(Arlington, VA)  AvalonBay Communities, Inc. (NYSE: AVB) (the “Company”) reported today that Net Income Attributable to Common Stockholders (“Net Income”) for the quarter ended September 30, 2012 was $86,844,000. This resulted in Earnings per Share — diluted (“EPS”) of $0.89 for the quarter ended September 30, 2012, compared to EPS of $0.49 for the comparable period of 2011, an increase of 81.6%. For the nine months ended September 30, 2012, EPS was $3.13 compared to $1.33 for the comparable period of 2011, an increase of 135.3%.

 

The increase in EPS for the quarter ended September 30, 2012 over the prior year period is due primarily to an increase in Net Operating Income (“NOI”) from existing and newly developed and acquired communities, a gain on the acquisition of an unconsolidated entity, and a decline in net interest expense.  The increase in EPS for the nine months ended September 30, 2012 over the prior year period is due primarily to an increase in real estate sales and related gains in 2012, increased 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 September 30, 2012 increased 23.1% to $1.44 from $1.17 for the comparable period of 2011.  FFO per share for the nine months ended September 30, 2012 increased 19.8% to $4.05 from $3.38 for the comparable period of 2011.   Adjusting for the non-routine items detailed in Attachment 14, FFO per share would have increased by 20.5% for the three months ended September 30, 2012 and 20.2% for the nine months ended September 30, 2012 over the prior year periods.

 

The Company’s FFO per share for the third quarter of 2012 exceeded the midpoint of the range for its third quarter 2012 outlook provided in July 2012. The better than expected results were driven by the Company’s recognition of its promoted interest in conjunction with the acquisition of our partner’s 70% interest in Avalon Del Rey, discussed in this release. Better than expected revenue from existing and newly developed communities also contributed to the outperformance.  These favorable variances were

offset in part by the timing of the Company’s capital markets activities, primarily interest and associated costs from the timing of the Company’s third quarter 2012 unsecured notes offering, which the Company previously expected would occur in the fourth quarter of 2012.

 

The following table provides a comparison of the Company’s actual results to the outlook provided in its second quarter 2012 earnings release in July 2012:

 

Third Quarter 2012 Results
Comparison to July 2012 Outlook
		Per Share
FFO per share 3Q 2012 - July 2012 Outlook (1)		$      1.40
Favorable Community Revenue		0.01
Timing of capital markets activity (2)		(0.01)
Recognition of promoted interest in joint venture		0.04
FFO per share 3Q 2012 reported results		$      1.44
(1) Represents the mid-point of the Company’s July 2012 Outlook.
(2) Composed primarily of costs from the Company’s September 2012  $450 million unsecured notes offering.

 

Commenting on the Company’s results, Tim Naughton, CEO and President, said, “We had a strong third quarter as evidenced by 20% FFO per share growth. Operating fundamentals remain favorable as same-store NOI growth topped 7% for the sixth consecutive quarter and recently completed development communities continued to exceed our expectations.”

 

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

 

For the Company, including discontinued operations, total revenue increased by $18,716,000, or 7.4% to $271,904,000.  For Established Communities, rental revenue increased 5.6%, attributable to increases in Average Rental Rates of 5.1% and Economic Occupancy of 0.5%. As a result, total revenue for Established Communities increased $10,424,000 to $194,883,000. Operating expenses for Established

Communities increased $1,547,000, or 2.6%, to $60,316,000. Accordingly, NOI for Established Communities increased by 7.1%, or $8,876,000, to $134,567,000.

 

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

 

Q3 2012 Compared to Q3 2011

 

		Rental			Operating								% of
		Revenue			Expenses				NOI				NOI (1)
New England		4.0%			6.3%			2.7%					18.9%
Metro NY/NJ		5.0%			3.5%			5.6%					30.4%
Mid-Atlantic		3.8%			4.0%			3.7%					13.1%
Pacific NW		10.0%			(8.2%	)		19.6%					3.7%
No. California		10.5%			(2.2%	)		15.9%					19.7%
So. California		4.7%			1.7%			6.2%					14.2%
Total		5.6%			2.6%			7.1%					100.0%
(1) Total represents each region’s % of total NOI from the Company, including discontinued operations.

 

Operating Results for the Nine Months Ended September 30, 2012 Compared to the Prior Year Period

 

For the Company, including discontinued operations, total revenue increased by $54,407,000, or 7.4% to $788,262,000. For Established Communities, rental revenue increased 6.0%, attributable to increases in Average Rental Rates of 5.8% and Economic Occupancy of 0.2%. Total revenue for Established Communities increased $32,400,000 to $572,530,000. Operating expenses for Established Communities increased $2,466,000, or 1.4%, to $175,050,000. Accordingly, NOI for Established Communities increased by 8.1%, or $29,934,000, to $397,480,000.

 

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

 

YTD 2012 Compared to YTD 2011

 

		Rental			Operating								% of
		Revenue			Expenses				NOI				NOI (1)
New England		4.6%			2.7%			5.6%					19.0%
Metro NY/NJ		5.6%			2.1%			7.2%					29.9%
Mid-Atlantic		4.2%			4.4%			4.2%					13.7%
Pacific NW		9.1%			(0.3%	)		13.6%					3.6%
No. California		10.3%			(0.1%	)		14.7%					19.6%
So. California		4.9%			(2.8%	)		8.8%					14.2%
Total		6.0%			1.4%			8.1%					100.0%

 

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

 

 

Development Activity

 

During the third quarter of 2012, the Company started the construction of four communities: Avalon at Wesmont Station II, located in Wood-Ridge, NJ, Avalon Bloomingdale, located in Bloomingdale, NJ, AVA 55 Ninth, located in San Francisco, CA and Avalon Morrison Park, located in San Jose, CA. These four communities will contain 837 apartment homes when completed, and will be developed for an estimated Total Capital Cost of $258,900,000.

 

During the third quarter of 2012, the Company completed the development of two communities: Avalon North Bergen, located in North Bergen, NJ and Avalon Ocean Avenue, located in San Francisco, CA. These two communities contain 337 apartment homes and were constructed for an aggregate Total Capital Cost of $101,100,000.

 

The Company also acquired four land parcels during the quarter ended September 30, 2012 for an aggregate purchase price of approximately $51,300,000.  The Company has started, or anticipates starting construction in 2012 and 2013 on these four land parcels.

 

Redevelopment Activity

 

During the third quarter of 2012, the Company commenced the redevelopment of The Avalon, located in Bronxville, NY.  The Avalon contains 110 apartment homes and will be redeveloped for an estimated Total Capital Cost of $8,300,000, excluding costs incurred prior to redevelopment.

 

During the third quarter of 2012, the Company completed the redevelopment of five communities:  Eaves Foster City, located in Foster City, CA, Eaves Santa Margarita, located in Rancho Santa Margarita, CA, AVA Newport, located in Costa Mesa, CA, Avalon Wilton I, located in Wilton, CT and Avalon at Lexington, located in Lexington, MA. These five communities contain 1,034 apartment homes and were redeveloped for an aggregate Total Capital Cost of $32,100,000, excluding costs incurred prior to redevelopment.

 

Acquisition Activity

 

In July 2012, the Company acquired Avalon Del Rey, a 309 apartment home community which was owned by a joint venture in which the Company held a 30% ownership interest.  As part of this transaction the venture repaid the $43,606,000 variable rate note secured by the community.  The Company paid approximately $67,200,000 for its joint venture partner’s 70% interest as well as contributing its proportionate share of the note repayment to the venture.

 

In conjunction with the acquisition, the Company recognized income from its promoted interest of $4,055,000 included in joint venture income, and a

gain of $14,194,000, the amount that the fair value of the Company’s prior 30% ownership interest exceeded its carrying value.

 

Financing, Liquidity and Balance Sheet Statistics

 

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

 

At September 30, 2012, the Company had $713,984,000 in unrestricted cash and cash in escrow.

 

Unencumbered NOI as a percentage of total NOI generated by real estate assets for the nine months ended September 30, 2012 was 73%. Interest Coverage for the third quarter of 2012 was 5.5 times.

 

New Financing Activity

 

In July 2012 the Company completed the authorized issuance of shares of common stock under its second Continuous Equity Program (“CEP II”).

 

In August 2012, the Company commenced its third Continuous Equity Program (“CEP III”), under which the Company is authorized to sell up to $750,000,000 in shares of its common stock from time to time during a 36-month period.

 

A summary of activity for 2012 for the two programs is provided in the following table:

 

$500 million CEP II and $750 million CEP III
2012 Activity (1)

 

		Shares			Average			Net
		Issued			Price/Share			Proceeds
3Q 2012		1,045,314			$      141.87			$ 146,069,000
YTD 2012		2,165,206			140.98			300,658,000

 

(1) Includes activity for CEP II through completion of the program in July 2012.

 

 

During the three months ended September 30, 2012, the Company sold 729,991 shares at an average sales price of $142.09 per share, for net proceeds of $102,168,000 under CEP III.

 

In September 2012, the Company issued $450,000,000 principal amount of unsecured notes under its existing shelf registration statement.  The unsecured notes mature in September 2022 and were issued at a 2.95% coupon rate.  The notes have an effective interest rate of approximately 4.30%, including the effect of an interest rate hedge and offering costs.

 

Fourth Quarter and Updated Full Year 2012 Outlook

 

For the fourth quarter of 2012, the Company expects EPS in the range of $1.34 to $1.39.  The Company

expects EPS for the full year 2012 to be in the range of $4.47 to $4.52.

 

The Company expects Projected FFO per share in the range of $1.40 to $1.45 for the fourth quarter of 2012 and Projected FFO per share for the full year 2012 to be in the range of $5.45 to $5.50.

 

Fourth Quarter 2012 Conference Schedule

 

The Company is scheduled to participate in REITWorld hosted by NAREIT in San Diego, CA from November 13-15, 2012.  During this conference, Management may discuss the Company’s current operating environment; operating trends; development, redevelopment, disposition and acquisition activity; portfolio strategy and other business and financial matters affecting the Company. Details on how to access related materials will be available beginning November 9, 2012 on the Company’s website at http://www.avalonbay.com/events.

 

Other Matters

 

The Company will hold a conference call on October 25, 2012 at 1:00 PM ET to review and answer questions about this release, its third quarter 2012 results, the Attachments (described below) and related matters. To participate on the call, dial 1-855-367-4146 domestically and 1-763-416-6924 internationally, and use Conference ID:  34734741.

 

To hear a replay of the call, which will be available from October 25, 2012 at 5:00 PM ET to October 31, 2012 at 11:59 PM ET, dial 1-855-859-2056 domestically and 1-404-537-3406 internationally, and use Conference ID: 34734741.   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 September 30, 2012, the Company owned or held a direct or indirect ownership interest in 205 apartment communities containing 60,101 apartment homes in nine states and the District of Columbia, of which 22 communities were under construction and seven 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 fourth 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		$	205,213				Q312	$12,504		$6,670				$119
Long-term, fixed rate		$	3,250,360				2013		$	336,849				Q212	$12,625		$6,682				$92
Long-term, variable rate		9,000					2014		$	164,284				Q112	$12,320		$6,627				$52
Variable rate facility (3)		–					2015		$	418,189				Q411	$10,901		$6,165				$211
Subtotal, Conventional		3,259,360			5.6%		2016		$	262,807				Q311	$8,946		$5,893				$181
Tax-Exempt Debt												COMMUNITY INFORMATION
Long-term, fixed rate		181,922
Long-term, variable rate		367,935
Subtotal, Tax-Exempt		549,857			3.8%																Apartment
																		Communities			Homes
Total Debt		$	3,809,217		5.3%								Current Communities					183			53,487
													Development Communities					22			6,614
													Development Rights					31			8,837