UNITED STATES
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, 2014
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.)

Ballston Tower
671 N. Glebe Rd, Suite 800
Arlington, Virginia  22203
(Address of principal executive offices, including zip code)
 
(703) 329-6300
(Registrant’s telephone number, including area code) 
__________________________________________________________________________
Securities registered pursuant to Section 12(b) of the Act:
(Title of each class)
 
(Name of each exchange on which registered)
Common Stock, par value $.01 per share
 
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    
Yes  ý    No  o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    
Yes  o    No  ý
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 90 days.    
Yes  ý    No  o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    
Yes  ý    No  o
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.    o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ý
 
Accelerated filer o
 
Non-accelerated filer o
 (Do not check if a
smaller reporting company)
 
Smaller reporting company o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    
Yes  o    No  ý
The aggregate market value of the registrant's Common Stock, par value $.01 per share, held by nonaffiliates of the registrant, as of June 30, 2014 was $18,601,181,331.
The number of shares of the registrant's Common Stock, par value $.01 per share, outstanding as of January 30, 2015 was 132,049,857.
Documents Incorporated by Reference
Portions of AvalonBay Communities, Inc.'s Proxy Statement for the 2015 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.


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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" included in this Form 10-K. You should also review Item 1A. "Risk Factors" for a discussion of various risks that could adversely affect us.
ITEM 1.    BUSINESS
General
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 treated as a real estate investment trust (“REIT”) for federal income tax purposes. We develop, redevelop, acquire, own and operate multifamily communities primarily in New England, the New York/New Jersey metro area, the Mid-Atlantic, the Pacific Northwest, and Northern and Southern California. We focus on leading metropolitan areas in these regions that we believe are characterized by growing employment in high wage sectors of the economy, lower housing affordability and a diverse and vibrant quality of life. We believe these market characteristics offer the opportunity for superior risk-adjusted returns on apartment community investments relative to other markets.
At January 31, 2015, we owned or held a direct or indirect ownership interest in:
252 operating apartment communities containing 74,240 apartment homes in 11 states and the District of Columbia, of which 228 communities containing 66,631 apartment homes were consolidated for financial reporting purposes, two communities containing 618 apartment homes were held by joint ventures in which we hold an ownership interest, and 22 communities containing 6,991 apartment homes were owned by the Funds (as defined below). 12 of the consolidated communities containing 3,998 apartment homes were under redevelopment, as discussed below;
26 wholly-owned communities under construction that are expected to contain an aggregate of 7,924 apartment homes when completed; and
rights to develop an additional 37 communities that, if developed in the manner expected, will contain an estimated 10,384 apartment homes; and
an indirect interest in the Residual JV (as defined in this Form 10-K) which owns direct and indirect interests in assets acquired as part of the Archstone Acquisition (as defined in this Form 10-K), including two land parcels and an indirect interest in a joint venture which owns four apartment communities with 1,410 apartment homes in the United States.
Any discussion of apartment communities and homes as of December 31, 2014 and January 31, 2015 includes 240 apartment homes which were destroyed and are uninhabitable as a result of the fire at Avalon at Edgewater in January 2015.
We generally obtain ownership in an apartment community by developing a new community on either vacant land or land with improvements that we intend to raze, or by acquiring an existing community. In selecting sites for development or acquisition, we favor locations that are near expanding employment centers and convenient to transportation, recreation areas, entertainment, shopping and dining.
Our consolidated real estate investments consist of the following reportable segments: Established Communities, Other Stabilized Communities and Development/Redevelopment Communities.
Established Communities are generally operating communities that were owned and had stabilized occupancy and operating expenses as of the beginning of the prior year such that year-over-year comparisons are meaningful. Other Stabilized Communities are generally all other operating communities that have stabilized occupancy and operating expenses during the current year, but that were not owned or had not achieved stabilization as of the beginning of the prior year such that year-over-year comparisons are not meaningful, as well as communities that are planned for disposition during the current year. Development/Redevelopment Communities consist of communities that are under construction, communities where substantial redevelopment is in progress or is planned to begin during the current year and communities under lease-up. A more detailed description of these segments and other related information can be found in Note 9, "Segment Reporting," of the Consolidated Financial Statements set forth in Item 8 of this report.

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Our principal financial goal is to increase long-term stockholder value through the development, redevelopment, acquisition, operation and when appropriate, disposition of apartment communities in our markets. To help meet this goal, we regularly (i) monitor our investment allocation by geographic market and product type, (ii) develop, redevelop and acquire an interest in apartment communities in our selected markets, (iii) selectively sell apartment communities that no longer meet our long-term strategy or when opportunities are presented to realize a portion of the value created through our investment and redeploy the proceeds from those sales and (iv) endeavor to maintain a capital structure that is aligned with our business risks with a view to maintaining continuous access to cost-effective capital. Our strategy is to be leaders in multifamily market research, consumer insight and capital allocation, delivering a range of multifamily offerings tailored to serve the needs of the most attractive customer segments in the best-performing U.S. submarkets. A substantial majority of our current communities are upscale, which generally command among the highest rents in their markets. However, we also pursue the ownership and operation of apartment communities that target a variety of customer segments and price points, consistent with our goal of offering a broad range of products and services.
We operate our apartment communities under three core brands Avalon, AVA and Eaves by Avalon. We believe that this branding differentiation allows us to target our product offerings to multiple customer groups and submarkets within our existing geographic footprint. The "Avalon" brand is our core offering, focusing on upscale apartment living and high end amenities and services in urban and suburban markets. Our "AVA" brand is designed for people who want to live in or near urban neighborhoods and in close proximity to public transportation, services, shopping and night-life. AVA apartments are generally smaller, many engineered for roommate living and feature modern design and a technology focus. Our Eaves by Avalon brand is designed for renters who seek good quality apartment living, often in a suburban setting, with practical amenities and services at a more modest price point.
During the three years ended December 31, 2014, excluding activity for the Funds (as defined below), we acquired 59 apartment communities, of which 54 were acquired as part of the Archstone Acquisition (as defined in this Form 10-K). In addition, in 2013 in conjunction with the Archstone Acquisition, excluding the Residual JV, we acquired interests in three unconsolidated joint ventures, as well as the Residual JV, as discussed below, which as of December 31, 2014 own an aggregate of 13 apartment communities. During the three years ended December 31, 2014, we disposed of 16 apartment communities, six of which were acquired in the Archstone Acquisition, and completed the development of 37 apartment communities and the redevelopment of 22 apartment communities. During 2012, we also purchased our joint venture partner's interest in one operating community, obtaining a 100% ownership interest in that apartment community. In addition, we sold one wholly-owned community in 2015 through the date this Form 10-K was filed.
In March 2005, we formed AvalonBay Value Added Fund, L.P. ("Fund I"), a private, discretionary real estate investment vehicle, which we manage and in which we own a 15.2% interest. Fund I acquired communities with the objective of either redeveloping or repositioning them, or taking advantage of market cycle timing and improved operating performance. From its inception in March 2005 through the close of its investment period in 2008, Fund I acquired 20 communities. During the three years ended December 31, 2014, we realized our pro rata share of the gain from the sale of the last of the 17 communities owned by Fund I. During 2014, Fund I disposed of its final four communities. Fund I has a term that expires in March 2015.
In September 2008, we formed AvalonBay Value Added Fund II, L.P. ("Fund II"), a second institutional discretionary real estate investment fund which we manage and in which we own a 31.3% interest. In 2012, Fund II acquired its final operating community. From the commencement of Fund II through the close of its investment period, Fund II acquired 13 operating communities. During the three years ended December 31, 2014, we realized our pro rata share of the gain from the sale of three communities owned by Fund II.
In conjunction with the Archstone Acquisition, excluding the Residual JV, we acquired interests in three additional joint ventures, Archstone Multifamily Partners AC LP (the "U.S. Fund"), Archstone Multifamily Partners AC JV LP (the "AC JV") and Brandywine Apartments of Maryland, LLC ("Brandywine").
The U.S. Fund was formed in July 2011 and is fully invested. The U.S. Fund owns nine communities containing 1,730 apartment homes, one of which includes a marina containing 229 boat slips. Through subsidiaries, we acquired and own the general partner of the fund and hold a 28.6% interest in the fund.
The AC JV is a joint venture in which we acquired Archstone's 20.0% ownership interest. The AC JV was formed in 2011 and owns three operating apartment communities containing 921 apartment homes, one of which completed development in 2014. The AC JV partnership agreement contains provisions that require us to provide a right of first offer ("ROFO") to the AC JV in connection with additional opportunities to acquire or develop additional interests in multifamily real estate assets within a specified geographic radius of the existing assets, generally one mile or less. The ROFO restriction expires in 2019.

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Brandywine owns a 305 apartment home community located in Washington, DC, which is managed by a third party. Brandywine is comprised of five members who hold various interests in the joint venture. In conjunction with the Archstone Acquisition, we acquired a 26.1% equity interest in the venture, and subsequently purchased an additional 2.6% interest, and as of December 31, 2014, hold a 28.7% equity interest in the venture.
A more detailed description of Fund I, Fund II, the U.S. Fund and the AC JV (collectively, the "Funds"), Brandywine and the related investment activity can be found in the discussion in Note 6, "Investments in Real Estate Entities," of the Consolidated Financial Statements in Item 8 of this report and in Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations."
Through subsidiaries, the Company and Equity Residential entered into three limited liability company agreements (collectively, the “Residual JV”) through which the Company and Equity Residential acquired (i) certain assets of Archstone that the Company and Equity Residential plan to divest (to third parties or to the Company or Equity Residential) over time (the “Residual Assets”), and (ii) various liabilities of Archstone that the Company and Equity Residential agreed to assume in conjunction with the Archstone Acquisition (the “Residual Liabilities”).  The Residual Assets currently include a 20.0% interest in Lake Mendota Investments, LLC and Subsidiaries ("SWIB"), a joint venture which currently owns and manages four apartment communities with 1,410 apartment homes in the United States; two land parcels; and various licenses, insurance policies, contracts, office leases and other miscellaneous assets. The Residual Liabilities include most existing or future litigation and claims related to Archstone’s operations for periods before the close of the Archstone Acquisition, except for (i) claims that principally relate to the physical condition of the assets acquired directly by the Company or Equity Residential, which generally remain the sole responsibility of the Company or Equity Residential, as applicable, and (ii) certain tax and other litigation between Archstone and various equity holders in Archstone related to periods before the close of the Archstone Acquisition, and claims which may arise due to changes in the capital structure of Archstone that occurred prior to closing, for which Lehman has agreed to indemnify the Company and Equity Residential. The Company and Equity Residential jointly control the Residual JV and the Company holds a 40.0% economic interest in the assets and liabilities of the Residual JV.
Including sales by unconsolidated entities and entities in which we held a residual profits interest, and excluding the sale of indirect interests associated with the Residual JV, during 2014 we sold 12 operating communities and recognized a gain in accordance with U.S. generally accepted accounting principles ("GAAP") of $181,557,000. We also recognized income of $60,534,000 representing our promoted interests in certain of the unconsolidated ventures disposed of in 2014.
A further discussion of our development, redevelopment, disposition, acquisition, property management and related strategies follows.
Development Strategy.    We 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 rental apartment communities in our selected markets, 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 office in Arlington, Virginia, we also maintain regional offices, administrative offices or specialty offices, including offices that are in or near the following cities:
Boston, Massachusetts;
Long Island, New York;
Los Angeles, California;
New York, New York;
Newport Beach, California;
San Francisco, California;
San Jose, California;
Seattle, Washington;
Fairfield, Connecticut;
Virginia Beach, Virginia; and
Woodbridge, New Jersey.

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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 allow us to acquire the target site shortly before the start of construction, which reduces development-related risks and preserves capital. However, as a result of competitive market conditions for land suitable for development, we have sometimes acquired and held land prior to construction for extended periods while entitlements are obtained, or acquired land zoned for uses other than residential with the potential for rezoning. For further discussion of our Development Rights, refer to Item 2. "Communities" in this report.
We generally act as our own general contractor and construction manager, except for certain mid-rise and high-rise apartment communities, where we may elect to use third-party general contractors as construction managers. We generally perform these functions directly (although we may use a wholly-owned subsidiary) both for ourselves and for the joint ventures and partnerships of which we are a member or a partner. We believe direct involvement in construction enables us to achieve higher construction quality, greater control over construction schedules and cost savings. Our development, property management and construction teams monitor construction progress to ensure quality workmanship and a smooth and timely transition into the leasing and operating phase.
During periods where competition for development land is more intense, we may acquire improved land with existing commercial uses and rezone the site for multifamily residential use. During the period that we hold these buildings for future development, any rent received in excess of expenses from these operations, which we consider to be incidental, is accounted for as a reduction in our investment in the development pursuit and not as net income. Any expenses relating to these operations, in excess of any rents received, are accounted for as a reduction in net income. We have also participated, and may in the future participate, in master planned or other large multi-use developments where we commit to build infrastructure (such as roads) to be used by other participants or commit to act as construction manager or general contractor in building structures or spaces for third parties (such as unimproved ground floor retail space, municipal garages or parks). Costs we incur in connection with these activities may be accounted for as additional invested capital in the community or we may earn fee income for providing these services. Particularly with large scale, urban in-fill developments, we may engage in significant environmental remediation efforts to prepare a site for construction.
Throughout this report, the term "development" is used to refer to the entire property development cycle, including pursuit of zoning approvals, procurement of architectural and engineering designs and the construction process. References to "construction" refer to the actual construction of the property, which is only one element of the development cycle.
Redevelopment Strategy.    When we undertake the redevelopment of a community, our goal is to renovate and/or rebuild an existing community so that our total investment is generally below replacement cost and the community is well positioned in the market to achieve attractive returns on our capital. We have dedicated redevelopment teams and procedures that are intended to control both the cost and risks of redevelopment. Our redevelopment teams, which include 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 quality design and workmanship and a smooth and timely transition into the lease-up and restabilization phases.
Throughout this report, the term "redevelopment" is used to refer to the entire redevelopment cycle, including planning and procurement of architectural and engineering designs, budgeting and actual renovation work. The actual renovation work is referred to as "reconstruction," which is only one element of the redevelopment cycle.
Disposition Strategy.    We sell assets that no longer meet our long-term strategy or when market conditions are favorable, and we redeploy the proceeds from those sales to develop, redevelop and acquire communities and to rebalance our portfolio across or within geographic regions. This also allows us to realize a portion of the value created through our investments and provides additional liquidity. We are then 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 generally solicit competing bids from unrelated parties for these individual assets and consider the sales price of each proposal.
As part of the Archstone Acquisition, we acquired 14 assets that were contributed by third parties on a tax-deferred basis to an Archstone partnership in which the third parties received ownership interests. To protect the tax-deferred nature of the contribution, the third parties are entitled to cash payments if we trigger tax obligations to the third parties by selling, or repaying secured financing on, the contributed assets. As of December 31, 2014, the aggregate amount of the tax protection payments that would be triggered by the sale of all 14 contributed assets is estimated to be approximately $44,000,000.
Acquisition Strategy.    Our core competencies in development and redevelopment discussed above allow us to be selective in the acquisitions we target. Acquisitions allow us to achieve rapid penetration into markets in which we desire an increased presence. Acquisitions (and dispositions) also help us achieve our desired product mix or rebalance our portfolio. Portfolio growth also allows for fixed general and administrative costs to be a smaller percentage of overall community Net Operating Income ("NOI").

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We are not presently pursuing the formation of a new discretionary real estate investment fund, preferring at this time to maintain flexibility in shaping our portfolio of wholly-owned assets through acquisitions and dispositions.
Property Management Strategy.    We seek to increase operating income through innovative, proactive property management that will result in higher revenue from communities while constraining operating expenses. Our principal strategies to maximize revenue include:
focusing on resident satisfaction;
staggering lease terms such that lease expirations are better matched to traffic patterns;
balancing high occupancy with premium pricing and increasing rents as market conditions permit; and
employing revenue management software to optimize the pricing and term of leases.
Constraining growth in operating expenses is another way in which we seek 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 constrain growth in operating expenses in a variety of ways, which include, but are not limited to, the following:
we use purchase order controls, acquiring goods and services from pre-approved vendors;
we use national negotiated contracts and also purchase supplies in bulk where possible;
we bid third-party contracts on a volume basis;
we 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;
we perform turnover work in-house or hire third parties, generally considering the most cost effective approach as well as expertise needed to perform the work;
we undertake preventive maintenance regularly to maximize resident safety and satisfaction, as well as to maximize property and equipment life; and
we aggressively pursue real estate tax appeals.
On-site property management teams receive bonuses based largely upon the NOI produced at their respective communities. We use and continuously seek ways to improve technology applications to help manage our communities, believing that the accurate collection of financial and resident data will enable us to maximize revenue and control costs through careful leasing decisions, maintenance decisions and financial management.
We generally manage the operation and leasing activity of our communities directly (although we may use a wholly-owned subsidiary) both for ourselves and the joint ventures and partnerships of which we are a member or a partner. From time to time we may engage a third party to manage leasing and/or maintenance activity at one or more of our communities.
From time to time we also pursue or arrange ancillary services for our residents to provide additional revenue sources or increase resident satisfaction. As a REIT, we generally cannot provide direct services to our residents that are not customarily provided by a landlord, nor can we directly share in the income of a third party that provides such services. However, we can provide such non-customary services to residents or share in the revenue from such services if we do so through a "taxable REIT subsidiary," which is a subsidiary that is treated as a "C corporation" subject to federal income taxes. See "Tax Matters" below.
Financing Strategy.    We maintain a capital structure that provides financial flexibility to ensure we can select cost effective capital market options that are well matched to our business risks. We estimate that our short-term liquidity needs will be met from cash on hand, borrowings under our $1,300,000,000 revolving variable rate unsecured credit facility (the "Credit Facility"), sales of current operating communities and/or issuance of additional debt or equity securities. A determination to engage in an equity or debt offering depends on a variety of factors such as general market and economic conditions, our short and long-term liquidity needs, the relative costs of debt and equity capital and growth opportunities. A summary of debt and equity activity for the last three years is reflected on our Consolidated Statement of Cash Flows of the Consolidated Financial Statements set forth in Item 8 of this report.

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We have entered into, and may continue in the future to enter into, joint ventures (including limited liability companies or partnerships) through which we would own an indirect economic interest of less than 100% of the community or communities owned directly by such joint ventures. Our decision to either hold an apartment community in fee simple or to have an indirect interest in the community through a joint venture is based on a variety of factors and considerations, including: (i) the economic and tax terms required by a seller of land or of a community; (ii) our desire to diversify our portfolio of communities by market, submarket and product type; (iii) our desire at times to preserve our capital resources to maintain liquidity or balance sheet strength; and (iv) our projection, in some circumstances, that we will achieve higher returns on our invested capital or reduce our risk if a joint venture vehicle is used. Investments in joint ventures are not limited to a specified percentage of our assets. Each joint venture agreement is individually negotiated, and our ability to operate and/or dispose of a community in our sole discretion may be limited to varying degrees depending on the terms of the joint venture agreement.
In addition, from time to time, we may offer shares of our equity securities, debt securities or options to purchase stock in exchange for property. We may also acquire properties in exchange for properties we currently own.
Other Strategies and Activities.    While we emphasize equity real estate investments in rental apartment communities, we have the ability to invest in other types of real estate, mortgages (including participating or convertible mortgages), securities of other REITs or real estate operating companies, or securities of technology companies that relate to our real estate operations or of companies that provide services to us or our residents, in each case consistent with our qualification as a REIT. In addition, we own and lease retail space at our communities when either (i) the highest and best use of the space is for retail (e.g., street level in an urban area); (ii) we believe the retail space will enhance the attractiveness of the community to residents or; (iii) some component of retail space is required to obtain entitlements to build apartment homes. As of December 31, 2014, we had a total of 625,798 square feet of rentable retail space, excluding retail space within communities currently under construction. Gross rental revenue provided by leased retail space in 2014 was $17,894,000 (1.1% of total revenue). We may also develop a property in conjunction with another real estate company that will own and operate the retail component of a mixed-use building that we help develop. If we secure a development right and believe that its best use, in whole or in part, is to develop the real estate with the intent to sell rather than hold the asset, we may, through a taxable REIT subsidiary, develop real estate for sale. Any investment in securities of other entities, and any development of real estate for sale, is subject to the percentage of ownership limitations, gross income tests, and other limitations that must be observed for REIT qualification.
We have not engaged in trading, underwriting or agency distribution or sale of securities of other issuers and do not intend to do so. At all times we intend to make investments in a manner so as to qualify as a REIT unless, because of circumstances or changes to the Internal Revenue Code of 1986, as amended, or the Code (or the Treasury Regulations thereunder), our Board of Directors determines that it is no longer in our best interest to qualify as a REIT.
Tax Matters
We filed an election with our 1994 federal income tax return to be taxed as a REIT under the Code and intend to maintain our qualification as a REIT in the future. As a qualified REIT, with limited exceptions, such as those described under "Property Management Strategy" above, we will not be taxed under federal and certain state income tax laws at the corporate level on our taxable net income to the extent taxable net income is distributed to our stockholders. We expect to make sufficient distributions to avoid income tax at the corporate level. While we believe that we are organized and qualified as a REIT and we intend to operate in a manner that will allow us to continue to qualify as a REIT, there can be no assurance that we will be successful in this regard. Qualification as a REIT involves the application of highly technical and complex provisions of the Code for which there are limited judicial and administrative interpretations and involves the determination of a variety of factual matters and circumstances not entirely within our control.
Competition
We face competition from other real estate investors, including insurance companies, pension and investment funds, partnerships and investment companies and other REITs, to acquire and develop apartment communities and acquire land for future development. As an owner and operator of apartment communities, we also face competition for prospective residents from other operators whose communities may be perceived to offer a better location or better amenities or whose rent may be perceived as a better value given the quality, location and amenities that the resident seeks. We also compete against condominiums and single-family homes that are for sale or rent. Although we often compete against large, sophisticated developers and operators for development opportunities and for prospective residents, real estate developers and operators of any size can provide effective competition for both real estate assets and potential residents.

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Environmental and Related Matters
As a current or prior owner, operator and developer of real estate, we are subject to various federal, state and local environmental laws, regulations and ordinances and also could be liable to third parties resulting from environmental contamination or noncompliance at our communities. For some development communities we undertake extensive environmental remediation to prepare the site for construction, which could be a significant portion of our total construction cost. Environmental remediation efforts could expose us to possible liabilities for accidents or improper handling of contaminated materials during construction. These and other risks related to environmental matters are described in more detail in Item 1A. "Risk Factors."
We believe that more government regulation of energy use, along with a greater focus on environmental protection, may, over time, have a significant impact on urban growth patterns. If changes in zoning to encourage greater density and proximity to mass transit do occur, such changes could benefit multifamily housing and those companies with a competency in high-density development. However, there can be no assurance as to whether or when such changes in regulations or zoning will occur or, if they do occur, whether the multifamily industry or the Company will benefit from such changes.
Other Information
We file annual, quarterly and current reports, proxy statements and other information with the SEC. You may read and copy any document we file at the SEC's Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. You may call the SEC at 1-202-551-8090 for further information on the operation of the Public Reference Room. Our SEC filings are also available to the public from the SEC's website at www.sec.gov.
We maintain a website at www.avalonbay.com. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports, filed or furnished pursuant to the Securities Exchange Act of 1934 are available free of charge in the "Investor Relations" section of our website as soon as reasonably practicable after the reports are filed with or furnished to the SEC. In addition, the charters of our Board's Nominating and Corporate Governance Committee, Audit Committee and Compensation Committee, as well as our Director Independence Standards, Corporate Governance Guidelines, Code of Conduct, Policy Regarding Shareholder Rights Agreements, Policy Regarding Shareholder Approval of Future Severance Agreements, Executive Stock Ownership Guidelines, and Policy on Recoupment of Incentive Compensation, are available free of charge in that section of our website or by writing to AvalonBay Communities, Inc., Ballston Tower, Suite 800, 671 N. Glebe Rd., Arlington, Virginia 22203, Attention: Chief Financial Officer. To the extent required by the rules of the SEC and the NYSE, we will disclose amendments and waivers relating to these documents in the same place on our website.
We were incorporated under the laws of the State of California in 1978. In 1995, we reincorporated in the State of Maryland and have been focused on the ownership and operation of apartment communities since that time. As of January 31, 2015, we had 3,006 employees.

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ITEM 1A.    RISK FACTORS
Our operations involve various risks that could have adverse consequences, including those described below. This Item 1A. includes forward-looking statements. You should refer to our discussion of the qualifications and limitations on forward-looking statements in this Form 10-K.
Development, redevelopment and construction risks could affect our profitability.
We intend to continue to develop and redevelop apartment home communities. These activities can include long planning and entitlement timelines and can involve complex and costly activities, including significant environmental remediation or construction work in high-density urban areas. These activities may be exposed to the following risks:
we may abandon opportunities that we have already begun to explore for a number of reasons, including changes in local market conditions or increases in construction or financing costs, and, as a result, we may fail to recover expenses already incurred in exploring those opportunities;
occupancy rates and rents at a community may fail to meet our original expectations for a number of reasons, including changes in market and economic conditions beyond our control and the development by competitors of competing communities;
we may be unable to obtain, or experience delays in obtaining, necessary zoning, occupancy, or other required governmental or third party permits and authorizations, which could result in increased costs or the delay or abandonment of opportunities;
we may incur costs that exceed our original estimates due to increased material, labor or other costs;
we may be unable to complete construction and lease-up of a community on schedule, resulting in increased construction and financing costs and a decrease in expected rental revenues;
we may be unable to obtain financing with favorable terms, or at all, for the proposed development of a community, which may cause us to delay or abandon an opportunity;
we may incur liabilities to third parties during the development process, for example, in connection with managing existing improvements on the site prior to tenant terminations and demolition (such as commercial space) or in connection with providing services to third parties (such as the construction of shared infrastructure or other improvements); and
we may incur liability if our communities are not constructed and operated in compliance with the accessibility provisions of the Americans with Disabilities Acts, the Fair Housing Act or other federal, state or local requirements. Noncompliance could result in imposition of fines, an award of damages to private litigants, and a requirement that we undertake structural modifications to remedy the noncompliance.
We estimate construction costs based on market conditions at the time we prepare our budgets, and our projections include changes that we anticipate but cannot predict with certainty. Construction costs may increase, particularly for labor and certain materials and, for some of our Development Communities and Development Rights (as defined below), the total construction costs may be higher than the original budget. Total capitalized cost includes all capitalized costs incurred and projected to be incurred to develop or redevelop a community, determined in accordance with GAAP, including:
land and/or property acquisition costs;
fees paid to secure air rights and/or tax abatements;
construction or reconstruction costs;
costs of environmental remediation;
real estate taxes;
capitalized interest and insurance;
loan fees;
permits;
professional fees;

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allocated development or redevelopment overhead; and
other regulatory fees.
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 or redevelopment communities complete lease-up will be sufficient to fully offset the effects of any increased construction or reconstruction costs.
Unfavorable changes in market and economic conditions could adversely affect occupancy, rental rates, operating expenses, and the overall market value of our assets, including joint ventures and investments in the Funds.
Local conditions in our markets significantly affect occupancy, rental rates and the operating performance of our communities. The risks that may adversely affect conditions in those markets include the following:
plant closings, industry slowdowns and other factors that adversely affect the local economy;
an oversupply of, or a reduced demand for, apartment homes;
a decline in household formation or employment or lack of employment growth;
the inability or unwillingness of residents to pay rent increases;
rent control or rent stabilization laws, or other laws regulating housing, that could prevent us from raising rents to offset increases in operating costs; and
economic conditions that could cause an increase in our operating expenses, such as increases in property taxes, utilities, compensation of on-site associates and routine maintenance.
Changes in applicable laws, or noncompliance with applicable laws, could adversely affect our operations or expose us to liability.
We must develop, construct and operate our communities in compliance with numerous federal, state and local laws and regulations, some of which may conflict with one another or be subject to limited judicial or regulatory interpretations. These laws and regulations may include zoning laws, building codes, landlord tenant laws and other laws generally applicable to business operations. Noncompliance with laws could expose us to liability.
Lower revenue growth or significant unanticipated expenditures may result from our need to comply with changes in (i) laws imposing remediation requirements and the potential liability for environmental conditions existing on properties or the restrictions on discharges or other conditions, (ii) rent control or rent stabilization laws or other residential landlord/tenant laws, or (iii) other governmental rules and regulations or enforcement policies affecting the development, use and operation of our communities, including changes to building codes and fire and life-safety codes.
Short-term leases expose us to the effects of declining market rents.
Substantially all of our apartment leases are for a term of one year or less. Because these leases generally permit the residents to leave at the end of the lease term without penalty, our rental revenues are impacted by declines in market rents more quickly than if our leases were for longer terms.
Competition could limit our ability to lease apartment homes or increase or maintain rents.
Our apartment communities compete with other housing alternatives to attract residents, including other rental apartments, condominiums and single-family homes that are available for rent, as well as new and existing condominiums and single-family homes for sale. Competitive residential housing in a particular area could adversely affect our ability to lease apartment homes and to increase or maintain rental rates.
Attractive investment opportunities may not be available, which could adversely affect our profitability.
We expect that other real estate investors, including insurance companies, pension funds, other REITs and other well-capitalized investors, will compete with us to acquire existing properties and to develop new properties. This competition could increase prices for properties of the type we would likely pursue and adversely affect our profitability.

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Capital and credit market conditions may adversely affect our access to various sources of capital and/or the cost of capital, which could impact our business activities, dividends, earnings, and common stock price, among other things.
In periods when the capital and credit markets experience significant volatility, the amounts, sources and cost of capital available to us may be adversely affected. We primarily use external financing to fund construction and to refinance indebtedness as it matures. If sufficient sources of external financing are not available to us on cost effective terms, we could be forced to limit our development and redevelopment activity and/or take other actions to fund our business activities and repayment of debt, such as selling assets, reducing our cash dividend or paying out less than 100% of our taxable income. To the extent that we are able and/or choose to access capital at a higher cost than we have experienced in recent years (reflected in higher interest rates for debt financing or a lower stock price for equity financing) our earnings per share and cash flows could be adversely affected. In addition, the price of our common stock may fluctuate significantly and/or decline in a high interest rate or volatile economic environment. We believe that the lenders under our Credit Facility will fulfill their lending obligations thereunder, but if economic conditions deteriorate, there can be no assurance that the ability of those lenders to fulfill their obligations would not be adversely impacted.
Insufficient cash flow could affect our debt financing and create refinancing risk.
We are subject to the risks associated with debt financing, including the risk that our cash flow will be insufficient to meet required payments of principal and interest. In this regard, we note that in order for us to continue to qualify as a REIT, we are required to annually distribute dividends generally equal to at least 90% of our REIT taxable income, computed without regard to the dividends paid deduction and our net capital gain. This requirement limits the amount of our cash flow available to meet required principal and interest payments. The principal outstanding balance on a portion of our debt will not be fully amortized prior to its maturity. Although we may be able to repay our debt by using our cash flows, we cannot assure you that we will have sufficient cash flows available to make all required principal payments. Therefore, we may need to refinance at least a portion of our outstanding debt as it matures. There is a risk that we may not be able to refinance existing debt or that a refinancing will not be done on as favorable terms; either of these outcomes could have a material adverse effect on our financial condition and results of operations.
Rising interest rates could increase interest costs and could affect the market price of our common stock.
We currently have, and may in the future incur, contractual variable interest rate debt. In addition, we regularly seek access to both fixed and variable rate debt financing to repay maturing debt and to finance our development and redevelopment activity. Accordingly, if interest rates increase, our interest costs will also rise, unless we have made arrangements that hedge the risk of rising interest rates. In addition, an increase in market interest rates may lead purchasers of our common stock to demand a greater annual dividend yield, which could adversely affect the market price of our common stock.
Bond financing and zoning compliance requirements could limit our income, restrict the use of communities and cause favorable financing to become unavailable.
We have financed some of our apartment communities with obligations issued by local government agencies because the interest paid to the holders of this debt is generally exempt from federal income taxes and, therefore, the interest rate is generally more favorable to us. These obligations are commonly referred to as "tax-exempt bonds" and generally must be secured by mortgages on our communities. As a condition to obtaining tax-exempt financing, or on occasion as a condition to obtaining favorable zoning in some jurisdictions, we will commit to make some of the apartments in a community available to households whose income does not exceed certain thresholds (e.g., 50% or 80% of area median income), or who meet other qualifying tests. As of December 31, 2014, approximately 6.0% of our apartment homes at current operating communities were under income limitations such as these. These commitments, which may run without expiration or may expire after a period of time (such as 15 or 20 years) may limit our ability to raise rents and, in consequence, can also adversely affect the value of the communities subject to these restrictions.
In addition, some of our tax-exempt bond financing documents require us to obtain a guarantee from a financial institution of payment of the principal of, and interest on, the bonds. The guarantee may take the form of a letter of credit, surety bond, guarantee agreement or other additional collateral. If the financial institution defaults in its guarantee obligations, or if we are unable to renew the applicable guarantee or otherwise post satisfactory collateral, a default will occur under the applicable tax-exempt bonds and the community could be foreclosed upon if we do not redeem the bonds.
Risks related to indebtedness.
We have a Credit Facility with a syndicate of commercial banks. Our organizational documents do not limit the amount or percentage of indebtedness that may be incurred. Accordingly, subject to compliance with outstanding debt covenants, we could incur more debt, resulting in an increased risk of default on our obligations and an increase in debt service requirements that could adversely affect our financial condition and results of operations.

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The mortgages on those of our properties that are subject to secured debt, our Credit Facility and the indenture under which a substantial portion of our debt was issued contain customary restrictions, requirements and other limitations, as well as certain financial and operating covenants including maintenance of certain financial ratios. Maintaining compliance with these restrictions could limit our flexibility. A default in these requirements, if uncured, could result in a requirement that we repay indebtedness, which could severely affect our liquidity and increase our financing costs. Refer to Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" for further discussion.
The mortgages on those of our properties subject to secured debt generally include provisions which stipulate a prepayment penalty or payment that we will be obligated to pay in the event that we elect to repay the mortgage note prior to the earlier of (i) the stated maturity of the note, or (ii) the date at which the mortgage note is prepayable without such penalty or payment. If we elect to repay some or all of the outstanding principal balance for our mortgage notes, we may incur prepayment penalties or payments under these provisions which could adversely affect our results of operations.
Failure to maintain our current credit ratings could adversely affect our cost of funds, related margins, liquidity and access to capital markets.
There are two major debt rating agencies that routinely evaluate and rate our debt. Their ratings are based on a number of factors, which include their assessment of our financial strength, liquidity, capital structure, asset quality, amount of real estate under development, and sustainability of cash flow and earnings, among other factors. If market conditions change, we may not be able to maintain our current credit ratings, which could adversely affect our cost of funds and related margins, liquidity and access to capital markets.
Debt financing may not be available and equity issuances could be dilutive to our stockholders.
Our ability to execute our business strategy depends on our access to an appropriate blend of debt and equity financing. Debt financing may not be available in sufficient amounts or on favorable terms. If we issue additional equity securities, the interests of existing stockholders could be diluted.
Failure to generate sufficient revenue or other liquidity needs could limit cash flow available for distributions to stockholders.
A decrease in rental revenue, or liquidity needs such as the repayment of indebtedness or funding of our development activities, could have an adverse effect on our ability to pay distributions to our stockholders. Significant expenditures associated with each community such as debt service payments, if any, real estate taxes, insurance and maintenance costs are generally not reduced when circumstances cause a reduction in income from a community.
The form, timing and/or amount of dividend distributions in future periods may vary and be impacted by economic and other considerations.
The form, timing and/or amount of 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 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.
We may choose to pay dividends in our own stock, in which case stockholders may be required to pay tax in excess of the cash they receive.
We may distribute taxable dividends that are payable in part in our stock, as we did in the fourth quarter of 2008. Taxable stockholders receiving such dividends will be required to include the full amount of the dividend as income to the extent of our current and accumulated earnings and profits for federal income tax purposes. As a result, a U.S. stockholder may be required to pay tax with respect to such dividends in excess of the cash received. If a U.S. stockholder sells the stock it receives as a dividend in order to pay this tax, the sales proceeds may be less than the amount included in income with respect to the dividend, depending on the market price of our stock at the time of the sale. Furthermore, with respect to non-U.S. stockholders, we may be required to withhold U.S. tax with respect to such dividends, including in respect of all or a portion of such dividend that is payable in stock. In addition, the trading price of our stock would experience downward pressure if a significant number of our stockholders sell shares of our stock in order to pay taxes owed on dividends.

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Difficulty of selling apartment communities could limit liquidity and financial flexibility.
Federal tax laws may limit our ability to earn a gain on the sale of a community (unless we own it through a subsidiary which will incur a taxable gain upon sale) if we are found to have held, acquired or developed the community primarily with the intent to resell the community, and this limitation may affect our ability to sell communities without adversely affecting returns to our stockholders. In addition, real estate in our markets can at times be difficult to sell quickly at prices we find acceptable. These potential difficulties in selling real estate in our markets may limit our ability to change or reduce the apartment communities in our portfolio promptly in response to changes in economic or other conditions.
Acquisitions may not yield anticipated results.
Our business strategy includes acquiring as well as developing communities. Our acquisition activities and their success may be exposed to the following risks:
an acquired property may fail to perform as we expected in analyzing our investment; and
our estimate of the costs of repositioning or redeveloping an acquired property may prove inaccurate.
Failure to succeed in new markets, or with new brands and community formats, or in activities other than the development, ownership and operation of residential rental communities may have adverse consequences.
We may from time to time commence development activity or make acquisitions outside of our existing market areas if appropriate opportunities arise. Our historical experience in our existing markets in developing, owning and operating rental communities does not ensure that we will be able to operate successfully in new markets, should we choose to enter them. We may be exposed to a variety of risks if we choose to enter new markets, including an inability to accurately evaluate local apartment market conditions; an inability to obtain land for development or to identify appropriate acquisition opportunities; an inability to hire and retain key personnel; and lack of familiarity with local governmental and permitting procedures.
Although we are primarily in the multifamily business, we also own and lease ancillary retail space when a retail component represents the best use of the space, as is often the case with large urban in-fill developments. We also may engage or have an interest in for-sale activity. We may be unsuccessful in owning and leasing retail space at our communities or in developing real estate with the intent to sell, which could have an adverse effect on our results of operations.
We are currently implementing two new brands of communities that target various customer preferences. We cannot assure that these brands will be successful or that our costs in developing and implementing these brands will result in incremental revenue and earnings.
Land we hold with no current intent to develop may be subject to future impairment charges.
We own parcels of land that we do not currently intend to develop. As discussed in Item 2. "Communities—Other Land and Real Estate Assets" in the event that the fair market value of a parcel changes such that we determine that the carrying basis of the parcel reflected in our financial statements is greater than the parcel's then current fair value, less costs to dispose, we would be subject to an impairment charge, which would reduce our net income.
We are exposed to various risks from our real estate activity through joint ventures.
Instead of acquiring or developing apartment communities directly, at times we invest as a partner or a co-venturer. Joint venture investments (including investments through partnerships or limited liability companies) involve risks, including the possibility that our partner might become insolvent or otherwise refuse to make capital contributions when due; that we may be responsible to our partner for indemnifiable losses; that our partner might at any time have business goals that are inconsistent with ours; and that our partner may be in a position to take action or withhold consent contrary to our instructions or requests. Frequently, we and our partner may each have the right to trigger a buy-sell arrangement, that could cause us to sell our interest, or acquire our partner's interest, at a time when we otherwise would not have initiated such a transaction.
We are exposed to risks associated with investment in and management of discretionary real estate investment funds.
We formed Fund I and Fund II, in which we have an equity interest of 15.2% and 31.3%, and as part of the Archstone Acquisition we acquired equity interests in the U.S. Fund and the AC JV of 28.6% and 20.0%, respectively, which, through wholly-owned subsidiaries, we manage as the general partner and managing member and in which at December 31, 2014 we have an aggregate equity investment, excluding costs incurred in excess of our equity in the underlying net assets of each respective fund, of approximately $250,024,000, net of distributions to us. The investment periods for Fund I, Fund II and the U.S. Fund are over, and Fund I has a term that expires in March 2015. The Funds present risks, including the following:

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our subsidiaries that are the general partners of the Funds are generally liable, under partnership law, for the debts and obligations of the respective Funds, subject to certain exculpation and indemnification rights pursuant to the terms of the partnership agreement of the Funds;
investors in the Funds holding a majority of the partnership interests may remove us as the general partner without cause, in the case of Fund I and Fund II, subject to our right to receive compensation for an additional period of management fees after such removal and our right to acquire one of the properties then held by such Funds;
while we have broad discretion to manage the Funds, the investors or an advisory committee comprised of representatives of the investors must approve certain matters, and as a result we may be unable to cause the Funds to implement certain decisions that we consider beneficial; and
we may be liable and/or our status as a REIT may be jeopardized if either the Funds, or the REIT entities associated with the Funds and/or the U.S. Fund and/or AC JV, fail to comply with various tax or other regulatory matters.
The governance provisions of our joint ventures with Equity Residential could adversely affect our flexibility in dealing with such joint venture assets and liabilities.
In connection with the Archstone Acquisition, we created joint ventures with Equity Residential that manage certain of the acquired assets and liabilities. These structures involve participation in the ventures by Equity Residential whose interests and rights may not be the same as ours. Joint ownership of an investment in real estate involves risks not associated with direct ownership of real estate, including the risk that Equity Residential may at any time have economic or other business interests or goals which become inconsistent with our business interests or goals, including inconsistent goals relating to the sale of properties held in the joint ventures or the timing of the termination and liquidation of the joint ventures. Under the form for the joint venture arrangements, neither we nor Equity Residential expect to individually have the sole power to control the ventures, and an impasse could occur, which could adversely affect the applicable joint venture and decrease potential returns to us and our investors.
We rely on information technology in our operations, and any breach, interruption or security failure of that technology could have a negative impact on our business, results of operations, financial condition and/or reputation.
Information security risks have generally increased in recent years due to the rise in new technologies and the increased sophistication and activities of perpetrators of cyber attacks.
We collect and hold personally identifiable information of our residents and prospective residents in connection with our leasing and property management activities, and we collect and hold personally identifiable information of our associates in connection with their employment. In addition, we engage third party service providers that may have access to such personally identifiable information in connection with providing necessary information technology and security and other business services to us.
We address potential breaches or disclosure of this confidential personally identifiable information by implementing a variety of security measures intended to protect the confidentiality and security of this information including (among others) engaging reputable, recognized firms to help us design and maintain our information technology and data security systems, including testing and verification of their proper and secure operations on a periodic basis. We also maintain cyber risk insurance to cover certain risks arising out of data and network breaches.
However, there can be no assurance that we will be able to prevent unauthorized access to this information. Any failure in or breach of our operational or information security systems, or those of our third party service providers, as a result of cyber attacks or information security breaches could result in a wide range of potentially serious harm to our business operations and financial prospects, including (among others) disruption of our business and operations, disclosure or misuse of confidential or proprietary information (including personal information of our residents and/or associates), damage to our reputation, and/or potentially significant legal and/or financial liabilities and penalties.
We are exposed to risks that are either uninsurable, not economically insurable or in excess of our insurance coverage, including risks from natural disasters such as earthquakes and severe weather.
Earthquake risk. As further described in Item 2. "Communities—Insurance and Risk of Uninsured Losses" many of our West Coast communities are located in the general vicinity of active earthquake faults. We cannot assure you that an earthquake would not cause damage or losses greater than insured levels. In the event of a loss in excess of insured limits, 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.

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Insurance coverage for earthquakes can be costly and in limited supply. As a result, we may experience shortages in desired coverage levels if market conditions are such that insurance is not available or the cost of insurance makes it, in management's view, economically impractical.
Severe or inclement weather risk. Particularly in New England and the Metro New York/New Jersey area, we are exposed to risks associated with inclement or severe weather, including hurricanes, severe winter storms and coastal flooding. Severe or inclement weather may result in increased costs, such as losses and costs resulting from repair of water and wind damage, removal of snow and ice, and, in the case of our development communities, delays in construction that result in increased construction costs and delays in realizing rental revenues from a community. In addition, severe or inclement weather could increase the need for maintenance of our communities.
Where we have a geographic concentration of exposures, a single catastrophe that affects a region, such as an earthquake that affects the West Coast or a hurricane or severe winter storm that affects the Mid-Atlantic, Metro New York/New Jersey or New England regions, may have a significant negative effect on our financial condition and results of operations.
Terrorism risk. We have significant investments in large metropolitan markets, such as the Metro New York/New Jersey and Washington, D.C. markets, that have in the past been or may in the future be the target of actual or threatened terrorist attacks. Future terrorist attacks in these markets could directly or indirectly damage our communities, both physically and financially, or cause losses that exceed our insurance coverage that could have a material adverse effect on our business, financial condition and results of operations.
A significant uninsured property or liability loss could have a material adverse effect on our financial condition and results of operations.
In addition to the earthquake insurance discussed above, we carry commercial general liability insurance, property insurance and terrorism insurance with respect to our communities on terms we consider commercially reasonable. There are, however, certain types of losses (such as losses arising from acts of war) that are not insured, in full or in part, because they are either uninsurable or the cost of insurance makes it, in management's view, economically impractical. If an uninsured property loss or a property loss in excess of insured limits were to occur, we could lose our capital invested in a community, as well as the anticipated future revenues from such community. We would also continue to be obligated to repay any mortgage indebtedness or other obligations related to the community. If an uninsured liability to a third party were to occur, we would incur the cost of defense and settlement with, or court ordered damages to, that third party. A significant uninsured property or liability loss could materially and adversely affect our business and our financial condition and results of operations.
We may incur costs due to environmental contamination or non-compliance.
Under various federal, state and local environmental and public health laws, regulations and ordinances, we may be required, regardless of knowledge or responsibility, to investigate and remediate the effects of hazardous or toxic substances or petroleum product releases at our properties (including in some cases natural substances such as methane and radon gas) and may be held liable under these laws or common law to a governmental entity or to third parties for property, personal injury or natural resources damages and for investigation and remediation costs incurred as a result of the contamination. These damages and costs may be substantial and may exceed any insurance coverage we have for such events. The presence of these substances, or the failure to properly remediate the contamination, may adversely affect our ability to borrow against, develop, sell or rent the affected property. In addition, some environmental laws create or allow a government agency to impose a lien on the contaminated site in favor of the government for damages and costs it incurs as a result of the contamination.
The development, construction and operation of our communities are subject to regulations and permitting under various federal, state and local laws, regulations and ordinances, which regulate matters including wetlands protection, storm water runoff and wastewater discharge. These laws and regulations may impose restrictions on the manner in which our communities may be developed, and noncompliance with these laws and regulations may subject us to fines and penalties. We do not currently anticipate that we will incur any material liabilities as a result of noncompliance with these laws.
Certain federal, state and local laws, regulations and ordinances govern the removal, encapsulation or disturbance of asbestos containing materials ("ACMs") when such materials are in poor condition or in the event of renovation or demolition of a building. These laws and the common law may impose liability for release of ACMs and may allow third parties to seek recovery from owners or operators of real properties for personal injury associated with exposure to ACMs. We are not aware that any ACMs were used in the construction of the communities we developed. ACMs were, however, used in the construction of a number of the communities that we acquired. We implement an operations and maintenance program at each of the communities at which ACMs are detected. We do not currently anticipate that we will incur any material liabilities as a result of the presence of ACMs at our communities.

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We are aware that some of our communities have lead paint and have implemented an operations and maintenance program at each of those communities. We do not currently anticipate that we will incur any material liabilities as a result of the presence of lead paint at our communities.
Environmental agencies and third parties may assert claims for remediation or personal injury based on the alleged actual or potential intrusion into buildings of chemical vapors from soils or groundwater underlying or in the vicinity of those buildings or on nearby properties. We currently do not anticipate that we will incur any material liabilities as a result of vapor intrusion at our communities.
All of our stabilized operating communities, and all of the communities that we are currently developing, 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, together with subsurface assessments conducted on some properties, have not revealed, and we are not otherwise aware of, any environmental conditions that we believe would have a material adverse effect on our business, assets, financial condition or results of operations. In connection with our ownership, operation and development of communities, from time to time we undertake substantial remedial action in response to the presence of subsurface or other contaminants, including contaminants in soil, groundwater and soil vapor beneath or affecting our buildings. In some cases, an indemnity exists upon which we may be able to rely if environmental liability arises from the contamination or remediation costs exceed estimates. There can be no assurance, however, that all necessary remediation actions have been or will be undertaken at our properties or that we will be indemnified, in full or at all, in the event that environmental liability arises.
Mold growth may occur when excessive moisture accumulates in buildings or on building materials, particularly if the moisture problem remains undiscovered or is not addressed over a period of time. Although the occurrence of mold at multifamily and other structures, and the need to remediate such mold, is not a new phenomenon, there has been increased awareness in recent years that certain molds may in some instances lead to adverse health effects, including allergic or other reactions. To help limit mold growth, we educate residents about the importance of adequate ventilation and request or require that they notify us when they see mold or excessive moisture. We have established procedures for promptly addressing and remediating mold or excessive moisture from apartment homes when we become aware of its presence regardless of whether we or the resident believe a health risk is presented. However, we cannot provide assurance that mold or excessive moisture will be detected and remediated in a timely manner. If a significant mold problem arises at one of our communities, we could be required to undertake a costly remediation program to contain or remove the mold from the affected community and could be exposed to other liabilities that may exceed any applicable insurance coverage.
Additionally, we have 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 relate to the release or presence of hazardous or toxic substances or petroleum products at such properties. We are not aware of any material environmental liabilities with respect to properties managed or developed by us or our predecessors for such third parties.
We cannot assure you that:
the environmental assessments described above have 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 have developed since the 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 our communities;
future uses or conditions, including, without limitation, changes in applicable environmental laws and regulations, will not result in the imposition of environmental liability; and
no environmental liabilities will arise at communities that we have sold for which we may have liability.
Our success depends on key personnel whose continued service is not guaranteed.
Our success depends in part on our ability to attract and retain the services of executive officers and other personnel. Our executive officers make important capital allocation decisions or recommendations to our Board of Directors from among the opportunities identified by our regional offices. There is substantial competition for qualified personnel in the real estate industry, and the loss of several of our key personnel could adversely affect the Company.

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Failure to qualify as a REIT would cause us to be taxed as a corporation, which would significantly reduce funds available for distribution to stockholders.
If we fail to qualify as a REIT for federal income tax purposes, we will be subject to federal income tax on our taxable income at regular corporate rates (subject to any applicable alternative minimum tax). In addition, unless we are entitled to relief under applicable statutory provisions, we would be ineligible to make an election for treatment as a REIT for the four taxable years following the year in which we lose our qualification. The additional tax liability resulting from the failure to qualify as a REIT would significantly reduce or eliminate the amount of funds available for distribution to our stockholders. Furthermore, we would no longer be required to make distributions to our stockholders. Thus, our failure to qualify as a REIT could also impair our ability to expand our business and raise capital, and would adversely affect the value of our common stock.
We believe that we are organized and qualified as a REIT, and we intend to operate in a manner that will allow us to continue to qualify as a REIT. However, we cannot assure you that we are qualified as a REIT, or that we will remain qualified in the future. This is because qualification as a REIT involves the application of highly technical and complex provisions of the Internal Revenue Code for which there are only limited judicial and administrative interpretations and involves the determination of a variety of factual matters and circumstances not entirely within our control. In addition, future legislation, new regulations, administrative interpretations or court decisions may significantly change the tax laws or the application of the tax laws with respect to qualification as a REIT for federal income tax purposes or the federal income tax consequences of this qualification.
Even if we qualify as a REIT, we will be subject to certain federal, state and local taxes on our income and property and on taxable income that we do not distribute to our shareholders. In addition, we may through our taxable REIT subsidiaries hold certain assets and engage in certain activities that a REIT could not engage in directly. We also use taxable REIT subsidiaries to hold certain assets that we believe would be subject to the 100% prohibited transaction tax if sold at a gain outside of a taxable REIT subsidiary. Our taxable REIT subsidiaries are subject to U.S. tax as regular corporations. The Archstone Acquisition increased the amount of assets held through our taxable REIT subsidiaries.
The ability of our stockholders to control our policies and effect a change of control of our company is limited by certain provisions of our charter and bylaws and by Maryland law.
There are provisions in our charter and bylaws that may discourage a third party from making a proposal to acquire us, even if some of our stockholders might consider the proposal to be in their best interests. These provisions include the following:
Our charter authorizes our Board of Directors to issue up to 50,000,000 shares of preferred stock without stockholder approval and to establish the preferences and rights, including voting rights, of any series of preferred stock issued. The Board of Directors may issue preferred stock without stockholder approval, which could allow the Board to issue one or more classes or series of preferred stock that could discourage or delay a tender offer or a change in control.
To maintain our qualification as a REIT for federal income tax purposes, not more than 50% in value of our outstanding stock may be owned, directly or indirectly, by or for five or fewer individuals at any time during the last half of any taxable year. To maintain this qualification, and/or to address other concerns about concentrations of ownership of our stock, our charter generally prohibits ownership (directly, indirectly by virtue of the attribution provisions of the Code, or beneficially as defined in Section 13 of the Securities Exchange Act) by any single stockholder of more than 9.8% of the issued and outstanding shares of any class or series of our stock. In general, under our charter, pension plans and mutual funds may directly and beneficially own up to 15% of the outstanding shares of any class or series of stock. Under our charter, our Board of Directors may in its sole discretion waive or modify the ownership limit for one or more persons, but is not required to do so even if such waiver would not affect our qualification as a REIT. These ownership limits may prevent or delay a change in control and, as a result, could adversely affect our stockholders' ability to realize a premium for their shares of common stock.
As a Maryland corporation, we are subject to the provisions of the Maryland General Corporation Law. Maryland law imposes restrictions on some business combinations and requires compliance with statutory procedures before some mergers and acquisitions may occur, which may delay or prevent offers to acquire us or increase the difficulty of completing any offers, even if they are in our stockholders' best interests. In addition, other provisions of the Maryland General Corporation Law permit the Board of Directors to make elections and to take actions without stockholder approval (such as classifying our Board such that the entire Board is not up for re-election annually) that, if made or taken, could have the effect of discouraging or delaying a change in control.


16

Table of Contents

ITEM 1B.    UNRESOLVED STAFF COMMENTS
None.
ITEM 2.    COMMUNITIES
Our real estate investments consist primarily of current operating apartment communities, communities in various stages of development ("Development Communities") and Development Rights (as defined below). Our current operating communities are further distinguished as Established Communities, Other Stabilized Communities, Lease-Up Communities and Redevelopment Communities, and exclude communities owned by the Residual JV. While we generally establish the classification of communities on an annual basis, we intend to update the classification of communities during the calendar year to the extent that our plans with regard to the disposition or redevelopment of a community change during the year.
The following is a description of each category:
Current Communities are categorized as Established, Other Stabilized, Lease-Up or Redevelopment according to the following attributes:
Established Communities (also known as Same Store Communities) are consolidated communities where a comparison of operating results from the prior year period to the current year period is meaningful, as these communities were owned and had stabilized occupancy as of the beginning of the prior year period. The Company generally establishes the classification of communities as of the beginning of the calendar year; however, in 2014, effective April 1, 2014, the Company updated its classification of communities primarily to include communities acquired as part of the Archstone Acquisition in the results of operations of our Established Community portfolio for the balance of the year. The Established Communities for the year ended December 31, 2014 are communities that are consolidated for financial reporting purposes, had stabilized occupancy as of January 1, 2013, are not conducting or planning to conduct substantial redevelopment activities, and are not held for sale or planned for disposition within the current year period. Any discussion of results of operations for the Established Communities for the year ended December 31, 2014 excludes communities acquired as part of the Archstone Acquisition. The Established Communities as of December 31, 2014, as updated effective April 1, 2014, are communities that are consolidated for financial reporting purposes, had stabilized occupancy as of April 1, 2013, are not conducting or planning to conduct substantial redevelopment activities, and are not held for sale or planned for disposition within the current year period. Established Communities as of December 31, 2014 include most of the stabilized operating communities acquired as part of the Archstone Acquisition. A community is considered to have stabilized occupancy at the earlier of (i) attainment of 95% physical occupancy or (ii) the one-year anniversary of completion of development or redevelopment.
Other Stabilized Communities includes all other completed communities that we own or have a direct or indirect ownership interest in, and that have stabilized occupancy, as defined above. Other Stabilized Communities do not include communities that are conducting or planning to conduct substantial redevelopment activities within the current year. Other Stabilized Communities for the year ended December 31, 2014 include the stabilized operating communities acquired as part of the Archstone Acquisition.
Lease-Up Communities are communities where construction has been complete for less than one year and where physical occupancy has not reached 95%.
Redevelopment Communities are communities where substantial redevelopment is in progress or is planned to begin during the current year. Redevelopment is considered substantial when capital invested during the reconstruction effort is expected to exceed the lesser of $5,000,000 or 10% of the community's pre-redevelopment basis and is expected to have a material impact on the operations of the community, including occupancy levels and future rental rates.
Development Communities are communities that are under construction and for which a certificate or certificates of occupancy for the entire community have 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 either have an option to acquire land or enter into a leasehold interest, for which we are the buyer under a long-term conditional contract to purchase land, where we control the land through a ground lease or own land to develop a new community, or where we are the designated developer in a public-private partnership. We capitalize related pre-development costs incurred in pursuit of new developments for which we currently believe future development is probable.
We currently lease our corporate headquarters located in Arlington, Virginia, as well as our other regional and administrative offices under operating leases.

17

Table of Contents

As of December 31, 2014, communities that we owned or held a direct or indirect interest in, excluding indirect interests associated with the Residual JV, were classified as follows:
 
Number of
communities
 
Number of
apartment homes
Current Communities
 

 
 

 
 
 
 
Established Communities (1):
 

 
 

New England
33

 
7,379

Metro NY/NJ (2)
33

 
11,611

Mid-Atlantic
22

 
7,108

Pacific Northwest
13

 
3,179

Northern California
29

 
8,519

Southern California
42

 
11,639

Total Established
172

 
49,435

 
 
 
 
Other Stabilized Communities:
 

 
 

New England
12

 
3,306

Metro NY/NJ
9

 
2,557

Mid-Atlantic
12

 
4,599

Pacific Northwest
2

 
396

Northern California
7

 
1,765

Southern California
12

 
4,640

Non-Core
2

 
474

Total Other Stabilized
56

 
17,737

 
 
 
 
Lease-Up Communities
15

 
3,853

 
 
 
 
Redevelopment Communities
8

 
2,938

 
 
 
 
Total Current Communities
251

 
73,963

 
 
 
 
Development Communities
26

 
8,524

 
 
 
 
Development Rights
37

 
10,384

____________________________
(1)
Reflects the community classification effective April 1, 2014, which includes most stabilized communities acquired as part of the Archstone Acquisition in our Established Communities portfolio.
(2)
Metro NY/NJ Established Communities includes 240 apartment homes which were destroyed and are uninhabitable as a result of the fire at Avalon at Edgewater in January 2015.
Our holdings under each of the above categories are discussed on the following pages.
We generally establish the composition of our Established Communities portfolio annually. Determined as of January 1 of each of the respective years, the Established Communities portfolio for the years ended December 31, 2014, 2013 and 2012, had 23, 19 and 11 communities added, respectively, and six, seven and 17 communities removed, respectively. The Company removes a community from its Established Communities portfolio for the upcoming year (and then generally maintains that designation) if the Company believes that planned activity for a community for the upcoming year will result in that community's expected operations not being comparable to the prior year period. The Company believes that a community's expected operations will not be comparable to the prior year period when it intends either (i) to undertake a significant capital renovation of the community, such that the Company would consider the community to be classified as a Redevelopment Community; or (ii) to dispose of a community through a sale or other disposition transaction. For the years ended December 31, 2014, 2013 and 2012, the Company removed four, five and 10 communities, respectively, from its Established Communities portfolio due to a reclassification to the Redevelopment Community portfolio on account of then current or expected redevelopment, and removed two, two and seven communities, respectively, from its Established Communities portfolio due to the planned disposition of the communities.

18

Table of Contents

Effective April 1, 2014, the Company updated its operating segments primarily to include communities acquired as part of the Archstone Acquisition in the results of operations of our Established Community portfolio for the balance of the year. The Established Communities portfolio as of December 31, 2014 added 43 stabilized communities to the Established Communities portfolio, primarily those acquired as part of the Archstone Acquisition, and removed one community from our Established Communities portfolio effective January 1, 2014, due to a reclassification to the Redevelopment Community portfolio.
Current Communities
Our Current Communities include garden-style apartment communities consisting of multi-story buildings in landscaped settings, as well as mid and high rise apartment communities in urban settings. As of January 31, 2015, our Current Communities consisted of 142 garden-style (of which 16 are mixed communities and/or include town homes), 21 high-rise and 89 mid-rise apartment communities.
Our communities generally offer a variety of quality amenities and features, which may include:
fully-equipped kitchens;
lofts and vaulted ceilings;
walk-in closets;
fireplaces;
patios/decks; and
modern appliances.
Other features at various communities may include:
swimming pools;
fitness centers;
tennis courts; and
wi-fi lounges.
As described in Item 1. "Business," we operate under three core brands Avalon, AVA and Eaves by Avalon. Our core "Avalon" brand focuses on upscale apartment living and high end amenities and services. "AVA" targets customers in high energy, transit-served urban neighborhoods and generally feature smaller apartments, many of which are designed for roommate living with an emphasis on modern design and a technology focus. "Eaves by Avalon" is targeted to the cost conscious, "value" segment in suburban areas. We believe that these brands allow us to further penetrate our existing markets by targeting our market by consumer preference and attitude as well as by location and price.
We also have an extensive and ongoing maintenance program to continually maintain and enhance our communities and apartment homes. 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 our mission of Enhancing the Lives of our Residents helps us achieve higher rental rates and occupancy levels while minimizing resident turnover and operating expenses.
Our Current Communities, excluding indirect interests associated with the Residual JV, are located in the following geographic markets:

19

Table of Contents

 
Number of
communities at
 
Number of
apartment homes at
 
Percentage of total
apartment homes at
 
1/31/2014
 
1/31/2015
 
1/31/2014
 
1/31/2015
 
1/31/2014
 
1/31/2015
New England
49

 
50

 
11,868

 
11,444

 
16.3
%
 
15.4
%
Boston, MA
34

 
36

 
8,518

 
8,555

 
11.7
%
 
11.5
%
Fairfield County, CT
15

 
14

 
3,350

 
2,889

 
4.6
%
 
3.9
%
 
 
 
 
 
 
 
 
 
 
 
 
Metro NY/NJ
45

 
47

 
14,676

 
15,258

 
20.1
%
 
20.6
%
New York City, NY
10

 
10

 
3,581

 
3,582

 
4.9
%
 
4.8
%
New York Suburban
17

 
19

 
5,039

 
5,554

 
6.9
%
 
7.5
%
New Jersey (1)
18

 
18

 
6,056

 
6,122

 
8.3
%
 
8.3
%
 
 
 
 
 
 
 
 
 
 
 
 
Mid-Atlantic
37

 
37

 
13,118

 
13,308

 
18.0
%
 
17.9
%
Washington Metro
37

 
37

 
13,118

 
13,308

 
18.0
%
 
17.9
%
 
 
 
 
 
 
 
 
 
 
 
 
Pacific Northwest
16

 
16

 
3,794

 
3,858

 
5.2
%
 
5.2
%
Seattle, WA
16

 
16

 
3,794

 
3,858

 
5.2
%
 
5.2
%
 
 
 
 
 
 
 
 
 
 
 
 
Northern California
37

 
41

 
11,104

 
11,974

 
15.3
%
 
16.1
%
Oakland-East Bay, CA
10

 
12

 
3,244

 
3,591

 
4.5
%
 
4.8
%
San Francisco, CA
14

 
15

 
3,207

 
3,480

 
4.4
%
 
4.7
%
San Jose, CA
13

 
14

 
4,653

 
4,903

 
6.4
%
 
6.6
%
 
 
 
 
 
 
 
 
 
 
 
 
Southern California
57

 
57

 
17,221

 
17,132

 
23.7
%
 
23.1
%
Los Angeles, CA
34

 
35

 
10,344

 
10,575

 
14.3
%
 
14.3
%
Orange County, CA
13

 
12

 
3,745

 
3,425

 
5.1
%
 
4.6
%
San Diego, CA
10

 
10

 
3,132

 
3,132

 
4.3
%
 
4.2
%
 
 
 
 
 
 
 
 
 
 
 
 
Non-Core
3

 
4

 
1,030

 
1,266

 
1.4
%
 
1.7
%
 
 
 
 
 
 
 
 
 
 
 
 
 
244

 
252

 
72,811

 
74,240

 
100.0
%
 
100.0
%
____________________________
(1)
New Jersey Current Communities includes 240 apartment homes which were destroyed and are uninhabitable as a result of the fire at Avalon at Edgewater in January 2015.
We manage and operate substantially all of our Current Communities. During the year ended December 31, 2014, we completed construction of 4,121 apartment homes in 17 communities and sold 3,234 apartment homes in 12 communities. The average age of our Current Communities, on a weighted average basis according to number of apartment homes, is 19.5 years. When adjusted to reflect redevelopment activity, as if redevelopment were a new construction completion date, the weighted average age of our Current Communities is 13.1 years.
Of the Current Communities, as of January 31, 2015, we owned (directly or through wholly-owned subsidiaries):
a full fee simple, or absolute, ownership interest in 225 operating communities, 12 of which are on land subject to land leases expiring in October 2026, November 2028, May 2041, July 2046, December 2061, September 2065, November 2067, April 2095, May 2105, September 2105, April 2106 and March 2142;
a general partnership interest and an indirect limited partnership interest in Fund I, Fund II, the U.S. Fund and the AC JV. Subsidiaries of Fund II own a fee simple interest in 10 operating communities, subsidiaries of the U.S. Fund own a fee simple interest in nine operating communities, and subsidiaries of the AC JV own a fee simple interest in three operating communities;
a general partnership interest in one partnership structured as a "DownREIT," as described more fully below, that owns one community; and
a membership interest in four limited liability companies, that each hold a fee simple interest in an operating community.

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Table of Contents

For some communities, a land lease is used to support tax advantaged structures that ultimately allow us to purchase the land upon lease expiration. We have options to purchase the underlying land for certain of the land leases for which we have an absolute ownership interest that expire in October 2026, November 2028 and April 2095.
We also hold, directly or through wholly-owned subsidiaries, the full fee simple ownership interest in 24 of the 26 Development Communities and a leasehold interest in two of the Development Communities with the land leases expiring in December 2086 and November 2106. The land lease expiring in 2086 provides an option for the Company to purchase the land at some point during the lease term.
In our partnership structured as a DownREIT, one of our wholly-owned subsidiaries is the general partner, and there are limited partners whose interest in the partnership is represented by units of limited partnership interest. Limited partners are entitled to receive an initial distribution before any distribution is made to the general partner. Under the partnership agreement for the DownREIT, the distributions per unit paid to the holders of units of limited partnership interests are equal to our current common stock dividend amount. The holders of units of limited partnership interest have the right to present all or some of their units for redemption for a cash amount as determined by the partnership agreement and based on the fair value of our common stock. In lieu of a cash redemption by the partnership, we may elect to acquire any unit presented for redemption for one share of our common stock or for such cash amount. As of January 31, 2015, there were 7,500 DownREIT partnership units outstanding. The DownREIT partnership is consolidated for financial reporting purposes.


21

Table of Contents

Profile of Current, Development and Unconsolidated Communities (1) (13)
 
 
 
 
 
 
Approx.
rentable area
(Sq. Ft.)
 
Year of
completion/
acquisition
 
Average
size
(Sq. Ft.)
 
Physical
occupancy
at
12/31/14
 
Average economic occupancy
 
Average rental rate
 
Financial
reporting
cost (5)
 
 
City and state
 
Number
of homes
 
 
 
 
 
2014
 
2013
 
$ per
Apt (4)
 
$ per
Sq. Ft.
 
CURRENT COMMUNITIES
 
 
 
 

 
 

 
 
 
 

 
 

 
 

 
 

 
 

 
 

 
 

NEW ENGLAND
 
 
 
 

 
 

 
 
 
 

 
 

 
 

 
 

 
 

 
 

 
 

Boston, MA
 
 
 
 

 
 

 
 
 
 

 
 

 
 

 
 

 
 

 
 

 
 

Avalon at Lexington
 
Lexington, MA
 
198

 
230,956

 
1994
 
1,166

 
88.9
%
 
93.8
%

95.1
%

$
2,213

 
$
1.90


$
23,922

Avalon Oaks
 
Wilmington, MA
 
204

 
229,932

 
1999
 
1,127

 
90.1
%
 
92.4
%

95.9
%

1,608

 
1.43


22,843

Eaves Quincy
 
Quincy, MA
 
245

 
224,538

 
1986/1995
 
916

 
96.3
%
 
94.6
%

96.5
%

1,674

 
1.83


25,688

Avalon Essex
 
Peabody, MA
 
154

 
198,478

 
2000
 
1,289

 
95.5
%
 
95.9
%

96.3
%

1,933

 
1.50


23,325

Avalon Oaks West
 
Wilmington, MA
 
120

 
133,376

 
2002
 
1,111

 
95.0
%
 
95.8
%

96.1
%

1,628

 
1.47


17,531

Avalon Orchards
 
Marlborough, MA
 
156

 
175,832

 
2002
 
1,127

 
92.3
%
 
95.3
%

96.6
%

1,713

 
1.52


22,963

Avalon at Newton Highlands (10)
 
Newton, MA
 
294

 
341,717

 
2003
 
1,162

 
96.9
%
 
96.4
%

96.2
%

2,611

 
2.25


60,052

Avalon at The Pinehills
 
Plymouth, MA
 
192

 
255,240

 
2004
 
1,329

 
92.7
%
 
95.3
%

97.0
%

2,084

 
1.57


37,460

Eaves Peabody
 
Peabody, MA
 
286

 
250,624

 
1962/2004
 
876

 
96.9
%
 
95.8
%

96.0
%

1,538

 
1.76


35,671

Avalon at Bedford Center
 
Bedford, MA
 
139

 
159,914

 
2006
 
1,150

 
96.4
%
 
97.4
%

96.4
%

2,113

 
1.84


25,143

Avalon Chestnut Hill
 
Chestnut Hill, MA
 
204

 
270,956

 
2007
 
1,328

 
98.0
%
 
97.2
%

96.6
%

3,056

 
2.30


62,382

Avalon Shrewsbury
 
Shrewsbury, MA
 
251

 
272,805

 
2007
 
1,087

 
95.2
%
 
94.4
%

96.1
%

1,598

 
1.47


36,517

Avalon at Lexington Hills
 
Lexington, MA
 
387

 
484,216

 
2008
 
1,251

 
93.0
%
 
95.9
%

95.8
%

2,452

 
1.96


88,956

Avalon Acton
 
Acton, MA
 
380

 
375,074

 
2008
 
987

 
94.5
%
 
95.0
%

96.7
%

1,636

 
1.66


63,305

Avalon Sharon
 
Sharon, MA
 
156

 
175,389

 
2008
 
1,124

 
99.4
%
 
94.9
%

97.3
%

1,937

 
1.72


30,510

Avalon at Center Place (12)
 
Providence, RI
 
225

 
222,835

 
1991/1997
 
990

 
96.9
%
 
95.2
%

96.1
%

2,679

 
2.70


37,046

Avalon at Hingham Shipyard
 
Hingham, MA
 
235

 
290,790

 
2009
 
1,237

 
94.0
%
 
94.1
%

95.3
%

2,469

 
2.00


54,282

Avalon Northborough
 
Northborough, MA
 
382

 
454,033

 
2009
 
1,189

 
96.6
%
 
94.2
%

94.5
%

1,778

 
1.50


60,614

Avalon Blue Hills
 
Randolph, MA
 
276

 
269,990

 
2009
 
978

 
96.4
%
 
95.3
%

94.7
%

1,563

 
1.60


45,926

Avalon Cohasset
 
Cohasset, MA
 
220

 
293,272

 
2012
 
1,333

 
93.2
%
 
93.0
%

94.2
%

2,097

 
1.57


55,051

Avalon Andover
 
Andover, MA
 
115

 
132,918

 
2012
 
1,156

 
92.1
%
 
92.8
%

94.4
%

1,926

 
1.67


26,179

Eaves Burlington
 
Burlington, MA
 
203

 
198,233

 
1988/2012
 
977

 
96.6
%
 
95.9
%
(2)
96.4
%

1,619

 
1.66


45,330

AVA Back Bay
 
Boston, MA
 
271

 
246,774

 
1968/1998
 
911

 
88.9
%
 
93.2
%

95.4
%

3,343

 
3.67

(2)
81,938

Avalon at Prudential Center II
 
Boston, MA
 
266

 
243,315

 
1968/1998
 
915

 
94.4
%
 
95.0
%

94.9
%

3,475

 
3.80


76,055

Avalon at Prudential Center I
 
Boston, MA
 
243

 
242,410

 
1968/1998
 
998

 
94.2
%
 
95.4
%

94.7
%

3,694

 
3.70


60,145

Avalon Burlington
 
Burlington, MA
 
312

 
315,545

 
1989/2013
 
1,011

 
97.1
%
 
93.2
%

91.8
%
(3)
1,824

 
1.80


81,743

Avalon Bear Hill
 
Waltham, MA
 
324

 
391,394

 
1999/2013
 
1,208

 
96.0
%
 
94.2
%

93.4
%
(3)
2,529

 
2.09


129,459

Eaves North Quincy
 
Quincy, MA
 
224

 
157,908

 
1977/2013
 
705

 
95.1
%
 
96.3
%

95.1
%
(3)
1,792

 
2.54


53,831

Avalon Natick
 
Natick, MA
 
407

 
362,744

 
2013
 
891

 
96.3
%
 
96.5
%

46.1
%
(3)
1,908

 
2.14


80,230

Avalon Canton at Blue Hills
 
Canton, MA
 
196

 
235,465

 
2014
 
1,201

 
98.0
%
 
58.8
%
(3)
N/A

(3)
1,847

 
1.54

(3)
39,753

Avalon Exeter (12)
 
Andover, MA
 
187

 
200,641

 
2014
 
1,073

 
74.7
%
 
28.0
%
(3)
N/A

(3)
5,611

 
5.23

(3)
124,430

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fairfield-New Haven, CT
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Eaves Trumbull
 
Trumbull, CT
 
340

 
379,382

 
1997
 
1,116

 
95.0
%
 
95.6
%

96.0
%

1,786

 
1.60


39,211

Eaves Stamford
 
Stamford, CT
 
238

 
222,165

 
1991
 
933

 
92.0
%
 
94.3
%

96.1
%
(2)
2,177

 
2.33


42,697


22

Table of Contents

 
 
 
 
 
 
Approx.
rentable area
(Sq. Ft.)
 
Year of
completion/
acquisition
 
Average
size
(Sq. Ft.)
 
Physical
occupancy
at
12/31/14
 
Average economic occupancy
 
Average rental rate
 
Financial
reporting
cost (5)
 
 
City and state
 
Number
of homes
 
 
 
 
 
2014
 
2013
 
$ per
Apt (4)
 
$ per
Sq. Ft.
 
Avalon Wilton I
 
Wilton, CT
 
102

 
158,259

 
1997
 
1,552

 
99.0
%
 
96.0
%

95.5
%

3,330

 
2.15


22,621

Avalon on Stamford Harbor
 
Stamford, CT
 
323

 
322,461

 
2003
 
998

 
96.0
%
 
96.1
%

95.7
%

2,575

 
2.58


64,497

Avalon New Canaan
 
New Canaan, CT
 
104

 
132,080

 
2002
 
1,270

 
90.4
%
 
92.8
%

93.7
%

3,287

 
2.59


25,878

AVA Stamford
 
Stamford, CT
 
306

 
315,380

 
2002/2002
 
1,031

 
96.4
%
 
95.5
%

95.5
%

2,344

 
2.27


74,920

Avalon Danbury
 
Danbury, CT
 
234

 
235,320

 
2005
 
1,006

 
96.6
%
 
96.4
%

95.9
%

1,720

 
1.71


36,241

Avalon Darien
 
Darien, CT
 
189

 
242,675

 
2004
 
1,284

 
96.3
%
 
94.7
%

95.8
%

2,841

 
2.21


43,274

Avalon Milford I
 
Milford, CT
 
246

 
217,077

 
2004
 
882

 
97.2
%
 
95.5
%

96.0
%

1,605

 
1.82


32,170

Avalon Huntington
 
Shelton, CT
 
99

 
139,869

 
2008
 
1,413

 
96.9
%
 
96.7
%

97.3
%

2,306

 
1.63


25,406

Avalon Norwalk
 
Norwalk, CT
 
311

 
310,629

 
2011
 
999

 
95.5
%
 
96.3
%

96.7
%

2,065

 
2.07


74,255

Avalon Wilton II
 
Wilton, CT
 
100

 
128,716

 
2011
 
1,287

 
98.0
%
 
96.6
%

95.6
%

2,430

 
1.89


30,368

Avalon Shelton III
 
Shelton, CT
 
250

 
249,190

 
2013
 
997

 
93.6
%
 
94.5
%

41.8
%
(3)
1,702

 
1.71


48,719

Avalon East Norwalk
 
Norwalk, CT
 
240

 
223,698

 
2013
 
932

 
96.7
%
 
94.5
%

32.8
%
(3)
1,938

 
2.08


46,520

Avalon at Stratford
 
Stratford, CT
 
130

 
148,136

 
2014
 
1,140

 
95.3
%
 
48.6
%
(3)
N/A

(3)
1,797

 
1.58

(3)
29,448

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
METRO NY/NJ
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
New York Suburban, NY
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Avalon Commons
 
Smithtown, NY
 
312

 
377,240

 
1997
 
1,209

 
95.2
%
 
96.5
%

96.6
%

2,446

 
2.02


38,625

Eaves Nanuet
 
Nanuet, NY
 
504

 
608,842

 
1998
 
1,208

 
96.8
%
 
96.9
%

96.9
%

2,283

 
1.89


57,991

Avalon Green
 
Elmsford, NY
 
105

 
113,538

 
1995
 
1,081

 
94.2
%
 
95.2
%
(2)
95.5
%

2,478

 
2.29

(2)
14,020

Avalon Towers
 
Long Beach, NY
 
109

 
124,611

 
1990/1995
 
1,143

 
96.3
%
 
96.5
%
(2)
95.7
%

3,719

 
3.25

(2)
25,351

Avalon Willow
 
Mamaroneck, NY
 
227

 
216,289

 
2000
 
953

 
96.5
%
 
95.6
%

96.0
%

2,534

 
2.66


48,421

Avalon Court
 
Melville, NY
 
494

 
596,874

 
1997
 
1,208

 
95.9
%
 
96.3
%

96.2
%

2,785

 
2.31


62,199

The Avalon
 
Bronxville, NY
 
110

 
118,952

 
1999
 
1,081

 
94.5
%
 
93.6
%

93.2
%
(2)
4,519

 
4.18


39,206

Avalon at Glen Cove (12)
 
Glen Cove, NY
 
256

 
261,425

 
2004
 
1,021

 
94.9
%
 
96.2
%

96.9
%

2,672

 
2.62


68,937

Avalon Pines
 
Coram, NY
 
450

 
545,989

 
2005
 
1,213

 
95.6
%
 
96.9
%

96.8
%

2,226

 
1.83


72,252

Avalon Glen Cove North (12)
 
Glen Cove, NY
 
111

 
100,754

 
2007
 
908

 
93.7
%
 
96.1
%

96.5
%

2,546

 
2.80


40,145

Avalon White Plains
 
White Plains, NY
 
407

 
372,406

 
2009
 
915

 
95.8
%
 
95.6
%

96.2
%

3,019

 
3.30


152,790

Avalon Charles Pond
 
Coram, NY
 
200

 
208,532

 
2009
 
1,043

 
95.0
%
 
96.6
%

96.6
%

1,958

 
1.88


48,403

Avalon Rockville Centre
 
Rockville Centre, NY
 
349

 
349,048

 
2012
 
1,000

 
96.8
%
 
96.4
%

96.7
%

2,966

 
2.97


111,019

Avalon Green II
 
Elmsford, NY
 
444

 
533,544

 
2012
 
1,202

 
96.4
%
 
94.8
%

95.9
%

2,684

 
2.23


105,325

Avalon Garden City
 
Garden City, NY
 
204

 
288,443

 
2013
 
1,414

 
95.6
%
 
97.2
%

95.4
%
(3)
3,680

 
2.60


67,577

Avalon Westbury
 
Westbury, NY
 
396

 
401,496

 
2006/2013
 
1,014

 
95.7
%
 
96.5
%

96.6
%
(3)
2,719

 
2.68


120,811

Avalon Ossining
 
Ossining, NY
 
168

 
184,137

 
2014
 
1,096

 
97.6
%
 
61.5
%
(3)
N/A

(3)
2,388

 
2.18

(3)
36,484

Avalon Huntington Station
 
Huntington Station, NY
 
303

 
364,602

 
2014
 
1,203

 
90.7
%
 
40.9
%
(3)
N/A

(3)
2,393

 
1.99

(3)
79,415

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
New Jersey
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Avalon Cove
 
Jersey City, NJ
 
504

 
574,339

 
1997
 
1,140

 
96.4
%
 
96.5
%

96.1
%

3,419

 
3.00


112,242

Avalon Run (9)
 
Lawrenceville, NJ
 
632

 
707,592

 
1994
 
1,120

 
95.9
%
 
95.3
%

96.1
%

1,597

 
1.43


80,662

Avalon Princeton Junction
 
West Windsor, NJ
 
512

 
486,069

 
1988/1993
 
949

 
96.7
%
 
95.9
%

96.7
%

1,719

 
1.81


48,758

Avalon at Edgewater (15)
 
Edgewater, NJ
 
408

 
428,792

 
2002
 
1,051

 
97.5
%
 
96.4
%

96.5
%

2,725

 
2.59


79,070


23

Table of Contents

 
 
 
 
 
 
Approx.
rentable area
(Sq. Ft.)
 
Year of
completion/
acquisition
 
Average
size
(Sq. Ft.)
 
Physical
occupancy
at
12/31/14
 
Average economic occupancy
 
Average rental rate
 
Financial
reporting
cost (5)
 
 
City and state
 
Number
of homes
 
 
 
 
 
2014
 
2013
 
$ per
Apt (4)
 
$ per
Sq. Ft.
 
Avalon at Florham Park
 
Florham Park, NJ
 
270

 
330,410

 
2001
 
1,224

 
94.4
%
 
96.0
%

96.7
%

2,895

 
2.37


43,732

Avalon at Freehold
 
Freehold, NJ
 
296

 
317,356

 
2002
 
1,072

 
94.9
%
 
95.8
%

96.7
%

1,904

 
1.78


35,533

Avalon Run East
 
Lawrenceville, NJ
 
312

 
341,320

 
2005
 
1,094

 
96.8
%
 
96.0
%

96.5
%

1,945

 
1.78


53,051

Avalon Lyndhurst
 
Lyndhurst, NJ
 
328

 
330,408

 
2007
 
1,007

 
95.7
%
 
96.9
%

96.2
%

2,274

 
2.26


79,078

Avalon at Tinton Falls
 
Tinton Falls, NJ
 
216

 
237,747

 
2008
 
1,101

 
96.3
%
 
95.7
%

96.4
%

1,908

 
1.73


41,208

Avalon at West Long Branch
 
West Long Branch, NJ
 
180

 
193,511

 
2011
 
1,075

 
96.7
%
 
95.9
%

96.8
%

2,051

 
1.91


25,661

Avalon North Bergen
 
North Bergen, NJ
 
164

 
146,170

 
2012
 
891

 
95.7
%
 
97.5
%

97.0
%

2,212

 
2.48


40,513

Avalon at Wesmont Station
 
Wood-Ridge, NJ
 
266

 
242,637

 
2012
 
912

 
96.2
%
 
96.7
%

95.9
%

2,093

 
2.29


57,192

Avalon Hackensack at Riverside (12)
 
Hackensack, NJ
 
226

 
228,393

 
2013
 
1,011

 
96.4
%
 
96.8
%

49.3
%
(3)
2,401

 
2.38


44,530

Avalon Somerset
 
Somerset, NJ
 
384

 
390,365

 
2013
 
1,017

 
95.6
%
 
95.5
%

51.9
%
(3)
1,911

 
1.88


76,567

Avalon at Wesmont Station II
 
Wood-Ridge, NJ
 
140

 
146,799

 
2013
 
1,049

 
95.7
%
 
97.2
%

65.8
%
(3)
1,992

 
1.90


23,364

Avalon Bloomingdale
 
Bloomingdale, NJ
 
174

 
176,542

 
2014
 
1,015

 
96.0
%
 
90.8
%
(3)
27.2
%
(3)
1,948

 
1.92

(3)
30,726

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
New York, NY
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Avalon Riverview I (12)
 
Long Island City, NY
 
372

 
332,991

 
2002
 
895

 
97.8
%
 
97.6
%

96.8
%

3,534

 
3.95


98,955

Avalon Bowery Place
 
New York, NY
 
206

 
152,725

 
2006
 
741

 
94.2
%
 
96.9
%

96.7
%

5,306

 
7.16


95,576

Avalon Riverview North (12)
 
Long Island City, NY
 
602

 
477,665

 
2008
 
793

 
97.3
%
 
97.2
%

96.6
%

3,367

 
4.24


167,212

Avalon Bowery Place II
 
New York, NY
 
90

 
73,596

 
2007
 
818

 
96.7
%
 
96.9
%

96.5
%

4,969

 
6.08


57,938

Avalon Morningside Park (12)
 
New York, NY
 
295

 
245,320

 
2009
 
832

 
95.6
%
 
96.5
%

96.2
%

3,655

 
4.40


115,197

Avalon Fort Greene
 
Brooklyn, NY
 
631

 
498,651

 
2010
 
790

 
94.8
%
 
97.0
%

96.0
%

3,241

 
4.10


302,124

Avalon Midtown West
 
New York, NY
 
550

 
393,480

 
1998/2013
 
715

 
95.5
%
 
95.2
%

93.4
%
(3)
3,985

 
5.57


346,995

Avalon Clinton North
 
New York, NY
 
339

 
222,862

 
2008/2013
 
657

 
93.8
%
 
94.0
%

94.6
%
(3)
3,265

 
4.97


196,242

Avalon Clinton South
 
New York, NY
 
288

 
196,798

 
2007/2013
 
683

 
93.8
%
 
94.3
%

93.7
%
(3)
3,298

 
4.83


166,447

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
MID-ATLANTIC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Washington Metro
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Avalon at Foxhall
 
Washington, DC
 
308

 
297,875

 
1982/1994
 
967

 
92.8
%
 
92.4
%

94.6
%

2,708

 
2.80


46,133

Avalon at Gallery Place
 
Washington, DC
 
203

 
184,157

 
2003
 
907

 
96.0
%
 
95.7
%

96.1
%

2,901

 
3.20


50,015

Avalon at Fairway Hills (9)
 
Columbia, MD
 
720

 
724,027

 
1987/1996
 
1,006

 
94.6
%
 
95.4
%

95.9
%
(2)
1,552

 
1.54


59,071

Eaves Washingtonian Center I
 
North Potomac, MD
 
192

 
191,280

 
1996
 
996

 
93.7
%
 
96.9
%

97.0
%

1,549

 
1.55


14,944

Eaves Washingtonian Center II
 
North Potomac, MD
 
96

 
99,386

 
1998
 
1,035

 
94.8
%
 
95.7
%

96.7
%

1,709

 
1.65


8,465

Eaves Columbia Town Center
 
Columbia, MD
 
392

 
395,860

 
1986/1993
 
1,010

 
97.2
%
 
96.5
%

96.1
%

1,558

 
1.54


55,767

Avalon at Grosvenor Station
 
Bethesda, MD
 
497

 
476,687

 
2004
 
959

 
96.6
%
 
95.4
%

95.2
%

1,956

 
2.04


84,162

Avalon at Traville
 
Rockville, MD
 
520

 
574,825

 
2004
 
1,105

 
95.8
%
 
96.2
%

96.8
%

1,928

 
1.74


70,626

Avalon Russett
 
Laurel, MD
 
238

 
274,663

 
1999/2013
 
1,154

 
97.5
%
 
96.6
%

95.1
%
(3)
1,808

 
1.57


60,383

Eaves Fair Lakes
 
Fairfax, VA
 
420

 
355,228

 
1989/1996
 
846

 
95.9
%
 
96.7
%

96.4
%

1,571

 
1.86


38,742

AVA Ballston
 
Arlington, VA
 
344

 
294,271

 
1990
 
855

 
93.0
%
 
94.4
%

95.3
%

2,183

 
2.55


52,585

Eaves Fairfax City
 
Fairfax, VA
 
141

 
148,282

 
1988/1997
 
1,052

 
86.5
%
 
96.4
%

96.1
%

1,693

 
1.61


16,449

Avalon Tysons Corner
 
Tysons Corner, VA
 
558

 
613,426

 
1996
 
1,099

 
93.2
%
 
94.4
%
(2)
95.8
%

2,037

 
1.85


69,354

Avalon at Arlington Square
 
Arlington, VA
 
842

 
895,781

 
2001
 
1,064

 
95.5
%
 
95.3
%
(2)
95.4
%

2,096

 
1.97

(2)
115,155


24

Table of Contents

 
 
 
 
 
 
Approx.
rentable area
(Sq. Ft.)
 
Year of
completion/
acquisition
 
Average
size
(Sq. Ft.)
 
Physical
occupancy
at
12/31/14
 
Average economic occupancy
 
Average rental rate
 
Financial
reporting
cost (5)
 
 
City and state
 
Number
of homes
 
 
 
 
 
2014
 
2013
 
$ per
Apt (4)
 
$ per
Sq. Ft.
 
Avalon Park Crest
 
Tysons Corner, VA
 
354

 
288,231

 
2013
 
814

 
93.8
%
 
96.3
%

83.7
%
(3)
2,085

 
2.56


77,081

Eaves Fairfax Towers
 
Falls Church, VA
 
415

 
336,051

 
1978/2011
 
810

 
96.6
%
 
96.4
%

96.4
%

1,741

 
2.15


94,334

AVA H Street
 
Washington, DC
 
138

 
95,594

 
2013
 
693

 
94.2
%
 
95.5
%

72.2
%
(3)
2,185

 
3.15


32,707

Avalon First and M
 
Washington, DC
 
469

 
410,812

 
2012/2013
 
876

 
95.3
%
 
93.1
%

80.6
%
(3)
2,779

 
3.17


200,061

Avalon The Albemarle
 
Washington, DC
 
228

 
254,591

 
1966/2013
 
1,117

 
93.4
%
 
95.6
%

96.9
%
(3)
2,642

 
2.37


81,316

Eaves Tunlaw Gardens
 
Washington, DC
 
166

 
113,512

 
1944/2013
 
684

 
96.4
%
 
96.8
%

96.3
%
(3)
1,763

 
2.58


41,357

The Statesman
 
Washington, DC
 
281

 
190,420

 
1961/2013
 
678

 
90.7
%
 
94.0
%

96.1
%
(3)
1,967

 
2.90


76,945

Eaves Glover Park
 
Washington, DC
 
120

 
104,162

 
1953/2013
 
868

 
95.8
%
 
95.2
%

96.6
%
(3)
2,258

 
2.60


38,066

AVA Van Ness
 
Washington, DC
 
269

 
225,592

 
1978/2013
 
839

 
95.9
%
 
94.3
%

94.2
%
(3)
2,121

 
2.53


85,036

Avalon Ballston Place
 
Arlington, VA
 
383

 
333,225

 
2001/2013
 
870

 
95.8
%
 
94.9
%

95.3
%
(3)
2,482

 
2.85


165,903

Eaves Tysons Corner
 
Vienna, VA
 
217

 
209,940

 
1980/2013
 
967

 
96.3
%
 
96.4
%

96.8
%
(3)
1,786

 
1.85


64,004

Avalon Ballston Square
 
Arlington, VA
 
714

 
626,170

 
1992/2013
 
877

 
96.2
%
 
96.0
%

94.8
%
(3)
2,334

 
2.66


297,777

Avalon Courthouse Place
 
Arlington, VA
 
564

 
478,896

 
1999/2013
 
849

 
95.2
%
 
94.6
%

94.9
%
(3)
2,404

 
2.83


242,713

Avalon Reston Landing
 
Reston, VA
 
400

 
398,192

 
2000/2013
 
995

 
96.8
%
 
96.4
%

96.5
%
(3)
1,792

 
1.80


114,148

Oakwood Arlington (14)
 
Arlington, VA
 
184

 
154,376

 
1987/2013
 
839

 
N/A

 
N/A


N/A

(3)
N/A

 
N/A


59,251

Avalon Mosaic
 
Merrifield, VA
 
531

 
458,198

 
2014
 
863

 
88.5
%
 
52.0
%
(3)
6.5
%
(3)
2,030

 
2.35

(3)
108,564

Avalon Arlington North
 
Arlington, VA
 
228

 
268,618

 
2014
 
1,178

 
97.8
%
 
55.3
%
(3)
0.6
%
(3)
2,769

 
2.35

(3)
80,363

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
PACIFIC NORTHWEST
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Seattle, WA
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Avalon Redmond Place
 
Redmond, WA
 
222

 
211,450

 
1991/1997
 
952

 
98.2
%
 
95.8
%

95.4
%

1,683

 
1.77


32,805

Avalon at Bear Creek
 
Redmond, WA
 
264

 
288,250

 
1998/1998
 
1,092

 
95.8
%
 
95.1
%

95.6
%

1,681

 
1.54


37,854

Avalon Bellevue
 
Bellevue, WA
 
201

 
165,504

 
2001
 
823

 
94.0
%
 
94.9
%

95.6
%

1,857

 
2.26


32,468

Avalon RockMeadow
 
Bothell, WA
 
206

 
243,958

 
2000/2000
 
1,184

 
96.6
%
 
95.4
%

95.5
%

1,497

 
1.26


26,443

Avalon ParcSquare
 
Redmond, WA
 
124

 
127,251

 
2000/2000
 
1,026

 
94.4
%
 
94.8
%

95.9
%

1,852

 
1.80


21,558

Avalon Brandemoor
 
Lynnwood, WA
 
424

 
453,602

 
2001/2001
 
1,070

 
94.3
%
 
94.8
%

95.9
%

1,389

 
1.30


46,943

AVA Belltown
 
Seattle, WA
 
100

 
82,418

 
2001
 
824

 
96.0
%
 
95.5
%

96.1
%

2,019

 
2.45


19,207

Avalon Meydenbauer
 
Bellevue, WA
 
368

 
331,945

 
2008
 
902

 
97.3
%
 
96.3
%

96.5
%

1,980

 
2.19


91,084

Avalon Towers Bellevue (12)
 
Bellevue, WA
 
397

 
331,366

 
2011
 
835

 
99.2
%
 
95.4
%

95.3
%

2,317

 
2.78


123,841

AVA Queen Anne
 
Seattle, WA
 
203

 
164,644

 
2012
 
811

 
96.0
%
 
95.4
%

95.6
%

2,109

 
2.60


54,046

Avalon Brandemoor II
 
Lynnwood, WA
 
82

 
93,320

 
2011
 
1,138

 
98.8
%
 
94.2
%

96.3
%

1,603

 
1.41


13,998

AVA Ballard
 
Seattle, WA
 
265

 
190,043

 
2013
 
717

 
97.3
%
 
96.2
%

47.9
%
(3)
1,808

 
2.52


63,351

Eaves Redmond Campus
 
Redmond, WA
 
422

 
429,190

 
1991/2013
 
1,017

 
94.5
%
 
94.4
%

94.4
%
(3)
1,844

 
1.81


115,829

Archstone Redmond Lakeview
 
Redmond, WA
 
166

 
141,000

 
1987/2013
 
849

 
90.4
%
 
95.9
%

96.0
%
(3)
1,543

 
1.82


38,923

AVA University District
 
Seattle, WA
 
283

 
201,389

 
2014
 
712

 
95.7
%
 
67.3
%
(3)
22.6
%
(3)
2,133

 
3.00

(3)
73,454

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
NORTHERN CALIFORNIA
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Oakland-East Bay, CA
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Avalon Fremont
 
Fremont, CA
 
308

 
316,052

 
1992/1994
 
1,026

 
97.7
%
 
96.9
%

96.3
%

2,218

 
2.16


59,204

Eaves Dublin
 
Dublin, CA
 
204

 
179,004

 
1989/1997
 
877

 
94.0
%
 
96.0
%
(2)
96.4
%

1,998

 
2.28

(2)
34,085


25

Table of Contents

 
 
 
 
 
 
Approx.
rentable area
(Sq. Ft.)
 
Year of
completion/
acquisition
 
Average
size
(Sq. Ft.)
 
Physical
occupancy
at
12/31/14
 
Average economic occupancy
 
Average rental rate
 
Financial
reporting
cost (5)
 
 
City and state
 
Number
of homes
 
 
 
 
 
2014
 
2013
 
$ per
Apt (4)
 
$ per
Sq. Ft.
 
Eaves Pleasanton
 
Pleasanton, CA
 
456

 
366,062

 
1988/1994
 
803

 
94.5
%
 
96.2
%

96.5
%

1,960

 
2.44


79,416

Eaves Union City
 
Union City, CA
 
208

 
150,225

 
1973/1996
 
722

 
97.1
%
 
96.4
%

96.4
%

1,715

 
2.37


23,901

Eaves Fremont
 
Fremont, CA
 
235

 
191,935

 
1985/1994
 
817

 
96.6
%
 
96.1
%

96.4
%

2,055

 
2.52


42,894

Avalon Union City
 
Union City, CA
 
439

 
429,800

 
2009
 
979

 
96.8
%
 
96.4
%

96.7
%

1,986

 
2.03


119,051

Avalon Walnut Creek (12)
 
Walnut Creek, CA
 
418

 
410,218

 
2010
 
981

 
97.6
%
 
96.3
%

95.8
%

2,532

 
2.58


147,549

Eaves Walnut Creek
 
Walnut Creek, CA
 
510

 
380,542

 
1987/2013
 
746

 
94.5
%
 
96.3
%

95.7
%
(3)
1,712

 
2.29


118,292

Avalon Walnut Ridge I
 
Walnut Creek, CA
 
106

 
80,942

 
2000/2013
 
764

 
95.3
%
 
96.9
%

95.0
%
(3)
1,986

 
2.60


30,588

Avalon Walnut Ridge II
 
Walnut Creek, CA
 
360

 
251,901

 
1989/2013
 
700

 
94.7
%
 
96.5
%

94.7
%
(3)
1,778

 
2.54


87,530

Avalon Berkeley
 
Berkeley, CA
 
94

 
78,858

 
2014
 
839

 
93.6
%
 
66.3
%
(3)
N/A

(3)
2,625

 
3.13

(3)
33,146

Avalon Dublin Station
 
Dublin, CA
 
253

 
247,430

 
2014
 
978

 
82.0
%
 
63.8
%
(3)
0.8
%
(3)
2,369

 
2.42

(3)
78,797

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
San Francisco, CA
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Eaves Daly City
 
Daly City, CA
 
195

 
141,411

 
1972/1997
 
725

 
95.9
%
 
96.9
%

96.0
%

2,100

 
2.90


32,551

AVA Nob Hill
 
San Francisco, CA
 
185

 
108,962

 
1990/1995
 
589

 
96.2
%
 
95.7
%

97.0
%

2,689

 
4.57


33,858

Eaves San Rafael
 
San Rafael, CA
 
254

 
221,780

 
1973/1996
 
873

 
97.6
%
 
97.1
%

97.4
%

2,099

 
2.40


47,064

Eaves Foster City
 
Foster City, CA
 
288

 
222,364

 
1973/1994
 
772

 
96.2
%
 
96.5
%

95.2
%

2,248

 
2.91


50,504

Eaves Pacifica
 
Pacifica, CA
 
220

 
186,800

 
1971/1995
 
849

 
98.2
%
 
97.6
%

96.9
%

2,053

 
2.42


33,462

Avalon Sunset Towers
 
San Francisco, CA
 
243

 
171,836

 
1961/1996
 
707

 
96.7
%
 
95.4
%

95.2
%

2,571

 
3.64


39,776

Eaves Diamond Heights
 
San Francisco, CA
 
154

 
123,047

 
1972/1994
 
799

 
98.1
%
 
96.7
%

96.7
%

2,480

 
3.10


29,646

Avalon at Mission Bay North
 
San Francisco, CA
 
250

 
241,788

 
2003
 
967

 
97.2
%
 
96.6
%

96.1
%

4,120

 
4.26


94,963

Avalon at Mission Bay III
 
San Francisco, CA
 
260

 
261,169

 
2009
 
1,004

 
96.9
%
 
96.2
%

96.2
%

4,127

 
4.11


147,917

Avalon Ocean Avenue
 
San Francisco, CA
 
173

 
161,083

 
2012
 
931

 
94.8
%
 
96.1
%

96.5
%

3,265

 
3.51


58,167

Avalon San Bruno
 
San Bruno, CA
 
300

 
267,171

 
2004/2013
 
891

 
97.3
%
 
96.1
%

94.9
%
(3)
2,471

 
2.78


112,355

Avalon San Bruno II
 
San Bruno, CA
 
185

 
156,583

 
2007/2013
 
846

 
96.2
%
 
96.6
%

95.8
%
(3)
2,394

 
2.83


70,389

Avalon San Bruno III
 
San Bruno, CA
 
187

 
232,147

 
2010/2013
 
1,241

 
97.3
%
 
96.1
%

95.6
%
(3)
3,389

 
2.73


98,562

AVA 55 Ninth
 
San Francisco, CA
 
273

 
236,907

 
2014
 
868

 
96.3
%
 
56.3
%
(3)
N/A

(3)
3,620

 
4.17

(3)
116,558

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
San Jose, CA
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Avalon Campbell
 
Campbell, CA
 
348

 
326,796

 
1995
 
939

 
96.0
%
 
95.3
%

95.2
%
(2)
2,316

 
2.47


73,089

Eaves San Jose
 
San Jose, CA
 
440

 
387,420

 
1985/1996
 
881

 
97.5
%
 
96.4
%

96.5
%

2,098

 
2.38


84,777

Avalon on the Alameda
 
San Jose, CA
 
305

 
299,762

 
1999
 
983

 
96.7
%
 
96.0
%

96.5
%

2,535

 
2.58


57,988

Avalon Silicon Valley
 
Sunnyvale, CA
 
710

 
653,929

 
1998
 
921

 
96.5
%
 
96.0
%
(2)
96.2
%

2,503

 
2.72

(2)
125,273

Avalon Mountain View
 
Mountain View, CA
 
248

 
211,525

 
1986
 
853

 
96.4
%
 
96.3
%

96.0
%

2,714

 
3.18


58,659

Eaves Creekside
 
Mountain View, CA
 
294

 
215,680

 
1962/1997
 
734

 
96.9
%
 
95.2
%
(2)
95.9
%
(2)
2,211

 
3.01

(2)
53,793

Avalon at Cahill Park
 
San Jose, CA
 
218

 
218,177

 
2002
 
1,001

 
96.3
%
 
96.2
%

96.2
%

2,581

 
2.58


53,798

Avalon Towers on the Peninsula
 
Mountain View, CA
 
211

 
218,392

 
2002
 
1,035

 
97.6
%
 
96.8
%

96.0
%

3,520

 
3.40


66,799

Avalon Willow Glen
 
San Jose, CA
 
412

 
382,147

 
2002/2013
 
928

 
95.9
%
 
95.2
%

95.0
%
(3)
2,276

 
2.45


132,051

Eaves West Valley
 
San Jose, CA
 
789

 
504,813

 
1970/2013
 
640

 
97.1
%
 
96.6
%

95.0
%
(3)
1,738

 
2.72


211,537

Eaves Mountain View at Middlefield
 
Mountain View, CA
 
402

 
261,600

 
1969/2013
 
651

 
97.5
%
 
96.1
%

96.0
%
(3)
2,253

 
3.46


137,935

Eaves West Valley II
 
San Jose, CA
 
84

 
71,136

 
2013
 
847

 
98.8
%
 
93.1
%

26.2
%
(3)
2,215

 
2.62


18,411


26

Table of Contents

 
 
 
 
 
 
Approx.
rentable area
(Sq. Ft.)
 
Year of
completion/
acquisition
 
Average
size
(Sq. Ft.)
 
Physical
occupancy
at
12/31/14
 
Average economic occupancy
 
Average rental rate
 
Financial
reporting
cost (5)
 
 
City and state
 
Number
of homes
 
 
 
 
 
2014
 
2013
 
$ per
Apt (4)
 
$ per
Sq. Ft.
 
Avalon Morrison Park
 
San Jose, CA
 
250

 
277,710

 
2014
 
1,111

 
95.2
%
 
66.8
%
(3)
4.0
%
(3)
2,741

 
2.47

(3)
78,174

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
SOUTHERN CALIFORNIA
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Orange County, CA
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
AVA Newport
 
Costa Mesa, CA
 
145

 
122,415

 
1956/1996
 
844

 
95.9
%
 
93.3
%

96.0
%

2,043

 
2.42


15,591

Avalon Mission Viejo
 
Mission Viejo, CA
 
166

 
124,550

 
1984/1996
 
750

 
96.4
%
 
96.1
%

95.9
%

1,433

 
1.91


14,557

Eaves South Coast
 
Costa Mesa, CA
 
258

 
207,672

 
1973/1996
 
805

 
95.7
%
 
95.8
%

95.4
%

1,699

 
2.11


33,544

Eaves Santa Margarita
 
Rancho Santa Margarita, CA
 
301

 
229,593

 
1990/1997
 
763

 
95.7
%
 
95.3
%

96.2
%

1,587

 
2.08


31,765

Eaves Huntington Beach
 
Huntington Beach, CA
 
304

 
268,000

 
1971/1997
 
882

 
95.0
%
 
95.9
%

96.0
%

1,706

 
1.94


34,146

Avalon Anaheim Stadium
 
Anaheim, CA
 
251

 
302,480

 
2009
 
1,205

 
98.8
%
 
95.7
%

96.1
%

2,346

 
1.95


97,675

Avalon Irvine
 
Irvine, CA
 
279

 
243,157

 
2010
 
872

 
94.2
%
 
95.9
%

95.0
%

1,919

 
2.20


77,504

Eaves Lake Forest
 
Lake Forest, CA
 
225

 
215,319

 
1975/2011
 
957

 
98.2
%
 
94.8
%

96.4
%

1,608

 
1.68


28,447

Avalon Irvine II
 
Irvine, CA
 
179

 
160,844

 
2013
 
899

 
95.5
%
 
94.6
%

76.1
%
(3)
2,029

 
2.26


45,264

Eaves Seal Beach
 
Seal Beach, CA
 
549

 
388,244

 
1971/2013
 
707

 
95.1
%
 
95.8
%

94.7
%
(3)
1,848

 
2.61


151,424

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
San Diego, CA
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
AVA Pacific Beach
 
San Diego, CA
 
564

 
402,285

 
1969/1997
 
713

 
90.7
%
 
95.7
%
(2)
96.5
%

1,615

 
2.26

(2)
81,429

Eaves Mission Ridge
 
San Diego, CA
 
200

 
207,700

 
1960/1997
 
1,039

 
95.5
%
 
96.0
%

96.3
%

1,834

 
1.77


24,897

AVA Cortez Hill (12)
 
San Diego, CA
 
299

 
230,395

 
1973/1998
 
771

 
95.3
%
 
95.6
%

95.8
%

1,795

 
2.33


46,366

Avalon Fashion Valley
 
San Diego, CA
 
161

 
183,802

 
2008
 
1,142

 
95.6
%
 
95.3
%

96.8
%

2,216

 
1.94


64,889

Eaves San Marcos
 
San Marcos, CA
 
184

 
161,352

 
1988/2011
 
877

 
97.3
%
 
96.6
%

96.2
%

1,627

 
1.86


17,522

Eaves Rancho Penasquitos
 
San Diego, CA
 
250

 
191,256

 
1986/2011
 
765

 
95.2
%
 
95.4
%

96.2
%

1,561

 
2.04


35,669

Avalon La Jolla Colony
 
San Diego, CA
 
180

 
137,036

 
1987/2013
 
761

 
92.2
%
 
96.6
%

97.0
%
(3)
1,707

 
2.24


46,553

Eaves La Mesa
 
La Mesa, CA
 
168

 
139,428

 
1989/2013
 
830

 
93.5
%
 
95.5
%

95.8
%
(3)
1,586

 
1.91


39,307

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Los Angeles, CA
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
AVA Burbank
 
Burbank, CA
 
748

 
530,160

 
1961/1997
 
709

 
95.3
%
 
96.0
%
(2)
95.1
%
(2)
1,723

 
2.43

(2)
98,663

Avalon Woodland Hills
 
Woodland Hills, CA
 
663

 
594,396

 
1989/1997
 
897

 
95.9
%
 
96.4
%

96.7
%

1,795

 
2.00


111,146

Eaves Warner Center
 
Woodland Hills, CA
 
227

 
191,443

 
1979/1998
 
843

 
96.0
%
 
96.8
%

97.4
%

1,727

 
2.05


29,335

Avalon at Glendale (12)
 
Glendale, CA
 
223

 
241,714

 
2003
 
1,084

 
96.8
%
 
97.1
%

95.6
%

2,452

 
2.26


43,719

Avalon Burbank
 
Burbank, CA
 
400

 
360,587

 
1988/2002
 
901

 
96.5
%
 
96.8
%

96.3
%

2,378

 
2.64


94,722

Avalon Camarillo
 
Camarillo , CA
 
249

 
233,273

 
2006
 
937

 
97.2
%
 
96.8
%

96.1
%

1,792

 
1.91


48,878

Avalon Wilshire
 
Los Angeles, CA
 
123

 
125,093

 
2007
 
1,017

 
95.1
%
 
96.9
%

95.1
%

2,961

 
2.91


47,686

Avalon Encino
 
Encino, CA
 
131

 
131,220

 
2008
 
1,002

 
99.2
%
 
96.9
%

97.7
%

2,765

 
2.76


62,257

Avalon Warner Place
 
Canoga Park, CA
 
210

 
186,402

 
2008
 
888

 
96.2
%
 
96.8
%

97.0
%

1,778

 
2.00


52,951

Eaves Phillips Ranch
 
Pomona, CA
 
501

 
498,036

 
1989/2011
 
994

 
94.6
%
 
96.2
%

96.6
%

1,588

 
1.60


51,782

Eaves San Dimas
 
San Dimas, CA
 
102

 
94,200

 
1978/2011
 
924

 
95.1
%
 
97.2
%
(3)
97.2
%

1,404

 
1.52

(3)
10,254

Eaves San Dimas Canyon
 
San Dimas, CA
 
156

 
144,669

 
1981/2011
 
927

 
95.5
%
 
96.6
%

97.1
%

1,517

 
1.64


15,572

AVA Pasadena
 
Pasadena, CA
 
84

 
70,648

 
1973/2012
 
841

 
98.8
%
 
94.1
%
(2)
87.8
%
(2)
2,045

 
2.43

(2)
25,335

Eaves Cerritos
 
Artesia, CA
 
151

 
106,961

 
1973/2012
 
708

 
96.7
%
 
97.3
%

95.2
%

1,503

 
2.12


30,892


27

Table of Contents

 
 
 
 
 
 
Approx.
rentable area
(Sq. Ft.)
 
Year of
completion/
acquisition
 
Average
size
(Sq. Ft.)
 
Physical
occupancy
at
12/31/14
 
Average economic occupancy
 
Average rental rate
 
Financial
reporting
cost (5)
 
 
City and state
 
Number
of homes
 
 
 
 
 
2014
 
2013
 
$ per
Apt (4)
 
$ per
Sq. Ft.
 
Avalon Del Rey
 
Los Angeles, CA
 
309

 
283,183

 
2006/2012
 
916

 
94.2
%
 
96.3
%

96.8
%

2,204

 
2.40


103,562

Avalon Simi Valley
 
Simi Valley, CA
 
500

 
430,218

 
2007/2013
 
860

 
95.0
%
 
96.0
%

96.4
%
(3)
1,705

 
1.98


119,792

Avalon Studio City II
 
Studio City, CA
 
101

 
83,936

 
1991/2013
 
831

 
91.1
%
 
94.9
%

94.0
%
(3)
2,004

 
2.41


28,790

Avalon Studio City III
 
Studio City, CA
 
276

 
263,512

 
2002/2013
 
955

 
93.5
%
 
93.7
%

94.4
%
(3)
2,373

 
2.49


97,352

Avalon Calabasas
 
Calabasas, CA
 
600

 
506,522

 
1988/2013
 
844

 
96.3
%
 
95.9
%

95.5
%
(3)
1,826

 
2.16


157,011

Avalon Oak Creek
 
Agoura Hills, CA
 
336

 
364,176

 
2004/2013
 
1,084

 
97.0
%
 
96.3
%

94.8
%
(3)
2,294

 
2.12


127,791

Avalon Santa Monica on Main
 
Santa Monica, CA
 
133

 
122,460

 
2007/2013
 
921

 
93.2
%
 
95.9
%
(2)
93.8
%
(3)
4,127

 
4.48

(2)
96,129

Avalon Del Mar Station
 
Pasadena, CA
 
347

 
338,390

 
2006/2013
 
975

 
95.4
%
 
95.6
%

94.3
%
(3)
2,286

 
2.34


130,393

Eaves Old Town Pasadena
 
Pasadena, CA
 
96

 
66,420

 
1972/2013
 
692

 
99.0
%
 
96.9
%

96.4
%
(3)
1,771

 
2.56


25,669

Eaves Thousand Oaks
 
Thousand Oaks, CA
 
154

 
134,388

 
1992/2013
 
873

 
99.4
%
 
96.9
%

95.7
%
(3)
1,927

 
2.21


36,214

Eaves Los Feliz
 
Los Angeles, CA
 
263

 
201,830

 
1989/2013
 
767

 
94.7
%
 
95.6
%

96.0
%
(3)
1,789

 
2.33


65,761

Oakwood Toluca Hills (14)
 
Los Angeles, CA
 
1,151

 
578,668

 
1973/2013
 
503

 
N/A

 
N/A


N/A

(3)
N/A

 
N/A


256,639

Eaves Woodland Hills
 
Woodland Hills, CA
 
883

 
578,668

 
1971/2013
 
655

 
96.9
%
 
97.0
%

95.8
%
(3)
1,411

 
2.15


168,503

Avalon Thousand Oaks Plaza
 
Thousand Oaks, CA
 
148

 
140,464

 
2002/2013
 
949

 
94.6
%
 
95.8
%

96.5
%
(3)
2,019

 
2.13


37,198

Avalon Pasadena
 
Pasadena, CA
 
120

 
102,516

 
2004/2013
 
854

 
98.3
%
 
96.1
%

95.1
%
(3)
2,435

 
2.85


43,606

Avalon Studio City
 
Studio City, CA
 
450

 
331,324

 
1987/2013
 
736

 
96.0
%
 
96.5
%

94.9
%
(3)
1,849

 
2.51


112,467

Avalon San Dimas
 
San Dimas, CA
 
156

 
159,937

 
2014
 
1,025

 
95.5
%
 
47.7
%

N/A

(3)
1,794

 
1.75


39,585

Avalon Mission Oaks
 
Camarillo, CA
 
160

 
157,200

 
2014
 
983

 
95.0
%
 
100.0
%
(3)
N/A

(3)
1,872

 
1.91

(3)
47,000

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Non-Core
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Archstone Lexington
 
Flower Mound, TX
 
222

 
218,309

 
2000/2013
 
983

 
94.1
%
 
95.9
%

96.3
%
(3)
1,320

 
1.34


32,309

Archstone Toscano
 
Houston, TX
 
474

 
460,983

 
2014
 
973

 
84.3
%
 
72.1
%
(3)
37.9
%
(3)
1,702

 
1.75

(3)
87,766

Memorial Heights Villages
 
Houston, TX
 
318

 
305,055

 
2014
 
959

 
77.6
%
 
35.4
%
(3)
%
(3)
1,703

 
1.78

(3)
51,771

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
DEVELOPMENT COMMUNITIES
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Avalon West Chelsea/AVA High Line (12)
 
New York, NY
 
710

 
497,880

 
N/A
 
701

 
82.4
%
 
47.8
%
(3)
N/A

(3)
N/A

 
N/A

(3)
272,585

Avalon North Station
 
Boston, MA
 
503

 
403,610

 
N/A
 
802

 
N/A

 
N/A

(3)
N/A

(3)
N/A

 
N/A

(3)
46,268

Avalon at Assembly Row/AVA Somerville (12)
 
Somerville, MA
 
445

 
382,117

 
N/A
 
859

 
51.5
%
 
29.5
%
(3)
N/A

(3)
N/A

 
N/A

(3)
129,251

Avalon Framingham
 
Framingham, MA
 
180

 
211,275

 
N/A
 
1,174

 
N/A

 
N/A

(3)
N/A

(3)
N/A

 
N/A

(3)
18,335

Avalon West Hollywood
 
West Hollywood, CA
 
294

 
290,701

 
N/A
 
989

 
N/A

 
N/A

(3)
N/A

(3)
N/A

 
N/A

(3)
58,128

Avalon Dublin Station II
 
Dublin, CA
 
252

 
243,851

 
N/A
 
968

 
N/A

 
N/A

(3)
N/A

(3)
N/A

 
N/A

(3)
43,422

Avalon Wharton
 
Wharton, NJ
 
247

 
245,531

 
N/A
 
994

 
39.8
%
 
18.3
%
(3)
N/A

(3)
N/A

 
N/A

(3)
48,647

Avalon Green III
 
New York, NY
 
68

 
77,669

 
N/A
 
1,142

 
N/A

 
N/A

(3)
N/A

(3)
N/A

 
N/A

(3)
1,447

AVA Little Tokyo
 
Los Angeles, CA
 
280

 
285,220

 
N/A
 
1,019

 
46.4
%
 
18.9
%
(3)
N/A

(3)
N/A

 
N/A

(3)
105,827

AVA Theater District
 
Boston, MA
 
398

 
329,146

 
N/A
 
827

 
N/A

 
N/A

(3)
N/A

(3)
N/A

 
N/A

(3)
133,082

Avalon Marlborough
 
Boston, MA
 
350

 
417,553

 
N/A
 
1,193

 
N/A

 
N/A

(3)
N/A

(3)
N/A

 
N/A

(3)
46,903

Avalon Vista
 
Vista, CA
 
221

 
222,814

 
N/A
 
1,008

 
N/A

 
N/A

(3)
N/A

(3)
N/A

 
N/A

(3)
36,630

Avalon Bloomfield Station
 
Bloomfield, NJ
 
224

 
211,102

 
N/A
 
942

 
N/A

 
N/A

(3)
N/A

(3)
N/A

 
N/A

(3)
29,680

Avalon Willoughby Square/AVA DoBro
 
Brooklyn, NY
 
826

 
239,284

 
N/A
 
290

 
N/A

 
N/A

(3)
N/A

(3)
N/A

 
N/A

(3)
266,318

Avalon Alderwood I
 
Lynnwood, WA
 
367

 
352,238

 
N/A
 
960

 
64.2
%
 
30.1
%
(3)
N/A

(3)
N/A

 
N/A

(3)
66,106


28

Table of Contents

 
 
 
 
 
 
Approx.
rentable area
(Sq. Ft.)
 
Year of
completion/
acquisition
 
Average
size
(Sq. Ft.)
 
Physical
occupancy
at
12/31/14
 
Average economic occupancy
 
Average rental rate
 
Financial
reporting
cost (5)
 
 
City and state
 
Number
of homes
 
 
 
 
 
2014
 
2013
 
$ per
Apt (4)
 
$ per
Sq. Ft.
 
AVA Capitol Hill
 
Seattle, WA
 
249

 
175,707

 
N/A
 
706

 
N/A

 
N/A

(3)
N/A

(3)
N/A

 
N/A

(3)
39,870

Avalon Esterra Park
 
Redmond, WA
 
482

 
440,863

 
N/A
 
915

 
N/A

 
N/A

(3)
N/A

(3)
N/A

 
N/A

(3)
33,523

Avalon Hayes Valley
 
San Francisco, CA
 
182

 
135,082

 
N/A
 
742

 
N/A

 
N/A

(3)
N/A

(3)
N/A

 
N/A

(3)
79,572

Avalon Baker Ranch
 
Lake Forest, CA
 
430

 
425,497

 
N/A
 
990

 
10.1
%
 
5.7
%
(3)
N/A

(3)
N/A

 
N/A

(3)
110,802

Avalon Irvine III
 
Irvine, CA
 
156

 
151,363

 
N/A
 
970

 
N/A

 
N/A

(3)
N/A

(3)
N/A

 
N/A

(3)
26,303

Avalon Huntington Beach
 
Huntington Beach, CA
 
378

 
322,107

 
N/A
 
852

 
N/A

 
N/A

(3)
N/A

(3)
N/A

 
N/A

(3)
40,739

Avalon Glendora
 
Glendora, CA
 
280

 
264,753

 
N/A
 
946

 
N/A

 
N/A

(3)
N/A

(3)
N/A

 
N/A

(3)
52,146

Avalon Falls Church
 
Falls Church, VA
 
384

 
396,498

 
N/A
 
1,033

 
N/A

 
N/A

(3)
N/A

(3)
N/A

 
N/A

(3)
69,631

Avalon Roseland
 
Roaseland, NJ
 
136

 
192,530

 
N/A
 
1,416

 
N/A

 
N/A

(3)
N/A

(3)
N/A

 
N/A

(3)
33,143

Avalon Princeton
 
Princeton, NJ
 
280

 
287,078

 
N/A
 
1,025

 
N/A

 
N/A

(3)
N/A

(3)
N/A

 
N/A

(3)
35,456

Avalon Union
 
Union, NJ
 
202

 
230,638

 
N/A
 
1,142

 
N/A

 
N/A

(3)
N/A

(3)
N/A

 
N/A

(3)
12,717

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
UNCONSOLIDATED COMMUNITIES (13)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Avalon at Mission Bay North II (11)
 
San Francisco, CA
 
313

 
291,655

 
2006
 
932

 
95.2
%
 
96.1
%

96.5
%

4,025

 
4.32


N/A

Eaves Tustin (6)
 
Tustin, CA
 
628

 
511,992

 
1972/2010
 
815

 
96.8
%
 
96.3
%

96.0
%

1,536

 
1.88


N/A

Eaves Los Alisos (6)
 
Lake Forest, CA
 
140

 
126,480

 
1978/2010
 
903

 
97.9
%
 
96.9
%

97.4
%

1,530

 
1.69


N/A

Eaves Carlsbad (6)
 
Carlsbad, CA
 
450

 
340,371

 
1985/2011
 
756

 
94.2
%
 
96.2
%

96.4
%

1,499

 
1.98


N/A

Eaves Rancho San Diego (6)
 
El Cajon, CA
 
676

 
587,500

 
1986/2011
 
869

 
95.7
%
 
95.9
%

95.7
%

1,527

 
1.76


N/A

Briarwood Apartments (6)
 
Owings Mills, MD
 
348

 
340,868

 
1999/2010
 
980

 
94.5
%
 
96.6
%

96.2
%

1,310

 
1.34


N/A

Eaves Gaithersburg (6)
 
Gaithersburg, MD
 
684

 
658,846

 
1974/2010
 
963

 
95.8
%
 
96.4
%

96.4
%

1,351

 
1.40


N/A

Eaves Rockville (6)
 
Rockville, MD
 
210

 
403,912

 
1970/2011
 
1,923

 
96.7
%
 
96.6
%

96.9
%

2,213

 
1.15


N/A

Eaves Plainsboro (6)
 
Plainsboro, NJ
 
776

 
553,320

 
1973/2010
 
713

 
95.6
%
 
95.4
%

96.4
%

1,287

 
1.81


N/A

Captain Parker Arms (6)
 
Lexington, MA
 
94

 
88,680

 
1965/2011
 
943

 
95.7
%
 
93.8
%

95.8
%

2,189

 
2.32


N/A

Avalon Watchung (6)
 
Watchung, NJ
 
334

 
336,586

 
2003/2012
 
1,008

 
94.6
%
 
96.2
%

96.3
%

1,991

 
1.98


N/A

Avalon North Point (8)
 
Cambridge, MA
 
426

 
383,537

 
2008/2013
 
900

 
96.0
%
 
92.0
%

94.0
%

3,310

 
3.68


N/A

Avalon Station 250 (7)
 
Dedham, MA
 
285

 
305,862

 
2011/2013
 
1,073

 
96.1
%
 
94.7
%

94.9
%

2,092

 
1.95


N/A

Avalon North Point Lofts (8)
 
Cambridge, MA
 
103

 
46,506

 
2014
 
452

 
82.4
%
 
33.9
%
(3)
N/A

(3)
1,975

 
4.37

(3)
N/A

Avalon Kips Bay (7)
 
New York, NY
 
209

 
152,865

 
1998/2013
 
731

 
93.8
%
 
95.4
%

93.3
%

4,651

 
6.36


N/A

Brandywine (11)
 
Washington, DC
 
305

 
308,050

 
1954/2013
 
1,010

 
N/A

 
92.4
%

92.0
%

2,418

 
2.39


N/A

Avalon Woodland Park (8)
 
Herndon, VA
 
392

 
393,112

 
2000/2013
 
1,003

 
95.4
%
 
95.6
%

95.0
%

1,654

 
1.65


N/A

Avalon Grosvenor Tower (7)
 
North Bethesda, MD
 
237

 
230,439

 
1987/2013
 
972

 
95.3
%
 
94.6
%

94.1
%

2,017

 
2.07


N/A

Eaves Sunnyvale (7)
 
Sunnyvale, CA
 
192

 
204,060

 
1991/2013
 
1,063

 
96.9
%
 
96.7
%

95.7
%

2,704

 
2.54


N/A

Archstone Boca Town Center (7)
 
Boca Raton, FL
 
252

 
268,200

 
1988/2013
 
1,064

 
93.3
%
 
94.5
%

95.1
%

1,592

 
1.50


N/A

Avalon Kirkland at Carillon (7)
 
Kirkland, WA
 
131

 
176,160

 
1990/2013
 
1,345

 
98.5
%
 
94.4
%

95.6
%

2,580

 
1.92


N/A

Avalon Studio 4041 (7)
 
Studio City, CA
 
149

 
120,354

 
2009/2013
 
808

 
97.3
%
 
96.0
%

94.9
%

2,213

 
2.74


N/A

Avalon Marina Bay (7)(12)
 
Marina del Rey, CA
 
205

 
177,945

 
1968/2013
 
868

 
99.0
%
 
80.3
%

65.4
%

2,299

 
2.65


N/A

Avalon Venice on Rose (7)
 
Venice, CA
 
70

 
84,508

 
2012/2013
 
1,207

 
92.9
%
 
95.6
%

93.3
%

4,895

 
4.05


N/A

____________________________
1.
We own a fee simple interest in the communities listed, excepted as noted below.

29

Table of Contents

2.
Represents a community that was under redevelopment during the year, which could result in lower average economic occupancy and average rental rate per square foot for the year.
3.
Represents a community that is under construction at the respective year end or 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 averages per occupied apartment home.
5.
Dollars in thousands. Costs are presented in accordance with GAAP. For current Development Communities, cost represents total costs incurred through December 31, 2014 without reduction for deprecation. Financial reporting costs are excluded for unconsolidated communities, see Note 6, "Investments in Real Estate Entities."
6.
We own a 31.3% combined general partnership and indirect limited partner equity interest in this community.
7.
We own a 28.6% combined general partnership and indirect limited partner equity interest in this community.
8.
We own a 20.0% combined general partnership and indirect limited partner equity interest in this community.
9.
We own a general partnership interest in a partnership that owns a fee simple interest in this community.
10.
We own a general partnership interest in a partnership structured as a DownREIT that owns this community.
11.
We own a membership interest in a limited liability company that holds a fee simple interest in this community.
12.
Community is located on land subject to a land lease.
13.
Does not include our indirect interest in the joint venture formed with Equity Residential (as defined in this Form 10-K).
14.
Community is master leased to a third party manager.
15.
Includes 240 apartment homes which were destroyed and are uninhabitable as a result of the fire at Avalon at Edgewater in January 2015.

30

Table of Contents

Development Communities
As of December 31, 2014, we had 26 Development Communities under construction. We expect these Development Communities, when completed, to add a total of 8,524 apartment homes to our portfolio for a total capitalized cost, including land acquisition costs, of approximately $3,011,000,000. In addition, the land for two Development Communities that we control under long-term land lease agreements is subject to future minimum rental amounts of approximately $7,704,000 in 2015 in the aggregate. We cannot assure you that we will meet our schedule for construction completion or that we will meet our budgeted costs, either individually, or in the aggregate. You should carefully review Item 1A. "Risk Factors" for a discussion of the risks associated with development activity and our discussion under Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" (including the factors identified under "Forward-Looking Statements") for further discussion of development activity.
The following table presents a summary of the Development Communities. We hold a direct or indirect fee simple ownership interest in these communities, unless otherwise noted in the table.

31

Table of Contents

 
Number of
apartment
homes
 
Projected total
capitalized cost (1)
($ millions)
 
Construction
start
 
Initial  projected occupancy (2)
 
Estimated
completion
 
Estimated
stabilization (3)
1.
 
Avalon West Chelsea/AVA High Line (4)
New York, NY
710

 
$
276.1

 
 Q4 2011
 
 Q4 2013
 
Q1 2015
 
Q3 2015
2.
 
Avalon Assembly Row/AVA Somerville (4)
Somerville, MA
445

 
122.1

 
 Q2 2012
 
 Q2 2014
 
Q1 2015
 
Q3 2015
3.
 
Avalon Alderwood I
Lynnwood, WA
367

 
68.4

 
 Q2 2013
 
 Q2 2014
 
Q1 2015
 
Q3 2015
4.
 
AVA Little Tokyo
Los Angeles, CA
280

 
109.8

 
 Q4 2012
 
 Q3 2014
 
Q2 2015
 
Q4 2015
5.
 
Avalon Wharton
Wharton, NJ
247

 
53.9

 
 Q4 2012
 
 Q3 2014
 
Q2 2015
 
Q4 2015
6.
 
Avalon Baker Ranch
Lake Forest, CA
430

 
132.9

 
 Q4 2013
 
 Q4 2014
 
Q4 2015
 
Q2 2016
7.
 
Avalon Hayes Valley
San Francisco, CA
182

 
90.2

 
 Q3 2013
 
 Q1 2015
 
Q3 2015
 
Q1 2016
8.
 
Avalon Roseland
Roseland, NJ
136

 
46.2

 
 Q1 2014
 
 Q1 2015
 
Q3 2015
 
Q1 2016
9.
 
Avalon Falls Church
Falls Church, VA
384

 
109.8

 
 Q1 2014
 
 Q1 2015
 
Q1 2016
 
Q3 2016
10.
 
Avalon Vista
Vista, CA
221

 
58.3

 
 Q4 2013
 
 Q2 2015
 
Q4 2015
 
Q2 2016
11.
 
Avalon Marlborough
Marlborough, MA
350

 
77.1

 
 Q1 2014
 
 Q2 2015
 
Q2 2016
 
Q4 2016
12.
 
AVA Theater District
Boston, MA
398

 
175.7

 
 Q1 2013
 
 Q2 2015
 
Q4 2015
 
Q2 2016
13.
 
Avalon Willoughby Square/AVA DoBro
Brooklyn, NY
826

 
444.9

 
 Q3 2013
 
 Q3 2015
 
Q4 2016
 
Q2 2017
14.
 
Avalon Bloomfield Station
Bloomfield, NJ
224

 
53.4

 
 Q4 2013
 
 Q2 2015
 
Q4 2015
 
Q2 2016
15.
 
Avalon Glendora
Glendora, CA
280

 
82.5

 
 Q4 2013
 
 Q2 2015
 
Q1 2016
 
Q3 2016
16.
 
AVA Capitol Hill
Seattle, WA
249

 
81.4

 
 Q1 2014
 
 Q4 2015
 
Q2 2016
 
Q4 2016
17
 
Avalon Irvine III
Irvine, CA
156

 
55.0

 
 Q2 2014
 
 Q4 2015
 
Q1 2016
 
Q3 2016
18.
 
Avalon Dublin Station II
Dublin, CA
252

 
83.7

 
 Q2 2014
 
 Q4 2015
 
Q2 2016
 
Q4 2016
19.
 
Avalon Huntington Beach
Huntington Beach, CA
378

 
120.3

 
 Q2 2014
 
 Q3 2016
 
Q2 2017
 
Q4 2017
20.
 
Avalon West Hollywood
West Hollywood, CA
294

 
162.4

 
 Q2 2014
 
 Q3 2016
 
Q2 2017
 
Q4 2017
21.
 
Avalon Framingham
Framingham, MA
180

 
43.9

 
 Q3 2014
 
 Q3 2015
 
Q2 2016
 
Q4 2016
22.
 
Avalon Esterra Park
Redmond, WA
482

 
137.8

 
 Q3 2014
 
 Q2 2016
 
Q2 2017
 
Q4 2017
23.
 
Avalon North Station
Boston, MA
503

 
256.9

 
 Q3 2014
 
 Q4 2016
 
Q4 2017
 
Q2 2018
24.
 
Avalon Green III
Elmsford, NY
68

 
22.1

 
 Q4 2014
 
 Q4 2015
 
Q2 2016
 
Q4 2016
25.
 
Avalon Union
Union, NJ
202

 
50.7

 
 Q4 2014
 
 Q2 2016
 
Q4 2016
 
Q1 2017
26.
 
Avalon Princeton
Princeton, NJ
280

 
95.5

 
 Q4 2014
 
 Q3 2016
 
Q2 2017
 
Q4 2017
 
 
Total
8,524

 
$
3,011.0

 
 
 
 
 
 
 
 
_________________________________
(1)
Projected total capitalized cost includes all capitalized costs projected to be or actually incurred to develop the respective Development Community, determined in accordance with GAAP, including land acquisition costs, construction costs, real estate taxes, capitalized interest and loan fees, permits, professional fees, allocated development overhead and other regulatory fees.  Projected total capitalized cost for communities identified as having joint venture ownership, either during construction or upon construction completion, represents the total projected joint venture contribution amount.
(2)
Future initial occupancy dates are estimates.  There can be no assurance that we will pursue to completion any or all of these proposed developments.

32

Table of Contents

(3)
Stabilized operations is defined as the earlier of (i) attainment of 95% or greater physical occupancy or (ii) the one-year anniversary of completion of development.
(4)
Development community subject to a ground lease.
During the year ended December 31, 2014, the Company completed the development of the following communities:

 
Number of
apartment
homes
 
Total capitalized 
cost (1)
($ millions)
 
Approximate rentable area
(sq. ft.)
 
Total capitalized cost per sq. ft.
 
Quarter of completion
1.
 
Archstone Toscano
Houston, TX
474

 
$
87.5

 
460,983

 
$
190

 
Q1 2014
2.
 
Avalon Bloomingdale
Bloomingdale, NJ
174

 
31.5

 
176,542

 
$
178

 
Q1 2014
3.
 
AVA University District
Seattle, WA
283

 
75.2

 
201,389

 
$
373

 
Q2 2014
4.
 
Avalon Morrison Park
San Jose, CA
250

 
79.1

 
277,710

 
$
285

 
Q2 2014
5.
 
Avalon Ossining
Ossining, NY
168

 
36.8

 
184,137

 
$
200

 
Q2 2014
6.
 
Avalon Arlington North
Arlington, VA
228

 
82.0

 
268,618

 
$
305

 
Q3 2014
7.
 
Avalon Dublin Station
Dublin, CA
253

 
77.7

 
247,430

 
$
314

 
Q3 2014
8.
 
AVA 55 Ninth
San Francisco, CA
273

 
121.0

 
236,907

 
$
511

 
Q3 2014
9.
 
Avalon Canton at Blue Hills
Canton, MA
196

 
40.9

 
235,465

 
$
174

 
Q3 2014
10.
 
Memorial Heights Villages
Houston, TX
318

 
52.7

 
305,055

 
$
173

 
Q3 2014
11.
 
Avalon Berkeley
Berkeley, CA
94

 
33.7

 
78,858

 
$
427

 
Q3 2014
12.
 
Avalon at Stratford
Stratford, CT
130

 
29.7

 
148,136

 
$
200

 
Q3 2014
13.
 
Avalon North Point Lofts (2)
Cambridge, MA
103

 
28.0

 
46,506

 
$
602

 
Q3 2014
14.
 
Avalon Exeter
Boston, MA
187

 
126.6

 
200,641

 
$
631

 
Q4 2014
15.
 
Avalon Mosaic
Fairfax, VA
531

 
110.6

 
458,198

 
$
241

 
Q4 2014
16.
 
Avalon Huntington Station
Huntington Station, NY
303

 
81.2

 
364,602

 
$
223

 
Q4 2014
17.
 
Avalon San Dimas
San Dimas, CA
156

 
40.1

 
159,937

 
$
251

 
Q4 2014
 
 
Total
4,121

 
$
1,134.3

 
 
 
 

 
 
____________________________________
(1)
Total capitalized cost is as of December 31, 2014. The Company generally anticipates incurring additional costs associated with these communities that are customary for new developments.
(2)
The Company has a 20.0% ownership interest in this community through the AC JV.

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Table of Contents

Redevelopment Communities
As of December 31, 2014, there were eight communities under redevelopment. We expect the total capitalized cost to redevelop these communities to be $131,700,000, excluding costs incurred prior to redevelopment. 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 schedule for reconstruction completion or for attaining restabilized operations, or that we will meet our budgeted costs, either individually or in the aggregate. We anticipate maintaining or increasing our current level of redevelopment activity related to communities in our current operating portfolio. You should carefully review Item 1A. "Risk Factors" for a discussion of the risks associated with redevelopment activity.
The following presents a summary of these Redevelopment Communities:
 
 
 
 
Number of
apartment
homes
 
Projected total
capitalized cost (1)
($ millions)
 
Reconstruction
start
 
Estimated
reconstruction
completion
 
Estimated
restabilized
operations (2)
1.
 
AVA Back Bay
Boston, MA
 
271

 
$
21.0

 
 Q1 2013
 
 Q1 2015
 
 Q3 2015
2.
 
AVA Pacific Beach
San Diego, CA
 
564

 
23.6

 
 Q1 2014
 
Q1 2016
 
 Q3 2016
3.
 
Eaves Dublin
Dublin, CA
 
204

 
9.2

 
 Q2 2014
 
Q2 2015
 
 Q4 2015
4.
 
Avalon Green
Elmsford, NY
 
105

 
6.5

 
 Q4 2014
 
Q4 2015
 
 Q2 2016
5.
 
Avalon Santa Monica on Main
Santa Monica, CA
 
133

 
10.0

 
 Q4 2014
 
Q4 2015
 
 Q2 2016
6.
 
Avalon Towers
Long Beach, NY
 
109

 
10.2

 
 Q4 2014
 
Q4 2015
 
 Q2 2016
7.
 
Avalon Silicon Valley
Sunnyvale, CA
 
710

 
29.9

 
 Q4 2014
 
Q1 2017
 
 Q3 2017
8.
 
Avalon at Arlington Square
Arlington, VA
 
842

 
21.3

 
 Q4 2014
 
Q2 2016
 
 Q4 2016
 
 
Total
 
2,938

 
$
131.7

 
 
 
 
 
 
____________________________________
(1)
Projected total capitalized cost does not include capitalized costs incurred prior to redevelopment.
(2)
Restabilized operations is defined as the earlier of (i) attainment of 95% or greater physical occupancy or (ii) the one-year anniversary of completion of redevelopment.
Development Rights
At December 31, 2014, we had $180,516,000 in acquisition and related capitalized costs for land parcels we own, and $67,029,000 in capitalized costs (including legal fees, design fees and related overhead costs) related to Development Rights for which we control the land parcel, typically through an option to purchase or lease the land. Collectively, the land held for development and associated costs for deferred development rights relate to 37 Development Rights for which we expect to develop new apartment communities in the future. The cumulative capitalized costs for land held for development as of December 31, 2014 includes $144,099,000 in original land acquisition costs. The original land acquisition cost per home ranged from $24,000 per home in Connecticut to $74,000 per home in New York. The 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 approximately 10,384 apartment homes to our portfolio. Substantially all of these apartment homes will offer features like those offered by the communities we currently own.
For 24 Development Rights, we control the land through an option to purchase or lease the parcel. While we generally prefer to hold Development Rights through options to acquire land, for the 13 remaining Development Rights we either currently own the land or have executed a long term land lease for the parcel of land on which a community would be built if we proceeded with development.

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Table of Contents

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 invest in, 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. In the event that we do not proceed with a Development Right, we generally would not recover any of the capitalized costs incurred in the pursuit of those communities, unless we were to recover amounts in connection with the sale of land; however, we cannot guarantee a recovery. Pre-development costs incurred in the pursuit of Development Rights, for which future development is not yet considered probable, are expensed as incurred. In addition, if the status of a Development Right changes, making future development no longer probable, any capitalized pre-development costs are charged to expense. During 2014, we incurred a charge of approximately $3,964,000 for development pursuits that were not yet probable of future development at the time incurred, or for pursuits that we determined would not likely be developed.
You should carefully review Item 1A. "Risk Factors," for a discussion of the risks associated with Development Rights.
The following presents a summary of these Development Rights:
Location
 
Number of rights
 
Estimated
number of homes
 
Projected total
capitalized cost ($ millions) (1)
 
 
 
 
 
 
 
Boston, MA
 
3

 
974

 
$
240

Fairfield-New Haven, CT
 
1

 
160

 
40

New York City
 
2

 
429

 
401

New York Suburban
 
4

 
598

 
219

New Jersey
 
13

 
3,918

 
963

Baltimore, MD
 
1

 
332

 
73

Washington, DC Metro
 
6

 
1,929

 
509

Seattle, WA
 
3

 
772

 
201

Oakland-East Bay, CA
 
2

 
615

 
282

San Francisco, CA
 
1

 
326

 
168

Riverside-San Bernardino, CA
 
1

 
331

 
91

Total
 
37

 
10,384

 
$
3,187

____________________________________
(1)
Projected total capitalized cost includes all capitalized costs incurred to date (if any) and projected to be incurred to develop the respective community, determined in accordance with GAAP, including land acquisition costs, construction costs, real estate taxes, capitalized interest and loan fees, permits, professional fees, allocated development overhead and other regulatory fees.
Land Acquisitions
We select land for development and follow established procedures that we believe minimize both the cost and the risks of development. During 2014 we acquired land parcels for 12 Development Rights, as shown in the table below, for an aggregate investment of approximately $139,685,000.

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Table of Contents

 
 
 
Estimated
number of
apartment
homes
 
Projected total
capitalized
cost(1)
($ millions)
 
Date
acquired
1.
 
Avalon Rockville Centre II
Rockville Centre, NY
112

 
$
42.3

 
January 2014
2.
 
Avalon Princeton
Princeton, NJ
280

 
95.5

 
February 2014
3.
 
Avalon Sheepshead Bay (2)
Brooklyn, NY
167

 
65.9

 
April 2014
4.
 
Avalon Esterra Park
Redmond, WA
482

 
137.8

 
June 2014
5.
 
Avalon Chino Hills
Chino Hills, CA
331

 
90.9

 
July 2014
6.
 
Avalon Glendora (3)
Glendora, CA
24

 
7.4

 
July 2014
7.
 
Avalon Framingham
Framingham, MA
180

 
43.9

 
August 2014
8.
 
Avalon Laurel
Laurel, MD
344

 
68.8

 
September 2014
9.
 
Avalon Hunt Valley
Baltimore, MD
332

 
73.0

 
December 2014
10.
 
Avalon Great Neck
Great Neck, NY
191

 
79.1

 
December 2014
11.
 
Avalon Union
Union, NJ
202

 
50.7

 
December 2014
12.
 
Avalon Alderwood II
Lynnwood, WA
124

 
26.1

 
December 2014
 
 
Total
2,769

 
$
781.4

 
 
____________________________________
(1)
Projected total capitalized cost includes all capitalized costs incurred to date (if any) and projected to be incurred to develop the respective community, determined in accordance with GAAP, including land and related acquisition costs, construction costs, real estate taxes, capitalized interest and loan fees, permits, professional fees, allocated development overhead and other regulatory fees.
(2)
Land was acquired through a joint venture in which the Company owns a 70.0% interest.
(3)
In 2014, we acquired this additional parcel of land for the development of Avalon Glendora, expected to have a total of 280 apartment homes for a projected total capitalized cost of $82.5 million.
In January 2015, we acquired land for $325,000,000 associated with three Development Rights located in New York, NY and Bellevue, WA. If developed as expected, the development rights related to this land will contain 910 apartment homes for a projected total capital cost of $509,717,000.
Other Land and Real Estate Assets
We own land parcels with a carrying value of approximately $20,941,000, which we do not currently plan to develop. These parcels consist of (i) land that we originally planned to develop and (ii) ancillary parcels acquired in connection with Development Rights that we had not planned to develop. We believe that the current carrying value for all of these land parcels is such that there is no indication of impaired value, or further need to record a charge for impairment in the case of assets previously impaired. However, we may be subject to the recognition of further charges for impairment in the event that there are indicators of such impairment and we determine that the carrying value of the assets is greater than the current fair value, less costs to dispose.
Disposition Activity
We (i) sell assets when they do not meet our long-term investment strategy or when capital and real estate markets allow us to realize a portion of the value created over the past business cycle and (ii) redeploy the proceeds from those sales to develop, redevelop and acquire communities. Pending such redeployment, we will generally use the proceeds from the sale of these communities to reduce amounts outstanding under our Credit Facility or retain the cash proceeds on our balance sheet until it is redeployed into development or redevelopment activity. On occasion, we will set aside the proceeds from the sale of communities into a cash escrow account to facilitate a tax deferred, like-kind exchange transaction. From January 1, 2014 to January 31, 2015, we sold our interest in five wholly-owned communities, containing 1,660 apartment homes. The aggregate gross sales price for these assets was $411,700,000.

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Table of Contents

Insurance and Risk of Uninsured Losses
We carry commercial general liability insurance and property insurance with respect to all of our communities. These policies, and other insurance policies we carry, have policy specifications, insured and self-insured limits and deductibles that we consider commercially reasonable. There are, however, certain types of losses (such as losses arising from acts of war) that are not insured, in full or in part, because they are either uninsurable or the cost of insurance makes it, in management’s view, economically impractical. You should carefully review the discussion under Item 1A. “Risk Factors” of this Form 10-K for a discussion of risks associated with an uninsured property or liability loss.
Many of our West Coast communities are located in the general vicinity of active earthquake faults. Many of our communities are near, and thus susceptible to, the major fault lines in California, including the San Andreas Fault and the Hayward Fault. We cannot assure you that an earthquake would not cause damage or losses greater than insured levels. We have in place with respect to communities located in California and Washington, for any single occurrence and in the aggregate, $150,000,000 of coverage. Earthquake coverage outside of California and Washington is subject to a $175,000,000 limit for each occurrence and in the aggregate. In California the deductible for each occurrence is five percent of the insured value of each damaged building with a maximum of $25,000,000 per loss. Our earthquake insurance outside of California provides for a $100,000 deductible per occurrence except that the next $350,000 of loss per occurrence outside California will be treated as an additional self-insured retention until the total incurred self-insured retention exceeds $1,500,000. We self-insure a portion of our primary property insurance which includes the earthquake risks.
Just as with office buildings, transportation systems and government buildings, there have been reports that apartment communities could become targets of terrorism. In December 2007, Congress passed the Terrorism Risk Insurance Program Reauthorization Act (“TRIPRA”) which is designed to make terrorism insurance available through a federal back-stop program. Congress reauthorized TRIPRA in January 2015 for six years. We have also purchased insurance for property damage due to terrorism up to $400,000,000 including insurance for certain terrorist acts, not covered under TRIPRA, such as domestic-based terrorism. This insurance, often referred to as “non-certified” terrorism insurance, is subject to deductibles, limits and exclusions. Our general liability policy provides terrorism coverage through TRIPRA (subject to deductibles and insured limits) for liability to third parties that result from terrorist acts at our communities.
An additional consideration for insurance coverage and potential uninsured losses is mold growth. Mold growth may occur when excessive moisture accumulates in buildings or on building materials, particularly if the moisture problem remains undiscovered or is not addressed over a period of time. If a significant mold problem arises at one of our communities, we could be required to undertake a costly remediation program to contain or remove the mold from the affected community and could be exposed to other liabilities. For further discussion of the risks and the Company’s related prevention and remediation activities, please refer to the discussion under Item 1A. “Risk Factors - We may incur costs due to environmental contamination or non-compliance” elsewhere in this report. We cannot provide assurance that we will have coverage under our existing policies for property damage or liability to third parties arising as a result of exposure to mold or a claim of exposure to mold at one of our communities.
We also carry crime policies (also commonly referred to as a fidelity policy or employee dishonesty policy) that protect the Company, up to $30,000,000 per occurrence, from employee theft of money, securities or property. This amount may not be sufficient to cover losses that may be in excess of the policy limits.
Edgewater Casualty Loss
In January 2015 a fire occurred at our Avalon at Edgewater apartment community located in Edgewater, New Jersey ("Edgewater"). Edgewater consisted of two residential buildings. One building, which contained 240 apartment homes, was destroyed and is uninhabitable. The second building, which contains 168 apartment homes, has been reoccupied and we currently believe it only suffered minimal damage. We are currently assessing our direct losses resulting from the fire, which could vary based on costs and time to rebuild, as well as our liability to third parties who incurred damages on account of the fire. To date, a number of lawsuits on behalf of former residents have been filed against us, including three purported class actions. While we currently believe that our direct losses and liability to third parties will be substantially covered by our insurance policies, including coverage for the replacement cost of the building, third party claims, and business interruption loss, subject to deductibles as well as a self-insured portion of the property insurance for which we are obligated for 12% of the first $50,000,000 in losses, we can give no assurances in this regard and continue to evaluate this matter.


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Table of Contents

As of December 31, 2014, Edgewater was encumbered with a fixed-rate secured mortgage note with an effective interest rate of 5.95%, and an outstanding principal balance of $75,012,000, due in May 2019 (the “Edgewater Mortgage”). The Edgewater Mortgage stipulates that in the event of a casualty loss such as the Edgewater fire, the lender has absolute discretion to determine the disposition of the insurance proceeds, and can compel us (i) to direct the insurance proceeds to be used for the restoration of Edgewater, or (ii) to apply the insurance proceeds to repay the outstanding loan balance, at par. As of the date of this Form 10-K, we are complying with all lender requirements, and are working with the lender to resolve open issues related to the Edgewater Mortgage.
ITEM 3.    LEGAL PROCEEDINGS
As discussed immediately above, in January 2015 a fire occurred at the Company's Avalon at Edgewater apartment community in Edgewater, NJ. The Company is aware that third parties including residents suffered significant property damage and other losses, such as relocation costs, associated with the fire, but the Company is not aware of any persons who suffered major personal injury. To date, a number of lawsuits have been filed on behalf of Edgewater residents, including the following three purported class actions: DeMarco and Bayer et al v. AvalonBay Communities Inc. et al and Gutierrez v. AvalonBay Communities, Inc. et al, each filed in the United States District Court for the District of New Jersey; and Loposky and Kemp et al v. AvalonBay Communities, Inc. et al filed in the Superior Court of New Jersey Bergen County - Law Division. While the Company currently believes that, subject to applicable deductibles, all of its liability to third parties resulting from the fire will be substantially covered by its insurance policies, the Company can give no assurances in this regard and continues to evaluate this matter.

The Company is involved in various other claims and/or administrative proceedings that arise in the ordinary course of our business. While no assurances can be given, the Company does not currently believe that any of these other outstanding litigation matters, individually or in the aggregate, will have a material adverse effect on its financial condition or results of operations.
ITEM 4.    MINE SAFETY DISCLOSURES
Not Applicable.

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Table of Contents

PART II

ITEM 5.    MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock is traded on the NYSE under the ticker symbol AVB. The following table sets forth the quarterly high and low sales prices per share of our common stock for the years 2014 and 2013, as reported by the NYSE. On January 30, 2015 there were 547 holders of record of an aggregate of 132,049,857 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 record holder.
 
 
2014
 
2013
 
 
Sales Price
 
Dividends
declared
 
Sales Price
 
Dividends
declared
 
 
High
 
Low
 
High
 
Low
 
Quarter ended March 31
 
$
132.17

 
$
114.16

 
$
1.16

 
$
139.15

 
$
124.02

 
$
1.07

Quarter ended June 30
 
$
144.51

 
$
130.04

 
$
1.16

 
$
141.46

 
$
127.97

 
$
1.07

Quarter ended September 30
 
$
157.16

 
$
139.27

 
$
1.16

 
$
141.04

 
$
122.36

 
$
1.07

Quarter ended December 31
 
$
170.14

 
$
141.00

 
$
1.16

 
$
134.25

 
$
116.86

 
$
1.07

At present, we expect to continue our policy of paying regular quarterly cash dividends. However, the form, timing and/or amount of 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.
In January 2015, we announced that our Board of Directors declared a dividend on our common stock for the first quarter of 2015 of $1.25 per share, a 7.8% increase over the previous quarterly dividend per share of $1.16. The dividend will be payable on April 15, 2015 to all common stockholders of record as of March 31, 2015.
Issuer Purchases of Equity Securities
Period
 
(a)
Total Number
of Shares
Purchased(1)
 
(b)
Average
Price Paid
per Share
 
(c)
Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs
 
(d)
Maximum Dollar
Amount that May Yet
be Purchased Under
the Plans or Programs
(in thousands) (2)
October 1 - October 31, 2014
 

 
$

 
 
$
200,000

November 1 - November 30, 2014
 
649

 
$
156.93

 
 
$
200,000

December 1 - December 31, 2014
 
891

 
$
162.24

 
 
$
200,000

_________________________________

(1)
Reflects shares surrendered to the Company in connection with exercise of stock options as payment of exercise price, as well as for taxes associated with the vesting of restricted share grants.
(2)
As disclosed in our Form 10-Q for the quarter ended March 31, 2008, represents amounts outstanding under the Company's $500,000,000 Stock Repurchase Program. There is no scheduled expiration date to this program.
Information regarding securities authorized for issuance under equity compensation plans is included in the section entitled "Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters" in this Form 10-K.


39

Table of Contents

ITEM 6.    SELECTED FINANCIAL DATA
The following table provides historical consolidated financial, operating and other data for the Company. You should read the table with our Consolidated Financial Statements and the Notes included in this report (dollars in thousands, except per share information).
 
For the year ended
 
12/31/14
 
12/31/13
 
12/31/12
 
12/31/11
 
12/31/10
Revenue:
 

 
 

 
 

 
 

 
 

Rental and other income
$
1,674,011

 
$
1,451,419

 
$
990,370

 
$
890,431

 
$
800,689

Management, development and other fees
11,050

 
11,502

 
10,257

 
9,656

 
7,354

Total revenue
1,685,061

 
1,462,921

 
1,000,627

 
900,087

 
808,043

 
 
 
 
 
 
 
 
 
 
Expenses:
 

 
 

 
 

 
 

 
 

Operating expenses, excluding property taxes
410,672

 
352,245

 
259,350

 
246,872

 
235,168

Property taxes
178,634

 
158,774

 
97,555

 
88,964

 
84,319

Interest expense, net
180,618

 
172,402

 
136,920

 
167,814

 
169,997

Loss on extinguishment of debt, net
412

 
14,921

 
1,179

 
1,940

 

Loss on interest rate contract

 
51,000

 

 

 

Depreciation expense
442,682

 
560,215

 
243,680

 
226,728

 
208,662

General and administrative expense
41,425

 
39,573

 
34,101

 
29,371

 
27,081

Expensed acquisition, development and other pursuit costs, net of recoveries
(3,717
)
 
45,050

 
11,350

 
2,967

 
2,741

Casualty and impairment loss

 

 
1,449

 
14,052

 

Total expenses
1,250,726

 
1,394,180

 
785,584

 
778,708

 
727,968

 
 
 
 
 
 
 
 
 
 
Equity in (loss) income of unconsolidated entities
148,766

 
(11,154
)
 
20,914

 
5,120

 
762

Gain on sale of land
490

 
240

 
280

 
13,716

 

Gain on sale of communities
84,925

 

 

 

 

Gain on acquisition of unconsolidated entity

 

 
14,194

 

 

 
 
 
 
 
 
 
 
 
 
Income from continuing operations before taxes
668,516

 
57,827

 
250,431

 
140,215

 
80,837

Income tax expense
9,368

 

 

 

 
(235
)
 
 
 
 
 
 
 
 
 
 
Income from continuing operations
659,148

 
57,827

 
250,431

 
140,215

 
81,072

 
 
 
 
 
 
 
 
 
 
Discontinued operations:
 

 
 

 
 

 
 

 
 

Income from discontinued operations
310

 
16,713

 
26,820

 
20,065

 
18,933

Gain on sale of discontinued operations
37,869

 
278,231

 
146,311

 
281,090

 
74,074

Total discontinued operations
38,179

 
294,944

 
173,131

 
301,155

 
93,007

 
 
 
 
 
 
 
 
 
 
Net income
697,327

 
352,771

 
423,562

 
441,370

 
174,079

Net (income) loss attributable to noncontrolling interests
(13,760
)
 
370

 
307

 
252

 
1,252

 


 


 


 


 


Net income attributable to common stockholders
$
683,567

 
$
353,141


$
423,869


$
441,622


$
175,331

 
 
 
 
 
 
 
 
 
 
Per Common Share and Share Information:
 

 
 

 
 

 
 

 
 

 
 
 
 
 
 
 
 
 
 
Earnings per common share—basic:
 

 
 

 
 

 
 

 
 

Income from continuing operations attributable to common stockholders (net of dividends attributable to preferred stock)
$
4.93

 
$
0.46

 
$
2.57

 
$
1.55

 
$
0.97

Discontinued operations attributable to common stockholders
0.29

 
2.32

 
1.77

 
3.34

 
1.11

Net income attributable to common stockholders
$
5.22

 
$
2.78

 
$
4.34

 
$
4.89

 
$
2.08

Weighted average shares outstanding—basic (1)
130,586,718

 
126,855,754

 
97,416,401

 
89,922,465

 
83,859,936

 
 
 
 
 
 
 
 
 
 
Earnings per common share—diluted:
 

 
 

 
 

 
 

 
 

Income from continuing operations attributable to common stockholders (net of dividends attributable to preferred stock)
$
4.92

 
$
0.46

 
$
2.55

 
$
1.55

 
$
0.97

Discontinued operations attributable to common stockholders
0.29

 
2.32

 
1.77

 
3.32

 
1.10

Net income attributable to common stockholders
$
5.21

 
$
2.78

 
$
4.32

 
$
4.87

 
$
2.07

Weighted average shares outstanding—diluted
131,237,502

 
127,265,903

 
98,025,152

 
90,777,462

 
84,632,869

Cash dividends declared
$
4.64

 
$
4.28

 
$
3.88

 
$
3.57

 
$
3.57

_________________________________
(1)
Amounts do not include unvested restricted shares included in the calculation of Earnings per Share. Please refer to Note 1, "Organization and Basis of Presentation—Earnings per Common Share," of the Consolidated Financial Statements set forth in Item 8 of this report for a discussion of the calculation of Earnings per Share.

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Table of Contents

 
For the year ended
 
12/31/14
 
12/31/13
 
12/31/12
 
12/31/11
 
12/31/10
Other Information:
 

 
 

 
 

 
 

 
 

Net income attributable to common stockholders
$
683,567

 
$
353,141

 
$
423,869

 
$
441,622

 
$
175,331

Depreciation—continuing operations
442,682

 
560,215

 
243,680

 
226,728

 
208,662

Depreciation—discontinued operations

 
13,500

 
16,414

 
23,541

 
24,280

Interest expense, net—continuing operations (1)
181,030

 
238,323

 
138,099

 
169,754

 
169,997

Interest expense, net—discontinued operations (1)

 

 
735

 
8,688

 
5,212

Income tax expense
9,368

 

 

 

 
(235
)
EBITDA (2)
$
1,316,647

 
$
1,165,179

 
$
822,797

 
$
870,333

 
$
583,247

 
 
 
 
 
 
 
 
 
 
Funds from Operations (3)
$
951,035

 
$
642,814

 
$
521,047

 
$
414,482

 
$
338,353

Number of Current Communities (4)
251

 
244

 
180

 
181

 
172

Number of apartment homes
73,963

 
72,811

 
52,792

 
53,294

 
51,245

 
 
 
 
 
 
 
 
 
 
Balance Sheet Information:
 

 
 

 
 

 
 

 
 

Real estate, before accumulated depreciation
$
17,849,316

 
$
16,800,321

 
$
10,049,484

 
$
9,288,496

 
$
8,661,211

Total assets
$
16,176,723

 
$
15,328,143

 
$
11,160,078

 
$
8,482,390

 
$
7,821,488

Notes payable and unsecured credit facilities
$
6,525,852

 
$
6,145,391

 
$
3,851,033

 
$
3,632,296

 
$
4,067,657

 
 
 
 
 
 
 
 
 
 
Cash Flow Information:
 

 
 

 
 

 
 

 
 

Net cash flows provided by operating activities
$
886,641

 
$
724,315

 
$
540,819

 
$
429,354

 
$
332,106

Net cash flows used in investing activities
$
(816,760
)
 
$
(1,181,174
)
 
$
(623,386
)
 
$
(443,141
)
 
$
(298,936
)
Net cash flows (used in) provided by financing activities
$
158,224

 
$
(1,995,404
)
 
$
2,199,332

 
$
326,233

 
$
167,565

_________________________________
Notes to Selected Financial Data
(1)
Interest expense, net includes any loss or gain incurred from the extinguishment of debt.
(2)
EBITDA is defined as net income before interest income and expense, income taxes, depreciation and amortization from both continuing and discontinued operations. Under this definition, EBITDA includes gains on sale of assets and gain on sale of partnership interests. Management generally considers EBITDA to be an appropriate supplemental measure to net income of our operating performance because it helps investors to understand our ability to incur and service debt and to make capital expenditures. EBITDA should not be considered as an alternative to net income (as determined in accordance with 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 EBITDA may not be comparable to EBITDA as calculated by other companies.
(3)
We generally consider Funds from Operations, or "FFO," as defined below, to be an appropriate supplemental measure of our operating and financial performance because, by excluding gains or losses related to dispositions of previously depreciated property 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 real estate company between periods or as compared to different companies. We believe that in order to understand our operating results, FFO should be examined with net income as presented in the Consolidated Statements of Comprehensive Income included elsewhere in this report.
Consistent with the definition adopted by the Board of Governors of the National Association of Real Estate Investment Trusts® ("NAREIT"), we calculate FFO as net income or loss 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 change in accounting principle;
impairment write-downs of depreciable real estate assets;

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write-downs of investments in affiliates due to a decrease in the value of depreciable real estate assets held by those affiliates;
depreciation of real estate assets; and
adjustments for unconsolidated partnerships and joint ventures.
FFO does not represent net income in accordance with GAAP, and therefore it should not be considered an alternative to net income, which remains the primary measure, as an indication of our performance. In addition, FFO as calculated by other REITs may not be comparable to our calculation of FFO.
FFO also does not represent cash generated from operating activities in accordance with GAAP, and therefore should not be considered an alternative to net cash flows from operating activities, as determined by GAAP, as a measure of liquidity. Additionally, it is not necessarily indicative of cash available to fund cash needs. A presentation of GAAP based cash flow metrics is provided in "Cash Flow Information" in the table on the previous page.
The following is a reconciliation of net income to FFO (dollars in thousands, except per share data).
 
For the year ended
 
12/31/14
 
12/31/13
 
12/31/12
 
12/31/11
 
12/31/10
Net income attributable to common stockholders
$
683,567

 
$
353,141

 
$
423,869

 
$
441,622

 
$
175,331

Depreciation—real estate assets, including discontinued operations and joint venture adjustments
449,769

 
582,325

 
265,627

 
256,986

 
237,041

Distributions to noncontrolling interests, including discontinued operations
35

 
32

 
28

 
27

 
55

Gain on sale of unconsolidated entities holding previously depreciated real estate assets
(73,674
)
 
(14,453
)
 
(7,972
)
 
(3,063
)
 

Gain on sale of previously depreciated real estate assets (1)
(108,662
)
 
(278,231
)
 
(146,311
)
 
(281,090
)
 
(74,074
)
Gain on acquisition of unconsolidated real estate entity

 

 
(14,194
)
 

 

FFO attributable to common stockholders
$
951,035

 
$
642,814

 
$
521,047

 
$
414,482

 
$
338,353

 
 
 
 
 
 
 
 
 
 
Weighted average shares outstanding—diluted
131,237,502

 
127,265,903

 
98,025,152

 
90,777,462

 
84,632,869

FFO per common share—diluted
$
7.25

 
$
5.05

 
$
5.32

 
$
4.57

 
$
4.00

_________________________________
    
(1)
Amount for 2014 excludes a gain of $14,132, representing our joint venture partners' portion of the gain on sale from a Fund I community which we consolidated for financial reporting purposes.

(4)
Current Communities consist of all communities other than those which are still under construction and for which a certificate or certificates of occupancy for the entire community have not been received


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ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is intended to help provide an understanding of our business, financial condition and results of operations. This MD&A should be read in conjunction with our Consolidated Financial Statements and the accompanying Notes to Consolidated Financial Statements included elsewhere in this report. This report, including the following MD&A, contains forward-looking statements regarding future events or trends that should be read in conjunction with the factors described under "Forward-Looking Statements" included in this report. Actual results or developments could differ materially from those projected in such statements as a result of the factors described under "Forward-Looking Statements" as well as the risk factors described in Item 1A. "Risk Factors" of this report.
Capitalized terms used without definition have the meanings provided elsewhere in this Form 10-K.
Executive Overview
Business Description
We develop, redevelop, acquire, own and operate multifamily apartment communities primarily in New England, the New York/New Jersey metro area, the Mid-Atlantic, the Pacific Northwest, and Northern and Southern California. We believe that apartment communities are an attractive long-term investment opportunity compared to other real estate investments, because a broad potential resident base should help reduce demand volatility over a real estate cycle, and shorter lease terms allow for a better ability to take advantage of inflationary environments. We focus on leading metropolitan areas that we believe are characterized by growing employment in high wage sectors of the economy, lower housing affordability and a diverse and vibrant quality of life. We believe these market characteristics offer the opportunity for superior risk-adjusted returns on apartment community investment relative to other markets. We seek to create long-term shareholder value by accessing capital on cost effective terms; deploying that capital to develop, redevelop and acquire apartment communities in our selected markets; operating apartment communities; and selling communities when they no longer meet our long-term investment strategy or when pricing is attractive.
Our strategy is to be leaders in market research and capital allocation, delivering a range of multifamily offerings tailored to serve the needs of the most attractive customer segments in the best-performing submarkets of the United States. Our communities are predominately upscale and generally command among the highest rents in their markets. However, we also pursue the ownership and operation of apartment communities that target a variety of customer segments and price points, consistent with our goal of offering a broad range of products and services.
Financial Highlights
For the year ended December 31, 2014, net income attributable to common stockholders was $683,567,000, an increase of $330,426,000, or 93.6%, over the prior year. The increase is primarily attributable to an increase in income from unconsolidated real estate entities resulting from the gains on sales of communities in various ventures, including the Company’s promoted interests, increased NOI from newly developed and acquired communities, losses on an interest rate contract in the prior year not present in 2014, a decrease in expensed acquisition costs related to the Archstone Acquisition, and a decrease in depreciation expense related to in-place leases acquired as part of the Archstone Acquisition.
For the year ended December 31, 2014, Established Communities NOI increased by $22,961,000, or 3.5%, over the prior year. The increase was driven by an increase in rental revenue of 3.9%, partially offset by an increase in operating expenses of 4.9% over 2013. For purposes of the discussion in the MD&A, our Established Communities include those communities which we owned and had stabilized occupancy as of January 1, 2013, and therefore does not include communities acquired as part of the Archstone Acquisition.
During 2014, we raised approximately $1,154,220,000 of gross capital through the issuance of common equity and unsecured notes, borrowing on the Term Loan and asset sales, exclusive of proceeds from the disposition of joint ventures. The funds raised from asset sales consist of the proceeds from the sale of four communities and one parcel of land for gross sales proceeds of $304,250,000. In addition, in January 2015 we sold one community, Avalon on Stamford Harbor, located in Stamford, CT, for $115,500,000. We believe that our current capital structure will continue to provide financial flexibility to access capital on attractive terms.
We believe our development activity will continue to create long-term value. We increased development activity during 2014 from the prior year in anticipation of continued favorable economic conditions and apartment fundamentals. During 2014, we completed the development of 17 communities for an aggregate total capitalized cost of $1,134,300,000. We also started the development of 14 communities, which are expected to be completed for an estimated total capitalized cost of $1,342,800,000. In addition, during 2014 we completed the redevelopment of five communities for a total investment of $53,000,000, excluding costs incurred prior to the redevelopment.

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We believe that our balance sheet strength, as measured by our current level of indebtedness, our current ability to service interest and other fixed charges, and our current moderate use of financial encumbrances (such as secured financing) provide us with adequate access to liquidity from the capital markets and financial flexibility. We expect to be able to meet our reasonably foreseeable liquidity needs, as they arise, through a combination of one or more of the following sources: operating cash flows; borrowings under our Credit Facility and Term Loan; secured debt; the issuance of corporate securities (which could include unsecured debt, preferred equity and/or common equity, including common equity issued pursuant to the Forward); the sale of apartment communities; or through the formation of joint ventures. See the discussion under Liquidity and Capital Resources.
During the year ended December 31, 2014, we acquired Avalon Mission Oaks, located in Camarillo, CA. Avalon Mission Oaks contains 160 apartment homes and was acquired for a purchase price of $47,000,000.
During the year ended December 31, 2014, we sold four communities, containing an aggregate of 1,337 apartment homes for an aggregate gross sales price of $296,200,000 and an aggregate gain in accordance with GAAP of $106,138,000. During 2014, we also sold a land parcel in Huntington Station, NY for $8,050,000, resulting in a gain in accordance with GAAP of $490,000.
During the year ended December 31, 2014, three of the Company's joint ventures, excluding the Residual JV, sold operating communities.
CVP I, LLC, the entity that owned Avalon Chrystie Place, located in New York, NY containing 361 apartment homes and approximately 71,000 square feet of retail space, sold the community for $365,000,000. We own a 20.0% interest in the entity, and our share of the gain in accordance with GAAP for the disposition was $50,478,000. In addition, we received $58,128,000 for our promoted interest in CVP I, LLC.
Fund I sold its final four communities, containing an aggregate of 724 homes for an aggregate gross sales price of $125,000,000. Our share of the aggregate total gain in accordance with GAAP was $3,317,000.
Fund II sold two communities containing an aggregate of 711 apartment homes for an aggregate sales price of $166,950,000. Our share of the total gain in accordance with GAAP was $21,624,000.
In conjunction with the disposition of these communities, the respective ventures repaid $224,178,000 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 $2,339,000, and was reported as a reduction of equity in income of unconsolidated real estate entities.
Edgewater Casualty Loss
As discussed under Item 2. "Communities — Insurance and Risk of Uninsured Losses — Edgewater Casualty Loss," in January 2015 a fire occurred at Edgewater. The Company is currently assessing its direct losses resulting from the fire, which could vary based on costs and time to rebuild, as well its liability to third parties who incurred damages on account of the fire.
Communities Overview
As of December 31, 2014, excluding indirect interests associated with the Residual JV, we owned or held a direct or indirect ownership interest in 277 apartment communities containing 82,487 apartment homes in 11 states and the District of Columbia, of which 26 communities were under construction and eight communities were under reconstruction. Of these communities, 24 were owned by entities that were not consolidated for financial reporting purposes, including 10 owned by subsidiaries of Fund II and nine owned by the U.S. Fund. In addition, we owned a direct or indirect ownership interest in Development Rights to develop an additional 37 wholly-owned communities that, if developed as expected, will contain an estimated 10,384 apartment homes.
Our real estate investments consist primarily of current operating apartment communities, Development Communities and Development Rights. Our current operating communities are further distinguished as Established Communities, Other Stabilized Communities, Lease-Up Communities and Redevelopment Communities.
Established Communities are generally operating communities that are consolidated for financial reporting purposes and were owned and had stabilized occupancy and operating expenses as of the beginning of the prior year, which allows the performance of these communities to be compared between years. Other Stabilized Communities are generally all other consolidated operating communities that have stabilized occupancy and operating expenses during the current year, but had not achieved stabilization as of the beginning of the prior year. Lease-Up Communities consist of communities where construction is complete but stabilization has not been achieved. Redevelopment Communities consist of communities where substantial redevelopment is in progress or is planned to begin during the current year. A more detailed description of our reportable segments and other related operating information can be found in Note 9, "Segment Reporting," of our Consolidated Financial Statements.

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Although each of these categories is important to our business, we generally evaluate overall operating, industry and market trends based on the operating results of Established Communities, for which a detailed discussion can be found in "Results of Operations" as part of our discussion of overall operating results. We evaluate our current and future cash needs and future operating potential based on acquisition, disposition, development, redevelopment and financing activities within Other Stabilized, Redevelopment and Development Communities. Discussions related to current and future cash needs and financing activities can be found in "Liquidity and Capital Resources."
NOI of our current operating communities is one of the financial measures that we use to evaluate community performance. NOI is affected by the demand and supply dynamics within our markets, our rental rates and occupancy levels and our ability to control operating costs. Our overall financial performance is also impacted by the general availability and cost of capital and the performance of newly developed, redeveloped and acquired apartment communities.

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Results of Operations
Our year-over-year operating performance is primarily affected by both overall and individual geographic market conditions and apartment fundamentals and reflected in changes in NOI of our Established Communities; NOI derived from acquisitions and development completions; the loss of NOI related to disposed communities; and capital market and financing activity. A comparison of our operating results for 2014, 2013 and 2012 follows (dollars in thousands):
 
2014
 
2013
 
$ Change
 
% Change
 
2013
 
2012
 
$ Change
 
% Change
Revenue:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Rental and other income
$
1,674,011

 
$
1,451,419

 
$
222,592

 
15.3
 %
 
$
1,451,419

 
$
990,370

 
$
461,049

 
46.6
 %
   Management, development and other fees
11,050

 
11,502

 
$
(452
)
 
(3.9
)%
 
11,502

 
10,257

 
1,245

 
12.1
 %
Total revenue
1,685,061

 
1,462,921

 
222,140

 
15.2
 %
 
1,462,921

 
1,000,627

 
462,294

 
46.2
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Expenses:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Direct property operating expenses, excluding property taxes
345,846

 
295,150

 
50,696

 
17.2
 %
 
295,150

 
211,086

 
84,064

 
39.8
 %
Property taxes
178,634

 
158,774

 
19,860

 
12.5
 %
 
158,774

 
97,555

 
61,219

 
62.8
 %
Total community operating expenses
524,480

 
453,924

 
70,556

 
15.5
 %
 
453,924

 
308,641

 
145,283

 
47.1
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Corporate-level property management and other indirect operating expenses
60,341

 
53,105

 
7,236

 
13.6
 %
 
53,105

 
42,193

 
10,912

 
25.9
 %
Investments and investment management expense
4,485

 
3,990

 
495

 
12.4
 %
 
3,990

 
6,071

 
(2,081
)
 
(34.3
)%
Expensed acquisition, development and other pursuit costs, net of recoveries
(3,717
)
 
45,050

 
(48,767
)
 
N/A (1)

 
45,050

 
11,350

 
33,700

 
296.9
 %
Interest expense, net
180,618

 
172,402

 
8,216

 
4.8
 %
 
172,402

 
136,920

 
35,482

 
25.9
 %
Loss on extinguishment of debt, net
412

 
14,921

 
(14,509
)
 
(97.2
)%
 
14,921

 
1,179

 
13,742

 
1,165.6
 %
Loss on interest rate contract

 
51,000

 
(51,000
)
 
(100.0
)%
 
51,000

 

 
51,000

 
100.0
 %
Depreciation expense
442,682

 
560,215

 
(117,533
)
 
(21.0
)%
 
560,215

 
243,680

 
316,535

 
129.9
 %
General and administrative expense
41,425

 
39,573

 
1,852

 
4.7
 %
 
39,573

 
34,101

 
5,472

 
16.0
 %
Casualty and impairment loss

 

 

 
 %
 

 
1,449

 
(1,449
)
 
(100.0
)%
Total other expenses
726,246

 
940,256

 
(214,010
)
 
(22.8
)%
 
940,256

 
476,943

 
463,313

 
97.1
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity in income (loss) of unconsolidated entities
148,766

 
(11,154
)
 
159,920

 
N/A (1)

 
(11,154
)
 
20,914

 
(32,068
)
 
N/A (1)

Gain on sale of land
490

 
240

 
250

 
104.2
 %
 
240

 
280

 
(40
)
 
(14.3
)%
   Gain on sale of communities
84,925

 

 
84,925

 
100.0
 %
 

 

 

 
 %
   Gain on acquisition of unconsolidated
    real estate entity

 

 

 
 %
 

 
14,194

 
(14,194
)
 
(100.0
)%
Income from continuing operations before taxes
668,516

 
57,827

 
610,689

 
1,056.1
 %
 
57,827

 
250,431

 
(192,604
)
 
(76.9
)%
Income tax expense
9,368

 

 
9,368

 
100.0
 %
 

 

 

 
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income from continuing operations
659,148

 
57,827

 
601,321

 
1,039.9
 %
 
57,827

 
250,431

 
(192,604
)
 
(76.9
)%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Discontinued operations:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Income from discontinued operations
310

 
16,713

 
(16,403
)
 
(98.1
)%
 
16,713

 
26,820

 
(10,107
)
 
(37.7
)%
Gain on sale of communities
37,869

 
278,231

 
(240,362
)
 
(86.4
)%
 
278,231

 
146,311

 
131,920

 
90.2
 %
Total discontinued operations
38,179

 
294,944

 
(256,765
)
 
(87.1
)%
 
294,944

 
173,131

 
121,813

 
70.4
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income
697,327

 
352,771

 
344,556

 
97.7
 %
 
352,771

 
423,562

 
(70,791
)
 
(16.7
)%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net (income) loss attributable to noncontrolling interests
(13,760
)
 
370

 
(14,130
)
 
N/A (1)

 
370

 
307

 
63

 
20.5
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income attributable to common stockholders
$
683,567

 
$
353,141

 
$
330,426

 
93.6
 %
 
$
353,141

 
$
423,869

 
$
(70,728
)
 
(16.7
)%
_________________________________

(1)
Percentage change is not meaningful.


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Net income attributable to common stockholders increased $330,426,000, or 93.6%, to $683,567,000 in 2014 primarily due to an increase in income from unconsolidated real estate entities resulting from the gains on sales of communities in various ventures, including the Company’s promoted interests, increased NOI from newly developed and acquired communities, losses on an interest rate contract in the prior year not present in 2014, a decrease in expensed acquisition costs related to the Archstone Acquisition and a decrease in depreciation expense related to in-place leases acquired as part of the Archstone Acquisition. Net income attributable to common stockholders decreased $70,728,000, or 16.7%, in 2013 from 2012 primarily due to an increase in depreciation expense and expensed transaction costs associated with the Archstone Acquisition, coupled with the recognition of losses on an interest rate contract. The decrease was partially offset by an increase in NOI from communities acquired in the Archstone Acquisition and our existing and newly developed communities in 2013, as well as an increase in gain on sale of communities as compared to the prior year.
NOI is considered by management to be an important and appropriate supplemental performance measure to net income because it helps both investors and management to understand the core operations of a community or communities prior to the allocation of any corporate-level or financing-related costs.  NOI reflects the operating performance of a community and allows for an easy comparison of the operating performance of individual assets or groups of assets.  In addition, because prospective buyers of real estate have different financing and overhead structures, with varying marginal impacts to overhead as a result of 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 group of assets. We define NOI as total property revenue less direct property operating expenses, including property taxes, and excluding corporate-level income (including management, development and other fees), corporate-level property management and other indirect operating expenses, investments and investment management expenses, expensed acquisition, development and other pursuit costs, net interest expense, gain (loss) on extinguishment of debt, general and administrative expense, joint venture income (loss), depreciation expense, casualty loss, impairment loss on land holdings, gain on sale of real estate assets, income from discontinued operations and net operating income from real estate assets sold or held for sale, not classified as discontinued operations.
NOI does not represent cash generated from operating activities in accordance with GAAP. Therefore, NOI should not be considered an alternative to net income as an indication of our performance. NOI should also not be considered an alternative to net cash flow from operating activities, as determined by GAAP, as a measure of liquidity, nor is NOI indicative of cash available to fund cash needs. Reconciliations of NOI for the years ended December 31, 2014, 2013 and 2012 to net income for each year are as follows (dollars in thousands):
 
For the year ended
 
12/31/14
 
12/31/13
 
12/31/12
Net income
$
697,327

 
$
352,771

 
$
423,562

Indirect operating expenses, net of corporate income
49,055

 
41,554

 
31,911

Investments and investment management expense
4,485

 
3,990

 
6,071

Expensed acquisition, development and other pursuit costs, net of recoveries
(3,717
)
 
45,050

 
11,350

Interest expense, net (1)
180,618

 
172,402

 
136,920

Loss on extinguishment of debt, net
412

 
14,921

 
1,179

Loss on interest rate contract

 
51,000

 

General and administrative expense
41,425

 
39,573

 
34,101

Equity in (income) loss of unconsolidated real estate entities
(148,766
)
 
11,154

 
(20,914
)
Depreciation expense (1)
442,682

 
560,215

 
243,680

Income tax expense
9,368

 

 

Casualty and impairment loss

 

 
1,449

Gain on acquisition of unconsolidated real estate entity

 

 
(14,194
)
Gain on sale of real estate assets
(85,415
)
 
(240
)
 
(280
)
Gain on sale of discontinued operations
(37,869
)
 
(278,231
)
 
(146,311
)
Income from discontinued operations
(310
)
 
(16,713
)
 
(26,820
)
Net operating income from real estate assets sold or held for sale, not classified as discontinued operations
(15,199
)
 
(19,448
)
 
(13,776
)
        Net operating income
$
1,134,096

 
$
977,998


$
667,928

_________________________________

(1)
Includes amounts associated with assets sold or held for sale, not classified as discontinued operations.

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The NOI increases for both 2014 and 2013, as compared to the prior year, consist of changes in the following categories (dollars in thousands):
 
Full Year
 
2014
 
2013
Established Communities
$
22,961

 
$
26,417

Other Stabilized Communities
74,307

 
248,545

Development and Redevelopment Communities
58,830

 
35,108

Total
$
156,098

 
$
310,070

The increase in our Established Communities' NOI in 2014 is due to increased rental rates, partially offset by decreased economic occupancy and increased operating expenses. The increase in 2013 is due to increased rental rates and increased economic occupancy, partially offset by increased operating expenses.
Rental and other income increased in both 2014 and 2013 as compared to the prior years due to additional rental income generated from newly developed and acquired communities, including those acquired in the Archstone Acquisition in 2013, and an increase in rental rates and economic occupancy, in 2013, at our Established Communities.
Overall Portfolio—The weighted average number of occupied apartment homes for consolidated communities increased to 61,686 apartment homes for 2014, as compared to 57,240 homes for 2013 and 43,411 homes for 2012. The weighted average monthly revenue per occupied apartment home increased to $2,254 for 2014 as compared to $2,171 in 2013 and $2,017 in 2012.
Established Communities—Rental revenue increased $36,096,000, or 3.9%, to $963,917,000 for 2014 from $927,821,000 in the prior year. The increase is due to an increase in average rental rates of 4.0% to $2,273 per apartment home, partially offset by a decrease in economic occupancy of 0.1% to 96.0%. Rental revenue increased $34,749,000, or 4.3%, for 2013, as compared to the prior year. 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. Economic occupancy is defined as gross potential revenue less vacancy loss, as a percentage of gross potential revenue. Gross potential revenue is determined by valuing occupied homes at leased rates and vacant homes at market rents.
We experienced increases in rental revenue for all of our Established Communities regions, except the Mid-Atlantic, in 2014 as compared to the prior year, as discussed in more detail below.
The Metro New York/New Jersey region, which accounted for approximately 33.0% of the Established Community rental revenue for 2014, experienced an increase in rental revenue of 3.4% for 2014 as compared to 2013, as a result of an increase in average rental rates to $2,680 per apartment home. Economic occupancy remained consistent at 96.4% for 2014 as compared to 2013. Apartment demand in the Metro New York/New Jersey region is being driven by job growth across a diverse group of industries including healthcare, professional business services, technology, retail, hospitality and education. We expect to see continued growth in the Metro New York/New Jersey region in 2015. New York City is beginning to see a larger pipeline of new apartment deliveries, but suburban markets surrounding the city are more insulated from this new competition.
The New England region accounted for approximately 18.6% of the Established Community rental revenue for 2014 and experienced a rental revenue increase of 2.5% over the prior year. Average rental rates increased 2.9% to $2,189 per apartment home, and were partially offset by a 0.4% decrease in economic occupancy to 95.3% for 2014 as compared to 2013. Accelerating employment growth in the medical, education and technology fields is supporting apartment demand in the Boston metro area. The Fairfield market continues to experience moderate economic growth due to the area’s greater exposure to the financial services sector, which has experienced slower job growth during this recovery than other industries.
The Northern California region accounted for approximately 18.1% of the Established Community rental revenue for 2014 and experienced a rental revenue increase of 7.7% over the prior year. Average rental rates increased 7.6% to $2,524 per apartment home, and economic occupancy increased 0.1% to 96.3% for 2014 as compared to 2013. While new apartment supply may slow revenue growth in future periods, we expect the strength in the technology industry to continue to fuel demand for apartment homes in 2015.

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The Southern California region accounted for approximately 14.5% of the Established Community rental revenue for 2014 and experienced a rental revenue increase of 4.6% over the prior year. Average rental rates increased 4.7% to $1,873 per apartment home, and were partially offset by a 0.1% decrease in economic occupancy to 96.2% for 2014 as compared to 2013. Southern California has seen steady job growth and limited new apartment supply, which we expect will continue to support favorable operating results in 2015.
The Mid-Atlantic region, which represented approximately 10.2% of the Established Community rental revenue during 2014, experienced a decrease in rental revenue of 0.5% as compared to 2013. Average rental rates decreased by 0.2% to $1,969 per apartment home, and economic occupancy decreased 0.3% to 95.5% for 2014 as compared to 2013. A combination of elevated levels of new apartment deliveries and job growth slightly below the expected national average are expected to challenge the region’s apartment fundamentals for 2015.
The Pacific Northwest region accounted for approximately 5.6% of the Established Community rental revenue for 2014 and experienced a rental revenue increase of 5.9% over the prior year. Average rental rates increased 6.2% to $1,824, and were partially offset by a decrease in economic occupancy of 0.3% to 95.4% for 2014 as compared to 2013. The region’s on-line retail, technology and manufacturing sectors continue to support growth in the economy and apartment fundamentals. Rental revenue growth may be tempered in 2015 by the delivery of new apartment homes, particularly in the urban core of Seattle.
Management, development and other fees decreased $452,000 or 3.9%, in 2014 and increased $1,245,000, or 12.1%, in 2013, as compared to the prior years. The decrease in 2014 was primarily due to lower property and asset management fees earned as a result of dispositions from Fund I and Fund II, partially offset by increased property and asset management fees related to the Archstone Acquisition and related private real estate investment management funds (the U.S. Fund and the AC JV). The increase in 2013 was primarily due to increased property and asset management fees related to the Archstone Acquisition and related private real estate investment management funds (the U.S. Fund and the AC JV), partially offset by lower property and asset management fees earned as a result of dispositions from Fund I and Fund II.
Direct property operating expenses, excluding property taxes increased $50,696,000, or 17.2%, and $84,064,000, or 39.8%, in 2014 and 2013, respectively, as compared to the prior years. The increases in 2014 and 2013 were primarily due to the addition of newly developed and acquired apartment homes, including the communities acquired as part of the Archstone Acquisition in February 2013.
For Established Communities, direct property operating expenses, excluding property taxes, increased $7,475,000, or 4.0%, and $4,374,000, or 2.6%, in 2014 and 2013, respectively, as compared to the prior years. The increases in 2014 and 2013 were primarily due to increased repairs and maintenance, utilities and payroll costs.
Property taxes increased $19,860,000, or 12.5%, and $61,219,000, or 62.8%, in 2014 and 2013, respectively, as compared to the prior years. The increases in 2014 and 2013 were primarily due to the net impact of the communities acquired in the Archstone Acquisition as well as the addition of newly developed apartment communities, coupled with increased tax rates and assessments across our portfolio. The increase in 2014 was partially offset by reductions in expected supplemental billings related to communities acquired as part of the Archstone Acquisition.
For Established Communities, property taxes increased $6,206,000, or 6.7%, and $4,282,000, or 5.4%, in 2014 and 2013, respectively, as compared to the prior years. The increase in 2014 was primarily due to higher rates and assessments, as well as refunds received in the prior year in excess of the current year period. The increase in 2013 was primarily due to higher rates and assessments, partially offset by higher successful appeals and refunds received in 2013, as compared to the prior year. For communities in California, property tax changes are determined by the change in the California Consumer Price Index, with increases limited by law (Proposition 13). Massachusetts also has laws that limit property tax increases. We evaluate property tax increases internally and also engage third-party consultants to assist in our evaluations. We appeal property tax increases when appropriate.
Corporate-level property management and other indirect operating expenses increased $7,236,000, or 13.6%, and $10,912,000, or 25.9%, in 2014 and 2013, respectively, as compared to the prior years. The increase in 2014 was primarily due to an increase in compensation related costs, coupled with increased activities related to re-branding and corporate initiatives, as well as increases associated with the Archstone Acquisition. The increase in 2013 was primarily due to increased compensation related costs, as well as the increase in corporate-level personnel and expenses associated with the Archstone Acquisition.
Investments and investment management costs increased $495,000, or 12.4%, in 2014 and decreased by $2,081,000, or 34.3%, in 2013 as compared to the prior years. The increase in 2014 was primarily due to increases in compensation costs, partially offset by a decline in our investment fund management activity. The decrease in 2013 was primarily due to reductions in compensation costs related to the relative decrease in our investment fund management activity.

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Expensed acquisition, development and other pursuit costs, net of recoveries primarily reflect the costs incurred related to our asset investment activity, abandoned pursuit costs, which include costs incurred for development pursuits not yet considered probable for development, as well as the abandonment of Development Rights, acquisition pursuits and disposition pursuits, offset by any recoveries associated with acquisitions for periods prior to our ownership. These costs can be volatile, particularly in periods of increased acquisition activity, periods of economic downturn or when there is limited access to capital, and the costs may vary significantly from period to period. These costs decreased $48,767,000, in 2014 and increased $33,700,000, or 296.9%, in 2013, as compared to the prior years, The decrease in 2014 was primarily due to receipts related to communities acquired as part of the Archstone Acquisition for periods prior to the Company’s ownership, which are primarily comprised of property tax and mortgage insurance refunds. The increase in 2013 over the prior year is due primarily to costs associated with the Archstone Acquisition.
Interest expense, net increased $8,216,000, or 4.8%, and $35,482,000, or 25.9%, in 2014 and 2013, respectively, as compared to the prior years. This category includes interest costs offset by capitalized interest pertaining to development activity, amortization of the mark to market adjustment on debt assumed as part of the Archstone Acquisition, and interest income. The increase in 2014 was primarily due to increased unsecured debt outstanding, partially offset by an increase in capitalized interest related to our increased development activity. The increase in 2013 was primarily due to net interest costs on debt assumed in the Archstone Acquisition, partially offset by increased capitalized interest related to our increased development activity.
Loss on the extinguishment of debt, net reflects prepayment penalties, the expensing of deferred financing costs from our debt repurchase and retirement activity, or payments to acquire our outstanding debt at amounts above or below the carrying basis of the debt acquired, excluding costs related to debt secured by assets sold or held for sale.
Loss on interest rate contract reflects the loss recorded by the Company related to the forward interest rate protection agreement that matured in May 2013. Based on changes in the Company's capital markets outlook in 2013, the Company did not issue the anticipated debt for which the interest rate protection agreement was transacted.
Depreciation expense decreased $117,533,000, or 21.0%, in 2014 and increased $316,535,000, or 129.9%, in 2013, as compared to the prior years. The decrease in 2014 was primarily due to the impact of amortization for lease intangibles in 2013 not present in 2014, from communities acquired as part of the Archstone Acquisition. The increase in 2013 was primarily due to additional depreciation expense from the Archstone Acquisition, consisting largely of the depreciation of in-place lease intangibles, which were depreciated over a six month period.
General and administrative expense ("G&A") increased $1,852,000, or 4.7%, and $5,472,000, or 16.0%, in 2014 and 2013, respectively, as compared to the prior years. The increase in 2014 was primarily due to an increase in compensation expense, partially offset by legal recoveries in 2014 not present in the prior year. The increase in 2013 over 2012 was primarily due to increased compensation costs, including costs related to the Archstone Acquisition.
Casualty and impairment loss for 2012 consists of the losses we incurred associated with Superstorm Sandy.
Equity in income (loss) of unconsolidated entities increased by $159,920,000, in 2014 and decreased $32,068,000, in 2013, as compared to the prior years. The increase in 2014 was primarily due to gains on the sales of communities in various ventures, including the Company's promoted interests, coupled with certain expensed transaction costs associated with the Archstone Acquisition that were incurred in 2013 through the unconsolidated joint venture entities owned with Equity Residential that were not present in 2014. The decrease in 2013 is primarily due to costs of approximately $39,543,000 associated with the Archstone Acquisition that were incurred through the unconsolidated joint venture entities owned with Equity Residential during the year.
Gain on sale of land increased in 2014 and decreased 2013 as compared to the prior years, due to changes in volume and associated gains on the sale of land parcels.
Gain on sale of communities increased in 2014 over 2013, due to our implementation of new accounting guidance under ASU 2014-08 effective January 1, 2014, which impacted where we report income from operations as well as gains or losses from the disposition of operating communities. Gain on disposition for communities classified as held for sale subsequent to the adoption of the guidance is presented as part of this line item. For communities classified as held for sale prior to our adoption of ASU 2014-08, gain on sale is presented as gain on sale of discontinued operations.
Gain on acquisition of unconsolidated real estate entity for 2012 represents the amount by which the fair value of our prior ownership interest in the joint venture that owned Avalon Del Rey exceeded our carrying value.
Income tax expense for 2014 consists of federal income tax expense related to dispositions of the Company's direct and indirect interests in certain real estate assets acquired in the Archstone Acquisition, which were owned through a taxable REIT subsidiary.

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Income from discontinued operations represents the net income generated by real estate sold and qualifying as discontinued operations during the period from January 1, 2012 through December 31, 2014. Income from discontinued operations decreased in 2014 and 2013, as compared to the prior years. The decrease in 2014 was due to the change in accounting guidance for discontinued operations under ASU 2014-08, with individual community dispositions no longer classified as such. The decrease in 2013 was due to changes in the number of communities sold, the size and carrying value of those communities and the market conditions in the local area as compared to the prior year. See Note 7, "Real Estate Disposition Activities," to our Consolidated Financial Statements.
Gain on sale of discontinued operations decreased in 2014 and increased in 2013, as compared to the prior years. The amount of gain realized in a given period depends on many factors, including the number of communities sold, the size and carrying value of the communities sold and the market conditions in the local area. After our adoption of ASU 2014-08 as of January 1, 2014, gain on sale of communities is presented as gain on sale of communities.
Net (income) loss attributable to noncontrolling interests resulted in an allocation of income of $13,760,000 in 2014, and an allocation of loss of $370,000 and $307,000 in 2013 and 2012, respectively. The amount for 2014 includes our joint venture partners' 84.8% interest in the gain on the sale of a Fund I community that was consolidated for financial reporting purposes, in the amount of $14,132,000.
Liquidity and Capital Resources
We believe our principal short-term liquidity needs are to fund:
development and redevelopment activity in which we are currently engaged;
the minimum dividend payments on our common stock required to maintain our REIT qualification under the Code;
debt service and principal payments either at maturity or opportunistically before maturity; and
normal recurring operating expenses.
Factors affecting our liquidity and capital resources are our cash flows from operations, financing activities and investing activities (including dispositions) as well as general economic and market conditions. Operating cash flow has historically been determined by: (i) the number of apartment homes currently owned, (ii) rental rates, (iii) occupancy levels and (iv) operating expenses with respect to apartment homes. The timing and type of capital markets activity in which we engage, as well as our plans for development, redevelopment, acquisition and disposition activity, are affected by changes in the capital markets environment, such as changes in interest rates or the availability of cost-effective capital. We regularly review our liquidity needs, the adequacy of cash flows from operations and other expected liquidity sources to meet these needs.
In 2015, we expect to meet our liquidity needs from a variety of internal and external sources, which may include the physical settlement of the Forward, real estate dispositions, cash balances on hand, borrowing capacity under our Credit Facility and/or the Term Loan, secured and unsecured debt financings, and other public or private sources of liquidity including the issuance of common and preferred equity, as well as cash generated from our operating activities. Our ability to obtain additional financing will depend on a variety of factors such as market conditions, the general availability of credit, the overall availability of credit to the real estate industry, our credit ratings and credit capacity, as well as the perception of lenders regarding our long or short-term financial prospects. Capital raising activities in 2014 included asset sales, the Term Loan entered into in March, the issuance of common stock under CEP III (as defined below), and the issuance of unsecured notes in November.
Unrestricted cash and cash equivalents totaled $509,460,000 at December 31, 2014, an increase of $228,105,000 from $281,355,000 at December 31, 2013. 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 elsewhere in this report.
Operating Activities—Net cash provided by operating activities increased to $886,641,000 in 2014 from $724,315,000 in 2013. The increase was driven primarily by increased NOI from existing and newly developed communities, a decrease in acquisition costs, and the timing of payments of corporate obligations.
Investing Activities—Net cash used in investing activities of $816,760,000 in 2014 is related to investments in assets primarily through development and redevelopment, partially offset by proceeds received for dispositions and distributions from unconsolidated joint ventures. In 2014, we invested $1,341,657,000 in the following areas:
we invested $1,241,832,000 in the development and redevelopment of communities;
we had capital expenditures of $52,825,000 for our operating communities and non-real estate assets; and
we acquired one operating community for $47,000,000.

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We received proceeds from dispositions of $297,466,000, and distributions from unconsolidated joint ventures in the amount of $203,945,000, associated primarily with the disposition of communities from CVP I, LLC, Fund I and Fund II.
Financing Activities—Net cash provided by financing activities totaled $158,224,000 in 2014. The net cash provided is due to:
issuance of $300,000,000 principal amount of unsecured notes;
issuance of common stock in the amount of $295,465,000 through CEP III;
borrowing $250,000,000 under the Term Loan; and
secured borrowings of $53,000,000.
These amounts are partially offset by:
payment of cash dividends in the amount of $593,643,000;
repayment of unsecured notes in the amount of $150,000,000; and
repayment of secured notes in the amount of $32,859,000.
Variable Rate Unsecured Credit Facility
The Company has a $1,300,000,000 revolving variable rate unsecured credit facility with a syndicate of banks (the "Credit Facility") which matures in April 2017. We may extend the maturity for up to one year through the exercise of two, six month extension options for an aggregate fee of $1,950,000. The Credit Facility bears interest at varying levels based on the London Interbank Offered Rate ("LIBOR"), rating levels achieved on our unsecured notes and on a maturity schedule selected by us. The current stated pricing is LIBOR plus 1.05% (1.22% at January 31, 2015 assuming a one month borrowing rate). The annual facility fee is 0.15% (or approximately $1,950,000 annually based on the $1,300,000,000 facility size and based on our current credit rating).
We did not have any borrowings outstanding under the Credit Facility and had $47,963,000 outstanding in letters of credit that reduced our borrowing capacity as of January 31, 2015.
Financial Covenants
We are subject to financial and other covenants contained in the Credit Facility, the Term Loan and the indenture under which our unsecured notes were issued. The principal financial covenants include the following:
limitations on the amount of total and secured debt in relation to our overall capital structure;
limitations on the amount of our unsecured debt relative to the undepreciated basis of real estate assets that are not encumbered by property-specific financing; and
minimum levels of debt service coverage.
We were in compliance with these covenants at December 31, 2014.
In addition, our secured borrowings may include yield maintenance, defeasance, or prepayment penalty provisions, which would result in us incurring an additional charge in the event of a full or partial prepayment of outstanding principal before the scheduled maturity. These provisions in our secured borrowings are generally consistent with other similar types of debt instruments issued during the same time period in which our borrowings were secured.
Continuous Equity Offering Program
In August 2012, we commenced a third continuous equity program ("CEP III"), under which we are authorized by our Board of Directors to sell up to $750,000,000 of shares of our common stock from time to time during a 36-month period. In conjunction with CEP III we have engaged sales agents who receive compensation of approximately 1.5% of the gross sales price for shares sold. During the year ended December 31, 2014, we sold 2,069,538 shares at an average sales price of $144.95 per share, for net proceeds of $295,465,000. As of January 31, 2015, we had $346,304,000 of shares remaining authorized for issuance under this program.

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Forward Equity Contract
On September 9, 2014, based on a market closing price of $155.83 per share on that date, we entered into a forward contract to sell 4,500,000 shares of common stock for an initial forward price of $151.74 per share, net of offering fees and discounts (the "Forward"). The sales price and proceeds achieved will be determined on the date or dates of settlement, with adjustments during the term of the contract for our dividends as well as for a daily interest factor that varies with changes in the Fed Funds rate. We generally have the ability to determine the date(s) and method of settlement, subject to certain conditions and the right of the Forward counterparty to accelerate settlement under certain circumstances. Settlement may be (i) physical sale of shares of our common stock for cash, (ii) net cash settlement, whereby we will either pay or receive the difference between the Forward price and the weighted average market price for our common stock at the time of settlement, or (iii) net share settlement, whereby we will either receive or issue shares of our common stock, with the number of shares issued or received determined by the difference between the Forward price and the weighted average market price for its common stock at the time of settlement. The Forward price and the weighted average market price would in both cases by determined under the applicable terms of the Forward. Under either of the net settlement provisions, we will pay to the counterparty either cash or shares of common stock when the weighted average market price of our common stock at the time of settlement exceeds the Forward, and will receive either cash or issue shares of common stock to the extent that the weighted average market price of our common stock at the time of settlement is less than the price under the Forward. Settlement of the Forward will occur on one or more dates not later than September 8, 2015.
Future Financing and Capital Needs—Debt Maturities
One of our principal long-term liquidity needs is the repayment of long-term debt at maturity.  For both our unsecured and secured notes, a portion of the principal of these notes may be repaid prior to maturity. Early retirement of our unsecured or secured notes could result in gains or losses on extinguishment. If we do not have funds on hand sufficient to repay our indebtedness as it becomes due, it will be necessary for us to refinance or otherwise provide liquidity to satisfy the debt at maturity. This refinancing may be accomplished by uncollateralized private or public debt offerings, equity issuances, additional debt financing that is secured by mortgages on individual communities or groups of communities or borrowings under our Credit Facility or Term Loan. Although we believe we will have the capacity to meet our currently anticipated 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.
The following debt activity occurred during 2014:
In March 2014, we entered into a $300,000,000 variable rate unsecured term loan that matures in March 2021 (the “Term Loan”).  At December 31, 2014, we had drawn $250,000,000 of the available $300,000,000, with the option to draw the additional $50,000,000 until March 2015.
In April 2014, in conjunction with certain requirements associated with the development of an apartment community, we entered into a $53,000,000 secured mortgage loan maturing in 2019, with an option to extend the maturity to 2024.  The mortgage is comprised of a $15,000,000 fixed rate note with an interest rate of 2.99% and a $38,000,000 variable rate note at LIBOR plus 2.00%.
Pursuant to its scheduled maturity in April 2014, we repaid $150,000,000 principal amount of unsecured notes with a stated coupon of 5.375%.
In June 2014, in conjunction with the disposition of an operating community, we repaid a fixed rate secured mortgage loan in the amount of $10,427,000 with an interest rate of 6.19% in advance of its November 2015 maturity date. In accordance with the requirements of the master credit agreement governing this and certain other secured borrowings, we repaid an additional $5,914,000 principal amount of secured borrowings for eight other operating communities. We incurred a charge for early debt extinguishment of $412,000.
In November 2014, we issued $300,000,000 principal amount of unsecured notes in a public offering under its existing shelf registration statement for net proceeds of approximately $295,803,000. The notes mature in November 2024 and were issued at a stated coupon of 3.50%.
The following table details our consolidated debt maturities for the next five years, excluding our Credit Facility and amounts outstanding related to communities classified as held for sale, for debt outstanding at December 31, 2014 (dollars in thousands) as compared to the amounts of debt outstanding as of at December 31, 2013. We are not directly or indirectly (as borrower or guarantor) obligated in any material respect to pay principal or interest on the indebtedness of any unconsolidated entities in which we have an equity or other interest.

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All-In
interest
rate (1)
 
Principal
maturity
date
 
Balance Outstanding
 
Scheduled Maturities
Community
 
 
 
12/31/2013
 
12/31/2014
 
2015
 
2016
 
2017
 
2018
 
2019
 
Thereafter
Tax-exempt bonds (4)
 
 

 
 
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Fixed rate
 
 

 
 
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Eaves Washingtonian Center I
 
7.84
%
 
May-2027
 
$
8,401

 
$
8,011

 
$
419

 
$
449

 
$
482

 
$
517

 
$
554

 
$
5,590

Avalon Oaks
 
7.50
%
 
Feb-2041
 
16,094

 
15,887

 
222

 
238

 
255

 
276

 
293

 
14,603

Avalon Oaks West
 
7.54
%
 
Apr-2043
 
16,032

 
15,847

 
198

 
211

 
225

 
241

 
257

 
14,715

Avalon at Chestnut Hill
 
6.15
%
 
Oct-2047
 
39,979

 
39,545

 
457

 
482

 
509

 
536

 
566

 
36,995

Avalon Westbury
 
4.13
%
 
Nov-2036
(5)
62,200

 
62,200

 

 

 

 

 

 
62,200

 
 
 

 
 
 
142,706

 
141,490

 
1,296

 
1,380

 
1,471

 
1,570

 
1,670

 
134,103

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Variable rate (2)
 
 

 
 
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Avalon at Mountain View
 
0.78
%
 
Feb-2017
 
18,300

 
18,100

(3)

 

 
18,100

 

 

 

Avalon at Mission Viejo
 
1.21
%
 
Jun-2025
 
7,635

 
7,635

(3)

 

 

 

 

 
7,635

AVA Nob Hill
 
1.14
%
 
Jun-2025
 
20,800

 
20,800

(3)

 

 

 

 

 
20,800

Avalon Campbell
 
1.47
%
 
Jun-2025
 
38,800

 
38,800

(3)

 

 

 

 

 
38,800

Eaves Pacifica
 
1.49
%
 
Jun-2025
 
17,600

 
17,600

(3)

 

 

 

 

 
17,600

Avalon Bowery Place I
 
3.01
%
 
Nov-2037
 
93,800

 
93,800

(3)

 

 

 

 

 
93,800

Avalon Acton
 
1.51
%
 
Jul-2040
 
45,000

 
45,000

(3)

 

 

 

 

 
45,000

Avalon Walnut Creek
 
1.36
%
 
Mar-2046
(5)
116,000

 
116,000

(6)

 

 

 

 

 
116,000

Avalon Walnut Creek
 
1.36
%
 
Mar-2046
(5)
10,000

 
10,000

(6)

 

 

 

 

 
10,000

Avalon Morningside Park
 
1.60
%
 
May-2046
(5)
100,000

 
100,000

 

 

 

 

 

 
100,000

Avalon Clinton North
 
1.72
%
 
Nov-2038
 
147,000

 
147,000

(3)

 

 

 

 

 
147,000

Avalon Clinton South
 
1.72
%
 
Nov-2038
 
121,500

 
121,500

(3)

 

 

 

 

 
121,500

Avalon Midtown West
 
1.63
%
 
May-2029
 
100,500

 
100,500

(3)

 

 

 

 

 
100,500

Avalon San Bruno
 
1.61
%
 
Dec-2037
 
64,450

 
64,450

(3)

 

 

 

 

 
64,450

Avalon Calabasas
 
1.71
%
 
Apr-2028
 
44,410

 
44,410

(3)

 

 

 
128

 
403

 
43,879

 
 
 
 
 
 
945,795

 
945,595

 

 

 
18,100

 
128

 
403

 
926,964

Conventional loans (4)
 
 

 
 
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Fixed rate
 
 

 
 
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

$150 Million unsecured notes
 
%
 
Apr-2014
 
150,000

 

 

 

 

 

 

 

$250 Million unsecured notes
 
5.89
%
 
Sep-2016
 
250,000

 
250,000

 

 
250,000

 

 

 

 

$250 Million unsecured notes
 
5.82
%
 
Mar-2017
 
250,000

 
250,000

 

 

 
250,000

 

 

 

$250 Million unsecured notes
 
6.19
%
 
Mar-2020
 
250,000

 
250,000

 

 

 

 

 

 
250,000

$250 Million unsecured notes
 
4.04
%
 
Jan-2021
 
250,000

 
250,000

 

 

 

 

 

 
250,000

$450 Million unsecured notes
 
4.30
%
 
Sep-2022
 
450,000

 
450,000

 

 

 

 

 

 
450,000

$250 Million unsecured notes
 
3.00
%
 
Mar-2023
 
250,000

 
250,000

 

 

 

 

 

 
250,000

$400 Million unsecured notes
 
3.78
%
 
Oct-2020
 
400,000

 
400,000

 

 

 

 

 

 
400,000

$350 Million unsecured notes
 
4.30
%
 
Dec-2023
 
350,000

 
350,000

 

 

 

 

 

 
350,000

$300 Million unsecured notes
 
3.66
%
 
Nov-2024
 

 
300,000

 

 

 

 

 

 
300,000

Avalon Orchards
 
7.79
%
 
Jul-2033
 
17,530

 
17,091

 
470

 
503

 
539

 
577

 
619

 
14,383

Avalon Darien
 
6.22
%
 
Dec-2015
 
48,484

 
47,700

(7)
47,700

 

 

 

 

 

AVA Stamford
 
6.13
%
 
Dec-2015
 
58,385

 
57,423

(7)
57,423

 

 

 

 

 

Avalon Walnut Creek
 
4.30
%
 
Jul-2066
 
3,042

 
3,042

 

 

 

 

 

 
3,042

Avalon Shrewsbury
 
5.92
%
 
May-2019
 
20,464

 
20,174

 
307

 
323

 
346

 
367

 
18,831

 

Eaves Trumbull
 
5.93
%
 
May-2019
 
40,018

 
39,452

 
601

 
631

 
676

 
717

 
36,827

 

Avalon on Stamford Harbor
 
5.93
%
 
May-2019
 
63,624

 
62,724

(9)
955

 
1,003

 
1,075

 
1,140

 
58,551

 

Avalon Freehold
 
5.95
%
 
May-2019
 
35,475

 
34,973

 
532

 
559

 
599

 
636

 
32,647

 

Avalon Run East
 
5.95
%
 
May-2019
 
38,013

 
37,475

 
571

 
599

 
642

 
681

 
34,982

 

Eaves Nanuet
 
6.06
%
 
May-2019
 
64,149

 
63,242

 
963

 
1,011

 
1,083

 
1,150

 
59,035

 

Avalon at Edgewater (10)
 
5.95
%
 
May-2019
 
76,088

 
75,012

 
1,142

 
1,199

 
1,285

 
1,363

 
70,023

 

Avalon Foxhall
 
6.06
%
 
May-2019
 
57,150

 
56,341

 
858

 
901

 
965

 
1,024

 
52,593

 

Avalon at Gallery Place
 
6.06
%
 
May-2019
 
44,405

 
43,776

 
667

 
700

 
750

 
796

 
40,863

 

Avalon at Traville
 
5.91
%
 
May-2019
 
75,251

 
74,186

 
1,130

 
1,186

 
1,271

 
1,348

 
69,251

 

Avalon Bellevue
 
5.92
%
 
May-2019
 
25,856

 
25,491

 
388

 
408

 
437

 
463

 
23,795

 

Avalon on The Alameda
 
5.91
%
 
May-2019
 
52,278

 
51,539

 
785

 
824

 
883

 
937

 
48,110

 

Avalon at Mission Bay North
 
5.90
%
 
May-2019
 
70,959

 
69,955

 
1,065

 
1,118

 
1,198

 
1,272

 
65,302

 

AVA Pasadena
 
4.05
%
 
Jun-2018
 
11,869

 
11,683

 
195

 
202

 
213

 
11,073

 

 


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Table of Contents

Eaves Seal Beach
 
3.12
%
 
Nov-2015
 
86,167

 
85,122

(8)
85,122

 

 

 

 

 

Oakwood Toluca Hills
 
3.12
%
 
Nov-2015
 
167,595

 
165,561

(8)
165,561

 

 

 

 

 

Eaves Mountain View at Middlefield
 
3.12
%
 
Nov-2015
 
72,374

 
71,496

(8)
71,496

 

 

 

 

 

Eaves Tunlaw Gardens
 
3.12
%
 
Nov-2015
 
28,844

 
28,494

(8)
28,494

 

 

 

 

 

Eaves Glover Park
 
3.12
%
 
Nov-2015
 
23,858

 
23,569

(8)
23,569

 

 

 

 

 

Oakwood Arlington
 
3.12
%
 
Nov-2015
 
42,703

 
42,185

(8)
42,185

 

 

 

 

 

Eaves North Quincy
 
3.12
%
 
Nov-2015
 
37,212

 
36,761

(8)
36,761

 

 

 

 

 

Avalon Thousand Oaks Plaza
 
3.12
%
 
Nov-2015
 
28,742

 
28,394

(8)
28,394

 

 

 

 

 

Avalon La Jolla Colony
 
3.36
%
 
Nov-2017
 
27,176

 
27,176

 

 

 
27,176

 

 

 

Eaves Old Town Pasadena
 
3.36
%
 
Nov-2017
 
15,669

 
15,669

 

 

 
15,669

 

 

 

Eaves Thousand Oaks
 
3.36
%
 
Nov-2017
 
27,411

 
27,411

 

 

 
27,411

 

 

 

Avalon Walnut Ridge I
 
3.36
%
 
Nov-2017
 
20,754

 
20,754

 

 

 
20,754

 

 

 

Eaves Los Feliz
 
3.36
%
 
Nov-2017
 
43,258

 
43,258

 

 

 
43,258

 

 

 

Avalon Oak Creek
 
3.36
%
 
Nov-2017
 
85,288

 
85,288

 

 

 
85,288

 

 

 

Avalon Del Mar Station
 
3.36
%
 
Nov-2017
 
76,471

 
76,471

 

 

 
76,471

 

 

 

Avalon Courthouse Place
 
3.36
%
 
Nov-2017
 
140,332

 
140,332

 

 

 
140,332

 

 

 

Avalon Pasadena
 
3.34
%
 
Nov-2017
 
28,079

 
28,079

 

 

 
28,079

 

 

 

Eaves West Valley
 
3.36
%
 
Nov-2017
 
83,087

 
83,087

 

 

 
83,087

 

 

 

Eaves Woodland Hills
 
3.36
%
 
Nov-2017
 
104,694

 
104,694

 

 

 
104,694

 

 

 

Avalon Russett
 
3.36
%
 
Nov-2017
 
39,972

 
39,972

 

 

 
39,972

 

 

 

Avalon First & M
 
5.56
%
 
May-2053
 
142,061

 
140,964

 
954

 
987

 
1,067

 
1,129

 
1,195

 
135,632

Avalon San Bruno II
 
3.85
%
 
Apr-2021
 
31,398

 
30,968

 
454

 
475

 
506

 
534

 
564

 
28,435

Avalon Westbury
 
4.13
%
 
Nov-2036
(5)
21,260

 
20,145

 
1,172

 
1,231

 
1,293

 
1,358

 
1,426

 
13,665

Archstone Lexington
 
3.32
%
 
Mar-2016
 
16,780

 
16,525

 
270

 
16,255

 

 

 

 

Avalon San Bruno III
 
4.87
%
 
Jun-2020
 
56,210

 
56,210

 
561

 
1,147

 
1,188

 
1,226

 
1,264

 
50,824

Avalon Andover
 
3.28
%
 
Apr-2018
 
14,821

 
14,505

 
325

 
336

 
346

 
13,498

 

 

Avalon Natick
 
3.13
%
 
Apr-2019
 

 
14,818

 
319

 
329

 
339

 
349

 
13,482

 

 
 
 

 
 
 
4,865,256

 
5,009,187

 
601,389

 
281,927

 
958,892

 
41,638

 
629,360

 
2,495,981

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Variable rate (2)
 
 

 
 
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Avalon Walnut Creek
 
1.70
%
 
Mar-2046
(5)
8,500

 
8,500

(6)

 

 

 

 

 
8,500

Avalon Calabasas
 
2.41
%
 
Aug-2018
 
57,314

 
55,827

(3)
1,084

 
1,152

 
1,225

 
52,366

 

 

Avalon Natick
 
2.44
%
 
Apr-2019
 

 
37,539

(3)
809

 
833

 
858

 
884

 
34,155

 

Term Loan
 
1.77
%
 
Mar-2021
 

 
250,000

 

 

 

 

 

 
250,000

 
 
 

 
 
 
65,814

 
351,866

 
1,893

 
1,985

 
2,083

 
53,250

 
34,155

 
258,500

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total indebtedness - excluding Credit Facility
 
 

 
 
 
$
6,019,571

 
$
6,448,138

 
$
604,578

 
$
285,292

 
$
980,546

 
$
96,586

 
$
665,588

 
$
3,815,548

_________________________________
(1)
Includes credit enhancement fees, facility fees, trustees' fees, the impact of interest rate hedges, offering costs, mark to market amortization and other fees.
(2)
Variable rates are given as of December 31, 2014.
(3)
Financed by variable rate debt, but interest rate is capped through an interest rate protection agreement.
(4)
Balances outstanding represent total amounts due at maturity, and are net of $6,735 of debt discount and $5,291 of debt discount and basis adjustments associated with the hedged unsecured notes as of December 31, 2014 and December 31, 2013, respectively, and $84,449 and $120,071 of premium associated with secured notes as of December 31, 2014 and December 31, 2013, respectively, as reflected on our Consolidated Balance Sheets included elsewhere in this report.
(5)
Maturity date reflects the contractual maturity of the underlying bond. There is also an associated earlier credit enhancement maturity date.
(6)
In July 2013 we remarketed the bonds and converted them to variable rate through July 2018.
(7)
Borrowing is scheduled to mature in December 2015, and contractually includes an automatic one-year extension of the loan through December 2016.
(8)
Outstanding principal balance was reduced in June 2014 in conjunction with the prepayment of a secured mortgage note under the master credit agreement.

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Table of Contents

(9)
This community was sold in January 2015, at which time we substituted another operating community as collateral for the borrowing.
(10)
In January 2015, we experienced a fire at Edgewater. As of the date of this Form 10-K there has been no change in the terms and conditions of the financing secured by Edgewater, and we are complying with all lender requirements. The mortgage note stipulates that in the event of a casualty loss such as the Edgewater fire, the lender has absolute discretion to determine the disposition of the insurance proceeds, and can compel us (i) to direct the insurance proceeds to be used for the restoration of Edgewater, or (ii) to apply the insurance proceeds to repay the outstanding loan balance, at par. We are currently working with the lender to resolve open issues related to this matter.
Future Financing and Capital Needs—Portfolio and Other Activity
As of December 31, 2014, we had 26 wholly-owned communities under construction and eight wholly-owned communities under reconstruction. Substantially all of the capital expenditures necessary to complete the communities currently under construction and reconstruction and fund development costs related to pursuing Development Rights will be funded from:
our $1,300,000,000 Credit Facility;
the remaining $50,000,000 capacity under our Term Loan;
cash currently on hand, invested in highly liquid overnight money market funds and repurchase agreements, and short-term investment vehicles;
retained operating cash;
the net proceeds from sales of existing communities;
the issuance of debt or equity securities, including through the Forward; and/or
private equity funding, including joint venture activity.
Before planned construction or reconstruction activity, including activity related to communities owned by unconsolidated joint ventures begins, 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 pre-development 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 Development Rights or reconstruction activity and significant losses could be incurred.
From time to time we use joint ventures to hold or develop individual real estate assets. We generally employ joint ventures primarily to mitigate asset concentration or market risk and secondarily as a source of liquidity. We may also use joint ventures related to mixed-use land development opportunities where our partners bring development and operational expertise to the venture. Each joint venture or partnership agreement has been individually negotiated, and our ability to operate and/or dispose of a community in our sole discretion may be limited to varying degrees depending on the terms of the joint venture or partnership agreement. We cannot assure you that we will achieve our objectives through joint ventures.
In evaluating our allocation of capital within our markets, we sell assets that do not meet our long-term investment criteria or when capital and real estate markets allow us to realize a portion of the value created over the past business cycle and redeploy the proceeds from those sales to develop and redevelop communities. Because the proceeds from the sale of communities may not be immediately redeployed into revenue generating assets, the immediate effect of a sale of a community for a gain is to increase net income, but reduce future total revenues, total expenses and NOI. However, we believe that the absence of future cash flows from communities sold will have a minimal impact on our ability to fund future liquidity and capital resource needs.

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Table of Contents

Unconsolidated Real Estate Investments and Off-Balance Sheet Arrangements
Unconsolidated Investments
Fund I, Fund II and the U.S. Fund (collectively the “Funds”) were established to engage in real estate acquisition programs through discretionary investment funds.  We believe this investment format provides the following attributes: (i) third-party joint venture equity as an additional source of financing to expand and diversify our portfolio; (ii) additional sources of income in the form of property management and asset management fees and, potentially, incentive distributions if the performance of the Funds exceeds certain thresholds; and (iii) additional visibility into the transactions occurring in multi-family assets that helps us with other investment decisions related to our wholly-owned portfolio.
Fund I has nine institutional investors, including us. One of our wholly-owned subsidiaries is the general partner of Fund I, has a 15.2% combined general partner and limited partner equity interest, and has fully recovered its basis as of December 31, 2014, with any additional liquidation proceeds to be recognized in earnings as received. Fund I was our principal vehicle for acquiring apartment communities from its formation in March 2005 through the close of its investment period in March 2008. Fund I has a term that expires in March 2015. In 2014, Fund I sold its final four apartment communities.
Fund II has six institutional investors, including us. One of our wholly-owned subsidiaries is the general partner of Fund II and, excluding costs incurred in excess of our equity in the underlying net assets of Fund II, we have an equity investment of $92,162,000 (net of distributions), representing a 31.3% combined general partner and limited partner equity interest. Fund II served as the exclusive vehicle for acquiring apartment communities from its formation in 2008 through the close of its investment period in August 2011. Fund II has a term that expires in August 2020, assuming the exercise of two, one-year extension options.
The U.S. Fund has six institutional investors, including us. We are the general partner of the U.S. Fund and, excluding costs incurred in excess of our equity in the underlying net assets of the U.S. Fund, we have an equity investment of $88,220,000 (net of distributions), representing a 28.6% combined equity interest. The U.S. Fund was formed in July 2011 and is fully invested. The U.S. Fund has a term that expires in July 2023, assuming the exercise of two, one-year extension options. We acquired our interest in the U.S. Fund as part of the Archstone Acquisition.
In addition, as part of the Archstone Acquisition, we acquired an interest in the AC JV, which has four institutional investors, including us. Excluding costs incurred in excess of our equity in the underlying net assets of the AC JV, we have an equity investment of $69,633,000 (net of distributions), representing a 20.0% equity interest. The AC JV was formed in 2011.
As of December 31, 2014, we had investments in the following unconsolidated real estate accounted for under the equity method of accounting.  Refer to Note 6, “Investments in Real Estate Entities,” of the Consolidated Financial Statements located elsewhere in this report, which includes information on the aggregate assets, liabilities and equity, as well as operating results, and our proportionate share of their operating results. Detail of the real estate and associated funding underlying our unconsolidated investments is presented in the following table (dollars in thousands).

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Table of Contents

 
 
 
 
 
 
 
Debt (2)
Unconsolidated Real Estate Investments
Company
Ownership
Percentage
 
# of
Apartment
Homes
 
Total
Capitalized
Cost (1)
 
Principal Amount
 
Type
 
Interest
Rate (3)
 
Maturity
Date
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fund II
 

 
 

 
 

 
 

 
 
 
 

 
 
1. Briarwood Apartments—Owings Mills, MD
 

 
348

 
$
45,765

 
$
26,318

 
Fixed
 
3.64
%
 
Nov 2017
2. Eaves Gaithersburg—Gaithersburg, MD (4)
 

 
684

 
102,638

 
63,200

 
Fixed
 
5.42
%
 
Jan 2018
3. Eaves Tustin—Tustin, CA
 

 
628

 
100,837

 
59,100

 
Fixed
 
3.81
%
 
Oct 2017
4. Eaves Los Alisos—Lake Forest, CA
 

 
140

 
27,466

 

 
N/A
 
N/A

 
N/A
5. Eaves Plainsboro—Plainsboro, NJ (5)
 

 
776

 
91,862

 
9,412

 
Fixed
 
5.04
%
 
Jan 2016
6. Eaves Carlsbad—Carlsbad, CA
 

 
450

 
80,943

 
46,141

 
Fixed
 
4.68
%
 
Feb 2018
7. Eaves Rockville—Rockville, MD
 

 
210

 
51,608

 
30,277

 
Fixed
 
4.26
%
 
Aug 2019
   8. Captain Parker Arms - Lexington, MA
 

 
94

 
22,181

 
13,500

 
Fixed
 
3.90
%
 
Sep 2019
   9. Eaves Rancho San Diego—San Diego, CA
 

 
676

 
127,847

 
69,913

 
Fixed
 
3.45
%
 
Nov 2018
  10. Avalon Watchung—Watchung, NJ
 

 
334

 
66,425

 
40,950

 
Fixed
 
3.37
%
 
Apr 2019
Total Fund II
31.3
%
 
4,340

 
$
717,572

 
$
358,811

 
 
 
4.15
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Fund
 

 
 

 
 

 
 

 
 
 
 

 
 
1. Eaves Sunnyvale—Sunnyvale, CA (4)
 

 
192

 
$
67,031

 
$
33,806

 
Fixed
 
5.33
%
 
Nov 2019
2. Avalon Studio 4041—Studio City, CA
 

 
149

 
56,774

 
30,150

 
Fixed
 
3.34
%
 
Nov 2022
3. Marina Bay—Marina del Rey, CA
 

 
205

 
76,986

 

 
N/A
 
N/A

 
N/A
4. Avalon Venice on Rose—Venice, CA
 

 
70

 
56,405

 
31,114

 
Fixed
 
3.31
%
 
Jun 2020
5. Archstone Boca Town Center—Boca Raton, FL (6)
 

 
252

 
46,251

 
27,706

 
Fixed/Variable
 
3.54
%
 
Feb 2019
6. Avalon Station 250—Dedham, MA
 

 
285

 
95,111

 
59,733

 
Fixed
 
3.73
%
 
Sep 2022
7. Avalon Grosvenor Tower—Bethesda, MD
 

 
237

 
79,088

 
46,294

 
Fixed
 
3.74
%
 
Sep 2022
8. Avalon Kips Bay—New York, NY
 

 
209

 
134,470

 
68,920

 
Fixed
 
4.25
%
 
Jan 2019
9. Avalon Kirkland at Carillon—Kirkland, WA
 

 
131

 
50,023

 
30,157

 
Fixed
 
3.75
%
 
Feb 2019
Total U.S. Fund
28.6
%
 
1,730

 
$
662,139

 
$
327,880

 
 
 
3.92
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
AC JV
 

 
 

 
 

 
 

 
 
 
 

 
 
1. Archstone North Point—Cambridge, MA (7)
 

 
426

 
$
186,668

 
$
111,653

 
Fixed
 
6.00
%
 
 Aug 2021
2. Archstone Woodland Park—Herndon, VA (7)
 

 
392

 
85,324

 
50,647

 
Fixed
 
6.00
%
 
 Aug 2021
3. Avalon North Points Lofts — Cambridge, MA (8)
 
 
103

 
26,503

 

 
N/A
 
N/A

 
N/A
Total AC JV
20.0
%
 
921

 
$
298,495

 
$
162,300

 
 
 
6.00
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residual JV (9)
 

 
 

 
 

 
 

 
 
 
 

 
 
1. SWIB
 

 
1,410

 
$
261,740

 
$
148,866

 
Fixed/Variable
 
2.32
%
 
Dec 2015 (10)
Total Residual JV
8.0
%
 
1,410

 
$
261,740

 
$
148,866

 
 
 
2.32
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other Operating Joint Ventures
 

 
 

 
 

 
 

 
 
 
 

 
 
1. MVP I, LLC
25.0
%
 
313

 
$
124,344

 
$
105,000

 
Variable (11)
 
2.65
%
 
Dec 2015
2. Brandywine Apartments of Maryland, LLC
28.7
%
 
305

 
17,802

 
24,346

 
Fixed
 
3.40
%
 
Jun 2028
Total Other Joint Ventures
 

 
618

 
$
142,146

 
$
129,346

 
 
 
2.79
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Unconsolidated Investments
 

 
9,019

 
$
2,082,092

 
$
1,127,203

 
 
 
3.95
%
 
 
_________________________________

(1)
Represents total capitalized cost as of December 31, 2014.
(2)
We have not guaranteed the debt of unconsolidated investees and bear no responsibility for the repayment.
(3)
Represents weighted average rate on outstanding debt as of December 31, 2014.
(4)
Borrowing on this community is comprised of two mortgage loans.

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Table of Contents

(5)
Fund II repaid an outstanding mortgage loan secured by this community at par during 2014.
(6)
The debt secured by this community is a variable rate note, of which $24,868 has been converted to an effective fixed rate borrowing with an interest rate swap.
(7)
Borrowing is comprised of four mortgage loans made by the equity investors in the venture in proportion to their equity interests.
(8)
Development of this community was completed during 2014.
(9)
Our ownership interest of 8.0% is determined by our 40.0% ownership interest in the Residual JV entity with Equity Residential, which owns a 20.0% interest in SWIB.
(10)
Maturity date represents the earliest of the maturity dates on the two loans and four draws on the credit facility relating to the four communities owned by SWIB, as defined below. Maturity dates range from December 2015 to December 2029.
(11)
In December 2014 the interest rate converted from fixed to variable through the December 2015 maturity.
Off-Balance Sheet Arrangements
In addition to our investment interests in consolidated and unconsolidated real estate entities, we have certain off-balance sheet arrangements with the entities in which we invest. Additional discussion of these entities can be found in Note 6, "Investments in Real Estate Entities," of our Consolidated Financial Statements located elsewhere in this report.
As of December 31, 2014, subsidiaries of Fund II have 10 loans secured by individual assets with aggregate amounts outstanding of $358,811,000 with varying maturity dates (and, in some cases, dates after which the loans can be prepaid without penalty), ranging from January 2016 to September 2019. The mortgage loans are payable by the subsidiaries of Fund II with operating cash flow or disposition proceeds from the underlying real estate. We have not guaranteed the debt of Fund II, nor do we have any obligation to fund this debt should Fund II be unable to do so.
In addition, as part of the formation of Fund II, we have provided to one of the limited partners a guarantee. The guarantee provides that if, upon final liquidation of Fund II, the total amount of all distributions to that partner during the life of Fund II (whether from operating cash flow or property sales) does not equal a minimum of the total capital contributions made by that partner, then we will pay the partner an amount equal to the shortfall, but in no event more than 10% of the total capital contributions made by the partner (maximum of approximately $8,910,000 as of December 31, 2014). As of December 31, 2014, the expected realizable value of the real estate assets owned by Fund II is considered adequate to cover the guaranteed distribution amount to that partner under the expected Fund II liquidation scenario. The estimated fair value of, and our obligation under, this guarantee, both at inception and as of December 31, 2014, was not significant and therefore we have not recorded any obligation for this guarantee as of December 31, 2014.
Each individual mortgage loan of Fund II was made to a special purpose, single asset subsidiary of Fund II. Each mortgage loan provides that it is the obligation of the respective subsidiary only, except under exceptional circumstances (such as fraud or misapplication of funds) in which case Fund II could also have obligations with respect to the mortgage loan. In no event do the mortgage loans provide for recourse against investors in Fund II, including against us or our wholly-owned subsidiaries that invest in Fund II. A default by Fund II or a Fund II subsidiary on any loan to it would not constitute a default under any of our loans or any loans of our other non-Fund subsidiaries or affiliates. If Fund II or a subsidiary of Fund II were unable to meet its obligations under a loan, the value of our investment in Fund II would likely decline and we might also be more likely to be obligated under the guarantee we provided to Fund II partners as described above.  If a Fund II subsidiary or Fund II were unable to meet its obligations under a loan, we and/or the other investors might evaluate whether it was in our respective interests to voluntarily support Fund II through additional equity contributions and/or take other actions to avoid a default under a loan or the consequences of a default (such as foreclosure of a Fund II asset).
In the future, in the event Fund II was unable to meet its obligations under a loan, we cannot predict at this time whether we would provide any voluntary support, or take any other action, as any such action would depend on a variety of factors, including the amount of support required and the possibility that such support could enhance the return of Fund II and/or our returns by providing time for performance to improve.
As of December 31, 2014, subsidiaries of the U.S. Fund have nine loans secured by individual assets with aggregate amounts outstanding of $327,880,000 with varying maturity dates, ranging from January 2019 to November 2022. The mortgage loans are payable by the subsidiaries of the U.S. Fund with operating cash flow or disposition proceeds from the underlying real estate. We have not guaranteed the debt of the U.S. Fund, nor do we have any obligation to fund this debt should the U.S. Fund be unable to do so.

59

Table of Contents

As of December 31, 2014, subsidiaries of the AC JV have eight unsecured loans outstanding in the aggregate amount of $162,300,000 which mature in August 2021, and which were made by the investors in the venture, including us, in proportion to the investors' respective equity ownership interest. The unsecured loans are payable by the subsidiaries of the AC JV with operating cash flow from the venture. We have not guaranteed the debt of the AC JV, nor do we have any obligation to fund this debt should the AC JV be unable to do so.
MVP I, LLC, the entity that owns Avalon at Mission Bay North II, has a loan secured by the underlying real estate assets of the community for $105,000,000. In December 2014, the loan converted from fixed rate to a variable rate, interest-only note bearing interest at LIBOR plus 2.50%, maturing in December 2015. We have not guaranteed the debt of MVP I, LLC, nor do we have any obligation to fund this debt should MVP I, LLC be unable to do so.
In January 2015, we received $20,700,000 from the joint venture partner associated with MVP I, LLC upon agreement to modify the joint venture agreement to eliminate our promoted interest for future return calculations and associated distributions. Prospectively, earnings and distributions will be based on the Company's 25.0% equity interest in the venture.
As of December 31, 2014, Brandywine has an outstanding $24,346,000 fixed rate mortgage loan that is payable by Brandywine. We have not guaranteed the debt of Brandywine, nor do we have any obligation to fund this debt should Brandywine be unable to do so.
As of December 31, 2014, SWIB, the joint venture for which we have an 8.0% indirect interest in through the Residual JV, has two loans and four draws on a credit facility secured by individual assets with aggregate amounts outstanding of $148,866,000 with varying maturity dates, ranging from December 2015 to December 2029. We have not guaranteed the debt of SWIB, nor do we have any obligation to fund this debt should SWIB be unable to do so.
There are no other material lines of credit, side agreements, financial guarantees or any other derivative financial instruments related to or between our unconsolidated real estate entities and us. In evaluating our capital structure and overall leverage, management takes into consideration our proportionate share of the indebtedness of unconsolidated entities in which we have an interest.
Contractual Obligations
Scheduled contractual obligations required for the next five years and thereafter are as follows as of December 31, 2014 (dollars in thousands):
 
Payments due by period
 
Total
 
Less than 1
Year
 
1-3 Years
 
3-5 Years
 
More than 5
Years
Debt Obligations
$
6,448,138

 
$
604,578

 
$
1,265,838

 
$
762,174

 
$
3,815,548

Interest on Debt Obligations
1,932,230

 
269,081

 
459,352

 
319,925

 
883,872

Capital Lease Obligations (1) (2)
62,599

 
1,885

 
19,931

 
1,696

 
39,087

Operating Lease Obligations (1)
1,332,711

 
20,337

 
41,464

 
43,056

 
1,227,854

 
$
9,775,678

 
$
895,881

 
$
1,786,585

 
$
1,126,851

 
$
5,966,361

_________________________________

(1)
Includes land leases expiring between October 2026 and March 2142. Amounts do not include any adjustment for purchase options available under the land leases.

(2)
Aggregate capital lease payments include $28,318 in interest costs.


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Inflation and Deflation
Substantially all of our apartment leases are for a term of one year or less. In an inflationary environment, this may allow us to realize increased rents upon renewal of existing leases or the beginning of new leases. Similarly, in a deflationary rent environment, we may be exposed to declining rents more quickly under these shorter-term leases.
Forward-Looking Statements
This Form 10-K 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," "plan," "may," "shall," "will" and other similar expressions in this Form 10-K, that predict or indicate future events and trends and that do not report historical matters. These statements include, among other things, statements regarding our intent, belief or expectations with respect to:
our potential development, redevelopment, acquisition or disposition of communities;
the timing and cost of completion of apartment communities under construction, reconstruction, development or redevelopment;
the timing of lease-up, occupancy and stabilization of apartment communities;
the pursuit of land on which we are considering future development;
the anticipated operating performance of our communities;
cost, yield, revenue, NOI and earnings estimates;
our declaration or payment of distributions;
our joint venture and discretionary fund activities;
our policies regarding investments, indebtedness, acquisitions, dispositions, financings and other matters;
our qualification as a REIT under the Internal Revenue Code;
the real estate markets in Northern and Southern California and markets in selected states in the Mid-Atlantic, New England, Metro New York/New Jersey and Pacific Northwest regions of the United States and in general;
the availability of debt and equity financing;
interest rates;
general economic conditions including the potential impacts from economic conditions; and
trends affecting our financial condition or results of operations.
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. We do not undertake a duty to update these forward-looking statements, and therefore they may not represent our estimates and assumptions after the date of this report. 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. You should carefully review the discussion under Item 1A. "Risk Factors" in this report for further discussion of risks associated with 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:
our preliminary expectations and assumptions as of the date of this filing regarding insurance coverage, lender payoff and refinancing requirements and potential uninsured loss amounts resulting from the Edgewater fire, as well as the ultimate cost and timing of replacing the Edgewater building and achieving stabilized occupancy, are subject to change and could materially affect our current expectations regarding the impact of the fire on our financial condition and results of operations;

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the expected proceeds from settlement of the Forward are subject to adjustment for changes in the Fed Funds rate and the amount of dividends we pay on our common stock, and our receipt of settlement proceeds assumes that we will settle the Forward by physical delivery;
we may fail to secure development opportunities due to an inability to reach agreements with third parties to obtain land at attractive prices 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, increases in the cost of capital or lack of capital availability, resulting in losses;
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 costs and construction costs and a decrease in our expected rental revenues;
occupancy rates and market rents may be adversely affected by competition and local economic and market conditions which are beyond our control;
financing may not be available on favorable terms or at all, and our cash flows from operations and access to cost effective capital may be insufficient for the development of our pipeline which could limit our pursuit of opportunities;
our cash flows 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 our management of Fund I, Fund II, the U.S. Fund, the AC JV or the REIT vehicles that are used with each of them; and
we may be unsuccessful in managing changes in our portfolio composition.
Critical Accounting Policies
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. If our judgment or interpretation of the facts and circumstances relating to various transactions had been different, or different assumptions were made, it is possible that different accounting policies would have been applied, resulting in different financial results or a different presentation of our financial statements. Below is a discussion of the accounting policies that we consider critical to an understanding of our financial condition and operating results that may require complex or significant judgment in their application or require estimates about matters which are inherently uncertain. A discussion of our significant accounting policies, including further discussion of the accounting policies described below, can be found in Note 1, "Organization and Basis of Presentation," of our Consolidated Financial Statements.
Principles of Consolidation
We may enter into various joint venture agreements with unrelated third parties to hold or develop real estate assets. We must determine for each of these ventures whether to consolidate the entity or account for our investment under the equity or cost basis of accounting.
We determine whether to consolidate certain entities based on our rights and obligations under the joint venture agreements, applying the applicable accounting guidance. For investment interests that we do not consolidate, we evaluate the guidance to determine the accounting framework to apply. The application of the rules in evaluating the accounting treatment for each joint venture is complex and requires substantial management judgment. Therefore, we believe the decision to choose an appropriate accounting framework is a critical accounting estimate.
If we were to consolidate the joint ventures that we accounted for using the equity method, excluding joint venture entities the company formed with Equity Residential as part of the Archstone Acquisition, at December 31, 2014, our assets would have increased by $1,391,602,000 and our liabilities would have increased by $1,005,012,000. We would be required to consolidate those joint ventures currently not consolidated for financial reporting purposes if the facts and circumstances changed, including but not limited to the following reasons, none of which are currently expected to occur:
For entities not considered to be variable interest entities, the nature of the entity changed such that it would be considered a variable interest entity and we were considered the primary beneficiary.
For entities in which we do not hold a controlling voting and/or variable interest, the contractual arrangement changed resulting in our investment interest being either a controlling voting and/or variable interest.

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We evaluate our accounting for investments on a regular basis including when a significant change in the design of an entity occurs.
Cost Capitalization
We capitalize costs during the development of assets. Capitalization begins when we determine that development of a future asset is probable and continues until the asset, or a portion of the asset, is delivered and is ready for its intended use. For redevelopment efforts, we capitalize costs either (i) in advance of taking apartment homes out of service when significant renovation of the common area has begun and continue until the redevelopment is completed, or (ii) when an apartment home is taken out of service for redevelopment and continue until the redevelopment is completed and the apartment home is available for a new resident. Rental income and operating expenses incurred during the initial lease-up or post-redevelopment lease-up period are fully recognized in earnings as they accrue. We defer costs associated with originating new leases, recognizing the impact of these costs in earnings over the term of the lease
During the development and redevelopment efforts we capitalize all direct costs and indirect costs which have been incurred as a result of the development and redevelopment activities. These costs include interest and related loan fees, property taxes as well as other direct and indirect costs. Interest is capitalized for any project-specific financing, as well as for general corporate financing to the extent of our aggregate investment in the projects. Indirect project costs, which include personnel and office and administrative costs that are clearly associated with our development and redevelopment efforts, are also capitalized. Capitalized indirect costs associated with our development and redevelopment activities are comprised primarily of compensation related costs for associates dedicated to our development and redevelopment efforts and total $37,433,000, $38,128,000 and $26,513,000 for 2014, 2013 and 2012, respectively. The estimation of the direct and indirect costs to capitalize as part of our development and redevelopment activities requires judgment and, as such, we believe cost capitalization to be a critical accounting estimate.
There may be a change in our operating expenses in the event that there are changes in accounting guidance governing capitalization or changes to our levels of development or redevelopment activity. If changes in the accounting guidance limit our ability to capitalize costs or if we reduce our development and redevelopment activities without a corresponding decrease in indirect project costs, there may be an increase in our operating expenses. For example, if in 2014 our development activities decreased by 10%, and there were no corresponding decrease in our indirect project costs, our costs charged to expense would have increased by $3,743,000.
We capitalize pre-development costs incurred in pursuit of Development Rights. These costs include legal fees, design fees and related overhead costs. Future development of these pursuits is dependent upon various factors, including zoning and regulatory approval, rental market conditions, construction costs and availability of capital. Pre-development costs incurred for pursuits for which future development is not yet considered probable are expensed as incurred. In addition, if the status of a Development Right changes, making future development no longer probable, any capitalized pre-development costs are written off with a charge to expense.
Due to the subjectivity in determining whether a pursuit will result in the development of an apartment community, and therefore should be capitalized, the accounting for pursuit costs is a critical accounting estimate. If we had determined that 10% of our capitalized pursuit costs were associated with Development Rights that were no longer probable of occurring, net income for the year ended December 31, 2014 would have decreased by $6,703,000.
Abandoned Pursuit Costs & Asset Impairment
We evaluate our real estate and other long-lived assets for impairment when potential indicators of impairment exist. If events or circumstances indicate that the carrying amount of a property may not be recoverable, we assess its recoverability by comparing the carrying amount of the property to its estimated undiscounted future cash flows. If the carrying amount exceeds the aggregate undiscounted future cash flows, we recognize an impairment loss to the extent the carrying amount exceeds the estimated fair value of the property. We assess land held for development for impairment if our intent changes with respect to the development of the land. We evaluate our unconsolidated investments for impairment, considering both the carrying value of the investment, estimated to be the expected proceeds that it would receive if the entity were dissolved and the net assets were liquidated, as well as our proportionate share of any impairment of assets held by unconsolidated investments.
We expense costs related to abandoned pursuits, which include the abandonment of Development Rights and disposition pursuits. These costs can vary greatly, and the costs incurred in any given period may be significantly different in future years.
Our focus on value creation through real estate development presents an impairment risk in the event of a future deterioration of the real estate and/or capital markets or a decision by us to reduce or cease development. We cannot predict the occurrence of future events that may cause an impairment assessment to be performed, or the likelihood of any future impairment charges, if any. You should also review Item 1A. “Risk Factors” in this Form 10-K.

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REIT Status
We are a Maryland corporation that has elected to be treated, for federal income tax purposes, as a REIT. We elected to be taxed as a REIT under the Internal Revenue Code for the year ended December 31, 1994 and have 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, we generally will not be subject to corporate level federal income tax on taxable income if we distribute 100% of our taxable income to our stockholders over time periods allowed under the Code. If we fail to qualify as a REIT in any taxable year, we will be subject to federal and state income taxes at regular corporate rates (subject to any applicable alternative minimum tax) and may not be able to elect to qualify as a REIT for four subsequent taxable years. For example, if we failed to qualify as a REIT in 2014, our net income would have decreased by approximately $274,794,000.
Our qualification as a REIT requires management to exercise significant judgment and consideration with respect to operational matters and accounting treatment. Therefore, we believe our REIT status is a critical accounting estimate.
Acquisition of Investments in Real Estate
We account for our acquisitions of investments in real estate in accordance with the authoritative guidance for the initial measurement, which requires the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree to be recognized at fair value. Typical assets and liabilities acquired include land, building, furniture, fixtures and equipment and identified intangible assets and liabilities, consisting of the value of above-below market leases and in-place leases. In making estimates of fair values for purposes of allocating purchase price, we utilize various sources, including our own analysis of recently acquired and existing comparable properties in our portfolio and other market data.

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ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risks from our financial instruments primarily from changes in market interest rates. We do not have exposure to any other significant market risk. We monitor interest rate risk as an integral part of our overall risk management, which recognizes the unpredictability of financial markets and seeks to reduce the potentially adverse effect on our results of operations. Our operating results are affected by changes in interest rates, primarily in short-term LIBOR and the SIFMA index as a result of borrowings under our Credit Facility and outstanding bonds with variable interest rates. In addition, the fair value of our fixed rate unsecured and secured notes are impacted by changes in market interest rates. The effect of interest rate fluctuations on our results of operations historically has been small relative to other factors affecting operating results, such as rental rates and occupancy.
As of December 31, 2014 and 2013, we had $1,297,461,000 and $1,011,609,000, respectively, in variable rate debt outstanding, with no amounts outstanding under our Credit Facility. If interest rates on the variable rate debt had been 100 basis points higher throughout 2014 and 2013, our annual interest costs would have increased by approximately $13,035,000 and $9,680,000, respectively, based on balances outstanding during the applicable years. In 2013, in conjunction with the Archstone Acquisition, we assumed approximately $2,034,482,000 secured fixed and floating rate indebtedness, which impacted the Company's overall exposure to interest rate risk. In May 2013, a $215,000,000 forward interest rate protection agreement matured, resulting in a payment to the counterparty of $51,000,000, the fair value at time of settlement.
Because the counterparties providing the interest rate cap and swap agreements are major financial institutions which have an A or better credit rating by the Standard & Poor's Ratings Group and the current valuation of the position is a net liability for us, we do not believe there is exposure at this time to a default by a counterparty provider.
In addition, changes in interest rates affect the fair value of our fixed rate debt, computed using quoted market prices for our unsecured notes or a discounted cash flow model for our secured notes, considering our current market yields, which impacts the fair value of our aggregate indebtedness. Debt securities and notes payable (including amounts outstanding under our Credit Facility) with an aggregate carrying value of $6,448,138,000 at December 31, 2014 had an estimated aggregate fair value of $6,558,022,000 at December 31, 2014. Contractual fixed rate debt represented $5,443,736,000 of the fair value at December 31, 2014. If interest rates had been 100 basis points higher as of December 31, 2014, the fair value of this fixed rate debt would have decreased by approximately $365,417,000.
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.
ITEM 9A.    CONTROLS AND PROCEDURES
(a)
Evaluation of Disclosure Controls and Procedures. As required by Rule 13a-15 under the Securities Exchange Act of 1934, as of the end of the period covered by this report, the Company carried out an evaluation under the supervision and with the participation of the Company's management, including the Company's Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. We continue to review and document our disclosure controls and procedures, including our internal controls and procedures for financial reporting, and may from time to time make changes aimed at enhancing their effectiveness and to ensure that our systems evolve with our business.
(b)
Management's Report on Internal Control Over Financial Reporting. Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2014 based on the framework in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on that evaluation, our management concluded that our internal control over financial reporting was effective as of December 31, 2014.

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Our internal control over financial reporting as of December 31, 2014 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their report which is included elsewhere herein.
(c)
Changes in Internal Control Over Financial Reporting. There was no change in our internal control over financial reporting that occurred during the fourth quarter of the period covered by this Annual Report on Form 10-K that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B.    OTHER INFORMATION
None.


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PART III

ITEM 10.    DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by Item 10 pertaining to directors and executive officers of the Company and the Company's Code of Conduct is incorporated herein by reference to the Company'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 scheduled to be held on May 21, 2015.
ITEM 11.    EXECUTIVE COMPENSATION
The information required by Item 11 pertaining to executive compensation is incorporated herein by reference to the Company'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 scheduled to be held on May 21, 2015.
ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information required by Item 12 pertaining to security ownership of management and certain beneficial owners of the Company's common stock is incorporated herein by reference to the Company'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 scheduled to be held on May 21, 2015, to the extent not set forth below.
The Company maintains the 2009 Stock Option and Incentive Plan (the "2009 Plan") and the 1996 Non-Qualified Employee Stock Purchase Plan (the "ESPP"), pursuant to which common stock or other equity awards may be issued or granted to eligible persons.
The following table gives information about equity awards under the 2009 Plan, the Company's prior 1994 Stock Option and Incentive Plan (the "1994 Plan") under which awards were previously made, and the ESPP as of December 31, 2014:
 
(a)
 
(b)
 
(c)
Plan category
Number of securities to
be issued upon exercise
of outstanding options,
warrants and rights
 
Weighted-average
exercise price of
outstanding options,
warrants and rights
 
Number of securities
remaining available for
future issuance under
equity compensation plans
(excluding securities
reflected in column (a))
Equity compensation plans approved by security holders (1)
1,204,107

(2)
$
114.79

(3)
1,673,193

Equity compensation plans not approved by security holders (4)

 
N/A

 
714,827

Total
1,204,107

 
$
114.79

(3)
2,388,020

_________________________________

(1)
Consists of the 2009 Plan.
(2)
Includes 93,749 deferred units granted under the 2009 Plan and the 1994 Plan, which, subject to vesting requirements, will convert in the future to common stock on a one-for-one basis. Also includes the maximum number of shares that may be issued upon settlement of outstanding Performance Awards awarded to officers and maturing on December 31, 2014, 2015 and 2016. Does not include 190,240 shares of restricted stock that are outstanding and that are already reflected in the Company's outstanding shares.
(3)
Excludes performance awards and deferred units granted under the 2009 Plan and the 1994 Plan, which, subject to vesting requirements, will convert in the future to common stock on a one-for-one basis.
(4)
Consists of the ESPP.
The ESPP, which was adopted by the Board of Directors on October 29, 1996, has not been approved by our shareholders. A further description of the ESPP appears in Note 10, "Stock-Based Compensation Plans," of our Consolidated Financial Statements included in this report.

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ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by Item 13 pertaining to certain relationships and related transactions is incorporated herein by reference to the Company'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 21, 2015.
ITEM 14.    PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by Item 14 pertaining to the fees paid to and services provided by the Company's principal accountant is incorporated herein by reference to the Company'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 21, 2015.

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PART IV

ITEM 15.    EXHIBITS, FINANCIAL STATEMENT SCHEDULE
15(a)(1) Financial Statements
 
 
 
Index to Financial Statements
 
 
 
Consolidated Financial Statements and Financial Statement Schedule:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
15(a)(2) Financial Statement Schedule
 
 
 
 
 
All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and therefore have been omitted.
 
 
 
15(a)(3) Exhibits
 
 
 


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INDEX TO EXHIBITS
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) to Form 10-K of the Company filed March 1, 2007.)
3(i).2
 
 
Articles of Amendment, dated as of October 2, 1998. (Incorporated by reference to Exhibit 3(i).2 to Form 10-K of the Company filed March 1, 2007.)
3(i).3
 
 
Articles of Amendment, dated as of May 22, 2013. (Incorporated by reference to Exhibit 3(i).3 to Form 8-K of the Company filed on May 22, 2013.)
3(ii).1
 
 
Amended and Restated Bylaws of the Company, as adopted by the Board of Directors on May 21, 2009. (Incorporated by reference to Exhibit 3(ii).1 to Form 10-Q of the Company filed November 2, 2012.)
3(ii).2
 
 
Amendment to Amended and Restated Bylaws of AvalonBay Communities, Inc., dated February 10, 2010. (Incorporated by reference to Exhibit 3(ii).2 to Form 10-Q of the Company filed November 2, 2012.)
3(ii).3
 
 
Amendment to Amended and Restated Bylaws of AvalonBay Communities, Inc., dated September 19, 2012. (Incorporated by reference to Exhibit 3.2 to Form 8-K of the Company filed September 20, 2012.)
4.1
 
 
Indenture for Senior Debt Securities, 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 Registration Statement on Form S-3 of the Company (File No. 333-139839), filed January 8, 2007.)
4.2
 
 
First Supplemental Indenture, dated as of January 20, 1998, between the Company and State Street Bank and Trust Company as Trustee. (Incorporated by reference to Exhibit 4.2 to Registration Statement on Form S-3 of the Company (File No. 333-139839), filed January 8, 2007.)
4.3
 
 
Second Supplemental Indenture, dated as of July 7, 1998, between the Company and State Street Bank and Trust Company as Trustee. (Incorporated by reference to Exhibit 4.3 to Registration Statement on Form S-3 of the Company (File No. 333-139839), filed January 8, 2007.)
4.4
 
 
Amended and Restated Third Supplemental Indenture, dated as of July 10, 2000 between the Company and State Street Bank and Trust Company as Trustee. (Incorporated by reference to Exhibit 4.4 to Registration Statement on Form S-3 of the Company (File No. 333-139839), filed January 8, 2007.)
4.5
 
 
Fourth Supplemental Indenture, dated as of September 18, 2006, between the Company and U.S. Bank National Association as Trustee. (Incorporated by reference to Exhibit 4.5 to Registration Statement on Form S-3 of the Company (File No. 333-139839), filed January 8, 2007.)
4.6
 
__
 
Fifth Supplemental Indenture, dated as of November 21, 2014, between the Company and the Bank of New York Mellon, as Trustee. (Incorporated by reference to Exhibit 4.1 to Form 8-K of the Company filed on November 21, 2014.)
4.7
 
 
Dividend Reinvestment and Stock Purchase Plan of the Company. (Incorporated by reference to Exhibit 8.1 to Registration Statement on Form S-3 of the Company (File No. 333-87063), filed September 14, 1999.)
4.8
 
 
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.)

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4.9
 
 
Amendment to the Company's Dividend Reinvestment and Stock Purchase Plan filed on March 26, 2004. (Incorporated by reference to the Prospectus Supplement filed pursuant to Rule 424(b)(3) of the Securities Act of 1933 on March 26, 2004.)
4.10
 
 
Amendment to the Company's Dividend Reinvestment and Stock Purchase Plan filed on May 15, 2006. (Incorporated by reference to the Prospectus Supplement filed pursuant to Rule 424(b)(3) of the Securities Act of 1933 on May 15, 2006.)
10.1
 
 
Amended and Restated Limited Partnership Agreement of AvalonBay Value Added Fund, L.P., dated as of March 16, 2005. (Incorporated by reference to Exhibit 10.2 to Form 10-K of the Company filed February 23, 2011.)
10.2
 
 
Master Cross-Collateralization Agreement, dated as of April 24, 2009, between Deutsche Bank Berkshire Mortgage, Inc., parties identified on Exhibit A-Schedule 1 attached thereto, and Shady Grove Financing, LLC. (Incorporated by reference to Exhibit 10.2 to Form 10-Q of the Company filed August 10, 2009.)
10.3
 
 
Master Substitution Agreement, dated April 23, 2009, between Deutsche Bank Berkshire Mortgage, Inc., AvalonBay Traville, LLC and the entities identified on Schedule B attached thereto. (Incorporated by reference to Exhibit 10.3 to Form 10-Q of the Company filed August 10, 2009.)
10.4
 
 
Form of Multifamily Note, dated April 24, 2009. (Used in connection with the properties identified on Exhibit B to the Master Cross-Collateralization Agreement dated April 24, 2009.) (Incorporated by reference to Exhibit 10.4 to Form 10-Q of the Company filed August 10, 2009.)
10.5
 
 
Form of Guaranty, dated April 24, 2009. (Used in connection with the properties identified on Exhibit B to the Master Cross-Collateralization Agreement dated April 24, 2009.) (Incorporated by reference to Exhibit 10.5 to Form 10-Q of the Company filed August 10, 2009.)
10.6+
 
 
Endorsement Split Dollar Agreements and Amendments thereto with Messrs. Naughton, Sargeant, and Horey. (Incorporated by reference to Exhibit 10.8 to Form 10-K of the Company filed February 23, 2011.)
10.7+
 
 
Form of Amendment to Endorsement Split Dollar Agreement with Messrs. Naughton, Sargeant, and Horey. (Incorporated by reference to Exhibit 10.4 to Form 10-K of the Company filed March 2, 2009.)
10.8+
 
 
Employment Agreement between the Company and Timothy J. Naughton, dated as of December 16, 2011. (Incorporated by reference to Exhibit 10.1 to Form 8-K of the Company filed December 21, 2011.)
10.9+
 
 
Employment Agreement between the Company and Leo S. Horey dated as of December 16, 2011. (Incorporated by reference to Exhibit 10.3 to Form 8-K of the Company filed December 21, 2011.)
10.10+
 
 
AvalonBay Communities, Inc. 2009 Stock Option and Incentive Plan. (Incorporated by reference to Exhibit 10.1 to Form 8-K of the Company filed May 28, 2009.)
10.11+
 
__
 
Amendment to the AvalonBay Communities, Inc. 2009 Stock Option and Incentive Plan approved by the Board of Directors on May 21, 2014 following a stockholder vote. (Filed herewith.)

71

Table of Contents

10.12+
 
 
Form of Incentive Stock Option Agreement (2009 Stock Option and Incentive Plan). (Incorporated by reference to Exhibit 10.1 to Registration Statement on Form S-8 of the Company filed May 22, 2009.)
10.13+
 
 
Form of Non-Qualified Stock Option Agreement (2009 Stock Option and Incentive Plan). (Incorporated by reference to Exhibit 10.2 to Registration Statement on Form S-8 of the Company filed May 22, 2009.)
10.14+
 
 
Form of Stock Grant and Restricted Stock Agreement (2009 Stock Option and Incentive Plan). (Incorporated by reference to Exhibit 10.3 to Registration Statement on Form S-8 of the Company filed May 22, 2009.)
10.15+
 
 
Form of Director Restricted Stock Agreement (2009 Stock Option and Incentive Plan). (Incorporated by reference to Exhibit 10.4 to Registration Statement on Form S-8 of the Company filed May 22, 2009.)
10.16+
 
 
Form of Director Restricted Unit Agreement (2009 Stock Option and Incentive Plan). (Incorporated by reference to Exhibit 10.5 to Registration Statement on Form S-8 of the Company filed May 22, 2009.)
10.17+
 
 
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 Registration Statement on Form S-8 of the Company (File No. 333-16837), filed June 26, 1997.)
10.18+
 
 
1996 Non-Qualified Employee Stock Purchase Plan—Plan Information Statement dated June 26, 1997. (Incorporated by reference to Exhibit 99.2 to Registration Statement on Form S-8 of the Company (File No. 333-16837), filed November 26, 1996.)
10.19+
 
 
Form of Indemnity Agreement between the Company and its Directors. (Filed herewith.)

10.20+
 
 
The Company's Officer Severance Plan, as amended and restated on November 9, 2011. (Incorporated by reference to Exhibit 10.1 to Form 8-K of the Company filed November 15, 2011.)
10.21+
 
 
AvalonBay Communities, Inc. 1994 Stock Incentive Plan, as amended and restated in full on December 8, 2004. (Incorporated by reference to Exhibit 10.21 to Form 10-K of the Company filed March 2, 2009.)
10.22+
 
 
Amendment dated February 9, 2006, to the AvalonBay Communities, Inc. 1994 Stock Incentive Plan, as amended and restated on December 8, 2004. (Incorporated by reference to Exhibit 10.23 to Form 10-K of the Company filed February 22, 2013.)
10.23+
 
 
Amendment, dated December 6, 2006, to the AvalonBay Communities, Inc. 1994 Stock Incentive Plan, as amended and restated on December 8, 2004. (Incorporated by reference to Exhibit 10.24 to Form 10-K of the Company filed February 22, 2013.)
10.24+
 
 
Amendment, dated September 20, 2007, to the AvalonBay Communities, Inc. 1994 Stock Incentive Plan, as amended and restated on December 8, 2004. (Incorporated by reference to Exhibit 10.25 to Form 10-K of the Company filed February 22, 2013.)
10.25+
 
 
Form of AvalonBay Communities, Inc. Non-Qualified Stock Option Agreement (1994 Stock Incentive Plan, as Amended and Restated). (Incorporated by reference to Exhibit 10.26 to Form 10-K of the Company filed February 22, 2013.)

72

Table of Contents

10.26+
 
 
Form of AvalonBay Communities, Inc. Incentive Stock Option Agreement (1994 Stock Incentive Plan, as Amended and Restated.) (Incorporated by reference to Exhibit 10.27 to Form 10-K of the Company filed February 22, 2013.)
10.27+
 
 
Form of AvalonBay Communities, Inc. Employee Stock Grant and Restricted Stock Agreement (1994 Stock Incentive Plan, as Amended and Restated.) (Incorporated by reference to Exhibit 10.33 to Form 10-K of the Company filed March 2, 2009.)
10.28+
 
 
Form of AvalonBay Communities, Inc. Director Restricted Unit Agreement (1994 Stock Incentive Plan, as Amended and Restated). (Incorporated by reference to Exhibit 10.29 to Form 10-K of the Company filed February 22, 2013.)
10.29+
 
 
Form of AvalonBay Communities, Inc. Director Restricted Stock Agreement (1994 Stock Incentive Plan, as Amended and Restated). (Incorporated by reference to Exhibit 10.30 to Form 10-K of the Company filed February 22, 2013.)
10.31
 
 
Third Amended and Restated Revolving Loan Agreement, dated as of September 29, 2011, with Bank of America, N.A., as administrative agent, swing lender, issuing bank and a bank, JPMorgan Chase Bank, N.A., as a bank and as syndication agent, Deutsche Bank Trust Company Americas, Morgan Stanley Bank and Wells Fargo Bank, N.A., each as a bank and as documentation agent, Barclays Bank PLC as a bank and as co-documentation agent, UBS Securities LLC as a co-documentation agent, The Bank of New York Mellon, BBVA Compass Bank, PNC Bank, National Association, and Suntrust Bank, each as a bank and as a managing agent, Branch Banking and Trust Company, Bank of Tokyo Mitsubishi UFJ, Ltd., and Citizens Bank, each as a bank and as a co-agent, and the other bank parties signatory thereto (Incorporated by reference to Exhibit 10.1 to Form 10-Q of the Company filed November 7, 2011.)
10.32
 
 
Amendment No. 1 to Third Amended and Restated Revolving Loan Agreement, dated as of December 20, 2012, among the Company, as Borrower, the banks signatory thereto, each as a Bank, and Bank of America, N.A., as Administrative Agent. (Incorporated by reference to Exhibit 10.1 to Form 8-K of the Company, filed December 21, 2012.)
10.33+
 
 
Rules and Procedures for Non-Employee Directors' Deferred Compensation Program, as adopted on November 20, 2006, as amended on December 11, 2008, February 10, 2010 and November 10, 2010. (Incorporated by reference to Exhibit 10.49 to Form 10-K of the Company filed February 23, 2011.)
10.34+
 
 
Amended and Restated AvalonBay Communities, Inc. Deferred Compensation Plan, effective as of January 1, 2011. (Incorporated by reference to Exhibit 10.1 to Form 10-Q of the Company filed August 6, 2010.)
10.35
 
 
Asset Purchase Agreement, dated November 26, 2012, by and among AvalonBay Communities, Inc., Equity Residential and its operating partnership, ERP Operating Partnership, LP, Lehman Brothers Holdings,  Inc., and Archstone Enterprise LP. (Incorporated by reference to Exhibit 2.1 to Form 8-K of the Company filed November 26, 2012.)
10.36+
 
 
Retirement Agreement between the Company and Thomas J. Sargeant dated as of May 20, 2014. (Filed herewith.)
10.37+
 
 
Form of AvalonBay Communities, Inc. Award Terms of Performance-Based Restricted Stock Units. (Incorporated by reference to Exhibit 10.1 to Form 10-Q filed May 10, 2013.)
10.38
 
 
Shareholders Agreement, dated February 27, 2013, by and among the Company, Archstone Enterprise LP and Lehman Brothers Holdings Inc. (Incorporated by Reference to Exhibit 10.2 to Form 8-K of the Company filed March 5, 2013.)
10.39
 
 
Archstone Residual JV, LLC Limited Liability Company Agreement. (Incorporated by reference to Exhibit 10.3 to Form 8-K of the Company filed March 5, 2013.)

73

Table of Contents

10.40
 
 
Archstone Parallel Residual JV, LLC Limited Liability Company Agreement. (Incorporated by reference to Exhibit 10.4 to Form 8-K of the Company filed March 5, 2013.)
10.41
 
 
Archstone Parallel Residual JV 2, LLC Limited Liability Company Agreement. (Incorporated by reference to Exhibit 10.5 to Form 8-K of the Company filed March 5, 2013.)
10.42
 
 
Legacy Holdings JV, LLC Limited Liability Company Agreement. (Incorporated by reference to Exhibit 10.6 to Form 8-K of the Company filed March 5, 2013.)
10.43
 
 
Master Credit Facility Agreement, dated February 27, 2013, by and among Federal National Mortgage Association and the parties named therein. (Incorporated by reference to Exhibit 10.7 to Form 8-K of the Company filed March 5, 2013.)
10.44
 
---
 
Term Loan Agreement, dated March 31, 2014, among the Company, as Borrower, Wells Fargo Bank, National Association, as Administrative Agent and a bank, PNC Bank, National Association, as Syndication Agent and a bank, and a syndicate of other financial institutions, serving as banks. (Incorporated by reference to Exhibit 10.1 to Form 8-K of the Company filed April 2, 2014.)
12.1
 
 
Statements re: Computation of Ratios. (Filed herewith.)
21.1
 
 
Schedule of Subsidiaries of the Company. (Filed herewith.)
23.1
 
 
Consent of Ernst & Young LLP. (Filed herewith.)
31.1
 
 
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Chief Executive Officer). (Filed herewith.)
31.2
 
 
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Chief Financial Officer). (Filed herewith.)
32
 
 
Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Executive Officer and Chief Financial Officer). (Furnished herewith.)
101
 
 
XBRL (Extensible Business Reporting Language). The following materials from AvalonBay Communities, Inc.'s Annual Report on Form 10-K for the year ended December 31, 2014, formatted in XBRL: (i) consolidated balance sheets, (ii) consolidated statements of operations, (iii) consolidated statements of cash flows, (iv) consolidated changes in stockholders' equity, and (v) notes to consolidated financial statements.
_______________________________________________________________________________

+
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 15(a)(3) of Form 10-K.


74

Table of Contents

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.

 
 
 
 
 
 
 
AvalonBay Communities, Inc.
Date: February 18, 2015
 
By:
 
/s/ TIMOTHY J. NAUGHTON
 
 
 
 
Timothy J. Naughton, Director, Chairman, Chief Executive Officer and President (Principal Executive Officer)

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.

 
 
 
 
 
Date: February 18, 2015
 
By:
 
/s/ TIMOTHY J. NAUGHTON
 
 
 
 
Timothy J. Naughton, Director, Chairman, Chief Executive Officer and President (Principal Executive Officer)
Date: February 18, 2015
 
By:
 
/s/ KEVIN P. O’SHEA
 
 
 
 
Kevin P. O’Shea, Chief Financial Officer
(Principal Financial Officer)
Date: February 18, 2015
 
By:
 
/s/ KERI A. SHEA
 
 
 
 
Keri A. Shea, Senior Vice President—Finance & Treasurer
(Principal Accounting Officer)
Date: February 18, 2015
 
By:
 
/s/ GLYN F. AEPPEL
 
 
 
 
Glyn F. Aeppel, Director
Date: February 18, 2015
 
By:
 
/s/ TERRY S. BROWN
 
 
 
 
Terry S. Brown, Director
Date: February 18, 2015
 
By:
 
/s/ ALAN B. BUCKELEW
 
 
 
 
Alan B. Buckelew, Director
Date: February 18, 2015
 
By:
 
/s/ BRUCE A. CHOATE
 
 
 
 
Bruce A. Choate, Director
Date: February 18, 2015
 
By:
 
/s/ RONALD L. HAVNER, JR.
 
 
 
 
Ronald L. Havner, Jr., Director
Date: February 18, 2015
 
By:
 
/s/ JOHN J. HEALY, JR.
 
 
 
 
John J. Healy, Jr., Director
Date: February 18, 2015
 
By:
 
/s/ LANCE R. PRIMIS
 
 
 
 
Lance R. Primis, Director
Date: February 18, 2015
 
By:
 
/s/ PETER S. RUMMELL
 
 
 
 
Peter S. Rummell, Director
Date: February 18, 2015
 
By:
 
/s/ H. JAY SARLES
 
 
 
 
H. Jay Sarles, Director
Date: February 18, 2015
 
By:
 
/s/ W. EDWARD WALTER
 
 
 
 
W. Edward Walter, Director

75

Table of Contents

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders of AvalonBay Communities, Inc.:
We have audited the accompanying consolidated balance sheets of AvalonBay Communities, Inc. as of December 31, 2014 and 2013, and the related consolidated statements of comprehensive income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 2014. Our audits also included the financial statement schedule listed in the Index at Item 15(a)(2). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (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 financial statements referred to above present fairly, in all material respects, the consolidated financial position of AvalonBay Communities, Inc. at December 31, 2014 and 2013, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2014, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects, the information set forth therein.
As discussed in Note 1 to the consolidated financial statements, the Company changed its method for reporting discontinued operations effective January 1, 2014.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), AvalonBay Communities, Inc.’s internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 19, 2015 expressed an unqualified opinion thereon.


/s/ Ernst & Young LLP

McLean, Virginia
February 19, 2015


F-1

Table of Contents

Report of Independent Registered Public Accounting Firm on
Internal Control Over Financial Reporting

The Board of Directors and Stockholders of AvalonBay Communities, Inc.:
We have audited AvalonBay Communities, Inc.’s internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). AvalonBay Communities, Inc.’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting in Item 9A. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, AvalonBay Communities, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2014, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of AvalonBay Communities, Inc. as of December 31, 2014 and 2013, and the related consolidated statements of comprehensive income, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2014 of AvalonBay Communities, Inc. and our report dated February 19, 2015 expressed an unqualified opinion thereon.


/s/ Ernst & Young LLP

McLean, Virginia
February 19, 2015


F-2

Table of Contents

AVALONBAY COMMUNITIES, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
 
12/31/14
 
12/31/13
ASSETS
 

 
 

Real estate:
 

 
 

Land and improvements
$
3,465,650

 
$
3,251,780

Buildings and improvements
12,317,304

 
11,007,775

Furniture, fixtures and equipment
404,103

 
338,813

 
16,187,057

 
14,598,368

Less accumulated depreciation
(2,891,254
)
 
(2,455,790
)
Net operating real estate
13,295,803

 
12,142,578

Construction in progress, including land
1,417,246

 
1,582,876

Land held for development
180,516

 
300,364

Operating real estate assets held for sale, net
42,175

 
258,391

Total real estate, net
14,935,740

 
14,284,209

 
 
 
 
Cash and cash equivalents
509,460

 
281,355

Cash in escrow
95,625

 
98,564

Resident security deposits
29,617

 
26,672

Investments in unconsolidated real estate entities
298,315

 
367,866

Deferred financing costs, net
39,728

 
40,460

Deferred development costs
67,029

 
31,592

Prepaid expenses and other assets
201,209

 
197,425

Total assets
$
16,176,723

 
$
15,328,143

 
 
 
 
LIABILITIES AND EQUITY
 

 
 

Unsecured notes, net
$
2,993,265

 
$
2,594,709

Variable rate unsecured credit facility

 

Mortgage notes payable
3,532,587

 
3,539,642

Dividends payable
153,207

 
138,476

Payables for construction
101,946

 
94,632

Accrued expenses and other liabilities
244,821

 
240,337

Accrued interest payable
41,318

 
42,854

Resident security deposits
49,502

 
44,594

Liabilities related to real estate assets held for sale
907

 
15,852

Total liabilities
7,117,553

 
6,711,096

 
 
 
 
Redeemable noncontrolling interests
12,765

 
17,320

 
 
 
 
Equity:
 

 
 

Preferred stock, $0.01 par value; $25 liquidation preference; 50,000,000 shares authorized at December 31, 2014 and 2013; zero shares issued and outstanding at December 31, 2014 and 2013

 

Common stock, $0.01 par value; 280,000,000 shares authorized at December 31, 2014 and 2013; 132,050,382 and 129,416,695 shares issued and outstanding at December 31, 2014 and 2013, respectively
1,320

 
1,294

Additional paid-in capital
9,354,685

 
8,988,723

Accumulated earnings less dividends
(267,085
)
 
(345,254
)
Accumulated other comprehensive loss
(42,515
)
 
(48,631
)
Total stockholders' equity
9,046,405

 
8,596,132

Noncontrolling interest

 
3,595

Total equity
9,046,405

 
8,599,727

Total liabilities and equity
$
16,176,723

 
$
15,328,143

See accompanying notes to Consolidated Financial Statements.

F-3

Table of Contents

AVALONBAY COMMUNITIES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in thousands, except per share data)
 
For the year ended
 
12/31/14
 
12/31/13
 
12/31/12
Revenue:
 

 
 

 
 

Rental and other income
$
1,674,011

 
$
1,451,419

 
$
990,370

Management, development and other fees
11,050

 
11,502

 
10,257

Total revenue
1,685,061

 
1,462,921

 
1,000,627

 
 
 
 
 
 
Expenses:
 

 
 

 
 

Operating expenses, excluding property taxes
410,672

 
352,245

 
259,350

Property taxes
178,634

 
158,774

 
97,555

Interest expense, net
180,618

 
172,402

 
136,920

Loss on extinguishment of debt, net
412

 
14,921

 
1,179

Loss on interest rate contract

 
51,000

 

Depreciation expense
442,682

 
560,215

 
243,680

General and administrative expense
41,425

 
39,573

 
34,101

Expensed acquisition, development and other pursuit costs, net of recoveries
(3,717
)
 
45,050

 
11,350

Casualty and impairment loss

 

 
1,449

Total expenses
1,250,726

 
1,394,180

 
785,584

 
 
 
 
 
 
Equity in income (loss) of unconsolidated entities
148,766

 
(11,154
)
 
20,914

Gain on sale of land
490

 
240

 
280

Gain on sale of communities
84,925

 

 

Gain on acquisition of unconsolidated entity

 

 
14,194

 
 
 
 
 
 
Income from continuing operations before taxes
668,516

 
57,827

 
250,431

Income tax expense
9,368

 

 

 
 
 
 
 
 
Income from continuing operations
659,148

 
57,827

 
250,431

 
 
 
 
 
 
Discontinued operations:
 

 
 

 
 

Income from discontinued operations
310

 
16,713

 
26,820

Gain on sale of real estate assets
37,869

 
278,231

 
146,311

Total discontinued operations
38,179

 
294,944

 
173,131

 
 
 
 
 
 
Net income
697,327

 
352,771

 
423,562

Net (income) loss attributable to noncontrolling interests
(13,760
)
 
370

 
307

 
 
 
 
 
 
Net income attributable to common stockholders
$
683,567

 
$
353,141

 
$
423,869

 
 
 
 
 
 
Other comprehensive income:
 

 
 

 
 

Unrealized loss on cash flow hedges
(121
)
 

 
(22,876
)
Cash flow hedge losses reclassified to earnings
6,237

 
59,376

 
1,889

Comprehensive income
$
689,683

 
$
412,517

 
$
402,882

 
 
 
 
 
 
Earnings per common share—basic:
 

 
 

 
 

Income from continuing operations attributable to common stockholders
$
4.93

 
$
0.46

 
$
2.57

Discontinued operations attributable to common stockholders
0.29

 
2.32

 
1.77

Net income attributable to common stockholders
$
5.22

 
$
2.78

 
$
4.34

 
 
 
 
 
 
Earnings per common share—diluted:
 

 
 

 
 

Income from continuing operations attributable to common stockholders
$
4.92

 
$
0.46

 
$
2.55

Discontinued operations attributable to common stockholders
0.29

 
2.32

 
1.77

Net income attributable to common stockholders
$
5.21

 
$
2.78

 
$
4.32

See accompanying notes to Consolidated Financial Statements.

F-4

Table of Contents

AVALONBAY COMMUNITIES, INC.
CONSOLIDATED STATEMENTS OF EQUITY
(Dollars in thousands)
 
Shares issued
 
 
 
 
 
Additional
paid-in
capital
 
Accumulated
earnings
less
dividends
 
Accumulated
other
comprehensive
loss
 
Total
AvalonBay
stockholders'
equity
 
 
 
 
 
Preferred
stock
 
Common
stock
 
Preferred
stock
 
Common
stock
 
 
 
 
 
Noncontrolling
interests
 
Total
equity
Balance at December 31, 2011

 
95,175,677

 
$

 
$
952

 
$
4,652,457

 
$
(171,648
)
 
$
(87,020
)
 
$
4,394,741

 
$
7,151

 
$
4,401,892

Net income attributable to common stockholders

 

 

 

 

 
423,869

 

 
423,869

 

 
423,869

Unrealized loss on cash flow hedges

 

 

 

 

 

 
(22,876
)
 
(22,876
)
 

 
(22,876
)
Cash flow hedge losses reclassified to earnings

 

 

 

 

 

 
1,889

 
1,889

 

 
1,889

Change in redemption value of redeemable noncontrolling interest

 

 

 

 

 
(375
)
 

 
(375
)
 

 
(375
)
Noncontrolling interest consolidation and income allocation

 

 

 

 

 

 

 

 
(3,573
)
 
(3,573
)
Dividends declared to common stockholders

 

 

 

 

 
(391,906
)
 

 
(391,906
)
 

 
(391,906
)
Issuance of common stock, net of withholdings

 
19,227,795

 

 
192

 
2,416,852

 
(2,269
)
 

 
2,414,775

 

 
2,414,775

Amortization of deferred compensation

 

 

 

 
17,098

 

 

 
17,098

 

 
17,098


Balance at December 31, 2012

 
114,403,472

 

 
1,144

 
7,086,407

 
(142,329
)
 
(108,007
)
 
6,837,215

 
3,578

 
6,840,793

Net income attributable to common stockholders

 

 

 

 

 
353,141

 

 
353,141

 

 
353,141

Cash flow hedge losses reclassified to earnings

 

 

 

 

 

 
59,376

 
59,376

 

 
59,376

Change in redemption value of redeemable noncontrolling interest

 

 

 

 

 
(1,246
)
 

 
(1,246
)
 

 
(1,246
)
Noncontrolling interest consolidation and income allocation

 

 

 

 
1,515

 

 

 
1,515

 
17

 
1,532

Dividends declared to common stockholders

 

 

 

 

 
(553,829
)
 

 
(553,829
)
 

 
(553,829
)
Issuance of common stock, net of withholdings

 
15,013,223

 

 
150

 
1,873,792

 
(991
)
 

 
1,872,951

 

 
1,872,951

Amortization of deferred compensation

 

 

 

 
27,009

 

 

 
27,009

 

 
27,009


Balance at December 31, 2013

 
129,416,695

 

 
1,294

 
8,988,723

 
(345,254
)
 
(48,631
)
 
8,596,132

 
3,595

 
8,599,727

Net income attributable to common stockholders

 

 

 

 

 
683,567

 

 
683,567

 

 
683,567

Unrealized loss on cash flow hedges

 

 

 

 

 

 
(121
)
 
(121
)
 

 
(121
)
Cash flow hedge losses reclassified to earnings

 

 

 

 

 

 
6,237

 
6,237

 

 
6,237

Change in redemption value of noncontrolling interest

 

 

 

 

 
3,709

 

 
3,709

 

 
3,709

Noncontrolling interests income allocation

 

 

 

 

 

 

 

 
14,221

 
14,221

Noncontrolling interests derecognition

 

 

 

 

 

 

 

 
(17,816
)
 
(17,816
)
Dividends declared to common stockholders

 

 

 

 

 
(608,709
)
 

 
(608,709
)
 

 
(608,709
)
Issuance of common stock, net of withholdings

 
2,633,687

 

 
26

 
339,186

 
(398
)
 

 
338,814

 

 
338,814

Amortization of deferred compensation

 

 

 

 
26,776

 

 

 
26,776

 

 
26,776

Balance at December 31, 2014

 
132,050,382

 
$

 
$
1,320

 
$
9,354,685

 
$
(267,085
)
 
$
(42,515
)
 
$
9,046,405

 
$

 
$
9,046,405

See accompanying notes to Consolidated Financial Statements.

F-5

Table of Contents

AVALONBAY COMMUNITIES, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
 
For the year ended
 
12/31/14
 
12/31/13
 
12/31/12
Cash flows from operating activities:
 

 
 

 
 

Net income
$
697,327

 
$
352,771

 
$
423,562

Adjustments to reconcile net income to cash provided by operating activities:
 

 
 

 
 

Depreciation expense
442,682

 
560,215

 
243,680

Depreciation expense from discontinued operations

 
13,500

 
16,414

Amortization of deferred financing costs
6,383

 
6,803

 
6,427

Amortization of debt (premium) discount
(34,961
)
 
(29,750
)
 

Amortization of stock-based compensation
13,927

 
15,160

 
8,707

Equity in loss (income) of, and return on, unconsolidated entities and noncontrolling interests, net of eliminations
4,906

 
33,125

 
(12,103
)
Cash flow hedge losses reclassified to earnings
6,237

 
59,376

 
1,889

Casualty loss and impairment of real estate assets

 

 
1,449

Abandonment of development pursuits
1,455

 

 

Loss on extinguishment of debt, net
412

 
14,921

 
1,781

Gain on sale of real estate assets
(255,300
)
 
(278,471
)
 
(146,591
)
Gain on acquisition of unconsolidated entity

 

 
(14,194
)
Decrease (increase) in cash in operating escrows
55

 
(28,960
)
 
6,543

(Increase) decrease in resident security deposits, prepaid expenses and other assets
(3,441
)
 
(5,372
)
 
7,992

Decrease (increase) in accrued expenses, other liabilities and accrued interest payable
6,959

 
10,997

 
(4,737
)
Net cash provided by operating activities
886,641

 
724,315