AvalonBay Communities, Inc. Announces 2012 Operating Results, Dividend Increase and Initial 2013 Financial Outlook

Wed Jan 30, 2013 5:10pm EST

* Reuters is not responsible for the content in this press release.

http://pdf.reuters.com/htmlnews/8knews.asp?i=43059c3bf0e37541&u=urn:newsml:reuters.com:20130130:nBw306526a

http://www.businesswire.com/news/home/20130130006526/en

ARLINGTON, Va.--(Business Wire)--
AvalonBay Communities, Inc. (NYSE: AVB) (the "Company") reported today that Net
Income Attributable to Common Stockholders ("Net Income") for the quarter ended
December 31, 2012 was $122,356,000. This resulted in Earnings per Share -
diluted ("EPS") of $1.19 for the quarter ended December 31, 2012, compared to
EPS of $3.38 for the comparable period of 2011, a decrease of 64.8%. For the
year ended December 31, 2012, EPS was $4.32 compared to $4.87 for the comparable
period of 2011, a decrease of 11.3%. 

The decreases in EPS for the quarter and year ended December 31, 2012 from the
prior year periods are due primarily to decreases in real estate asset sales and
related gains coupled with capital markets activity and acquisition costs for
the expected Archstone Acquisition (as defined below). These declines are offset
in part by increases in Net Operating Income ("NOI") from existing and newly
developed and acquired communities and a decline in net interest expense. 

Funds from Operations attributable to common stockholders - diluted ("FFO") per
share for the quarter ended December 31, 2012 increased 6.7% to $1.27 from $1.19
for the comparable period of 2011. FFO per share for the year ended December 31,
2012 increased 16.4% to $5.32 from $4.57 for 2011. Adjusting for the non-routine
items in this release, FFO per share would have increased for the three months
and full year ended December 31, 2012 by 15.9% and 18.5%, respectively over the
comparable period in 2011. 

The following table compares the Company`s actual results for the quarter and
year ended December 31, 2012 to the outlook provided in its third quarter 2012
earnings release in October 2012:

                                                                                            
                                                        Per Share                           
                                                        4Q12               2012             
                                                                                            
 Projected FFO per share - October 2012 Outlook (1)     $   1.43           $   5.47         
 Archstone Acquisition related costs (2)                    (0.16  )           (0.14  )     
 Superstorm Sandy expenses                                  (0.01  )           (0.02  )     
 Joint Venture promote and overhead                         0.01               0.01         
 FFO per share reported results                         $   1.27           $   5.32         
                                                                                            


(1) Represents the mid-point of the Company's October 2012 Outlook. 

(2) Consists primarily of impact of capital markets activity and professional
fees related to the expected Archstone Acquisition. 

Commenting on the Company`s results, Tim Naughton, CEO and President, said, "Our
fourth quarter results capped a year of solid performance marked by our second
consecutive year of double-digit FFO growth. We expect apartment fundamentals to
remain healthy in 2013 and in anticipation of continued growth in 2013 from our
development platform, our current communities and the addition of the Archstone
portfolio, our Board approved a 10.3% increase to our quarterly dividend." 

Operating Results for the Quarter Ended December 31, 2012 Compared to the Prior
Year Period

For the Company, including discontinued operations, total revenue increased by
$20,249,000, or 7.9% to $275,772,000. For Established Communities, rental
revenue increased 5.0%, attributable to increases in average rental rates of
4.7% and Economic Occupancy of 0.3%. As a result, total revenue for Established
Communities increased $9,324,000 to $194,332,000. Operating expenses for
Established Communities increased $1,672,000, or 3.0%, to $57,925,000.
Accordingly, NOI for Established Communities increased by 5.9%, or $7,652,000,
to $136,407,000. 

The following table reflects the percentage changes in rental revenue, operating
expenses and NOI for Established Communities for the fourth quarter of 2012
compared to the fourth quarter of 2011:

                                                                              
 Q4 2012 Compared to Q4 2011                                                  
                                                                              
                    Rental         Operating                     % of         
                    Revenue        Expenses         NOI          NOI(1)       
                                                                              
 New England        3.1   %        3.9    %         2.7   %      18.9   %     
 Metro NY/NJ        4.8   %        (0.9   %)        7.5   %      30.8   %     
 Mid-Atlantic       1.8   %        5.6    %         0.5   %      12.3   %     
 Pacific NW         11.1  %        (6.1   %)        19.1  %      3.7    %     
 No. California     9.5   %        2.8    %         12.1  %      19.8   %     
 So. California     4.8   %        12.1   %         1.9   %      14.5   %     
 Total              5.0   %        3.0    %         5.9   %      100.0  %     
                                                                              


(1) Total represents each region's % of total NOI from the Company, including
discontinued operations. 

Operating Results for the Year Ended December 31, 2012 Compared to the Prior
Year Period

For the Company, including discontinued operations, total revenue increased by
$74,656,000, or 7.5% to $1,064,033,000. For Established Communities, rental
revenue increased 5.8%, attributable to increases in average rental rates of
5.6% and Economic Occupancy of 0.2%. Total revenue for Established Communities
increased $41,672,000 to $763,405,000. Operating expenses for Established
Communities increased $4,106,000, or 1.8%, to $231,537,000. Accordingly, NOI for
Established Communities increased by 7.6%, or $37,566,000, to $531,868,000. 

The following table reflects the percentage changes in rental revenue, operating
expenses and NOI for Established Communities for the year ended December 31,
2012 as compared to the year ended December 31, 2011:

                                                                          
 Full Year 2012 Compared to Full Year 2011                                
                                                                          
                   Rental        Operating                   % of         
                   Revenue       Expenses        NOI         NOI(1)       
                                                                          
 New England       4.2   %       3.0    %        4.9   %     19.2   %     
 Metro NY/NJ       5.5   %       1.3    %        7.3   %     30.1   %     
 Mid-Atlantic      3.6   %       4.7    %        3.2   %     12.7   %     
 Pacific NW        9.6   %       (1.8   %)       15.0  %     3.7    %     
 No. California    10.1  %       0.7    %        14.0  %     19.8   %     
 So. California    4.9   %       0.6    %        7.0   %     14.5   %     
 Total             5.8   %       1.8    %        7.6   %     100.0  %     
                                                                          


(1) Total represents each region's % of total NOI from the Company, including
discontinued operations. 

Development and Redevelopment Activity

During the fourth quarter of 2012, the Company started the construction of three
communities: Avalon Wharton, located in Wharton, NJ, Avalon Ossining, located in
Ossining, NY, and AVA Little Tokyo, located in Los Angeles, CA. These three
communities will contain 696 apartment homes when completed, and will be
developed for an estimated Total Capital Cost of $202,800,000. During 2012, the
Company started construction of 12 communities which will contain a total of
3,290 apartment homes for an expected aggregate Total Capital Cost of
$891,300,000. 

During the fourth quarter of 2012, the Company completed the development of two
communities: Avalon Green II, located in Greenburgh, NY and Avalon at Wesmont
Station I, located in Wood-Ridge, NJ. These two communities contain 710
apartment homes and were constructed for an aggregate Total Capital Cost of
$166,100,000. During 2012, the Company completed the construction of eight
communities containing 1,934 apartment homes for a Total Capital Cost of
$513,100,000. 

The Company also acquired four land parcels during the quarter ended December
31, 2012 for an aggregate purchase price of approximately $24,700,000. The
Company has started or anticipates starting construction in 2013 on three of
these land parcels. 

During the fourth quarter of 2012, the Company commenced the redevelopment of
two communities that contain 1,096 apartment homes and will be redeveloped for
an estimated Total Capital Cost of $31,700,000, excluding costs incurred prior
to redevelopment. 

During the fourth quarter of 2012, the Company completed the redevelopment of
four communities, two under our AVA brand and two under our Avalon brand. These
communities contain 1,111 apartment homes and were redeveloped for an aggregate
Total Capital Cost of $41,300,000, excluding costs incurred prior to
redevelopment. 

During 2012, the Company completed the redevelopment of eleven communities
containing 2,903 apartment homes for a Total Capital Cost of $105,900,000,
excluding costs incurred prior to redevelopment. 

Archstone Acquisition

As disclosed in November 2012, the Company and Equity Residential Trust agreed
to acquire all of the assets and assume all of the liabilities of Archstone
Enterprise LP ("Archstone"). Under the Company's agreements related to this
transaction, the Company will acquire, directly and indirectly, approximately
40% of the assets and assume 40% of the liabilities of Archstone (the "Archstone
Acquisition"). 

The Company expects to provide the following consideration for the Archstone
Acquisition:

* the issuance of 14,889,706 shares of its common stock to Lehman Brothers
Holdings Inc. ("Lehman"); 
* cash payment of $669,000,000; 
* the assumption of indebtedness discussed under "2013 Financial Outlook"; 
* an obligation to pay, when presented for redemption from time to time,
approximately $132,200,000 in respect of the liquidation value of and accrued
dividends on outstanding Archstone preferred units; and 
* the assumption of 40% of all other liabilities, known or unknown, of
Archstone, other than certain excluded liabilities.

Acquisition Activity

During the fourth quarter of 2012, the Company acquired Eaves Burlington,
located in Burlington, MA. Eaves Burlington is a garden-style community
consisting of 203 apartment homes and was acquired for a purchase price of
$40,250,000. 

Disposition Activity

During the fourth quarter of 2012, the Company sold two communities: Avalon
Wildreed and Avalon Highgrove, both located in Everett, WA. These communities,
containing a total of 625 apartment homes, were sold for an aggregate sales
price of $94,500,000. The dispositions resulted in an aggregate gain in
accordance with GAAP of $50,080,000 and an Economic Gain of $28,735,000. The
weighted average Initial Year Market Cap rate for these two communities was
5.3%, and the unleveraged IRR over a 12.2 year average holding period was 9.4%. 

Also during the fourth quarter of 2012, AvalonBay Value Added Fund, L.P. ("Fund
I"), a private discretionary real estate investment vehicle in which the Company
holds an equity interest of approximately 15%, sold three communities: Avalon
Paseo Place, located in Fremont, CA, Avalon Skyway, located in San Jose, CA, and
Avalon at Aberdeen Station, located in Aberdeen, NJ. These communities,
containing a total of 772 apartment homes, were sold for $187,150,000. The
Company`s share of the gain in accordance with GAAP was $6,501,000. 

In conjunction with the disposition of these communities, Fund I repaid
$89,142,000 of related secured indebtedness in advance of the scheduled maturity
dates. This resulted in charges for prepayment penalties and a write off of
deferred financing costs, of which the Company`s portion was approximately
$530,000, and was reported as a reduction of Joint Venture Income. 

Additionally, in the fourth quarter of 2012, the Company recognized income from
a residual profit interest of $1,857,000 related to the sale of a community in
Kirkland, WA, which the Company had developed and managed for an unrelated third
party. 

In January 2013, Fund I sold Avalon Yerba Buena, located in San Francisco, CA.
This community contains 160 apartment homes and 32,000 square feet of retail
space, and was sold for $103,000,000. 

Also, in January 2013, AvalonBay Value Added Fund II, L.P. ("Fund II") sold
Avalon Rothbury, located in Gaithersburg, MD. Avalon Rothbury contains 205
apartment homes and was sold for $39,600,000. 

Financing, Liquidity and Balance Sheet Statistics

In December 2012, the Company entered into an amendment to increase its
borrowing capacity under its unsecured credit facility from $750,000,000 to
$1,300,000,000. In addition, the Company extended the term of the credit
facility from September 2015 to April 2017, with two further six month extension
options available. As part of the amendment, the Company`s current margin over
LIBOR decreased from 1.075% to 1.05%, and its annual facility fee decreased from
17.5 basis points to 15.0 basis points. 

At December 31, 2012, the Company had no amounts outstanding under its
$1,300,000,000 unsecured credit facility. 

At December 31, 2012, the Company had $2,783,651,000 in unrestricted cash and
cash in escrow. 

Unencumbered NOI as a percentage of total NOI generated by real estate assets
for the year ended December 31, 2012 was 73%. Interest Coverage for the fourth
quarter of 2012 was 4.7 times. 

New Financing and Refinancing Activity

To pre-fund the expected Archstone Acquisition, the Company raised equity and
debt in the fourth quarter of 2012 as summarized below.

* The Company issued 16,675,000 shares of its common stock at a per share price
of $130.00, resulting in net proceeds after fees and expenses of approximately
$2,102,718,000. 
* The Company also issued $250,000,000 principal amount of unsecured notes under
its existing shelf registration statement. The unsecured notes mature in March
2023 and were issued at a 2.85% coupon rate. The notes have an effective
interest rate of 3.00%, including the effect of fees and expenses.

Separately, the Company repaid $201,600,000 principal amount of its 6.125%
coupon unsecured notes pursuant to their scheduled maturity in November 2012. 

First Quarter 2013 Dividend Declaration

The Company`s Board of Directors declared a dividend for the first quarter of
2013 of $1.07 per share of the Company`s common stock (par value of $0.01 per
share). The declared dividend is a 10.3% increase over the Company`s prior
quarterly dividend of $0.97 per share. The dividend is payable on April 15, 2013
to common stockholders of record as of March 29, 2013. 

In declaring the increased dividend, the Board of Directors evaluated the
Company`s past performance and future prospects for earnings growth. Additional
factors considered in determining the increase included current common dividend
distributions, the ratio of the current common dividend distribution to the
Company`s FFO, the relationship of dividend distributions to taxable income,
distribution requirements under rules governing real estate investment trusts,
and expected growth in taxable income. 

2013 Financial Outlook

The following presents the Company`s financial outlook for 2013, the details of
which are summarized in the full Earnings Release. All amounts presented, unless
otherwise indicated, include the impact of the expected Archstone Acquisition
discussed in this release. 

In setting operating expectations for 2013, management considered third party
macroeconomic forecasts, local market conditions and performance at individual
communities. Management expects continued, moderate economic growth for 2013.
Positive annual rental revenue growth in our Established Communities is expected
in all regions. Projected EPS is expected to be within a range of $2.28 to $2.64
for the full year 2013. 

The Company expects 2013 Projected FFO per share to be in the range of $4.11 to
$4.47 representing a 19.4% decrease from full year 2012 FFO per share of $5.32,
at the midpoint of the range. This outlook for projected EPS and Projected FFO
per share for 2013 includes the cash charge for transaction costs and prepayment
fees from the repayment of assumed indebtedness associated with the Archstone
Acquisition. 

For the first quarter of 2013, the Company expects projected loss per share,
diluted within a range of $1.31 to $1.27. The Company expects Projected FFO per
share in the first quarter of 2013 to be a loss within a range of $0.66 to
$0.62. This outlook includes the expected first quarter 2013 cash charge for
transaction costs and prepayment fees from the repayment of assumed indebtedness
associated with the Archstone Acquisition. The Company has assumed that
substantially all of the transaction costs and prepayment penalties associated
with the Archstone Acquisition will be incurred in the first quarter of 2013.
The recognition of such charges is subject to uncertainty and may be recognized
in future quarters. 

The Company`s 2013 financial outlook is based on a number of assumptions and
estimates, which are provided in the full earnings release. The primary
assumptions and estimates include the following: 

Property Operations

* The Company expects an increase in Established Communities` rental revenue of
3.5% to 5.0%. 
* The Company expects an increase in Established Communities` operating expenses
of 3.0% to 4.0%. 
* The Company expects an increase in Established Communities` NOI of 4.0% to
5.5%.

Development

* The Company currently has 23 communities under development and expects to
acquire certain communities that Archstone currently has under development.
Including development opportunities the Company expects to acquire from
Archstone, the Company anticipates starting between $1,400,000,000 and
$1,600,000,000 of new development during 2013. 
* The Company expects to disburse between $1,200,000,000 and $1,400,000,000
related to current and expected development communities including the
incremental spend for Archstone development communities the Company expects to
acquire, and the cost of acquiring land for future development. 
* The Company expects to complete the development of nine communities currently
under construction and one community currently being constructed by Archstone
for an aggregate Total Capital Cost of approximately $575,000,000.

Redevelopment Activity

The Company currently has five communities under redevelopment and expects to
invest between $75,000,000 and $125,000,000 in its redevelopment communities
during 2013. 

Acquisition & Disposition Activity

The Company expects to complete the Archstone Acquisition during the first
quarter of 2013, and expects the acquisition will consist primarily of direct
and indirect interests in operating and development communities as discussed by
the Company in its November 26, 2012 press release. 

The final composition of assets, both wholly owned and those owned through joint
ventures, that the Company will acquire under the Archstone Acquisition is
subject to change through and up to the closing of the expected acquisition. 

In addition to the communities it expects to acquire as part of the Archstone
Acquisition and excluding transactions that have closed and are discussed in
this Earnings Release, the Company expects to be active in both acquisition and
disposition activity for its wholly owned portfolio in 2013. This activity,
detailed in the following paragraphs, pertains primarily to continued portfolio
shaping and repositioning and considers the impact of communities we expect to
acquire as part of the Archstone Acquisition.

* The Company anticipates selling approximately $700,000,000 of operating
communities. The Company`s expected sales for 2013 include approximately
$300,000,000 of operating communities that we expect to either acquire as part
of the Archstone Acquisition and sell immediately following the Archstone
Acquisition, or which will be sold prior to the Archstone Acquisition. 
* The Company expects to acquire approximately $300,000,000 of operating
communities in addition to the Archstone Acquisition. 
* The Company expects Fund I to continue to sell operating communities, with an
additional $150,000,000 of planned sales in 2013, of which the Company`s
indirect ownership interest is approximately 15%.

Capital Markets

The Company expects to assume indebtedness under the Archstone Acquisition with
a fair value of approximately $4,100,000,000, consisting of $3,700,000,000
principal amount for consolidated borrowings, $238,300,000 principal amount for
our proportionate share of debt related to unconsolidated joint ventures, and
$197,500,000 representing the amount by which the fair value of the
aforementioned debt exceeds the principal face value. The Company expects to
repay approximately $1,700,000,000 principal amount of this assumed indebtedness
concurrent with or immediately following the Archstone Acquisition. 

In addition to the common shares the Company expects to issue to Lehman and the
net amount of indebtedness the Company expects to assume in conjunction with the
Archstone Acquisition, the Company expects to raise between $700,000,000 and
$900,000,000 of new capital in 2013. 

Based on changes in the Company`s capital markets outlook for 2013, coupled with
its current liquidity position, a previously planned 2013 debt issuance subject
to an interest rate protection agreement put in place in 2011 is no longer
anticipated to occur. As a result the Company anticipates recognizing a charge
of approximately $55,000,000 in 2013, as reflected in its 2013 outlook. 

Impact of Archstone Acquisition

The Company`s outlook includes the expected operating results from the Archstone
Acquisition for the 10 months of 2013 subsequent to the expected acquisition on
March 1, 2013. In addition, the Company`s 2013 outlook includes the following
impacts of its actual and expected capital markets activity associated with the
Archstone Acquisition:

* Issuance of common stock in November 2012, that will be outstanding for the
full year 2013, 
* expected issuance of common shares to Lehman on March 1, 2013, which will be
outstanding for one month in the first quarter of 2013 and for 10 months during
2013, and 
* interest recognized on the $250 million of debt securities issued in December
2012.

The expected Archstone Acquisition also includes several non-routine charges
that are included in the Company`s 2013 outlook as discussed in this release.
The table below details the expected non-routine items included in the Company`s
2013 outlook, which are predominantly those expected to be incurred as a result
of the Archstone Acquisition.

                                                                                                       
                                                            Projected FFO / Share                      
                                                            1Q13                            2013       
                                                                                                       
 Projected FFO per share (1)                                $    (0.64  )                   $    4.29  
                                                                                                       
 Non-routine items (estimated):                                                                        
                                                                                                       
 Acquisition and other non-routine costs                         1.03                            0.99  
 Debt prepayment penalties and hedge unwind                      0.94                            0.87  
                                                                                                       
                                                                                                       
 Projected FFO per share after non-routine items (2)        $    1.33                       $    6.15  
                                                                                                       


(1) Represents the mid-point of the Company's 2013 outlook. 

(2) If the Company had not entered into the Archstone Acquisition agreement and
not incurred the related pursuit costs and capital markets activity, the Company
estimates that its Projected FFO per share for 2013 would have been $5.90. 

First Quarter 2013 Conference Schedule

Management is scheduled to present at Citi`s Global Property CEO Conference from
March 3 - 6, 2013. Management may discuss the Company`s current operating
environment; operating trends; development, redevelopment, disposition and
acquisition activity; financial outlook; portfolio strategy and other business
and financial matters affecting the Company. Details on how to access a webcast
of the Company`s presentation will be available in advance of the conference
event at the Company`s website at http://www.avalonbay.com/events. 

Other Matters

The Company will hold a conference call on January 31, 2013 at 1:00 PM ET to
review and answer questions about this release, its fourth quarter and full year
2012 results, the Attachments (described below) and related matters. To
participate on the call, dial 877-510-2397 domestically and 763-416-6924
internationally, and use Conference ID: 86328657. 

To hear a replay of the call, which will be available from January 31, 2013 at
5:00 PM ET to February 6, 2013 at 11:59 PM ET, dial 855-859-2056 domestically
and 404-537-3406 internationally, and use Access Code: 86328657. A webcast of
the conference call will also be available at http://www.avalonbay.com/earnings,
and an on-line playback of the webcast will be available for at least 30 days
following the call. 

The Company produces Earnings Release Attachments (the "Attachments") that
provide detailed information regarding operating, development, redevelopment,
disposition and acquisition activity. These Attachments are considered a part of
this earnings release and are available in full with this earnings release via
the Company's website at http://www.avalonbay.com/earnings. To receive future
press releases via e-mail, please submit a request through
http://www.avalonbay.com/email. 

About AvalonBay Communities, Inc.

As of December 31, 2012, the Company owned or held a direct or indirect
ownership interest in 203 apartment communities containing 59,391 apartment
homes in nine states and the District of Columbia, of which 23 communities were
under construction and five communities were under reconstruction. The Company
is an equity REIT in the business of developing, redeveloping, acquiring and
managing apartment communities in high barrier-to-entry markets of the United
States. More information may be found on the Company`s website at
http://www.avalonbay.com. For additional information, please contact Jason
Reilley, Director of Investor Relations at 1-703-317-4681. 

Forward-Looking Statements

This release, including its Attachments, contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. You can identify
these forward-looking statements by the Company`s use of words such as
"expects," "plans," "estimates," "anticipates," "projects," "intends,"
"believes," "outlook" and similar expressions that do not relate to historical
matters. Actual results may differ materially from those expressed or implied by
the forward-looking statements as a result of risks and uncertainties, which
include the following: we may abandon development or redevelopment opportunities
for which we have already incurred costs; adverse capital market conditions may
affect our access to various sources of capital and/or cost of capital, which
may affect our business activities, earnings and common stock price, among other
things; changes in local employment conditions, demand for apartment homes,
supply of competitive housing products, and other economic conditions may result
in lower than expected occupancy and/or rental rates and adversely affect the
profitability of our communities; delays in completing development,
redevelopment and/or lease-up may result in increased financing and construction
costs and may delay and/or reduce the profitability of a community; debt and/or
equity financing for development, redevelopment or acquisitions of communities
may not be available or may not be available on favorable terms; we may be
unable to obtain, or experience delays in obtaining, necessary governmental
permits and authorizations; and increases in costs of materials, labor or other
expenses may result in communities that we develop or redevelop failing to
achieve expected profitability. 

In addition, any forward-looking statements or forecasts relating to the
business, prospects, operating statistics or financial results that relate to or
may be expected to result from the Archstone Acquisition are based on
expectations, forecasts and assumptions that are inherently speculative and are
subject to substantial risks and uncertainties, many of which we cannot predict
with accuracy and some of which we may not have anticipated. As a result, the
actual operating statistics and financial results that relate to or may be
expected to result from the Archstone Acquisition may differ materially from the
Company`s forecasts. Risks, uncertainties and other factors related to the
Archstone Acquisition that might cause such differences include, among other
things, the following: the Archstone Acquisition may not close at the time or on
the terms that we currently expect; assumptions concerning the availability
and/or terms of financing, including among other things obtaining lender
consents to the assumption of indebtedness related to the Archstone Acquisition
may not be realized; obtaining joint venture partner consents to the assumption
of partnership interest related to the Archstone Acquisitions may not be
realized; we may not be able to integrate the assets and operations acquired in
the Archstone Acquisition in a manner consistent with our assumptions and/or we
may fail to achieve expected efficiencies and synergies; we may encounter
liabilities related to the Archstone Acquisition for which we may be responsible
that were unknown to us at the time we agreed to the Archstone Acquisition or at
the time of this release; and our assumptions concerning risks relating to our
lack of control of joint ventures and our ability to successfully dispose of
certain assets may not be realized. 

Additional discussions of risks and uncertainties appear in the Company`s
filings with the Securities and Exchange Commission, including the Company`s
Annual Report on Form 10-K for the fiscal year ended December 31, 2011 under the
heading "Risk Factors," under the heading "Management`s Discussion and Analysis
of Financial Condition and Results of Operations - Forward-Looking Statements,"
and in other disclosures contained in our subsequent Quarterly Reports on Form
10-Q and Current Reports on Form 8-K, including but not limited to our Current
Report on Form 8-K filed with the Securities and Exchange Commission on November
26, 2012. The Company does not undertake a duty to update forward-looking
statements, including its expected 2013 operating results and other financial
data forecasts contained in this release (including, without limitation,
forward-looking statements in this release relating to the Archstone
Acquisition). The Company may, in its discretion, provide information in future
public announcements regarding its outlook that may be of interest to the
investment community. The format and extent of future outlooks may be different
from the format and extent of the information contained in this release. 

Definitions and Reconciliations

Non-GAAP financial measures and other capitalized terms, as used in this
earnings release, are defined and further explained on Attachment 17,
"Definitions and Reconciliations of Non-GAAP Financial Measures and Other
Terms." Attachment 17 is included in the full earnings release available at the
Company`s website at http://www.avalonbay.com/earnings. This wire distribution
includes only definitions and reconciliations of the following non-GAAP
financial measures: 

FFO is determined based on a definition adopted by the Board of Governors of the
National Association of Real Estate Investment Trusts ("NAREIT"). FFO is
calculated by the Company as Net income or loss attributable to common
stockholders computed in accordance with GAAP, adjusted for gains or losses on
sales of previously depreciated operating communities, extraordinary gains or
losses (as defined by GAAP), cumulative effect of a change in accounting
principle, impairment write-downs of depreciable real estate assets, write-downs
of investments in affiliates which are driven by a decrease in the value of
depreciable real estate assets held by the affiliate and depreciation of real
estate assets, including adjustments for unconsolidated partnerships and joint
ventures. Management generally considers FFO to be an appropriate supplemental
measure of operating performance because, by excluding gains or losses related
to dispositions of previously depreciated operating communities and excluding
real estate depreciation (which can vary among owners of identical assets in
similar condition based on historical cost accounting and useful life
estimates), FFO can help one compare the operating performance of a company`s
real estate between periods or as compared to different companies. A
reconciliation of FFO to Net income attributable to common stockholders is as
follows (dollars in thousands):

                                                                                                                                                                                                     
                                                                                                                                                                                                     
                                                                                                                                                                                                     
                                                                                                       Q4                      Q4                       Full Year            Full Year               
                                                                                                       2012                    2011                     2012                 2011                    
                                                                                                                                                                                                     
 Net income attributable to common stockholders                                                        $    122,356            $    323,085          $  423,869              $     441,622           
 Depreciation - real estate assets, including discontinued operations and joint venture adjustments         66,036                  65,053              265,627                    256,986           
 Distributions to noncontrolling interests, including discontinued operations                               7                       7                   28                         27                
 Gain on sale of unconsolidated entities holding previously depreciated real estate assets                  (6,501       )          (1,319      )       (7,972      )              (3,063      )     
 Gain on sale of previously depreciated real estate assets                                                  (51,262      )          (273,415    )       (146,311    )              (281,090    )     
 Gain on acquisition of unconsolidated real estate entity                                                   --                      --                  (14,194     )              --                
                                                                                                                                                                                                     
 FFO attributable to common stockholders                                                               $    130,636            $    113,411          $  521,047              $     414,482           
                                                                                                                                                                                                     
 Average shares outstanding - diluted                                                                       102,863,336             95,509,173          98,025,152                 90,777,462        
                                                                                                                                                                                                     
 Earnings per share - diluted                                                                          $    1.19               $    3.38             $  4.32                 $     4.87              
                                                                                                                                                                                                     
 FFO per common share - diluted                                                                        $    1.27               $    1.19             $  5.32                 $     4.57              


The Company`s results for the quarter and year ended December 31, 2012 and the
comparable prior year periods include the non-routine items outlined in the
following table:

                                                                                                                                                            
                                                                                                                                                            
 Non-Routine Items                                                                                                                                          
 Decrease (Increase) in Net Income and FFO                                                                                                                  
 (dollars in thousands)                                                                                                                                     
                                                                                                                                                            
                                                                   Q4                   Q4                Full Year                 Full Year               
                                                                      2012                  2011                2012                      2011              
                                                                                                                                                            
 Acquisition costs (1)                                             $  9,704             $   -             $     9,965               $     1,010             
 Asset reductions (2)                                                 3,321                 -                   3,321                     14,052            
 Prepayment penalties and write off of deferred financing costs       288                   5,820               2,070                     5,820             
 Joint venture related gains and costs (3)                            (1,290       )        1,088               (4,995      )             1,493             
 Legal settlements and severance related costs                        -                     500                 1,362                     100               
 Gain on sale of land                                                 -                     -                   (280        )             (13,716     )     
 Interest income on escrow                                            -                     -                   -                         (2,478      )     
                                                                                                                                                            
                                                                                                                                                            
 Total non-routine items                                           $  12,023            $   7,408         $     11,443              $     6,281             
                                                                                                                                                            
 Weighted Average Dilutive                                                                                                                                  
 Shares Outstanding                                                   102,863,336           95,509,173          98,025,152                90,777,462        
                                                                                                                                                            
 Incremental Shares for expected Archstone Acquisition (4)            4,893,750                                 1,230,123                                   
                                                                                                                                                            
                                                                                                                                                            


(1) Amounts for 2012 consist primarily of capital markets related costs and
professional fees incurred for the expected Archstone Acquisition. 

(2) Amounts for 2012 include losses incurred related to Superstorm Sandy, and
the write off of certain costs related to a commercial tenant. Amounts for 2011
relate to the impairment of unimproved land parcels. 

(3) Represents the Company's proportional share of gains and related costs for
joint venture acquisition and disposition activity. 

(4) Represents the increase in weighted average outstanding shares issued in
connection with the expected Archstone Acquisition. 

Projected FFO, as provided within this release in the Company`s outlook, is
calculated on a basis consistent with historical FFO, and is therefore
considered to be an appropriate supplemental measure to projected Net Income
from projected operating performance. A reconciliation of the range provided for
Projected FFO per share (diluted) for the first quarter and full year 2013 to
the range provided for projected earnings (loss) per share (diluted) is as
follows:

                                                                                   
                                                       Low            High         
                                                       Range          Range        
                                                                                   
 Projected loss per share (diluted) - Q1 2013          ($1.31  )      ($1.27  )    
 Projected depreciation (real estate related)          0.67           0.67         
 Projected gain on sale of operating communities       (0.02   )      (0.02   )    
                                                                                   
 Projected FFO loss per share (diluted) - Q1 2013      ($0.66  )      ($0.62  )    
                                                                                   
                                                                                   
 Projected EPS (diluted) - Full Year 2013              $2.28          $2.64        
 Projected depreciation (real estate related)          2.59           2.95         
 Projected gain on sale of operating communities       (0.76   )      (1.12   )    
                                                                                   
 Projected FFO per share (diluted) - Full Year 2013    $4.11          $4.47        


NOI is defined by the Company as total property revenue less direct property
operating expenses (including property taxes), and excludes corporate-level
income (including management, development and other fees), corporate-level
property management and other indirect operating expenses, investments and
investment management expenses, expensed development and other pursuit costs,
net interest expense, gain (loss) on extinguishment of debt, general and
administrative expense, joint venture income (loss), depreciation expense,
impairment loss on land holdings, gain on sale of real estate assets and income
from discontinued operations. The Company considers NOI to be an appropriate
supplemental measure to Net Income of operating performance of a community or
communities because it helps both investors and management to understand the
core operations of a community or communities prior to the allocation of
corporate-level property management overhead or general and administrative
costs. This is more reflective of the operating performance of a community, and
allows for an easier comparison of the operating performance of single assets or
groups of assets. In addition, because prospective buyers of real estate have
different overhead structures, with varying marginal impact to overhead by
acquiring real estate, NOI is considered by many in the real estate industry to
be a useful measure for determining the value of a real estate asset or groups
of assets. 

A reconciliation of NOI (from continuing operations) to Net Income, as well as a
breakdown of NOI by operating segment, is as follows (dollars in thousands):

                                                                                                                                                                                                      
                                                                                                                                                                                                      
                                                                                                                                                                                                      
                                                              Q4               Q4                Q3                Q2               Q1               Full Year                Full Year               
                                                                 2012             2011              2012              2012             2012                2012                     2011              
                                                                                                                                                                                                      
 Net income                                                   $  122,384       $  322,965        $  86,747         $  156,821       $  57,609        $     423,562            $     441,370           
 Indirect operating expenses, net of corporate income            7,862            8,096             7,396             8,617            8,036               31,911                   30,550            
 Investments and investment management expense                   1,545            1,266             1,582             1,499            1,446               6,071                    5,126             
 Expensed acquisition, development and other pursuit costs       9,601            330               608               901              239                 11,350                   2,967             
 Interest expense, net                                           36,117           37,640            33,985            33,193           33,626              136,920                  167,814           
 Loss on extinguishment of debt, net                             --               1,940             --                --               1,179               1,179                    1,940             
 General and administrative expense                              7,703            7,847             8,372             8,316            9,710               34,101                   29,371            
 Joint venture loss (income)                                     (11,113  )       (1,607    )       (5,553   )        (2,073   )       (2,175   )          (20,914   )              (5,120    )       
 Depreciation expense                                            65,567           60,996            65,005            63,882           61,571              256,026                  239,060           
 Casualty and impairment loss                                    1,449            --                --                --               --                  1,449                    14,052            
 Gain on sale of real estate assets                              (51,262  )       (273,415  )       --                (95,329  )       --                  (146,591  )              (294,806  )       
 (Income) loss from discontinued operations                      (2,885   )       (1,272    )       (2,315   )        (3,363   )       (3,935   )          (12,495   )              (7,880    )       
 Gain on acquisition of unconsolidated real estate entity        --               --                (14,194  )        --               --                  (14,194   )              --                
                                                                                                                                                                                                      
 NOI from continuing operations                               $  186,968       $  164,786        $  181,633        $  172,464       $  167,306       $     708,375            $     624,444           
                                                                                                                                                                                                      
 Established:                                                                                                                                                                                         
 New England                                                  $  28,033        $  27,299         $  27,374         $  27,263        $  26,631        $     109,301            $     104,229           
 Metro NY/NJ                                                     40,766           37,922            40,356            39,955           38,947              160,026                  149,088           
 Mid-Atlantic                                                    19,157           19,063            18,618            18,722           18,816              75,313                   72,975            
 Pacific NW                                                      6,226            5,229             5,984             5,651            5,572               23,433                   20,374            
 No. California                                                  24,571           21,917            24,316            23,235           22,793              94,915                   83,234            
 So. California                                                  17,654           17,326            17,224            17,023           16,979              68,880                   64,401            
 Total Established                                               136,407          128,756           133,872           131,849          129,738             531,868                  494,301           
 Other Stabilized                                                22,778           18,881            23,078            20,722           20,141              86,722                   69,328            
 Development/Redevelopment                                       27,783           17,149            24,683            19,893           17,427              89,785                   60,815            
                                                                                                                                                                                                      
 NOI from continuing operations                               $  186,968       $  164,786        $  181,633        $  172,464       $  167,306       $     708,375            $     624,444           
                                                                                                                                                                                                      


NOI as reported by the Company does not include the operating results from
discontinued operations (i.e., assets sold during the period January 1, 2011
through December 31, 2012 or classified as held for sale at December 31, 2012).
A reconciliation of NOI from communities sold or classified as discontinued
operations to Net Income for these communities is as follows (dollars in
thousands):

                                                                                                    
                                        Q4           Q4           Full Year        Full Year        
                                            2012         2011            2012             2011      
                                                                                                    
                                                                                                    
 Income from discontinued operations    $   2,885    $   1,272    $      12,495    $      7,880     
 Interest expense, net                      --           886             133              4,808     
 Loss on extinguishment of debt             --           3,880           602              3,880     
 Depreciation expense                       197          2,318           4,068            11,209    
                                                                                                    
 NOI from discontinued operations       $   3,082    $   8,356    $      17,298    $      27,777    
                                                                                                    
 NOI from assets sold                       1,027        6,465           9,486            20,484    
 NOL from assets held for sale              2,055        1,891           7,812            7,293     
                                                                                                    
 NOI from discontinued operations       $   3,082    $   8,356    $      17,298    $      27,777    


Projected NOI, as used within this release for certain development communities
and in calculating the Initial Year Market Cap Rate for dispositions, represents
management`s estimate, as of the date of this release (or as of the date of the
buyer`s valuation in the case of dispositions), of projected stabilized rental
revenue minus projected stabilized operating expenses. For development
communities, Projected NOI is calculated based on the first twelve months of
stabilized operations following the completion of construction. In calculating
the Initial Year Market Cap Rate, Projected NOI for dispositions is calculated
for the first twelve months following the date of the buyer`s valuation.
Projected stabilized rental revenue represents management`s estimate of
projected gross potential minus projected stabilized economic vacancy and
adjusted for projected stabilized concessions plus projected stabilized other
rental revenue. Projected stabilized operating expenses do not include interest,
income taxes (if any), depreciation or amortization, or any allocation of
corporate-level property management overhead or general and administrative
costs. Projected gross potential for development communities and dispositions is
based on leased rents for occupied homes and management`s best estimate of
rental levels for homes which are currently unleased, as well as those homes
which will become available for lease during the twelve month forward period
used to develop Projected NOI. The weighted average Projected NOI as a
percentage of Total Capital Cost is weighted based on the Company`s share of the
Total Capital Cost of each community, based on its percentage ownership. 

Management believes that Projected NOI of the development communities, on an
aggregated weighted average basis, assists investors in understanding
management's estimate of the likely impact on operations of the development
communities when the assets are complete and achieve stabilized occupancy
(before allocation of any corporate-level property management overhead, general
and administrative costs or interest expense). However, in this release the
Company has not given a projection of NOI on a company-wide basis. Given the
different dates and fiscal years for which NOI is projected for these
communities, the projected allocation of corporate-level property management
overhead, general and administrative costs and interest expense to communities
under development is complex, impractical to develop, and may not be meaningful.
Projected NOI of these communities is not a projection of the Company's overall
financial performance or cash flow. There can be no assurance that the
communities under development or redevelopment will achieve the Projected NOI as
described in this release. 

Rental Revenue with Concessions on a Cash Basis is considered by the Company to
be a supplemental measure to rental revenue in conformity with GAAP to help
investors evaluate the impact of both current and historical concessions on
GAAP-based rental revenue and to more readily enable comparisons to revenue as
reported by other companies. In addition, rental revenue (with concessions on a
cash basis) allows an investor to understand the historical trend in cash
concessions. 

A reconciliation of rental revenue from Established Communities in conformity
with GAAP to rental revenue (with concessions on a cash basis) is as follows
(dollars in thousands):

                                                                                                                 
                                 Q4               Q4               Full Year              Full Year              
                                    2012             2011                2012                   2011             
                                                                                                                 
 Rental revenue (GAAP basis)     $  194,266       $  184,947       $     763,125          $     721,427          
 Concessions amortized              50               433                 404                    4,010            
 Concessions granted                (54      )       (88      )          (191     )             (1,318   )       
                                                                                                                 
 Rental revenue (with                                                                                            
 concessions on a cash basis)    $  194,262       $  185,292       $     763,338          $     724,119          
                                                                                                                 
 % change -- GAAP revenue           5.0      %                           5.8      %                              
                                                                                                                 
 % change -- cash revenue           4.8      %                           5.4      %                              
                                                                                                                 


Economic Gain (Loss) is calculated by the Company as the gain (loss) on sale in
accordance with GAAP, less accumulated depreciation through the date of sale and
any other non-cash adjustments that may be required under GAAP accounting.
Management generally considers Economic Gain (Loss) to be an appropriate
supplemental measure to gain (loss) on sale in accordance with GAAP because it
helps investors to understand the relationship between the cash proceeds from a
sale and the cash invested in the sold community. The Economic Gain (Loss) for
each of the communities presented is estimated based on their respective final
settlement statements. A reconciliation of Economic Gain (Loss) to gain on sale
in accordance with GAAP for the quarter ended December 31, 2012 as well as prior
years` activities is presented in the full earnings release. 

Interest Coverage is calculated by the Company as EBITDA from continuing
operations, excluding land gains and gain on the sale of investments in real
estate joint ventures, divided by the sum of interest expense, net, and
preferred dividends. Interest Coverage is presented by the Company because it
provides rating agencies and investors an additional means of comparing our
ability to service debt obligations to that of other companies. EBITDA is
defined by the Company as net income or loss attributable to the Company before
interest income and expense, income taxes, depreciation and amortization. 

A reconciliation of EBITDA and a calculation of Interest Coverage for the fourth
quarter of 2012 are as follows (dollars in thousands):

                                                               
 Net income attributable to common stockholders    $  122,356  
 Interest expense, net                                36,117   
 Depreciation expense                                 65,567   
 Depreciation expense (discontinued operations)       197      
                                                               
 EBITDA                                            $  224,237  
                                                               
 EBITDA from continuing operations                 $  169,893  
 EBITDA from discontinued operations                  54,344   
                                                               
 EBITDA                                            $  224,237  
                                                               
 EBITDA from continuing operations                 $  169,893  
                                                               
 Interest expense, net                             $  36,117   
                                                               
                                                               
 Interest coverage                                    4.7      
                                                               


Total Capital Cost includes all capitalized costs projected to be or actually
incurred to develop the respective development or redevelopment community, or
development right, including land acquisition costs, construction costs, real
estate taxes, capitalized interest and loan fees, permits, professional fees,
allocated development overhead and other regulatory fees, all as determined in
accordance with GAAP. For redevelopment Communities, Total Capital Cost excludes
costs incurred prior to the start of redevelopment when indicated. With respect
to communities where development or redevelopment was completed in a prior or
the current period, Total Capital Cost reflects the actual cost incurred, plus
any contingency estimate made by management. Total Capital Cost for communities
identified as having joint venture ownership, either during construction or upon
construction completion, represents the total projected joint venture
contribution amount. For joint ventures not in construction, Total Capital Cost
is equal to gross real estate cost. 

Initial Year Market Cap Rate is defined by the Company as Projected NOI of a
single community for the first 12 months of operations (assuming no
repositioning), less estimates for non-routine allowance of approximately $200 -
$300 per apartment home, divided by the gross sales price for the community.
Projected NOI, as referred to above, represents management`s estimate of
projected rental revenue minus projected operating expenses before interest,
income taxes (if any), depreciation, amortization and extraordinary items. For
this purpose, management`s projection of operating expenses for the community
includes a management fee of 3.0% -3.5%. The Initial Year Market Cap Rate, which
may be determined in a different manner by others, is a measure frequently used
in the real estate industry when determining the appropriate purchase price for
a property or estimating the value for a property. Buyers may assign different
Initial Year Market Cap Rates to different communities when determining the
appropriate value because they (i) may project different rates of change in
operating expenses and capital expenditure estimates and (ii) may project
different rates of change in future rental revenue due to different estimates
for changes in rent and occupancy levels. The weighted average Initial Year
Market Cap Rate is weighted based on the gross sales price of each community. 

Unleveraged IRR on sold communities refers to the internal rate of return
calculated by the Company considering the timing and amounts of (i) total
revenue during the period owned by the Company and (ii) the gross sales price
net of selling costs, offset by (iii) the undepreciated capital cost of the
communities at the time of sale and (iv) total direct operating expenses during
the period owned by the Company. Each of the items (i), (ii), (iii) and (iv) are
calculated in accordance with GAAP. 

The calculation of Unleveraged IRR does not include an adjustment for the
Company`s general and administrative expense, interest expense, or
corporate-level property management and other indirect operating expenses.
Therefore, Unleveraged IRR is not a substitute for Net Income as a measure of
our performance. Management believes that the Unleveraged IRR achieved during
the period a community is owned by the Company is useful because it is one
indication of the gross value created by the Company`s acquisition, development
or redevelopment, management and sale of a community, before the impact of
indirect expenses and Company overhead. The Unleveraged IRR achieved on the
communities as cited in this release should not be viewed as an indication of
the gross value created with respect to other communities owned by the Company,
and the Company does not represent that it will achieve similar Unleveraged IRRs
upon the disposition of other communities. The weighted average Unleveraged IRR
for sold communities is weighted based on all cash flows over the holding period
for each respective community, including net sales proceeds. 

Unencumbered NOI as calculated by the Company represents NOI generated by real
estate assets unencumbered by either outstanding secured debt or land leases
(excluding land leases with purchase options that were put in place for
governmental incentives or tax abatements) as a percentage of total NOI
generated by real estate assets. The Company believes that current and
prospective unsecured creditors of the Company view Unencumbered NOI as one
indication of the borrowing capacity of the Company. Therefore, when reviewed
together with the Company's Interest Coverage, EBITDA and cash flow from
operations, the Company believes that investors and creditors view Unencumbered
NOI as a useful supplemental measure for determining the financial flexibility
of an entity. A calculation of Unencumbered NOI for the full year ended December
31, 2012 is as follows (dollars in thousands):

                                                                 
                                                                 
                                                                 
                                                                 
 NOI for Established Communities                  $  531,868     
 NOI for Other Stabilized Communities                86,722      
 NOI for Development/Redevelopment Communities       89,785      
 NOI for discontinued operations                     17,298      
 Total NOI generated by real estate assets        $  725,673     
 NOI on encumbered assets                            195,001     
 NOI on unencumbered assets                       $  530,672     
                                                                 
                                                                 
 Unencumbered NOI                                    73       %  


Established Communities are identified by the Company as 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 operations of the
beginning of the prior year. Therefore, for 2012, Established Communities are
consolidated communities that have stabilized operations as of January 1, 2011
and are not conducting or planning to conduct substantial redevelopment
activities within the current year. Established Communities do not include
communities that are currently held for sale or planned for disposition during
the current year. 

Economic Occupancy is defined as total possible revenue less vacancy loss as a
percentage of total possible revenue. Total possible revenue is determined by
valuing occupied units at contract rates and vacant units at market rents.
Vacancy loss is determined by valuing vacant units at current market rents. By
measuring vacant apartments at their market rents, Economic Occupancy takes into
account the fact that apartment homes of different sizes and locations within a
community have different economic impacts on a community`s gross revenue.

AvalonBay Communities, Inc.
Director of Investor Relations
Jason Reilley, 1-703-317-4681 



Copyright Business Wire 2013