(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, 2011 was $44,824,000. This resulted in Earnings per Share – diluted (“EPS”) of $0.49 for the quarter ended September 30, 2011, compared to EPS of $0.29 for the comparable period of 2010, an increase of 69.0%. For the nine months ended September 30, 2011, EPS was $1.33 compared to $1.76 for the comparable period of 2010, a per share decrease of 24.4%.

The increase in EPS for the quarter ended September 30, 2011 over the prior year period is due primarily to an increase in Net Operating Income (“NOI”) from communities. The decrease in EPS for the nine months ended September 30, 2011 from the prior year period is due primarily to a decrease in real estate sales and related gains in 2011, offset partially by an increase in NOI from communities.

Funds from Operations attributable to common stockholders - diluted (“FFO”) per share for the quarter ended September 30, 2011 increased 19.4% to $1.17 from $0.98 for the comparable period of 2010. FFO per share for the nine months ended September 30, 2011 increased 13.0% to $3.38 from $2.99 for the comparable period of 2010. Adjusting for the non-routine items detailed in Attachment 14, some of which are presented in the table below, FFO per share for the three and nine months ended September 30, 2011 would have increased by 18.2% and 12.8%, respectively from the prior year periods.

The following table provides a comparison of the Company’s actual results to the outlook provided in its second quarter 2011 earnings release in July 2011:

 

 

 

Third Quarter 2011 Results
Comparison to July 2011 Outlook
		Per Share
Projected FFO per share (1)		$	1.17
Common equity offering			(0.03)
Overhead, interest and other			0.03
Community NOI			0.01
Land activity (2)			(0.01)
FFO per share 3Q 2011 Reported Results		$	1.17

(1) Represents the mid-point of the Company’s July 2011 outlook.

(2) See discussion under Land Activity.

 

 

Commenting on the Company’s results, Bryce Blair, Chairman and CEO, said, “NOI growth topped 9% and drove FFO per share growth of more than 19%. Apartment fundamentals remain favorable and with solid core portfolio growth, new development activity and a strong balance sheet, we are well positioned for earnings growth into 2012.”

Operating Results for the Quarter Ended September 30, 2011 Compared to the Prior Year Period

For the Company, including discontinued operations, total revenue increased by $25,478,000, or 11.2%, to $253,188,000. For Established Communities, rental revenue increased 5.8%, attributable to an increase in Average Rental Rates of 5.9%, offset by a decrease in Economic Occupancy of 0.1%. Total revenue for Established Communities increased $9,690,000 to $179,146,000. Operating expenses for Established Communities decreased $540,000, or 0.9%, to $58,606,000. Accordingly, NOI for Established Communities increased by 9.3%, or $10,230,000, to $120,540,000.

The following table reflects the percentage changes in rental revenue, operating expenses and NOI for Established Communities from the third quarter of 2011 compared to the third quarter of 2010:

 

 

 

Q3 2011 Compared to Q3 2010
		Rental   Revenue		Operating   Expenses		NOI		% of   NOI (1)
New England		6.0%		1.7%		8.6%		18.8%
Metro NY/NJ		4.7%		(5.4%)		10.0%		28.4%
Mid-Atlantic/Midwest		4.8%		2.0%		6.1%		16.0%
Pacific NW		6.3%		4.8%		7.1%		4.5%
No. California		8.5%		2.9%		11.1%		18.7%
So. California		5.8%		(6.4%)		13.1%		13.6%
Total		5.8%		(0.9%)		9.3%		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, 2011 Compared to the Prior Year Period

For the Company, including discontinued operations, total revenue increased by $66,339,000, or 9.9% to $733,855,000. For Established Communities, rental revenue increased 4.7% due to an increase in Average Rental Rates of 4.9%, offset by a decrease in Economic Occupancy of 0.2%. Total revenue for Established Communities increased $23,339,000 to $525,028,000. Operating expenses for Established Communities decreased $2,010,000, or 1.2% to $170,835,000. Accordingly, NOI for Established Communities increased by $25,349,000, or 7.7%, to $354,193,000.

The following table reflects the percentage changes in rental revenue, operating expenses and NOI for Established Communities for the nine months ended September 30, 2011 as compared to the nine months ended September 30, 2010:

 

 

 

YTD 2011 Compared to YTD 2010
		Rental   Revenue		Operating   Expenses		NOI		% of   NOI (1)
New England		5.2%		(0.4%)		8.6%		19.0%
Metro NY/NJ		4.1%		(2.2%)		7.3%		28.0%
Mid-Atlantic/Midwest		4.7%		(0.2%)		6.8%		16.2%
Pacific NW		4.1%		2.7%		4.7%		4.4%
No. California		6.2%		(0.5%)		9.3%		19.3%
So. California		3.4%		(4.3%)		7.8%		13.1%
Total		4.7%		(1.2%)		7.7%		100.0%
(1) Total represents each region’s % of total NOI from the Company, including discontinued operations.

 

 

Development Activity

During the third quarter of 2011, the Company commenced construction of four communities: Avalon Irvine II, located in Irvine, CA, Avalon Ballard, located in Seattle, WA, Avalon Shelton III, located in Shelton, CT, and Avalon Hackensack, located in Hackensack, NJ. These four communities will contain 921 apartment homes and will be developed for an estimated Total Capital Cost of $210,100,000.

During the third quarter of 2011, the Company completed two communities: Avalon Springs II, located in Wilton, CT, containing 100 apartment homes and Avalon Brandemoor II, located in Lynnwood, WA, containing 82 apartment homes, for an aggregate Total Capital Cost of $45,100,000.

During the third quarter of 2011 the Company acquired six land parcels for an aggregate purchase price of approximately $65,270,000 for the development of 1,740 apartment homes with an expected Total Capital Cost of $374,650,000. The Company has started or

anticipates starting construction within the next three to six months on all six of these land parcels.

Redevelopment Activity

During the third quarter of 2011, the Company commenced the redevelopment of three communities: Avalon Foster City, located in Foster City, CA, Avalon at Ballston – Washington Towers, located in Arlington, VA, and Avalon Santa Margarita, located in Rancho Santa Margarita, CA. These communities contain 933 apartment homes and will be redeveloped for an estimated Total Capital Cost of $28,400,000, excluding costs incurred prior to redevelopment.

During the third quarter of 2011, the Company completed the redevelopment of three communities: Avalon Princeton Junction, located in West Windsor, NJ , Avalon Commons, located in Smithtown, NY and Avalon Pleasanton, located in Pleasanton, CA. These communities contain 1,280 apartment homes and were redeveloped for $39,000,000, excluding costs incurred prior to redevelopment.

Land Activity

During the third quarter of 2011, the Company evaluated its land portfolio, disposing of three unimproved land parcels, further impairing two land parcels and impairing a joint venture investment in a for-sale development.

The three unimproved land parcels that were sold are located in Canoga Park, CA, Kirkland, WA, and Danvers, MA. The Company sold these land parcels for $34,475,000 resulting in an aggregate gain in accordance with GAAP of $13,716,000. The Company had previously recorded aggregate impairment charges on two of these assets in prior years when it determined that it would no longer develop the assets. The pre-impairment basis of the three land parcels was $39,010,000, resulting in a net economic loss, net of disposition costs of $6,494,000.

The Company also further impaired two land parcels, located in Chicago, IL and Wheaton, MD, and impaired an investment in an unconsolidated development joint venture. The Company recorded an impairment charge of $14,052,000 in the third quarter of 2011 associated with these assets.

Investment and Investment Management Fund Activity

During the third quarter of 2011, 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 Redondo Beach, located in Redondo Beach, CA. This community contains 105 apartment homes and was sold for $33,100,000. This disposition resulted in a gain in accordance with GAAP of $12,445,000 and an Economic Gain of $7,947,000. The Company’s share

 

 

of the gain in accordance with GAAP was approximately $1,743,000 and its share of the Economic Gain was approximately $1,062,000.

During the third quarter of 2011, AvalonBay Value Added Fund II, L.P. (“Fund II”, a private discretionary real estate investment vehicle in which the Company holds an equity interest of approximately 31%) acquired Captain Parker Arms, a garden-style community consisting of 94 apartment homes located in Lexington, MA. The community was acquired for a purchase price of $20,850,000.

In October 2011, Fund II acquired Highlands at Rancho San Diego, consisting of 676 apartment homes located in San Diego, CA for a purchase price of $124,000,000. In conjunction with the acquisition, Fund II is extinguishing an outstanding mortgage note secured by the community, incurring a prepayment penalty, of which the Company’s proportionate share is approximately $950,000. The Company’s outlook for the fourth quarter and full year 2011 includes the impact of this prepayment penalty.

At October 31, 2011, Fund II had invested $771,330,000. While the investment period for Fund II closed in August 2011, additional acquisition activity may occur associated with active acquisition candidates identified prior to the end of the investment period.

Financing, Liquidity and Balance Sheet Statistics

In September 2011, the Company entered into a variable rate unsecured credit facility with an available borrowing capacity of $750,000,000 and a 4-year term, plus a one year extension option as well as a nonbinding option to expand the facility to $1,300,000,000, subject to lender approval. Concurrent with the establishment of the new credit facility, the Company cancelled its existing $1,000,000,000 variable rate unsecured credit facility which was scheduled to expire in November 2011.

The Company had no amounts outstanding under the new credit facility and had $52,945,000 outstanding in letters of credit as of September 30, 2011.

At September 30, 2011, the Company had $759,027,000 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, 2011 was 69%. Interest Coverage for the third quarter of 2011 was 3.5 times.

New Financing Activity

In August 2011, the Company issued 5,865,000 shares of its common stock at a net price of $128.25 per share. Net proceeds after underwriting discounts of approximately $725,850,000 are expected to be used to fund the Company’s investment activity, including development, redevelopment and acquisitions and for general corporate purposes.

In November 2010, the Company commenced its second continuous equity offering program (“CEP II”), under which the Company can issue up to $500,000,000 of common stock during a 36-month period. During the three months ended September 30, 2011, the Company sold 256,167 shares at an average price of $127.90 per share, for net proceeds of $32,271,000. From inception of CEP II through September 30, 2011, the Company has issued 2,490,765 shares at an average price of $119.84 per share for net aggregate proceeds of $294,000,000.

Debt Repayment Activity

In August 2011, the Company repaid, at par, a 7.25% coupon fixed rate secured mortgage note in the amount of $7,191,000 in advance of its October 2011 scheduled maturity date.

In September 2011, the Company repaid a 6.63% coupon fixed rate unsecured note in the amount of $189,900,000 in accordance with its scheduled maturity date.

In October 2011, the Company repaid a 5.88% coupon fixed rate secured mortgage note in the amount of $54,584,000 in advance of its January 2019 scheduled maturity. As part of this transaction, the Company incurred a prepayment penalty of $1,092,000 which will be recognized as loss on early retirement of debt in the fourth quarter of 2011. This prepayment penalty is included in the Company’s financial outlook for the fourth quarter and full year 2011, provided below.

Fourth Quarter and Full Year 2011 Financial Outlook

For the fourth quarter of 2011, the Company expects EPS in the range of $0.54 to $0.58. The Company expects EPS for the full year 2011 to be in the range of $1.84 to $1.88.

The Company expects Projected FFO per share in the range of $1.19 to $1.23 for the fourth quarter of 2011 and Projected FFO per share for the full year 2011 to be in the range of $4.57 to $4.61.

The following table presents a comparison of the Company’s current full year 2011 outlook to the outlook provided by the Company in July 2011 in conjunction with its second quarter 2011 earnings release.

 

 

 

 

Full Year 2011 Results
Comparison to July 2011 Outlook
		Per Share
Projected FFO per share July 2011 Outlook(1)			$ 4.67
Common equity offering			(0.08	)
Interest, overhead and other			0.02
Debt prepayment penalties			(0.02	)
Projected FFO per share October 2011 Outlook(1)			$ 4.59

(1) Represents the mid-point of the Company’s Outlook.

 

 

 

The Company’s outlook for the fourth quarter and full year 2011 includes non-routine items and other costs related to acquisitions, dispositions or other transactions that have occurred as of the date of this earnings release. Any costs related to acquisitions, dispositions or other transactions that may occur subsequent to the date of this earnings release, including expensed acquisition costs and mortgage prepayment penalties, are not included in the Company’s fourth quarter and full year 2011 outlook.   The Company is currently pursuing the sale of two apartment communities that could have an impact on earnings and FFO during the fourth quarter of 2011. These potential sales are not included in the financial outlook provided above.   One community is subject to a ground lease where lease expenses charged to earnings exceed actual cash lease payments. The Company previously expected that the excess amounts expensed over actual cash lease payments during the current year would be reversed and recognized as a reduction in full year lease payments (reducing operating expenses) upon sale. Prior year excess costs were expected to, and will be recorded as an increase in the expected gain on the asset sold.   We now expect that, if the asset is sold during the fourth quarter, current year-to-date excess amounts expensed over actual cash lease payments will also be included as an addition to the gain on sale (even though the excess costs were treated as a reduction in FFO in the current year) and will not be included as an increase in FFO per share.   The Company is marketing a community with secured fixed rate debt totaling $94,572,000. The Company expects to record a charge to earnings for early extinguishment of debt of approximately $3,400,000 at the date of sale or at the early redemption of the debt in anticipation of the sale, which is not reflected in the outlook provided above.   Fourth Quarter 2011 Conference/Event Schedule   The Company is scheduled to participate in the NAREIT REITWorld 2011 conference in Dallas, TX on November     15-17 and real estate conferences hosted

by Goldman Sachs and Barclays Capital in New York, NY on December 1 and December 6, respectively. During these conferences, Management may discuss the Company’s current operating environment; operating trends; development, redevelopment, disposition and acquisition activity; financial outlook; portfolio strategy and other business and financial matters affecting the Company. Should a webcast be available at any of these conferences, details on access will be available in advance of the conference event at the Company’s website at http://www.avalonbay.com/events.

Other Matters

The Company will hold a conference call on November 1, 2011 at 1:00 PM ET to review and answer questions about this release, its third quarter 2011 results, the Attachments (described below) and related matters. To participate in the call, dial 1-877-510-2397 domestically and 1-763-416-6924 internationally, and use Access Code: 13318082.

To hear a replay of the call, which will be available from November 1, 2011 at 5:00 PM ET to November 4, 2011 at 11:59 PM ET, dial 1-855-859-2056 domestically and 1-404-537-3406 internationally, and use Access Code: 13318082. 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, 2011, the Company owned or held a direct or indirect ownership interest in 199 apartment communities containing 57,426 apartment homes in ten states and the District of Columbia, of which 15 communities were under construction and eight 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 John Christie, Senior Director of Investor Relations, 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,” “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 and credit 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, 2010 under the headings “Risk Factors” and “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 2011 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.