David B. Ferguson

The current global financial turmoil – the worst since the Great Depression – affects every one of us. With the financial markets expected to remain volatile at least for the rest of the year, ABHOW’s leadership team is keeping a close watch over the company’s portfolio, and we are planning our future with particular care.

Like every corporation with investments in equities, we have seen the value of those equities decline in recent months. However, even after the steep declines of early October, ABHOW’s corporate reserves, our first line of defense in challenging times, remained close to $70 million. That’s more than four times the $15 million in corporate reserves we had at the end of fiscal year 2003. So our financial position remains strong.

At its November retreat, the ABHOW Board of Directors considered in detail how the current financial environment affects our strategic plans. Our longstanding fiscal policies – particularly the care we’ve taken to phase redevelopment efforts in our present communities – have clearly served us very well. New development is still being considered, but we intend to be deliberate and cautious.

Indeed, “deliberate and cautious” will characterize all of our planning and fiscal management in the days ahead. Therefore, we will:

• Complete the first phase of redevelopment at San Joaquin Gardens in Fresno, Calif., but retest the market’s appetite for additional apartment homes by initiating pre-construction sales for the second phase;
• Continue the planning process for redevelopment of Valle Verde in Santa Barbara, Calif.;
• Proceed with redevelopment plans for other communities only after we are assured that San Joaquin Gardens and Valle Verde are in good shape;
• Ensure that all our communities are maintained to the high standards our residents expect and deserve;
• Maintain tight controls on operating expenses;
• Continue to monitor the credit environment and refinance ABHOW’s debt when conditions are more favorable;
• Continue to devote the marketing resources necessary to reach full capacity at the newly renovated Judson Park Retirement Community in Des Moines, Wash., and The Terraces of Phoenix in Phoenix, Ariz.;
• Assess the impact of the financial crisis on marketing efforts in other communities;
• Continue the pre-marketing phase of our new community in Boise, Idaho, but revise our assumptions about interest rates; and
• Continue exploring other development opportunities, recognizing that access to capital will be much reduced.

This column doesn’t usually address business matters in such detail, but these are unusual times. Our residents are interested in how management is responding to the global financial turmoil. And they want to know how this crisis might impact them.

By building reserves and achieving modest operating margins, we have been able to weather the current storm and maintain a strong financial position. As we look to the near future, we expect that the continued volatility in the financial markets will impede access to additional capital borrowing to support redevelopment. Fortunately, the turmoil in the investment area does not have a significant direct impact on cash operations, and we have not yet seen extreme pressure on expenses, so rate increases for next year have been kept at moderate levels.

Above all, we want our residents to know that we are working hard to ensure a stable future for them and the corporation.

David B. Ferguson
President and CEO