(Arlington, VA)  AvalonBay Communities, Inc. (NYSE: AVB) (the “Company”) reported today that Net Income Attributable to Common Stockholders (“Net Income”) for the quarter ended June 30, 2012 was $156,909,000.  This resulted in Earnings per Share – diluted (“EPS”) of $1.63 for the quarter ended June 30, 2012, compared to EPS of $0.49 for the comparable period of 2011, an increase of 232.7%. For the six months ended June 30, 2012, EPS was $2.24 compared to $0.84 for the comparable period of 2011, an increase of 166.7%.

 

The increase in EPS for the quarter and six months ended June 30, 2012 over the respective prior year periods is due primarily to an increase in real estate sales and related gains in 2012 as well as increased Net Operating Income (“NOI”) from existing and newly developed and acquired communities and a decline  in net interest expense.

 

Funds from Operations attributable to common stockholders - diluted (“FFO”) per share for the quarter ended June 30, 2012 increased 18.6% to $1.34 from $1.13 for the comparable period of 2011.  FFO per share for the six months ended June 30, 2012 increased 18.1% to $2.61 from $2.21 for the comparable period of 2011.   Adjusting for the non-routine items detailed in Attachment 14, FFO per share would have increased by 17.5% and 20.5% for the three and six months ended June 30, 2012, respectively over the prior year periods.

 

The Company’s FFO per share for the second quarter of 2012 exceeded the midpoint of the range for its second quarter 2012 by $0.02 per share due to savings in operating expenses.  Approximately half of the year to date savings in operating expenses are timing related and are expected to be incurred in the second half of 2012.

 

The Company revised its full year 2012 outlook from the full year 2012 outlook provided in February 2012. The Company now expects FOI per share to be within a range of $5.39 to $5.53, with a midpoint of $5.46. The components of the revised outlook are detailed in the following table.

 

 

July 2012 Full-Year 2012 Outlook
Comparison to February 2012 Full-Year 2012 Outlook
		Per Share
Projected FFO per share 2012 - February 2012 Outlook $5.25 to $5.55 (1)		$      5.40
Community operations		0.08
Investment activity (2)		(0.03)
Financing activity (2)		0.01
Projected FFO per share 2012 - July 2012 Outlook $5.39 to $5.55 (1)		$      5.46

 

(1) Represents the midpoint of the Company’s outlook.
(2) Details of the changes in outlook can be found in this earnings release under the section titled “Third Quarter and Updated Full Year 2012 Outlook.”

 

Commenting on the Company’s results, Tim Naughton, CEO and President, said, “These results demonstrate the continued strength in apartment fundamentals and  the benefit of our development platform.  We increased the midpoint of our  full year 2012 outlook by six cents per share and now expect per share FFO growth of nearly 20% for the year.”

 

Operating Results for the Quarter Ended June 30, 2012 Compared to the Prior Year Period

 

For the Company, including discontinued operations, total revenue increased by $17,011,000, or 6.9% to $261,870,000.  For Established Communities, rental revenue increased 5.8%, attributable to an increase in Average Rental Rates of 6.2% offset by a decrease in Economic Occupancy of 0.4%. As a result, total revenue for Established Communities increased $10,442,000 to $190,279,000. Operating expenses for Established Communities increased $1,667,000, or 3.0%, to $57,748,000. Accordingly, NOI for Established Communities increased by 7.1%, or $8,775,000, to $132,531,000.

 

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

 

Q2 2012 Compared to Q2 2011

 

		Rental			Operating								% of
		Revenue			Expenses				NOI				NOI (1)
New England		4.4%			2.1%			5.7%					19.2%
Metro NY/NJ		5.5%			3.8%			6.3%					29.9%
Mid-Atlantic		3.6%			6.8%			2.4%					13.8%
Pacific NW		8.8%			7.2%			9.5%					3.5%
No. California		10.2%			3.9%			12.8%					19.6%
So. California		4.8%			(2.7%	)		8.5%					14.0%
Total		5.8%			3.0%			7.1%					100.0%

 

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

 

Operating Results for the Six Months Ended June 30, 2012 Compared to the Prior Year Period

 

For the Company, including discontinued operations, total revenue increased by $35,690,000, or 7.4% to $516,357,000.  For Established Communities, rental revenue increased 6.2%, attributable to an increase in Average Rental Rates while maintaining Economic Occupancy at 96.0%. Total revenue for Established Communities increased $21,979,000 to $377,648,000. Operating expenses for Established Communities increased $920,000, or 0.8%, to $114,735,000. Accordingly, NOI for Established Communities increased by 8.7%, or $21,059,000, to $262,913,000.

 

The following table reflects the percentage changes in rental revenue, operating expenses and NOI for Established Communities for the six months ended June 30, 2012 as compared to the six months ended June 30, 2011:

 

YTD 2012 Compared to YTD 2011

 

		Rental			Operating								% of
		Revenue			Expenses				NOI				NOI (1)
New England		4.9%			0.8%			7.2%					19.1%
Metro NY/NJ		5.9%			1.4%			8.0%					29.6%
Mid-Atlantic		4.5%			4.7%			4.4%					14.1%
Pacific NW		8.7%			4.2%			10.7%					3.4%
No. California		10.2%			1.0%			14.1%					19.5%
So. California		5.1%			(5.0%	)		10.2%					14.3%
Total		6.2%			0.8%			8.7%					100.0%

 

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

 

 

Development Activity

 

During the second quarter of 2012, the Company started the construction of four communities: Avalon/AVA Assembly Row, located in Somerville, MA, Avalon East Norwalk, located in Norwalk, CT, AVA University District, located in Seattle, WA and Avalon Dublin Station II, located in Dublin, CA. These four communities will contain 1,226 apartment homes when completed, and will be developed for an estimated Total Capital Cost of $308,700,000.

 

During the second quarter of 2012, the Company completed four communities: AVA Queen Anne, located in Seattle, WA, Avalon Cohasset, located in Cohasset, MA, Avalon Andover, located in Andover, MA, and Avalon Rockville Centre, located in Rockville Centre, NY.  These four communities contain 887 apartment homes and were constructed for an aggregate Total Capital Cost of $245,900,000.

 

During the second quarter of 2012 the Company acquired two land parcels for an aggregate purchase price of $24,589,000.   In July 2012, the Company acquired two additional land parcels for an aggregate purchase price of $21,224,000.  The Company

anticipates starting construction in 2012 and 2013 on these four land parcels.

 

Redevelopment Activity

 

During the second quarter of 2012, the Company commenced the redevelopment of Eaves Fairfax, located in Fairfax, VA.  Eaves Fairfax contains 141 apartment homes and will be redeveloped for an estimated Total Capital Cost of $4,900,000, excluding costs incurred prior to redevelopment.

 

Disposition Activity

 

During the second quarter of 2012, the Company sold two communities:  Waterford, located in Oakland, CA and Arlington Heights, located in Chicago, IL.  Waterford, containing 544 apartment homes, was sold for $86,500,000 and Arlington Heights, containing 409 apartment homes, was sold for $87,250,000.  The dispositions resulted in an aggregate gain in accordance with GAAP of $95,049,000 and an Economic Gain of $66,265,000.  The Weighted Average Initial Year Market Cap rate for these two communities was 5.3% and the Unleveraged IRR over the 14.9 year holding period was 11.1%.

 

In conjunction with the disposition of Waterford, the Company repaid the outstanding $33,100,000 variable rate note secured by the community in advance of its June 2014 scheduled maturity.  The Company incurred charges of $602,000 for a prepayment penalty and the write off of deferred finance costs as part of this transaction.  These charges were included in the Company’s financial outlook for the second quarter 2012, provided in April 2012.

 

During the second quarter of 2012, AvalonBay Value Added Fund, L.P. (“Fund I”), a private discretionary real estate investment vehicle in which the Company holds an equity interest of approximately 15%, sold Avalon Lombard, located in Chicago, IL. Avalon Lombard, containing 256 apartment homes, was sold for $35,450,000. The Company’s proportionate share of the gain in accordance with GAAP for this disposition was $385,000.

 

The dispositions transacted in the second quarter of 2012 complete the Company’s exit of the Chicago market.

 

Acquisition Activity

 

During the second quarter of 2012, the Company acquired Eaves Cerritos, located in Artesia, CA.  Eaves Cerritos contains 151 apartment homes and was acquired for a purchase price of $29,500,000.

Financing, Liquidity and Balance Sheet Statistics

 

At June 30, 2012, the Company had no amounts outstanding under its $750,000,000 unsecured credit facility.

 

At June 30, 2012, the Company had $431,954,000 in unrestricted cash and cash in escrow.

 

Unencumbered NOI as a percentage of total NOI generated by real estate assets for the six months ended June 30, 2012 was 73%. Interest Coverage for the second quarter of 2012 was 4.8 times.

 

The Company issued additional shares of common stock during the second quarter of 2012 under the Company’s second Continuous Equity Program (“CEP II”), and completed the program in July 2012. A summary of activity for 2012 and the life of the program is provided in the following table:

 

$500 million CEP II
2012 and Total Activity

 

		Shares			Average			Net
		Issued			Price/Share			Proceeds
2Q 2012		1,119,892			$      140.14			$ 154,588,000
YTD 2012 (1)		1,435,215			$      140.41			$ 198,489,000
Total Program		3,925,980			$      127.36			$ 492,490,000

 

(1) Includes activity through July 2012.

 

 

Debt Repayment Activity

 

In May 2012, in addition to the repayment of the secured financing associated with Waterford discussed above, the Company also repaid a variable rate secured mortgage note in the amount of $14,566,000 in accordance with its scheduled maturity date.

 

Third Quarter and Updated Full Year 2012 Outlook

 

During the year, the Company may update its financial outlook based in part on actual economic conditions (including job growth and housing market conditions) which may differ from assumptions used in developing the Company’s outlook provided at the beginning of the year. Any update to the Company’s financial outlook would also rely heavily on portfolio trend analysis.

 

Property Operations

 

Rental rates and occupancy through June 2012 are largely in line with the Company’s February 2012 outlook and recent trends suggest that total rental revenue will continue to track our original outlook for revenue growth for 2012 provided in February of 2012.

 

Operating expenses through June 2012 are less than the original February 2012 outlook, partly due to permanent savings from lower utilities due to mild weather and partly due to the timing of expenses incurred.  The Company expects a portion of these expense savings related to timing to reverse in the second half of 2012.

 

As a result, the Company revised its expected ranges for operating results, updating the ranges from the February 2012 outlook as follows:

 

·

the Company revised the range for its expected increase in Established Communities’ revenue and now expects revenue growth of between 5.5% and 6.0% and retained the original midpoint of the range at 5.75%; and

 

·

the Company revised the range for its Established Communities’ NOI growth and now expects NOI growth between 7.0% and 8.0%, increasing the midpoint of the range by 0.5% to 7.5%.

 

Development

 

The Company continues to expect the following development activity disclosed in its February 2012 outlook.

 

·		The Company currently has 20 communities under development and anticipates starting between $1,000,000,000 and $1,200,000,000 of new development during 2012.
·		During 2012,  the Company expects to disburse between $750,000,000 and $850,000,000 related to current and expected Development Communities and expected acquisitions of land for future development.
·		The Company expects to complete the development of nine communities during 2012  for an aggregate Total Capital Cost of approximately $590,000,000.

 

Acquisition & Disposition Activity

 

The Company’s expected outlook for acquisition and disposition activity for its wholly owned portfolio for the full year 2012 is revised such that expected dispositions declined to between $250,000,000 and $350,000,000, and acquisitions are expected to decline to between $250,000,000 and $350,000,000.

 

Capital Markets

 

The Company continues to expect to raise a total of $700,000,000 to $900,000,000 of new debt and equity capital during 2012.

 

EPS and FFO Outlook

 

For the third quarter of 2012, the Company expects EPS in the range of $1.00 to $1.04.  The Company expects EPS for the full year 2012 to be in the range of $5.11 to $5.25.

 

The Company expects Projected FFO per share in the range of $1.38 to $1.42 for the third quarter of 2012 and Projected FFO per share for the full year 2012 to be in the range of $5.39 to $5.53.

 

Other Matters

 

The Company will hold a conference call on July 26, 2012 at 1:00 PM ET to review and answer questions about this release, its second quarter 2012 results, the Attachments (described below) and related matters. To participate on the call, dial 1-877-510-2397 domestically and 1-763-416-6924 internationally.

 

To hear a replay of the call, which will be available from July 26, 2012 at 3:00 PM ET to August 1, 2012 at 11:59 PM ET, dial 1-800-585-8367 domestically and 1-404-537-3406 internationally, and use Access Code:  97256881.   A webcast of the conference call will also be available at http://www.avalonbay.com/earnings, and an on-line playback of the webcast will be available for at least 30 days following the call.

 

The Company produces earnings release attachments (the “Attachments”) that provide detailed information regarding operating, development,

redevelopment, disposition and acquisition activity. These Attachments are considered a part of this earnings release and are available in full with this earnings release via the Company’s website at http://www.avalonbay.com/earnings. To receive future press releases via e-mail, please submit a request through http://www.avalonbay.com/email.

 

About AvalonBay Communities, Inc.

 

As of June 30, 2012, the Company owned or held a direct or indirect ownership interest in 201 apartment communities containing 59,258 apartment homes in nine states and the District of Columbia, of which 20 communities were under construction and 11 communities were under reconstruction. The Company is an equity REIT in the business of developing, redeveloping, acquiring and managing apartment communities in high barrier-to-entry markets of the United States.  More information may be found on the Company’s website at http://www.avalonbay.com. For additional information, please contact Jason Reilley, Senior Manager of Investor Relations at 1-703-317-4681 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,” “anticipates,” “projects,” “intends,” “believes,” “outlook” and similar expressions that do not relate to historical matters.  Actual results may differ materially from those expressed or implied by the forward-looking statements as a result of risks and uncertainties, which include the following: we may abandon development or redevelopment opportunities for which we have already incurred costs; adverse capital market conditions may affect our access to various sources of capital and/or cost of capital, which may affect our business activities, earnings and common stock price, among other things; changes in local employment conditions, demand for apartment homes, supply of competitive housing products, and

other economic conditions may result in lower than expected occupancy and/or rental rates and adversely affect the profitability of our communities; delays in completing development, redevelopment and/or lease-up may result in increased financing and construction costs and may delay and/or reduce the profitability of a community; debt and/or equity financing for development, redevelopment or acquisitions of communities may not be available  or may not be available on favorable terms; we may be unable to obtain, or experience delays in obtaining, necessary governmental permits and authorizations; and increases in costs of materials, labor or other expenses may result in communities that we develop or redevelop failing to achieve expected profitability. Additional discussions of risks and uncertainties appear in the Company’s filings with the Securities and Exchange Commission, including the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011 under the heading “Risk Factors” and under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Forward-Looking Statements” and in subsequent quarterly reports on Form 10-Q. The Company does not undertake a duty to update forward-looking statements, including its expected third quarter and full year 2012 operating results. 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.

DEBT COMPOSITION AND MATURITIES		CAPITALIZED COSTS

					Average																Non-Rev
					Interest		Remaining								Cap		Cap				Capex
Debt Composition (1)		Amount			Rate (2)		Maturities (1)								Interest		Overhead				per Home
Conventional Debt							2012		$	208,567				Q212	$12,625		$6,682				$92
Long-term, fixed rate		$	2,803,445				2013		$	336,849				Q112	$12,320		$6,627				$52
Long-term, variable rate		9,000					2014		$	164,284				Q411	$10,901		$6,165				$211
Variable rate facilities (3)		–					2015		$	418,189				Q311	$8,946		$5,893				$181
Subtotal, Conventional		2,812,445			5.6%		2016		$	262,807				Q211	$7,673		$6,058				$128
Tax-Exempt Debt												COMMUNITY INFORMATION
Long-term, fixed rate		182,193
Long-term, variable rate		367,935
Subtotal, Tax-Exempt		550,128			3.4%																Apartment
																		Communities			Homes
Total Debt		$	3,362,573		5.3%								Current Communities					181			53,144
													Development Communities					20			6,114
													Development Rights					33			9,036