchase 11,340 45,532 1,599 11,340 47,131 58,471 Fairway Glen 3,341 13,338 395 3,341 13,733 17,074 Avalon Cupertino 9,099 39,926 33 9,099 39,959 49,058 Avalon on the Alameda 6,119 50,164 412 6,119 50,576 56,695 Avalon Rosewalk I & II 15,814 62,028 268 15,814 62,296 78,110 Avalon Woodland Hills 23,828 40,372 7,118 23,828 47,490 71,318 Avalon at Media Center 22,483 28,104 24,444 22,483 52,548 75,031 Avalon Westside Terrace 5,878 23,708 7,493 5,878 31,201 37,079 Avalon at Warner Center 7,045 12,986 6,298 7,045 19,284 26,329 Avalon Huntington Beach 6,663 21,647 8,816 6,663 30,463 37,126 Avalon at Pacific Bay 4,871 19,745 7,243 4,871 26,988 31,859 Avalon at South Coast 4,709 16,063 3,594 4,709 19,657 24,366 Avalon Santa Margarita 4,607 16,911 2,052 4,607 18,963 23,570 Amberway 10,285 7,249 3,726 10,285 10,975 21,260 Avalon Laguna Niguel 656 16,588 3,713 656 20,301 20,957 Avalon Newport 1,975 3,814 4,313 1,975 8,127 10,102 Avalon Mission Viejo 2,517 9,257 1,165 2,517 10,422 12,939 Avalon at Mission Bay 9,922 40,633 15,287 9,922 55,920 65,842 Avalon at Cortez Hill 2,768 20,134 11,380 2,768 31,514 34,282 Avalon at Mission Ridge 2,710 10,924 7,933 2,710 18,857 21,567 Avalon at Penasquitos Hills 2,760 9,391 2,036 2,760 11,427 14,187 -------- ---------- -------- -------- ---------- ---------- 748,232 3,259,510 266,664 748,232 3,526,174 4,274,406 -------- ---------- -------- -------- ---------- ---------- </TABLE> <TABLE> <CAPTION> Total Cost, Net of Year of Accumulated Accumulated Completion / Depreciation Depreciation Encumbrances Acquisition ------------ ------------ ------------ ----------- <S> <C> <C> <C> <C> Avalon at Diamond Heights 2,476 21,808 -- 1972/94 Avalon Towers by The Bay 4,637 62,189 -- 1999 Avalon at Cedar Ridge 2,815 22,715 -- 1975/97 Avalon Foster City 4,161 38,629 -- 1973/94 Avalon Pacifica 3,120 28,081 16,505 1971/95 Avalon Silicon Valley 12,372 108,434 -- 1997 Avalon at Blossom Hill 6,179 54,557 -- 1995 Avalon Campbell 5,980 53,948 36,386 1995 CountryBrook 4,832 42,945 18,577 1985/96 Avalon at Pruneyard 3,372 28,345 12,870 1966/97 Avalon at Creekside 3,919 39,047 -- 1962/97 Avalon at River Oaks 4,665 40,915 -- 1990/96 Avalon at Parkside 3,769 33,992 -- 1991/96 Avalon Mountain View 5,045 45,215 18,300 1986 San Marino 3,399 30,340 -- 1984/88 Avalon Sunnyvale 3,467 31,148 -- 1987/95 Avalon at Foxchase 5,938 52,533 26,400 1986/87 Fairway Glen 1,756 15,318 9,580 1986 Avalon Cupertino 5,163 43,895 -- 1999 Avalon on the Alameda 5,025 51,670 -- 1999 Avalon Rosewalk I & II 7,236 70,874 -- 1997 Avalon Woodland Hills 6,613 64,705 -- 1989/97 Avalon at Media Center 5,071 69,960 -- 1969/97 Avalon Westside Terrace 3,770 33,309 -- 1966/97 Avalon at Warner Center 2,546 23,783 -- 1979/98 Avalon Huntington Beach 4,273 32,853 -- 1972/97 Avalon at Pacific Bay 3,187 28,672 -- 1971/97 Avalon at South Coast 2,573 21,793 -- 1973/96 Avalon Santa Margarita 2,458 21,112 -- 1990/97 Amberway 1,537 19,723 -- 1983/98 Avalon Laguna Niguel 2,747 18,210 10,400 1988/98 Avalon Newport 1,048 9,054 -- 1956/96 Avalon Mission Viejo 1,344 11,595 7,256 1984/96 Avalon at Mission Bay 6,182 59,660 -- 1969/97 Avalon at Cortez Hill 3,201 31,081 -- 1973/98 Avalon at Mission Ridge 2,430 19,137 -- 1960/97 Avalon at Penasquitos Hills 1,469 12,718 -- 1982/97 --------- ----------- --------- 435,090 3,839,316 447,769 --------- ----------- --------- </TABLE> F-27
AVALONBAY COMMUNITIES, INC. REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 2001 (Dollars in thousands) <TABLE> <CAPTION> Initial Cost Total Cost ------------------------ -------------------------------------- Building / Costs Building / Construction in Subsequent to Construction in Progress & Acquisition / Progress & Land Improvements Construction Land Improvements Total -------- ------------ ------------ -------- ------------ --------- <S> <C> <C> <C> <C> <C> <C> Development Communities Avalon at Edgewater 6,191 66,192 -- 6,191 66,192 72,383 Avalon at Freehold 2,124 29,618 -- 2,124 29,618 31,742 Avalon on Stamford Harbor -- 36,479 -- -- 36,479 36,479 Avalon Towers on the Peninsula -- 56,177 -- -- 56,177 56,177 Avalon at Cahill Park 392 32,354 -- 392 32,354 32,746 Avalon Riverview -- 67,765 -- -- 67,765 67,765 Avalon at Mission Bay North -- 22,343 -- -- 22,343 22,343 Avalon Oaks West -- 13,824 -- -- 13,824 13,824 Avalon Ledges -- 22,134 -- -- 22,134 22,134 Avalon Orchards -- 14,312 -- -- 14,312 14,312 Avalon at Arlington Square II -- 24,119 -- -- 24,119 24,119 Avalon at Flanders Hill -- 11,150 -- -- 11,150 11,150 Avalon New Canaan -- 14,920 -- -- 14,920 14,920 Avalon at Rock Spring -- 5,171 -- -- 5,171 5,171 Avalon at Gallery Place I -- 17,711 -- -- 17,711 17,711 --------- ----------- --------- --------- ----------- ----------- 8,707 434,269 -- 8,707 434,269 442,976 --------- ----------- --------- --------- ----------- ----------- Land held for development 66,608 -- -- 66,608 -- 66,608 Corporate 1,571 8,242 44,066 1,571 52,308 53,879 --------- ----------- --------- --------- ----------- ----------- $ 825,118 $ 3,702,021 $ 310,730 $ 825,118 $ 4,012,751 $ 4,837,869 ========= =========== ========= ========= =========== =========== </TABLE> <TABLE> <CAPTION> Total Cost, Net of Year of Accumulated Accumulated Completion / Depreciation Depreciation Encumbrances Acquisition ------------ ------------ ------------ ----------- <S> <C> <C> <C> <C> Development Communities Avalon at Edgewater 345 72,038 -- N/A Avalon at Freehold 87 31,655 -- N/A Avalon on Stamford Harbor -- 36,479 -- N/A Avalon Towers on the Peninsula -- 56,177 -- N/A Avalon at Cahill Park 11 32,735 -- N/A Avalon Riverview -- 67,765 -- N/A Avalon at Mission Bay North -- 22,343 -- N/A Avalon Oaks West -- 13,824 -- N/A Avalon Ledges -- 22,134 -- N/A Avalon Orchards -- 14,312 -- N/A Avalon at Arlington Square II -- 24,119 -- N/A Avalon at Flanders Hill -- 11,150 -- N/A Avalon New Canaan -- 14,920 -- N/A Avalon at Rock Spring -- 5,171 -- N/A Avalon at Gallery Place I -- 17,711 -- N/A --------- ----------- --------- 443 442,533 -- --------- ----------- --------- Land held for development -- 66,608 -- N/A Corporate 11,493 42,386 -- N/A --------- ----------- --------- $ 447,026 $ 4,390,843 $ 447,769 ========= =========== ========= </TABLE> F-28
AVALONBAY COMMUNITIES, INC. REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 2001 (Dollars in thousands) Depreciation of AvalonBay Communities, Inc. building, improvements, upgrades and furniture, fixtures and equipment (FF&E) is calculated over the following useful lives, on a straight line basis: Building - 30 years Improvements, upgrades and FF&E - not to exceed 7 years The aggregate cost of total real estate for Federal income tax purposes was approximately $4.8 billion at December 31, 2001. The changes in total real estate assets for the years ended December 31, 2001, 2000 and 1999 are as follows: <TABLE> <CAPTION> Years ended December 31, ---------------------------------------- 2001 2000 1999 ------------ ------------ ------------ <S> <C> <C> <C> Balance, beginning of period $ 4,535,969 $ 4,266,426 $4,006,456 Acquisitions, Construction Costs and Improvements 496,908 393,359 519,381 Reclassification to investments in JV's -- -- -- Dispositions (195,008) (123,816) (259,411) ------------ ------------ ----------- Balance, end of period $ 4,837,869 $ 4,535,969 $4,266,426 ============ ============ =========== </TABLE> The changes in accumulated depreciation for the years ended December 31, 2001, 2000 and 1999, are as follows: <TABLE> <CAPTION> Years ended December 31, ---------------------------------------- 2001 2000 1999 ------------ ------------ ------------ <S> <C> <C> <C> Balance, beginning of period $ 336,010 $ 225,103 $ 137,374 Depreciation for period 126,984 119,416 107,928 Dispositions (15,968) (8,509) (20,199) ---------- ---------- ---------- Balance, end of period $ 447,026 $ 336,010 $ 225,103 ========== ========== ========== </TABLE> F-29