Form: 8-K

Current report filing

October 26, 2006

 

AvalonBay Communities, Inc.
     
For Immediate News Release   Exhibit 99.2
October 25, 2006    
AVALONBAY COMMUNITIES, INC. ANNOUNCES
THIRD QUARTER 2006 OPERATING RESULTS
(Alexandria, VA) AvalonBay Communities, Inc. (NYSE: AVB) reported today that Net Income Available to Common Stockholders for the quarter ended September 30, 2006 was $42,901,000. This resulted in Earnings per Share — diluted (“EPS”) of $0.57 for the quarter ended September 30, 2006, compared to $1.30 for the comparable period of 2005, a per share decrease of 56.2%. This decrease is primarily attributable to gains on the sale of assets in 2005, partially offset by growth in income from existing and newly developed communities. For both of the nine months ended September 30, 2006 and 2005, EPS was $2.95.
Funds from Operations attributable to common stockholders — diluted (“FFO”) for the quarter ended September 30, 2006 was $83,916,000, or $1.11 per share compared to $68,091,000, or $0.91 per share for the comparable period of 2005, a per share increase of 22.0%. FFO per share for the quarter ended September 30, 2006 includes $0.01 per share from gains on the sale of a land parcel and the final installment on the disposition of the Company’s investment in a technology venture. Adjusting for these non-routine items, FFO per share increased approximately 21% during the quarter ended September 30, 2006 as compared to 2005, driven primarily by improved community operating results and contributions from newly developed communities.
FFO per share for the nine months ended September 30, 2006 increased by 15.8% to $3.29 from $2.84 for the comparable period of 2005. FFO per share for the nine months ended September 30, 2006 includes $0.18 per share related to the sale of two land parcels and the final installment from the sale of a technology venture. FFO per share for the nine months ended September 30, 2005 includes several non-routine items totaling $0.11 per share. Adjusting for these non-routine items in both nine-month periods, FFO per share increased 13.9%, driven primarily by improved community operating results and contributions from newly developed communities.
Commenting on the Company’s results, Bryce Blair, Chairman and CEO, said “Same-store NOI increased almost 10% year-over-year, our highest NOI growth in five years, allowing us to raise our full-year financial outlook. Job growth, modest supply and the large gap between the cost to rent and the cost to own will support continued NOI growth into 2007.”
Operating Results for the Quarter Ended September 30, 2006 Compared to the Quarter Ended September 30, 2005
For the Company, including discontinued operations, total revenue increased by $10,653,000, or 6.0% to $187,667,000. For Established Communities, rental revenue increased 7.3%, comprised of an increase in Average Rental Rates of 6.9% and an increase in Economic Occupancy of 0.4%. As a result, total revenue for Established Communities increased $9,645,000 to $142,382,000. Operating expenses for Established Communities increased $1,049,000, or 2.4% to $44,983,000. Accordingly, Net Operating Income (“NOI”) for Established Communities increased by $8,596,000, or 9.7%, to $97,399,000.
The following table reflects the percentage changes in rental revenue, operating expenses and NOI for Established Communities from the third quarter of 2005 to the third quarter of 2006:
 
3Q 06 Compared to 3Q 05
 
                                 
    Rental   Operating           % of
    Revenue   Expenses   NOI   NOI (1)
Northeast
    4.5 %     3.7 %     4.9 %     41.2 %
Mid-Atlantic
    8.9 %     2.2 %     12.0 %     17.4 %
Midwest
    4.9 %     (12.9 %)     19.7 %     2.3 %
Pacific NW
    10.8 %     3.8 %     14.9 %     4.4 %
No. California
    9.6 %     1.1 %     13.9 %     22.3 %
So. California
    7.1 %     5.1 %     7.9 %     12.4 %
 
                               
Total
    7.3 %     2.4 %     9.7 %     100.0 %
 
                               
 
(1)   Total represents each region’s % of total NOI from the Company, including discontinued operations, development and redevelopment communities.
 
Copyright© 2006 AvalonBay Communities, Inc. All Rights Reserved

 


 

 
Cash concessions are recognized in accordance with Generally Accepted Accounting Principles (“GAAP”) and are amortized over the approximate lease term, which is generally one year. The following table reflects the percentage changes in rental revenue on a GAAP basis and Rental Revenue with Concessions on a Cash Basis for our Established Communities:
 
         
    3Q 06 vs 3Q 05
Rental Revenue Change — GAAP Basis
    7.3 %
 
       
Rental Revenue Change with Concessions on a Cash Basis
    8.7 %
 
Operating Results for the Nine Months Ended September 30, 2006 Compared to the Prior Year Period
For the Company, including discontinued operations, total revenue increased by $25,342,000, or 4.9% to $545,287,000. For Established Communities, rental revenue increased 6.7%, comprised of an increase in Average Rental Rates of 5.9% and an increase in Economic Occupancy of 0.8%. As a result, total revenue for Established Communities increased $25,960,000 to $416,127,000, and operating expenses for Established Communities increased $3,680,000 or 2.9% to $129,802,000. Accordingly, NOI for Established Communities increased by $22,280,000 or 8.4% to $286,325,000.
The following table reflects the percentage changes in rental revenue, operating expenses and NOI for Established Communities for the nine months ended September 30, 2006 as compared to the nine months ended September 30, 2005:
 
YTD 2006 Compared to YTD 2005
 
                                 
    Rental   Operating           % of
    Revenue   Expenses   NOI   NOI (1)  
Northeast
    4.6 %     4.3 %     4.8 %     41.7 %
Mid-Atlantic
    8.5 %     1.8 %     11.5 %     17.5 %
Midwest
    2.3 %     (2.5 %)     5.4 %     2.2 %
Pacific NW
    9.5 %     6.4 %     11.2 %     4.4 %
No. California
    8.0 %     2.1 %     10.7 %     22.5 %
So. California
    6.8 %     0.8 %     9.3 %     11.7 %
 
                               
Total
    6.7 %     2.9 %     8.4 %     100.0 %
 
                               
 
(1)   Total represents each region’s % of total NOI from the Company, including discontinued operations, development and redevelopment communities.
Development and Redevelopment Activity
The Company completed the development of two communities during the third quarter of 2006. Avalon Camarillo, located in Ventura County, CA, is a garden-style community containing 249 apartment homes and was completed for a Total Capital Cost of $48,100,000. Avalon Del Rey, located in Los Angeles, CA, is a garden-style community containing 309 apartment homes and was completed for a Total Capital Cost of $70,000,000. In the fourth quarter of 2006, the Company expects to complete a previously arranged transaction to admit a 70% partner to the joint venture which owns Avalon Del Rey, while retaining a 30% investment interest.
The Company commenced construction of two wholly-owned communities during the third quarter of 2006: Avalon Encino, located in Los Angeles, CA, and Avalon Bowery Place II, located in New York, NY. Avalon Encino is expected to contain 131 apartment homes when completed for a Total Capital Cost of $61,500,000. Avalon Bowery Place II is an additional phase of a multi-phase, mixed-use community that is expected to contain an aggregate of 657 apartment homes and 109,600 square feet of retail space for a Total Capital Cost of $307,400,000.
In addition, the Company commenced the redevelopment of Avalon at AutumnWoods located in Fairfax, VA. Avalon at AutumnWoods is a wholly-owned garden-style community containing 420 apartment homes with an expected Total Capital Cost to redevelop this community of $7,100,000, excluding costs incurred prior to the start of redevelopment.
Acquisition Activity
During the third quarter of 2006, the Company agreed to purchase its partner’s 51% interest in Avalon Run, a community developed through a general partnership in 1994. Avalon Run is a garden-style community containing 426 apartment homes, located in Lawrenceville, NJ. The Company expects to complete the acquisition in the fourth quarter of 2006, at which time Avalon Run will be a wholly-owned community.
In October 2006, the Company acquired Southgate Crossing, located in Columbia, MD, for a purchase price of $35,850,000. Southgate Crossing is a wholly-owned, garden-style apartment community containing 215 apartment homes.
 
Copyright© 2006 AvalonBay Communities, Inc. All Rights Reserved

 


 

 
Investment Management Fund Activity
During the third quarter of 2006, AvalonBay Value Added Fund, L.P. (the “Fund”), acquired one community. The Springs, located in Corona, CA, part of the Inland Empire, is a garden-style community containing 320 apartment homes and was acquired for a purchase price of $47,120,000. The Fund is a private, discretionary investment vehicle in which the Company holds an equity interest of approximately 15%.
Financing, Liquidity and Balance Sheet Statistics
In July 2006, the Company repaid $150,000,000 of unsecured notes with an annual interest rate of 6.8%, pursuant to their scheduled maturity.
In September 2006, the Company issued a total of $500,000,000 of unsecured notes under its existing shelf registration statement. The offering consisted of two separate $250,000,000 tranches with effective interest rates of 5.586% and 5.820%, maturing in 2012 and 2016, respectively.
As of September 30, 2006, the Company had no amounts outstanding under its $500,000,000 unsecured credit facility, and had $186,882,000 in unrestricted cash and cash equivalents on hand. Leverage, calculated as total debt as a percentage of Total Market Capitalization, was 22.5% at September 30, 2006. Unencumbered NOI for the nine months ended September 30, 2006 exceeded 80% and Interest Coverage for the third quarter of 2006 was 3.8 times.
Fourth Quarter and Full Year Outlook
Due to changes in previously planned dispositions, the Company has decreased projected EPS to a range of $0.54 to $0.58 for the fourth quarter of 2006, resulting in projected EPS of $3.49 to $3.53 for the full year 2006.
Strong apartment fundamentals in the Company’s markets drove revenue and NOI growth, resulting in better than expected operating results for the third quarter of 2006. As such, the Company has increased the range for Projected FFO per share to $4.36 to $4.40 for the full year 2006.
The Company expects to release its fourth quarter and full year 2006 earnings on January 31, 2007 after the market closes. The Company expects to hold a conference call on February 1, 2007 at 1:00 PM EST to discuss the fourth quarter and full year 2006 results, as well as the financial outlook for 2007.
Fourth Quarter 2006 Conference Event Schedule
The Company is scheduled to participate in the 2006 NAREIT Annual Convention on November 8-10, 2006 and will host the following events during the convention:
 
4Q 2006 Conference/Event Schedule
 
         
Converence/Event   Date
Development Site Tour: Avalon at Dublin Station I
  Nov. 7
Property Tour and Reception: Avalon at Mission Bay I & II
  Nov. 8
 
Presentation material that may address matters such as the Company’s operations and development program will be available on November 7, 2006 at http://www.avalonbay.com/events.
Other Matters
The Company will hold a conference call on October 26, 2006 at 1:00 PM EDT to review and answer questions about its third quarter results, the Attachments (described below) and related matters. To participate on the call, dial 1-877-510-2397 domestically and 1-706-634-5877 internationally.
To hear a replay of the call, which will be available from October 26, 2006 at 3:00 PM EDT until November 2, 2006 at 11:59 PM EST, dial 1-800-642-1687 domestically and 1-706-645-9291 internationally, and use Access Code: 6574941.
A webcast of the conference call will also be available at http://www.avalonbay.com/earnings, and an on-line playback of the webcast will be available for at least 30 days following the call.
The Company produces Earnings Release Attachments (the “Attachments”) that provide detailed information regarding operating, development, redevelopment, disposition and acquisition activity. These Attachments are considered a part of this earnings release and are available in full with this earnings release via the Company’s website at http://www.avalonbay.com/earnings and through e-mail distribution. To receive future press releases via e-mail, please send a request to IR@avalonbay.com. Some items referenced in the earnings release may require the Adobe Acrobat Reader. If you do not have the Adobe Acrobat Reader, you may download it at http://www.adobe.com/products/acrobat/readstep2.html.
 
Copyright© 2006 AvalonBay Communities, Inc. All Rights Reserved

 


 

 
About AvalonBay Communities, Inc.
As of September 30, 2006, the Company owned or held a direct or indirect ownership interest in 163 apartment communities containing 47,445 apartment homes in ten states and the District of Columbia, of which 17 communities were under construction and four communities were under reconstruction. The Company is an equity REIT in the business of developing, redeveloping, acquiring and managing apartment communities in high barrier-to-entry markets of the United States. More information may be found on the Company’s website at the following address http://www.avalonbay.com. For additional information, please contact John Christie, Senior Director of Investor Relations and Research at 1-703-317-4747 or Thomas J. Sargeant, Chief Financial Officer, at 1-703-317-4635.
Forward-Looking Statements
This release, including its Attachments, contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. You can identify these forward-looking statements by the Company’s use of words such as “expects,” “plans,” “estimates,” “projects,” “intends,” “believes,” “outlook” and similar expressions that do not relate to historical matters. Actual results may differ materially from those expressed or implied by the forward-looking statements as a result of risks and uncertainties, which include the following: changes in local employment conditions, demand for apartment homes, supply of competitive housing products, and other economic conditions may result in lower than expected occupancy and/or rental rates and adversely affect the profitability of our communities; increases in costs of materials, labor or other expenses may result in communities that we develop or redevelop failing to achieve expected profitability; delays in completing development, redevelopment and/or lease-up may result in increased financing and construction costs, and may delay and/or reduce the profitability of a community; debt and/or equity financing for development, redevelopment or acquisitions of communities may not be available on favorable terms; we may be unable to obtain, or experience delays in obtaining, necessary governmental permits and authorizations; or we may abandon development or redevelopment opportunities for which we have already incurred costs.
Additional discussions of risks and uncertainties appear in the Company’s filings with the Securities and Exchange Commission, including the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2005 under the headings “Risk Factors” and under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Forward-Looking Statements”, as well as the Company’s Quarterly Report on Form 10-Q for subsequent quarters under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Forward-Looking Statements.”
The Company does not undertake a duty to update forward-looking statements, including its expected operating results for the fourth quarter and full year 2006. The Company may, in its discretion, provide information in future public announcements regarding its outlook that may be of interest to the investment community. The format and extent of future outlooks may be different from the format and extent of the information contained in this release.
Definitions and Reconciliations
Non-GAAP financial measures and other capitalized terms, as used in this earnings release, are defined and further explained on Attachment 14, “Definitions and Reconciliations of Non-GAAP Financial Measures and Other Terms.” Attachment 14 is included in the full earnings release available at the Company’s website at http://www.avalonbay.com/earnings.
 
Copyright© 2006 AvalonBay Communities, Inc. All Rights Reserved

 


 

 
 
(LOGO)
THIRD QUARTER 2006
Supplemental Operating and Financial Data
(IMAGE)
Avalon Camarillo, located in Ventura County, CA, was completed in the third quarter of 2006 for a Total Capital Cost of $48.1 million. The community consists of seven three-story buildings with enclosed garages.
Avalon Camarillo contains 249 apartment homes and offers residents one, two and three-bedroom garden-style or townhome apartments. The community provides convenient access to the 101 Freeway and the Pacific Coast Highway, which link the community to Los Angeles, Thousand Oaks, Ventura, and Santa Barbara.
Residents of Avalon Camarillo enjoy such amenities as a swimming pool, fitness center, and clubroom.
 

 


 

 
 
THIRD QUARTER 2006
Supplemental Operating and Financial Data
Table of Contents
     
Company Profile
   
Selected Operating and Other Information
  Attachment 1
Detailed Operating Information
  Attachment 2
Condensed Consolidated Balance Sheets
  Attachment 3
 
   
Sub-Market Profile
   
Quarterly Revenue and Occupancy Changes (Established Communities)
  Attachment 4
Sequential Quarterly Revenue and Occupancy Changes (Established Communities)
  Attachment 5
Year-to-Date Revenue and Occupancy Changes (Established Communities)
  Attachment 6
 
   
Development, Redevelopment, Acquisition and Disposition Profile
   
Summary of Development and Redevelopment Activity
  Attachment 7
Development Communities
  Attachment 8
Redevelopment Communities
  Attachment 9
Summary of Development and Redevelopment Community Activity
  Attachment 10
Future Development
  Attachment 11
Unconsolidated Real Estate Investments
  Attachment 12
Summary of Disposition Activity
  Attachment 13
 
   
Definitions and Reconciliations
   
Definitions and Reconciliations of Non-GAAP Financial Measures and Other Terms
  Attachment 14
The following is a “Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995 and Section 21E of the Securities Exchange Act of 1934, as amended. The projections and estimates contained in the following attachments are forward-looking statements that involve risks and uncertainties, and actual results may differ materially from those projected in such statements. Risks associated with the Company’s development, redevelopment, construction, and lease-up activities, which could impact the forward-looking statements made are discussed in the paragraph titled “Forward-Looking Statements” in the release to which these attachments relate. In particular, development opportunities may be abandoned; Total Capital Cost of a community may exceed original estimates, possibly making the community uneconomical and/or affecting projected returns; construction and lease-up may not be completed on schedule, resulting in increased debt service and construction costs; and other risks described in the Company’s filings with the Securities and Exchange Commission, including the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2005 and the Company’s Quarterly Reports on Form 10-Q for subsequent quarters.
 

 


 

 
 
Attachment 1
AvalonBay Communities, Inc.
Selected Operating and Other Information
September 30, 2006

(Dollars in thousands except per share data)
(unaudited)

SELECTED OPERATING INFORMATION
                                                 
    Q3     Q3             YTD     YTD        
    2006     2005     % Change     2006     2005     % Change  
Net income available to common stockholders
  $ 42,901     $ 96,953       (55.8 %)   $ 222,597     $ 219,124       1.6 %
 
                                               
Per common share — basic
  $ 0.58     $ 1.32       (56.1 %)   $ 3.01     $ 3.01       —  
Per common share — diluted
  $ 0.57     $ 1.30       (56.2 %)   $ 2.95     $ 2.95       —  
 
                                               
Funds from Operations
  $ 83,916     $ 68,091       23.2 %   $ 248,270     $ 211,665       17.3 %
Per common share — diluted
  $ 1.11     $ 0.91       22.0 %   $ 3.29     $ 2.84       15.8 %
 
                                               
Dividends declared — common
  $ 58,183     $ 52,204       11.5 %   $ 174,213     $ 155,981       11.7 %
Per common share
  $ 0.78     $ 0.71       9.9 %   $ 2.34     $ 2.13       9.6 %
 
                                               
Common shares outstanding
    74,594,177       73,526,905       1.5 %     74,594,177       73,526,905       1.5 %
Outstanding operating partnership units
    150,477       454,064       (66.9 %)     150,477       454,064       (66.9 %)
 
                                   
Total outstanding shares and units
    74,744,654       73,980,969       1.0 %     74,744,654       73,980,969       1.0 %
 
                                   
 
                                               
Average shares outstanding — basic
    74,226,808       73,194,714       1.4 %     74,047,944       72,824,732       1.7 %
Average operating partnership units outstanding
    151,936       468,307       (67.6 %)     180,265       481,306       (62.5 %)
Effect of dilutive securities
    1,310,155       1,341,746       (2.4 %)     1,275,817       1,321,744       (3.5 %)
 
                                   
Average shares outstanding — diluted
    75,688,899       75,004,767       0.9 %     75,504,026       74,627,782       1.2 %
 
                                   

DEBT COMPOSITION AND MATURITIES
                                         
            % of Total     Average        
            Market     Interest     Remaining  
Debt Composition (1)   Amount     Cap     Rate (2)     Maturities (1)  
                 
Conventional Debt
                            2006     $ 2,655  
Long-term, fixed rate
  $ 2,199,728       18.7 %             2007     $ 267,738  
Long-term, variable rate
    111,760       1.0 %             2008     $ 208,565  
Variable rate credit facility
                            2009     $ 231,048  
and construction loan
    —       —               2010     $ 234,437  
                     
Subtotal, Conventional
    2,311,488       19.7 %     6.5 %                
                     
 
                                       
Tax-Exempt Debt
                                       
Long-term, fixed rate
    191,767       1.6 %                        
Long-term, variable rate
    139,770       1.2 %                        
                     
Subtotal, Tax-Exempt
    331,537       2.8 %     5.9 %                
                     
 
                                       
Total Debt
  $ 2,643,025       22.5 %     6.4 %                
                     
 
(1)   Excludes debt associated with communities classified as held for sale.
 
(2)   Includes credit enhancement fees, trustees’ fees, etc.
CAPITALIZED COSTS
                         
                    Non-Rev  
    Cap     Cap     Capex  
    Interest     Overhead     per Home  
     
Q306
  $ 12,910     $ 6,361     $ 203  
Q206
  $ 11,205     $ 5,377     $ 164  
Q106
  $ 8,364     $ 5,559     $ 38  
Q405
  $ 7,067     $ 5,477     $ 77  
Q305
  $ 6,519     $ 4,842     $ 155  
COMMUNITY INFORMATION
                 
            Apartment  
    Communities     Homes  
     
Current Communities
    146       42,363  
Development Communities
    17       5,082  
Development Rights
    48       12,394  
 

 


 

 
 
Attachment 2
AvalonBay Communities, Inc.
Detailed Operating Information
September 30, 2006

(Dollars in thousands except per share data)
(unaudited)
                                                 
    Q3     Q3             YTD     YTD        
    2006     2005     % Change     2006     2005     % Change  
Revenue:
                                               
Rental and other income
  $ 186,082     $ 169,438       9.8 %   $ 539,314     $ 494,603       9.0 %
Management, development and other fees
    1,585       1,379       14.9 %     4,186       3,175       31.8 %
 
                                   
Total
    187,667       170,817       9.9 %     543,500       497,778       9.2 %
 
                                   
 
                                               
Operating expenses:
                                               
Direct property operating expenses, excluding property taxes
    43,971       41,081       7.0 %     123,901       115,146       7.6 %
Property taxes
    17,103       16,591       3.1 %     50,878       48,814       4.2 %
Property management and other indirect operating expenses
    8,154       8,442       (3.4 %)     25,092       23,164       8.3 %
Investments and investment management (1)
    1,388       1,211       14.6 %     5,257       3,374       55.8 %
 
                                   
Total
    70,616       67,325       4.9 %     205,128       190,498       7.7 %
 
                                   
 
                                               
Interest expense, net
    (26,937 )     (31,790 )     (15.3 %)     (82,195 )     (96,021 )     (14.4 %)
General and administrative expense (2)
    (5,633 )     (5,857 )     (3.8 %)     (18,395 )     (19,278 )     (4.6 %)
Joint venture income and minority interest expense (3)
    454       (107 )     (524.3 %)     629       5,803       (89.2 %)
Depreciation expense
    (40,364 )     (38,787 )     4.1 %     (121,518 )     (117,481 )     3.4 %
Gain on sale of land
    505       —       N/A       13,671       4,617       196.1 %
 
                                   
 
                                               
Income from continuing operations
    45,076       26,951       67.3 %     130,564       84,920       53.7 %
 
                                               
Discontinued operations: (4)
                                               
Income from discontinued operations
    —       3,686       (100.0 %)     1,147       11,978       (90.4 %)
Gain on sale of communities
    —       68,491       (100.0 %)     97,411       128,751       (24.3 %)
 
                                   
Total discontinued operations
    —       72,177       (100.0 %)     98,558       140,729       (30.0 %)
 
                                   
 
                                               
Net income
    45,076       99,128       (54.5 %)     229,122       225,649       1.5 %
Dividends attributable to preferred stock
    (2,175 )     (2,175 )     —       (6,525 )     (6,525 )     —  
 
                                   
Net income available to common stockholders
  $ 42,901     $ 96,953       (55.8 %)   $ 222,597     $ 219,124       1.6 %
 
                                   
Net income per common share — basic
  $ 0.58     $ 1.32       (56.1 %)   $ 3.01     $ 3.01       —  
 
                                   
Net income per common share — diluted
  $ 0.57     $ 1.30       (56.2 %)   $ 2.95     $ 2.95       —  
 
                                   
 
(1)   Reflects costs incurred related to investment acquisition, investment management and abandoned pursuits. Abandoned pursuits are volatile and therefore may vary widely between periods.
 
(2)   Amount for the nine months ended September 30, 2005 includes the accrual of $1,500 in costs related to various litigation matters and separation costs in the amount of $2,100 due to the departure of a senior executive.
 
(3)   Amounts for the three and nine months ended September 30, 2006 and for the nine months ended September 30, 2005 include $433 and $6,252, respectively, related to gain on the sale of Rent.com to eBay.
 
(4)   Reflects net income for communities sold during the period from January 1, 2005 through September 30, 2006. The following table details income from discontinued operations as of the periods shown:
                                 
    Q3     Q3     YTD     YTD  
    2006     2005     2006     2005  
Rental income
  $ —     $ 6,197     $ 1,787     $ 22,167  
Operating and other expenses
    —       (2,100 )     (640 )     (7,163 )
Interest expense, net
    —       —       —       —  
Depreciation expense
    —       (411 )     —       (3,026 )
 
                       
Income from discontinued operations (5)
  $ —     $ 3,686     $ 1,147     $ 11,978  
 
                       
 
(5)   NOI for discontinued operations totaled $0 and $1,147 for the three and nine months ended September 30, 2006, respectively, all of which is related to assets sold.
 

 


 

 
 
Attachment 3
AvalonBay Communities, Inc.
Condensed Consolidated Balance Sheets

(Dollars in thousands)
(unaudited)
                 
    September 30,     December 31,  
    2006     2005  
Real estate
  $ 5,388,365     $ 5,303,744  
Less accumulated depreciation
    (1,058,148 )     (938,297 )
 
           
Net operating real estate
    4,330,217       4,365,447  
 
               
Construction in progress, including land
    599,754       261,743  
Land held for development
    199,911       179,739  
Operating real estate assets held for sale, net
    64,112       138,859  
 
           
 
               
Total real estate, net
    5,193,994       4,945,788  
 
               
Cash and cash equivalents
    186,882       5,703  
Cash in escrow
    30,413       48,266  
Resident security deposits
    27,086       26,290  
Other assets (1)
    152,822       139,013  
 
           
 
               
Total assets
  $ 5,591,197     $ 5,165,060  
 
           
 
               
Unsecured senior notes
  $ 2,152,973     $ 1,809,182  
Unsecured facility
    —       66,800  
Notes payable
    487,025       458,035  
Resident security deposits
    37,845       35,601  
Liabilities related to assets held for sale
    42,981       36,764  
Other liabilities
    229,506       197,551  
 
           
 
               
Total liabilities
  $ 2,950,330     $ 2,603,933  
 
           
 
               
Minority interest
    5,446       19,464  
 
               
Stockholders’ equity
    2,635,421       2,541,663  
 
           
 
               
Total liabilities and stockholders’ equity
  $ 5,591,197     $ 5,165,060  
 
           
 
(1)   Other assets includes $2,731 and $1,215 relating to assets classified as held for sale as of September 30, 2006 and December 31, 2005, respectively.
 

 


 

 
 
Attachment 4
AvalonBay Communities, Inc.
Quarterly Revenue and Occupancy Changes — Established Communities (1)
September 30, 2006
                                                                                 
    Apartment                    
    Homes     Average Rental Rates(2)     Economic Occupancy     Rental Revenue ($000’s)  
            Q3 06     Q3 05     % Change     Q306     Q305     % Change     Q306     Q305     % Change  
Northeast
                                                                               
Boston, MA
    2,471     $ 1,658     $ 1,641       1.0 %     95.3 %     96.0 %     (0.7 %)   $ 11,715     $ 11,676       0.3 %
Fairfield-New Haven, CT
    1,998       2,062       1,961       5.2 %     97.5 %     97.7 %     (0.2 %)     12,057       11,478       5.0 %
New York, NY
    1,606       2,251       2,148       4.8 %     97.2 %     96.9 %     0.3 %     10,538       10,024       5.1 %
Northern New Jersey
    1,182       2,525       2,306       9.5 %     97.4 %     97.2 %     0.2 %     8,722       7,949       9.7 %
Long Island, NY
    915       2,401       2,302       4.3 %     97.5 %     97.3 %     0.2 %     6,428       6,151       4.5 %
Central New Jersey
    502       1,668       1,638       1.8 %     96.6 %     96.9 %     (0.3 %)     2,421       2,385       1.5 %
 
                                                           
Northeast Average
    8,674       2,058       1,968       4.6 %     96.9 %     97.0 %     (0.1 %)     51,881       49,663       4.5 %
 
                                                           
 
                                                                               
Mid-Atlantic
                                                                               
Washington, DC
    4,695       1,684       1,556       8.2 %     97.0 %     96.0 %     1.0 %     23,011       21,073       9.2 %
Baltimore, MD
    718       1,217       1,167       4.3 %     96.9 %     95.3 %     1.6 %     2,541       2,399       5.9 %
 
                                                           
Mid-Atlantic Average
    5,413       1,622       1,505       7.8 %     97.0 %     95.9 %     1.1 %     25,552       23,472       8.9 %
 
                                                           
 
Midwest
                                                                               
Chicago, IL
    887       1,151       1,104       4.3 %     96.7 %     96.1 %     0.6 %     2,956       2,817       4.9 %
 
                                                           
Midwest Average
    887       1,151       1,104       4.3 %     96.7 %     96.1 %     0.6 %     2,956       2,817       4.9 %
 
                                                           
 
                                                                               
Pacific Northwest
                                                                               
Seattle, WA
    2,500       1,162       1,061       9.5 %     96.8 %     95.5 %     1.3 %     8,438       7,616       10.8 %
 
                                                           
Pacific Northwest Average
    2,500       1,162       1,061       9.5 %     96.8 %     95.5 %     1.3 %     8,438       7,616       10.8 %
 
                                                           
 
                                                                               
Northern California
                                                                               
San Jose, CA
    4,788       1,576       1,437       9.7 %     96.8 %     96.3 %     0.5 %     21,926       19,895       10.2 %
San Francisco, CA
    2,015       1,878       1,708       10.0 %     96.4 %     96.5 %     (0.1 %)     10,946       9,959       9.9 %
Oakland-East Bay, CA
    1,647       1,265       1,186       6.7 %     96.1 %     95.6 %     0.5 %     6,005       5,602       7.2 %
 
                                                           
Northern California Average
    8,450       1,588       1,454       9.2 %     96.6 %     96.2 %     0.4 %     38,877       35,456       9.6 %
 
                                                           
 
                                                                               
Southern California
                                                                               
Los Angeles, CA
    1,198       1,592       1,473       8.1 %     96.3 %     97.0 %     (0.7 %)     5,512       5,130       7.4 %
Orange County, CA
    1,174       1,388       1,292       7.4 %     97.2 %     96.6 %     0.6 %     4,753       4,400       8.0 %
San Diego, CA
    1,058       1,419       1,353       4.9 %     96.4 %     95.7 %     0.7 %     4,341       4,109       5.6 %
 
                                                           
Southern California Average
    3,430       1,469       1,373       7.0 %     96.6 %     96.5 %     0.1 %     14,606       13,639       7.1 %
 
                                                           
 
                                                                               
Average/Total Established
    29,354     $ 1,669     $ 1,562       6.9 %     96.8 %     96.4 %     0.4 %   $ 142,310     $ 132,663       7.3 %
 
                                                           
 
(1)   Established Communities are communities with stabilized operating expenses as of January 1, 2005 such that a comparison of 2005 to 2006 is meaningful. The number of Established Communities was adjusted during the third quarter of 2006 to reflect changes in the Company’s disposition program.
 
(2)   Reflects the effect of concessions amortized over the average lease term.
 

 


 

 
 
Attachment 5
AvalonBay Communities, Inc.
*Sequential Quarterly* Revenue and Occupancy Changes — Established Communities (1)
September 30, 2006
                                                                                 
    Apartment                    
    Homes     Average Rental Rates (2)     Economic Occupancy     Rental Revenue ($000’s)  
            Q3 06     Q2 06     % Change     Q3 06   Q2 06   % Change     Q3 06       Q2 06   % Change  
Northeast
                                                                               
Boston, MA
    2,471     $ 1,658     $ 1,644       0.9 %     95.3 %     95.6 %     (0.3 %)   $ 11,715     $ 11,650       0.6 %
Fairfield-New Haven, CT
    1,998       2,062       2,007       2.7 %     97.5 %     96.9 %     0.6 %     12,057       11,660       3.4 %
New York, NY
    1,606       2,251       2,203       2.2 %     97.2 %     97.2 %     0.0 %     10,538       10,313       2.2 %
Northern New Jersey
    1,182       2,525       2,460       2.6 %     97.4 %     97.3 %     0.1 %     8,722       8,484       2.8 %
Long Island, NY
    915       2,401       2,368       1.4 %     97.5 %     97.5 %     0.0 %     6,428       6,338       1.4 %
Central New Jersey
    502       1,668       1,667       0.1 %     96.6 %     96.7 %     (0.1 %)     2,421       2,421       0.0 %
 
                                                           
Northeast Average
    8,674       2,058       2,019       1.9 %     96.9 %     96.8 %     0.1 %     51,881       50,866       2.0 %
 
                                                           
 
                                                                               
Mid-Atlantic
                                                                               
Washington, DC
    4,695       1,684       1,641       2.6 %     97.0 %     96.2 %     0.8 %     23,011       22,236       3.5 %
Baltimore, MD
    718       1,217       1,175       3.6 %     96.9 %     98.0 %     (1.1 %)     2,541       2,480       2.5 %
 
                                                           
Mid-Atlantic Average
    5,413       1,622       1,579       2.7 %     97.0 %     96.4 %     0.6 %     25,552       24,716       3.4 %
 
                                                           
 
                                                                               
Midwest
                                                                               
Chicago, IL
    887       1,151       1,124       2.4 %     96.7 %     94.7 %     2.0 %     2,956       2,831       4.4 %
 
                                                           
Midwest Average
    887       1,151       1,124       2.4 %     96.7 %     94.7 %     2.0 %     2,956       2,831       4.4 %
 
                                                           
 
                                                                               
Pacific Northwest
                                                                               
Seattle, WA
    2,500       1,162       1,121       3.7 %     96.8 %     96.5 %     0.3 %     8,438       8,116       4.0 %
 
                                                           
Pacific Northwest Average
    2,500       1,162       1,121       3.7 %     96.8 %     96.5 %     0.3 %     8,438       8,116       4.0 %
 
                                                           
 
                                                                               
Northern California
                                                                               
San Jose, CA
    4,788       1,576       1,519       3.8 %     96.8 %     96.6 %     0.2 %     21,926       21,075       4.0 %
San Francisco, CA
    2,015       1,878       1,820       3.2 %     96.4 %     96.5 %     (0.1 %)     10,946       10,618       3.1 %
Oakland-East Bay, CA
    1,647       1,265       1,227       3.1 %     96.1 %     96.2 %     (0.1 %)     6,005       5,831       3.0 %
 
                                                           
Northern California Average
    8,450       1,588       1,534       3.5 %     96.6 %     96.5 %     0.1 %     38,877       37,524       3.6 %
 
                                                           
 
                                                                               
Southern California
                                                                               
Los Angeles, CA
    1,198       1,592       1,572       1.3 %     96.3 %     95.5 %     0.8 %     5,512       5,393       2.2 %
Orange County, CA
    1,174       1,388       1,356       2.4 %     97.2 %     96.8 %     0.4 %     4,753       4,624       2.8 %
San Diego, CA
    1,058       1,419       1,385       2.5 %     96.4 %     95.4 %     1.0 %     4,341       4,196       3.5 %
 
                                                           
Southern California Average
    3,430       1,469       1,440       2.0 %     96.6 %     95.9 %     0.7 %     14,606       14,213       2.8 %
 
                                                           
 
                                                                               
Average/Total Established
    29,354     $ 1,669     $ 1,627       2.6 %     96.8 %     96.5 %     0.3 %   $ 142,310     $ 138,266       2.9 %
 
                                                           
 
(1)   Established Communities are communities with stabilized operating expenses as of January 1, 2005 such that a comparison of 2005 to 2006 is meaningful. The number of Established Communities was adjusted during the third quarter of 2006 to reflect changes in the Company’s disposition program.
 
(2)   Reflects the effect of concessions amortized over the average lease term.
 

 


 

 
 
Attachment 6
AvalonBay Communities, Inc.
Year-To-Date Revenue and Occupancy Changes — Established Communities (1)
September 30, 2006
                                                                                 
    Apartment                    
    Homes     Average Rental Rates (2)     Economic Occupancy     Rental Revenue ($000’s)  
            YTD Q3 06     YTD Q3 05     % Change     YTD Q3 06     YTD Q3 05     % Change     YTD Q3 06     YTD Q3 05     % Change  
Northeast
                                                                               
Boston, MA
    2,471     $ 1,647     $ 1,618       1.8 %     95.4 %     95.6 %     (0.2 %)   $ 34,949     $ 34,405       1.6 %
Fairfield-New Haven, CT
    1,998       2,009       1,923       4.5 %     96.8 %     96.4 %     0.4 %     34,985       33,346       4.9 %
New York, NY
    1,606       2,209       2,129       3.8 %     97.1 %     96.3 %     0.8 %     31,000       29,642       4.6 %
Northern New Jersey
    1,182       2,464       2,254       9.3 %     97.1 %     96.6 %     0.5 %     25,442       23,176       9.8 %
Long Island, NY
    915       2,364       2,272       4.0 %     97.1 %     97.0 %     0.1 %     18,893       18,142       4.1 %
Central New Jersey
    502       1,651       1,615       2.2 %     95.9 %     95.6 %     0.3 %     7,151       6,975       2.5 %
 
                                                           
Northeast Average
    8,674       2,021       1,938       4.3 %     96.6 %     96.3 %     0.3 %     152,420       145,686       4.6 %
 
                                                           
 
                                                                               
Mid-Atlantic
                                                                               
Washington, DC
    4,695       1,640       1,531       7.1 %     96.6 %     94.9 %     1.7 %     66,960       61,522       8.8 %
Baltimore, MD
    718       1,184       1,148       3.1 %     97.7 %     95.4 %     2.3 %     7,478       7,092       5.4 %
 
                                                           
Mid-Atlantic Average
    5,413       1,580       1,481       6.7 %     96.7 %     94.9 %     1.8 %     74,438       68,614       8.5 %
 
                                                           
 
                                                                               
Midwest
                                                                               
Chicago, IL
    887       1,123       1,092       2.8 %     95.1 %     95.6 %     (0.5 %)     8,524       8,332       2.3 %
 
                                                           
Midwest Average
    887       1,123       1,092       2.8 %     95.1 %     95.6 %     (0.5 %)     8,524       8,332       2.3 %
 
                                                           
 
                                                                               
Pacific Northwest
                                                                               
Seattle, WA
    2,500       1,125       1,040       8.2 %     96.5 %     95.2 %     1.3 %     24,419       22,296       9.5 %
 
                                                           
Pacific Northwest Average
    2,500       1,125       1,040       8.2 %     96.5 %     95.2 %     1.3 %     24,419       22,296       9.5 %
 
                                                           
 
                                                                               
Northern California
                                                                               
San Jose, CA
    4,788       1,526       1,429       6.8 %     96.9 %     95.9 %     1.0 %     63,712       59,097       7.8 %
San Francisco, CA
    2,015       1,825       1,678       8.8 %     96.6 %     95.8 %     0.8 %     31,962       29,161       9.6 %
Oakland-East Bay, CA
    1,647       1,231       1,174       4.9 %     96.5 %     95.7 %     0.8 %     17,615       16,667       5.7 %
 
                                                           
Northern California Average
    8,450       1,541       1,439       7.1 %     96.7 %     95.8 %     0.9 %     113,289       104,925       8.0 %
 
                                                           
 
                                                                               
Southern California
                                                                               
Los Angeles, CA
    1,198       1,565       1,442       8.5 %     95.9 %     96.2 %     (0.3 %)     16,170       14,945       8.2 %
Orange County, CA
    1,174       1,362       1,274       6.9 %     96.9 %     96.5 %     0.4 %     13,935       12,981       7.3 %
San Diego, CA
    1,058       1,392       1,344       3.6 %     96.0 %     95.1 %     0.9 %     12,719       12,174       4.5 %
 
                                                           
Southern California Average
    3,430       1,442       1,353       6.6 %     96.2 %     96.0 %     0.2 %     42,824       40,100       6.8 %
 
                                                           
 
                                                                               
Average/Total Established
    29,354     $ 1,630     $ 1,539       5.9 %     96.6 %     95.8 %     0.8 %   $ 415,914     $ 389,953       6.7 %
 
                                                           
 
(1)   Established Communities are communities with stabilized operating expenses as of January 1, 2005 such that a comparison of 2005 to 2006 is meaningful. The number of Established Communities was adjusted during the third quarter of 2006 to reflect changes in the Company’s disposition program.
 
(2)   Reflects the effect of concessions amortized over the average lease term.
 

 


 

 
 
Attachment 7
AvalonBay Communities, Inc.
Summary of Development and Redevelopment Activity (1) as of September 30, 2006
                                 
            Number     Number     Total  
            of     of     Capital Cost (2)  
            Communities     Homes     (millions)  
Portfolio Additions:
                               
2006 Annual Completions
    (3 )                        
Development
            6       1,368     $ 376.7  
Redevelopment
    (4 )     2       506       10.1  
 
                         
Total Additions
            8       1,874     $ 386.8  
 
                         
 
                               
2005 Annual Completions
                               
Development
            7       1,971     $ 408.2  
Redevelopment
            3       1,094       31.0  
 
                         
Total Additions
            10       3,065     $ 439.2  
 
                         
 
                               
Pipeline Activity:
    (3 )                        
 
                               
Currently Under Construction
                               
Development
            17       5,082     $ 1,409.4  
Redevelopment
    (4 )     4       1,993       33.3  
 
                         
Subtotal
            21       7,075     $ 1,442.7  
 
                         
 
                               
Planning
                               
Development Rights
            48       12,394     $ 2,982.0  
 
                         
Total Pipeline
            69       19,289     $ 4,424.7  
 
                         
 
(1)   Represents activity for consolidated and unconsolidated entities.
 
(2)   See Attachment #14 — Definitions and Reconciliations of Non-GAAP Financial Measures and Other Terms.
 
(3)   Information represents projections and estimates.
 
(4)   Represents only cost of redevelopment activity, does not include original acquisition cost.
 
    This chart contains forward-looking statements. Please see the paragraph regarding forward-looking statements on the Table of Contents page relating to the Company’s Supplemental Operating and Financial Data for the third quarter of 2006.
 

 


 

 
 
Attachment 8
AvalonBay Communities, Inc.
Development Communities as of September 30, 2006
                                                                                                 
    Percentage             Total             Schedule             Avg                        
    Ownership     # of     Capital                                     Rent                     % Occ  
    Upon     Apt     Cost (1)             Initial             Stabilized     Per     % Comp     % Leased     Physical     Economic  
    Completion     Homes     (millions)     Start     Occupancy     Complete     Ops (1)     Home (1)     (2)     (3)     (4)     (1) (5)  
                                                            Inclusive of                                  
                                                            Concessions                                  
                                                            See Attachment #14                                  
Under Construction:
                                                                                               
  1. Avalon Wilshire
    100 %     123     $ 46.6       Q1 2005       Q1 2007       Q1 2007       Q3 2007     $ 2,520       N/A       N/A       N/A       N/A  
Los Angeles, CA
                                                                                               
  2. Avalon at Mission Bay North II (6)
    25 %     313       111.7       Q1 2005       Q3 2006       Q4 2006       Q2 2007       3,175       88.8 %     42.5 %     38.0 %     16.4 %
San Francisco, CA
                                                                                             
  3. Avalon Chestnut Hill
    100 %     204       60.6       Q2 2005       Q3 2006       Q1 2007       Q3 2007       2,760       45.1 %     27.5 %     7.4 %     0.2 %
Chestnut Hill, MA
                                                                                               
  4. Avalon at Decoverly II
    100 %     196       30.5       Q3 2005       Q2 2006       Q2 2007       Q4 2007       1,530       42.9 %     41.3 %     29.1 %     12.7 %
Rockville, MD
                                                                                               
  5. Avalon Lyndhurst (7)
    100 %     328       78.8       Q3 2005       Q1 2007       Q4 2007       Q2 2008       2,260       N/A       3.4 %     N/A       N/A  
Lyndhurst, NJ
                                                                                               
  6. Avalon Shrewsbury
    100 %     251       36.1       Q3 2005       Q2 2006       Q2 2007       Q4 2007       1,380       60.2 %     53.0 %     41.8 %     18.9 %
Shrewsbury, MA
                                                                                               
  7. Avalon Riverview North
    100 %     602       175.6       Q3 2005       Q3 2007       Q3 2008       Q1 2009       2,695       N/A       N/A       N/A       N/A  
New York, NY
                                                                                               
  8. Avalon Bowery Place I (8)
    100 %     206       96.5       Q4 2005       Q4 2006       Q4 2006       Q2 2007       3,720       N/A       44.7 %     N/A       N/A  
New York, NY
                                                                                               
  9. Avalon at Glen Cove North
    100 %     111       42.4       Q4 2005       Q2 2007       Q3 2007       Q1 2008       2,300       N/A       N/A       N/A       N/A  
Glen Cove, NY
                                                                                               
10. Avalon Danvers
    100 %     433       84.8       Q4 2005       Q1 2007       Q2 2008       Q4 2008       1,660       N/A       N/A       N/A       N/A  
Danvers, MA
                                                                                               
11. Avalon Woburn
    100 %     446       81.9       Q4 2005       Q3 2006       Q1 2008       Q3 2008       1,575       16.1 %     18.4 %     11.7 %     8.5 %
Woburn, MA
                                                                                               
12. Avalon on the Sound II
    100 %     588       184.2       Q1 2006       Q3 2007       Q3 2008       Q1 2009       2,420       N/A       N/A       N/A       N/A  
New Rochelle, NY
                                                                                             
13. Avalon Meydenbauer
    100 %     368       84.3       Q1 2006       Q4 2007       Q3 2008       Q1 2009       1,625       N/A       N/A       N/A       N/A  
Bellevue, WA
                                                                                               
14. Avalon at Dublin Station I
    100 %     305       85.8       Q2 2006       Q3 2007       Q2 2008       Q4 2008       1,995       N/A       N/A       N/A       N/A  
Dublin, CA
                                                                                               
15. Avalon at Lexington Hills
    100 %     387       86.2       Q2 2006       Q2 2007       Q3 2008       Q1 2009       2,105       N/A       N/A       N/A       N/A  
Lexington, MA
                                                                                               
16. Avalon Bowery Place II
    100 %     90       61.9       Q3 2006       Q4 2007       Q1 2008       Q2 2008       3,490       N/A       N/A       N/A       N/A  
New York, NY
                                                                                               
17. Avalon Encino
    100 %     131       61.5       Q3 2006       Q3 2008       Q4 2008       Q1 2009       2,650       N/A       N/A       N/A       N/A  
 
                                                                                         
Los Angeles, CA Subtotal/Weighted Average
      5,082     $ 1,409.4                                     $ 2,250                                  
 
                                                                                         
Completed this Quarter:
                                                                                               
1. Avalon Del Rey (9)
    30 %     309     $ 70.0       Q2 2004       Q1 2006       Q3 2006       Q4 2006     $ 2,010       100.0 %     95.8 %     95.5 %     75.0 %
Los Angeles, CA
                                                                                               
2. Avalon Camarillo
    100 %     249       48.1       Q2 2004       Q1 2006       Q3 2006       Q1 2007       1,670       100.0 %     97.6 %     97.2 %     76.6 %
 
                                                                                         
Camarillo, CA Subtotal/Weighted Average
        558     $ 118.1                                     $ 1,855                                  
 
                                                                                         
Total/Weighted Average
            5,640     $ 1,527.5                                     $ 2,210                                  
 
                                                                                         
Weighted Average Projected NOI
                                                                                               
   as a % of Total Capital Cost (1) (10)
              7.0 %         Inclusive of Concessions — See Attachment #14                                        
  
Non-Stabilized Development Communities (11)
                                                                                         
                                             
                    % Economic     Asset Cost Basis, Non-Stabilized Development               Source
                    Occ                      
Prior Quarter Completeions:
                    (1)(5)     Capital Cost, Prior Quarter Completions         $ 25.1   Att. 8
Avalon Pines II, Coram, NY
    152     $ 25.1             Capital Cost, Current Completions           118.1   Att. 8
 
                          Capital Cost, Under Construction           1,325.6   Att. 8 (less JV partner share)
 
                                     
Total
    152     $ 25.1       90.6 %   Less: Remaining to Invest, Under Construction                
 
                                     
 
                              Total Remaining to Invest     1,007.2         Att. 10
 
                              Capital Cost, Projected Q4 2006 Starts     (268.7 )       Att. 10, Footnote 5
 
                                    (738.5 )  
 
                                 Total Asset Cost Basis, Non-Stabilized
          Development
        $ 730.3    
Q3 2006 Net Operating Income/(Deficit) for communities under construction and non-stabilized development communities was $1.7 million. See Attachment #14.
 
(1)   See Attachment #14 — Definitions and Reconciliations of Non-GAAP Financial Measures and Other Terms.
 
(2)   Includes apartment homes for which construction has been completed and accepted by management as of October 20, 2006.
 
(3)   Includes apartment homes for which leases have been executed or non-refundable deposits have been paid as of October 20, 2006.
 
(4)   Physical occupancy based on apartment homes occupied as of October 20, 2006.
 
(5)   Represents Economic Occupancy for the third quarter of 2006.
 
(6)   The community is being developed under a joint venture structure and has been financed in part by a construction loan. The Company’s portion of the Total Capital Cost of this joint venture is projected to be $27.9 million including community-based debt.
 
(7)   The remediation of the Company’s Avalon Lyndhurst development site, as discussed in the Company’s second quarter 2006 Earnings Release, is substantially complete. The additional construction costs incurred as a result of this remediation effort, including costs associated with construction delays, is expected to total approximately $10 million. The Company is pursuing the recovery of these additional costs through its insurance as well as the third parties involved, but any recoverable amounts are not currently estimable. Accordingly, the Total Capital Cost and yield cited above do not reflect the potential impact of these additional net costs associated with this remediation effort.
 
(8)   This community was formerly known as Avalon Chrystie Place II, and is expected to be financed in part by third-party tax-exempt debt. The Total Capital Cost for this community includes the projected costs related to this financing and the benefit of available low-income housing tax credits.
 
(9)   The community is currently owned by a wholly-owned subsidiary of the Company, and is subject to a joint venture agreement that allows for a joint venture partner to be admitted upon construction completion. The Company expects to admit a joint venture partner during the fourth quarter of 2006, and expects the community to be consolidated for financial reporting purposes for approximately one year following admittance of the joint venture partner.
 
(10)   The Weighted Average calculation is based on the Company’s pro rata share of the Total Capital Cost for each community.
 
(11)   Represents Development Communities completed in the current quarter and prior quarters that had not achieved Stabilized Operations for the entire current quarter. Estimates are based on the Company’s pro rata share of the Total Capital Cost for each community.
 
    This chart contains forward-looking statements. Please see the paragraph regarding forward-looking statements on the Table of Contents page relating to the Company’s Supplemental Operating and Financial Data for the third quarter of 2006.
 

 


 

 
 
Attachment 9
AvalonBay Communities, Inc.
Redevelopment Communities as of September 30, 2006
                                                                                         
                    Cost (millions)     Schedule     Avg     Number of Homes  
            # of     Pre-     Total                                     Rent             Out of  
    Percentage     Apt     Redevelopment     Capital     Acquisition /                     Restabilized     Per     Completed     Service  
    Ownership     Homes     Capital Cost     Cost (1)(2)     Complete     Start     Complete     Ops (2)     Home (2)     to date     @ 9/30/06  
                                                                    Inclusive of                  
                                                                    Concessions                  
                                                                    See Attachment #14                  
Under Redevelopment:
                                                                                       
 
Stabilized (3)
                                                                                       
1. Avalon Arlington Heights (4)
    100 %     409     $ 50.2     $ 57.1       Q4 2000       Q1 2006       Q1 2007       Q3 2007     $ 1,315       271       2  
Arlington Heights, IL
                                                                                       
2. Avalon Walk I and II (5)
    100 %     764       59.4       71.2       Q3 1992       Q1 2006       Q4 2007       Q2 2008       1,355       336       41  
Hamden, CT
                                    Q3 1994                                                  
3. Avalon at AutumnWoods
    100 %     420       31.2       38.3       Q4 1996       Q3 2006       Q3 2008       Q1 2009       1,465       51       18  
Fairfax, VA
                                                                                       
 
                                                                           
Subtotal
            1,593     $ 140.8     $ 166.6                                     $ 1,375       658       61  
 
                                                                           
 
                                                                                       
Acquisitions (3)
                                                                                       
1. Ravenswood at the Park (6)
    15 %     400       49.2       56.7       Q4 2004       Q2 2006       Q4 2007       Q2 2008       1,315       159       2  
Redmond, WA
                                                                                       
 
                                                                           
Total/Weighted Average
            1,993     $ 190.0     $ 223.3                                     $ 1,360       817       63  
 
                                                                           
Weighted Average Projected NOI as a % of Total Capital Cost (2)
                            10.5 %   Inclusive of Concessions — See Attachment #14                        
 
(1)   Inclusive of acquisition cost.
 
(2)   See Attachment #14 — Definitions and Reconciliations of Non-GAAP Financial Measures and Other Terms.
 
(3)   Stabilized Redevelopment Communities have been held for one year or more and have achieved Stabilized Operations before beginning redevelopment. Acquisition redevelopments are those communities that begin redevelopment within one year of acquisition.
 
(4)   This community was formerly known as 200 Arlington Place.
 
(5)   This community was developed by a predecessor of the Company. Phase I was completed in Q3 1992 and Phase II was completed in Q3 1994.
 
(6)   This community was acquired in Q4 2004 and was transferred to a subsidiary of the Company’s Investment Management Fund (the “Fund”) in Q1 2005, reducing the Company’s indirect equity interest in the community to 15%.
This chart contains forward-looking statements. Please see the paragraph regarding forward-looking statements on the Table of Contents page relating to the Company’s Supplemental Operating and Financial Data for the third quarter of 2006.
 

 


 

     
 
     
 
Attachment 10
AvalonBay Communities, Inc.
Summary of Development and Redevelopment Community Activity (1) as of September 30, 2006

($ in Thousands)

DEVELOPMENT (2)
                                         
    Apt Homes     Total Capital     Cost of Homes             Construction in  
    Completed &     Cost Invested     Completed &     Remaining to     Progress at  
    Occupied     During Period (3)     Occupied (4)     Invest (5)     Period End (6)  
Total - 2004 Actual
    2,181     $ 302,184     $ 368,301     $ 287,812     $ 266,548  
 
                                 
 
                                       
2005 Actual:
                                       
Quarter 1
    259     $ 60,827     $ 42,234     $ 286,946     $ 294,379  
Quarter 2
    473       72,327       75,121       588,802       315,720  
Quarter 3
    510       96,202       66,050       734,543       295,545  
Quarter 4
    238       118,483       35,641       881,012       377,320  
 
                                 
Total - 2005 Actual
    1,480     $ 347,839     $ 219,046                  
 
                                 
 
                                       
2006 Projected:
                                       
Quarter 1 (Actual)
    267     $ 113,125     $ 47,014     $ 952,410     $ 468,401  
Quarter 2 (Actual)
    302       155,381       59,948       915,400       570,875  
Quarter 3 (Actual)
    509       174,587       86,515       1,007,188       593,160  
Quarter 4 (Projected)
    427       229,810       97,237       777,377       574,626  
 
                                 
Total - 2006 Projected
    1,505     $ 672,903     $ 290,714                  
 
                                 

REDEVELOPMENT
                                 
            Total Capital             Reconstruction in  
    Avg Homes     Cost Invested     Remaining to     Progress at  
    Out of Service     During Period (3)     Invest (5)     Period End (6)  
Total - 2004 Actual
          $ 3,544     $ 15,710     $ 2,140  
 
                             
 
                               
2005 Actual:
                               
Quarter 1
    80     $ 2,878     $ 9,938     $ 5,963  
Quarter 2
    98       2,536       7,301       14,236  
Quarter 3
    110       1,890       17,350       15,172  
Quarter 4
    52       1,668       13,456       7,877  
 
                             
Total - 2005 Actual
          $ 8,972                  
 
                             
 
                               
2006 Projected:
                               
Quarter 1 (Actual)
    32     $ 3,433     $ 18,443     $ 8,502  
Quarter 2 (Actual)
    60       3,474       21,760       10,206  
Quarter 3 (Actual)
    89       4,258       18,549       14,763  
Quarter 4 (Projected)
    79       5,574       12,976       14,428  
 
                             
Total - 2006 Projected
          $ 16,739                  
 
                             
 
(1)   Data is presented for all communities currently under development or redevelopment and those communities for which development or redevelopment is expected to begin within the next 90 days.
 
(2)   Projected periods include data for consolidated joint ventures at 100%. The offset for joint venture partners’ participation is reflected as minority interest.
 
(3)   Represents Total Capital Cost incurred or expected to be incurred during the quarter, year or in total. See Attachment #14 — Definitions and Reconciliations of Non-GAAP Financial Measures and Other Terms.
 
(4)   Represents Total Capital Cost incurred in all quarters of apartment homes completed and occupied during the quarter. Calculated by dividing Total Capital Cost for each Development Community by number of homes for the community, multiplied by the number of homes completed and occupied during the quarter.
 
(5)   Represents projected Total Capital Cost remaining to invest on communities currently under development or redevelopment and those for which development or redevelopment is expected to begin within the next 90 days. Remaining to invest for Q3 2006 includes $268.7 million attributed to three anticipated Q4 2006 development starts and $1.3 million related to two anticipated Q4 2006 redevelopment starts. Remaining to Invest also includes $3.1 million attributed to Avalon at Mission Bay North II. The Company’s portion of the Total Capital Cost of this joint venture is projected to be $27.9 million including community-based construction debt.
 
(6)   Represents period end balance of construction or reconstruction costs. Amount for Q3 2006 includes $8.2 million related to one unconsolidated joint venture and one unconsolidated investment in the Fund, and is reflected in other assets for financial reporting purposes.
 
    This chart contains forward-looking statements. Please see the paragraph regarding forward-looking statements on the Table of Contents page relating to the Company’s Supplemental Operating and Financial Data for the third quarter of 2006.
     
 

 


 

     
 
     
 
Attachment 11
AvalonBay Communities, Inc.
Future Development as of September 30, 2006

DEVELOPMENT RIGHTS (1)
                             
                Estimated     Total  
                Number     Capital Cost (1)  
Location of Development Right           of Homes     (millions)  
1.  
Canoga Park, CA
    (2 )     210     $ 54  
2.  
Acton, MA
            380       71  
3.  
White Plains, NY
            393       146  
4.  
New York, NY
            297       121  
5.  
Coram, NY
    (2 )     200       47  
6.  
Tinton Falls, NJ
            216       41  
7.  
Hingham, MA
    (2 )     235       44  
8.  
Kirkland, WA Phase II
    (2 )     176       53  
9.  
Sharon, MA
            156       26  
10.  
Wilton, CT
    (2 )     100       24  
11.  
Irvine, CA
    (2 )     280       76  
12.  
Northborough, MA
            350       60  
13.  
Union City, CA
    (2 )     438       120  
14.  
Brooklyn, NY
            652       317  
15.  
Norwalk, CT
            314       63  
16.  
Greenburgh, NY Phase II
            444       112  
17.  
Plymouth, MA Phase II
            81       17  
18.  
Andover, MA
    (2 )     115       21  
19.  
Shelton, CT II
            171       34  
20.  
Quincy, MA
    (2 )     146       24  
21.  
West Haven, CT
            170       23  
22.  
Cohasset, MA
    (2 )     200       38  
23.  
Oyster Bay, NY
    (2 )     150       42  
24.  
West Long Branch, NJ
    (3 )     216       36  
25.  
Shelton, CT
            302       49  
26.  
Pleasant Hill, CA
    (4 )     449       153  
27.  
Gaithersburg, MD
            254       41  
28.  
Milford, CT
    (2 )     284       45  
29.  
Wanaque, NJ
            210       45  
30.  
San Francisco, CA
            152       40  
31.  
Howell, NJ
            265       42  
32.  
Highland Park, NJ
            285       67  
33.  
Dublin, CA Phase II
            200       52  
34.  
Dublin, CA Phase III
            205       53  
35.  
Irvine, CA II
            180       57  
36.  
Hackensack, NJ
            210       47  
37.  
Camarillo, CA
            376       55  
38.  
Wheaton, MD
    (2 )     320       56  
39.  
Stratford, CT
    (2 )     146       23  
40.  
Saddle Brook, NJ
            300       55  
41.  
Oakland, NJ
            308       62  
42.  
Plainview, NY
            160       38  
43.  
Garden City, NY
            160       58  
44.  
Alexandria, VA
    (2 )     283       73  
45.  
Tysons Corner, VA
    (2 )     439       101  
46.  
Camarillo, CA II
            233       57  
47.  
Yaphank, NY
    (2 )     343       57  
48.  
Rockville, MD
    (2 )     240       46  
   
 
                   
   
 
                       
   
Total
            12,394     $ 2,982  
   
 
                   
 
(1)   See Attachment #14 — Definitions and Reconciliations of Non-GAAP Financial Measures and Other Terms.
 
(2)   Company owns land, but construction has not yet begun.
 
(3)   This Development Right is subject to a joint venture arrangement.
 
(4)   This Development Right is subject to a joint venture arrangement. In connection with the pursuit of this Development Right, $125 million in bond financing was issued and immediately invested in a guaranteed investment contract (“GIC”) administered by a trustee. The Company does not have any equity or economic interest in the joint venture entity at this time, but has an option to make a capital contribution to the joint venture entity for a 99% general partner interest. Should the Company exercise this option, the bond proceeds will be released from the GIC and used for future construction of the Development Right. Should the Company decide not to exercise this option, the bond proceeds will be redeemed to the issuer.
 
    This chart contains forward-looking statements. Please see the paragraph regarding forward-looking statements on the Table of Contents page relating to the Company’s Supplemental Operating and Financial Data for the third quarter of 2006.

 


 

 
 
Attachment 12
AvalonBay Communities, Inc.
Unconsolidated Real Estate Investments (1) as of September 30, 2006
                            AVB                                 AVB’s  
            # of     Total     Book     Outstanding Debt     Economic  
Unconsolidated   Percentage     Apt     Capital     Value                 Interest     Maturity     Share  
Real Estate Investments   Ownership     Homes     Cost (2)     Investment (3)     Amount     Type   Rate     Date     of Debt  
AvalonBay Value Added Fund, LP
                                                                   
1. Avalon at Redondo Beach, Los Angeles, CA
    N/A       105     $ 24,408       N/A     $ 16,765     Fixed     4.84 %   Oct 2011   $ 2,548  
2. Avalon Lakeside, Chicago, IL
    N/A       204       18,053       N/A       7,851     Fixed     6.90 %   Feb 2028 (4)     1,193  
3  Avalon Columbia, Baltimore, MD
    N/A       170       29,219       N/A       16,575     Fixed     5.25 %   Apr 2012     2,519  
4. Ravenswood at the Park, Seattle, WA
    N/A       400       52,063       N/A       31,500     Fixed     4.96 %   Jul 2012     4,788  
5. Fuller Martel, Los Angeles, CA
    N/A       82       18,049       N/A       11,500     Fixed     5.41 %   Feb 2014     1,748  
6. Avalon at Poplar Creek, Chicago, IL
    N/A       196       25,239       N/A       16,500     Fixed     4.83 %   Oct 2012     2,508  
7. Civic Center Place (5), Norwalk, CA
    N/A       192       38,073       N/A       23,806     Fixed     5.29 %   Aug 2013     3,619  
8. Paseo Park, Fremont, CA
    N/A       134       19,786       N/A       11,800     Fixed     5.74 %   Nov 2013     1,794  
9. Aurora at Yerba Buena, San Francisco, CA
    N/A       160       66,298       N/A       41,500     Fixed     5.88 %   Mar 2014     6,308  
10. Avalon at Aberdeen Station Aberdeen, NJ
    N/A       290       57,758       N/A       34,456     Fixed     5.73 %   Sep 2013     5,237  
11. The Springs Corona, CA
    N/A       320       47,521       N/A       26,000     Fixed     6.06 %   Oct 2014     3,952  
12. Fund corporate debt (6)
    N/A       N/A       N/A       N/A       10,500     Variable     6.08 %   Jan 2008     1,596  
 
                                                       
 
    15.2 %     2,253     $ 396,467     $ 64,124     $ 248,753                         $ 37,810  
 
                                                       
 
                                                                   
Other Operating Joint Ventures
                                                                   
1. Avalon Run, Lawrenceville, NJ
    (7 )     426     $ 28,763     $ 1,449     $ —     N/A     N/A       N/A     $ —  
2. Avalon Grove, Stamford, CT
    (8 )     402       51,659       8,033       —     N/A     N/A       N/A       —  
3. Avalon Bedford, Stamford, CT
    25.0 %     368       61,523       12,679       37,200     Fixed     5.24 %   Nov 2010     9,300  
4. Avalon Chrystie Place I, New York, NY
    20.0 %     361       129,469       27,602       117,000     Variable     3.75 %   Feb 2009     23,400  
 
                                                         
 
            1,557     $ 271,414     $ 49,763     $ 154,200                         $ 32,700  
 
                                                         
 
                                                                   
Other Development Joint Ventures
                                                                   
1. Avalon at Mission Bay  North II
San Francisco, CA
    25.0 %     313     $ 98,860     $ 23,115     $ 69,757     Variable     6.83 %   Sep 2008 (9)   $ 17,439  
 
                                                         
 
            313     $ 98,860     $ 23,115     $ 69,757                         $ 17,439  
 
                                                         
 
            4,123     $ 766,741     $ 137,002     $ 472,710                         $ 87,949  
 
                                                         
 
(1)   Schedule does not include one community (Avalon Del Rey) that completed development in the third quarter of 2006 under a joint venture arrangement, but is currently wholly-owned and therefore consolidated for financial reporting purposes.
 
(2)   See Attachment #14 — Definitions and Reconciliations of Non-GAAP Financial Measures and Other Terms.
 
(3)   These unconsolidated real estate investments are accounted for under the equity method of accounting. AVB Book Value Investment represents the Company’s recorded equity investment plus the Company’s pro rata share of outstanding debt.
 
(4)   Debt can be prepaid after February 2008 without penalty.
 
(5)   This community’s debt is a combination of two separate fixed rate loans which both mature in August 2013. The first loan totals $18,154 at a 5.04% interest rate and was assumed by the Fund upon purchase of this community. The second loan was procured in connection with the acquisition in the amount of $5,652 at a 6.08% interest rate. The rate listed in the table above represents a weighted average interest rate.
 
(6)   Amounts are outstanding under the Fund’s unsecured credit facility. The interest rate is a blended average of the outstanding balance.
 
(7)   After the venture makes certain distributions to the third-party partner, the Company will generally be entitled to receive 40% of all operating cash flow distributions and 49% of all residual cash flow following a sale. During the third quarter of 2006, the Company entered into an arrangement to purchase its joint venture partner’s 51% interest. The Company expects to complete the acquisition in the fourth quarter of 2006.
 
(8)   After the venture makes certain distributions to the third-party partner, the Company generally receives 50% of all further distributions.
 
(9)   The maturity date as reflected on this attachment may be extended to September 2010 upon exercise of two one-year extension options.
 

 


 

 
 
Attachment 13
AvalonBay Communities, Inc.
Summary of Disposition Activity as of September 30, 2006

(Dollars in thousands)
                                                         
    Weighted                     Accumulated             Weighted Average        
Number of   Average     Gross Sales             Depreciation     Economic     Initial Year     Weighted Average  
Communities Sold   Holding Period (1)     Price     GAAP Gain     and Other     Gain(2)     Mkt. Cap Rate (1)(2)     Unleveraged IRR(1)(2)  
1998:
9 Communities
          $ 170,312     $ 25,270     $ 23,438     $ 1,832       8.1 %     16.2 %
 
                                               
 
                                                       
1999:
16 Communities
          $ 317,712     $ 47,093     $ 27,150     $ 19,943       8.3 %     12.1 %
 
                                               
 
                                                       
2000:
8 Communities
          $ 160,085     $ 40,779     $ 6,262     $ 34,517       7.9 %     15.3 %
 
                                               
 
                                                       
2001:
7 Communities
          $ 241,130     $ 62,852     $ 21,623     $ 41,229       8.0 %     14.3 %
 
                                               
 
                                                       
2002:
1 Community
          $ 80,100     $ 48,893     $ 7,462     $ 41,431       5.4 %     20.1 %
 
                                               
 
                                                       
2003:
12 Communities, 1 Land Parcel(3)
          $ 460,600     $ 184,438     $ 52,613     $ 131,825       6.3 %     15.3 %
 
                                               
 
                                                       
2004:
5 Communities, 1 Land Parcel
          $ 250,977     $ 122,425     $ 19,320     $ 103,105       4.8 %     16.8 %
 
                                               
 
                                                       
2005:
7 Communities, 1 Office Building,
3 Land Parcels (4)
          $ 382,720     $ 199,766     $ 14,929     $ 184,838       3.8 %     18.0 %
 
                                               
 
                                                       
2006:
3 Communities, 2 Land Parcels
          $ 201,710     $ 111,082     $ 19,083     $ 91,999       4.4 %     16.6 %
 
                                               
 
                                                       
1998 - 2006 Total
    6.1     $ 2,265,346     $ 842,598     $ 191,880     $ 650,719       6.3 %     15.6 %
 
                                               
 
(1)   For purposes of this attachment, land sales and the disposition of an office building are not included in the calculation of Weighted Average Holding Period, Weighted Average Initial Year Market Cap Rate, or Weighted Average Unleveraged IRR.
 
(2)   See Attachment #14 — Definitions and Reconciliations of Non-GAAP Financial Measures and Other Terms.
 
(3)   2003 GAAP gain, for purposes of this attachment, includes $23,448 related to the sale of a community in which the Company held a 50% membership interest.
 
(4)   2005 GAAP gain includes the recovery of an impairment loss in the amount of $3,000 recorded in 2002 related to one of the land parcels sold in 2005. This loss was recorded to reflect the land at fair value based on its entitlement status at the time when it was determined planned for disposition.
 

 


 

 
Attachment 14
AvalonBay Communities, Inc.
Definitions and Reconciliations of Non-GAAP Financial Measures and Other Terms
This release, including its attachments, contains certain non-GAAP financial measures and other terms. The definition and calculation of these non-GAAP financial measures and other terms may differ from the definitions and methodologies used by other REITs and, accordingly, may not be comparable. The non-GAAP financial measures referred to below should not be considered an alternative to net income as an indication of our performance. In addition, these non-GAAP financial measures do not represent cash generated from operating activities in accordance with GAAP and therefore should not be considered as an alternative measure of liquidity or as indicative of cash available to fund cash needs.
FFO is determined based on a definition adopted by the Board of Governors of the National Association of Real Estate Investment Trusts (“NAREIT”). FFO is calculated by the Company as net income or loss computed in accordance with GAAP, adjusted for gains or losses on sales of previously depreciated operating communities, extraordinary gains or losses (as defined by GAAP), cumulative effect of a change in accounting principle and depreciation of real estate assets, including adjustments for unconsolidated partnerships and joint ventures. Management generally considers FFO to be an appropriate supplemental measure of operating performance because, by excluding gains or losses related to dispositions of previously depreciated operating communities and excluding real estate depreciation (which can vary among owners of identical assets in similar condition based on historical cost accounting and useful life estimates), FFO can help one compare the operating performance of a company’s real estate between periods or as compared to different companies. A reconciliation of FFO to net income is as follows (dollars in thousands):
 
                                 
    Q3     Q3     YTD     YTD  
    2006     2005     2006     2005  
Net income
  $ 45,076     $ 99,128     $ 229,122     $ 225,649  
Dividends attributable to preferred stock
    (2,175 )     (2,175 )     (6,525 )     (6,525 )
Depreciation — real estate assets, including discontinued operations and joint venture adjustments
    40,916       39,338       122,787       120,220  
Minority interest expense, including discontinued operations
    99       291       297       1,072  
Gain on sale of previously depreciated real estate assets
    —       (68,491 )     (97,411 )     (128,751 )
 
                       
FFO attributable to common stockholders
  $ 83,916     $ 68,091     $ 248,270     $ 211,665  
 
                       
 
                               
Average shares outstanding — diluted
    75,688,899       75,004,767       75,504,026       74,627,782  
 
                               
EPS — diluted
  $ 0.57     $ 1.30     $ 2.95     $ 2.95  
 
                       
FFO per common share — diluted
  $ 1.11 (1)   $ 0.91     $ 3.29 (2)   $ 2.84 (3)
 
                       
 
 
(1)   FFO per common share — diluted for the three months ended September 30, 2006 includes $0.01 per share from gains on the sale of a land parcel and the final installment on the sale of a technology venture.
 
(2)   FFO per common share — diluted for the nine months ended September 30, 2006 includes $0.18 per share of non-routine items related to the gains on sale of two land parcels and the final installment from the sale of a technology venture.
 
(3)   FFO per common share — diluted for the nine months ended September 30, 2005 includes the following
non-routine items, totaling $0.11 per share:
- Gains on the sale of two land parcels;
- Gain on sale of a technology venture; and
- Income related to the impact of the development by a third-party of a hotel adjacent to one of the Company’s existing communities.
The above items were partially offset by:
- Separation costs due to the departure of a senior executive; and
- Accrual of costs related to various litigation matters.
 

 


 

 
Attachment 14 (continued)
Projected FFO, as provided within this release in the Company’s outlook, is calculated on a basis consistent with historical FFO, and is therefore considered to be an appropriate supplemental measure to projected net income from projected operating performance. A reconciliation of the range provided for Projected FFO per share (diluted) for the full year 2006 to the range provided for projected EPS (diluted) is as follows:
 
                 
    Low     High  
    range     range  
Projected EPS (diluted) — Full Year 2006
  $ 3.49     $ 3.53  
Projected depreciation (real estate related)
    2.17       2.21  
Projected gain on sale of operating communities
    (1.30 )     (1.34 )
 
           
Projected FFO per share (diluted) — Full Year 2006
  $ 4.36     $ 4.40  
 
           
 
NOI is defined by the Company as total property revenue less direct property operating expenses (including property taxes), and excludes corporate-level income (including management, development and other fees), corporate-level property management and other indirect operating expenses, investments and investment management, net interest expense, general and administrative expense, joint venture income, minority interest expense, depreciation expense, gain on sale of real estate assets and income from discontinued operations. The Company considers NOI to be an appropriate supplemental measure to net income of operating performance of a community or communities because it helps both investors and management to understand the core operations of a community or communities prior to the allocation of corporate-level property management overhead or general and administrative costs. This is more reflective of the operating performance of a community, and allows for an easier comparison of the operating performance of single assets or groups of assets. In addition, because prospective buyers of real estate have different overhead structures, with varying marginal impact to overhead by acquiring real estate, NOI is considered by many in the real estate industry to be a useful measure for determining the value of a real estate asset or groups of assets.
A reconciliation of NOI (from continuing operations) to net income, as well as a breakdown of NOI by operating segment, is as follows (dollars in thousands):
 
                                 
    Q3     Q3     YTD     YTD  
    2006     2005     2006     2005  
Net income
  $ 45,076     $ 99,128     $ 229,122     $ 225,649  
Property management and other indirect operating expenses
    8,154       8,442       25,092       23,164  
Corporate-level other income
    (1,585 )     (1,378 )     (4,184 )     (3,432 )
Investments and investment management
    1,388       1,211       5,257       3,374  
Interest expense, net
    26,937       31,790       82,195       96,021  
General and administrative expense
    5,633       5,857       18,395       19,278  
Joint venture income and minority interest
    (454 )     107       (629 )     (5,803 )
Depreciation expense
    40,364       38,787       121,518       117,481  
Gain on sale of real estate assets
    (505 )     (68,491 )     (111,082 )     (133,368 )
Income from discontinued operations
    —       (3,686 )     (1,147 )     (11,978 )
 
                       
NOI from continuing operations
  $ 125,008     $ 111,767     $ 364,537     $ 330,386  
 
                       
 
                               
Established:
                               
Northeast
  $ 34,836     $ 33,222     $ 102,190     $ 97,513  
Mid-Atlantic
    17,882       15,967       52,820       47,385  
Midwest
    1,844       1,540       5,288       5,014  
Pacific NW
    5,525       4,810       16,030       14,418  
No. California
    26,896       23,609       79,043       71,397  
So. California
    10,416       9,655       30,954       28,318  
 
                       
Total Established
    97,399       88,803       286,325       264,045  
 
                       
Other Stabilized
    14,997       13,963       43,775       39,715  
Development/Redevelopment
    12,612       9,001       34,437       26,626  
 
                       
NOI from continuing operations
  $ 125,008     $ 111,767     $ 364,537     $ 330,386  
 
                       
 

 


 

 
Attachment 14 (continued)
NOI as reported by the Company does not include the operating results from discontinued operations (i.e., assets sold during the period January 1, 2005 through September 30, 2006). A reconciliation of NOI from communities sold to net income for these communities is as follows (dollars in thousands):
 
                                 
    Q3     Q3     YTD     YTD  
    2006     2005     2006     2005  
Income from discontinued operations
  $ —     $ 3,686     $ 1,147     $ 11,978  
Interest expense, net
    —       —       —       —  
Depreciation expense
    —       411       —       3,026  
 
                       
NOI from discontinued operations
  $ —     $ 4,097     $ 1,147     $ 15,004  
 
                       
 
                               
NOI from assets sold
  $ —     $ 4,097     $ 1,147     $ 15,004  
NOI from assets held for sale
    —       —       —       —  
 
                       
NOI from discontinued operations
  $ —     $ 4,097     $ 1,147     $ 15,004  
 
                       
 
Projected NOI, as used within this release for certain Development and Redevelopment Communities and in calculating the Initial Year Market Cap Rate for dispositions, represents management’s estimate, as of the date of this release (or as of the date of the buyer’s valuation in the case of dispositions), of projected stabilized rental revenue minus projected stabilized operating expenses. For Development and Redevelopment Communities, Projected NOI is calculated based on the first year of Stabilized Operations, as defined below, following the completion of construction. In calculating the Initial Year Market Cap Rate, Projected NOI for dispositions is calculated for the first twelve months following the date of the buyer’s valuation. Projected stabilized rental revenue represents management’s estimate of projected gross potential (based on leased rents for occupied homes and Market Rents, as defined below, for vacant homes) minus projected economic vacancy and adjusted for concessions. Projected stabilized operating expenses do not include interest, income taxes (if any), depreciation or amortization, or any allocation of corporate-level property management overhead or general and administrative costs. The weighted average Projected NOI as a percentage of Total Capital Cost is weighted based on the Company’s share of the Total Capital Cost of each community, based on its percentage ownership.
Management believes that Projected NOI of the development and redevelopment communities, on an aggregated weighted average basis, assists investors in understanding management’s estimate of the likely impact on operations of the Development and Redevelopment Communities when the assets are complete and achieve stabilized occupancy (before allocation of any corporate-level property management overhead, general and administrative costs or interest expense). However, in this release the Company has not given a projection of NOI on a company-wide basis. Given the different dates and fiscal years for which NOI is projected for these communities, the projected allocation of corporate-level property management overhead, general and administrative costs and interest expense to communities under development or redevelopment is complex, impractical to develop, and may not be meaningful. Projected NOI of these communities is not a projection of the Company’s overall financial performance or cash flow. There can be no assurance that the communities under development or redevelopment will achieve the Projected NOI as described in this release.
Rental Revenue with Concessions on a Cash Basis is considered by the Company to be a supplemental measure to rental revenue in conformity with GAAP to help investors evaluate the impact of both current and historical concessions on GAAP based rental revenue and to more readily enable comparisons to revenue as reported by other companies. In addition, rental revenue (with concessions on a cash basis) allows an investor to understand the historical trend in cash concessions. A reconciliation of rental revenue from Established Communities in conformity with GAAP to rental revenue (with concessions on a cash basis) is as follows (dollars in thousands):
 
                 
    Q3     Q3  
    2006     2005  
Rental revenue (GAAP basis)
  $ 142,310     $ 132,663  
Concessions amortized
    2,232       4,901  
Concessions granted
    (1,252 )     (5,798 )
 
           
Rental revenue (with Concessions on a Cash Basis)
  $ 143,290     $ 131,766  
 
           
 
               
% change — GAAP revenue
    7.3 %        
 
               
% change — cash revenue
    8.7 %        
 

 


 

 
Attachment 14 (continued)
Economic Gain is calculated by the Company as the gain on sale in accordance with GAAP, less accumulated depreciation through the date of sale and any other non-cash adjustments that may be required under GAAP accounting. Management generally considers Economic Gain to be an appropriate supplemental measure to gain on sale in accordance with GAAP because it helps investors to understand the relationship between the cash proceeds from a sale and the cash invested in the sold community. The Economic Gain for each of the communities presented is estimated based on their respective final settlement statements. A reconciliation of Economic Gain to gain on sale in accordance with GAAP for both the nine months ended September 30, 2006 as well as prior years’ activities is presented on Attachment 13.
Interest Coverage is calculated by the Company as EBITDA from continuing operations, excluding land gains, divided by the sum of interest expense, net, and preferred dividends. Interest Coverage is presented by the Company because it provides rating agencies and investors an additional means of comparing our ability to service debt obligations to that of other companies. EBITDA is defined by the Company as net income before interest income and expense, income taxes, depreciation and amortization.
A reconciliation of EBITDA and a calculation of Interest Coverage for the third quarter of 2006 are as follows (dollars in thousands):
 
         
Net income
  $ 45,076  
Interest expense, net
    26,937  
Depreciation expense
    40,364  
 
     
 
       
EBITDA
  $ 112,377  
 
     
 
       
EBITDA from continuing operations
  $ 112,377  
EBITDA from discontinued operations
    —  
 
     
 
       
EBITDA
  $ 112,377  
 
     
 
       
EBITDA from continuing operations
  $ 112,377  
Land gains
    (505 )
 
     
EBITDA from continuing operations, excluding land gains
  $ 111,872  
 
     
 
       
Interest expense, net
  $ 26,937  
Dividends attributable to preferred stock
    2,175  
 
     
Interest charges
  $ 29,112  
 
     
 
       
Interest coverage
    3.8  
 
     
 
Total Capital Cost includes all capitalized costs projected to be or actually incurred to develop the respective Development or Redevelopment Community, or Development Right, including land acquisition costs, construction costs, real estate taxes, capitalized interest and loan fees, permits, professional fees, allocated development overhead and other regulatory fees, all as determined in accordance with GAAP. For Redevelopment Communities, Total Capital Cost excludes costs incurred prior to the start of redevelopment when indicated. With respect to communities where development or redevelopment was completed in a prior or the current period, Total Capital Cost reflects the actual cost incurred, plus any contingency estimate made by management. Total Capital Cost for communities identified as having joint venture ownership, either during construction or upon construction completion, represents the total projected joint venture contribution amount. For joint ventures not in construction, Total Capital Cost is equal to gross real estate cost.
Initial Year Market Cap Rate is defined by the Company as Projected NOI of a single community for the first 12 months of operations (assuming no repositioning), less estimates for non-routine allowance of approximately $200 — $300 per apartment home, divided by the gross sales price for the community. The gross sales price is adjusted for transaction costs and deferred maintenance in determining the Initial Year Market Cap Rate for acquisitions. Projected NOI, as referred to above, represents management’s estimate of projected rental revenue minus projected operating expenses before interest, income taxes (if any), depreciation, amortization and extraordinary items. For this purpose, management’s projection of operating expenses for the community includes a management fee of 3.0% — 3.5%. The Initial Year Market Cap Rate, which may be determined in a different manner by others, is a measure frequently used in the real estate industry when determining the appropriate purchase price for a property or estimating the value for the property. Buyers may assign different Initial Year Market Cap Rates to different communities when determining the appropriate value because they (i) may project different rates of change in operating expenses and capital expenditure estimates and (ii) may project different rates of change in future rental revenue due to different estimates for changes in rent and occupancy levels. The weighted average Initial Year

 


 

 
Attachment 14 (continued)
Market Cap Rate is weighted based on the gross sales price of each community (for dispositions) and on the expected total investment in each community (for acquisitions).
Unleveraged IRR on sold communities refers to the internal rate of return calculated by the Company considering the timing and amounts of (i) total revenue during the period owned by the Company and (ii) the gross sales price net of selling costs, offset by (iii) the undepreciated capital cost of the communities at the time of sale and (iv) total direct operating expenses during the period owned by the Company. Each of the items (i), (ii), (iii) and (iv) are calculated in accordance with GAAP.
The calculation of Unleveraged IRR does not include an adjustment for the Company’s general and administrative expense, interest expense, or corporate-level property management and other indirect operating expenses. Therefore, Unleveraged IRR is not a substitute for net income as a measure of our performance. Management believes that the Unleveraged IRR achieved during the period a community is owned by the Company is useful because it is one indication of the gross value created by the Company’s acquisition, development or redevelopment, management and sale of the community, before the impact of indirect expenses and Company overhead. The Unleveraged IRR achieved on the communities as cited in this release should not be viewed as an indication of the gross value created with respect to other communities owned by the Company, and the Company does not represent that it will achieve similar Unleveraged IRRs upon the disposition of other communities. The weighted average Unleveraged IRR for sold communities is weighted based on all cash flows over the holding period for each respective community, including net sales proceeds.
Leverage is calculated by the Company as total debt as a percentage of Total Market Capitalization. Total Market Capitalization represents the aggregate of the market value of the Company’s common stock, the market value of the Company’s operating partnership units outstanding (based on the market value of the Company’s common stock), the liquidation preference of the Company’s preferred stock and the outstanding principal balance of the Company’s debt. Management believes that Leverage can be one useful measure of a real estate operating company’s long-term liquidity and balance sheet strength, because it shows an approximate relationship between a company’s total debt and the current total market value of its assets based on the current price at which the company’s common stock trades. Changes in Leverage also can influence changes in per share results. A calculation of Leverage as of September 30, 2006 is as follows (dollars in thousands):
 
         
Total debt
  $ 2,643,025  
 
     
Common stock
    8,981,139  
Preferred stock
    100,000  
Operating partnership units
    18,117  
Total debt
    2,643,025  
 
     
Total market capitalization
    11,742,281  
 
     
 
       
Debt as % of capitalization
    22.5 %
 
     
 
Because Leverage changes with fluctuations in the Company’s stock price, which occurs regularly, the Company’s Leverage may change even when the Company’s earnings, interest and debt levels remain stable. Investors should also note that the net realizable value of the Company’s assets in liquidation is not easily determinable and may differ substantially from the Company’s Total Market Capitalization.

 


 

 
Attachment 14 (continued)
Unencumbered NOI as calculated by the Company represents NOI generated by real estate assets unencumbered by either outstanding secured debt or land leases (excluding land leases with purchase options that were put in place for governmental incentives or tax abatements) as a percentage of total NOI generated by real estate assets. The Company believes that current and prospective unsecured creditors of the Company view Unencumbered NOI as one indication of the borrowing capacity of the Company. Therefore, when reviewed together with the Company’s Interest Coverage, EBITDA and cash flow from operations, the Company believes that investors and creditors view Unencumbered NOI as a useful supplemental measure for determining the financial flexibility of an entity. A calculation of Unencumbered NOI for the nine months ended September 30, 2006 is as follows (dollars in thousands):
 
         
NOI for Established Communities
  $ 286,325  
NOI for Other Stabilized Communities
    43,775  
NOI for Development/Redevelopment Communities
    34,437  
NOI for discontinued operations
    1,147  
 
     
Total NOI generated by real estate assets
  $ 365,684  
NOI from encumbered assets
    64,138  
 
     
NOI from unencumbered assets
  $ 301,546  
 
     
 
       
Unencumbered NOI
    82.5 %
 
     
 
Established Communities are identified by the Company as communities where a comparison of operating results from the prior year to the current year is meaningful, as these communities were owned and had Stabilized Operations, as defined below, as of the beginning of the prior year. Therefore, for 2006, Established Communities are consolidated communities that have Stabilized Operations as of January 1, 2005 and are not conducting or planning to conduct substantial redevelopment activities within the current year. Established Communities do not include communities that are currently held for sale or planned for disposition during the current year. The number of Established Communities was adjusted during the third quarter of 2006 to reflect changes in the Company’s disposition program.
Average Rental Rates are calculated by the Company as rental revenue in accordance with GAAP, divided by the weighted average number of occupied apartment homes.
Economic Occupancy is defined as total possible revenue less vacancy loss as a percentage of total possible revenue. Total possible revenue is determined by valuing occupied units at contract rates and vacant units at Market Rents. Vacancy loss is determined by valuing vacant units at current Market Rents. By measuring vacant apartments at their Market Rents, Economic Occupancy takes into account the fact that apartment homes of different sizes and locations within a community have different economic impacts on a community’s gross revenue.
Market Rents as reported by the Company are based on the current market rates set by the managers of the Company’s communities based on their experience in renting their communities’ apartments and publicly available market data. Trends in market rents for a region as reported by others could vary. Market Rents for a period are based on the average Market Rents during that period and do not reflect any impact for cash concessions.
Non-Revenue Generating Capex represents capital expenditures that will not directly result in revenue earnings or expense savings.
Stabilized/Restabilized Operations is defined as the earlier of (i) attainment of 95% physical occupancy or (ii) the one-year anniversary of completion of development or redevelopment.
Average Rent per Home, as calculated for certain Development and Redevelopment Communities in lease-up, reflects (i) actual average leased rents for those apartments leased through the end of the quarter net of estimated stabilized concessions, (ii) estimated market rents net of comparable concessions for all unleased apartments and (iii) includes actual and estimated other rental revenue. For Development and Redevelopment Communities not yet in lease-up, Average Rent per Home reflects management’s projected rents.
Development Rights are development opportunities in the early phase of the development process for which the Company either has an option to acquire land or enter into a leasehold interest, for which the Company is the buyer under a long-term conditional contract to purchase land or where the Company owns land to develop a new community. The Company capitalizes related predevelopment costs incurred in pursuit of new developments for which future development is probable.